UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-32961

CBIZ, INC.

(Exact name of registrant as specified in its charter)

Delaware		22-2769024
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
6050 Oak Tree Boulevard, South, Suite 500, Cleveland, Ohio		44131
(Address of principal executive offices)		(Zip Code)

216-447-9000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

     Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class of Common Stock		Outstanding at July 31, 2010
Common Stock, par value $0.01 per share		61,701,191

 

 

CBIZ, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION:		Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets – June 30, 2010 and December 31, 2009			3
Consolidated Statements of Operations – Three and Six Months Ended June 30, 2010 and 2009			4
Consolidated Statements of Cash Flows – Six Months Ended June 30, 2010 and 2009			5
Notes to the Consolidated Financial Statements			6-24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25-45
Item 3. Quantitative and Qualitative Disclosures about Market Risk			45
Item 4. Controls and Procedures			46
PART II. OTHER INFORMATION :
Item 1. Legal Proceedings			47
Item 1A. Risk Factors			47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 6. Exhibits			48
Signature			49
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I – FINANCIAL INFORMATION

Item 1.		Financial Statements

CBIZ, INC. AND SUBSIDIARIES

		JUNE 30,				DECEMBER 31,
		2010				2009
ASSETS
Current assets:
Cash and cash equivalents		$	408			$	9,257
Restricted cash			12,512				15,432
Accounts receivable, net			156,160				128,766
Notes receivable – current, net			1,042				1,766
Income taxes refundable			—				3,391
Deferred income taxes – current			9,399				7,579
Other current assets			10,114				10,701
Assets of discontinued operations			749				4,109
Current assets before funds held for clients			190,384				181,001
Funds held for clients – current			60,386				87,925
Total current assets			250,770				268,926
Property and equipment, net			25,937				26,833
Notes receivable – non-current, net			902				1,041
Deferred income taxes – non-current, net			—				237
Goodwill and other intangible assets, net			393,045				375,211
Assets of deferred compensation plan			27,292				27,457
Funds held for clients – non-current			11,990				10,545
Other assets			4,388				2,847
Total assets		$	714,324			$	713,097
LIABILITIES
Current liabilities:
Accounts payable		$	29,017			$	25,707
Income taxes payable – current			2,282				—
Accrued personnel costs			34,183				34,249
Notes payable – current			280				13,410
Convertible notes, net			95,946				—
Other current liabilities			19,191				13,883
Liabilities of discontinued operations			546				2,281
Current liabilities before client fund obligations			181,445				89,530
Client fund obligations			74,478				101,279
Total current liabilities			255,923				190,809
Convertible notes, net			—				93,848
Bank debt			115,000				110,000
Income taxes payable – non-current			5,332				6,686
Deferred income taxes – non-current, net			933				—
Deferred compensation plan obligations			27,292				27,457
Other non-current liabilities			19,355				13,679
Total liabilities			423,835				442,479
STOCKHOLDERS’ EQUITY
Common stock			1,090				1,081
Additional paid-in capital			524,257				518,637
Retained earnings			42,871				21,464
Treasury stock			(277,243	)			(269,642	)
Accumulated other comprehensive loss			(486	)			(922	)
Total stockholders’ equity			290,489				270,618
Total liabilities and stockholders’ equity		$	714,324			$	713,097

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

		THREE MONTHS ENDED								SIX MONTHS ENDED
		JUNE 30,								JUNE 30,
		2010				2009				2010				2009
Revenue		$	180,840			$	185,170			$	391,075			$	401,648
Operating expenses			159,177				165,428				331,468				339,415
Gross margin			21,663				19,742				59,607				62,233
Corporate general and administrative expense			6,638				7,674				15,622				15,383
Operating income			15,025				12,068				43,985				46,850
Other income (expense):
Interest expense			(3,411	)			(3,522	)			(6,579	)			(7,025	)
Gain on sale of operations, net			2				14				376				94
Other (expense) income, net			(2,047	)			2,896				126				2,305
Total other expense, net			(5,456	)			(612	)			(6,077	)			(4,626	)
Income from continuing operations before income tax expense			9,569				11,456				37,908				42,224
Income tax expense			2,655				4,597				14,130				16,962
Income from continuing operations after income tax expense			6,914				6,859				23,778				25,262
Loss from discontinued operations, net of tax			(896	)			(207	)			(1,340	)			(436	)
(Loss) gain on disposal of discontinued operations, net of tax			(596	)			144				(1,032	)			151
Net income		$	5,422			$	6,796			$	21,406			$	24,977
Earnings (loss) per share:
Basic:
Continuing operations		$	0.11			$	0.11			$	0.39			$	0.41
Discontinued operations			(0.02	)			—				(0.04	)			—
Net income		$	0.09			$	0.11			$	0.35			$	0.41
Diluted:
Continuing operations		$	0.11			$	0.11			$	0.38			$	0.41
Discontinued operations			(0.02	)			—				(0.03	)			(0.01	)
Net income		$	0.09			$	0.11			$	0.35			$	0.40
Basic weighted average shares outstanding			61,448				61,436				61,479				61,366
Diluted weighted average shares outstanding			61,837				61,870				61,972				61,891

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)

		SIX MONTHS ENDED
		JUNE 30,
		2010				2009
Cash flows from operating activities:
Net income		$	21,406			$	24,977
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations, net of tax			1,340				436
Loss (gain) on disposal of discontinued operations, net of tax			1,032				(151	)
Gain on sale of operations, net			(376	)			(94	)
Amortization of discount on convertible notes			2,098				1,942
Bad debt expense, net of recoveries			2,082				4,223
Depreciation and amortization expense			10,213				10,067
Adjustment to contingent earnout liability			(721	)			—
Deferred income taxes			(961	)			241
Employee stock awards			2,570				2,180
Excess tax benefits from share based payment arrangements			(65	)			(306	)
Changes in assets and liabilities, net of acquisitions and divestitures:
Restricted cash			2,920				3,372
Accounts receivable, net			(29,856	)			(26,306	)
Other assets			2,430				(138	)
Accounts payable			3,184				232
Income taxes payable			5,234				7,680
Accrued personnel costs			(170	)			(7,104	)
Other liabilities and other			3,258				(362	)
Net cash provided by continuing operations			25,618				20,889
Operating cash flows (used in) provided by discontinued operations			(1,735	)			421
Net cash provided by operating activities			23,883				21,310
Cash flows from investing activities:
Business acquisitions and contingent consideration, net of cash acquired			(28,986	)			(4,370	)
Acquisition of other intangible assets			(5	)			(9	)
Proceeds from sales of divested and discontinued operations			1,058				348
Additions to property and equipment, net			(1,401	)			(2,490	)
Additions to notes receivable			(129	)			—
Payments received on notes receivable			147				729
Investing cash flows used in discontinued operations			—				(30	)
Net cash used in investing activities			(29,316	)			(5,822	)
Cash flows from financing activities:
Proceeds from bank debt			261,025				225,775
Payment of bank debt			(256,025	)			(234,475	)
Payment of notes payable and capitalized leases			(83	)			(160	)
Payment for acquisition of treasury stock			(7,602	)			(7,112	)
Proceeds from exercise of stock options			1,144				666
Excess tax benefit from exercise of stock awards			65				306
Debt issuance costs			(1,940	)			(36	)
Net cash used in financing activities			(3,416	)			(15,036	)
Net (decrease) increase in cash and cash equivalents			(8,849	)			452
Cash and cash equivalents at beginning of year			9,257				9,672
Cash and cash equivalents at end of period		$	408			$	10,124

