UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20052008 or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to          
Commission file number 0-258901-32961
CBIZ, INC.
(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)its charter)
   
Delaware
22-2769024
(State or Other Jurisdictionother jurisdiction
of Incorporationincorporation or Organization)organization)		 22-2769024
(IRSI.R.S. Employer
Identification No.)
 
6050 Oak Tree Boulevard, South,
Suite 500,
Cleveland, Ohio
44131
(Address of Principal Executive Offices)principal executive offices) 

44131
(Zip Code)
Registrant’s Telephone Number, Including Area Code 216-447-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Registrant’s telephone number, including area code: (216) 447-9000
Securities registered pursuant to Section 12(b) of the Act:
   
Common Stock, par value $0.01
New York Stock Exchange
(Title of class) Nasdaq National Market
(Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No  x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No  x
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 proceeding 12 months, and (2) has been subject to such filing requirements for the past 90 days.  Yes x     No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a non-accelerated filer.  Largesmaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inoRule 12b-2 Accelerated filer xof the Exchange Act. (Check one):
Large accelerated filero
Accelerated filer xNon-accelerated filer oSmaller reporting Company o
(Do not check if a smaller reporting company)               
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act).  Yes o     No  x
The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $301.2$494.7 million as of June 30, 2005.2008.
The number of outstanding shares of the registrant’s common stock is 75,673,78761,865,083 as of February 28, 2006.27, 2009.
DOCUMENTS INCORPORATED BY REFERENCE
Part III Portions of the Registrant’s Definitive Proxy Statement relative to the 20062009 Annual Meeting of Stockholders to be filed with the Securities and ExchangeExchanges Commission no later than 120 days after the end of the Registrant’s fiscal year.

 

CBIZ, INC.
ANNUAL REPORT ONFORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 20052008
Table of Contents
     
    Page
PART I
 
PART I
Item 1.
 Business 3
Item 1A.
 Risk Factors 911
Item 1B.
 Unresolved Staff Comments 1315
Item 2.
 Properties 1316
Item 3.
 Legal Proceedings 1316
Item 4.
 Submission of Matters to a Vote of Security Holders 1316
 
PART II
Item 5.
 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 1317
Item 6.
 Selected Financial Data 1520
Item 7.
 Management’s Discussion and Analysis of Financial Condition and Results of Operations 1621
Item 7A.
 Quantitative and Qualitative Disclosures About Market Risk 3443
Item 8.
 Financial Statements and Supplementary Data 3444
Item 9.
 Changes in and Disagreements withWith Accountants on Accounting and Financial Disclosure 3444
Item 9A.
 Controls and Procedures 3444
Item 9B.
 Other Information 35
Item 9C.
Management’s Report on Internal Control Over Financial Reporting3545
 
PART III
Item 10.
 Directors, and Executive Officers of the Registrantand Corporate Governance 3646
Item 11.
 Executive Compensation 3950
Item 12.
 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 3950
Item 13.
 Certain Relationships and Related Transactions, and Director Independence 3950
Item 14.
 Principal Accounting Fees and Services 4051
 
PART IV
Item 15.
 Exhibits, Financial Statement Schedules51
  41Signatures 
EX-3.5 Name Change54
 EX-21.1 Subsidiaries
 EX-23 Consent
 EX-31.1 Certification 302 - CEO
 EX-31.2 Certification 302 - CFO
 EX-32.1 Certification 906 - CEO
 EX-32.2 Certification 906 - CFO


2

2

The following text is qualified in its entirety by reference to the more detailed information and consolidated financial statements (including the notes thereto) appearing elsewhere in this Annual Report onForm 10-K. Unless the context otherwise requires, references in this Annual Report to “we”, “our”, “us”, “CBIZ”, or the “Company” shall mean CBIZ, Inc., a Delaware corporation, and its operatingwholly-owned subsidiaries. All references to years, unless otherwise noted, refer to our fiscal year which ends on December 31.
Available Information
Available Information
CBIZ’s principal executive office is located at 6050 Oak Tree Boulevard, South, Suite 500, Cleveland, Ohio 44131, and our telephone number is(216) 447-9000. Our website is located athttp://www.cbiz.com. CBIZ makes available, free of charge on its website, through the Investor Informationinvestor information page, its annual reports onForm 10-K, quarterly reports onForm 10-Q, current reports onForm 8-K, and any amendments to all those reports as soon as reasonably practicable after CBIZ files (or furnishes) such reports with the U.S. Securities and Exchange Commission (SEC)(“SEC”). The public may read and copy materials we file (or furnish) with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, and may obtain information on the operations of the Public Reference Room by calling the SEC at1-8001-800-732-0330.-732-0330. In addition, the SEC maintains an internet site that contains reports, proxy and information statements and other information about us athttp://www.sec.gov. Our corporate code of conduct and ethics and the charters of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee of the Board of Directors are available on the Investor Relationsinvestor information page of CBIZ’s website, referenced above, and in print to any shareholder who requests them.
PART I
Item 1.BusinessBusiness.
Overview and History
CBIZ is a diversified services company which, acting through its subsidiaries, provides professional business services, products and solutions that help our clients grow and succeed by better managing their finances, employees and technology. These services are provided to businesses of various sizes, as well as individuals, governmental entities andnot-for-profit enterprises throughout the United States and Toronto,parts of Canada. CBIZ provides solutions that enable our clients to better manage their finances, employees and technology. CBIZ delivers its integrated services through the following threefour practice groups: Accounting, Tax and Advisory, Benefits and Insurance, and National Practices which includes CBIZ Medical Management Professionals.
CBIZ’s mission is:
•   Financial Services •   to enable our clients to grow and prosper by providing them with superior services and products;Medical Management Professionals (“MMP”)
•   Employee Services
 •   to provide a professionally rewarding career for our employees; and
• to create shareholder value.National Practices
CBIZ built its professional services business through acquiring accounting, benefits, technology, valuation and other service firms throughout the United States. CBIZ’s growth strategy consists of three major components: internal growth, successfully cross-serving current clients, and acquisitions. During 2005, CBIZ acquired three businesses that enhance our investment advisory, valuation and accounting, tax, and advisory services. Our intention is to continue to selectively acquire businesses with complementary service offerings in our target markets.
History
CBIZ was incorporated in Delaware in 1987. On December 23, 1997, CBIZ changed its name to “Century Business Services, Inc.” and began trading under the symbol “CBIZ.” Effective August 1, 2005, after approval by our Board of Directors and shareholders, CBIZ changed its corporate name from “Century Business Services, Inc.” to “CBIZ, Inc.” CBIZ believes that this name change is integral to promoting greater name recognition in the marketplace,our diverse and to reinforcing our image as a unified provider of professional business services.
Business Strategy
CBIZ’s business strategy is to grow in the professional business services industry by:
• offering a wide array of professional business services;
• cross-serving these services to our existing client base;
• attracting new clients with our diverse business services offerings; and

3

• developing our core service offerings in target markets through internal growth and selective acquisitions.
Providing a range of business services to a client resultsintegrated service offerings result in advantages for both the client and for CBIZ. WorkingBy providing custom solutions that help our clients manage their finances, employees and technology, CBIZ enables our clients to focus their resources on their own core business and operational competencies. Additionally, working with one provider for several tasks savessolutions enables our clients to utilize their resources more efficiently by eliminating the client the time of havingneed to coordinate with multiple vendors.service providers. For example, the employee data used to process payroll can also be used by a CBIZ health and welfare insurance agent and benefits consultant to provide an appropriate benefits package to a client’s employee base. In addition, the relationship our accounting and tax advisors have with their clients allows us to identify financial planning, wealth management, and other business opportunities. The ability to combine several services and offer them through one trusted provider distinguishes CBIZ from other service providers.
CBIZ has been operating as a professional services business since 1996, and built its professional services business through acquiring accounting, benefits, technology, valuation, medical billing and other service firms throughout the United States. Effective August 4, 2006, CBIZ transferred the listing of its common stock to the New York Stock Exchange (“NYSE”) under the symbol “CBZ”. Prior to August 4, 2006, CBIZ’s common stock was traded on the NASDAQ National Market under the symbol “CBIZ”.
Business Strategy
CBIZ strives to maximize shareholder value and we believe this is lookingaccomplished through growth in revenue and earnings per share, as well as the strategic deployment of free cash-flow and capital resources.


3

Revenue
CBIZ believes revenue growth will be achieved through internal organic growth, cross-serving additional services to strengthen our operationsexisting clients, and customer service capabilities by making selective acquisitions that are complementary in building outtargeted acquisitions. Each of these components is critical to our service offerings in target markets. CBIZ’slong-term growth strategy, isand we expect each component to acquire companies that generally:contribute to our long-term revenue growth.
• haveCBIZ believes it can capitalize on organic growth opportunities including a strong potential for cross-servingdecentralized and generally underserved market. CBIZ offers a higher level of national resources than traditional local professional service firms but delivers these services locally with a higher level of personal service than is expected from traditional national firms. CBIZ is also able to CBIZ’s clients;leverage technology to both create efficiencies and to link together aligned services such as benefits, payroll, HR, and cobra administration.
 
• Cross-serving provides CBIZ with the opportunity to deliver multiple services to existing clients, and thus contributes to revenue growth through the expansion of business to such clients. Cross-serving opportunities are identified by our employees as they provide services to their existing clients. Being a trusted advisor to our clients provides CBIZ with the opportunity to identify our clients’ needs, while the diverse and integrated services offered by CBIZ allow us to provide solutions to satisfy these needs.
• canOur acquisition strategy is to selectively acquire businesses that expand our market position and strengthen our existing service offerings. Strategic businesses that CBIZ seeks to acquire generally have strong and energetic leadership, a positive local market reputation, the potential for cross-serving additional CBIZ services to their clients, an ability to integrate quickly with existing CBIZ operations;operations, and are accretive to earnings.
Earnings Per Share
CBIZ expects to grow earnings per share by achieving operating leverage. CBIZ believes we can achieve operating leverage by better managing productivity and efficiently delivering services to our clients while growing revenue. Operating leverage opportunities also include managing general and administrative infrastructure costs and other costs that may be fixed or increase at rates slower than revenue growth.
Cash Flows and Capital Resources
As CBIZ’s strategy is to utilize capital resources for strategic initiatives that will optimize shareholder return, our first use of capital is focused on strategic acquisitions. CBIZ also believes that repurchasing shares of its common stock is a use of cash that provides such value. Accordingly, CBIZ continually evaluates share repurchase opportunities and may repurchase shares of its common stock when, after assessing capital needed to fund acquisitions and seasonal working capital needs, resources are available and such repurchases are accretive to shareholders.


4

Services
CBIZ delivers its integrated services through four operating practice groups. A general description of services provided by practice group is provided in the table below.
Financial Services
Employee Services
MMP
National Practices
 
•   Accounting
•   Tax
•   Financial Advisory
•   Litigation Support
•   Valuation
•   Internal Audit
•   Fraud Detection
•   Real Estate Advisory
have strong and energetic leadership;
 •   Group Health
•   Property & Casualty
•   COBRA / Flex
•   Retirement Planning
•   Wealth Management
•   Life Insurance
•   Human Capital
    Management
•   Payroll Services
•   Actuarial Services
•   Recruiting		are accretive to earnings; and
 •   Coding and Billing
•   Accounts Receivable
    Management
•   Full Practice
    Management Services		help enhance the core CBIZ service offering in a geographical market.•   Managed Networking
    and Hardware Services
•   Technology Security
    Solutions
•   Technology
    Consulting
•   Project Management
•   Software Solutions
•   Health Care
    Consulting
•   Mergers &
    Acquisitions
In accordance with our strategy
Practice Groups
During the year ended December 31, 2008, CBIZ’s operating practice groups contributed to deliver services to clients locallyconsolidated revenue as follows: Financial Services, 44.3%; Employee Services, 25.9%; MMP, 23.4%; and to promote cross-serving between our various service groups, CBIZ consolidates office locations wherever practical. Since 2001, CBIZ consolidated offices in Atlanta, Boca Raton, Chicago, Cleveland, Columbus, Dallas, Denver, Kansas City, Los Angeles, Minneapolis, Orlando, Philadelphia, Salt Lake City, San Diego, San Jose, St. LouisNational Practices, 6.4%.
Revenue by practice group for the years ended December 31, 2008, 2007 and Tucson. CBIZ may consolidate additional offices locations2006, is provided in the future,table below (in thousands):
             
  Year Ended December 31, 
  2008  2007  2006 
 
Financial Services $312,122  $289,324  $261,391 
Employee Services  182,433   172,711   157,973 
MMP  164,950   132,853   117,369 
National Practices  44,758   45,427   46,922 
             
Total CBIZ $704,263  $640,315  $583,655 
             
A discussion of CBIZ’s practice groups and thus may incur additional costs associated with such consolidations.certain external relationships and regulatory factors that currently impact those practice groups are provided in the paragraphs below. See Note 23 of the accompanying consolidated financial statements for further discussion of CBIZ’s practice groups.
Business
Financial Services
The followingFinancial Services practice is a descriptiondivided into three geographic regions, representing the East, Midwest, and West regions of the businessUnited States, and a national services currently offered by CBIZ.
Accounting, Tax and Advisory. The businessdivision consisting of those units that comprise CBIZ’s Accounting, Taxprovide their services nationwide. The East, Midwest and Advisory (ATA) group offerWest regions are each led by a designated regional director, each of whom reports to the President, Financial Services. Those units within the national services in the following areas: federal, state and local tax return preparation, planning and consulting for individuals, corporations, partnerships, estates and trusts; strategic planning; consulting; record-keeping and financial statement preparation; tax planning based on financial and investment alternatives; tax structuring of business transactions such as mergers and acquisitions; quarterly and year-end payroll tax reporting; financial staffing services including chief financial officer services; financial investment analysis; succession, retirement, and estate planning; cash flow management; profitability, operational and efficiency enhancement consultingdivision report either directly to a number of specialized industries; litigation support services; internal audit services;designated regional director or to the President, Financial Services, who reports to CBIZ’s President and Sarbanes-Oxley consulting and compliance services.Chief Operating Officer.
Restrictions imposed by independence requirements and state accountancy laws and regulations preclude CBIZ from rendering audit and attest services (other than internal audit services). As such, CBIZ and its subsidiaries maintain joint-referral relationships and administrative service agreements (ASAs)(“ASAs”) with independent licensed Certified Public Accounting (CPA)(“CPA”) firms under which audit and attest services may be provided to CBIZ’s clients by such CPA firms. These firms are owned by licensed CPAs, a vast majority of whom are also employed by CBIZ subsidiaries.


5

Under these ASAs, CBIZ provides a range of services to the CPA firms, including (but not limited to): administrative functions such as office management, bookkeeping, and accounting; preparing marketing and promotion materials; providing office space, computer equipment, and systems support; and leasing administrative and professional staff. Services are performed in exchange for a fee. Fees earned by CBIZ under the ASAs are recorded as revenue in the accompanying consolidated statements of operations and amounted tototaled approximately $69.0$86.3 million, $46.3$77.5 million and $39.8$71.8 million for the years ended December 31, 2005, 20042008, 2007 and 2003,2006, respectively, a majority of which is related to services rendered to privately-held clients. In the event that accounts receivable and unbilled work in process become uncollectible by the CPA firms, the service fee due to CBIZ is typically reduced on a pro-rataproportional basis. The ASAs typically have terms ranging up to teneighteen years, and are renewable upon agreement by both parties.parties, and have certain rights of extension and termination.
With respect to CPA firm clients that are required to file audited financial statements with the SEC, the SEC staff views CBIZ and the CPA firms with which we have contractual relationships as a single entity in applying

4

independence rules established by the accountancy regulators and the SEC. Accordingly, we do not hold any financial interest in an SEC-reporting attest client of an associated CPA firm, enter into any business relationship with an SEC-reporting attest client that the CPA firm performing an audit could not maintain, or sell any non-audit services to an SEC-reporting attest client that the CPA firm performing an audit could not maintain, under the auditor independence limitations set out in the Sarbanes-Oxley Act of 2002 and other professional accountancy independence standards. Applicable professional standards generally permit the ATA practice groupCBIZ to provide additional services to privately-held companies in addition to those services which may be provided to SEC-reporting attest clients of an associated CPA firm. CBIZ and the CPA firms with which we are associated have implemented policies and procedures designed to enable us to maintain independence and freedom from conflicts of interest in accordance with applicable standards. Given the pre-existing limits set by CBIZ on its relationships with SEC-reporting attest clients of associated CPA firms, and the limited number and size of such clients, the imposition of Sarbanes-Oxley Act independence limitations did not, and is not, expected to materially affect CBIZ revenues.
The CPA firms with which CBIZ maintains ASAs may operate as limited liability companies, limited liability partnerships or professional corporations. The firms are separate legal entities with separate governing bodies and officers. Neither the existence of the ASAs nor the providing of services thereunderthere under is intended to constitute control of the CPA firms by CBIZ. CBIZ and the CPA firms maintain their own respective liability and risk of loss in connection with performance of itstheir respective services. Attest services can not be performed by any individual or entity which is not licensed to do so. CBIZ can not perform audits, reviews, compilations, or reviews,other attest services, does not contract to perform them and does not provide audit, review, compilation, or reviewother attest reports. Given this legal prohibition and course of conduct, CBIZ does not believe it is likely that we would bear the risk of litigation losses related to attest services provided by the CPA firms.
At December 31, 2005,2008, CBIZ maintained administrative service agreementsASAs with 9three CPA firms, which has decreased from 41 CPA firms during 2002.firms. Most of the membersand/or shareholders of the CPA firms are also CBIZ employees, and CBIZ renders services to the CPA firms as an independent contractor. The numberOne of firmsCBIZ’s ASAs is with which CBIZ maintains administrative service agreements decreased when a majority of the partners of the CPA firms with whom we previously maintained ASAs joined Mayer Hoffman McCann, P.C. (MHM(“MHM P.C.”), an independent national CPA firm headquartered in Kansas City, Kansas. MHM P.C. has approximately 200265 shareholders, a vast majority of whom are also employees of CBIZ. MHM maintains a sevenan eight member Board of Directors. There are no board members of MHM P.C. who hold senior officer positions at CBIZ. CBIZ’s association with MHM P.C. offers clients access to the multi-state resources and expertise of a national CPA firm. The advantage to CBIZ of these consolidations is a reduction in the number of different firms with which we maintain ASAs.
Although the ASAs do not constitute control, CBIZ is one of the beneficiaries of the agreements and may bear certain economic risks. As such, the CPA firms with which CBIZ maintains administrative service agreements qualify as variable interest entities under FASBFinancial Accounting Standards Board (“FASB”) Interpretation No. 46, (FIN 46), “Consolidation of Variable Interest Entities”, as amended. See further discussion in Note 1 of the accompanying consolidated financial statements.statements included herewith.
CBIZ is also able
Employee Services
CBIZ’s Employee Services group operates under one President who oversees the practice group, along with a senior management team which supports the practice group leader along functional, product, and unit management lines. The Employee Services President reports to offer its clients access to multi-state and international resources through relationships maintained with professional organizations such as Kreston International. CBIZ joined Kreston International in the third quarter of 2005. Kreston International is an international organization of affiliated accounting firms that allows CBIZ to access accounting services in more than 70 countries around the world.
At December 31, 2005, CBIZ’s ATA practice was divided into four regions, representing the East, Midwest, Great Lakes, and West regions of the United States. Each of these regions is headed by a designated regional director, each of whom report to the Senior Vice President, Accounting, Tax and Advisory Services. The Accounting, Tax and Advisory group contributed $245.5 million of revenue, representing approximately 43.9% of CBIZ’s consolidated annual revenue in 2005.
Benefits and Insurance Services.Chief Executive Officer. The business units that comprise


6

CBIZ’s Benefits and InsuranceEmployee Services group are organized by the following two groups:between Retail and National Services. At December 31, 2005, theThe Retail group was divided into three geographical regions representing the East, Central, and West regions of the United States. Each of the retail operations provides a broad range of primarily commercial employee benefit and property and casualty insuranceoffices generally provide services locally, within their geographic area. Specific services provided by the Retail group during 2005 included: consulting and brokerage of group health and welfare plans (group health, dental, vision, life and disability programs); the design, implementation and administration of qualified retirement plans, such as profit-

5

sharing plans (including 401-k plans), defined benefit plans, and money purchase plans; actuarial services for health and welfare plans and qualified retirement plans; COBRA and Section 125 plan administration programs for employees; communications services to educate employees about their benefit programs; executive benefits consulting on non-qualified retirement plans; human capital advisory services; business continuation plans; and wealth management services, including registered investment advisory services, investment policy statements, mutual fund selections, and ongoing mutual fund monitoring. In addition, the Benefits and Insurance Services group provides some personal lines brokerage for property and casualty and individual life and health insurance.
The National Services group is comprised of several specialty operations that provide unique services on a national scale. At December 31, 2005, specific services provided by the National Services group included: brokerage services for specialty high-risk life insurance and clinical underwriting; wholesale insurance brokerage services; bank-owned executive life insurance; and wealth management services, including registered investment advisory services, investment policy statements, mutual fund selections, and ongoing mutual fund monitoring.
CBIZ’s Benefits and Insurance group also provides an on-line enrollment service, CBIZSolutions, that in concert with our payroll services, enables employers and employees of a client to access information such as health and welfare benefits, retirement fund balances and payroll information; enroll for benefit plans; and access certain human resource documents such as employee handbooks and policies.
CBIZ’s Benefits and InsuranceEmployee Services group maintains relationships with many different insurance carriers. Some of these carriers have compensation arrangements with CBIZ whereby some portion of payments due may be contingent upon meeting certain performance goals, or upon CBIZ providing client services that would otherwise be provided by the carriers. These compensation arrangements are provided to CBIZ as a result of our performance and expertise, and may result in enhancing CBIZ’s ability to access certain insurance markets and services on behalf of CBIZ clients. The aggregate of these payments received during the years ended December 31, 20052008, 2007 and 2004 was2006 were less than 2% of consolidated CBIZ revenue for the respective periods.
State insurance regulators have conducted inquiries to clarify the nature of compensation arrangements within the insurance brokerage industry. To date, CBIZ, along with other major insurance brokerage companies, has received requests for information regarding our compensation arrangements related to these practices from such authorities. In addition to inquiries from various states’ insurance departments, CBIZ has received subpoenas from the New York Attorney General, the Connecticut Attorney General, and the Ohio Department of Insurance regarding its insurance brokerage compensation arrangements. CBIZ is cooperating fully in each inquiry. CBIZ has discussed the nature of these inquires and compensation arrangements with each of the major insurance carriers with whom we have established these arrangements. We believe that our arrangements are lawful and consistent with industry practice, and we expect that any changes to compensation arrangements in the future will have a minimal impact on CBIZ, barring future regulatory action. Future regulatory action may limit or eliminate our ability to enhance revenue through all current compensation arrangements, and may result in a diminution of future revenue from these sources.
CBIZ’s Benefits and Insurance Services group operates under one Senior Vice President, who oversees the three retail regions and their respective regional directors, as well as each of the National Services companies. The Benefits and Insurance group contributed $146.2 million of revenue, representing approximately 26.1% of CBIZ’s consolidated annual revenue in 2005.
National Practices.Medical Management Professionals At December 31, 2005, the business units that comprised CBIZ’s National Practices group offered services in the following areas: payroll processing and administration; valuation services including financial valuations, tangible and intangible asset valuations and litigation support services; mergers and acquisitions services; health care consulting; government relations; and information technology consulting, including strategic technology planning, project management, development, network design and implementation, software selection and implementation, and voice over internet protocol consulting and implementation.
CBIZ’s wholly-owned subsidiary, CBIZ
Medical Management Professionals (CBIZ MMP), is also managed within the National Practices group. CBIZ MMP, provides billing, coding and billingcollection as well as full-practice management services for hospital-based physicians practicing anesthesiology, pathology, radiology, emergency medicine, anesthesiology and pathology. MMP has a President who reports to CBIZ’s Chief Executive Officer. MMP’s President is supported by an executive management team which oversees MMP’s operating units along functional and product lines. MMP’s operating units are organized into four geographic regions representing the East, Great Lakes, South and West regions of the United States. Each region is managed by a two person management team focused on finance and operations.
Changes in some managed care plans and federal Medicare and Medicaid physician and practice expense reimbursement rules and rates have, and may continue to, adversely affect revenue in our existing physician and medical billing and collections business. The Deficit Reduction Act of 2005 (“DRA”) also provides for a reduction and cap that began in 2007 of reimbursement for certain fees and charges related to imaging services and facilities of offices, imaging centers and independent diagnostic testing facilities. In addition, certain managed care payors may impose precertification and other areas. CBIZ MMP’s billingmanagement programs which could limit or control the use of, and reimbursement for, imaging and diagnostic services. Certain managed care payors may institute “pay for performance” and “quality initiative” programs that could limit or control physician, office and facility, and practice services include:and procedures, as well as reimbursement costs, and replace volume-based payment methods. Since our physician and medical billing and accounts receivable management; claims processingcollections business is typically paid a portion of the revenue collected on behalf of our clients, any reduction in the volume of services or reimbursement rates for such services or expenses for which our clients are eligible to be paid may adversely affect our ability to generate revenue and collection; comprehensive delinquent claims follow up; compliance programmingmaintain margins. CBIZ will make its best efforts to meet government regulations;take appropriate actions to maintain margins in this business, however there is no assurance that we will be able to maintain margins at historic levels.
National Practices
The National Practices group offers technology, health care consulting, and comprehensive statistical and operational reporting. The practice management services provided by CBIZ MMP include: financial reporting, accounts payable, payroll, and general ledger processing; design of physician employment, stock and compensation arrangements; and comprehensive

6

budgeting, forecasting, and financial analysis. Additionally, CBIZ MMP conducts analyses of managed care contracts with a focus on negotiation strategies, pricing, cost containment and utilization tracking; reviews and negotiates contracts with hospitals and other entities; identifies and coordinates practice merger and integration opportunities; and coordinates practice expansion efforts.
At December 31, 2005, the businessacquisition services. The units within the National Practices group reportedeach have a business unit President. The majority of these business unit Presidents report to CBIZ’s President and Chief Operating Officer. The National Practices group contributed $167.6 million of revenue, representing approximately 30.0% ofOfficer, with one unit reporting to CBIZ’s annual revenue in 2005. Included in the results of the National Practices group are those of CBIZ MMP, which contributed $97.6 million of revenue, or 17.4% of CBIZ’s consolidated annual revenue in 2005.Chief Executive Officer.


