v2.4.0.6
Fair Value Measurements
 3 Months Ended
Mar. 31, 2012
Fair Value Measurements [Abstract]  
Fair Value Measurements
8. Fair Value Measurements

The valuation hierarchy under GAAP categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:

 

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Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

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Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

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Level 3 – inputs to the valuation methodology are unobservable and are significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The following table summarizes CBIZ’s assets and liabilities at March 31, 2012 and December 31, 2011 that are measured at fair value on a recurring basis subsequent to initial recognition, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

 

                     
    Level   March 31,
2012		     December 31,
2011		  

Deferred compensation plan assets

   1   $ 37,735     $ 33,585  

Corporate bonds

   1   $ 30,923     $ 30,923  

Interest rate swaps

   2   $ (738 )    $ (670 ) 

Contingent purchase price liabilities

   3   $ (24,516 )    $ (25,325 ) 

 

During the three months ended March 31, 2012, there were no transfers between the valuation hierarchy Levels 1, 2 or 3. The following table summarizes the change in fair values of the Company’s assets and liabilities identified as Level 3 for the three months ended March 31, 2012 (pre-tax basis) (in thousands):

 

         
    Contingent
Purchase Price
Liabilities		  

Beginning balance – January 1, 2012

   $ (25,325 ) 

Additions from business acquisitions

     (1,088 ) 

Payment of contingent purchase price liability

     1,692  

Change in fair value of contingency

     259  

Change in net present value of contingency

     (54 ) 
   

 

 

  

Ending balance – March 31, 2012

   $ (24,516 ) 
   

 

 

  

Contingent Purchase Price Liabilities—Contingent purchase price liabilities arise from business acquisitions and are classified as Level 3 due to the utilization of a probability weighted discounted cash flow approach to determine the fair value of the contingency. A contingent liability is established for each acquisition that has a contingent purchase price component and normally extends over a three year term. The significant unobservable input used in the fair value measurement of the contingent purchase price liabilities is the future performance of the acquired business. The future performance of the acquired business directly impacts the contingent purchase price that is paid to the seller, thus performance that exceeds target could result in a higher payout, and a performance under target could result in lower payout. Changes in the expected amount of potential payouts are recorded as adjustments to the initial contingent purchase price liability, with the same amount being recorded in the consolidated statements of comprehensive income. These liabilities are reviewed quarterly and adjusted if necessary. The risk of a large adjustment in any one reporting period is mitigated by the regular reviews of the performance of the acquired businesses and their respective contingent purchase price liability. The contingent purchase price liabilities are included in “Other current liabilities” and “Accrued expenses – non-current”, depending on the expected settlement date. See Note 12 for further discussion of contingent purchase price liabilities.

The following table presents financial instruments that are not carried at fair value but which require fair value disclosure as of March 31, 2012 and December 31, 2011 (in thousands):

 

                                 
    March 31, 2012     December 31, 2011  
     Carrying
Value		     Fair
Value		     Carrying
Value		     Fair
Value		  

2006 Convertible Notes

   $ 750     $ 750     $ 750     $ 750  

2010 Convertible Notes

   $ 119,664     $ 140,979     $ 119,028     $ 141,690  

Although the trading of CBIZ’s 2006 Notes and 2010 Notes is limited, the fair value was determined based upon their most recent quoted market price and as such, is considered to be a Level 1 fair value measurement. The Notes are carried at face value less any unamortized debt discount. See Note 6 for further discussion of CBIZ’s debt instruments.

In addition, the carrying amounts of CBIZ’s cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments, and the carrying value of bank debt approximates fair value as the interest rate on the bank debt is variable and approximates current market rates. As a result, the fair value measurement of CBIZ’s bank debt is considered to be Level 2.