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

1. Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements.

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting solely of normal recurring adjustments) considered necessary to present fairly the financial position of CBIZ, Inc. and its consolidated subsidiaries (“CBIZ” or the “Company”) as of June 30, 2010 and December 31, 2009, the consolidated results of their operations for the three and six months ended June 30, 2010 and 2009, and the cash flows for the six months ended June 30, 2010 and 2009. Due to seasonality, potential changes in economic conditions, interest rate fluctuations and other factors, the results of operations for such interim periods are not necessarily indicative of the results for the full year. For further information, refer to the consolidated financial statements and notes thereto included in CBIZ’s Annual Report on Form 10-K for the year ended December 31, 2009.

Principles of Consolidation

The accompanying consolidated financial statements reflect the operations of CBIZ and all of its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying consolidated financial statements do not reflect the operations or accounts of variable interest entities as the impact is not material to the financial condition, results of operations or cash flows of CBIZ. See CBIZ’s Annual Report on Form 10-K for the year ended December 31, 2009 for further discussion.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect: the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Management’s estimates and assumptions include, but are not limited to: estimates of collectability of accounts receivable and unbilled revenue, the realizability of goodwill and other intangible assets, the fair value of certain assets, the valuation of stock options in determining compensation expense, estimate of accrued liabilities (such as incentive compensation, self-funded health insurance accruals, legal reserves, future contingent purchase price obligations, and consolidation and integration reserves), the provision for income taxes, the realizability of deferred tax assets, and other factors. Management’s estimates and assumptions are derived from and are continually evaluated based upon available information, judgment and experience. Actual results could differ from those estimates.

Reclassifications

Certain amounts in the 2009 consolidated financial statements and disclosures have been reclassified to conform to the current year presentation.

Revenue Recognition and Valuation of Unbilled Revenues

Revenue is recognized only when all of the following are present: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee to the client is fixed or determinable, and collectability is reasonably assured.

CBIZ offers a vast array of products and business services to its clients. Those services are delivered through four practice groups. A description of revenue recognition, as it related to those groups, is included in the Annual Report on Form 10-K for the year ended December 31, 2009.

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

New Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”), which adds disclosure requirements about transfers in and out of Levels 1 and 2, for activity relating to Level 3 measurements, and clarifies input and valuation techniques. ASU 2010-06 is effective for the first reporting period beginning after December 15, 2009, except as it pertains to the requirement to provide the Level 3 activity for purchases, sales, issuances and settlements on a gross basis. This Level 3 requirement will be effective for fiscal years beginning after December 15, 2010. CBIZ adopted the applicable provisions of the accounting guidance for the interim reporting period ended March 31, 2010. The adoption did not have a material impact on CBIZ’s consolidated financial statements.

In December 2009, the FASB issued ASU 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” (“ASU 2009-17”). ASU 2009-17 clarifies and improves financial reporting by entities involved with variable interest entities. ASU 2009-17 is effective as of the beginning of the annual period beginning after November 15, 2009. CBIZ adopted the provisions of this accounting guidance for the interim period ended March 31, 2010. The adoption did not have a material impact on CBIZ’s consolidated financial statements.

2. Accounts Receivable, Net

Accounts receivable balances at June 30, 2010 and December 31, 2009 were as follows (in thousands):

		2010				2009
Trade accounts receivable		$	123,938			$	109,665
Unbilled revenue			41,515				27,611
Total accounts receivable			165,453				137,276
Allowance for doubtful accounts			(9,293	)			(8,510	)
Accounts receivable, net		$	156,160			$	128,766

3. Goodwill and Other Intangible Assets, Net

The components of goodwill and other intangible assets, net at June 30, 2010 and December 31, 2009 were as follows (in thousands):

		2010				2009
Goodwill		$	309,911			$	291,120
Intangible assets:
Client lists			111,693				108,615
Other intangible assets			9,158				9,394
Total intangible assets			120,851				118,009
Total goodwill and intangibles assets			430,762				409,129
Accumulated amortization:
Client lists			(33,470	)			(29,918	)
Other intangible assets			(4,247	)			(4,000	)
Total accumulated amortization			(37,717	)			(33,918	)
Goodwill and other intangible assets, net		$	393,045			$	375,211

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

4. Depreciation and Amortization

Depreciation and amortization expense for property and equipment and intangible assets for the three and six months ended June 30, 2010 and 2009 was as follows (in thousands):

		THREE MONTHS ENDED								SIX MONTHS ENDED
		JUNE 30,								JUNE 30,
		2010				2009				2010				2009
Operating expenses		$	4,981			$	4,841			$	9,997			$	9,701
Corporate general and administrative expenses			107				182				216				366
Total depreciation and amortization expense		$	5,088			$	5,023			$	10,213			$	10,067

5. Borrowing Arrangements

Convertible Senior Subordinated Notes

On May 30, 2006, CBIZ sold and issued $100.0 million in Convertible Senior Subordinated Notes (“Notes”). The Notes are direct, unsecured, senior subordinated obligations of CBIZ and rank (i) junior in right of payment to all of CBIZ’s existing and future senior indebtedness, (ii) equal in right of payment with any other future senior subordinated indebtedness, and (iii) senior in right of payment to all subordinated indebtedness. The terms of the Notes are governed by the Indenture dated as of May 30, 2006, with U.S. Bank National Association as trustee. The Notes and Indenture are further described in CBIZ’s Annual Report on Form 10-K for the year ended December 31, 2009.