7

Sales and Marketing
CBIZ’s branding strategy has historically focused on providing CBIZ with a consistent image and value proposition within each of its primary geographic and industry markets. ForBeginning in 2005, CBIZ capitalized on those successful efforts by refining its message to reinforce the CBIZ “Client Centric” model — a more intuitive way of taking the wide array of CBIZ service offerings to market, based on the fundamental needs of businesses to manage their financial, employee and technology challenges. These efforts included an evolution of the CBIZ advertising strategy, focusing on our three primary service offerings: employeefinancial management; financialemployee management; and technology management, as well as the development of a revised web presence, new collateral materials, and the introduction of several new direct marketing ande-marketing vehicles.
Beginning in 2007, CBIZ marketing has focused on three key strategies: thought leadership; market segmentation; and sales/sales management process development.
• Thought leadership:  CBIZ marketing efforts have continued to capitalize on the extensive knowledge and expertise of CBIZ associates. This has been accomplished through increased media visibility, speaking engagements, and the creation of a wide variety of white papers, technical documents, newsletters, books, and other information offerings.
• Market segmentation:  A significant number of our marketing initiatives have been targeted specifically to those industries and areas where CBIZ has a particularly deep experience. These efforts involve a comprehensive, integrated plan for each vertical market segment, including trade show participation and speaking engagements, trade publication advertising, targeted direct marketing, and industry specific micro-sites, newsletters, etc.
• Sales/sales management process development:  Beginning in 2007, CBIZ brought together three key aspects of sales and sales management: training through the “CBIZ Sales Academy”, enhanced productivity and management visibility through the adoption of Salesforce.com, and the development and implementation of a consistent set of performance management scorecards and business development pipeline tools. Together, we believe these initiatives create the foundation for a more effective, efficient and successful sales management process.
In 2008, CBIZ launched an enterprise-wide integrated branding campaign to clearly position and differentiate CBIZ and our array of services to our core audience. Based on the theme“Our business is growing yours”, the campaign helps clients and prospects understand the unique ability of CBIZ to help them grow and succeed in a broad variety of ways. The Client Centric model was also used as a basis to begin to better understand and define each client’s unique areascampaign relies on an integrated set of need and decision making authority, through the use of our proprietary database, CNECT. This level of client information will prove strategically important for revenue generation as it enhances CBIZ’s ability to identify the most appropriate cross-serving opportunities.
Beyond branding, a major marketing initiative was undertaken to enhance CBIZ’s targeted marketing capabilities. While it is CBIZ’s intent to continue to foster the entrepreneurial spirit of our offices by allowing each practice area and locality to execute their local marketing plan, CBIZ has significantly increased our ability to provide offices with a host of highly targeted marketing tools, support, and strategies to better capitalize on market opportunities in selected industries and practice areas. These tools includetactics including print and radio advertisements, printed material suchadvertising as brochureswell as online and stationery,direct marketing, and CBIZ-branded merchandise for trade shows and other client-oriented events. CBIZ continues to be focused on creating business developmentis supported via sales tools and programs on a national level that can be easily customized for use at the local level.collateral.
Customers
CBIZ provides professional business services to approximately 80,00090,000 clients. CBIZ’sBy providing various professional services and administrative functions, CBIZ enables its clients prefer to focus their resources on their own operational competencies while utilizing CBIZ to provide various administrative functions.competencies. Reducing administrative functions allows clients to enhance productivity, reduce costs and improve service quality and efficiency by focusing on their core business. Depending on a client’s size and capabilities, it may choose to utilize one, some or many of CBIZ’s broad array of services.the diverse and integrated services offered by CBIZ.
CBIZ’s clients come from a large variety of industries and markets, and nomarkets. No single client individually comprises more than 3.0%10% of our totalCBIZ’s consolidated revenue. Edward Jones, a financial services firmrevenue and client of CBIZ Network Solutions for electronic networking and information services, is our largest client, andEdward Jones, contributed approximately 2.6%less than 3% of CBIZ’s consolidated revenue in 2005.2008. Management believes that such diversity helps insulate CBIZ from a downturn in a particular industry.industry or geographic market. Nevertheless, economic conditions among selectedselect clients and groups of clients may have an impact on the demand for such services.services provided by CBIZ.
Competition
The professional business services industry is highly fragmented and competitive, with a majority of industry participants, such as accounting, employee benefits, payroll providers, medical management or professional service organizations, offering only a limited number of services. Competition is based primarily on customer relationships,


8

range and quality of services or product offerings, customer service, timeliness, geographic proximity, and competitive rates. CBIZ competes with a number of multi-location regional or national professional services firms and a large number of relatively small independent firms in local markets. CBIZ’s competitors in the professional business services industry include, but are not limited to, independent consulting services companies, independent accounting and tax firms, payroll service providers, medical billing and coding companies, independent insurance brokers and divisions of diversified services companies.

7

Acquisitions and Divestitures
CBIZ seeks to strengthen its operations and customer service capabilities by selectively acquiring businesses that are complementary in building outexpand our market position and strengthen our existing service offerings in our target markets.offerings. During 2005,the year ended December 31, 2008, CBIZ acquired five businesses. Two of these businesses are accounting firms that were acquired on December 31, 2008 and will be reported in the Financial Services practice group. Mahoney Cohen & Company, has offices in New York City, New York, and Boca Raton and Miami, Florida. Tofias PC, has offices in Cambridge and New Bedford, Massachusetts and Providence and Newport, Rhode Island. Both Mahoney Cohen & Company and Tofias PC were ranked in the top 100 accounting firms in the United States and offer accounting, tax and financial advisory services to privately-held and public companies as well as high net worth individuals. Since each of these businesses was acquired on December 31, 2008, they did not impact CBIZ’s consolidated statement of operations for the year ended December 31, 2008. However, the assets and liabilities of these businesses are included in the Company’s consolidated balance sheets at December 31, 2008.
The other three businesses, including a registered investment advisory firm in Cleveland, Ohio,payroll company, an accounting and consulting practice in San Diego, California,insurance agency and a valuationnational executive search firm are reported in Milwaukee, Wisconsin. In addition, CBIZ acquired two client lists which complement our Accounting, Tax and Advisory and Benefits and Insurance practices.
In January 2006, CBIZ completed the acquisitions of two companies:Employee Services practice group. The TriMed Grouppayroll business is located in Flint, MichiganPalm Desert, California and provides medical billingpayroll processing services to a large number of clients in California and in-house computer systems primarily to hospital-based physician practices;Arizona. The insurance business is located in Frederick, Maryland and Valley Global Insurance Brokers is a propertybroker of innkeepers’ insurance programs. The national executive search firm is headquartered in Overland Park, Kansas and casualty insurance broker locatedprovides services to a diverse client base with a focus on higher education institutions.
During the year ended December 31, 2008, CBIZ divested two businesses that did not contribute to our long-term objectives for growth, both of which were classified as discontinued operations. These businesses were formerly reported in San Jose, California.
In 2005, CBIZ sold a business operation from the BenefitsFinancial Services and Insurance practice group and closed an operation from the Accounting, Tax and Advisory practice group. In addition, CBIZ committed to the divestiture of a business unit from the National Practices — Other practice group which is expected to be completed in 2006. These divestitures were made ingroups. CBIZ also sold the assets of an on-going effort to rationalize ourEmployee Services business by divesting of units that were either under-performing, located in secondary markets, or did not provide the level of synergistic cross-serving opportunities with other CBIZ businesses that is desired. These divestitures are consistent with CBIZ’s plan to focus on metropolitan markets in which we can strengthen our core service offerings. In the future, CBIZ may from time to time divest of additional business operations and thus may recognize additional gains and/or losses on divestitures.qualify for classification as a discontinued operation.
Regulation
CBIZ’s operations are subject to regulations by federal, state, local and localprofessional governing bodies. Accordingly, our business services may be impacted by legislative changes by these bodies, particularly with respect to provisions relating to payroll, benefits administration and insurance services, pension plan administration, medical management billing and collections, and tax and accounting. CBIZ remains abreast of regulatory changes affecting our business, as these changes often affect clients’ activities with respect to employment, taxation, benefits, and accounting. For instance, changes in income, estate, or property tax laws may require additional consultation with clients subject to these changes to ensure their activities comply with revised regulations.
CBIZ itself is subject to industry regulation and changes, including changes in laws, regulations, and codes of ethics governing its accounting, insurance, valuation, medical management, registered investment advisory and broker-dealer operations, as well as in other industries, the interpretation of which may restrict CBIZ’s operations. CBIZ is currently in compliance with laws and regulations that have been recently changed or imposed, and is not aware of any proposed changes that will have a negative impact on CBIZ’s operations, or our ability to comply with such existing or proposed regulations.
CBIZ is subject to certain privacy and information security laws and regulations, including, but not limited to those under the Health Insurance Portability and Accountability Act of 1996, (HIPAA), The Financial Modernization Act of 1999 (the Gramm-Leach-Bliley Act), and other provisions of federal and state law which may restrict CBIZ’s operations and give rise to expenses related to compliance. CBIZ is currently in compliance with such laws and regulations, and expects to remain in compliance in future periods.
As a public company, CBIZ is subject to the provisions of the Sarbanes-Oxley Act of 2002 to reform the oversight of public company auditing, improve the quality and transparency of financial reporting by those companies and strengthen the independence of auditors. CBIZ is currently in compliance with those requirements.


9

Liability Insurance
CBIZ carries insurance policies including those for commercial general liability, automobile liability, property, crime, professional liability, directorsdirectors’ and officersofficers’ liability, fiduciary liability, employment practices liability and workers’ compensation subject to prescribed state mandates. Excess liability coverage is carried over the underlying limits provided by the commercial general liability, directors’ and officers’ liability, professional liability and automobile liability policies.
Employees
At December 31, 2005,2008, CBIZ employed approximately 4,7006,000 employees, approximately half of whom hold professional certifications or degrees.including the employees from the businesses acquired on December 31, 2008. CBIZ believes that it has a good relationship with its employees. CBIZ believes that asA large number of our employees hold professional licenses or degrees. As a professional services company that differentiates itself from competitors through the quality and

8

diversity of our service offerings, the Company’sCBIZ believes that our employees are our most important asset. Accordingly, CBIZ strives to remain competitive as an employer while increasing the capabilities and performance of our employees.
Seasonality
A disproportionately large amount of CBIZ’s revenue occurs in the first half of the year. This is due primarily to our accounting and tax services provided by our Financial Services practice group, which is subject to seasonality related to heavy volume in the first four months of the year. CBIZ’s ATAFinancial Services group generated approximately 42%more than 40% of its revenue in the first four months of 2005.2008. Like most professional service companies, most of CBIZ’s operating costs are relatively fixed in the short term, resultingwhich generally results in higher operating margins in the first half of the year.
Uncertainty of Forward-Looking Statements
This Annual Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934.1934 (“the Exchange Act”). All statements other than statements of historical fact included in this Annual Report including, without limitation, “Business and Properties”“Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding CBIZ’s financial position, business strategy and plans and objectives for future performance are forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements are commonly identified by the use of such terms and phrases as “intends,” “believes,” “estimates,” “expects,” “projects,” “anticipates,” “foreseeable future,” “seeks,” and words or phrases of similar import in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated services, sales efforts, expenses, and financial results. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in thisForm 10-K, in the 20052008 Annual Report and in any other public statements that we make, are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Such forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in “Item 1A. Risk Factors” will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Our actual future results may vary materially. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in the quarterly, periodic and annual reports we file with the SEC. Also note that we provide the following cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our businesses. These are factors that we think could cause our actual results to differ materially from expected and historical results. Other factors besides those described here could also adversely affect operating or financial performance. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.


10

Item 1A.  Risk Factors.
Item 1A.     Risk Factors
The following factors may affect our actual operating and financial results and could cause results to differ materially from those in any forward-looking statements. There may be other risk factors that are currently unknown to CBIZ, and new risk factors may emerge in the future. You should carefully consider the following information.
A reversal of or decline in the current trend of outsourcing business servicesbusinesses utilizing third-party service providers may have a material adverse effect on our business, financial condition and results of operations.
Our business and growth depend in large part on the trend toward outsourcing business services.businesses utilizing third-party service providers. We can give you no assurance that this trend in outsourcing will continue. Current and potential customers may elect to perform such services with their own employees. A significant reversal of, or a decline in, this trend would have a material adverse effect on our business, financial condition and results of operations.
We may be more sensitive to revenue fluctuations than other companies, which could result in fluctuations in the market price of our common stock.
A substantial majority of our operating expenses such as personnel and related costs depreciation and rent,occupancy costs, are relatively fixed in the short term. As a result, we may not be able to quickly reduce costs in response to any decrease in revenue. For example, any decision by a significant client to delay or cancel our services may cause significant variations in operating results and could result in losses for the applicable quarters. Additionally, the general condition of the United States economy has and will continue to affect our business. Potential new clients may defer from switching service providers when they believe economic conditions are unfavorable. Any of these

9

factors could cause our quarterly results to be lower than expectations of securities analysts and shareholders, which could result in a decline in the price of our common stock.
We have a risk that paymentsPayments on accounts receivable or notes receivable may be slower than expected, or that amounts due on receivables or notes may not be fully collectible.
Professional services firms often experience higher average accounts receivable days outstanding compared to many other industries.industries, which may be magnified if the general economy worsens. If our collections become slower, our liquidity may be adversely impacted. We monitor the aging of receivables regularly and make assessments of the ability of customers to pay amounts due. We provide for potential bad debts each month and recognize additional reserves against bad debts as we deem it appropriate. Notwithstanding these measures, our customers may face unexpected circumstances that adversely impact their ability to pay their trade receivables or note obligations to us and we may face unexpected losses as a result.
We are dependent on the services of our executive officers and other key employees, the loss of any of whom may have a material adverse effect on our business, financial condition and results of operations.
Our success depends in large part upon the abilities and continued services of our executive officers and other key employees, such as our business unit presidents. In the course of business operations, employees may resign and seek employment elsewhere. Certain principal employees, however, are bound in writing to non-compete agreements barring competitive employment, client solicitation, and solicitation of employees for a period of between two and ten years following his or her resignation. We cannot assure you that we will be able to retain the services of our key personnel. If we cannot retain the services of key personnel, there could be a material adverse effect on our business, financial condition and results of operations. While we generally have employment agreements and non-competition agreements with key personnel, courts are at times reluctant to enforce such non-competition agreements. In addition, many of our executive officers and other key personnel are either participants in our stock option plan or holders of a significant amount of our common stock. We believe that these interests provide additional incentives for these key employees to remain with us. In order to support our growth, we intend to continue to effectively recruit, hire, train and retain additional qualified management personnel. Our inability to


11

attract and retain necessary personnel could have a material adverse effect on our business, financial condition and results of operations.
Restrictions imposed by independence requirements and conflict of interest rules may limit our ability to provide services to clients of the attest firms with which we have contractual relationships and the ability of such attest firms to provide attestation services to clients of ours.our clients.
Restrictions imposed by independence requirements and state accountancy laws and regulations preclude CBIZ from rendering audit and attest services (other than internal audit services). As such, CBIZ and its subsidiaries maintain joint-referral relationships and administrative service agreements (ASAs)ASAs) with independent licensed Certified Public Accounting (CPA)CPA firms under which audit and attest services may be provided to CBIZ’s clients by such CPA firms. These firms are owned by licensed CPAs, a vast majority of whom are employed by CBIZ subsidiaries.
Under these ASAs, CBIZ provides a range of services to the CPA firms, including (but not limited to): administrative functions such as office management, bookkeeping, and accounting; preparing marketing and promotion materials; providing office space, computer equipment, and systems support; and leasing administrative and professional staff. Services are performed in exchange for a fee. Fees earned by CBIZ under the ASAs are recorded as revenue in the accompanying consolidated statements of operations. In the event that accounts receivable and unbilled work in process become uncollectible by the CPA firms, the service fee due to CBIZ is typically reduced on a pro-rataproportional basis.
With respect to CPA firm clients that are required to file audited financial statements with the SEC, the SEC staff views CBIZ and the CPA firms with which we have contractual relationships as a single entity in applying independence rules established by the accountancy regulators and the SEC. Accordingly, we do not hold any financial interest in, an SEC-reporting attest client of an associated CPA firm,nor do we enter into any business relationship with, an SEC-reporting attest client that the CPA firm performing an audit could not maintain, ormaintain; further, we do not sell any non-audit services to an SEC-reporting attest client that the CPA firm performing an audit could not maintain, under the auditor independence limitations set out in the Sarbanes-Oxley Act of 2002 and other professional accountancy independence standards. Applicable professional standards generally permit the ATA practice groupCBIZ to provide additional services to privately-held companies, in addition to those services which may be provided to SEC-reporting attest clients of an associated CPA firm. CBIZ and the CPA firms with which we are associated

10

have implemented policies and procedures designed to enable us to maintain independence and freedom from conflicts of interest in accordance with applicable standards. Given the pre-existing limits set by CBIZ on its relationships with SEC-reporting attest clients of associated CPA firms, and the limited number and size of such clients, the imposition of Sarbanes-Oxley Act independence limitations did not and is not expected to materially affect CBIZ revenues.
There can be no assurance that following the policies and procedures implemented by us and the attest firms will enable us and the attest firms to avoid circumstances that would cause us and them to lack independence from an SEC-reporting attest client; nor can there be any assurance that state accountancy authorities will not extend current restrictions on the profession to include private companies. To the extent that licensed CPA firms for whom we provide administrative and other services are affected, we may experience a decline in fee revenue from these businesses as well. To date, revenues derived from providing services in connection with attestation engagements of the attest firms performed for SEC-reporting clients have not been material.
Governmental regulations and interpretations are subject to changes.
Laws and regulations often result in changes in the amount or the type of business services required by businesses and individuals. We cannot be sure that future laws and regulations will provide the same or similar opportunities for us to provide business consulting and management services to businesses and individuals. State insurance regulators have conducted inquiries to clarify the nature of compensation arrangements within the insurance brokerage industry. Future regulatory action may limit or eliminate our ability to enhance revenue through all current compensation arrangements, and may result in a diminution of future insurance brokerage revenue from these sources. Accordingly, CBIZ’s ability to continue to operate in some states may depend on our flexibility to modify our operational structure in response to these changes in regulations.


12

Changes in the United States healthcare environment may adversely affect the revenue and margins in our medical management business.
Our medical management business is typically paid a portion of the revenue collected on behalf of our clients who are hospital based physician practices primarily in the fields of radiology, emergency medicine, anesthesiology and pathology. Changes in the healthcare environment that affect the volume of procedures performed by our clients, or that affect the reimbursement rates for procedures performed by our clients, will impact our revenue and could adversely impact margins in this business. Revenue and margins in this business could also be adversely impacted if our clients lose their hospital contracts as a result of hospital consolidations or other reasons.
Medicare and Medicaid reimbursements are subject to regulation and periodic legislated changes in eligibility and reimbursement rates. In addition, certain managed care payors may change reimbursement rates, or may impose precertification and other management programs which could limit the use of, and reimbursement for, imaging and diagnostic services. Certain managed care payors may institute “pay for performance” and “quality initiative” programs that could limit or control physician, office and facility, and practice services and procedures, as well as reimbursement costs, and replace volume-based payment methods. Any legislated changes in the U.S. national health care system or changes by managed care payors, could impact revenue and margins in this business and depending upon the nature of the changes, could have an adverse impact on this business.
Higher rates of unemployment in the U.S. could result in a general reduction in the number of individuals with employer sponsored health care coverage. A reduction in the number of individuals with employer provided health care coverage could result in a reduction in the volume of elective medical procedures performed by the hospital based physician practices served by our medical management business, which could have an adverse impact on revenues and margins in this business.
We are subject to risks relating to processing customer transactions for our payroll, medical practice management, property tax management, and other transaction processing businesses.
The high volume of client funds and data processed by us, or by our out-sourced resources abroad, in our transaction related businesses entails risks for which we may be held liable if the accuracy or timeliness of the transactions processed is not correct. We could incur significant legal expense to defend any claims against us, even those claims without merit. While we carry insurance against these potential liabilities, we cannot be certain that circumstances surrounding such an error would be entirely reimbursed through insurance coverage. We believe we have controls and procedures in place to address our fiduciary responsibility and mitigate these risks. However, if we are not successful in managing these risks, our business, financial condition and results of operations may be harmed.
We are subject to risk as it relates to software that we license from third parties.
We license software from third parties, much of which is integral to our systems and our business. The licenses are terminable if we breach our obligations under the license agreements. If any of these relationships were terminated or if any of these parties were to cease doing business or cease to support the applications we currently utilize, we may be forced to spend significant time and money to replace the licensed software. However, we cannot assure you that the necessary replacements will be available on reasonable terms, if at all.
We could be held liable for errors and omissions.
All of our professional business services entail an inherent risk of professional malpractice and other similar claims.claims resulting from errors and omissions. Therefore, we maintain errors and omissions insurance coverage. Although we believe that our insurance coverage is adequate, we cannot be certain that actual future claims or related legal expenses would not exceed the coverage amounts. In addition, we cannot be certain that the different insurance carriers which provide errors and omissions coverage for different lines of our business will not dispute their obligation to cover a particular claim. If we have a large claim, or a large number of claims, on our insurance, the rates for such insurance may increase, and amounts expended in defense or settlement of these claims prior to exhaustion of deductible or self-retention levels may become significant, but contractual arrangements with clients may constrain our ability to


13

incorporate such increases into service fees. Insurance rate increases, disputes by carriers over coverage questions, payments by us within deductible or self-retention limits, as well as any underlying claims or settlement of such claims, could have a material adverse effect on our business, financial condition and results of operations.

11

We invested in auction rate securities which are subject to risks that may cause losses and affect our liquidity.
A portion of our funds held for clients were invested in auction rate securities (“ARS”). ARS are variable-rate debt instruments with longer stated maturities whose interest rates are reset at predetermined short-term intervals through a Dutch auction system. In accordance with our investment policy, all investments carry an investment grade rating at the time of the initial investment. As a result of liquidity issues experienced in the credit and capital markets, our ARS experienced failed auctions during 2008, and CBIZ recorded impairment charges to reduce the carrying value of our investments in ARS to estimated fair value. If the credit markets continue to struggle, our ability to convert ARS to cash will continue to be hindered and future impairment charges may be required, which would adversely affect our results of operations and financial condition.
Our principal stockholders may have substantial control over our operations.
As of
At December 31, 2005,2008, the stockholders identified below owned the following aggregate amounts and percentages of our common stock, including shares that may be acquired by exercising options:stock awards:
• approximately 15.3 million shares, representing 20.7% of all our outstanding common stock, were owned by Michael G. DeGroote;
• approximately 5.8 million shares, representing 7.9% of all our outstanding common stock, were owned by Cardinal Capital Management LLC;
• approximately 5.1 million shares, representing 7.0% of all our outstanding common stock, were owned by Dimensional Fund Advisors Inc.;
• approximately 29.2 million shares, representing 39.6% of all our outstanding common stock, were owned by our executive officers, directors, and the foregoing as a group.
         
  Number of
  % of CBIZ’s
 
  Shares
  Outstanding
 
  (In millions)  Common Stock 
 
Michael G. DeGroote  15.4   24.7%
Cardinal Capital Management LLC  2.9   4.6%
Barclays Global Investors, NA & Barclays Global Fund Advisors  2.6   4.2%
P2 Capital Partners LLC  2.3   3.7%
Fidelity Management and Research  2.1   3.4%
Dimensional Fund Advisors, Inc  1.9   3.0%
CBIZ Executive Officers and Directors  3.2   5.1%
         
The foregoing as a group  30.4   48.7%
         
Because of their stock ownership, these stockholders may exert substantial influence or actions that require the consent of a majority of our outstanding shares, including the election of directors. CBIZ’s share repurchase activities may serve to increase the ownership percentage of these individuals and therefore increase the influence they may exert, if they do not participate in these share repurchase transactions.
We have shares eligible for future sale that could adversely affect the price of our common stock.
Future sales or issuances of common stock, or the perception that sales could occur, could adversely affect the market price of our common stock and dilute the percentage ownership held by our stockholders. We have authorized 250 million shares, and have issued and outstanding approximately 7462 million shares outstanding at January 31, 2006. More than 47 millionFebruary 27, 2009. A substantial number of these shares have been issued in connection with acquisitions. As part of many acquisition transactions, shares are contractually restricted from sale for periods up to two years, and as of January 31, 2006,February 28, 2009, approximately 242,0001.4 million shares of common stock were underlock-up contractual restrictions. We cannot be sure when sales by holders of our stock will occur, how many shares will be sold or the effect that sales may have on the market price of our common stock. As of January 31,
In 2006, we also have registered underCBIZ filed a registration statement with the Securities Act of 1933, 15 millionSEC to register the shares of our common stock, mostCommon Stock issuable by the Company upon conversion (the “Conversion Shares”) of which remain available tothe Company’s issued and outstanding $100.0 million of 3.125% Convertible Senior Subordinated Notes due 2026 (the “Notes”). The registration statement has been declared effective. Although the Company cannot at this time determine the number of Conversion Shares it will


14

issue upon conversion of the Notes, if any, the number of Conversion Shares will be offered from time to timecalculated as set out in the Registration Statement onForm S-3 filed by us in connectionthe Company with acquisitions under our acquisition shelf registration statement.the SEC on July 21, 2006.
We are reliant on information processing systems.
Our ability to provide business services depends on our capacity to store, retrieve, process and manage significant databases, and expand and upgrade periodically our information processing capabilities. Interruption or loss of our information processing capabilities through loss of stored data, breakdown or malfunctioning of computer equipment and software systems, telecommunications failure, or damage caused by fire, tornadoes, lightning, electrical power outage, or other disruption could have a material adverse effect on our business, financial condition and results of operations. Although we have disaster recovery procedures in place and insurance to protect against such contingencies, we cannot be sure that insurance or these services will continue to be available at reasonable prices, cover all our losses or compensate us for the possible loss of clients occurring during any period that we are unable to provide business services.
We may not be able to acquire and finance additional businesses which may limit our ability to pursue our business strategy.
CBIZ acquired five businesses and three businessesclient lists during 2005, and two in January 2006.2008. It is our intention to selectively acquire businesses or client lists that are complementary in building out our service offerings in our target markets. However, we cannot be certain that we will be able to continue identifying appropriate acquisition candidates and acquire them on satisfactory terms. We cannot assure you that such acquisitions, even if completed, will perform as expected or will contribute significant synergies, revenues or profits. In addition, we may also face increased competition for acquisition opportunities, which may inhibit our ability to complete transactions on terms that are favorable to us. There are certain provisions under our credit facility that may limit our ability to acquire additional businesses. In the event that we are not in compliance with certain covenants as specified in our credit facility, we could be restricted from making acquisitions, restricted from borrowing funds from our credit facility for other uses, or required to pay down the outstanding balance on the line of credit. However, management believes that funds available under the credit facility, along with cash generated from operations, will be sufficient to meet our liquidity needs, including planned acquisition activity in the foreseeable future. To the extent we are unable to find suitable acquisition candidates, an important component of our growth strategy may not be realized.

