9.	FAIR VALUE MEASUREMENTS

The Company follows the accounting standards for fair value, whereas fair value is a market-based measurement, not an entity-specific measurement. The Company’s fair value measurements are based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

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Level 1—observable inputs, such as quoted prices in active markets

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Level 2—observable inputs other than those included in Level 1—such as quoted prices for similar assets and liabilities in active or inactive markets that are observable either directly or indirectly, or other inputs that are observable or can be corroborated by observable market data

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Level 3—unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions

Any transfers of assets or liabilities between Level 1, Level 2, and Level 3 of the fair value hierarchy will be recognized at the end of the reporting period in which the transfer occurs. There were no transfers between fair value levels in any of the periods presented below.

The Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows (in thousands):

	September 30, 2017
	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	44,000	$	—	$	—	$	44,000
Interest rate swaps			$	6,771		—		6,771
	$	44,000	$	6,771	$	—	$	50,771
Liabilities
Interest rate swaps	$	—	$	2,769	$	—	$	2,769
Contingent consideration payable for business acquisitions		—		—	$	1,000		1,000
	$	—	$	2,769	$	1,000	$	3,769

	December 31, 2016
	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	31,600	$	—	$	—	$	31,600
Liabilities
Contingent consideration payable for business acquisitions	$	—	$	—	$	9,775	$	9,775

There were no significant assets or liabilities on the Company's Consolidated Balance Sheets measured at fair value on a nonrecurring basis.

Recurring Fair Value Measurements

Money Market Funds

Money market funds include highly liquid investments with a maturity of three or fewer months. They are valued using quoted market prices in active markets and are classified under Level 1 within the fair value hierarchy.

Derivative Financial Instruments

The Company uses interest rate swaps, designated as cash flow hedges, to manage its exposure to interest rate movements on its variable-rate Amended and Restated 2016 Term Loan (as defined in Note 10, Debt).

On August 1, 2017, USF entered into four-year interest rate swap agreements with a notional amount of $1.1 billion, reducing to $825 million in the fourth year, effectively converting approximately half of the Amended and Restated 2016 Term Loan from a variable to a fixed rate loan. The Company effectively pays an aggregate rate of 4.47% on the notional amount covered by the interest rate swaps, comprised of 1.72% plus a spread of 2.75%.

The Company records its interest rate swaps in the Consolidated Balance Sheet at fair value, based on projections of cash flows and future interest rates. The determination of fair value includes the consideration of any credit valuation adjustments necessary, giving consideration to the creditworthiness of the respective counterparties or the Company, as appropriate. The following table presents the balance sheet location and fair value of the interest rate swaps at September 30, 2017 (in thousands):

Balance at September 30, 2017	Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Interest rate swaps	Other noncurrent assets	$	6,771
Interest rate swaps	Other current liabilities	$	(2,769	)

The effective portion of gains and losses on the interest rate swaps are initially recorded in Other comprehensive loss and reclassified to interest expense during the period in which the hedged transaction affects income. There was no ineffectiveness attributable to the Company’s interest rate swaps during the 13-weeks and 39-weeks ended September 30, 2017. The following table presents the effect of the Company’s interest rate swaps in the Consolidated Statement of Comprehensive Income for the 13-weeks and 39-weeks ended September 30, 2017 (in thousands):

Derivatives in Cash Flow Hedging Relationships	Amount of Gain Recognized in Other Comprehensive Loss, net of tax		Location of Amounts Reclassified from Accumulated Other Comprehensive Loss	Amount of Loss Reclassified from Accumulated Other Comprehensive Loss to Income, net of tax
For the 13-weeks ended September 30, 2017
Interest rate swaps	$	1,888	Interest expense─net	$	557
For the 39-weeks ended September 30, 2017
Interest rate swaps	$	1,888	Interest expense─net	$	557

During the next twelve months, the Company estimates that $3 million will be reclassified from Accumulated other comprehensive loss to income.

Credit Risk-Related Contingent Features−The interest swap agreements contain a provision whereby the Company could be declared in default on its hedging obligations if more than $75 million of the Company’s other indebtedness is accelerated. We review counterparty credit risk and currently are not aware of any facts that indicate our counterparties will not be able to comply with the contractual terms of their agreements.

Contingent Consideration Payable for Business Acquisitions

As discussed in Note 3, Business Acquisitions, contingent consideration may be paid under an earnout agreement for a 2016 business acquisition, primarily in the event certain operating results are achieved, over a two-year period from the respective date of such acquisition. The amounts included in the above table, classified under Level 3 within the fair value hierarchy, represent the estimated fair value of the earnout liability for the respective periods. We estimate the fair value of earnout liabilities based on financial projections of the acquired companies and estimated probability of achievement. Changes in fair value resulting from changes in the estimated amount of contingent consideration are included in Distribution, selling and administrative costs in the Consolidated Statements of Comprehensive Income.

Other Fair Value Measurements

The carrying value of cash, restricted cash, Accounts receivable, Bank checks outstanding, Accounts payable and accrued expenses approximate their fair values due to their short-term maturities.

The fair value of the Company’s total debt approximated $3.8 billion as of September 30, 2017 and December 31, 2016, as compared to its carrying value of $3.7 billion and $3.8 billion as of September 30, 2017 and December 31, 2016, respectively. The September 30, 2017 and December 31, 2016 fair value of the Company’s 5.875% unsecured Senior Notes due June 15, 2024 (the “2016 Senior Notes”), estimated at $0.6 billion, at the end of each period, was classified under Level 2 of the fair value hierarchy, with fair value based upon the closing market price at the end of the reporting period. The fair value of the balance of the Company’s debt is primarily classified under Level 3 of the fair value hierarchy, with fair value estimated based upon a combination of the cash outflows expected under these debt facilities, interest rates that are currently available to the Company for debt with similar terms, and estimates of the Company’s overall credit risk.