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)

(Registrant’s telephone number, including area 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 þ 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, 2011
Common Stock, par value $0.01 per share		50,661,261

 

 

CBIZ, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets — June 30, 2011 and December 31, 2010			3
Consolidated Statements of Operations — Three and Six Months Ended June 30, 2011 and 2010			4
Consolidated Statements of Cash Flows — Six Months Ended June 30, 2011 and 2010			5
Notes to the Consolidated Financial Statements			6-22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23-43
Item 3. Quantitative and Qualitative Disclosures about Market Risk			44
Item 4. Controls and Procedures			44-45
PART II. OTHER INFORMATION :
Item 1. Legal Proceedings			46
Item 1A. Risk Factors			46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 6. Exhibits			47
Signature			48
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1.		Financial Statements

CBIZ, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)

		JUNE 30,				DECEMBER 31,
		2011				2010
ASSETS
Current assets:
Cash and cash equivalents		$	211			$	724
Restricted cash			19,911				20,171
Accounts receivable, net			155,663				138,068
Income taxes refundable			—				3,684
Deferred income taxes — current			9,780				4,236
Other current assets			10,375				11,958
Assets of discontinued operations			819				640
Current assets before funds held for clients			196,759				179,481
Funds held for clients — current			99,239				73,987
Total current assets			295,998				253,468
Property and equipment, net			21,500				23,895
Deferred income taxes — non-current, net			—				837
Goodwill and other intangible assets, net			417,270				426,410
Assets of deferred compensation plan			35,516				33,361
Funds held for clients — non-current			3,936				10,216
Other assets			7,558				8,112
Total assets		$	781,778			$	756,299
LIABILITIES
Current liabilities:
Accounts payable		$	28,778			$	30,814
Income taxes payable — current			7,238				—
Accrued personnel costs			30,906				33,030
Notes payable — current			252				10,983
Convertible notes, net			—				39,250
Other current liabilities			23,949				27,321
Liabilities of discontinued operations			433				562
Current liabilities before client fund obligations			91,556				141,960
Client fund obligations			103,536				87,362
Total current liabilities			195,092				229,322
Convertible notes, net			118,530				116,577
Bank debt			149,000				118,900
Income taxes payable — non-current			5,527				5,285
Deferred income taxes — non-current, net			749				—
Deferred compensation plan obligations			35,516				33,361
Other non-current liabilities			19,757				23,182
Total liabilities			524,171				526,627
STOCKHOLDERS’ EQUITY
Common stock			1,103				1,096
Additional paid-in capital			543,168				539,389
Retained earnings			70,434				45,978
Treasury stock			(356,499	)			(355,851	)
Accumulated other comprehensive loss			(599	)			(940	)
Total stockholders’ equity			257,607				229,672
Total liabilities and stockholders’ equity		$	781,778			$	756,299

See the accompanying notes to the consolidated financial statements

CBIZ, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)

		THREE MONTHS ENDED								SIX MONTHS ENDED
		JUNE 30,								JUNE 30,
		2011				2010				2011				2010
Revenue		$	183,110			$	180,074			$	393,001			$	389,455
Operating expenses			159,931				158,260				329,359				329,709
Gross margin			23,179				21,814				63,642				59,746
Corporate general and administrative expenses			6,850				6,638				16,511				15,622
Operating income			16,329				15,176				47,131				44,124
Other income (expense):
Interest expense			(4,407	)			(3,411	)			(9,322	)			(6,579	)
Gain on sale of operations, net			2				2				2,745				376
Other income (expense), net			27				(2,047	)			3,108				126
Total other expense, net			(4,378	)			(5,456	)			(3,469	)			(6,077	)
Income from continuing operations before
income tax expense			11,951				9,720				43,662				38,047
Income tax expense			5,095				2,711				18,682				14,182
Income from continuing operations after income tax expense			6,856				7,009				24,980				23,865
Loss from discontinued operations, net of tax			(335	)			(991	)			(594	)			(1,427	)
Gain (loss) on disposal of discontinued operations, net of tax			30				(596	)			70				(1,032	)
Net income		$	6,551			$	5,422			$	24,456			$	21,406
Earnings (loss) per share:
Basic:
Continuing operations		$	0.14			$	0.11			$	0.50			$	0.39
Discontinued operations			(0.01	)			(0.02	)			(0.01	)			(0.04	)
Net income		$	0.13			$	0.09			$	0.49			$	0.35
Diluted:
Continuing operations		$	0.14			$	0.11			$	0.50			$	0.39
Discontinued operations			(0.01	)			(0.02	)			(0.01	)			(0.04	)
Net income		$	0.13			$	0.09			$	0.49			$	0.35
Basic weighted average shares outstanding			49,615				61,448				49,469				61,479
Diluted weighted average shares outstanding			49,958				61,837				49,880				61,972