12

The business services industry is competitive and fragmented. If we are unable to compete effectively, our business, financial condition and results of operations may be harmed.
We face competition from a number of sources in both the business services industry and from specialty insurance agencies. Competition in both industries has led to consolidation. Many of our competitors are large companies that may have greater financial, technical, marketing and other resources than us. In addition to these large companies and specialty insurance agencies, we face competition in the business services industry from in-house employee services departments, local business services companies and independent consultants, as well as from new entrants into our markets. We cannot assure you that, as our industry continues to evolve, additional competitors will not enter the industry or that our clients will not choose to conduct more of their business services internally or through alternative business services providers. Although we intend to monitor industry trends and respond accordingly, we cannot assure you that we will be able to anticipate and successfully respond to such trends in a timely manner. We cannot be certain that we will be able to compete successfully against current and future competitors, or that competitive pressure will not have a material adverse effect on our business, financial condition and results of operations.
Item 1B.     Unresolved Staff Comments
None.
Item 1B.  Unresolved Staff Comments.
None.


15

Item 2.PropertiesProperties.
CBIZ’s corporate headquarters is located at 6050 Oak Tree Boulevard, South, Suite 500, Cleveland, Ohio 44131, in leased premises. CBIZ and its subsidiaries lease more than 140 offices in 37 states, and one in Toronto, Canada. Some of CBIZ’s property and equipmentproperties are subject to liens securing payment of indebtedness of CBIZ and its subsidiaries. CBIZ and its subsidiaries lease more than 140 offices in 34 states, the District of Columbia and one in Toronto, Canada, as well as office equipment and company vehicles. Included in this total, and managed within the National Practices group, is the Company’s medical practice management business unit which has 74 offices. CBIZ believes that its current facilities are sufficient for its current needs.
Item 3.Legal ProceedingsProceedings.
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 financial condition, results of operations or cash flows of CBIZ.
Item 4.Submission of Matters to a Vote of Security HoldersHolders.
No matters were submitted to a vote of CBIZ’s stockholders during the fourth quarter of the fiscal year covered by this Annual Report.


16

PART II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesSecurities.
Price Range of Common Stock
CBIZ’s common stock is quotedtraded on the Nasdaq National MarketNYSE under the trading symbol “CBIZ”“CBZ”. The table below sets forth the range of high and low sales prices for CBIZ’s common stock as reported on the Nasdaq National MarketNYSE for the periods indicated.
                 
  2005 2004
     
  High Low High Low
         
First quarter $4.60  $3.89  $5.15  $3.34 
Second quarter $4.22  $3.30  $5.12  $4.00 
Third quarter $5.10  $3.92  $4.95  $3.85 
Fourth quarter $6.90  $4.77  $4.74  $4.06 
                 
  2008  2007 
  High  Low  High  Low 
 
First quarter $9.85  $7.66  $7.34  $6.31 
Second quarter $9.24  $7.76  $7.76  $6.85 
Third quarter $9.02  $7.68  $8.10  $6.70 
Fourth quarter $8.75  $5.69  $9.83  $7.94 
On December 30, 2005,31, 2008, the last reported sale price of CBIZ’s Common Stock as reported on the Nasdaq National Market (Nasdaq Amex-Online)NYSE was $6.02$8.65 per share. As of February 28, 2006,27, 2009, CBIZ had approximately 7,7505,700 holders of record of its common stock, and the last sale of CBIZ’s common stock as of that date was $7.26.$6.86.

13

As required by the NYSE, CBIZ filed its annual CEO certification regarding the Company’s compliance with the NYSE’s corporate governance listing standards as required by NYSE rule 303A. There were no qualifications in this certification. In addition, CBIZ has filed Exhibits 31.1 and 31.2 to this Annual Report onForm 10-K, which represent the certifications of its Chief Executive Officer and Chief Financial Officer as required under Section 302 of the Sarbanes-Oxley Act of 2002.
Dividend Policy
CBIZ’s credit facility does not permit CBIZ to declare or make any dividend payments, other than dividend payments made by one of CBIZ’s wholly owned subsidiaries to the parent company. Historically, CBIZ has not paid cash dividends on its common stock, since April 27, 1995, and does not anticipate paying cash dividends in the foreseeable future. CBIZ’s Board of Directors has discretion over the payment and level of dividends on common stock. The Board of Directors’ decision is based, among other things, on the Company’s results of operations and financial condition. In addition, CBIZ’s credit facility does not permit CBIZ to declare or make any dividend payments, other than dividend payments made by one of CBIZ’s wholly owned subsidiaries to the parent company. CBIZ currently intends to retain future earnings to finance the ongoing operations and growth of the business. Any future determination as to dividend policy will be made at the discretion of the Board of Directors and will depend on a numberbe subject to the terms of factors, including future earnings, capital requirements, financial condition and future prospects, limitations on dividend payments pursuant toCBIZ’s credit or other agreements and such other factors as the Board of Directors may deem relevant.facility.
Issuer Purchases of Equity Securities
(c) 
(a)  Recent sales of unregistered securities
On December 31, 2008, in connection with the acquisitions of Mahoney Cohen & Company CPA, PC and Tofias, PC, CBIZ paid cash and issued approximately 1.1 million shares of common stock in exchange for substantially all of the non-attest assets and certain membership interests of the companies.
The above referenced shares were issued in transactions not involving a public offering in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act. The persons to whom the shares were issued had access to full information about CBIZ and represented that they acquired the shares for their own account and not for the purpose of distribution. The certificates for the shares contain a restrictive legend advising that the shares may not be offered for sale, sold, or otherwise transferred without having first been registered under the Securities Act or pursuant to an exemption from the Securities Act.
(c)  Issuer purchases of equity securities
Periodically, CBIZ’s Board of Directors authorizes a Share Repurchase Plan which allows the Company to purchase shares of its common stock in the open market or in a privately negotiated transaction according the SEC rules. On


17

February 10, 2005,19, 2009, February 7, 2008 and February 8, 2007, CBIZ’s Board of Directors authorized the share repurchaseShare Repurchase Plans, each of up to 5.0 million shares of CBIZ common stock; this plan expired December 31, 2005. On February 9, 2006, the Board of Directorswhich authorized the purchase of up to 5.0 million shares of CBIZ common stock through March 31, 2007. Stockstock. Each Share Repurchase Plan is effective beginning April 1 of the respective plan year, and each expires one year from the respective effective date. The repurchase activity duringplans do not obligate CBIZ to acquire any specific number of shares and may be suspended at any time.
During the year ended December 31, 2005 is2008, CBIZ repurchased approximately 4.8 million shares of common stock under the repurchase plans, at an average price of $8.62 per share. Shares repurchased during the fourth quarter of 2008 (reported on a trade-date basis) are summarized in the table below (in thousands, except per share data).
Issuer Purchases of Equity Securities
                   
        Maximum
      Total Number Number of
  Total   of Shares Shares That
  Number of Average Purchased as May Yet Be
  Shares Price Paid Part of Publicly Purchased
Period Purchased(1) Per Share(2) Announced Plan Under the Plan
         
Total first quarter purchases  90  $4.12   90   4,910 
Total second quarter purchases  1,786  $4.03   1,786   3,124 
Total third quarter purchases(3)  1,344  $4.58   1,344   1,780 
Fourth Quarter Purchases by Month
                
 October 1 – October 31, 2005(3)  583  $5.03   583   1,197 
 November 1 – November 30, 2005  —   —   —   1,197 
 December 1 – December 31, 2005  —   —   —   — 
             
  Total fourth quarter purchases  583  $5.03   583     
             
Total purchases during the year ended December 31, 2005  3,803  $4.38   3,803     
             
                 
  Issuer Purchases of Equity Securities 
           Maximum
 
        Total Number
  Number of
 
  Total
     of Shares
  Shares That
 
  Number of
  Average
  Purchased as
  May Yet Be
 
  Shares
  Price Paid
  Part of Publicly
  Purchased
 
Fourth Quarter Purchases(1)
 Purchased  Per Share(2)  Announced Plan  Under the Plan(3) 
 
October 1 – October 31, 2008  —   —   —   2,994 
November 1 – November 30, 2008  —   —   —   2,994 
December 1 – December 31, 2008  427  $8.42   427   2,567 
                 
Total fourth quarter purchases  427  $8.42   427     
                 
 
(1)Open market purchases.
(2) Average price paid per share includes fees and commissions.
(3) CBIZ utilized, and may utilize in the future, aRule 10b5-1 trading plan to allow for repurchases by the Company during periods when it would not normally be active in the trading market due to regulatory restrictions. Under theRule 10b5-1 trading plan, CBIZ was unableable to repurchase shares abovebelow a pre-determined price per share. Additionally, the maximum number of shares that may be purchased by the Company each day is governed byRule 10b-18.
(2)Average price paid per share includes fees and commissions.
(3)Calculated under the share repurchase plan expiring March 31, 2009.


18

14

Performance Graph
The following graph compares the cumulative5-year total return to holders of CBIZ, Inc.’s common stock with the cumulative total returns of the S&P 500 index, the Russell 2000 index and two customized peer groups of companies that are referred to as “Old Peer Group” and “New Peer Group”. The Old Peer Group consists of six companies which are: American Express Company, Arthur J Gallagher & Company, Brown & Brown Inc, H & R Block Inc, The Hackett Group Inc and Paychex Inc. The New Peer Group consists of seven companies which are: Brown & Brown Inc, Gevity HR Inc, H & R Block Inc, Jackson Hewitt Tax Service Inc, National Financial Partners Corp., Paychex Inc and Watson Wyatt Worldwide Inc. The New Peer Group was selected to provide a better representation of CBIZ’s comparative businesses. The graph assumes that the value of the investment in our common stock, in each index, and in each of the peer groups (including reinvestment of dividends) was $100 on12/31/2003 and tracks it through12/31/2008.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among CBIZ, Inc., The S&P 500 Index, The Russell 2000 Index
and a New and Old Peer Group
* $100 invested on 12/31/03 in stock & index-including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2009 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
                               
   12/2003   12/2004   12/2005   12/2006   12/2007   12/2008 
CBIZ, Inc.    100.00    97.54    134.68    155.93    219.46    193.51 
S&P 500   100.00    110.88    116.33    134.70    142.10    89.53 
Russell 2000   100.00    118.33    123.72    146.44    144.15    95.44 
Old Peer Group   100.00    110.69    118.42    134.01    117.09    61.71 
New Peer Group   100.00    97.34    111.27    114.22    103.01    87.26 
                               
The stock price performance included in this graph is not necessarily indicative of future stock price performance.


19

Item 6.Selected Financial DataData.
The following table presents selected historical financial data for CBIZ and is derived from the historical consolidated financial statements and notes thereto. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the consolidated financial statements and the notes thereto, which are included elsewhere in this Annual Report. The financial results for 2004 through 2007 have been reclassified as described in Note 1 of the accompanying consolidated financial statements.
                       
  Year Ended December 31,
   
  2005 2004(1) 2003(1) 2002(1) 2001(1)
           
  (In thousands, except per share data)
Statement of Operations Data:
                    
Revenue $559,269  $504,898  $482,254  $472,170  $488,573 
Operating expenses  485,295   438,417   419,932   417,424   417,980 
                
Gross margin  73,974   66,481   62,322   54,746   70,593 
Corporate general and administrative expense  24,911   24,099   18,745   17,673   18,741 
Depreciation and amortization expense  15,163   16,010   16,581   19,881   39,909 
                
Operating income  33,900   26,372   26,996   17,192   11,943 
Other income (expense):                    
 Interest expense  (3,109)  (1,507)  (1,055)  (2,477)  (6,795)
 Gain (loss) on sale of operations, net  314   996   2,519   930   (7,113)
 Other income (expense), net  5,052   3,532   (1,227)  (1,561)  4,393 
                
  Total other income (expense)  2,257   3,021   237   (3,108)  (9,515)
Income from continuing operations before income tax expense  36,157   29,393   27,233   14,084   2,428 
Income tax expense  14,571   8,045   11,918   7,476   13,446 
                
Income (loss) from continuing operations  21,586   21,348   15,315   6,608   (11,018)
Loss from operations of discontinued operations, net of tax  (6,463)  (5,429)  (725)  (978)  (4,982)
Gain (loss) on disposal of discontinued operations, net of tax  3,550   132   726   (2,471)  — 
Cumulative effect of change in accounting principle, net of tax(2)  —   —   —   (80,007)  — 
                
Net income (loss) $18,673  $16,051  $15,316  $(76,848) $(16,000)
                
Basic weighted average common shares  74,448   79,217   90,400   94,810   94,818 
Diluted weighted average common shares  76,827   81,477   92,762   96,992   94,818 
Basic earnings (loss) per share:                    
 Continuing operations $0.29  $0.27  $0.17  $0.07  $(0.12)
 Discontinued operations  (0.04)  (0.07)  —   (0.04)  (0.05)
 Cumulative effect of accounting change  —   —   —   (0.84)  — 
                
 Net income (loss) $0.25  $0.20  $0.17  $(0.81) $(0.17)
                
Diluted earnings (loss) per share:                    
 Continuing operations $0.28  $0.26  $0.17  $0.07  $(0.12)
 Discontinued operations  (0.04)  (0.06)  —   (0.04)  (0.05)
 Cumulative effect of accounting change  —   —   —   (0.82)  — 
                
 Net income (loss) $0.24  $0.20  $0.17  $(0.79) $(0.17)
                
OTHER DATA:                    
Total assets $454,578  $414,115  $402,145  $433,111  $528,349 
Long-term debt $33,425  $55,398  $14,985  $18,084  $55,888 
Total liabilities $199,917  $167,618  $124,307  $138,793  $157,702 
Total stockholders’ equity $254,661  $246,497  $277,838  $294,318  $370,647 
PRO FORMA NET INCOME(3):                    
Net income from continuing operations                 $9,531 
Basic earnings per share                 $0.10 
Diluted earnings per share                 $0.10 
 
                     
  Year Ended December 31, 
  2008  2007  2006  2005  2004 
  (In thousands, except per share data) 
 
Statement of Operations Data:
                    
Revenue $704,263  $640,315  $583,655  $533,208  $476,913 
Operating expenses  607,573   560,168   513,265   469,121   423,720 
                     
Gross margin  96,690   80,147   70,390   64,087   53,193 
Corporate general and administrative expenses  28,691   29,462   29,526   29,673   29,647 
Operating income  67,999   50,685   40,864   34,414   23,546 
Other income (expense):                    
Interest expense  (7,242)  (5,763)  (4,205)  (3,540)  (2,021)
Gain on sale of operations, net  745   144   21   314   996 
Other income (expense), net(1)  (7,612)  10,589   4,921   4,000   3,088 
                     
Total other income (expense)  (14,109)  4,970   737   774   2,063 
Income from continuing operations before income tax expense  53,890   55,655   41,601   35,188   25,609 
Income tax expense  20,546   22,510   16,488   14,225   6,618 
                     
Income from continuing operations  33,344   33,145   25,113   20,963   18,991 
Loss from operations of discontinued operations, net of tax  (474)  (2,187)  (1,623)  (5,840)  (3,072)
Gain (loss) on disposal of discontinued operations, net of tax  (268)  3,882   911   3,550   132 
                     
Net income $32,602  $34,840  $24,401  $18,673  $16,051 
                     
Basic weighted average common shares  61,839   65,061   71,004   74,448   79,217 
Diluted weighted average common shares  62,572   66,356   73,052   76,827   81,477 
Basic earnings (loss) per share:                    
Continuing operations $0.54  $0.51  $0.35  $0.28  $0.24 
Discontinued operations  (0.01)  0.03   (0.01)  (0.03)  (0.04)
Net income $0.53  $0.54  $0.34  $0.25  $0.20 
                     
Diluted earnings (loss) per share:                    
Continuing operations $0.53  $0.50  $0.34  $0.27  $0.23 
Discontinued operations  (0.01)  0.03   (0.01)  (0.03)  (0.03)
Net income $0.52  $0.53  $0.33  $0.24  $0.20 
                     
Other Data:
                    
Total assets $702,623  $577,992  $518,282  $454,515  $413,773 
Long-term debt(2) $225,000  $130,774  $102,220  $33,425  $55,398 
Total liabilities $467,106  $351,546  $301,704  $199,854  $167,276 
Total stockholders’ equity $235,517  $226,446  $216,578  $254,661  $246,497 
EBITDA(3) $74,702  $67,550  $59,886  $51,312  $40,031 
(1)Certain amounts have been reclassifiedOther income (expense), net includes gains or losses attributable to conformassets held in the Company’s deferred compensation plan which totaled a loss of $7.6 million for 2008 and gains of $1.3 million, $1.6 million, $0.6 million and $0.3 million for 2007, 2006, 2005 and 2004, respectively. These gains or losses do not impact “income from continuing operations” as they are directly offset by compensation to the current year presentation.Plan participants. In addition, CBIZ sold its investment in Albridge Solutions, Inc., which resulted in a pre-tax gain of $0.8 million and $7.3 million for the years ended December 31, 2008, and 2007, respectively. Other income (expense), net for 2008 also includes an impairment charge of $2.3 million related to the Company’s investment in an auction rate security.
 
(2)Effective January 1, 2002, CBIZ adopted Statement of Financial Accounting Standard No., 142 “Goodwill and Other Intangible Assets” (SFAS 142), which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually at the reporting unit level. CBIZ finalized the required transitional tests of goodwill during 2002, and recorded an impairment charge of $88.6 million on a pre-tax basis. This non-cash charge is reflected as a cumulative effect of a change in accounting principle in the amount of $80.0 million, net of a tax benefit of $8.6 million.
Represents convertible notes, bank debt and the long-term portion of notes payable, which are reported in “other non-current liabilities” in CBIZ’s consolidated balance sheets.
(3)Pro forma net incomeEBITDA represents income from continuing operations assuming that the change in accounting principlebefore income tax expense, interest expense, gain on sale of operations, net, and depreciation and amortization expense. EBITDA for SFAS No. 142, adopted January 1, 2002, was applied retroactively (net of taxes)2008 and 2007 also excludes gains related to the year ended December 31, 2001. In addition, pro forma diluted weighted average common shares for 2001 are 96,442, as the effectsale of the incremental shares are not anti-dilutive on a pro forma basis.long-term investment described in (1) above.


20

15

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations.
The following discussion is intended to assist in the understanding of CBIZ’s financial position at December 31, 20052008 and 2004,2007, and results of operations and cash flows for each of the years ended December 31, 2005, 20042008, 2007 and 2003.2006. This discussion should be read in conjunction with CBIZ’s consolidated financial statements and related notes included elsewhere in this Annual Report onForm 10-K. This discussion and analysis contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “Uncertainty of Forward-Looking Statements” and “Item 1A. Risk Factors” in this Annual Report onForm 10-K.
Overview
CBIZ seeks to strengthen its operations and customer service capabilities by selectively acquiring businesses that are complementary in building out our service offerings in our target markets.
During the year ended December 31, 2005,2008, CBIZ acquired five businesses. Two of these businesses are accounting firms that were acquired on December 31, 2008 and will be reported in the Financial Services practice group. Mahoney Cohen & Company, has offices in New York City, New York, and Boca Raton and Miami, Florida. Tofias PC, has offices in Cambridge and New Bedford, Massachusetts and Providence and Newport, Rhode Island. Both Mahoney Cohen & Company and Tofias PC were ranked in the top 100 accounting firms in the United States and offer accounting, tax and financial advisory services to privately-held and public companies as well as high net worth individuals. Since each of these businesses was acquired on December 31, 2008, they did not impact CBIZ’s consolidated statement of operations for the year ended December 31, 2008. However, the assets and liabilities of these businesses are included in the Company’s consolidated balance sheets at December 31, 2008.
The other three businesses, consisting of a registered investment advisory firm in Cleveland, Ohio,payroll company, an accounting and consulting practice in San Diego, California,insurance agency and a valuationnational executive search firm are reported in Milwaukee, Wisconsin. In addition, CBIZ acquired two client lists which complement our Accounting, Tax and Advisory and Benefits and Insurance practices. CBIZ expects to continue its acquisition strategy, and in accordance with such acquiredthe Employee Services practice group. The TriMed Group and Valley Global Insurance Brokers in January 2006. The TriMed Grouppayroll business is located in Flint, MichiganPalm Desert, California and provides medical billingpayroll processing services to a large number of clients in California and in-house computer systems primarily to hospital-based physician practices; Valley Global Insurance BrokersArizona. The insurance business is located in Frederick, Maryland and is a propertybroker of innkeepers’ insurance programs. The national executive search firm is headquartered in Overland Park, Kansas and casualty insurance broker located in San Jose, California.provides services to a diverse client base with a focus on higher education institutions.
As part of its strategy to promote and strengthen cross-serving, CBIZ consolidates operations and locations in fragmented markets.
During the year ended December 31, 2005,2008, CBIZ consolidated officesdivested two businesses that did not contribute to our long-term objectives for growth, both of which were classified as discontinued operations. These businesses were formerly reported in the Denver market,Financial Services and continued consolidation activities inNational Practices groups. CBIZ also sold the Chicago market.assets of an Employee Services business that did not qualify for classification as a discontinued operation.
CBIZ continually evaluates its business operations, and may from time to time sell or close operations that are underperforming, located in secondary markets, or do not provide the level of synergistic cross-serving opportunities with other CBIZ businesses that is desired. During 2005, CBIZ sold a business operation from the Benefits and Insurance practice group, closed a business operation from the Accounting, Tax and Advisory practice group, and committed to the divesture of a business unit in the National Practices — Other practice group. These divestitures are consistent with CBIZ’s plan to focus on metropolitan markets in which we can strengthen our core service offerings.
CBIZ believes that repurchasing shares of its common stock is a use of cash that provides value to stockholders, and accordingly the Board of Directors approved a plan allowing CBIZ to repurchase up to 5.0purchased 4.8 million shares of its common stock during 2005. During the year ended December 31, 2005, CBIZ repurchased approximately 3.8 million shares of CBIZ common stock at a total cost of $16.7 million. The credit facility and net cash provided by CBIZ operations were utilized to fund share repurchases.$41.4 million during the year ended December 31, 2008. On February 9, 2006, the19, 2009, CBIZ’s Board of Directors authorized the purchase of up to 5.0 million shares of CBIZ common stock through March 31, 2007.2010. The shares may be repurchased in the open market or through privately negotiated purchases.purchases according to SEC rules. During the period January 1 through February 28, 2009, CBIZ repurchased approximately 0.7 million shares of its common stock at a total cost of approximately $5.9 million.
Effective February 13, 2006,
During 2008, CBIZ entered into a new $100 milliontwo agreements to amend its unsecured credit facility (“credit facility”) with Bank of America, N.A., and other participating banks. The amendments effectively increased its borrowing commitment to $214.0 million with an optionaccordion feature of up to increase the commitment to $150$250.0 million. The newcredit facility provides will expire in November 2012.
In July 2008, the Internal Revenue Service completed its examination of the Company’s federal income tax returns for the years 2003 through 2006. The Company paid $0.9 million during 2008 to settle the audits. Reserves for uncertain tax positions decreased $1.6 million during the year ended December 31, 2008 due to settlement of the IRS audits and the lapse of certain statutes of limitations.
CBIZ began to self-fund its employee health insurance programs effective January 1, 2008. Accordingly, the Company’s 2008 financial statements reflect accrued liabilities and costs associated with lower borrowingthese programs, and those accruals are based upon management’s estimate of the ultimate costs to settle known claims as well as claims that may have arisen but have not yet been reported to the Company as of the balance sheet dates. CBIZ has obtained stop-loss coverage with third-party insurers to limit the total exposure for claims made under the self-funded plan, both on individually large claims and greater flexibility with regardsfor the aggregate amount of claims. Prior to corporate initiatives such as acquisitions and share repurchases.
Effective AugustJanuary 1, 2005, pursuant to approval by our Board of Directors and shareholders, CBIZ changed its corporate name from “Century Business Services, Inc.” to “CBIZ, Inc.” CBIZ believes that this name change is integral to promoting greater name recognition in the marketplace, and to reinforcing our image as a unified provider of business services.2008, CBIZ’s employee health insurance plans were fully insured.