The Notes bear interest at a rate of 3.125% per annum, payable in cash semi-annually in arrears on each June 1 and December 1. The Notes mature on June 1, 2026 and may be redeemed by CBIZ in whole or in part anytime after June 6, 2011. In addition, holders of the Notes will have the right to require CBIZ to repurchase for cash all or a portion of their Notes on June 1, 2011. The Notes are convertible into CBIZ common stock at a rate equal to 94.1035 shares per $1,000 principal amount of the Notes (equal to an initial conversion price of approximately $10.63 per share), subject to adjustment as described in the Indenture. Upon conversion, CBIZ will deliver for each $1,000 principal amount of Notes, an amount consisting of cash equal to the lesser of $1,000 or the conversion value (as defined in the Indenture) and, to the extent that the conversion value exceeds $1,000, at CBIZ’s election, cash or shares of CBIZ common stock in respect of the remainder. At June 30, 2010, the Notes have been classified as a current liability based on the provision in the indenture that gives the holders of the Notes the right to require CBIZ to repurchase the Notes on June 1, 2011.

CBIZ separately accounts for the debt and equity components of the Notes. The carrying amount of the debt and equity components at June 30, 2010 and December 31, 2009 were as follows (in thousands):

		2010				2009
Principal amount of notes		$	100,000			$	100,000
Unamortized discount			(4,054	)			(6,152	)
Net carrying amount		$	95,946			$	93,848
Additional paid-in-capital		$	11,425			$	11,425

The discount on the liability component of the Notes is being amortized using the effective interest method based upon an annual effective rate of 7.8%, which represents the market rate at initial measurement for similar debt without a conversion option at the issuance date. The discount is being amortized over five years from the date of issuance, which coincides with the first date that holders can require CBIZ to

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

repurchase the Notes. At June 30, 2010, the unamortized discount had a remaining amortization period of approximately 11 months.

During the three and six months ended June 30, 2010 and 2009, CBIZ recognized interest expense on the Notes as follows (in thousands):

		THREE MONTHS ENDED								SIX MONTHS ENDED
		JUNE 30,								JUNE 30,
		2010				2009				2010				2009
Contractual coupon interest		$	781			$	781			$	1,562			$	1,562
Amortization of discount			1,056				978				2,098				1,942
Total interest expense		$	1,837			$	1,759			$	3,660			$	3,504

Bank Debt

Effective June 4, 2010, CBIZ entered into a new credit agreement with Bank of America as agent for a group of seven participating banks. Under this new agreement, CBIZ maintains a $275 million unsecured credit facility (“credit facility”), which replaces the prior $214 million credit agreement. The credit facility has a letter of credit sub-facility and matures in June 2014. CBIZ had $115.0 million and $110.0 million of outstanding borrowings under its credit facility at June 30, 2010 and December 31, 2009, respectively. Rates for the six months ended June 30, 2010 and 2009 were as follows:

		2010				2009
Weighted average rates			3.24	%			4.06	%
Range of effective rates			2.71% - 6.40	%			2.78% - 6.40	%

CBIZ had approximately $113.5 million of available funds under the credit facility at June 30, 2010. Available funds under the credit facility are based on a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”) as defined in the credit facility, and are reduced by letters of credit and outstanding borrowings on the credit facility.

The credit facility provides CBIZ operating flexibility and funding to support seasonal working capital needs and other strategic initiatives such as acquisitions and share repurchases, as well as providing a financing structure that will enable greater flexibility as the Company proceeds with refinancing its $100 million Subordinated Convertible Notes that are callable and putable in June 2011. Under the credit facility, loans are charged an interest rate consisting of a base rate or Eurodollar rate plus an applicable margin, letters of credit are charged based on the same applicable margin, and a commitment fee is charged on the unused portion of the credit facility.

The credit facility is subject to certain financial covenants that may limit CBIZ’s ability to borrow up to the total commitment amount. Covenants require CBIZ to meet certain requirements with respect to (i) minimum net worth; (ii) maximum leverage ratio; and (iii) a minimum fixed charge coverage ratio. The credit facility also places restrictions on CBIZ’s ability to create liens or other encumbrances, to make certain payments, investments, loans and guarantees and to sell or otherwise dispose of a substantial portion of assets, or to merge or consolidate with an unaffiliated entity. According to the terms of the credit facility, CBIZ is not permitted to declare or make any dividend payments, other than dividend payments made by one of its wholly owned subsidiaries to the parent company. The credit facility contains a provision that, in the event of a defined change in control, the credit facility may be terminated.

There are no limitations on CBIZ’s ability to acquire businesses provided that the Leverage Ratio is less than 2.75. The Leverage Ratio is calculated as total debt (excluding the senior subordinated notes) compared to EBITDA as defined by the credit facility. As of June 30, 2010, the Leverage Ratio was 1.57.

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

6. Commitments and Contingencies

Acquisitions

The purchase price that CBIZ pays for businesses and client lists has historically consisted of two components: an up-front, non-contingent portion, and a portion which is contingent upon the acquired businesses or client lists’ actual future performance. For acquisitions completed prior to January 1, 2009, the portion of purchase price contingent on future performance is recorded when earned. For acquisitions completed January 1, 2009 and after, the fair value of the contingent purchase price is recorded at the date of acquisition and remeasured each reporting period until the liability is settled. Shares of CBIZ common stock that are issued in connection with acquisitions may be contractually restricted from sale for periods up to two years. Acquisitions are further discussed in Note 12.

Indemnifications

CBIZ has various agreements in which it may be obligated to indemnify the other party with respect to certain matters. Generally, these indemnification clauses are included in contracts arising in the normal course of business under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations, warranties, covenants or agreements, related to matters such as title to assets sold and certain tax matters. Payment by CBIZ under such indemnification clauses are generally conditioned upon the other party making a claim. Such claims are typically subject to challenge by CBIZ and to dispute resolution procedures specified in the particular contract. Further, CBIZ’s obligations under these agreements may be limited in terms of time and/or amount and, in some instances, CBIZ may have recourse against third parties for certain payments made by CBIZ. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of CBIZ’s obligations and the unique facts of each particular agreement. Historically, CBIZ has not made any payments under these agreements that have been material individually or in the aggregate. As of June 30, 2010, CBIZ was not aware of any material obligations arising under indemnification agreements that would require payment.

