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Fair Value Measurements
 12 Months Ended
Dec. 31, 2013
Fair Value Disclosures [Abstract]  
Fair Value Measurements

6. 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 December 31, 2013 and 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      December 31,
2013		     December 31,
2012		  

Deferred compensation plan assets

      1       $ 51,953      $ 39,779   

Corporate and municipal bonds

      1       $ 30,011      $ 29,776   

Interest rate swap

      2       $ (452 )    $ (817 ) 

Contingent purchase price liabilities

      3       $ (25,196 )    $ (30,012 ) 

For the years ended December 31, 2013 and 2012, there were no transfers between the valuation hierarchy Levels 1, 2 and 3. The following table summarizes the change in fair value of the Company’s contingent purchase price liabilities identified as Level 3 for the years ended December 31, 2013 and 2012 (pre-tax basis, in thousands):

 

     Contingent
Purchase
Price Liabilities		  

Beginning balance — January 1, 2012

    $ (25,325 ) 

Additions from business acquisitions

      (17,611 ) 

Payment of contingent purchase price payable

      11,970   

Change in fair value of contingency

      1,135   

Change in net present value of contingency

      (181 ) 
  

 

 

  

Balance — December 31, 2012

    $ (30,012 ) 
  

 

 

  

Additions from business acquisitions

      (5,487 ) 

Payment of contingent purchase price payable

      11,511   

Change in fair value of contingency

      (1,102 ) 

Change in net present value of contingency

      (106 ) 
  

 

 

  

Balance — December 31, 2013

    $ (25,196 ) 
  

 

 

  

Contingent Purchase Price Liabilities — Contingent purchase price liabilities result 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 term of three to six years. 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. See Note 19 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 December 31, 2013 and 2012 (in thousands):

 

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

2006 Notes

    $ 750       $ 750       $ 750       $ 750   

2010 Notes

    $ 124,506       $ 173,779       $ 121,666       $ 135,181   

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 2010 Notes are carried at face value less any unamortized debt discount. See Note 8 for further discussion of CBIZ’s debt instruments.