Fair Value Measurements

12 Months Ended

Dec. 31, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 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. Our 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 our assets and liabilities at December 31, 2016 and 2015 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 us to determine such fair value (in thousands):

	Level		December 31, 2016			December 31, 2015
Deferred compensation plan assets		1	$	69,912		$	64,245
Corporate and municipal bonds		1	$	44,573		$	43,142
Interest rate swap		2	$	529		$	240
Contingent purchase price liabilities		3	$	(33,709	)	$	(24,817	)

For the years ended December 31, 2016 and 2015, there were no transfers between the valuation hierarchy Levels 1, 2 and 3. The following table summarizes the change in fair value of our contingent purchase price liabilities identified as Level 3 for the years ended December 31, 2016 and 2015 (pre-tax basis, in thousands):

	Contingent Purchase Price Liabilities
Beginning balance — January 1, 2015	$	(33,368	)
Additions from business acquisitions		(8,522	)
Payment of contingent purchase price payable		14,364
Change in fair value of contingency		2,854
Change in net present value of contingency		(145	)
Balance — December 31, 2015	$	(24,817	)
Additions from business acquisitions		(21,088	)
Settlement of contingent purchase price payable		11,202
Change in fair value of contingency		1,342
Change in net present value of contingency		(348	)
Balance — December 31, 2016	$	(33,709	)

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 two 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. Refer to Note 18, Acquisitions, for further discussion of contingent purchase price liabilities.

The carrying amounts of our 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 our bank debt is considered to be Level 2.