Employment Agreements

CBIZ maintains severance and employment agreements with certain of its executive officers, whereby such officers may be entitled to payment in the event of termination of their employment. CBIZ also has arrangements with certain non-executive employees which may include severance and other employment provisions. CBIZ accrues for amounts payable under these contracts and arrangements as triggering events occur and obligations become known. During the three and six months ended June 30, 2010 and 2009, payments regarding such contracts and arrangements were not material.

Letters of Credit and Guarantees

CBIZ provides letters of credit to lessors (landlords) of certain leased premises in lieu of cash security deposits which totaled $3.0 million and $3.5 million as of June 30, 2010 and December 31, 2009, respectively. In addition, CBIZ provides license bonds to various state agencies to meet certain licensing requirements. The amount of license bonds outstanding at June 30, 2010 and December 31, 2009 was $1.4 million and $1.5 million, respectively.

CBIZ acted as guarantor on various letters of credit for a CPA firm with which it has an affiliation, which totaled $3.4 million and $2.6 million as of June 30, 2010 and December 31, 2009, respectively. CBIZ has recognized a liability for the fair value of the obligations undertaken in issuing these guarantees, which is recorded in other current liabilities in the accompanying consolidated balance sheets. Management does not expect any material changes to result from these instruments as performance under the guarantees is not expected to be required.

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Self-Funded Health Insurance

CBIZ maintains a self-funded health benefit plan. Total expenses under this program are limited by stop-loss coverages on individually large claims. A third party administrator processes claims and payments, but does not assume liability for benefits payable under this plan. CBIZ assumes responsibility for funding the plan benefits out of general assets, however, employees contribute to the costs of covered benefits through premium charges, deductibles and co-pays.

The third party administrator provides the Company with reports and other information which provides a basis for the estimate of the liability at the end of each reporting period. Although management believes that it uses the best available information to determine the amount of the liability, unforeseen health claims could result in adjustments and higher costs incurred if circumstances differ from the assumptions used in estimating the liability. The liability for the self-funded health insurance plan is included in other current liabilities in the consolidated balance sheets and was $4.3 million and $3.5 million at June 30, 2010 and December 31, 2009, respectively. CBIZ’s net healthcare costs include health claims, administration fees to third-party administrators and premiums for stop-loss coverages.

Legal Proceedings

In May 2010, June 2010 and July 2010, the Company and its subsidiary, CBIZ MHM, LLC (fka CBIZ Accounting, Tax & Advisory Services, LLC) (“the CBIZ Parties”), were named as defendants in lawsuits filed in the United States District Court for Arizona (Robert Facciola, et al v. Greenberg Traurig LLP, et al.) and in the Superior Court for Maricopa County Arizona (Victims Recovery, LLC v. Greenberg Traurig LLP, et al. and Roger Eshkenazi, et al v. Greenberg Traurig LLP, et al.), respectively. The Facciola plaintiffs seek to proceed as a class action. Additionally, in November 2009, CBIZ MHM, LLC was named as a defendant in the United States District Court for Arizona (Jeffery C. Stone v. Greenberg Traurig LLP, et al.). These matters arise out of the bankruptcy proceedings related to Mortgages Ltd., a mortgage lender to developers in the Phoenix, Arizona area. Various other professional firms not related to the Company are also defendants in these three lawsuits. The discovery and motion phases of proceedings have commenced.

The plaintiffs, except for Stone, are all alleged to have directly or indirectly invested in real estate mortgages through Mortgages Ltd. The Facciola and Victims Recovery plaintiffs seek monetary damages equivalent to the amounts of their investments. The plaintiff in Stone seeks monies it allegedly lost based on the claim that Mortgages Ltd. did not fund development projects in which it was a contractor. The plaintiffs in these suits also seek pre- and post-judgment interest, punitive damages and attorneys’ fees.

Mortgages Ltd. had been audited by Mayer Hoffman McCann PC, a CPA firm which has an administrative services agreement with CBIZ. The claims against the CBIZ Parties seek to impose auditor-type liabilities upon the Company for audits it did not conduct. Specific claims include securities fraud, common law fraud, negligent misrepresentation, Arizona Investment Management Act violations, control-person liability, aiding and abetting and conspiracy. CBIZ is not a CPA firm, does not provide audits, and did not audit any of the entities at issue in these lawsuits.

The CBIZ Parties deny all allegations of wrongdoing made against them in these actions and are vigorously defending the proceedings. The Company has been advised by Mayer Hoffman McCann PC that it denies all allegations of wrongdoing made against it and that it intends to continue vigorously defending the matters. Although the proceedings are subject to uncertainties inherent in the litigation process and the ultimate disposition of these proceedings is not presently determinable, management believes that the allegations are without merit and that the ultimate resolution of these matters will not have a material adverse effect on the consolidated financial condition, results of operations or cash flows of CBIZ.

In addition to those items disclosed above, CBIZ is, from time to time, subject to claims and suits arising in the ordinary course of business. Although the ultimate disposition of such proceedings is not

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

presently determinable, management does not believe that the ultimate resolution of these matters will have a material adverse effect on the consolidated financial condition, results of operations or cash flows of CBIZ.

7. Financial Instruments

Concentrations of Credit Risk

Financial instruments that may subject CBIZ to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. CBIZ places its cash and cash equivalents with highly-rated financial institutions, limiting the amount of credit exposure with any one financial institution. CBIZ’s client base consists of large numbers of geographically diverse customers dispersed throughout the United States; thus, concentration of credit risk with respect to accounts receivable is not considered significant.

Corporate Bonds

CBIZ invests and holds corporate bonds with par values totaling $14.8 million at June 30, 2010. All bonds are investment grade and are classified as available-for-sale. Corporate bonds have maturity dates ranging from August 2010 through November 2036, and are included in “Funds held for clients — current” on the consolidated balance sheets as these investments are highly liquid and are expected to be held for less than one year. During the three and six months ended June 30, 2010, CBIZ purchased bonds with a par value totaling $9.6 million, sold a bond with a par value of $5.0 million and recorded a realized gain of $0.1 million resulting from the sale. In addition, CBIZ recorded an unrealized loss on these bonds of $100,000 and $14,000 during the three months ended June 30, 2010 and 2009, respectively, and an unrealized loss of $43,000 and $14,000 for the six months ended June 30, 2010 and 2009, respectively. These unrealized gains and losses were recorded as a component of other comprehensive loss.