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,
		2011				2010
Cash flows from operating activities:
Net income		$	24,456			$	21,406
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations, net of tax			524				2,459
Gain on sale of operations, net			(2,745	)			(376	)
Depreciation and amortization expense			9,995				10,213
Amortization of discount on notes and deferred financing costs			2,814				2,572
Bad debt expense, net of recoveries			2,155				2,100
Adjustment to contingent earnout liability			(1,069	)			(721	)
Deferred income taxes			(4,060	)			(961	)
Employee stock awards			2,914				2,570
Excess tax benefits from share based payment arrangements			(102	)			(65	)
Changes in assets and liabilities, net of acquisitions and divestitures:
Restricted cash			260				3,377
Accounts receivable, net			(19,751	)			(28,695	)
Other assets			1,370				1,944
Accounts payable			(2,040	)			4,591
Income taxes payable/refundable			11,220				5,234
Accrued personnel costs and other liabilities			(2,365	)			1,855
Net cash provided by continuing operations			23,576				27,503
Operating cash flows used in discontinued operations			(623	)			(1,809	)
Net cash provided by operating activities			22,953				25,694
Cash flows from investing activities:
Business acquisitions and contingent consideration, net of cash acquired			(10,863	)			(28,986	)
Purchases of client fund investments			(15,114	)			(9,740	)
Proceeds from the sales and maturities of client fund investments			9,196				5,000
Proceeds from sales of divested and discontinued operations			694				1,058
Net (increase) decrease in funds held for clients			(12,656	)			31,542
Additions to property and equipment, net			(941	)			(1,401	)
Other			11				13
Net cash used in investing activities			(29,673	)			(2,514	)
Cash flows from financing activities:
Proceeds from bank debt			277,750				261,025
Payment of bank debt			(247,650	)			(256,025	)
Repurchase of convertible notes			(39,250	)			—
Payment for acquisition of treasury stock			(648	)			(7,602	)
Net increase (decrease) in client funds obligations			16,174				(26,802	)
Proceeds from exercise of stock options			768				1,144
Payment of contingent consideration of acquisitions			(330	)			—
Excess tax benefit from exercise of stock awards			102				65
Debt issuance costs			(560	)			(1,940	)
Other			(149	)			(83	)
Net cash provided by (used in) financing activities			6,207				(30,218	)
Net decrease in cash and cash equivalents			(513	)			(7,038	)
Cash and cash equivalents at beginning of year			724				7,178
Cash and cash equivalents at end of period		$	211			$	140

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, 2011 and December 31, 2010, the consolidated results of their operations for the three and six months ended June 30, 2011 and 2010, and the cash flows for the six months ended June 30, 2011 and 2010. 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, 2010.

Principles of Consolidation

The accompanying consolidated financial statements reflect the operations of CBIZ, Inc. 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 consolidated 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, 2010 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, estimates of accrued liabilities (such as incentive compensation, self-funded health insurance accruals, legal reserves, income tax uncertainties, 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 2010 consolidated financial statements and disclosures have been reclassified to conform to the current year presentation, including the impact of discontinued operations.

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 relates to those groups, is included in the Annual Report on Form 10-K for the year ended December 31, 2010.

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

New Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05 (“ASU 2011-05”) “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”, which states that comprehensive income should be presented in either one or two consecutive financial statements. Companies will have the option to either present other comprehensive income on the same statement as net income, or as a separate statement that immediately follows the statement of net income. ASU 2011-05 is effective for the first reporting period after December 15, 2011, and should be applied retrospectively. The adoption of ASU 2011-05 will result in CBIZ presenting other comprehensive income on the consolidated statements of operations.