21

Results of Operations — Continuing Operations
CBIZ provides solutionsprofessional business services that enable ourhelp clients to better manage their finances, employees and technology,technology. CBIZ delivers its integrated services through threethe following four practice groups.groups: Financial Services, Employee Services, Medical Management Professionals, and National Practices. A brief description of these groups’ operating results and factors affecting their businesses is provided below. The Medical Management Professionals unit (CBIZ MMP), which reports under the National Practices group, exceeds the quantitative threshold of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” for aggregation and therefore is reported as a separate segment.
Same-unit revenue represents total revenue adjusted to reflect comparable periods of activity for acquisitions and divestitures. For example, for an operation divesteda business acquired on July 1, 2005,2007, revenue for the period January 1, 2008 through June 30, 2008 would be reported as revenue from acquired businesses;same-unit revenue would include revenue for the periods July 1 through

16

December 31 2004 are reported as revenue from divested operations; thus, same-unit revenue includes revenue for the periods January 1 through June 30 of both years. Revenue from divestedDivested operations representsrepresent operations that did not meet the criteria for treatment as discontinued operations.
Year Ended December 31, 20052008 Compared to Year Ended December 31, 20042007
Revenue
The following table summarizes total revenue for the twelve monthsyears ended December 31, 20052008 and 20042007 (in thousands, except percentages):
                           
  Year Ended December 31,
   
    % of   % of $ %
  2005 Total 2004 Total Change Change
             
Same-unit revenue
                        
Accounting, Tax and Advisory $227,878   40.7%  $211,378   41.9%  $16,500   7.8% 
Benefits and Insurance  142,343   25.5%   141,258   28.0%   1,085   0.8% 
 
CBIZ MMP  97,583   17.5%   87,261   17.3%   10,322   11.8% 
National Practices — Other  67,733   12.1%   64,369   12.7%   3,364   5.2% 
                   
 Total National Practices  165,316   29.6%   151,630   30.0%   13,686   9.0% 
                   
  Total same-unit revenue  535,537   95.8%   504,266   99.9%   31,271   6.2% 
Acquired businesses  23,732   4.2%   —       23,732     
Divested operations  —       632   0.1%   (632)    
                   
  Total revenue $559,269      $504,898      $54,371   10.8% 
                   
Same-unit revenue growth was 6.2% for the twelve months ended December 31, 2005 from the comparable period in 2004.
                 
  Year Ended December 31, 
        $
  %
 
  2008  2007  Change  Change 
 
Same-unit revenue
                
Financial Services $312,122  $289,324  $22,798   7.9%
Employee Services  175,335   170,988   4,347   2.5%
MMP  138,845   132,853   5,992   4.5%
National Practices  44,758   45,427   (669)  (1.5)%
                 
Totalsame-unit revenue
  671,060   638,592   32,468   5.1%
Acquired businesses  33,123   —   33,123     
Divested operations  80   1,723   (1,643)    
                 
Total revenue $704,263  $640,315  $63,948   10.0%
                 
A detailed discussion of revenue by practice group is included under “Operating Practice Groups” below..
Expenses
Operating expenses increased to $485.3 million for the twelve months ended December 31, 2005, from $438.4 million for the comparable period in 2004, an increase of $46.9 million or 10.7%. As a percent of revenue,Gross margin and operating expenses (excluding consolidation and integration charges) were 86.1% and 86.3% for the twelve months ended December 31, 2005 and 2004, respectively. — The primary components of operating expenses are personnel costs and occupancy expense, representing 80.0% and 80.3% of total operating expenses and 69.5% and 69.7% of revenue for the twelve months ended December 31, 2005 and 2004, respectively. As the majority of CBIZ’s operating costs are relatively fixed in the short term, thus gross margin as a percentage of revenue generally improves with revenue growth. However,The primary components of operating expenses for the twelve monthsyears ended December 31, 2005 versus2008 and 2007 are illustrated in the comparable period in 2004, gross marginfollowing table:
                     
  2008  2007    
  % of
     % of
     Change in
 
  Operating
  % of
  Operating
  % of
  % of
 
  Expense  Revenue  Expense  Revenue  Revenue 
 
Personnel costs  72.1%  62.2%  73.0%  63.8%  (1.6)%
Occupancy costs  6.6%  5.7%  6.6%  5.8%  (0.1)%
Other(1)  21.3%  18.4%  20.4%  17.9%  0.5%
                     
Total operating expenses      86.3%      87.5%  (1.2)%
                     
Gross margin      13.7%      12.5%  1.2%
                     
(1)Other operating expenses include office expense, depreciation and amortization expense, travel related expenses, equipment costs, professional fees and other expenses, none of which are individually significant as a percentage of total operating expenses.


22

Personnel costs as a percentage of revenue did not changedeclined 1.7% to 62.2% for the year ended December 31, 2008 compared to the same period in 2007. The decline in personnel costs was primarily as the result of consolidationadjustments to the fair value of investments held in relation to the deferred compensation plan which totaled a loss of $6.4 million and integration charges incurred during 2005 (describeda gain of $1.1 million for the years ended December 31, 2008 and 2007, respectively. These adjustments are recorded as compensation expense and are offset by the same adjustments to other income (expense), and thus do not have an impact on net income. Although these adjustments are recorded as operating expenses, they are not allocated to the individual practice groups. The increase or decrease in personnel costs as a percentage of revenue experienced by the individual practice groups is discussed in further detail below), and expenses related to our incentive compensation plan. A more comprehensive analysis of operating expenses and their impact on gross margin is discussed by operating practice group below.under “Operating Practice Groups”.
Consolidation and integration charges are reported as operating expenses in the accompanying consolidated statements of operations, and were 0.7% and 0.5% of revenue for the twelve months ended December 31, 2005 and 2004, respectively. The increase in consolidation and integration charges in 2005 versus 2004 was primarily due to co-location activities in the Denver and Chicago markets during 2005.
Corporate general and administrative expenses increased—Corporate general and administrative (“G&A”) expenses decreased by $0.8 million to $24.9$28.7 million from $24.1 million, but decreased as a percentage of revenue to 4.4% from 4.8% for the twelve monthsyear ended December 31, 20052008, from $29.5 million for the comparable period of 2007. The primary components of corporate general and 2004, respectively. administrative expenses for the years ended December 31, 2008 and 2007 are illustrated in the following table:
                     
  2008  2007    
  % of
     % of
     Change in
 
  G&A
  % of
  G&A
  % of
  % of
 
  Expense  Revenue  Expense  Revenue  Revenue 
 
Personnel costs  52.3%  2.1%  50.6%  2.3%  (0.2)%
Depreciation and amortization  3.7%  0.2%  7.6%  0.4%  (0.2)%
Professional services  14.2%  0.6%  13.5%  0.6%  — 
Other(1)  29.8%  1.2%  28.3%  1.3%  (0.1)%
                     
Total corporate general and administrative expenses      4.1%      4.6%  (0.5)%
                     
(1)Other corporate general and administrative expenses include occupancy costs, office expense, equipment and computer costs, insurance expense and other expenses, none of which are individually significant as a percentage of total corporate general and administrative expenses.
The increaseimprovement in corporate general and administrative expenses as a percentage of revenue was primarily attributablethe result of adjustments to compensation and benefits, including expenses relatedthe fair value of investments held in relation to our incentive compensation plan. The incentivethe deferred compensation plan is further discussed under “Critical Accounting Policies — Incentive Compensation” below.
Depreciationwhich totaled a loss of $1.2 million and amortization expense was $15.2a gain of $0.2 million or 2.7% of revenue for the twelve monthsyears ended December 31, 2005, compared to $16.0 million or 3.2% of revenue for the comparable period in 2004. The decrease in depreciation2008 and amortization2007, respectively.
Interest expense was primarily attributable to the shift from purchasing computer-related equipment and furniture to leasing such items. Operating lease costs are recorded as operating

17

expenses rather than capitalized and recorded as depreciation expense. Lease expenses related to these items totaled $3.5 million and $2.5 million for the twelve months ended December 31, 2005 and 2004, respectively.
Other Income and Expense—
Interest expense increased by $1.6$1.4 million to $3.1$7.2 million for the twelve monthsyear ended December 31, 2005,2008 from $1.5$5.8 million for the comparable period in 2004.2007. The increase in interest expense was the result ofrelates to higher average debt and higher interest rates duringoutstanding under the twelve months ended December 31, 2005credit facility in 2008 versus the comparable period in 2004.2007, partially offset by a decrease in average interest rates. Average debt outstanding under the credit facility was $51.6$61.4 million for the twelve months ended December 31, 2005 compared to $40.9and $18.4 million for the comparable period in 2004, and weighted average interest rates were 5.4%4.8% and 3.5%7.0% for the twelve monthsyears ended December 31, 20052008 and 2004,2007, respectively. HigherOutstanding debt during 2005 comparedand interest expense related to 2004the convertible notes was primarily due to $29.3 millionthe same in spending during 2005 for share repurchases and acquisitions.both periods, as the notes carry a fixed interest rate of 3.125%. Debt is further discussed under “Liquidity and Capital Resources”.
Gain
Other income (expense), net —Other income, net is comprised of interest income, adjustments to the fair value of investments held in a rabbi trust related to the deferred compensation plan, and gains and losses on sales of assets. Adjustments to the fair value of investments related to the deferred compensation plan do not impact CBIZ’s net income, as they are offset by the same adjustments to compensation expense (recorded as operating or corporate general and administrative expenses in the consolidated statements of operations). Other income (expense), net for the year ended December 31, 2008 primarily relates to a $7.6 million decline in fair value of investments related to the deferred compensation plan and an impairment charge of approximately $2.3 million related to the Company’s investment in an ARS, partially offset by a gain on the sale of a long-term investment of $0.8 million and interest income of $0.8 million. Other income (expense), net for the year ended December 31, 2007 primarily related to a gain on the sale of a long-term investment of $7.3 million, interest income of $1.6 million and a $1.3 million increase in the fair value of investments related to the deferred compensation plan.
Income Taxes —CBIZ recorded income tax expense from continuing operations netof $20.5 million and $22.5 million for the years ended December 31, 2008 and 2007, respectively. The effective tax rate for the year ended


23

December 31, 2008 was 38.1%, compared to an effective tax rate of 40.4% for the comparable period in 2007. The decrease in the effective tax rate for the year ended December 31, 2008 from the comparable period in 2007 was primarily the result of a decrease in estimated tax reserves related to the settlement of the IRS audit and the lapse of certain statutes of limitations. These items are further discussed in Note 8 to the accompanying consolidated financial statements.
Operating Practice Groups
Financial Services
                 
  Year Ended December 31, 
        $
  %
 
  2008  2007  Change  Change 
  (In thousands, except percentages) 
 
Revenue                
Same-unit $312,122  $289,324  $22,798   7.9%
Acquired businesses  —   —   —   — 
Divested operations  —   —   —   — 
                 
Total revenue  312,122   289,324   22,798   7.9%
Operating expenses  265,440   249,001   16,439   6.6%
                 
Gross margin $46,682  $40,323  $6,359   15.8%
Gross margin percent  15.0%  13.9%        
                 
Approximately 60% of the growth insame-unit revenue was attributable to an increase in the aggregate number of hours charged to clients for consulting, valuation and litigation support services, and approximately 40% was attributable to increases in rates realized for services provided. Approximately $5.1 million of revenue was recognized from the completion of a large project during 2008.
The largest components of operating expenses for the Financial Services practice group are personnel costs, occupancy costs, and travel related expenses representing 88.2% and 89.0% of total operating expenses for the years ended December 31, 2008 and 2007, respectively. Personnel costs increased $11.8 million but decreased as a percent of revenue to 66.7% for the year ended December 31, 2008 from 67.9% for the comparable period in 2007. The dollar increase in personnel costs was primarily due to additional costs incurred for new employees and annual merit increases to existing employees. CBIZ continues to add personnel in the Financial Services practice group in order to accommodate the growth in revenue. Occupancy costs are relatively fixed in nature but were $0.6 million higher for the year ended December 31, 2008 versus the comparable period in 2007 due to additional space required to accommodate growth. Occupancy costs decreased as a percentage of revenue to 5.5% for the year ended December 31, 2008 from 5.8% for the comparable period in 2007. Travel related expenses increased $0.3 million for the twelve monthsyear ended December 31, 2005,2008 compared to December 31, 2007 and were 2.8% and 2.9% of revenue for the years ended December 31, 2008 and 2007, respectively.
Gross margin improvement was primarily due to leveraging the increase in revenue against personnel costs and operating expenses which are generally fixed in the short term. The improvement in gross margin was partially offset by an increase in bad debt expense related to specific client receivables. Bad debt expense increased by $3.0 million for the year ended December 31, 2008 versus the comparable period in 2007.


24

Employee Services
                 
  Year Ended December 31, 
        $
  %
 
  2008  2007  Change  Change 
  (In thousands, except percentages) 
 
Revenue                
Same-unit $175,335  $170,988  $4,347   2.5%
Acquired businesses  7,018   —   7,018     
Divested operations  80   1,723   (1,643)    
                 
Total revenue  182,433   172,711   9,722   5.6%
Operating expenses  151,472   140,833   10,639   7.6%
                 
Gross margin $30,961  $31,878  $(917)  (2.9)%
Gross margin percent  17.0%  18.5%        
                 
The increase insame-unit revenue was primarily attributable to growth in the Company’s retail and payroll service businesses. The retail growth was due primarily to an approximate 5% increase in revenue from group health products, but was negatively impacted by soft market conditions in pricing for property and casualty insurance and a decline in asset values which impacted revenues from the Company’s retirement investment advisory services.Same-unit payroll service revenue increased approximately 7% as a result of an increase in number of clients served and related volume increases. The growth in revenue from acquired businesses was provided by a property and casualty business in Frederick, Maryland, a payroll services business in Palm Desert, California, and a specialty recruiting business headquartered in Overland Park, Kansas, all of which were acquired during 2008. The decline in revenue from divested businesses relates to the sale of client lists fromcertain specialty retirement investment advisory operations in Atlanta, Georgia which occurred in the Accounting, Taxthird quarter of 2008.
The largest components of operating expenses for the Employee Services group are personnel costs, including commissions paid to third party brokers, and Advisoryoccupancy costs, representing 82.3% and Benefits and Insurance practice groups. For83.1% of total operating expenses for the twelve monthsyears ended December 31, 2004, gain on sale2008 and 2007, respectively. Personnel costs increased $7.0 million to 62.9% of operations, netrevenue for the year ended December 31, 2008 from 62.4% for the comparable period in 2007. Acquired businesses contributed $4.2 million of the increase in personnel costs. The increase in personnel costs as a percentage of revenue was $1.0 million and wasprimarily related to merit increases and investments in additional personnel to support growth of the sale of two operations and three client lists in the Accounting, Tax and Advisory practice group, and a client list from the Benefits and Insurance practice group.
Other income, net was $5.1business. Occupancy costs increased $0.7 million for the twelve monthsyear ended December 31, 2005,2008 versus the comparable period in 2007, largely due to the acquired businesses, but did not change as a percentage of revenue.
The decline in gross margin was attributable to a change in service mix as a result of growth in the payroll and $3.5human capital advisory businesses, as these businesses typically provide lower margins than the retail businesses. Additionally, the decline in gross margin relates to lower interest rates which impacted investment income earned on payroll funds, and declines in market values which impacted the Company’s asset based fees.
Medical Management Professionals (“MMP”)
                 
  Year Ended December 31, 
        $
  %
 
  2008  2007  Change  Change 
  (In thousands, except percentages) 
 
Revenue                
Same-unit $138,845  $132,853  $5,992   4.5%
Acquired businesses  26,105   —   26,105     
Divested operations  —   —   —     
                 
Total revenue  164,950   132,853   32,097   24.2%
Operating expenses  143,395   115,976   27,419   23.6%
                 
Gross margin $21,555  $16,877  $4,678   27.7%
Gross margin percent  13.1%  12.7%        
                 


25

Same-unit revenue consists of revenue from existing clients and net new business sold. Revenue from existing clients increased by approximately 2% for the year ended December 31, 2008 versus the comparable period in 2007. Growth from existing clients was provided by an increase in volume of approximately 4%, offset by certain reductions in Medicare reimbursement rates, declines in pricing and the mix of medical specialties which collectively totaled approximately 2%. Revenue from new business sold (net of client terminations) contributed approximately 3% of the increase insame-unit revenue. Growth in revenue from acquired businesses was provided by a business located in Montgomery, Alabama which provides billing services, practice management and consulting services to anesthesia and pain management providers primarily in the southern United States, and a business headquartered in Ponte Vedra Beach, Florida which provides coding, billing and accounts receivable management services for emergency medicine physician practices along the east coast of the United States. These businesses were acquired in the second and fourth quarters of 2007, respectively.
The largest components of operating expenses for MMP are personnel costs, occupancy costs and office expenses (primarily postage related to statement mailing services provided to clients), representing 81.9% and 83.8% of total operating expenses for the years ended December 31, 2008 and 2007, respectively. Personnel costs increased $15.6 million, but declined as a percentage of revenue to 56.5% for the year ended December 31, 2008 from 58.5% for the year ended December 31, 2007. Acquired businesses contributed $12.1 million of the increase in personnel costs with the remainder being attributable to annual merit increases to existing employees and the addition of certain internal support personnel to position the unit for continued growth. The improvement in personnel costs as a percentage of revenue relates to an increase of off-shore processing, and the business that was acquired in the fourth quarter of 2007. The improvement in personnel costs as a percentage of revenue was partially offset by fees paid to off-shore vendors which increased to 1.9% of revenue for the year ended December 31, 2008 from 0.4% of revenue for the comparable period in 2007.
Occupancy costs increased by $2.2 million for the year ended December 31, 2008 versus the comparable period in 2007, primarily attributable to the acquired businesses, but did not change as a percentage of revenue. Office expenses increased $2.5 million, but decreased as a percentage of revenue to 8.1% for the year ended December 31, 2008 from 8.2% for the comparable period in 2007. The increase in office expenses primarily relates to the acquired businesses and the decrease in office expenses as a percentage of revenue relates to a change in the frequency of statement mailing.
Gross margin increased to 13.1% for the year ended December 31, 2008 from 12.7% for the comparable period in 2007. Gross margin for the year ended December 31, 2007 was favorably impacted by the write-down of certain internally developed software which totaled approximately 0.4% of revenue. MMP has taken various actions to maintain gross margin, including the utilization of off-shore processing and other cost control measures. In addition, the two acquired businesses service anesthesia and emergency medicine practices which typically provide higher margins than MMP’ssame-unit revenue which is primarily attributable to services rendered to radiology practices.
National Practices
                 
  Year Ended December 31, 
        $
  %
 
  2008  2007  Change  Change 
  (In thousands, except percentages) 
 
Revenue                
Same-unit $44,758  $45,427  $(669)  (1.5)%
Acquired businesses  —   —   —     
Divested operations  —   —   —     
                 
Total revenue  44,758   45,427   (669)  (1.5)%
Operating expenses  42,400   41,247   1,153   2.8%
                 
Gross margin $2,358  $4,180  $(1,822)  (43.6)%
Gross margin percent  5.3%  9.2%        
                 


26

The decrease in revenue was attributable to the technology businesses and consisted of declines in product, service agreement and consulting revenue of $0.3 million, $0.9 million and $0.4 million, respectively. The decline in revenue in the technology businesses primarily relates to delays in larger capital projects as clients are deferring investment decisions in response to the current economic environment. The decline in revenue attributable to the technology businesses was partially offset by an increase in revenue in the healthcare consulting and mergers and acquisitions businesses of $0.8 million and $0.2 million, respectively. The increase in healthcare consulting revenue is attributable to new services that were introduced in 2008.
The largest components of operating expenses for the National Practices group are personnel costs, direct costs and occupancy costs, representing 92.3% and 92.2% of total operating expenses for the years ended December 31, 2008 and 2007, respectively. Personnel costs increased $1.8 million to 69.3% of revenue for the year ended December 31, 2008 from 64.4% of revenue for the comparable period in 2007. More than half of the increase in personnel cost dollars was necessary to support revenue growth from CBIZ’s largest client. The remainder of the increase in personnel costs relates to annual merit increases to existing employees and an overall increase in headcount, primarily to support growth in the healthcare consulting business.
Direct costs relate to the technology businesses and consist of product costs, sales commissions and third party labor. Direct costs decreased $0.6 million for the year ended December 31, 2008 versus the comparable period in 2007 as a result of the decrease in revenue in the technology businesses. Direct costs decreased as a percentage of revenue to 15.3% for the year ended December 31, 2008 from 16.4% for the comparable period in 2007, as a result of a change in revenue mix between the technology and other national practice businesses. Occupancy costs are relatively fixed in nature and were $1.3 million for the years ended December 31, 2008 and 2007.
The decline in gross margin was due to the overall decrease in revenue. As personnel and facilities costs are relatively fixed in the short-term, margins generally improve with revenue growth and deteriorate when revenue declines. The increase in personnel costs as a percentage of revenue was due to the Company’s decision to maintain the majority of its workforce infrastructure during a period of declining revenue.
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Revenue
The following table summarizes total revenue for the years ended December 31, 2007 and 2006 (in thousands, except percentages):
                 
  Year Ended December 31, 
        $
  %
 
  2007  2006  Change  Change 
 
Same-unit revenue
                
Financial Services $287,359  $260,844  $26,515   10.2%
Employee Services  171,001   157,973   13,028   8.2%
MMP  124,303   117,369   6,934   5.9%
National Practices  45,427   46,922   (1,495)  (3.2)%
                 
Totalsame-unit revenue
  628,090   583,108   44,982   7.7%
Acquired businesses  12,225   —   12,225     
Divested operations  —   547   (547)    
                 
Total revenue $640,315  $583,655  $56,660   9.7%
                 
A detailed discussion of revenue by practice group is included under “Operating Practice Groups”.
Gross margin and operating expenses — The majority of CBIZ’s operating costs are relatively fixed in the short term, thus gross margin as a percentage of revenue generally improves with revenue growth. Although operating expenses increased by $46.9 million, they declined as a percentage of revenue by 0.4% as a result of CBIZ’s ability


27

to leverage personnel and occupancy costs. The primary components of operating expenses for the years ended December 31, 2007 and 2006 are illustrated in the following table:
                     
  2007  2006    
  % of
     % of
     Change in
 
  Operating
  % of
  Operating
  % of
  % of
 
  Expense  Revenue  Expense  Revenue  Revenue 
 
Personnel costs  73.0%  63.8%  72.8%  64.0%  (0.2)%
Occupancy costs  6.6%  5.8%  6.9%  6.0%  (0.2)%
Other(1)  20.4%  17.9%  20.3%  17.9%  — 
                     
Total operating expense      87.5%      87.9%  (0.4)%
                     
Gross margin      12.5%      12.1%  0.4%
                     
(1)Other operating expenses include office expense, depreciation and amortization expense, travel related expenses, equipment costs, professional fees and other expenses, none of which are individually significant as a percentage of total operating expenses.
The improvement in gross margin was hindered by certain reductions in the 2007 Medicare reimbursement rates (including those that occurred as a result of the Deficit Reduction Act) in the MMP practice group. A more comprehensive analysis of operating expenses and gross margin by practice group is discussed under “Operating Practice Groups”.
Corporate general and administrative expenses —Corporate general and administrative expenses were approximately $29.5 million for each of the years ended December 31, 2007 and 2006. The primary components of corporate general and administrative expenses for the years ended December 31, 2007 and 2006 are illustrated in the following table:
                     
  2007  2006    
  % of
     % of
     Change in
 
  G&A
  % of
  G&A
  % of
  % of
 
  Expense  Revenue  Expense  Revenue  Revenue 
 
Personnel costs  50.6%  2.3%  44.1%  2.2%  0.1%
Depreciation and amortization  7.6%  0.4%  13.3%  0.7%  (0.3)%
Professional services  13.5%  0.6%  12.7%  0.6%  — 
Other(1)  28.3%  1.3%  29.9%  1.6%  (0.3)%
                     
Total corporate general and administrative expenses      4.6%      5.1%  (0.5)%
                     
(1)Other corporate general and administrative expenses include occupancy costs, office expense, equipment and computer costs, insurance expense and other expenses, none of which are individually significant as a percentage of total corporate general and administrative expenses.
The improvement in corporate general and administrative expenses as a percentage of revenue was primarily due to a decrease in depreciation and amortization expense related to certain capitalized software. This decrease was partially offset by an increase in corporate personnel costs related to merit increases, additional corporate support staff and incentive compensation.
Interest expense —Interest expense increased by $1.6 million to $5.8 million for the year ended December 31, 2007, from $4.2 million for the comparable period in 2004. 2006. Average debt was $118.4 million for the year ended December 31, 2007, compared to $80.4 million for the comparable period in 2006, and average interest rates were 3.8% and 4.0% during the years ended December 31, 2007 and 2006, respectively. The increase in average debt in 2007 compared to 2006 was due to $100.0 million of convertible senior subordinated notes being issued on May 30, 2006, and additional borrowings on the credit facility during 2007. Debt is further discussed under “Liquidity and Capital Resources”.