Auction Rate Securities (“ARS”)

At June 30, 2010, CBIZ held three investments in ARS with par values totaling $13.4 million and fair values totaling $11.3 million. The difference between par value and fair value are currently considered to be temporary and changes in the fair value are recorded as unrealized gains or losses in accumulated other comprehensive loss (“AOCL”), net of tax benefit. See Note 8 for further discussion regarding the ARS and related fair values.

Due to the failed auctions and the uncertainty regarding the liquidity of these securities, CBIZ classifies its investments in auction rate securities as funds held for clients — non-current in the consolidated balance sheets. The maturity dates for these ARS investments range from October 2037 through February 2042. CBIZ does not anticipate that the current lack of liquidity of these investments will affect its ability to conduct business as the Company has sufficient liquidity in its client fund assets to fund client obligations.

Interest Rate Swaps

CBIZ uses interest rate swaps to manage interest rate risk exposure. CBIZ’s interest rate swaps effectively modify the Company’s exposure to interest rate risk, primarily through converting portions of floating rate debt under the credit facility, to a fixed rate basis. These agreements involve the receipt or payment of floating rate amounts in exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal amounts. CBIZ does not enter into derivative instruments for trading or speculative purposes.

Each of CBIZ’s interest rate swaps has been designated as a cash flow hedge. Accordingly, the interest rate swaps are recorded as either assets or liabilities in the consolidated balance sheets at fair value.

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

		Changes in fair value are recorded as a component of AOCL, net of tax, to the extent the swaps are effective. Amounts recorded to AOCL are reclassified to interest expense as interest on the underlying debt is recognized. Net amounts due related to the swaps are recorded as adjustments to interest expense when incurred or payable.
		At inception, the critical terms of the interest rate swaps matched the underlying risks being hedged, and as such the interest rate swaps are expected to be highly effective in offsetting fluctuations in the designated interest payments resulting from changes in the benchmark interest rate. The interest rate swaps are assessed for effectiveness and continued qualification for hedge accounting on a quarterly basis. If an interest rate swap were to be de-designated as a hedge it would be accounted for as a financial instrument used for trading and any changes in fair value would be recorded in the consolidated statements of operations.
		As a result of the use of derivative instruments, CBIZ is exposed to risk that the counterparties will fail to meet their contractual obligations. To mitigate the counterparty credit risk, CBIZ only enters into contracts with carefully selected major financial institutions based upon their credit ratings and other factors, and continually assesses the creditworthiness of counterparties. At June 30, 2010, all of the counterparties to CBIZ’s interest rate swaps had investment grade ratings. To date, all counterparties have performed in accordance with their contractual obligations. There are no credit risk-related contingent features in CBIZ’s interest rate swaps nor do the swaps contain provisions under which the Company has, or would be required, to post collateral.
		At June 30, 2010, each of the interest rate swaps was classified as a liability derivative. The following table summarizes CBIZ’s outstanding interest rate swaps and their effects on the consolidated balance sheets at June 30, 2010 and December 31, 2009 (in thousands).

		June 30, 2010
		Notional				Fair				Balance Sheet
		Amount				Value (3)				Location
Interest rate swaps (1)		$	20,000			$	110			Other current liabilities
Total interest rate swaps		$	20,000			$	110
		December 31, 2009
		Notional				Fair				Balance Sheet
		Amount				Value (3)				Location
Interest rate swap (1)		$	20,000			$	186			Other non-current liabilities
Interest rate swap (2)		$	10,000			$	4			Other current liabilities
Total interest rate swaps		$	30,000			$	190

(1)		Represents two interest rate swaps, each with a notional amount of $10.0 million and terms of two years expiring in January, 2011. Under the terms of the interest rate swaps, CBIZ pays interest at a fixed rate of 1.55% and 1.59%, respectively, plus applicable margin under the credit agreement, and receives or pays interest that varies with three-month LIBOR. Interest is calculated by reference to the respective $10.0 million notional amount of the interest rate swap and payments are exchanged every three months.
(2)		Represents one interest rate swap with an initial term of two years that expired in January, 2010. Under the terms of the interest rate swap, CBIZ paid interest at a fixed rate of 3.9% plus applicable margin under the credit agreement, and received or paid interest that varied with one-month LIBOR. Interest was calculated by reference to the $10.0 million notional amount of the interest rate swap and payments were exchanged each month.
(3)		See additional disclosures regarding fair value measurements in Note 8.

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

All swaps were deemed to be effective for the three and six months ended June 30, 2010 and 2009. The following table summarizes the effects of interest rate swaps on CBIZ’s consolidated statements of operations for the three and six months ended June 30, 2010 and 2009 (in thousands):

		(Gain) Loss Recognized								Amount Reclassified from
		in AOCL								AOCL to Interest Expense
		(Effective Portion)								(Effective Portion)
		Three Months Ended								Three Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Interest rate swaps		$	8			$	(61	)		$	65			$	113

		Six Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Interest rate swaps		$	(53	)		$	(167	)		$	133			$	212

8. Fair Value Measurements

Valuation hierarchy 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 June 30, 2010 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				June 30, 2010				December 31, 2009
Deferred compensation plan assets			1			$	27,292			$	27,457
Auction rate securities			3			$	11,292			$	10,545
Corporate bonds			1			$	14,761			$	9,764
Contingent purchase price liabilities			3			$	(14,903	)		$	(5,575	)
Interest rate swaps			2			$	(110	)		$	(190	)

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

For the six months ended June 30, 2010 and 2009, 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 six months ended June 30, 2010 (pre-tax basis) (in thousands):

		Auction Rate				Contingent Purchase
		Securities				Price Liabilities
Balance — December 31, 2009		$	10,545			$	(5,575	)
Transfers into Level 3			—				—
Additions from business acquisitions.			—				(9,960	)
Unrealized gain (loss) included in accumulated other comprehensive loss			741				—
Change in fair value of contingency			—				721
Change in net present value of contingency			—				(89	)
Increase in expected cash flows of OTTI investment			6				—
Ending balance — June 30, 2010		$	11,292			$	(14,903	)

Auction Rate Securities - CBIZ’s investments in ARS were classified as Level 3 as a result of liquidity issues in the ARS market, an inactive trading market of the securities, and the lack of quoted prices from broker-dealers. Accordingly, a fair value assessment 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.