In May 2011, the FASB issued ASU No. 2011-04 (“ASU 2011-04”) “Fair Value Measurement (Topic 820) Amendments to Achieve Common fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards.” ASU 2011-04 provides a consistent definition of fair value to ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 does not extend the use of fair value, but rather provides additional disclosure guidance about the application of fair value in those areas where fair value is already required or permitted, especially for Level 3 fair value measurements. ASU 2011-04 is effective for the first reporting period after December 15, 2011. The amendments of this ASU will be applied prospectively, and early adoption is not permitted. The Company is currently evaluating the impact of adopting ASU 2011-04, but currently believes there will be no significant impact on its consolidated financial statements.

In December 2010, the FASB issued ASU No. 2010-29 (“ASU 2010-29”) “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations”, which amends Accounting Standards Codification (“ASC”) 805 by modifying the disclosure requirements of pro forma information for business combinations that occurred in the current reporting period. The required disclosures include pro forma revenue and earnings of the combined entity as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the comparable prior annual reporting period. ASU 2010-29 also expands supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for business combinations in which the acquisition date is on or after the first day of the annual period beginning on or after December 15, 2010. The adoption of ASU 2010-29 will result in the Company providing additional annual pro forma disclosures for significant business combinations that occur subsequent to December 31, 2010.

2. Accounts Receivable, Net

Accounts receivable balances at June 30, 2011 and December 31, 2010 were as follows (in thousands):

		2011				2010
Trade accounts receivable		$	125,042			$	119,205
Unbilled revenue			40,984				29,483
Total accounts receivable			166,026				148,688
Allowance for doubtful accounts			(10,363	)			(10,620	)
Accounts receivable, net		$	155,663			$	138,068

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

3. Goodwill and Other Intangible Assets, Net

The components of goodwill and other intangible assets, net at June 30, 2011 and December 31, 2010 were as follows (in thousands):

		2011				2010
Goodwill		$	341,656			$	344,086
Intangible assets:
Client lists			116,611				117,029
Other intangible assets			9,336				9,506
Total intangible assets			125,947				126,535
Total goodwill and intangibles assets			467,603				470,621
Accumulated amortization:
Client lists			(44,753	)			(39,206	)
Other intangible assets			(5,580	)			(5,005	)
Total accumulated amortization			(50,333	)			(44,211	)
Goodwill and other intangible assets, net		$	417,270			$	426,410

4. Depreciation and Amortization

Depreciation and amortization expense for property and equipment and intangible assets for the three and six months ended June 30, 2011 and 2010 was as follows (in thousands):

		THREE MONTHS ENDED								SIX MONTHS ENDED
		JUNE 30,								JUNE 30,
		2011				2010				2011				2010
Operating expenses		$	4,877			$	4,981			$	9,815			$	9,997
Corporate general and administrative expenses			88				107				180				216
Total depreciation and amortization expense		$	4,965			$	5,088			$	9,995			$	10,213

5. Borrowing Arrangements

CBIZ had two primary debt arrangements at June 30, 2011 that provided the Company with the capital necessary to meet its working capital needs as well as the flexibility to continue with its strategic initiatives, including business acquisitions and share repurchases: the 2010 Convertible Senior Subordinated Notes (“2010 Notes”) totaling $130 million and a $275 million unsecured credit facility.

2010 Convertible Senior Subordinated Notes

On September 27, 2010, CBIZ sold and issued $130.0 million of 2010 Notes to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended. The 2010 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 existing and future obligations, if any, that are designated as subordinated to the 2010 Notes. The 2010 Notes bear interest at a rate of 4.875% per annum, payable in cash semi-annually in arrears on April 1 and October 1 beginning April 1, 2011. The 2010 Notes mature on October 1, 2015 unless earlier redeemed, repurchased or converted. CBIZ separately accounts for the debt and equity components of the 2010 Notes.

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

The carrying amount of the debt and equity components at June 30, 2011 and December 31, 2010 were as follows (in thousands):

		June 30,				December 31,
		2011				2010
Principal amount of notes		$	130,000			$	130,000
Unamortized discount			(12,220	)			(13,423	)
Net carrying amount		$	117,780			$	116,577
Additional paid-in-capital, net of tax		$	8,555			$	8,555

The discount on the liability component of the 2010 Notes is being amortized using the effective interest method based upon an annual effective rate of 7.5%, which represents the market rate for similar debt without a conversion option at the issuance date. The discount is being amortized over the term of the 2010 Notes which is five years from the date of issuance. At June 30, 2011, the unamortized discount had a remaining amortization period of approximately 51 months. Refer to the Annual Report on Form 10-K for the year ended December 31, 2010 for additional information on the 2010 Notes.