28

Other income, (expense),net —Other income, net is comprised primarily of interest income, earned on funds held for clients at CBIZ’s payroll business, income earned on assetsadjustments to the fair value of investments held in a rabbi trust related to the deferred compensation plan, gains and losses on sales of assets, and miscellaneous income such as contingent royalties from previous divestitures. Adjustments to the fair value of investments related to the deferred compensation plan do not impact CBIZ’s net income, as they are offset by the same adjustments to compensation expense (recorded as operating or corporate general and administrative expenses in the consolidated statements of operations). Other income, net was $10.6 million for the year ended December 31, 2007 and $4.9 million for the comparable period in 2006. The $5.7 million increase in other income, for the twelve months ended December 31, 2005 from the comparable period in 2004,net was primarily the result of higher interest earned on restricted cash and funds held for clients primarily at CBIZ’s payroll business, highera $7.3 million pre-tax gain related to the sale of a long-term investment, offset by a decline in contingent royalties earned from previous divestitures of $0.5 million (due to the expiration of certain royalty agreements), and income earned on assetsa decrease in the fair value of investments related to the deferred compensation plan. The increase inplan of approximately $0.3 million. Additionally, other income, was partially offset bynet for the year ended December 31, 2006 included $0.4 million in interest income in 2004 related toproceeds received on a tax refund,life insurance contract that did not recuroccur in 2005.2007.
Income Taxes —
CBIZ recorded income tax expense from continuing operations of $14.6$22.5 million and $8.0$16.5 million for the years ended December 31, 20052007 and 2004,2006, respectively. The effective tax rate for the twelve monthsyear ended December 31, 20052007 was 40.3%40.4%, which is generallycompared to an effective tax rate of 39.6% for the comparable period in line with statutory federal and state tax rates of approximately 40.0%.2006. The increase in the effective tax rate for the twelve monthsyear ended December 31, 2004 was 27.4%, and reflected a $3.5 million tax benefit related to a favorable tax position which was successfully resolved upon completion of an examination by the Internal Revenue Service for the years ended December 31, 1998, 1999 and 2000.
Operating Practice Groups
Accounting, Tax and Advisory Services.
               
  Year Ended December 31,
   
  2005 2004 Change
       
  (Dollars in thousands)
Revenue            
 Same-unit $227,878  $211,378  $16,500 
 Acquired businesses  17,671   —   17,671 
 Divested operations  —   632   (632)
          
  Total revenue  245,549   212,010   33,539 
Operating expenses  208,316   182,564   25,752 
          
Gross margin $37,233  $29,446  $7,787 
          
Gross margin percent  15.2%  13.9%  1.3%
Same-unit revenue for the twelve months ended December 31, 2005 increased by $16.5 million or 7.8%2007 from the twelve months ended December 31, 2004. The growthcomparable period in same-unit revenue2006 was primarily due tothe result of an increase in fees earned pursuantestimated tax reserves related to administrative service agreements (further described under “Business Services” of Item 1),the IRS audit discussed in Note 8 to the accompanying consolidated financial statements.
Operating Practice Groups
Financial Services
                 
  Year Ended December 31, 
        $
  %
 
  2007  2006  Change  Change 
  (In thousands, except percentages) 
 
Revenue                
Same-unit $287,359  $260,844  $26,515   10.2%
Acquired businesses  1,965   —   1,965     
Divested operations  —   547   (547)    
                 
Total revenue  289,324   261,391   27,933   10.7%
Operating expenses  249,001   228,183   20,818   9.1%
                 
Gross margin $40,323  $33,208  $7,115   21.4%
                 
Gross margin percent  13.9%  12.7%        
                 
The growth insame-unit revenue was equally attributable to an increase in the aggregate number of hours charged to clients for consulting, litigation support and

18

Sarbanes-Oxley consulting and compliance services, net price increases for traditional accounting and tax servicesvaluation and litigation support and a higher number of transactions closed by our real estate brokerage firm during 2005 versus 2004. The growth in revenue from acquired businesses was provided by accounting and consulting firms in San Diego, California and Denver, Colorado. Divested operations represent one small unit that did not provide opportunity for growth or cross-serving capabilities.
The largest components of operating expenses for the Accounting, Tax and Advisory practice group are personnel costs, occupancy costs and professional service fees paid to third parties, representing 88.0% and 88.1% of total operating expenses for the twelve months ended December 31, 2005 and 2004, respectively. Personnel costs increased $19.7 million in 2005 from 2004, primarily due to additional professionals employed by CBIZ, both from acquired businesses and to accommodate growth in revenue. As a percentage or revenue, personnel costs decreased to 65.5% for the twelve months ended December 31, 2005, from 66.6% for the comparable period in 2004, primarily as the result of improved utilization of personnel. Occupancy costs are relatively fixed in nature but increased $0.8 million for the twelve months ended December 31, 2005 from the comparable period in 2004, primarily due to the business acquired in San Diego, California. As a percentage of revenue, occupancy costs decreased to 6.4% for the twelve months ended December 31, 2005 from 7.0% for the comparable period in 2004, primarily due to the increase in revenue previously discussed. Professional service fees paid to third parties increased $2.0 million to 2.8% of revenue from 2.3% of revenue for the twelve months ended December 31, 2005 and 2004, respectively. Professional service fees paid to third parties are primarily the result of our utilization of third-party professionals to provide Sarbanes-Oxley consulting and compliance services to our clients.
Gross margin as a percent of revenue increased by 1.3% for the twelve months ended December 31, 2005 from the comparable period in 2004, primarily due to the improved utilization of personnel combined with an increase in net rates charged to clients for accounting and tax services, and an increaseincreases in the number of hours charged to clientsrates realized for consulting, litigation support and Sarbanes-Oxley consulting and compliance services.
CBIZ expects revenue growth for the ATA practice to continue in 2006, which is consistent with trends in the accounting industry. The accounting industry is experiencing growth in revenue from both an increase in services being provided to clients and an increase in the rates being charged to clients. The accounting industry also continues to experience pricing pressures on compensation as firms compete for qualified professionals to support the growth in revenue. As a result of these pricing pressures, CBIZ expects the growth in revenue to be accompanied by modest improvements in gross margin in 2006.
Benefits and Insurance Services.
               
  Year Ended December 31,
   
  2005 2004 Change
       
  (Dollars in thousands)
Revenue            
 Same-unit $142,343  $141,258  $1,085 
 Acquired businesses  3,873   —   3,873 
 Divested operations  —   —   — 
          
  Total revenue  146,216   141,258   4,958 
Operating expenses  116,149   112,987   3,162 
          
Gross margin $30,067  $28,271  $1,796 
          
Gross margin percent  20.6%  20.0%   0.6%
Same-unit revenue for the twelve months ended December 31, 2005 increased by $1.1 million or 0.8% from the twelve months ended December 31, 2004. The growth in same-unit revenue was primarily attributable to growth in our group health and human capital advisory businesses. These increases were partially offset by the loss of a large client from our retail business, the pricing of property and casualty policies sold during 2005 versus 2004, and a decline in revenue in our bank-owned life insurance business. The growth in revenue from acquired businesses was provided by a group benefits business in Owings Mills, Maryland and a registered investment advisory firm in Cleveland, Ohio.Phoenix, Arizona which was acquired during the first quarter of 2007. The decrease in revenue from divested operations related to the sale of a portion of the Company’s Utah operations which occurred in January 2007.
The largest components of operating expenses for the Benefits and InsuranceFinancial Services practice group are personnel costs, commissions paid to third party brokers, and occupancy costs, and travel related expenses representing 86.5%89.0% and 86.3%88.7% of total operating expenses for the twelve monthsyears ended December 31, 20052007 and 2004,2006, respectively. Personnel costs increased $5.1$18.1 million but decreased as a percentage of revenue to 57.0%67.9% for the year ended December 31, 2007 from 68.2% for the comparable period in 2006. The dollar increase in personnel costs was primarily due to additional salary costs incurred for new employees, annual merit increases, and an increase in benefit costs. CBIZ continues to add personnel in the Financial Services practice group in order to accommodate the growth in revenue. Occupancy costs are relatively fixed in nature but were $1.0 million higher for the year ended December 31, 2007 versus the comparable period in 2006 due to additional space required to accommodate growth. Travel related expenses remained consistent for the year ended December 31, 2007 compared to December 31, 2006. Both occupancy costs and travel related expenses decreased as a percentage of revenue for the year ended December 31, 2005 from 55.4% of revenue for2007 versus the comparable period in 2006.


29

19

comparable period in 2004. Acquired businesses contributed $2.1 million of
Gross margin improvement was primarily due to leveraging the increase in personnel costs;revenue against operating expenses which are generally fixed in the remainder of theshort term.
Employee Services
                 
  Year Ended December 31, 
        $
  %
 
  2007  2006  Change  Change 
  (In thousands, except percentages) 
 
Revenue                
Same-unit $171,001  $157,973  $13,028   8.2%
Acquired businesses  1,710   —   1,710     
Divested operations  —   —   —     
                 
Total revenue  172,711   157,973   14,738   9.3%
Operating expenses  140,833   129,914   10,919   8.4%
                 
Gross margin $31,878  $28,059  $3,819   13.6%
                 
Gross margin percent  18.5%  17.8%        
                 
The increase insame-unit revenue was primarily attributable to growth in the result of investmentsCompany’s retail, payroll service and specialty life insurance businesses. The retail growth was due primarily to an approximate 6% growth in group health products. Payroll service revenue increased approximately 15% and specialty life insurance sales and support personnel intended to promote organic growth. Commissions paid to third party brokers decreased as a percentage of revenue to 6.1% for the twelve months ended December 31, 2005 from 7.8% for the twelve months ended December 31, 2004, primarily due to a decline in revenue at a national business unit that specializes in bank-owned life insurance. Such revenue loss resulted in a decline in commissions paid to external brokers. Occupancy costs are relatively fixed in nature and decreased as a percentage of revenue to 5.7%increased approximately 16% for the year ended December 31, 2005 from 5.8% for2007 versus the comparable period in 2004, primarily as a result of overall growth in revenue.
Gross margin as a percent of revenue increased by 0.6% for the year ended December 31, 2005 from the comparable period in 2004, primarily due to the growth in revenue combined with expense management efforts. In 2006, CBIZ expects growth to continue in the Benefits and Insurance group based on our intention to continue making investments in sales and support personnel in select markets, to continue providing superior consulting and brokerage services for our commercial clients, to continue seeking cross-serving opportunities within CBIZ to garner new business and grow market share and to strengthen existing client relationships in order to promote retention.
CBIZ Medical Management Professionals (CBIZ MMP).
               
  Year Ended December 31,
   
  2005 2004 Change
       
  (Dollars in thousands)
Revenue            
 Same-unit $97,583  $87,261  $10,322 
 Acquired businesses  —   —   — 
 Divested operations  —   —   — 
          
  Total revenue  97,583   87,261   10,322 
Operating expenses  80,033   71,885   8,148 
          
Gross margin $17,550  $15,376  $2,174 
          
Gross margin percent  18.0%  17.6%   0.4%
CBIZ MMP revenue increased by $10.3 million, or 11.8%, for the twelve months ended December 31, 2005 from the comparable period 2004. Growth was attributable to new clients obtained in 2005, the maturation of clients obtained in 2004, and growth in revenue from existing clients.
The largest components of operating expenses for CBIZ MMP are personnel costs, occupancy costs and office expenses (primarily postage), representing 88.1% and 88.9% of total operating expenses for the twelve months ended December 31, 2005 and 2004, respectively. Personnel costs increased by $5.1 million, but decreased as a percent of revenue to 58.0% from 58.9% for the twelve months ended December 31, 2005 and 2004, respectively. The increase in personnel costs was directly related to an increase in the number of client service staff employed by CBIZ MMP during 2005 compared to 2004, as required to support the growth in revenue. Additionally, CBIZ MMP added personnel in the compliance and technology disciplines to support the current infrastructure and to position the unit for continued growth in the future. Occupancy costs increased $1.0 million to 7.0% of revenue for the twelve months ended December 31, 2005 from 6.7% of revenue for the comparable period in 2004. The increase in occupancy costs was primarily due to additional space required and expenses incurred to accommodate overall growth of the unit. Office expenses for the twelve months ended December 31, 2005 increased 6.0% from the comparable period in 2004 in response to overall growth of the unit.
Gross margin as a percentage of revenue increased 0.4% for the twelve months ended December 31, 2005 from the comparable period in 2004 as a result of the growth in revenue. CBIZ expects MMP’S operating expenses to increase in 2006 based on significant investments to upgrade their operating system to allow for future growth. As a result of these investments, gross margin in 2006 is expected to remain consistent with 2005; however, gross margin as a percentage of revenue is expected to decline.

20

National Practice Services — Other
               
  Year Ended December 31,
   
  2005 2004 Change
       
  (Dollars in thousands)
Revenue            
 Same-unit $67,733  $64,369  $3,364 
 Acquired businesses  2,188   —  ��2,188 
 Divested operations  —   —   — 
          
  Total revenue  69,921   64,369   5,552 
Operating expenses  60,969   57,208   3,761 
          
Gross margin $8,952  $7,161  $1,791 
          
Gross margin percent  12.8%  11.1%  1.7%
Same-unit revenue for the twelve months ended December 31, 2005 increased by $3.4 million or 5.2% from the twelve months ended December 31, 2004. The increase in same-unit revenue was primarily due to growth in our technology businesses of $3.5 million, offset by a decline in revenue generated by the mergers and acquisition business of $0.5 million. Growth in revenue experienced by our technology businesses was largely the result of sales to new clients, as well as higher product sales at one unit. The decline in revenue experienced by the mergers and acquisition business was attributable to the number and size of transactions that closed during 2005 versus 2004. The mergers and acquisition business closed two transactions in 2005 as compared to three transactions that closed during 2004.2006. The growth in revenue from acquired businesses was provided by a technology firmproperty and casualty business with offices in Cleveland, Ohio,St. Joseph and Kansas City, Missouri, which was acquired during the second quarter of 2006.
The largest components of operating expenses for the Employee Services practice group are personnel costs, including commissions paid to third party brokers, and occupancy costs, representing 83.1% and 84.0% of total operating expenses for the years ended December 31, 2007 and 2006, respectively. Personnel costs increased $7.6 million, but decreased as a percentage of revenue to 62.4% for the year ended December 31, 2007 from 63.4% for the comparable period in 2006. Acquired businesses contributed $0.8 million of the increase in personnel costs and the remainder of the increase was primarily the result of the growth in revenue (as the sales force is typically compensated on a variable basis) and the addition of client service personnel to accommodate growth. Occupancy costs increased $0.2 million for the year ended December 31, 2007 versus the comparable period in 2006, due to improvements to existing facilities.
The increase in gross margin as a percentage of revenue for the year ended December 31, 2007 from the comparable period in 2006 was primarily due to an increase in revenues and the aforementioned decrease in proportional personnel costs. The segment’s variable compensation structure in the life and health product lines afforded margin leverage from same-store revenue growth.


30

Medical Management Professionals
                 
  Year Ended December 31, 
        $
  %
 
  2007  2006  Change  Change 
  (In thousands, except percentages) 
 
Revenue                
Same-unit $124,303  $117,369  $6,934   5.9%
Acquired businesses  8,550   —   8,550     
Divested operations  —   —   —     
                 
Total revenue  132,853   117,369   15,484   13.2%
Operating expenses  115,976   100,691   15,285   15.2%
                 
Gross margin $16,877  $16,678  $199   1.2%
                 
Gross margin percent  12.7%  14.2%        
                 
Approximately 45% of the increase insame-unit revenue was provided by net new business sold, and the remaining 55% increase was provided by existing clients. Total revenue from existing clients increased by 4% in 2007 versus 2006, which was provided by a 6% increase in volume, offset by a 2% decline that occurred as the result of certain reductions in the 2007 Medicare reimbursement rates, including those that occurred as the result of the Deficit Reduction Act which is further described under “Overview — Medical Management Professionals.” Growth in revenue from acquired businesses was provided by a business located in Montgomery, Alabama which provides billing services, practice management and consulting services to anesthesia and pain management providers primarily in the southern United States, and a valuation business headquartered in Milwaukee, Wisconsin.Ponte Vedra Beach, Florida which provides coding, billing and accounts receivable management services for emergency medicine physician practices along the east coast of the United States. These businesses were acquired in the second and fourth quarters of 2007, respectively.
The largest components of operating expenses for MMP are personnel costs, occupancy costs and office expenses (primarily postage related to our statement mailing services), representing 83.8% and 85.4% of total operating expenses for the years ended December 31, 2007 and 2006, respectively. Personnel costs increased by $10.3 million to 58.5% of revenue for the year ended December 31, 2007 from 57.4% of revenue for the comparable period in 2006. Acquired businesses contributed $3.8 million of the increase in personnel costs and the remaining increase was primarily the result of annual merit increases to existing employees and an increase in client service staff to support the growth insame-unit revenue. Occupancy costs and office expenses for the year ended December 31, 2007 increased versus the comparable period in 2006 by $0.6 million and $0.3 million, respectively. The increase in occupancy costs and office expenses was primarily related to the acquired businesses.
The decrease in gross margin as a percentage of revenue was primarily due to the impacts of certain reductions in the 2007 Medicare reimbursement rates, including those that occurred as the result of the Deficit Reduction Act. Since MMP is typically paid a portion of the revenue collected on behalf of its clients, reductions in client revenue that resulted from the reduction in reimbursement rates had an adverse affect on MMP’s revenue and margins. Additionally, MMP reduced the carrying value of certain internally developed software by $0.5 million, as the software is not being utilized at as many locations as originally intended.


31

National Practices
                 
  Year Ended December 31, 
        $
  %
 
  2007  2006  Change  Change 
  (In thousands, except percentages) 
 
Revenue                
Same-unit $45,427  $46,922  $(1,495)  (3.2)%
Acquired businesses  —   —   —     
Divested operations  —   —   —     
                 
Total revenue  45,427   46,922   (1,495)  (3.2)%
Operating expenses  41,247   41,347   (100)  (0.2)%
                 
Gross margin $4,180  $5,575  $(1,395)  (25.0)%
                 
Gross margin percent  9.2%  11.9%        
                 
Approximately $2.0 million of the decrease in revenue was attributable to the mergers and acquisitions business earning success fees related to three transactions that closed during 2006 versus no transactions or related success fees in 2007. This decrease was partially offset by an overall $0.7 million increase in revenue in our technology businesses which consisted of a $2.9 million increase in consulting revenue (a large portion of which related to a special project with our largest customer), offset by declines in product and service agreement revenue of $1.4 million and $0.8 million, respectively.
The largest components of operating expenses for the National Practices Services — Other segmentgroup are personnel costs, direct costs and occupancy costs, representing 89.6%92.2% and 90.8% of total operating expenses for the twelve months ended December 31, 2005 and 2004, respectively. Personnel costs increased $1.4 million for the twelve months ended December 31, 2005 from the comparable period in 2004, of which $1.1 million was attributable to acquired businesses. As a percentage of revenue, personnel costs decreased to 59.5% for the twelve months ended December 31, 2005 from 62.5% for the comparable period in 2004. Direct costs (which consist primarily of product costs associated with hardware sales in the technology businesses) increased $2.1 million to 13.8% of revenue for the twelve months ended December 31, 2005 from 11.8% of revenue for the comparable period in 2004. Direct costs increased as a percentage of revenue, and personnel costs decreased as a percentage of revenue, as a larger portion of revenue was derived from product sales during the twelve months ended December 31, 2005 than in the comparable period of 2004. Occupancy costs are relatively fixed in nature and decreased as a percentage of revenue to 4.8% for the twelve months ended December 31, 2005, from 6.4% for the comparable period in 2004. The decrease in occupancy costs as a percentage of revenue resulted from a combination of revenue growth and the shutdown of unprofitable facilities. CBIZ closed facilities in the mergers and acquisition and valuation businesses in June 2004, as well as an unprofitable office in the valuation business during the first quarter of 2005.
Gross margin as a percent of revenue increased by 1.7% for the twelve months ended December 31, 2005 from the twelve months ended December 31, 2004, primarily as the result of growth in the technology businesses and operational efficiencies in the valuation business. Due to the unpredictable nature of the mergers and acquisitions business, CBIZ expects gross margin for 2006 to be in line with 2005 levels.

21

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Revenue
The following table summarizes total revenue for the twelve months ended December 31, 2004 and 2003 (in thousands, except percentages).
                            
  Year Ended December 31,
   
    % of   % of $ %
  2004 Total 2003 Total Change Change
             
Same-unit revenue
                        
Accounting, Tax and Advisory $206,537   40.9%  $199,673   41.5%  $6,864   3.4% 
Benefits and Insurance  139,096   27.5%   138,554   28.7%   542   0.4% 
 
CBIZ MMP  87,261   17.3%   75,785   15.7%   11,476   15.1% 
National Practices — Other  62,499   12.4%   58,497   12.1%   4,002   6.8% 
                   
 Total National Practices  149,760   29.7%   134,282   27.8%   15,478   11.5% 
                   
  Total same-unit revenue  495,393   98.1%   472,509   98.0%   22,884   4.8% 
 Acquired businesses  9,505   1.9%   —       9,505     
 Divested operations  —       9,745   2.0%   (9,745)    
                   
   Total revenue $504,898      $482,254      $22,644   4.7% 
                   
Same-unit revenue growth was 4.8% for the twelve months ended December 31, 2004 from the comparable period in 2003. A detailed discussion of revenue by practice group is included under “Operating Practice Groups” below.
Expenses
Operating expenses increased to $438.4 million for the year ended December 31, 2004, from $419.9 million for the comparable period in 2003, an increase of $18.5 million or 4.4%. As a percent of revenue, operating expenses (excluding consolidation and integration charges) were 86.3% and 86.7% for the years ended December 31, 2004 and 2003, respectively. The primary components of operating expenses are personnel costs and occupancy expense, representing 80.3% and 80.5% of total operating expenses and 69.7% and 70.1% of revenue for the years ended December 31, 2004 and 2003, respectively. A more comprehensive analysis of operating expenses (excluding consolidation and integration charges) and their impact on gross margin is discussed by operating practice group below.
Consolidation and integration charges are reported as operating expenses in the accompanying consolidated statements of operations, and increased as a percent of revenue to 0.5% from 0.4% for the years ended December 31, 2004 and 2003, respectively. The increase in consolidation and integration charges was due primarily to real estate leasing costs in the Chicago market during 2004.
Corporate general and administrative expenses increased to $24.1 million or 4.8% of revenue for the year ended December 31, 2004, from $18.7 million or 3.9% of revenue for the comparable period in 2003. The increase in corporate general and administrative expenses in 2004 versus 2003 was primarily the result of an increase in legal expenses, settlements (net of recoveries), and litigation reserves of approximately $3.2 million, to address several long-standing litigation issues. Additionally, CBIZ incurred approximately $1.0 million in expenses during 2004 associated with its compliance efforts in connection with Section 404 of the Sarbanes-Oxley Act of 2002.
Depreciation and amortization expense decreased to $16.0 million for the year ended December 31, 2004, from $16.6 million for the comparable period in 2003, a decrease of $0.6 million, or 3.4%. The decrease is primarily attributable to the shift from purchasing computer-related items and furniture to leasing such items. These operating lease costs are recorded as operating expenses, rather than capitalized and recorded as depreciation, and total $2.5 million for the year ended December 31, 2004 and $1.6 million for the year ended December 31, 2003. As a percentage of revenue, depreciation and amortization expense was 3.2% and 3.4% for the years ended December 31, 2004 and 2003, respectively.
Other Income and Expense
Interest expense increased to $1.5 million for the year ended December 31, 2004, from $1.1 million for the comparable period in 2003, an increase of $0.4 million, or 42.8%. The increase in interest expense was the result of higher average debt of $40.9 million during the year ended December 31, 2004, compared to $18.2 million

22

during the year ended December 31, 2003. Higher debt during 2004 was primarily due to share repurchase activity. The increase in interest expense due to higher average debt balances was offset by a decrease in average interest rates to 3.5% for the year ended December 31, 2004 from 4.4% for the year ended December 31, 2003. Additionally, interest expense for year ended December 31, 2003 included fees related to an interest rate swap that was terminated during the second quarter of 2003.
Gain on sale of operations, net was $1.0 million for the year ended December 31, 2004, and was related to the sale of two operations and three client lists from the ATA practice group, and a client list from the B&I practice group. For the year ended December 31, 2003, gain on sale of operations, net was $2.5 million and related primarily to the sale of Health Administrative Services from the B&I practice group. Three businesses from the ATA practice group were also sold during the year ended December 31, 2003.
CBIZ reported other income of $3.5 million for the year ended December 31, 2004, compared to other expense of $1.2 million for the comparable period in 2003, an increase $4.7 million. Other income (expense), net is comprised primarily of interest income earned on funds held for clients at CBIZ’s payroll business, adjustments to the fair value of assets held in a rabbi trust related to the deferred compensation plan implemented in the first quarter of 2004, gains and losses on the sale of assets, and miscellaneous income such as contingent royalties from previous divestitures. The change in other income (expense) for the year ended December 31, 2004 from the year ended December 31, 2003 was primarily related to $2.8 million of impairment charges to notes receivable during the year ended December 31, 2003 that did not recur in 2004. Of those impairment charges, $2.4 million related to the impairment of a note taken in connection with the divestiture of the hazardous waste operation in 1997, that filed bankruptcy in 2003. Additionally, other income for the year ended December 31, 2004 included approximately $0.4 million of interest income related to a tax refund that is discussed in further detail below, and approximately $0.4 million related to the deferred compensation plan that was implemented during the first quarter of 2004.
Income Taxes
CBIZ recorded income tax expense from continuing operations of $8.0 million for the year ended December 31, 2004, compared to $11.9 million for the year ended December 31, 2003. The effective tax rate decreased to 27.4% for the year ended December 31, 2004, from 43.8% for the comparable period in 2003. The effective tax rate for the year ended December 31, 2004 was lower than statutory federal and state tax rates of approximately 40.0% due to a $3.5 million net tax benefit related primarily to a favorable tax position which was successfully resolved upon completion of the Internal Revenue Service examination for the years ended December 31, 1998, 1999, and 2000. The effective tax rate for the year ended December 31, 2003 was higher than the statutory federal and state tax rates of approximately 40.0%, primarily due to capital losses resulting from certain impairment charges that were not offset by capital gains and thus were not deductible in the period.
Operating Practice Groups
Accounting, Tax and Advisory Services.
               