At June 30, 2010, CBIZ held three investments in ARS with par values totaling $13.4 million. Changes to the fair values of these ARS resulted in an unrealized gain of $0.9 million and $0.3 million for the three months ended June 30, 2010 and 2009, respectively, and an unrealized gain of $0.7 million and $0.4 million for the six months ended June 30, 2010 and 2009, respectively, which were recorded in other comprehensive loss, net of tax. CBIZ has determined that the impairment is temporary due to dislocation in the credit markets, the quality of the investments and their underlying collateral, and the probability of a passed auction or redemption in the future, considering the issuers’ ability to refinance if necessary. These ARS are classified as “Funds held for clients — non-current”, as CBIZ does not intend to sell these investments until an anticipated recovery of par value occurs.

During the second quarter of 2009, CBIZ adopted the new accounting provisions related to other-than-temporary losses on investments. The result of adopting these provisions was the bifurcation of the impairment relating to one ARS into an amount related to credit loss and an amount related to other market factors. CBIZ recorded a pre-tax adjustment of $372,000 to increase beginning retained earnings and decrease accumulated other comprehensive loss. All subsequent changes to the market value of this ARS have been determined to be temporary and have been recorded to other comprehensive loss.

Contingent Purchase Price Liabilities - Contingent purchase price liabilities resulted from business acquisitions made after January 1, 2009, 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. The contingent purchase price liabilities are included in “Other current liabilities” and “Accrued expenses — non-current”, depending on the expected settlement date. During the six months ended June 30, 2010, the addition of $10.0 million to the liability resulted from CBIZ’s acquisitions of two businesses with contingent earnout provisions, and was offset by a reduction of $0.7 million, which was recorded during the three months ended March 31, 2010, as a result of a change in the estimate of future contingent liabilities related to prior year acquisitions. See Note 12 for further discussion of contingent purchase price liabilities.

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

The following table provides additional information with regards to the ARS with temporary impairments, aggregated by the length of time that the securities have been in a continuous unrealized loss position (in thousands):

		June 30, 2010
		Less Than 12 Months								12 Months or Greater								Total
Description of Security		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Auction rate securities		$	—			$	—			$	7,577			$	803			$	7,577			$	803

		December 31, 2009
		Less Than 12 Months								12 Months or Greater								Total
Description of Security		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Auction rate securities		$	—			$	—			$	7,784			$	596			$	7,784			$	596

The following table presents financial instruments that are not carried at fair value but which require fair value disclosure as of June 30, 2010 and December 31, 2009 (in thousands):

		June 30, 2010								December 31, 2009
		Carrying Value				Fair Value				Carrying Value				Fair Value
Convertible notes		$	95,946			$	96,405			$	93,848			$	94,800

Although the trading of CBIZ’s convertible notes is limited, the fair value was determined based upon their most recent quoted market price. The convertible notes are carried at face value less any unamortized debt discount.

The carrying value of CBIZ’s cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments. The carrying value of bank debt approximates fair value, as the interest rate on the bank debt is variable and approximates current market rates.

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

9.		Other Comprehensive Income
		Other comprehensive income is reflected as an increase to stockholders’ equity and is not reflected in CBIZ’s results of operations. Other comprehensive income and total comprehensive income for the three and six months ended June 30, 2010 and 2009, net of tax, was as follows (in thousands):

		THREE MONTHS ENDED								SIX MONTHS ENDED
		JUNE 30,								JUNE 30,
		2010				2009				2010				2009
Net income		$	5,422			$	6,796			$	21,406			$	24,977
Other comprehensive income (loss):
Net unrealized gain on available-for-sale securities, net of income taxes (1)			497				179				422				220
Net unrealized gain on interest rate swaps, net of income taxes (2)			46				32				50				28
Foreign currency translation			(21	)			(19	)			(36	)			(41	)
Total other comprehensive income			522				192				436				207
Comprehensive income		$	5,944			$	6,988			$	21,842			$	25,184

(1)		Net of income tax expense of $331 and $119 for the three months ended June 30, 2010 and 2009, respectively, and net of income tax expense of $281 and $147 for the six months ended June 30, 2010 and 2009, respectively.
(2)		Net of income tax expense of $27 and $19 for the three months ended June 30, 2010 and 2009, respectively, and net of income tax expense of $30 and $17 for the six months ended June 30, 2010 and 2009, respectively.

Accumulated other comprehensive loss, net of tax, was approximately $0.5 million and $0.9 million at June 30, 2010 and December 31, 2009, respectively. Accumulated other comprehensive loss consisted of adjustments, net of tax, to unrealized gains and losses on available-for-sale securities and interest rate swaps, and adjustments for foreign currency translation.

10.		Employer Share Plans
		CBIZ has granted various stock-based awards under its 2002 Stock Incentive Plan, which is described in further detail in CBIZ’s Annual Report on Form 10-K for the year ended December 31, 2009. The terms and vesting schedules for stock-based awards vary by type and date of grant. Compensation expense for stock-based awards recognized during the three and six months ended June 30, 2010 and 2009 was as follows (in thousands):

		THREE MONTHS ENDED								SIX MONTHS ENDED
		JUNE 30,								JUNE 30,
		2010				2009				2010				2009
Stock options		$	732			$	680			$	1,492			$	1,247
Restricted stock awards			543				555				1,078				933
Total stock-based compensation expense		$	1,275			$	1,235			$	2,570			$	2,180

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Stock award activity during the six months ended June 30, 2010 was as follows (in thousands, except per share data):

		Stock
		Options								Restricted Stock Awards
						Weighted								Weighted
						Average								Average
		Number				Exercise				Number				Grant-Date
		of				Price Per				of				Fair
		Options				Share				Shares				Value (1)
Outstanding at beginning of year			4,636			$	7.41				753			$	7.65
Granted			1,420			$	6.75				387			$	6.78
Exercised or released			(275	)		$	4.15				(302	)		$	7.43
Expired or canceled			(31	)		$	7.80				(6	)		$	7.31
Outstanding at June 30, 2010			5,750			$	7.40				832			$	7.33
Exercisable at June 30, 2010			2,515			$	7.45

(1)		Represents weighted average market value of the shares; awards are granted at no cost to the recipients.

11.		Earnings Per Share
		The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2010 and 2009 (in thousands, except per share data).