2006 Convertible Senior Subordinated Notes

On June 1, 2011, the note holders provided notice to the Company to redeem $39,250,000 of CBIZ’s 3.125% Convertible Senior Subordinated Notes issued in 2006 (the “2006 Notes”). The 2006 Notes were settled in cash for the principal amount and any accrued and unpaid interest. The remaining $750,000 of 2006 Notes may be redeemed by CBIZ at any time until the due date of June 1, 2026. In addition, holders of the 2006 Notes will have the right to require CBIZ to repurchase for cash all or a portion of their 2006 Notes on June 1, 2016 and June 1, 2021, at a repurchase price equal to 100% of the principal amount of the 2006 Notes to be repurchased plus accrued and unpaid interest, including contingent interest and additional amounts, if any, up to but not including, the date of repurchase. At December 31, 2010, there was $40.0 million in aggregate principal amount of 2006 Notes outstanding, which was the remaining balance of the $100.0 million originally issued on May 30, 2006. At December 31, 2010, the 2006 Notes were classified as a current liability based on the provision that allowed the note holders to deliver notice to the Company to redeem their notes on June 1, 2011. At June 30, 2011, the 2006 Notes were classified as a non-current liability since the remaining note holders cannot cause the redemption of their notes until June 1, 2016.

CBIZ separately accounts for the debt and equity components of the 2006 Notes. The carrying amount of the debt and equity components at June 30, 2011 and December 31, 2010 were as follow (in thousands):

		June 30,				December 31,
		2011				2010
Principal amount of notes		$	750			$	40,000
Unamortized discount			—				(750	)
Net carrying amount		$	750			$	39,250
Additional paid-in-capital, net of tax		$	11,425			$	11,425

The discount on the liability component of the 2006 Notes was amortized using the effective interest method based upon an annual effective rate of 7.8%, which represented the market rate for similar debt without a conversion option at the issuance date. The discount was amortized over five years from the date of issuance, which coincided with the first date that holders were able to require CBIZ to repurchase the 2006 Notes. At June 30, 2011, the discount was fully amortized. Refer to the Annual Report on Form 10-K for the year ended December 31, 2010 for additional information on the 2006 Notes.

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

During the three and six months ended June 30, 2011 and 2010, CBIZ recognized interest expense on the 2010 Notes and 2006 Notes as follows (in thousands):

		THREE MONTHS ENDED								SIX MONTHS ENDED
		JUNE 30,								JUNE 30,
		2011				2010				2011				2010
Contractual coupon interest		$	1,795			$	781			$	3,692			$	1,562
Amortization of discount			912				1,056				1,953				2,098
Amortization of deferred financing Costs			217				133				449				266
Total interest expense		$	2,924			$	1,970			$	6,094			$	3,926

Bank Debt

CBIZ maintains a $275 million unsecured credit facility (“credit facility”) with Bank of America as agent for a group of seven participating banks. On April 11, 2011, the credit facility was amended to extend the maturity date one year to June 2015, reduce interest on outstanding balances, reduce commitment fees on the unused amount, and adjust the leverage ratio limits to provide CBIZ with more flexibility. The balance outstanding under the credit facility was $149.0 million and $118.9 million at June 30, 2011 and December 31, 2010, respectively. Rates for the six months ended June 30, 2011 and 2010 were as follows:

		2011				2010
Weighted average rates			3.52%				3.24%
Range of effective rates			2.66% - 5.75%				2.71% - 6.40%

CBIZ had approximately $64.8 million of available funds under the credit facility at June 30, 2011. 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. CBIZ believes it is in compliance with its debt covenants at June 30, 2011. Refer to the Annual Report on Form 10-K for the year ended December 31, 2010 for additional information on the credit facility.

6. Commitments and Contingencies

Letters of Credit and Guarantees

CBIZ provides letters of credit to landlords (lessors) of its leased premises in lieu of cash security deposits which totaled $2.8 million and $3.0 million as of June 30, 2011 and December 31, 2010, 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, 2011 and December 31, 2010 was $1.5 million.

CBIZ acted as guarantor on various letters of credit for a CPA firm with which it has an affiliation, which totaled $2.4 million and $3.4 million as of June 30, 2011 and December 31, 2010, respectively. CBIZ has recognized a liability for the fair value of the obligations undertaken in issuing these guarantees, which is recorded as 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 comprehensive 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 $3.7 million and $3.4 million at June 30, 2011 and December 31, 2010, respectively. CBIZ’s net healthcare costs include health claims, administration fees to the third-party administrators and premiums for stop-loss coverage.