  Year Ended December 31,
   
  2004 2003 Change
       
  (Dollars in thousands)
Revenue            
 Same-unit $206,537  $199,673  $6,864 
 Acquired businesses  5,473   —   5,473 
 Divested operations  —   2,396   (2,396)
          
  Total revenue  212,010   202,069   9,941 
Operating expenses  182,564   176,594   5,970 
          
Gross margin $29,446  $25,475  $3,971 
          
Gross margin percent  13.9%  12.6%  1.3%
Same-unit revenue for the twelve months ended December 31, 2004 increased by $6.9 million or 3.4% from the twelve months ended December 31, 2003. The growth experienced in same-unit revenue was primarily due to an increase in the aggregate number of hours charged to clients for litigation support and Sarbanes-Oxley consulting services, combined with modest price increases for traditional accounting and tax services. The growth in revenue from acquisitions was primarily from Sarbanes-Oxley consulting services provided by CBIZ Harborview, which

23

was acquired in September 2003, as well as accounting services provided by firms in Denver, Colorado, and Orange County, California. Divested operations represent several smaller units that did not provide opportunity for growth and cross-serving capabilities.
The largest components of operating expenses for the ATA group were personnel costs, occupancy costs and professional service fees paid to third parties, representing 88.1% and 87.2%90.9% of total operating expenses for the years ended December 31, 20042007 and 2003,2006, respectively. Personnel costs increased $3.2 million primarily due to increases in staff to accommodate revenue growth, as well as annual increases in compensation rates. As a percentage of revenue, personnel costs were 66.6% and 68.3% for the years ended December 31, 2004 and 2003, respectively. The decrease in personnel costs as a percentage of revenue was the result of improved utilization of personnel. Occupancy costs, which are generally fixed in nature, were 7.0% and 7.2% of revenue for the years ended December 31, 2004 and 2003, respectively. Professional service fees paid to third parties increased $3.3$1.0 million to 2.3% percent64.4% of revenue for the year ended December 31, 20042007 from 0.8% for the same in 2003, as the result60.1% of outsourced professional services utilized primarily at two business units; one unit that delivers services requiring specialization in state agency compliance and CBIZ HarborView that delivers Sarbanes-Oxley consulting services.
Gross margin improved by 1.3% for the twelve months ended December 31, 2004 over the comparable period in 2003, primarily due to growth in Sarbanes-Oxley consulting services, as well as modest increases in hourly billing rates.
Benefits and Insurance Services.
               
  Year Ended December 31,
   
  2004 2003 Change
       
  (Dollars in thousands)
Revenue            
 Same-unit $139,096  $138,554  $542 
 Acquired businesses  2,162   —   2,162 
 Divested operations  —   5,455   (5,455)
          
  Total revenue  141,258   144,009   (2,751)
Operating expenses  112,987   112,136   851 
          
Gross margin $28,271  $31,873  $(3,602)
          
Gross margin percent  20.0%  22.1%  (2.1)%
On a same-unit basis, the Benefits and Insurance (B&I) group experienced an increase in revenue of $0.5 million, or 0.4% for the twelve months ended December 31, 2004 compared to the twelve months ended December 31, 2003. This growth was the result of strength in our core retail businesses, primarily group health and welfare, offset by a decline in revenue at a national business unit that specialized in bank-owned life insurance. The growth in revenue from acquired businesses was provided by firms in Chicago, Illinois, Salt Lake City, Utah and Owings Mills, Maryland, that specialize in group benefits and property and casualty services. The decline in revenue from divested operations was primarily the result of Health Administration Services which was sold in May 2003.
The largest components of operating costs for the B&I group were personnel costs, commissions paid to third party brokers, and occupancy costs, representing 86.3% and 86.4% of total operating expenses in 2004 and 2003, respectively. Personnel costs increased as a percentage of revenue to 55.4% from 53.4%, primarily as a result of investments in sales and support personnel intended to promote organic growth. Commissions paid to third party brokers increased to 7.8% of revenue in 2004 from 7.7% in 2003, primarily due to a higher portion of revenue being generated with third party brokers during 2004 than in 2003. Occupancy expenses are relatively fixed in nature, but decreased as a percent of revenue to 5.8% for the twelve months ended December 31, 2004, from 6.1% for the comparable period in 2003,2006. The increase in personnel costs relates to annual merit increases and additional employees primarily in relation to the special project noted above. This increase was partially offset by lower personnel costs in our mergers and acquisitions business as the result of cost savings realized from office consolidation and integration activities that occurred during the year.
Goss margin decreased in 2004 compared to 2003, primarily as the result of the decline in revenue experienced by the national business unit described above. A largea portion of this unit’sthese personnel costs are fixed in the short term, thus resulting in a negative impact to margins when revenue declined. The growth in revenue experienced by our core retail businesses did not result in a similar favorable impact on gross margin, as the retail business units have a more variable cost structure.

24

CBIZ Medical Management Professionals (CBIZ MMP).
               
  Year Ended December 31,
   
  2004 2003 Change
       
  (Dollars in thousands)
Revenue            
 Same-unit $87,261  $75,785  $11,476 
 Acquired businesses  —   —   — 
 Divested operations  —   —   — 
          
  Total revenue  87,261   75,785   11,476 
Operating expenses  71,885   61,566   10,319 
          
Gross margin $15,376  $14,219  $1,157 
          
Gross margin percent  17.6%  18.8%   (1.2%)
CBIZ MMP revenue increased by $11.5 million, or 15.1%, for twelve months ended December 31, 2004 as compared to the twelve months ended December 31, 2003. Approximately $4.2 million of the growth was attributable to new clients obtained during 2004. The remaining revenue growth was the result of the maturation of clients obtained in 2003 and strong existing client sales.
The largest components of operating expenses for CBIZ MMP were personnelwith completing transactions. Direct costs occupancy costs and office expenses (primarily postage), representing 88.9% and 90.0% of total operating expenses for the years ended December 31, 2004 and 2003, respectively. Personnel costs increased by $7.7decreased $0.6 million to 58.9%16.4% of revenue for the year ended December 31, 2004,2007 from 57.6%17.1% of revenue for the year ended December 31, 2003. This increase was directly related tocomparable period in 2006, and consisted of an increase in third party service fees offset by a decrease in product costs. The increase in third party service fees was related to the number of client service staff employed by MMP during 2004 versus 2003, required to supportspecial project noted above, and the growthdecrease in revenue. Additionally, MMP added personnel in compliance and technology to support the infrastructure and to position the unit for continued growth. Occupancyproduct costs as a percentage of revenue were 6.7% and 7.1%, for the years ended December 31, 2004 and 2003, respectively. Office expenses for the twelve months ended December 31, 2004 increased 5.9% from the comparable period in 2003 in response to overall growth of the unit.
Gross margin declined in 2004 from 2003, primarily aswas a result of investmentsan overall decline in additional staff to support and facilitate growth.
National Practice Services — Other.
               
  Year Ended December 31,
   
  2004 2003 Change
       
  (Dollars in thousands)
Revenue            
 Same-unit $62,499  $58,497  $4,002 
 Acquired businesses  1,870   —   1,870 
 Divested operations  —   1,894   (1,894)
          
  Total revenue  64,369   60,391   3,978 
Operating expenses  57,208   61,176   (3,968)
          
Gross margin $7,161  $(785) $7,946 
          
Gross margin percent  11.1%  (1.3)%  12.4%
On a same-unit basis, the National Practices group, excluding CBIZ MMP, experienced higher revenues of $4.0 million for the year ended December 31, 2004 as compared to the year ended December 31, 2003. Approximately $2.1 million of the same-unit revenue growth was attributable to three transactions that closed during the first six months of 2004 in CBIZ’s mergers and acquisition business. The remainder of the increase was primarily from our payroll processing unit and valuation business. The payroll processing unit made investments in their business processes and systems during 2003 to position the unit for growth. These investments, along with increased client satisfaction (evidenced by higher than anticipated retention rate), resulted in favorable revenue results in 2004 as compared to 2003. This increase was offset by lower revenues in CBIZ’s technology and health care consulting businesses in 2004. Revenue from acquired businesses was provided by a technology business located in Cleveland, Ohio. Revenue from divested operations related to the closure of unprofitable locations in the technology businesses during 2003.

25

The largest components of operating expenses for the National Practices Services — Other segment were personnel costs, direct costs and occupancy costs, representing 90.8% and 89.9% of total operating expenses in 2004 and 2003, respectively. Personnel costs decreased by $2.2 million, and decreased as a percentage of revenue to 62.5% for the year ended December 31, 2004, from 70.2% for the year ended December 31, 2003. The decrease was primarily the result of a reduction in personnel related to the closure of unprofitable locations in the mergers and acquisitions group. Direct costs primarily consisted of product costs associated with hardware sales in the technology businesses. These costs decreased by $0.7 million, and decreased as a percentage of revenue to 11.8% for the year ended December 31, 2004, from 13.7% for the year ended December 31, 2003. The decrease was primarily a result of lower product costs at our technology division due to the closure of unprofitable locations during 2003.sales. Occupancy costs are generallyrelatively fixed in nature and decreased as a percentage of revenue to 6.4% in 2004 from 7.1% in 2003, primarily as a result of the shutdown of unprofitable facilities in the technology businesses described above.
The improvement in gross margin for the year ended December 31, 2004 from the year ended December 31, 2003 was realized as the result of closing unprofitable locations in the technology businesses and discontinuing unprofitable product lines, combined with the three mergers and acquisitions transactions as previously discussed, and improvements and operational efficiencies in the payroll, technology and valuation businesses.
Results of Operations — Discontinued Operations
During 2005, CBIZ closed an operation from the Accounting, Tax and Advisory practice group, and sold a business unit from the Benefits and Insurance practice group. In addition, CBIZ committed to the divestiture of a business unit in the National Practices — Other practice group. CBIZ plans to divest of this business in two portions, one of which will be sold and the other which will be closed. The National Practices business unit is classified as available for sale at December 31, 2005.
During the year ended December 31, 2004, CBIZ divested of three business operations; two business units from the Accounting, Tax and Advisory practice group were divested through a sale and a closure, and a business unit from the National Practices — Other practice group was closed. During 2003, CBIZ committed to the divestiture of five and divested of six business operations, (of which one was available for sale at December 31, 2002). There were no businesses available for sale at December 31, 2004 or 2003.
These operations qualified for treatment as discontinued operations, and have been classified as such in accordance with Statement of Financial Accounting Standards (SFAS) 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” and EITF No. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets in Determining Whether to Report Discontinued Operations”. Accordingly, the net assets, liabilities, and results of operations of these businesses are reported separately in the consolidated financial statements included herewith. Based upon the sales proceeds and costs of closure, CBIZ recorded a gain on disposal of discontinued operations, net of tax, of $3.6 million, $0.1 million and $0.7$1.3 million for the years ended December 31, 2005, 2004,2007 and 2003 respectively. Revenue associated2006.
The decline in gross margin was primarily the result of success fees earned by the mergers and acquisitions business during 2006 versus no fees being earned in 2007. Transactions completed by the mergers and acquisitions business typically result in a large amount of revenue for CBIZ with discontinued operations forminimal incremental cost, other than variable compensation. Thus the years ended December 31, 2005, 2004number and 2003size of transactions completed by the mergers and acquisition business may have a significant impact on gross margin. This decline in gross margin by the mergers and acquisitions business was $6.0 million, $18.5 million and $37.0 million, respectively. The loss from operations of these discontinued operations, net of tax, forpartially offset by an overall improvement in gross margin by the years ended December 31, 2005, 2004 and 2003 was $6.5 million, $5.4 million and $0.7 million, respectively.technology businesses.
Financial Condition
Total assets were $454.6$702.6 million total liabilities were $199.9 million and shareholders equity was $254.7 million as ofat December 31, 2005. Current2008, an increase of $124.6 million versus December 31, 2007. The increase in total assets was primarily attributable to the acquisitions of $209.2 million exceeded current liabilities of $153.4 million by $55.8 million.Mahoney Cohen & Company and Tofias PC which occurred on December 31, 2008.
Cash and cash equivalents increased $3.6decreased by $2.5 million to $8.9 million for the year ended December 31, 2005. Restricted cash was $9.9$9.7 million at December 31, 2005, a decrease2008 from December 31, 2007. Restricted cash was $15.8 million at December 31, 2008, an increase of $0.2$0.4 million from December 31, 2004.2007. Restricted cash represents those funds held in connection with CBIZ’s securitiesFinancial Industry Regulatory Authority (“FINRA”) regulated operationsbusinesses and funds held in connection with the pass through of insurance premiums from our clients to the respectivevarious carriers. Cash and restricted cash fluctuate during the year based on the timing of cash receipts and related payments.


32

Accounts receivable, net were $99.2$130.8 million and $115.3 million at December 31, 2005, an increase of $0.22008 and 2007, respectively. The $15.5 million from December 31, 2004. The slight increase in accounts receivable, is attributednet was attributable to a combination of the businesses acquired on December 31, 2008 and slower collections of accounts receivable resulting in a two day increase in revenue from internal growth and acquisitions, offset by an improvement in collections from a year ago. Daysdays sales outstanding (DSO)(“DSO”). DSO from continuing operations was 67 days and 65 days at December 31, 2008 and 2007, respectively. DSO represents trade accounts receivable (before the allowance for doubtful accounts) and unbilled revenue

26

(net (net of realization adjustments) at the end of the period, divided by trailing twelve month daily revenue. The calculation of DSO at December 31, 2008 excludes accounts receivable and unbilled revenue for the two businesses that were acquired on December 31, 2008. CBIZ provides DSO data because such data is commonly used as a performance measure by investment analysts and investors and as a measure of the Company’s ability to collect on receivables in a timely manner. DSO for continuing operations was 67 days at December 31, 2005, a 6 day improvement from 73 days at December 31, 2004.
Other current assets
Income taxes refundable increased by $1.5$3.1 million to $3.3 million at December 31, 20052008 from $0.2 million at December 31, 2004,2007. The increase in income taxes refundable was primarily due to an increase in prepaid expenses offset by a decrease in interest receivable. The increase in prepaid expenses was attributableCBIZ making estimated tax payments that exceeded the tax liabilities CBIZ expects to the timing of insurance premium payments; the decrease in interest receivable relates to aincur with its 2008 income tax refund that was received in February 2005.filings.
Income taxes recoverable at December 31, 2004 includes the expected refund related to a favorable tax position which was successfully resolved upon completion of the IRS examination of tax years 1998-2000. The tax refund was received in February 2005.
Funds held for clients are directly offset by(current and non-current) and client fund obligations. Funds held for clientsobligations relate to CBIZ’s payroll services business. The balance in these accounts fluctuate during the year based onwith the timing of cash receipts and the related payments, andcash payments. Client fund obligations can differ from funds held for clients due to a change in the market value of the underlying investments. The nature of these accounts are further described in Note 1 toof the accompanying consolidated financial statements.
Property and equipment, net increased by $4.5 million to $30.8 million at December 31, 2008 from $26.3 million at December 31, 2007. Approximately $3.6 million of the increase in property and equipment relates to businesses that were acquired during 2008. The remainder of the increase relates to net capital expenditures of approximately $8.1 million, largely offset by depreciation and amortization expense of $7.2 million. CBIZ’s property and equipment is primarily comprised of software, hardware, furniture and leasehold improvements.
Goodwill and other intangible assets, net of accumulated amortization, increased by $12.9$81.8 million at December 31, 20052008 from December 31, 2004. Acquisitions, including contingent consideration earned, resulted in a $15.52007. Goodwill and other intangible assets increased by $90.4 million, primarily due to the two businesses that were acquired on December 31, 2008. The increase in goodwill and other intangible assets during the year ended December 31, 2005. This increase was partially offset by $2.6a $0.7 million decrease in goodwill related to the divestiture of certain operations in the third quarter of 2008 and $7.9 million in amortization expense.expense for intangible assets.
Assets of the deferred compensation plan represent participant deferral accounts. The assets are held in a rabbi trustaccounts and are directly offset by obligations of thedeferred compensation plan representing obligations due to the participants.obligations. Although the assets of the plan are specifically designated as available to CBIZ solely for the purpose of paying benefits under the deferred compensation plan, in the event that CBIZ became insolvent, the assets would be available to all unsecured general creditors. Assets of the deferred compensation plan were $19.7 million and $22.2 million at December 31, 2008 and 2007, respectively. The $2.5 million decrease in assets of the deferred compensation plan consisted of a $7.6 million decline in the in the fair value of the investments, offset by net participant contributions. The plan is described in further detail in Note 11 of14 to the accompanying consolidated financial statements.
The accounts payable balance of $26.4$29.0 million at December 31, 20052008 reflects amounts due to suppliers and vendors;vendors. The accounts payable balances fluctuate during the year based on the timing of cash payments. Accrued personnel costs of $35.9were $40.9 million at December 31, 20052008 and represent amounts due for payroll, payroll taxes, employee benefits and incentive compensation; balancescompensation. Accrued personnel costs fluctuate during the year based on the timing of payments and our estimate of incentive compensation costs. Incentive compensation is described more fully under “Critical Accounting Policies — Incentive Compensation” below.
Notes payable-current decreased by $9.5 million to $1.1 million at December 31, 2008 from $10.6 million at December 31, 2007. Notes payable balances and activity are primarily attributable to contingent proceeds earned by acquired businesses. During the year ended December 31, 2008, payments and additions to notes attributable to contingent proceeds were approximately $16.8 million and $6.6 million, respectively.
Other liabilities (current and non-current) increased by $3.6$5.9 million at December 31, 20052008 from December 31, 2004.2007. The increase in other liabilities relatesis primarily attributable to amounts owed by the Company’s self-funded health benefit plan.


33

CBIZ as contingent proceeds earned by acquired businesses. The increase is alsoconverted its comprehensive health benefit plan from a fully insured plan to a self-funded program in January 2008. See further discussion of this plan in Note 12 to the result of differences between cash payments required under various operating leases, versus rent expense which is recognized on a straight-line basis.accompanying consolidated financial statements.
Income taxes payable of $1.1— non-current decreased $1.5 million to $6.8 million at December 31, 2005 represents our estimate2008 from $8.3 million at December 31, 2007. The decrease in income taxes payable — non-current was primarily due to a reduction in estimated tax reserves as a result of the settlement of an IRS audit and the lapse of certain statutes of limitations. Income taxes are further discussed in Note 8 of the accompanying consolidated financial statements.
Bank debt for amounts due on current year income. AtCBIZ’s credit facility increased by $95.0 million at December 31, 2004, CBIZ recorded income taxes recoverable of $7.1 million, which is discussed in further detail above.
2008 from December 31, 2007. Cash provided from operations supplemented with additional borrowings under the credit facility was used to fund various strategic initiatives, including acquisitions and share repurchases. During the year ended December 31, 2005, CBIZ paid $29.32008, cash payments for acquisitions totaled approximately $96.8 million in cashand were largely attributable to the two acquisitions which occurred on December 31, 2008. Cash payments for business acquisitions (initial consideration and additional consideration earned) and share repurchases in additiontotaled $41.4 million.
Stockholders’ equity increased $9.1 million to reducing the amount of outstanding debt under the credit facility to $32.2$235.5 million at December 31, 20052008 from $53.9$226.4 million at December 31, 2004. Cash to fund acquisitions, share repurchases and the reduction in bank debt during the year ended December 31, 2005, was provided by CBIZ operations.
Stockholders’ equity increased $8.2 million in 2005 from 2004, primarily due to net income of $18.7 million, and the exercise of stock options which contributed $5.4 million.2007. The increase in stockholders’ equity resulting fromwas primarily attributable to net income of $32.6 million, CBIZ’s stock award programs which collectively contributed $9.6 million and stock option exercises was partiallythe issuance of $9.2 million in common shares related to business acquisitions. These increases were offset by share repurchases. During 2005, CBIZan increase in treasury stock of approximately $41.4 million as the Company repurchased 3.84.8 million shares of its common stock which resulted in a $16.7 million decrease in stockholders’ equity.stock.
Liquidity and Capital Resources
CBIZ’s principal source of net operating cash is derived from the collection of fees and commissions fromfor professional services and products rendered to its clients. In addition, CBIZ supplements net operating cash with a senior securedan unsecured credit facility. Thefacility and with $100.0 million in convertible senior subordinated notes. The Notes were sold to qualified institutional buyers on May 30, 2006, mature on June 1, 2026, and may be redeemed by CBIZ in whole or in part anytime after June 6, 2011.
CBIZ maintains a $214.0 million unsecured credit facility carrieswith Bank of America as agent bank for a group of six participating banks. The credit facility has a letter of creditsub-facility and matures in November 2012. On April 3, 2008, Amendment No. 4 to the credit facility increased the commitment from $100.0 million to $150.0 million by exercising the existing $50.0 million accordion. On December 10, 2008, Amendment No. 5 to the credit facility increased the commitment from $150.0 million to $214.0 million, added a sixth lender to the bank group, provided additional flexibility regarding other indebtedness baskets, and provided an optionaccordion feature to increase the commitmentcredit facility to $250.0 million.
At December 31, 2008, CBIZ had $125.0 million outstanding under its credit facility and had letters of credit and performance guarantees totaling $5.7 million. Available funds under the credit facility, based on the terms of the commitment, were approximately $71.0 million at December 31, 2008. Management believes that cash generated from operations, combined with the available funds from the credit facility, provides CBIZ the financial resources needed to meet business requirements for the foreseeable future, including capital expenditures, working capital requirements, and strategic investments.

27

and
The credit facility also allows for the allocation of funds for strategic initiatives, including acquisitions and the repurchase of CBIZ common stock. The facility has a five year term with an expiration date of August 2009.
At December 31, 2005, CBIZ had $32.2 million outstanding under its credit facility, as well as letters of credit and guarantees totaling $4.4 million. Available funds under the facility based on the terms of the commitment were approximately $54.1 million at December 31, 2005. The credit facility was secured by substantially all assets of CBIZ, as well as the capital stock of its subsidiaries. Under the credit facility, CBIZ wasis required to meet certain financial covenants with respect to (i) minimum net worth; (ii) maximum leverage ratio; and (iii) a minimum fixed charge coverage ratio. CBIZ believes it wasis in compliance with its covenants as of December 31, 2005.2008.
Effective February 13, 2006, CBIZ entered into a new $100.0 million unsecured credit facility, which replaced the previous facility. The new facility has an option to increase the commitment to $150.0 million, and has a five year term expiring in February 2011. In addition to providing lower borrowing costs, the new facility provides CBIZ with greater flexibility in regards to on-going corporate initiatives. Specifically, the new facility removes limitations on share repurchases and acquisitions provided the leverage ratio (total debt compared to EBITDA as defined by the facility) is less than 2.0. CBIZ believes it is in compliance with covenants under the new credit agreement.
Management believes cash generated from operations, combined with the available funds from the credit facility, provides CBIZ the financial resources needed to meet business requirements for the next twelve months, including capital expenditures, working capital requirements, and strategic investments.
CBIZ may also obtain funding by offering securities or debt, through public or private markets. CBIZ currently has a number of shelf registrations active,registration under which it can offer such securities. See Note 1215 to the accompanying consolidated financial statements included herewithin this Annual Report for a description of thesethe shelf registration statements.statement.


34

Sources and Uses of Cash
Year Ended
The following table summarizes cash flows from operating, investing and financing activities for the years ended December 31, 2005 Compared to Year Ended December 31, 20042008, 2007 and 2006 (in thousands):
             
  2008  2007  2006 
 
Total cash provided by (used in):            
Operating activities $41,069  $30,130  $28,216 
Investing activities  (100,382)  (29,887)  (21,864)
Financing activities  56,841   (1,070)  (2,290)
             
(Decrease) increase in cash and cash equivalents $(2,472) $(827) $4,062 
             
Operating Activities
Cash provided byflows from operating activities representsrepresent net income adjusted for certain non-cash items and changes in assets and liabilities. During 2005,CBIZ typically experiences a net use of cash from operations during the first quarter of its fiscal year, as accounts receivable balances grow in response to the seasonal increase in first quarter revenue generated by the Financial Services practice group (primarily for accounting and tax services). This net use of cash is followed by strong operating cash flow during the second and third quarters, as a significant amount of revenue generated by the Financial Services practice group during the first four months of the year are billed and collected in subsequent quarters.
Net cash provided by operating activities increased by $10.9 million to $41.1 million for the year ended December 31, 2008 from $30.1 million for the comparable period in 2007. Approximately $17.3 million of the increase was attributable to an increase in operating income and approximately $4.1 million was attributable to a change in the timing of disbursements related to employee health benefits as CBIZ converted its employee health benefit plan from a fully-insured plan to a self-funded program effective January 1, 2008. These increases were partially offset by decreases related to changes in restricted cash, accounts receivable and accrued personnel costs totaling $9.1 million. The decrease related to accounts receivable occurred as a result of slower collections; DSO increased to 67 days at December 31, 2008 from 65 days at December 31, 2007.
Net cash provided by operating activities was $52.8$30.1 million compared to $19.7for the year ended December 31, 2007 versus $28.2 million for the comparable period in 2004.2006. The $1.9 million increase of $33.1 million in net cash provided by operating activities in 20052007 was primarily due tothe result of a decrease$9.8 million increase in theoperating income which was substantially offset by a change in income taxes payable of $13.2 million, a decrease in the change in accounts receivable, net, of $6.4 million, and$7.6 million. CBIZ made higher estimated tax payments during 2007 versus 2006 due to an increase in estimated taxable income that resulted from higher operating net income and various transactions that occurred during the changeyear. These transactions included the sale of an investment and sales of various discontinued operations.
Investing Activities
CBIZ’s investing activities typically result in accrued personnel costsa net use of $7.4 million. The decrease in income taxes due wascash, and generally consist of: payments towards business acquisitions, other intangible assets and capital expenditures, proceeds received from divestitures and discontinued operations, and activity related to a $4.0 million refund received during 2005, combined with the overpayment of taxes during 2004, which were used to reduce 2005 tax payments.
Cash flows from investing activities consist primarily of payments toward capital expenditures and business acquisitions, proceeds from divested operations and the collection of notes receivable. CBIZ used $14.3 millionCapital expenditures during the years ended December 31, 2008, 2007 and 2006 primarily consisted of investments in net cash for investing activities during 2005, compared to $8.6 million during 2004. technology, leasehold improvements, and purchases of furniture and equipment.
Investing uses of cash during 2005the year ended December 31, 2008 primarily consisted of $12.6$98.4 million of net cash used towards business acquisitions and $6.9intangible assets, including the two businesses acquired on December 31, 2008, and $8.1 million for net capital expenditures, (net),and were partially offset by $2.1$5.4 million in proceeds received from the sale of divested and discontinued operations and $0.8 million in proceeds from discontinuedthe sale of a long-term investment.
Investing uses of cash during the year ended December 31, 2007 consisted of $58.2 million of net cash used towards business acquisitions, $1.6 million for the acquisition of intangible assets and $6.1 million for net capital expenditures. These investing uses of cash were partially offset by $28.5 million in proceeds from the sale of divested and discontinued operations and $1.7$7.9 million in proceeds from the sale of a long-term investment.