		THREE MONTHS ENDED								SIX MONTHS ENDED
		JUNE 30,								JUNE 30,
		2010				2009				2010				2009
Numerator:
Income from continuing operations		$	6,914			$	6,859			$	23,778			$	25,262
Denominator:
Basic
Weighted average common shares outstanding			61,448				61,436				61,479				61,366
Diluted
Stock options (1)			104				247				130				275
Restricted stock awards			70				77				148				141
Contingent shares (2)			215				110				215				109
Diluted weighted average common shares outstanding			61,837				61,870				61,972				61,891
Basic earnings per share from continuing operations		$	0.11			$	0.11			$	0.39			$	0.41
Diluted earnings per share from continuing operations		$	0.11			$	0.11			$	0.38			$	0.41

(1)		A total of 5.4 million and 4.9 million options were excluded from the calculation of diluted earnings per share for the three and six months ended June 30, 2010, respectively, and a total of 3.9 million and 3.5 million options were excluded from the calculation of diluted earnings per share for the three and six months ended June 30, 2009, respectively, as their exercise prices would render them anti-dilutive.
(2)		Contingent shares represent additional shares to be issued for purchase price earned by former owners of businesses acquired by CBIZ once future conditions have been met.

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

12.		Acquisitions
		During the six months ended June 30, 2010, CBIZ acquired substantially all of the assets of two companies, Goldstein Lewin & Company and National Benefit Alliance. Goldstein Lewin & Company, an accounting and financial services company located in Boca Raton, Florida, provides accounting services and financial advisory services, tax planning and compliance, wealth preservation and estate planning, business valuation and litigation support. The operating results of Goldstein Lewin & Company are reported in the Financial Services practice group. National Benefit Alliance, an employee benefits company located in Midvale, Utah, designs, implements and administers employee benefit plans for government contractors as well as commercial clients. The operating results of National Benefit Alliance are reported in the Employee Services practice group.
		Aggregate consideration for these acquisitions is expected to be approximately $25.3 million, which consists of $13.2 million in cash and $1.8 million in CBIZ common stock that was paid at closing, $0.3 million in guaranteed future consideration, and $10.0 million in contingent consideration to be settled primarily in cash and a portion in common stock, subject to the acquired operations achieving certain performance targets.
		The preliminary aggregate purchase price for these acquisitions was allocated as follows (in thousands):

Recognized amounts of identifiable assets acquired and liabilities assumed:
Work in process, net		$	538
Prepaid expenses and other current assets			1,230
Fixed assets			1,436
Identifiable intangible assets			5,806
Accrued liabilities			(113	)
Total identifiable net assets		$	8,897
Goodwill			16,441
Aggregate purchase price		$	25,338

Under the terms of the acquisition agreements, a portion of the purchase price is contingent on future performance of the businesses acquired. The potential undiscounted amount of all future payments that CBIZ could be required to make under the contingent arrangements is between $0 and $10.5 million. CBIZ is required to record the fair value of these obligations at the acquisition date. CBIZ determined, utilizing a probability weighted income approach, that the fair value of the contingent consideration arrangements was $10.0 million, of which $3.9 million was recorded in “Other current liabilities” and $6.1 million was recorded in “Other non-current liabilities” in the consolidated balance sheets at June 30, 2010.

The goodwill of $16.4 million arising from the acquisitions in the current period consists largely of expected future earnings and cash flow from the existing management team, as well as the synergies created by the integration of the new businesses within the CBIZ organization, including cross-selling opportunities expected with the Company’s Financial Services group and the Employee Services group, to help strengthen the Company’s existing service offerings and expand the Company’s market position. The goodwill recognized is deductible for income tax purposes.

During 2010, CBIZ adjusted the fair value of the contingent consideration arrangements related to CBIZ’s prior acquisitions from $5.6 million to $4.9 million due to lower than originally projected future results of the acquired businesses.

In addition, CBIZ paid $15.7 million in cash and approximately 13,100 shares of common stock were issued during the six months ended June 30, 2010 as contingent proceeds for previous acquisitions. During the six months ended June 30, 2009, CBIZ did not acquire any businesses. However, CBIZ purchased two client lists, one of which is reported in the Financial Services practice group and the other is reported in the Employee Services practice group. Aggregate consideration for these client lists .

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

consisted of $0.1 million cash paid at closing and up to an additional $0.4 million in cash which is contingent upon future financial performance of the client lists. In addition, CBIZ paid $4.3 million in cash and issued approximately 131,600 shares of common stock during the six months ended June 30, 2009 as contingent proceeds and payments against notes payable for previous acquisitions.

The operating results of these businesses are included in the accompanying consolidated financial statements since the dates of acquisition. Client lists and non-compete agreements are recorded at fair value at the time of acquisition. The excess of purchase price over the fair value of net assets acquired, (including client lists and non-compete agreements) is allocated to goodwill.

Additions to goodwill, client lists and other intangible assets resulting from acquisitions and contingent consideration earned during the six months ended June 30, 2010 and 2009 were as follows (in thousands):

		2010				2009
Goodwill		$	18,791			$	5,564
Client lists		$	5,560			$	440
Other intangible assets		$	246			$	—

13.		Discontinued Operations and Divestitures
		CBIZ will divest (through sale or closure) business operations that do not contribute to the Company’s long-term objectives for growth, or that are not complementary to its target service offerings and markets. Divestitures are classified as discontinued operations provided they meet the criteria as provided in FASB ASC 205 “Presentation of Financial Statements — Discontinued Operations — Other Presentation Matters”.

Discontinued Operations

Gains or losses from the sale of discontinued operations are recorded as “(Loss) gain on disposal of discontinued operations, net of tax”, in the accompanying consolidated statements of operations. Additionally, proceeds that are contingent upon a divested operation’s actual future performance are recorded as gain on sale of discontinued operations in the period they are earned. During the six months ended June 30, 2010, CBIZ sold two businesses and closed one business from the National Practices group. Proceeds from the sales consisted of $0.2 million in cash and resulted in a pre-tax loss of approximately $0.8 million, and the office closure resulted in a pre-tax loss of approximately $1.1 million. During the six months ended June 30, 2009, CBIZ did not sell any operations. Gains recorded for the six months ended June 30, 2009 related to contingent proceeds for a Financial Services operation that was sold during 2007 and an adjustment to reserves established for an operation that was closed in 2008.

