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Fair Value Measurements
 9 Months Ended
Sep. 30, 2013
Fair Value Disclosures [Abstract]  
Fair Value Measurements
8. Fair Value Measurements

The following table summarizes CBIZ’s assets and liabilities at September 30, 2013 and December 31, 2012 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    September 30,
2013		     December 31,
2012		  

Deferred compensation plan assets

    1    $ 47,922      $ 39,779   

Corporate bonds

    1    $ 30,126      $ 29,776   

Interest rate swap

    2    $ (539 )    $ (817 ) 

Contingent purchase price liabilities

    3    $ (30,861 )    $ (30,012 ) 

During the nine months ended September 30, 2013 and 2012, there were no transfers between the valuation hierarchy Levels 1, 2 and 3. The following table summarizes the change in Level 3 fair values of the Company’s contingent purchase price liabilities for the nine months ended September 30, 2013 and 2012 (pre-tax basis) (in thousands):

 

     2013     2012  

Beginning balance – January 1

    $ (30,012 )    $ (25,325 ) 

Additions from business acquisitions

      (4,566 )      (6,812 ) 

Payment of contingent purchase price liabilities

      4,893        4,924   

Change in fair value of contingencies

      (1,090 )      402   

Change in net present value of contingencies

      (86 )      (143 ) 
  

 

 

    

 

 

  

Ending balance – September 30

    $ (30,861 )    $ (26,954 ) 
  

 

 

    

 

 

  

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 a 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 “Contingent purchase price liability” in the current and non-current sections of the consolidated balance sheets, 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 September 30, 2013 and December 31, 2012 (in thousands):

 

     September 30, 2013      December 31, 2012  
     Carrying
Value		      Fair
Value		      Carrying
Value		      Fair
Value		  

2006 Convertible Notes

    $ 750       $ 750       $ 750       $ 750   

2010 Convertible Notes

    $ 123,770       $ 152,422       $ 121,666       $ 135,181   

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 2006 Notes and the 2010 Notes are carried at face value less any unamortized debt discount. See Note 5 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.