35

Investing uses of cash during the year ended December 31, 2006 primarily consisted of $22.1 million of net cash used towards business acquisitions, $2.4 million for the acquisition of other intangible assets and $6.1 million for net capital expenditures. These investing uses of cash were partially offset by $7.3 million in proceeds received from the sale of divested and discontinued operations, and $1.9 million in net collections on notes receivable. Investing uses of cash during 2004 primarily consisted of $5.7 million of net cash used toward business acquisitions and $7.4 million for capital expenditures (net), offset by $4.6 million in proceeds from discontinued and divested operations and $0.2 million in net collections on notes receivable. Capital expenditures primarily consisted of technology investments, as well as leasehold improvements and equipment purchased in connection with the consolidation of certain offices.
Cash flows from investing activities also include investing activities of discontinued operations, which primarily relate to capital expenditures. There were no investing activities from discontinued operations during the year ended December 31, 2008, and for each of the years ended December 31, 2007 and 2006, investing cash flows used in discontinued operations were $0.5 million.
Financing Activities
CBIZ’s financing activitiescash flows typically consist primarily of net borrowing and payment activity from the credit facility, repurchases of CBIZ common stock net borrowing and payment activity toward notes payable and capitalized leases, and proceeds from the exercise of stock options. Net
Financing sources of cash used in financing activities during the year ended December 31, 2005 was $35.02008 included $95.0 million comparedin net borrowings on the credit facility and $5.9 million in proceeds from the exercise of stock options, including the related tax benefits. These sources of cash were partially offset by $41.4 million in cash used to $9.6repurchase approximately 4.8 million for the comparable period in 2004. shares of CBIZ common stock.
Financing uses of cash during 2005the year ended December 31, 2007 included $21.7 million in net payments towards the credit facility, $16.7$38.1 million in cash used to purchase 3.8repurchase approximately 5.2 million shares of CBIZ common stock, and $0.8$0.5 million in net payments towards notes payable and capitalized leases, offset by $4.2 million in proceeds from the exercise of stock options. During 2004, financingleases. These uses of cash included $50.4 million in cash used to repurchase 10.4 million shares of CBIZ common stock through a tender offer and open market purchases, and $0.4 million in net payments towards notes payable and capitalized leases,were substantially offset by $39.9sources of cash which included $30.0 million in net proceeds from the credit facility and $1.4$7.7 million in proceeds from the exercise of stock options.

28

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003options including tax benefits.
Net
Financing uses of cash provided by operating activities in 2004 was $19.7 million versus $38.9 million in 2003, a decrease of $19.2 million. The decrease in cash provided by operating activities was primarily due to an increase in the change in income taxes of $10.8 million, and a reduction in the change in accounts payable of $8.8 million during the year ended December 31, 2004 versus the comparable period in 2003. The increase in income taxes was attributable to deferred tax assets utilized in 2003 in connection with the divestiture of two non-core business units.
CBIZ used $8.62006 included $32.2 million in net cash for investing activities during 2004, compared to $4.6 million during 2003. Investing uses of cash during 2004 primarily consisted of $5.7 million of net cash usedpayments toward business acquisitions and $7.4 million for capital expenditures (net), offset by $4.6 million in proceeds from discontinued and divested operations and $0.2 million in net collections on notes receivable. Investing uses of cash during 2003 primarily consisted of $3.8 million of net cash used toward business acquisitions and $10.4 million for capital expenditures (net), offset by $7.2 million in proceeds from discontinued and divested operations and $1.8 million in net collections on notes receivable. The decrease in cash used for capital expenditures (net) during 2004 versus 2003 was primarily attributable to the shift from purchasing computer-related equipment and furniture, to financing such equipment under operating leases.
Net cash used in financing activities during the year ended December 31, 2004 was $9.6 million compared to $36.9 million for the comparable period in 2003. During 2004, financing uses of cash included $50.4credit facility, $74.5 million in cash used to repurchase 9.7 million shares of CBIZ common stock, through a tender offer and open market purchases, and $0.4 million in net payments towards notes payable and capitalized leases, offset by $39.9 million in net proceeds from the credit facility and $1.4 million in proceeds from the exercise of stock options. During 2003, financing uses of cash included $3.5 million in net payments towards the credit facility, $33.6$3.6 million in cash usedpaid for debt issuance costs (primarily related to repurchase shares of CBIZ common stock,the convertible senior subordinated notes), and $0.7 million in net payments towards notes payable and capitalized leases,leases. These uses of cash were substantially offset by $0.9sources of cash which included $100.0 million in proceeds from the issuance of convertible senior subordinated notes, and $8.7 million in proceeds from the exercise of stock options.options including tax benefits.
Obligations and Commitments
CBIZ’s aggregate amount of future obligations for the next five years and thereafter is set forth below (in thousands):
                             
  Total 2006 2007 2008 2009 2010 Thereafter
               
On-Balance Sheet
                            
Bank debt(1) $32,200  $—  $—  $—  $32,200  $—  $— 
Notes payable  6,309   6,107   8   194   —   —   — 
Capitalized leases  1,649   626   533   418   72   —   — 
Restructuring lease obligations(2)  12,268   3,694   2,858   1,903   1,194   787   1,832 
Off-Balance Sheet
                            
Non-cancelable operating lease obligations(2)  191,410   33,309   28,183   25,312   21,166   18,797   64,643 
Letters of credit in lieu of cash security deposits  2,027   1,415   —   —   —   35   577 
License bonds and other letters of credit  1,282   —   —   —   —   —   1,282 
Performance guarantees  2,398   937   1,025   436   —   —   — 
                      
Total $249,543  $46,088  $32,607  $28,263  $54,632  $19,619  $68,334 
                      
 
                             
  Total  2009  2010  2011  2012  2013  Thereafter 
 
Convertible notes(1) $100,000  $—  $—  $—  $—  $—  $100,000 
Interest on convertible notes  54,688   3,125   3,125   3,125   3,125   3,125   39,063 
Credit facility  125,000   —   —   —   125,000   —   — 
Notes payable  1,064   1,064   —   —   —   —   — 
Capitalized leases  386   232   154   —   —   —   — 
Restructuring lease obligations(2)  11,549   2,431   1,974   1,888   1,767   1,178   2,311 
Non-cancelable operating lease obligations(2)  184,508   34,920   30,915   26,230   22,396   17,747   52,300 
Letters of credit in lieu of cash security deposits  4,551   2,386   535   200   —   45   1,385 
Performance guarantees for non-consolidated affiliates  1,155   1,155   —   —   —   —   — 
License bonds and other letters of credit  1,684   1,637   24   23   —   —   — 
                             
Total $484,585  $46,950  $36,727  $31,466  $152,288  $22,095  $195,059 
                             
(1)Represents the credit facility that existed at December 31, 2005. CBIZ entered into a new facility effective February 13, 2006, which has a five year term expiring February,Convertible notes mature on June 1, 2026, but may be redeemed anytime after June 6, 2011.
 
(2)Excludes cash expected to be received under subleases.


36

The above table does not reflect $6.3 million of unrecognized tax benefits, which the Company has accrued for uncertain tax positions in accordance with FIN 48, since we are unable to determine a reasonably reliable estimate of the timing of the future payments.
Off-Balance Sheet Arrangements
CBIZ maintains administrative service agreements with independent CPA firms (as described more fully under “Business Services — Accounting, Tax, and Advisory” above)Financial Services”), which qualify as variable interest entities under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” as amended. The impact to CBIZ of

29

this accounting pronouncement is not material to the financial condition, results of operations, or cash flows of CBIZ, and is further discussed in Note 1 to the accompanying consolidated financial statements included herewith.
CBIZ provides guarantees of performance obligations for a CPA firm with which CBIZ maintains an administrative service agreement. Potential obligations under the guarantees totaled $2.4$1.2 million and $1.3$1.4 million at December 31, 20052008 and 2004,2007, respectively. In accordance with FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, as amended, CBIZ has recognized a liability for the fair value of the obligations undertaken in issuing these guarantees. The liability is recorded as other current liabilities in the accompanying consolidated balance sheets. CBIZ does not expect it will be required to make payments under these guarantees.
CBIZ provides letters of credit to landlords (lessors) of its leased premises in lieu of cash security deposits, whichdeposits. Letters of credit totaled $2.0$4.6 million and $2.9$3.7 million at December 31, 20052008 and 2004,2007, respectively. In addition, CBIZ provides license bonds to various state agencies to meet certain licensing requirements. The amount of license bonds outstanding at December 31, 20052008 and 2004 were $1.22007 was $1.7 million and $1.6$1.4 million, respectively.
CBIZ has various agreements under which we 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 we customarily agree 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 timeand/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 ourCBIZ’s obligations and the unique facts of each particular agreement. Historically, paymentsCBIZ has not made by usany payments under these agreements that have not been material.material individually or in the aggregate. As of December 31, 2005, we were2008, CBIZ was not aware of any obligations arising under indemnification agreements that would require material payments.
Interest Rate Risk Management
CBIZ has used interest rate swaps to manage the interest rate mix of its credit facility and related overall cost of borrowing. Interest rate swaps involve the exchange of floating for fixed rate interest payments to effectively convert floating rate debt into fixed rate debt based on a one, three, or six-month U.S. dollar LIBOR. Interest rate swaps allowenable CBIZ to maintain a target rangemore actively manage the mix of fixed to floating rate debt. During June 2003, CBIZ paidentered into an arrangement effective in January 2008, to swap $10.0 million of its revolving credit facility balance downfloating rate debt into fixed rate debt for two years to zero, thus requiring it to terminate itsmitigate the Company’s interest rate risk. Subsequent to December 31, 2008, CBIZ entered into two additional agreements to swap which was scheduled to expire during August 2003 and carried aits floating rate debt into fixed rate debt. Each agreement was for a notional amount of 5.58% (fixed Libor rate$10.0 million with a term of 3.58% plus an applicable margin of 2.0%). During the years ended December 31, 2005 and 2004, CBIZ did not utilize interest rate swaps.two years. Management will continue to evaluate the potential use of interest rate swaps as it deems appropriate under certain operating and market conditions.
CBIZ investscarries $100.0 million in convertible senior subordinated notes bearing a fixed interest rate of 3.125%. The Notes mature on June 1, 2026 and have call protection such that they may not be redeemed until June 6, 2011. CBIZ believes the fixed nature of this borrowing mitigates our interest rate risk.


37

In connection with payroll services provided to clients, CBIZ collects funds from its clients’ accounts in advance of paying these client obligations. These funds held for clients are segregated and invested in short-term investments, which in the past have included Auction Rate Securities as these were at one time highly liquid investments. In accordance with our investment policy, all investments carry an investment grade instruments with a maturityrating at the time of twelve months or less from the dateinitial investment. See Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” for further discussion of purchase.ARS. The interest income on these short-term investments mitigatemitigates the interest rate risk for the borrowing costs of CBIZ’s credit facility, as the rates on both the investments and the outstanding borrowings against the credit facility float based on market conditions and the average balances of the respective investments and debt are comparable in size.conditions.
Critical Accounting Policies
The policies discussed below are considered by management to be critical to the understanding of CBIZ’s consolidated financial statements because their application places significant demand on management’s judgment, with financial reporting results relying on estimation about the effects of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that estimates may require adjustment if future events develop differently than expected.
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, our fee to the client is fixed or determinable, and collectibility is reasonably assured. These criteria are in accordance with Generally Accepted Accounting Principles (GAAP)GAAP and SEC Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” as amended by SAB No. 104 (SAB 104)“Revenue Recognition”. CBIZ offers
Contract terms are typically contained in a vast arraysigned agreement with our clients (or when applicable, other third parties) which generally define the scope of products and business services to its clients. Thosebe provided, pricing of services, are delivered through three practice groups. A descriptionand payment terms generally ranging from invoice date to 90 days after invoice date. Billing may occur prior to, during, or upon completion of revenue recognition, as it relates to those groups, isthe service. We typically do not have acceptance provisions or right of refund arrangements included in these agreements. Contract terms vary depending on the scope of service provided, below.deliverables, and complexity of the engagement.
Certain of our client arrangements encompass multiple deliverables. CBIZ accounts for these arrangements in accordance with Emerging Issues Task ForceNo. 00-21, “Accounting for Revenue Arrangements with Multiple

30

Deliverables” (EITF 00-21)(“EITF 00-21”). If the deliverables meet the criteria as outlined inEITF 00-21, the deliverables are divided into separate units of accounting and revenue is allocated to the deliverables based on their relative fair values. Revenue for each unit is recognized separately in accordance with CBIZ’s revenue recognition policy for each unit. For those arrangements where the deliverables do not qualify as a separate unit of accounting, revenue from all deliverables are treated as one accounting unit and evaluated for appropriate accounting treatment based upon the underlying facts and circumstances.
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 provided below.
Accounting, Tax and AdvisoryFinancial Services — Revenue primarily consists primarily of fees for services rendered to our clients for accounting services, preparation of tax returns, and consulting services, compliance projects, services pursuant to administrative service agreements (described under “Variable Interest Entities”), and valuation services including Sarbanes-Oxley consultingfairness opinions, business plans, litigation support, purchase price allocations and compliance projects. Revenuesderivative valuations. Clients are recorded in the period in whichbilled for these services are provided and meet revenue recognition criteria in accordance with SAB 104. CBIZ bills clients based upon either a time and expense model, a predeterminedagreed-upon fixed fee, or actual hours incurred on client projects at expected net realizable rates per hour, plus anyout-of-pocket expenses. The cumulative impact on any subsequent revision in the estimated realizable valueas a percentage of unbilled fees for a particular client projectsavings.
Revenue recognition as it pertains to each of these arrangements is reflected in the period in which the change becomes known.as follows:
Through one of its ATA units, CBIZ provides flexible benefits administration services to clients, grants access of its proprietary software to third parties, and provides hosting to these parties. Revenue associated with set up and license fees related to our flexible benefits services are deferred and recognized pro rata over the life of the contract.
• Time and Expense Arrangements — Revenue is recognized based upon actual hours incurred on client projects at expected net realizable rates per hour, plusagreed-uponout-of-pocket expenses. The cumulative impact on any subsequent revision in the estimated realizable value of unbilled fees for a particular client project is reflected in the period in which the change becomes known.


38

• Fixed Fee Arrangements — Revenue for fixed-fee arrangements is recognized over the performance period based upon progress towards completion, which is determined based upon actual hours incurred on the client project compared to estimated total hours to complete the client project.
• Contingent Revenue Arrangements — Revenue is recognized when savings to the client is determined and collection is reasonably assured.
• Administrative Service Agreement Revenue — Revenue for administrative service fees is recognized as services are provided, based upon actual hours incurred.
Benefits and InsuranceEmployee Services — Revenue consists primarily of brokerage and agency commissions, and fee income for administering health and retirement plans.plans and payroll service fees. Revenue also includes investment income related to client payroll funds that are held in CBIZ accounts, as is industry practice. A description of the revenue recognition, based on the service provided, insurance product sold, and billing arrangement, is describedprovided below.
 • Commissions Revenue — Commissions relating to brokerage and agency activities whereby CBIZ has primary responsibility for the collection of premiums from insured’s (agency or indirect billing) are recognized as of the latter of the effective date of the insurance policy or the date billed to the customer; commissions to be received directly from insurance companies (direct billing) are recognized when the policydata necessary from the carriers to properly record revenue becomes effective;available; and life insurance commissions are recognized when the policy becomes effective. Commission revenue is reported net ofsub-broker commissions. Commission revenue is reported net of commissions, and reserves for estimated policy cancellations and terminations. ThisThe cancellation and termination reserve is based upon estimates and assumptions using historical cancellation and termination experience and other current factors to project future experience. CBIZ periodically reviews the adequacy of the reserve and makes adjustments as necessary. The use of different estimates or assumptions could produce different results.
Commissions which are based upon certain performance targets are recognized at the earlier of written notification that the target has been achieved, or cash collection.
 • Commissions which are based upon certain performance targets are recognized at the earlier of written notification that the target has been achieved, or cash collection.
• Fee income — Fee income is recognized in the period in which services are provided, and may be based on predeterminedagreed-upon fixed fees, actual hours incurred on an hourly fee basis, fixed fee arrangements, or asset-based fees. Revenue for fixed-fee arrangements is recognized on a straight-line basis over the contract period, as these services are provided to clients continuously throughout the term of the arrangement. Revenue which is based upon actual hours incurred is recognized as services are performed.
Revenue for asset-based fees is recognized when the data necessary to compute revenue is determinable, which is typically when either, market valuation information is available, the data necessary to compute our fees is made available by third party administrators or when cash is received. CBIZ only recognizes revenue when cash is received for those arrangements where the data necessary to compute our fees is not available to the Company in a timely manner.
• Payroll — Revenue related to payroll processing fees is recognized when the actual payroll processing occurs. Revenue related to investment income earned on payroll funds is based upon actual amounts earned on those funds and is recognized in the period that the income is earned.
Medical Management Professionals — Revenue is primarily related to fees charged to clients for billing, collection and full-practice management services, which are typically charged to clients based upon a percentage of net collections on the Company’s clients’ patient accounts or as a fee per transaction processed. Revenue also relates to fees charged to clients for statement mailing services. The revenue recognition as it pertains to each of these arrangements is as follows:
• Fee income — For those arrangements where fees to clients are determined based upon a percentage of net collections, revenue is determinable, earned and recognized when payments are received by our clients on their patient accounts. For those arrangements where clients are charged a fee for each transaction processed, revenue is typically recognized proportionately over a predetermined service period.


39

• Statement mailing services — Revenues for statement mailing services are recognized when statements are processed and mailed.
National Practices Services — The business units that comprise this practicethe National Practices group offer a variety of services. A description of revenue recognition associated with the primary services is provided below.
Technology Consulting — Revenue consists of consulting services and sales of hardware, software and service agreement contracts.
 • Mergers & AcquisitionsConsulting Services — Consulting services primarily relate to the maintenance and Capital Advisory —repair of hardware. These services are charged to customers based upon time and material, cost-plus anagreed-upon markup percentage, or a predeterminedagreed-upon fixed fee. Revenue associated with non-refundable retainersrelated to consulting services is recognized as services are performed or upon acceptance by the client, depending on a pro rata basis over the life of the engagement. Revenue associated with success fee transactions is recognized when the transaction is completed.client contract terms.
 
 • Technology ConsultingService Agreement Contracts — Revenue associated with service agreement contracts is recognized on a straight line basis over the period of the agreement.
• Hardware — Revenue associated with hardware and software sales is recognized upon delivery and acceptance of the product. Revenue associated with installation is recognized as services are performed, and revenue associated with service agreements is recognized on a straight-line basis. Consulting revenue is recognized on an hourly or per diem fee basis as services are performed.
 
 • ValuationSoftware, Post Contract Support and Installation Services — CBIZ is a re-seller of software and post contract support (“PCS”) that is provided by software vendors. CBIZ also provides installation and implementation services that generally do not involve significant production or modification of software. Revenue consists primarily of fees for valuationrelated to software, PCS and installation services such as fairness opinions, business plans, litigation support, purchase price allocations and derivative valuations. Revenues are recorded in the period in which services are provided and meet revenue recognition criteriais recognized in accordance with SAB 104. CBIZ bills clients based upon a predetermined agreed-upon fixed fee or actual hours incurred on client projects at expected net realizable rates per hour, plus anyout-ofSOP 97-2.-pocket expenses. The cumulative impact on any subsequent revision in the estimated realizable value of unbilled fees for a particular client project is reflected in the period in which the change becomes known.
• Payroll — Revenue is recognized when the actual payroll processing occurs.

31

• Medical Management Group — Fees for services are primarily based on a percentage of net collections on our clients’ patient accounts receivable. As such, revenue is determinable, earned, and recognized, when payments are received on our clients’ patient accounts.
CBIZ sells installation and implementation services and PCS on a stand-alone basis. Software is typically sold with installation and implementation services. Revenue is allocated to each element based upon vendor specific objective evidence of fair value which is commensurate with prices charged to the customers for these items. Revenue related to the sale of software and PCS is recognized upon delivery, and installation and implementation service revenues are recognized as the services are performed.
Health Care Consulting — Clients are billed for health care consulting services based upon a predeterminedagreed-upon fixed fee, time and expense, or as a percentage of savings. Revenue for fixed fee and time and expense arrangements is recognized over the performance period based upon actual hours incurred, and revenue that is contingent upon savings is recognized after contingencies have been resolved and verified by a third party.
Mergers & Acquisitions — Clients are billed monthly for non-refundable retainer fees, or upon the completion of a transaction (success fees). Revenue associated with non-refundable retainer fees is recognized on a straight-line basis over the life of the engagement, as services are performed throughout the term of the contract period of the arrangement. Revenue associated with success fee transactions is recognized when the transaction is completed.
Valuation of Accounts Receivable and Notes Receivable
The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Specifically, management must make estimates of the collectibility of accounts receivable, including unbilled accounts receivable related to current period service revenue. Management analyzes historical bad debts, client credit-worthiness, the age of accounts receivable and current economic trends and conditions when evaluating the adequacy of the allowance for doubtful accounts and the collectibility of notes receivable. Significant management judgments and estimates must be made and used in connection with establishing the allowance for doubtful accounts in any accounting period. Material differences may result if management made different judgments or utilized different estimates.
Valuation of Goodwill
CBIZ utilizes the purchase method of accounting for all business combinations in accordance with Statement of Financial Accounting Standard (SFAS)(“SFAS”) No. 141, “Business Combinations.” Intangible assets, which include


40

client lists and non-compete agreements, are amortized principally byusing the straight-line method over their expected period of benefit, not to exceed ten years.
In accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill is not amortized. Goodwill is tested for impairment annually during the fourth quarter of each year, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.
CBIZ estimates the fair value of its reporting units utilizing a combination of the discounted cash flow (income approach) and market comparable (market approach) methods. Under the income approach, fair value is estimated as the present value of estimated future cash flows. This approach requires the use of significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital and the appropriate discount rate. The projection of future revenues and expenses inherently includes significant assumptions related to estimated economic trends, expected client behavior and other factors which are beyond management’s control. Under the market approach, fair value is estimated by applying the multiples of comparable companies and transactions to CBIZ’s reporting units.
The aggregate fair value of the reporting units is compared to CBIZ’s market capitalization as of the annual testing date. In situations where CBIZ’s market capitalization is significantly different than the estimated fair value for the combined reporting units, management considers the impact of its assumptions as well as the implied control premium to ensure that the fair values of the reporting units are appropriate.
The estimated fair value of each reporting unit is compared with the respective reporting unit’s net asset carrying value. If the carrying value exceeds fair value, a possible impairment of goodwill and indefinite-lived intangible assets exists and further evaluation is performed.
Future declines in revenue, operating income, CBIZ’s stock price, changes in comparable transaction multiples, or other changes in CBIZ’s business or the market for its services, could result in impairments of goodwill and other intangible assets. There was no goodwill impairment of goodwill during the years ended December 31, 2005, 2004,2008, 2007 or 2003.2006.
Loss Contingencies
Loss contingencies, including litigation claims, are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Contingent liabilities are often resolved over long time periods. Estimating probable losses requires analysis that often depends on judgment about potential actions by third parties.
Incentive Compensation
Determining the amount of expense to recognize for incentive compensation at interim and annual reporting dates involves management judgment. Expenses accrued for incentive compensation are based upon expected financial results for the year, and the ultimate determination of incentive compensation can not be made until after year-end results are finalized. Thus, amounts accrued are subject to change in future interim periods if actual future financial results are higher or lower than expected. In arriving at the amount of expense to recognize, management believes it makes reasonable judgments using all significant information available. At December 31, 2005, CBIZ believes that the accrual for incentive compensation accurately reflects amounts that will be paid under the plan.
Income Taxes
Determining the consolidated provision for income tax expense, income tax liabilities and deferred tax assets and liabilities involves management judgment. Management estimates an annual effective tax rate (which takes into consideration expected full-year results), which is applied to our quarterly operating results to determine the provision for income tax expense. In the event there is a significant, unusual or infrequent item recognized in our quarterly operating results, the tax attributable to that item is recorded in the interim period in which it occurs. In addition, we establish reserves for tax contingencies in accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”). CBIZ adopted the provisions of FIN 48 on January 1, 2007. See Note 1 and Note 8 to the accompanying consolidated financial statements for further information.


41

Circumstances that could cause our estimates of effective income tax rates to change include the impact of information that subsequently becomes available as we prepare our corporate income tax returns; the level of actual pre-tax income; revisions to tax positions taken as a result of further analysis and consultation; the receipt and expected utilization of federal and state income tax credits; and changes mandated as a result of audits by taxing authorities. Management believes it makes reasonable judgments using all significant information available when estimating income taxes.