Legal Proceedings

In May, June, July, August and September of 2010, CBIZ, Inc. 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 the District of 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.; Roger Ashkenazi, et al v. Greenberg Traurig LLP, et al.; Mary Marsh, et al v. Greenberg Traurig LLP, et al.; and ML Liquidating Trust v. Mayer Hoffman McCann, PC, et al.), respectively. The Maricopa County cases were removed to the United States District Court or Bankruptcy Court but all, except ML Liquidating Trust, have since been remanded to the Superior Court for Maricopa County. These remand orders are currently being appealed. The motion to remand the ML Liquidating Trust matter was denied and the Plaintiff is seeking permission to appeal that ruling. 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 the District of 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 lawsuits. The motion phase of these proceedings has commenced and the discovery phase in Facciola has commenced.

The plaintiffs, except for those in the Stone and ML Liquidating Trust cases, are all alleged to have directly or indirectly invested in real estate mortgages through Mortgages Ltd. The Facciola, Victims Recovery, Ashkenazi and Marsh plaintiffs seek monetary damages equivalent to the amounts of their investments. The plaintiff in Stone sought monies it allegedly lost based on the claim that Mortgages Ltd. did not fund development projects in which it was a contractor. The Stone case has been voluntarily dismissed by the plaintiff in that matter. The plaintiff in the ML Liquidating Trust matter asserts errors and omissions and breach of contract claims, and is seeking monetary damages. 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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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 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

Corporate Bonds

CBIZ held corporate bonds with par values totaling $27.1 million and $14.6 million at June 30, 2011 and December 31, 2010, respectively. Corporate bonds have maturity dates ranging from October 2011 through June 2016, and are included in “Funds held for clients — current” on the consolidated balance sheets as these investments are highly liquid and are classified as available-for-sale. During the six months ended June 30, 2011, CBIZ purchased bonds with a par value totaling $15.1 million, sold bonds with a par value totaling $1.5 million, and had an additional $1.1 million par value of bonds that matured.

Auction Rate Securities (“ARS”)

During the first six months of 2011, CBIZ sold two investments in ARS and recorded a loss of approximately $0.1 million in “Other income (loss), net” on the consolidated statements of operations. At June 30, 2011, CBIZ had one investment in ARS with a par value of $4.4 million and a fair value of $3.9 million. The difference between par value and fair value was deemed to be temporary and is therefore recorded as unrealized losses in accumulated other comprehensive loss (“AOCL”), net of tax. See Note 8 for further discussion of ARS.

Interest Rate Swaps

CBIZ uses interest rate swaps to manage interest rate risk exposure. CBIZ’s interest rate swaps effectively mitigate 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.

CBIZ’s interest rate swaps have been designated as cash flow hedges. Accordingly, the interest rate swaps are recorded as either assets or liabilities in the consolidated balance sheets at fair value. Changes in fair value are recorded as a component of other comprehensive loss, net of tax, to the extent the swaps are effective. Amounts recorded to other comprehensive loss 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. All swaps were deemed to be effective for the three and six months ended June 30, 2011 and 2010.

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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, 2011, 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, 2011 and December 31, 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, 2011 and December 31, 2010 (in thousands).

		June 30, 2011
		Notional				Fair				Balance Sheet
		Amount				Value (c)				Location
Interest rate swaps (a)		$	40,000			$	(67	)		Other non-current liabilities

		December 31, 2010
		Notional				Fair				Balance Sheet
		Amount				Value (c)				Location
Interest rate swaps (b)		$	20,000			$	(16	)		Other current liabilities

(a)		Represents interest rate swap with a notional value of $40.0 million, of which $25.0 million will expire in June 2014 and the remaining $15.0 million will expire in June 2015. Under the terms of the interest rate swap, CBIZ pays interest at a fixed rate of 1.41% plus applicable margin as stated in the agreement, and received interest that varied with the three-month LIBOR.
(b)		Represents two interest rate swaps, each with a notional value of $10.0 million and terms of two years that expired in January, 2011. Under the terms of the interest rate swaps, CBIZ paid interest at a fixed rate of 1.55% and 1.59%, respectively, plus applicable margin under the credit facility, and received or paid interest that varied with the three-month LIBOR.
(c)		See additional disclosures regarding fair value measurements in Note 8.

