Fair Value Measurements

12 Months Ended

Dec. 31, 2012

Fair Value Measurements [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:

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

• 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.

• 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, 2012 and 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		December 31, 2012			December 31, 2011
Deferred compensation plan assets		1	$	39,779		$	33,585
Corporate and municipal bonds		1	$	29,776		$	30,923
Interest rate swaps		2	$	(817	)	$	(670	)
Contingent purchase price liabilities		3	$	(30,012	)	$	(25,325	)

For the years ended December 31, 2012 and 2011, there were no transfers between the valuation hierarchy Levels 1, 2 and 3. The following table summarizes the change in fair values of the Company’s assets and liabilities identified as Level 3 for the years ended December 31, 2012 and 2011 (pre-tax basis, in thousands):

	Auction Rate Securities			Contingent Purchase Price Liabilities
Beginning balance — January 1, 2011	$	10,216		$	(17,265	)
Additions from business acquisitions		—			(13,404	)
Sales of auctions rate securities		(10,980	)		—
Payment of contingent purchase price payable		—			2,051
Unrealized gains included in accumulated other comprehensive loss		664			—
Change in fair value of contingency		—			3,479
Change in net present value of contingency		—			(186	)
Increase in expected cash flows of OTTI investment		100			—
Balance — December 31, 2011	$	—		$	(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	)

Auction Rate Securities — During the year ended December 31, 2011, CBIZ sold all of its investments in ARS and as a result, realized a gain of approximately $0.1 million in “Other income, net” and reversed prior period unrealized losses of $0.7 million. Prior to the sale of the remaining ARS, CBIZ classified its investments in ARS as Level 3 due to the lack of quoted prices from broker-dealers and the inactive markets for ARS. Accordingly, a fair value assessment of these securities was performed on each security based on a discounted cash flow model utilizing various assumptions that included maximum interest rates for each issue, probabilities of successful auctions, failed auctions or default, the timing of cash flows, the quality and level of collateral of the securities, and the rate of recovery from bond insurers in the event of default.

The following table provides a rollforward of the pre-tax credit losses recognized in earnings related to this ARS for the twelve months ended December 31, 2011 (in thousands):

	Accumulated Credit Losses
Balance at January 1, 2011	$	2,132
Additions related to OTTI losses not previously recognized		—
Reductions due to sales		—
Reductions due to sales of OTTI investment		(2,256	)
Additions due to increases in previously recognized OTTI losses		124
Reductions due to increases in expected cash flows		—
Balance at December 31, 2011	$	—

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, 2012 and 2011 (in thousands):

	December 31, 2012				December 31, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
2006 Notes	$	750	$	750	$	750	$	750
2010 Notes	$	121,666	$	135,181	$	119,028	$	141,690

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.