Revenue and results from operations of discontinued operations for the three and six months ended June 30, 2010 and 2009 are separately reported as “Loss from discontinued operations, net of tax” in the consolidated statements of operations and were as follows (in thousands):

		THREE MONTHS								SIX MONTHS
		ENDED JUNE 30,								ENDED JUNE 30,
		2010				2009				2010				2009
Revenue		$	464			$	3,717			$	2,723			$	7,312
Loss from discontinued operations, before income tax		$	(1,474	)		$	(344	)		$	(2,214	)		$	(737	)
Income tax benefit			578				137				874				301
Loss from discontinued operations, net of tax		$	(896	)		$	(207	)		$	(1,340	)		$	(436	)

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(Loss) gain on the disposal of discontinued operations for the three and six months ended June 30, 2010 and 2009 were as follows (in thousands):

		THREE MONTHS								SIX MONTHS
		ENDED JUNE 30,								ENDED JUNE 30,
		2010				2009				2010				2009
(Loss) gain on disposal of discontinued operations, before income tax		$	(993	)		$	229			$	(1,883	)		$	240
Income tax (expense) benefit			397				(85	)			851				(89	)
(Loss) gain on disposal of discontinued operations, net of tax		$	(596	)		$	144			$	(1,032	)		$	151

At June 30, 2010 and December 31, 2009, the assets and liabilities of businesses classified as discontinued operations are reported separately in the accompanying consolidated financial statements and consisted of the following (in thousands):

		June 30,				December 31,
		2010				2009
Assets:
Accounts receivable, net		$	536			$	1,945
Goodwill and other intangible assets, net			—				1,436
Property and equipment, net			—				131
Other current assets			213				597
Assets of discontinued operations		$	749			$	4,109
Liabilities:
Accounts payable		$	10			$	892
Accrued personnel costs			121				191
Other current liabilities			415				1,198
Liabilities of discontinued operations		$	546			$	2,281

Divestitures

Gains and losses from divested operations and assets that do not qualify for treatment as discontinued operations are recorded as “Gain on sale of operations, net” in the consolidated statements of operations. During the three months ended March 31, 2010, CBIZ recognized a gain of $0.4 million from the sale of a client list. Cash proceeds from this sale were $0.4 million. During the three months ended June 30, 2010 and the three and six months ended June 30, 2009, there were no sales of operations or assets.

Additionally, CBIZ may earn additional proceeds on the sale of certain client lists (sold in previous years), which are contingent upon future revenue generated by the client lists. CBIZ records these proceeds as other income when they are earned.

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

14. Segment Disclosures

CBIZ’s business units have been aggregated into four practice groups: Financial Services, Employee Services, Medical Management Professionals (“MMP”), and National Practices. The business units have been aggregated based on the following factors: similarity of the products and services provided to clients; similarity of the regulatory environment in which they operate; and similarity of economic conditions affecting long-term performance. The business units are managed along these segment lines. A general description of services provided by practice group, is provided in the following table.

Financial Services

Employee Services

MMP

National Practices

•

Accounting

•

Group Health

•

Coding and Billing

•

Managed Networking and Hardware Services

•

Tax

•

Property & Casualty

•

Accounts Receivable

•

Health Care Consulting

•

Financial Advisory

•

COBRA / Flex

Management

•

Mergers & Acquisitions

•

Litigation Support

•

Retirement Planning

•

Full Practice Management

•

Valuation

•

Wealth Management

Services

•

Internal Audit

•

Life Insurance

•

Fraud Detection

•

Human Capital

•

Real Estate Advisory

Management

•

Payroll Services

•

Actuarial Services

•

Recruiting

Corporate and Other. Included in Corporate and Other are operating expenses that are not directly allocated to the individual business units. These expenses are primarily comprised of gains or losses attributable to assets held in the Company’s deferred compensation plan, stock-based compensation, certain health care costs, consolidation and integration charges, and certain advertising costs.

Accounting policies of the practice groups are the same as those described in Note 1 to the Annual Report on Form 10-K for the year ended December 31, 2009. Upon consolidation, all intercompany accounts and transactions are eliminated; thus inter-segment revenue is not included in the measure of profit or loss for the practice groups. Performance of the practice groups is evaluated on operating income excluding the costs of certain infrastructure functions (such as information systems, finance and accounting, human resources, legal and marketing), which are reported in the “Corporate and Other” segment.

CBIZ, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Segment information for the three and six months ended June 30, 2010 and 2009 was as follows (in thousands):

		THREE MONTHS ENDED JUNE 30, 2010
																		Corporate
														National				and
		Financial Services				Employee Services				MMP				Practices				Other				Total
Revenue		$	92,144			$	43,828			$	38,018			$	6,850			$	—			$	180,840
Operating expenses			82,337				36,650				33,346				6,582				262				159,177
Gross margin			9,807				7,178				4,672				268				(262	)			21,663
Corporate general & admin			—				—				—				—				6,638				6,638
Operating income (loss)			9,807				7,178				4,672				268				(6,900	)			15,025
Other income (expense):
Interest expense			(2	)			(6	)			—				—				(3,403	)			(3,411	)
Gain on sale of operations, net			—				—				—				—				2				2
Other income (expense), net			55				28				82				—				(2,212	)			(2,047	)
Total other income (expense)			53				22				82				—				(5,613	)			(5,456	)
Income (loss) from continuing operations before income tax expense		$	9,860			$	7,200			$	4,754			$	268			$	(12,513	)		$	9,569

		THREE MONTHS ENDED JUNE 30, 2009
																		Corporate
														National				and
		Financial Services				Employee Services				MMP				Practices				Other				Total
Revenue		$	94,138			$	42,351			$	41,853			$	6,828			$	—			$	185,170
Operating expenses			83,436				35,194				35,249				6,135				5,414				165,428
Gross margin			10,702				7,157				6,604				693				(5,414	)			19,742
Corporate general & admin			—				—				—				—				7,674				7,674
Operating income (loss)			10,702				7,157				6,604				693				(13,088	)			12,068
Other income (expense):
Interest expense			(6	)			(7	)			—				—				(3,509	)			(3,522	)
Gain on sale of operations, net			—				—				—				—				14				14
Other income, net			52				365				76				—				2,403				2,896
Total other income (expense)			46				358				76				—				(1,092	)			(612	)
Income (loss) from continuing operations before income tax expense		$	10,748			$	7,515			$	6,680			$	693			$	(14,180	)		$	11,456