8. Fair Value Measurements

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.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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, 2011 and December 31, 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):

										December 31,
		Level				June 30, 2011				2010
Deferred compensation plan assets			1			$	35,516			$	33,361
Corporate bonds			1			$	28,814			$	15,255
Interest rate swaps			2			$	(67	)		$	(16	)
Auction rate securities			3			$	3,936			$	10,216
Contingent purchase price liabilities			3			$	(15,866	)		$	(17,265	)

During the six months ended June 30, 2011 and 2010, 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, 2011 (pre-tax basis) (in thousands):

						Contingent
		Auction Rate				Purchase Price
		Securities				Liabilities
Beginning balance — January 1, 2011		$	10,216			$	(17,265	)
Sale of auction rate securities			(6,600	)			—
Payment of contingent purchase price liability			—				330
Unrealized gains included in accumulated other comprehensive loss			220				—
Change in fair value of contingency			—				1,152
Change in net present value of contingency			—				(83	)
Increase in cash flows			100				—
Ending balance — June 30, 2011		$	3,936			$	(15,866	)

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.

During the first six months of 2011, CBIZ sold two investments in ARS and as a result, recorded a loss of approximately $0.1 million in “Other income (expense), net”. At June 30, 2011, CBIZ had one investment in ARS with a par value of $4.4 million, and at December 31, 2010, CBIZ held three investments in ARS with par values totaling $13.4 million. Changes in the fair value of ARS resulted in an unrealized loss of $0.1 million and an unrealized gain of $0.9 million for the three months ended June 30, 2011 and 2010, respectively, and an unrealized gain of $0.2 million and $0.7 million for the six months ended June 30, 2011 and 2010, respectively. The difference in par value and fair value was determined to be 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 issuer’s ability to refinance if necessary. ARS are included in “Funds held for clients —

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

non-current”, as CBIZ does not intend to sell this investment until an anticipated recovery of par value occurs. The ARS held at June 30, 2011 matures in October 2037.

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, 2011, the contingent liability decreased as a result of payments totaling $0.3 million and a $1.2 million adjustment to the estimate of future contingent liabilities, partially offset by net present value adjustments totaling $0.1 million. See Note 12 for further discussion of contingent purchase price liabilities.

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, 2011								December 31, 2010
		12 Months or Greater								12 Months of Greater
Description of Security		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Auction rate securities		$	3,936			$	444			$	7,716			$	664

The following table presents financial instruments that are not carried at fair value but which require fair value disclosure as of June 30, 2011 and December 31, 2010 (in thousands):

		June 30, 2011								December 31, 2010
		Carrying Value				Fair Value				Carrying Value				Fair Value
2006 Convertible Notes		$	750			$	750			$	39,250			$	40,050
2010 Convertible Notes		$	117,780			$	159,006			$	116,577			$	141,670

Although the trading of CBIZ’s 2006 Convertible Notes and 2010 Convertible Notes is limited, the fair value was determined based upon their most recent quoted trading activity. The 2006 Convertible Notes and 2010 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.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

9.   Other Comprehensive Income

Other comprehensive (loss) income is reflected as a (decrease) increase to stockholders’ equity and is not reflected in CBIZ’s results of operations. Other comprehensive (loss) income and total comprehensive income for the three and six months ended June 30, 2011 and 2010, net of tax, was as follows (in thousands):

		THREE MONTHS ENDED								SIX MONTHS ENDED
		JUNE 30,								JUNE 30,
		2011				2010				2011				2010
Net income		$	6,551			$	5,422			$	24,456			$	21,406
Other comprehensive (loss) income:
Net unrealized gain on available-for-sale securities, net of income taxes (1)			—				497				405				422
Net unrealized (loss) gain on interest rate swaps, net of income taxes (2)			(42	)			46				(32	)			50
Foreign currency translation			(17	)			(21	)			(32	)			(36	)
Total other comprehensive (loss) income			(59	)			522				341				436
Comprehensive income		$	6,492			$	5,944			$	24,797			$	21,842

(1)		Net of income tax expense of $0 and $331 for the three months ended June 30, 2011 and 2010, respectively, and net of income tax expense of $121 and $281 for the six months ended June 30, 2011 and 2010, respectively.
(2)		Net of income tax (benefit) expense of ($25) and $27 for the three months ended June 30, 2011 and 2010, respectively, and net of income tax (benefit) expense of ($19) and $30 for the six months ended June 30, 2011 and 2010, respectively.

Accumulated other comprehensive loss, net of tax, was approximately $0.6 million and $0.9 million at June 30, 2011 and December 31, 2010, 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, 2010. 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, 2011 and 2010 was as follows (in thousands):

		THREE MONTHS ENDED								SIX MONTHS ENDED
		JUNE 30,								JUNE 30,
		2011				2010				2011				2010
Stock options		$	844			$	732			$	1,561			$	1,492
Restricted stock awards			746				543				1,353				1,078
Total stock-based compensation expense		$	1,590			$	1,275			$	2,914			$	2,570

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

Stock award activity during the six months ended June 30, 2011 was as follows (in thousands, except per share data):

		Stock								Restricted Stock
		Options								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			5,653			$	7.42				825			$	7.33
Granted			1,501			$	7.41				483			$	7.34
Exercised or released			(219	)		$	3.50				(325	)		$	7.43
Expired or canceled			(59	)		$	7.14				—				—
Outstanding at June 30, 2011			6,876			$	7.54				983			$	7.30
Exercisable at June 30, 2011			3,375			$	7.76

(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 from continuing operations for the three and six months ended June 30, 2011 and 2010 (in thousands, except per share data).

		THREE MONTHS ENDED								SIX MONTHS ENDED
		JUNE 30,								JUNE 30,
		2011				2010				2011				2010
Numerator:
Income from continuing operations		$	6,856			$	7,009			$	24,980			$	23,865
Denominator:
Basic
Weighted average common shares outstanding			49,615				61,448				49,469				61,479
Diluted
Stock options (1)			66				104				78				130
Restricted stock awards			132				70				188				148
Contingent shares (2)			145				215				145				215
Diluted weighted average common shares outstanding			49,958				61,837				49,880				61,972
Basic earnings per share from continuing operations		$	0.14			$	0.11			$	0.50			$	0.39
Diluted earnings per share from continuing operations		$	0.14			$	0.11			$	0.50			$	0.39

(1)		A total of 6.8 million and 6.1 million share based awards were excluded from the calculation of diluted earnings per share for the three and six months ended June 30, 2011, respectively, and a total of 5.4 million and 4.9 million share based awards were excluded from the calculation of diluted earnings per share for the three and six months ended June 30, 2010, 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, 2011, CBIZ did not acquire any businesses or client lists. CBIZ paid $11.3 million in cash and issued approximately 265,000 shares of common stock during the six months ended June 30, 2011 as contingent earnouts for previous acquisitions. In addition, CBIZ reduced the fair value of the contingent purchase price liability related to CBZ’s prior acquisitions by $1.2 million due to lower than originally projected future results of the acquired businesses. This reduction of $1.2 million is included in “Other (expense) income, net” in the consolidated statements of operations. See Note 8 for further discussion of contingent purchase price liabilities.

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, was acquired on January 1, 2010 and is included in the operating results of the Financial Services practice group. National Benefit Alliance, an employee benefits company located in Midvale, Utah, was also acquired on January 1, 2010 and is included in the operating results of the Employee Services practice group. Aggregate consideration for these acquisitions consisted of approximately $13.2 million in cash, $1.8 million in CBIZ common stock, $0.3 million in guaranteed future consideration, and $10.0 million in contingent consideration, subject to the acquired operations achieving certain performance targets.

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 contingent consideration earned on prior period acquisitions during the six months ended June 30, 2011, and for acquisitions and contingent consideration earned on prior period acquisitions during the six months ended June 30, 2010 were as follows (in thousands):

		2011				2010
Goodwill		$	21			$	18,791
Client lists		$	108			$	5,560
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 “Gain (loss) 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, 2011, CBIZ sold a business from the Financial Services practice group and will receive contingent proceeds from this sale transaction based on revenue over the next three-year period. As part of the sale of this business, CBIZ reduced its goodwill balance by approximately $0.3 million.

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

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.

Revenue and results from operations of discontinued operations for the three and six months ended June 30, 2011 and 2010 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,
		2011				2010				2011				2010
Revenue		$	342			$	1,229			$	919			$	4,343
Loss from discontinued operations, before income tax		$	(532	)		$	(1,625	)		$	(957	)		$	(2,353	)
Income tax benefit			197				634				363				926
Loss from discontinued operations, net of tax		$	(335	)		$	(991	)		$	(594	)		$	(1,427	)

Gain (loss) on the disposal of discontinued operations for the three and six months ended June 30, 2011 and 2010 were as follows (in thousands):

		THREE MONTHS								SIX MONTHS
		ENDED JUNE 30,								ENDED JUNE 30,
		2011				2010				2011				2010
Gain (loss) on disposal of discontinued operations, before income tax		$	50			$	(993	)		$	117			$	(1,883	)
Income tax (expense) benefit			(20	)			397				(47	)			851
Gain (loss) on disposal of discontinued operations, net of tax		$	30			$	(596	)		$	70			$	(1,032	)

At June 30, 2011 and December 31, 2010, 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,
		2011				2010
Assets:
Accounts receivable, net		$	194			$	381
Other assets			625				259
Assets of discontinued operations		$	819			$	640
Liabilities:
Accounts payable		$	33			$	90
Accrued personnel costs			122				228
Other current liabilities			278				244
Liabilities of discontinued operations		$	433			$	562

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 six months ended June 30, 2011, CBIZ recognized a gain of $2.3 million from the sale of its individual wealth management business and gains of $0.4 million for the sales of client lists. Cash proceeds from the sale of the business and client list totaled approximately $7.2 million, of which

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

approximately $6.7 million was received on December 31, 2010. As part of the sale of the individual wealth management business, CBIZ reduced its goodwill balance by approximately $2.2 million.

During the six months ended June 30, 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.

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.

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, certain advertising costs and other various expenses.

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, 2010. 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, 2011 and 2010 was as follows (in thousands):

		THREE MONTHS ENDED JUNE 30, 2011
																		Corporate
		Financial				Employee								National				and
		Services				Services				MMP				Practices				Other				Total
Revenue		$	96,253			$	43,197			$	35,654			$	8,006			$	—			$	183,110
Operating expenses			82,732				36,059				31,459				6,794				2,887				159,931
Gross margin			13,521				7,138				4,195				1,212				(2,887	)			23,179
Corporate general & admin			—				—				—				—				6,850				6,850
Operating income (loss)			13,521				7,138				4,195				1,212				(9,737	)			16,329
Other income (expense):
Interest expense			(5	)			(6	)			—				—				(4,396	)			(4,407	)
Gain on sale of operations, net			—				—				—				—				2				2
Other income (expense), net			63				159				79				—				(274	)			27
Total other income (expense)			58				153				79				—				(4,668	)			(4,378	)
Income (loss) from continuing operations before income tax expense		$	13,579			$	7,291			$	4,274			$	1,212			$	(14,405	)		$	11,951

		THREE MONTHS ENDED JUNE 30, 2010
																		Corporate
		Financial				Employee								National				and
		Services				Services				MMP				Practices				Other				Total
Revenue		$	91,378			$	43,828			$	38,018			$	6,850			$	—			$	180,074
Operating expenses			81,463				36,650				33,346				6,582				219				158,260
Gross margin			9,915				7,178				4,672				268				(219	)			21,814
Corporate general & admin			—				—				—				—				6,638				6,638
Operating income (loss)			9,915				7,178				4,672				268				(6,857	)			15,176
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		$	9,968			$	7,200			$	4,754			$	268			$	(12,470	)		$	9,720

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

		SIX MONTHS ENDED JUNE 30, 2011
																		Corporate
		Financial				Employee								National				and
		Services				Services				MMP				Practices				Other				Total
Revenue		$	218,361			$	87,632			$	71,065			$	15,943			$	—			$	393,001
Operating expenses			172,459				72,655				63,533				13,451				7,261				329,359
Gross margin			45,902				14,977				7,532				2,492				(7,261	)			63,642
Corporate general & admin			—				—				—				—				16,511				16,511
Operating income (loss)			45,902				14,977				7,532				2,492				(23,772	)			47,131
Other income (expense):
Interest expense			(5	)			(12	)			—				—				(9,305	)			(9,322	)
Gain on sale of operations, net			—				—				—				—				2,745				2,745
Other income, net			121				530				148				—				2,309				3,108
Total other income (expense)			116				518				148				—				(4,251	)			(3,469	)
Income (loss) from continuing operations before income tax expense		$	46,018			$	15,495			$	7,680			$	2,492			$	(28,023	)		$	43,662