32

Other Significant Policies
Other significant accounting policies not involving the same level of measurement uncertainties as those discussed above are nevertheless important to understanding the consolidated financial statements. Those policies are described in Note 1 to the accompanying consolidated financial statements.
New Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007) “Business Combinations” (“SFAS No. 141R”), which replaces SFAS No. 141, “Business Combinations.” SFAS No. 141R establishes principles and requirements for how an acquirer, a) recognizes and measures the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree, b) recognizes and measures the goodwill acquired, and c) determines what information to disclose. SFAS No. 141R also requires that all acquisition-related costs, including restructuring, be recognized separately from the acquisition, and that changes in acquired tax contingencies, including those existing at the date of adoption, be recognized in earnings if outside the maximum allocation period (generally one year). SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning after December 15, 2008. The adoption of SFAS No. 141R will impact CBIZ’s results of operations and effective tax rate to the extent that uncertain tax positions related to prior acquisitions are resolved more or less favorably than originally estimated. Additionally, CBIZ’s results of operations will be impacted by the requirement that acquisition costs that were previously capitalized be expensed as incurred. Any business combination closed after December 31, 2008 may have a significantly different impact on CBIZ’s financial position and result of operations compared with its impact as recorded under SFAS No. 141, depending on the terms of acquisition. See Note 8 of the accompanying consolidated financial statements contained herein.for further discussion of uncertain tax positions related to prior acquisitions.
New Accounting Pronouncements
In December 2004,2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Standards Board (FASB) issued the revised Statement of Financial Accounting Standards (SFAS)Research Bulletin No. 123, “Share-Based Payment” (SFAS 123(R)51” (“SFAS No. 160”), which addresses the accounting. SFAS 160 establishes requirements for share-based payment transactionsownership interests in whichsubsidiaries held by parties other than the Company obtains employee services(sometimes called “minority interests”) be clearly identified, presented, and disclosed in exchange for (a)the consolidated statement of financial position within equity, instruments ofbut separate from the Company or (b) liabilities thatparent’s equity. All changes in the parent’s ownership interests are based on the fair value of the Company’s equity instruments or that may be settled by the issuance of such equity instruments. This statement eliminates the abilityrequired to account for employee share-based payment transactions using APB Opinion No. 25 and requires instead that such transactions be accounted for using the grant-dateconsistently as equity transactions and any noncontrolling equity investments in deconsolidated subsidiaries must be measured initially at fair value based method. In April 2005, the Securities and Exchange Commission (SEC) delayed thevalue. This statement is effective date for SFAS 123(R) until the first fiscal yearCBIZ beginning after June 15, 2005. As a result of this SEC ruling, CBIZ is required to adopt the provisions of SFAS 123(R) in the first quarter of 2006.
CBIZ expects to adopt the provisions of SFAS 123(R) using the modified prospective method. Pursuant to this method of adoption, prior periods will not be restated. Rather, this method requires that compensation expense be recorded for the unvested portion of previously granted awards that remain outstanding on the Statement’s effective date, as the related services are rendered, based on the awards’ grant-date fair value as previously calculated for the pro forma disclosure under SFAS 123. Compensation expense calculated in accordance with SFAS 123(R) in future periods may differ from the pro forma amounts disclosed in NoteJanuary 1, to the consolidated financial statements included herewith, as the amount of compensation expense will vary depending on assumptions for future forfeitures, the number of options granted in 2006, the market value of our common stock and changes in other variables impacting stock option valuation estimates.
In March 2005, the SEC issued Staff Accounting Bulletin No. 107, “Share Based Payments”, which summarizes the views of the SEC regarding the interaction between SFAS 123(R) and certain SEC rules and regulations, and also provides the SEC’s views regarding the valuation of share-based payment arrangements. CBIZ will consider the guidance provided by SAB 107 as it implements SFAS 123(R).
In August 2005, the FASB issued Financial Staff Position (FSP) No. FAS 123(R)-1, “Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under SFAS No. 123(R)”. FSP No. FAS 123(R)-1 states that a freestanding financial instrument issued to an employee originally subject to SFAS 123(R) becomes subject to the recognition and measurement provision of other applicable generally accepted accounting principles when the rights conveyed by the instrument to the holder are no longer dependent on the holder being an employee of the entity.2009. The provisions of FSP No. FAS 123(R)-1 are effective upon CBIZ’s initial adoption of SFAS 123(R). AdoptionNo. 160 is not expected to have a material impact on CBIZ’s consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”) as an amendment to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 161 applies to all derivative instruments and related hedged items accounted for under SFAS No. 133. It requires entities to provide greater transparency about a) how and why an entity uses derivative instruments, b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and c) how derivative and related hedged items affect an entity’s financial position, results of operations, orand cash flows of CBIZ.
In February 2006, the FASB issued FSP 123(R)-4, “Classification of Options and Similar Instruments Issued as Employee Compensationflow. SFAS No. 161 is effective for CBIZ beginning January 1, 2009. The Company does not believe that allow for Cash Settlement upon the Occurrence of a Contingent Event”. FSP 123(R)-4 amends certain provisions of SFAS 123(R) and addresses the classification of options and similar instruments issued as employee compensation that allow for cash settlement upon the occurrence of a contingent event. The provisions of FSP No. FAS 123(R)-4 are effective upon CBIZ’s initial adoption of SFAS 123(R). Adoption is not expected to161 will have a material impact on its consolidated financial statements, however, it will impact disclosures in the notes to its consolidated financial position, results of operations or cash flows of CBIZ.statements.
In
On May 2005,9, 2008, the FASB issued SFASFASB Staff Position No. 154, “Accounting for Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3”. SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 requires that retrospective application of a change in accounting principle be limited to the direct effects of the change; indirect effects of a change in accounting principle should be recognized in the period of the accounting change. SFAS No. 154 is effective for CBIZ in the first quarter of 2006.
In October 2005, the FASB issued FSP No. FAS 13-1,14-1, “Accounting for Rental Costs Incurred during a Construction Period”. Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP No. FAS APB13-114-1”). clarifiesFSP APB14-1 requires issuers of convertible debt instruments that there is no distinction between the rightmay be settled wholly or partly in cash, to use a leased


42

33

asset during
separately account for the constructionliability and equity components of the instruments in a manner that reflects the nonconvertible debt borrowing rate when interest expense is recognized in subsequent periods. The resulting debt discount is amortized over the period and after the construction period, and therefore rental costs associated with ground or building operating leases that are incurred during a construction period shallconvertible debt is expected to be recognizedoutstanding as rentaladditional non-cash interest expense.
FSP No. FAS APB13-114-1 is effective for reporting periodsfiscal years beginning after December 15, 2005. Adoption2008 and will impact the accounting associated with CBIZ’s $100.0 million convertible senior subordinated notes (described in Note 9 to the accompanying consolidated financial statements). The provisions of APB14-1 must be applied retrospectively to all periods presented and will result in a reduction in the carrying value of convertible notes, and increases to stockholders’ equity and interest expense from what has been reported in historical financial statements. The additional interest expense required under FSP APB14-1 is a non-cash expense and thus will not expectedimpact total operating, investing or financing cash flows.
Had the provisions of FSP APB14-1 been applied to the years ended December 31, 2008 and 2007, the carrying amount of convertible notes would have a material impact onbeen reduced to approximately $89.9 million and $86.2 million, respectively, and stockholders’ equity at December 31, 2008 and 2007 would have been increased to approximately $241.4 million and $234.5 million, respectively.
The following table illustrates how the financial position, results of operations or cash flows of CBIZ.
In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” This FSP addresses the determination as to when an investment is considered impaired, whether the impairment is other than temporary and the measurement of an impairment loss. FSP FAS 115-1 and 124-1 specifically nullifies the requirements of paragraphs 10-18 of EITF 03-1 and references existing other-than-temporary impairment guidance. The guidance under this FSP is effective for reporting periods beginning after December 15, 2005. The adoption of FSP FAS 115-1 and 124-1 is not expected to have a material impact on the financial position, resultsAPB14-1 would affect CBIZ’s consolidated statements of operations or cash flowsfor the years ended December 31, 2008, 2007 and 2006 (in thousands, except per share data).
                         
  As Reported  Pro Forma 
  2008  2007  2006  2008  2007  2006 
 
Interest Expense $7,242  $5,763  $4,205  $10,787  $9,038  $6,004 
                         
Net Income $32,602  $34,840  $24,401  $30,404  $32,810  $23,286 
                         
Earnings Per Share — Basic $0.53  $0.54  $0.34  $0.49  $0.50  $0.33 
Earnings Per Share — Diluted $0.52  $0.53  $0.33  $0.49  $0.49  $0.32 
For the year ended December 31, 2009, pre-tax interest expense for CBIZ’s $100.0 million convertible senior subordinated notes is estimated to be $7.6 million, comprised of CBIZ.$3.1 million related to the 3.125% coupon rate and $4.5 million in non-cash interest expense.
Item 7A.Quantitative and Qualitative Disclosures Aboutabout Market RiskRisk.
CBIZ’s floating rate debt under its credit facility exposes the Company to interest rate risk. Interest rate risk results when the maturity or repricing intervals of interest-earning assets and interest-bearing liabilities are different. A change in the Federal Funds Rate, or the Reference Ratereference rate set by the Bank of America, would affect the rate at which CBIZ could borrow funds under its credit facility. CBIZ’s balance outstanding under its credit facility at December 31, 2008 was $125.0 million. If market interest rates were to increase or decrease immediately and uniformly by 100 basis points from the levels at December 31, 2005,2008, interest expense would increase or decrease by approximately $0.3$1.2 million annually.
CBIZ does not engage in trading market risk sensitive instruments. CBIZ has used interest rate swaps to manage the interest rate mix of its credit facility and related overall cost of borrowing. Interest rate swaps involve the exchange of floating for fixed rate interest payments to effectively convert floating rate debt into fixed rate debt based on a one, three, or six-month U.S. dollar LIBOR. Interest rate swaps allow CBIZ to maintain a target range of fixed to floating rate debt. CBIZ entered into an arrangement effective in January 2008 to swap $10.0 million of its floating rate debt into fixed rate debt for two years to mitigate the Company’s interest rate risk. Subsequent to December 31, 2008, two additional swap agreements became effective, each of which were for a notional amount of $10.0 million with a term of two years. Management will continue to evaluate the potential use of interest rate swaps as it deems appropriate under certain operating and market conditions.
In connection with CBIZ’s payroll business, funds held for clients are segregated and invested in short-term investments, which in the past included ARS. ARS are variable debt instruments with longer stated maturities whose interest rates are reset at pre-determined short-term intervals through a Dutch auction system. In accordance with our investment policy, all investments carry an investment grade rating at the time of the initial investment.


43

As a result of liquidity issues experienced in the credit and capital markets, CBIZ’s ARS experienced failed auctions during 2008 and one of the investments was downgraded below the minimum rating required by the Company’s investment policy. While CBIZ continues to earn and receive interest on these investments at the contractual rates, the estimated fair value of our investments in ARS no longer approximates their face value.
At December 31, 2008, CBIZ had three outstanding investments in ARS with par values totaling $13.4 million and fair values totaling $10.0 million. The declines in fair values of two of the ARS are currently considered to be temporary. These declines in fair value totaled $1.1 million at December 31, 2008 and are recorded as unrealized losses in accumulated other comprehensive loss, net of tax benefit. ARS with temporary declines in fair value are classified as “Funds held for clients — non-current”, as CBIZ intends and has the ability to hold these investments until anticipated recovery of par value occurs.
The decline in fair value for the remaining ARS was determined to beother-than-temporary. Accordingly, CBIZ recorded an impairment charge totaling approximately $2.3 million for the year ended December 31, 2008, which is included in “Other income (expense), net” in the accompanying consolidated statements of operations. The fair value of this ARS is recorded in “Funds held for clients — non-current” in the accompanying consolidated balance sheets.
CBIZ continues to monitor the market for ARS and consider its impact on the fair value of CBIZ’s investments. If the current market conditions deteriorate further, or the anticipated recovery in fair values does not occur, CBIZ may be required to record additional unrealized losses in other comprehensive income or impairment charges which would be recorded against net income in future periods.
Although we have experienced failed auctions with regards to ARS, CBIZ believes it has adequate liquidity to operate and settle client obligations as the majority of CBIZ’s client funds are invested in highly-liquid short-term money market funds.
Item 8.Financial Statements and Supplementary DataData.
The Financial Statements and Supplementary Data required hereunder are included in this Annual Report as set forth in Item 15(a) hereof.
Item 9.Changes in and Disagreements With Accountants on Accounting and Financial DisclosureDisclosure.
None.
Item 9A.Controls and ProceduresProcedures.
Evaluation of Disclosure Controls and Procedures
We evaluated the effectiveness of our disclosure controls and procedures (Disclosure Controls)(“Disclosure Controls”) as of the end of the period covered by this report. This evaluation (Controls Evaluation)(“Controls Evaluation”) was done with the participation of our Chairman and Chief Executive Officer (CEO)(“CEO”) and Chief Financial Officer (CFO)(“CFO”).
Disclosure Controls are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our Disclosure Controls or our Internal Controlsinternal controls over financial reporting (Internal Controls)(“Internal Controls”) will prevent all error and all fraud. AAlthough our Disclosure Controls are designed to provide reasonable assurance of achieving their objective, a control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of thea control system are met. Further, any control system reflects limitations on resources, and the benefits of a control system


44

must be considered relative to its costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within CBIZ have been detected. These inherent limitations include the realities that judgments in

34

decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of a control. A design of a control system is also based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
In the course of our ongoing evaluation, we have identified internal control deficiencies in a number of business processes. These deficiencies were not material to our operations or financial reporting either individually or in the aggregate. In each instance, we have undertaken efforts to remediate any deficiencies identified. We are continuing to implement new IT systems where needed to support corporate functions or business unit operations in order to further enhance operating efficiencies. As these new systems and procedures are implemented, we continue to evaluate the effectiveness of our Disclosure Controls and our Internal Controls.
Conclusions
Based upon the Controls Evaluation, our CEO and CFO have concluded that subject toas of the limitations noted above,end of the period covered by this report, our Disclosure Controls are effective in providingat the reasonable assurance that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.level described above.
Other than disclosed above, there
There were no changes in our Internal Controls that occurred during the quarter ended December 31, 20052008 that have materially affected, or are reasonably likely to materially affect, our Internal Controls.
Management’s Report on Internal Control Over Financial Reporting.
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inRule 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934. Under the supervision of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our internal control over financial reporting based on the framework provided inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2008.
The Company acquired Mahoney Cohen & Company CPA, PC and Tofias, PC on December 31, 2008, and management excluded from its assessment of effectiveness of the Company’s internal control over financial reporting as of December 31, 2008, Mahoney Cohen & Company CPA, PC’s and Tofias PC’s internal control over financial reporting associated with total assets of $84.8 million included in the consolidated financial statements of the Company as of December 31, 2008.
CBIZ’s independent auditor, KPMG LLP, an independent registered public accounting firm, has issued an audit report on the effectiveness of CBIZ’s internal controls over financial reporting which appears in Item 8 of this Annual Report.
Item 9B.  Other Information.
Item 9B.     Other Information
None.


45

Item 9C.     Management’s Report On Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934. Under the supervision of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our internal control over financial reporting based on the framework provided inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2005.
CBIZ’s independent auditor, KPMG LLP, an independent registered public accounting firm, has issued an audit report on management’s assessment of internal control over financial reporting which appears in Item 8 of this Annual Report.

35

PART III
Item 10.Directors, and Executive Officers of the Registrantand Corporate Governance.
Information with respect to this item not included below is incorporated by reference from CBIZ’s Definitive Proxy Statement for the 20062009 Annual Stockholders’ Meeting to be filed with the Securities and Exchange CommissionSEC no later than 120 days after the end of CBIZ’s fiscal year.
The following table sets forth certain information regarding the directors, executive officers and certain key employees of CBIZ. Each executive officer and director of CBIZ named in the following table has been elected to serve until his successor is duly appointed or elected or until his earlier removal or resignation from office. No arrangement or understanding exists between any executive officer of CBIZ and any other person pursuant to which he or she was selected as an officer.
       
Name
 
Age
 
Position(s)
 
Executive Officers and Directors:
      
Steven L. Gerard(1)  6063  Chairman and Chief Executive Officer
Rick L. Burdick(1)(3)  5457  Lead Director and Vice Chairman
Gary W. DeGroote(3)Michael H. DeGroote  5048  Director
Joseph S. DiMartino(3)(4)  6265  Director
Harve A. Ferrill(2)(3)  7376  Director
Richard C. Rochon(2)(3)(4)  4851  Director
Todd Slotkin(3)(4)  5356  Director
Donald V. Weir(2)(3)  6467Director
Benaree Pratt Wiley(3)(4)62  Director
Jerome P. Grisko, Jr.(1)  4447  President and Chief Operating Officer
Ware H. Grove  5558  Senior Vice President and Chief Financial Officer
Leonard Miller66Senior Vice President, Accounting, Tax & Advisory
Robert A. O’Byrne49Senior Vice President, Benefits & Insurance
Michael W. Gleespen  4750  Secretary and General Counsel
Other Key Employees:
      
David Sibits57President, Financial Services
Robert A. O’Byrne52President, Employee Services
G. Darrell Hulsey39President, MMP
Michael P. Kouzelos40Senior Vice President, Strategic Initiatives
George A. Dufour  5962  Senior Vice President and Chief Technology Officer
Mark M. Waxman  4952  Senior Vice President of Marketing
Teresa E. BruceBur  41Vice President, Human Resources
Chris Spurio40Vice President, Finance
Michael P. Kouzelos3744  Senior Vice President, Strategic InitiativesHuman Resources
Kelly J. Kuna  3538  Treasurer
Robert A. Bosak  3841  Controller
 
(1)Member of Management Executive Committee
 
(2)Member of Audit Committee
 
(3)Member of Nominating & Governance Committee
 
(4)Member of Compensation Committee
Executive Officers and Directors:
Steven L. Gerardwas elected by the Board to serve as its Chairman in October, 2002. He was appointed Chief Executive Officer and Director in October, 2000. Mr. Gerard was Chairman and CEO of Great Point Capital, Inc., a provider of operational and advisory services from 1997 to October 2000. From 1991 to 1997, he was Chairman and CEO of Triangle Wire & Cable, Inc. and its successor Ocean View Capital, Inc. Mr. Gerard’s prior experience includes 16 years with Citibank, N.A. in various senior corporate finance and banking positions. Further, Mr. Gerard


46

served seven years with the American Stock Exchange, where he last served as Vice President of the Securities Division. Mr. Gerard also serves on the Boards of Directors of Fairchild Company, Inc., Lennar Corporation TIMCO Aviation Services, Inc. and Joy Global, Inc.
Rick L. Burdickhas served as a Director of CBIZ since October 1997, when he was elected as an independent director. InOn May 17, 2007, Mr. Burdick was elected by the Board to be its Lead Director, a non-officer position. Previously, in October 2002, he was elected by the Board as Vice Chairman, a non-officer position. Mr. Burdick has

36

been a partner at the law firm of Akin Gump Strauss Hauer & Feld LLP since April 1988. Mr. Burdick serves on the Board of Directors of AutoNation, Inc.
Gary W.Michael H. DeGroote,has served asson of CBIZ, Inc. founder Michael G. DeGroote, was appointed a Director of CBIZ since October, 2002, when he was elected to serve the remaining term of his father, Michael G. DeGroote, who resigned from the Board for health reasons.in November, 2006. Mr. DeGroote is the President of GWD Management Inc., a private Canadian diversified investment holding company founded in 1980 with an office in Burlington, Ontario. Mr. DeGroote alsocurrently serves as a Director and Officer of other private companies. From 1976 to 1989, Mr. DeGroote held several positions with Laidlaw Inc., a public waste services and transportation company, ending as Vice-President and Director in 1989. From 1991 to 1994, Mr. DeGroote served as President of Republic Environmental Systems Ltd.,Westbury International, a full-service real estate development company, specializing in commercial/industrial land, residential development and Directorproperty management. Prior to joining Westbury, Mr. DeGroote was Vice President of Republic Industries Inc. He is currentlyMGD Holdings and previously held a Directormanagement position with Cooper Corporation. Mr. DeGroote serves on the Board of Waste Services, Inc.Governors of McMaster University in Hamilton, Ontario.
J
osephJoseph S. DiMartinohas served as a Director of CBIZ since November 1997, when he was elected as an independent director. Mr. DiMartino has been Chairman of the Board of the Dreyfus Family of Funds since January 1995. Mr. DiMartino served as President, Chief Operating Officer and Director of The Dreyfus Corporation from October 1982 until December 1994 and also served as a director of Mellon Bank Corporation. Mr. DiMartino also serves on the Board of Directors of LEVCOR International, Inc. (formerly Carlyle Industries, Inc.), The Newark Group, the Muscular Dystrophy Association, and SunAir Services, Inc.
Harve A. Ferrillhas served as a Director of CBIZ since October 1996, when he was elected as an independent director. Mr. Ferrill served as Chief Executive Officer and Chairman of Advance Ross Corporation, a company that provides tax refunding services, from 1992 to 1996. Mr. Ferrill served as President of Advance Ross Corporation from 1990 to 1992. Since 1996, Advance Ross Corporation has been a wholly-owned subsidiary of Cendant Corporation. Mr. Ferrill has served as President of Ferrill-Plauche Co., Inc., a private investment company, since 1982.
Richard C. Rochonhas served as a Director of CBIZ since October 1996, when he was elected as an independent director. Mr. Rochon is Chairman and Chief Executive Officer of Royal Palm Capital Partners, a private investment and management firm that he founded in March 2002. From 1985 to February 2002 Mr. Rochon served in various capacities with and most recent as President of, Huizenga Holdings, Inc., a management and holding company owned by H. Wayne Huizenga.Huizenga, where he last served as President. Mr. Rochon has also served as a director of, and is currently Chairman of, Devcon International a provider of electronic security services since July 2004. Additionally, Mr. Rochon has been a director of, and is currently Chairman of, SunAir Services, Inc., a provider of pest-control and lawn care services since February 2005. Mr. Rochon haswas also been a director of Bancshares of Florida, a full-service commercial bank since 2002. In September 2005from 2002 through February 2007. Mr. Rochon becamewas Chairman and CEO of Coconut Palm Acquisition Corp., a newly organized blank check company.company from September 2005 through June 2007. Mr. Rochon was also employed as a certified public accountant by the public accounting firm of Coopers and Lybrand from 1979 to 1985. Mr. Rochon received his B.S. in accounting from Binghamton University in 1979 and Certified Public Accounting designation in 1981.
Todd Slotkinhas served as a Director of CBIZ since September 2, 2003, when he was elected as an independent director. In 2008, Mr. Slotkin servesbecame the Portfolio Manager of Irving Place Capital. From 2006 to 2007 Mr. Slotkin served as Executive Vice Presidenta Managing Director of Natixis Capital Markets. From 1992 to 2006, Mr. Slotkin served as a SVP(1992-1998) and CFOEVP and Chief Financial Officer(1998-2006) of MacAndrews and& Forbes Holdings and as Executive Vice PresidentInc. Additionally, he was the EVP and CFO of publicly owned MYFM&F Worldwide (NYSE:MFW)(1998-2006). Prior to joining MacAndrews & Forbes in 1992, Mr. Slotkin spent 17 years with Citicorp,Citigroup, ultimately serving as senior managing directorSenior Managing Director and senior credit officer.Senior Credit Officer. Mr. Slotkin serves on the Board of Managers of Spectaguard and the Board of Directors of TransTech Pharma; formerly served as director of CalFed Bank; andMartha Stewart Living Omnimedia. He is Chairman, Director and co-founder of the Food Allergy Initiative.
Donald V. Weirhas served as a Director of CBIZ since September 2, 2003, when he was elected as an independent director. Mr. Weir has served as financial consultant withis Vice President of Private Equity for Sanders Morris Harris Group Inc. and has been with SMHG for the past fivenine years. Prior to this Mr. Weir was CFO and director of publicly-held Deeptech International and two of its subsidiaries, Tatham Offshore and Leviathan Gas Pipeline Company, the latterboth of which was awere publicly-held company.companies. Prior to his employment with Deeptech, Mr. Weir worked for eight years with Sugar Bowl Gas


47

Corporation, as Controller and Treasurer and later in a consulting capacity.  Mr. Weir was associated with Price Waterhouse, an international accounting firm, from 1966 to 1979.
Benaree Pratt Wileywas elected as an independent Director of CBIZ in May 2008. Ms. Wiley is a Principal of The Wiley Group, a firm specializing in personnel strategy, talent management, and leadership development primarily for global insurance and consulting firms. Ms. Wiley served as the President and Chief Executive Officer of The Partnership, Inc., a talent management organization for multicultural professionals in the greater Boston region for fifteen years before retiring in 2005. Ms. Wiley is currently a director on the boards of the Dreyfus/Laurel Funds, Dreyfus Cash Management Funds and Blue Cross and Blue Shield of Massachusetts. Ms. Wiley also chairs the PepsiCo African American Advisory Board. Her civic activities include serving on the boards of The Boston Foundation and the Efficacy Institute.
Jerome P. Grisko, Jr. has served as President and Chief Operating Officer of CBIZ since February 1, 2000. Mr. Grisko joined CBIZ as Vice President, Mergers & Acquisitions in September 1998 and was promoted to Senior Vice President, Mergers & Acquisitions and Legal Affairs in December of 1998. Prior to joining CBIZ, Mr. Grisko was associated with the law firm of Baker & Hostetler LLP, where he practiced from September 1987

37

until September 1998, serving as a partner of such firm from January 1995 to September 1998. While at Baker & Hostetler, Mr. Grisko concentrated his practice in the area of mergers, acquisitions and divestitures.
Ware H. Grovehas served as Senior Vice President and Chief Financial Officer of CBIZ since December 2000. Before joining CBIZ, Mr. Grove served as Senior Vice President and Chief Financial Officer of BridgeStreetBridgestreet Accommodations, Inc., which he joined in early 2000 to restructure financing, develop strategic operating alternatives, and assist with merger negotiations. Prior to joining BridgeStreet,Bridgestreet, Mr. Grove served for three years as Vice President and Chief Financial Officer of Lesco, Inc. Since beginning his career in corporate finance in 1972, Mr. Grove has held various financial positions with large companies representing a variety of industries, including Revco D.S., Inc., Computerland/Vanstar, Manville Corporation, The Upjohn Company, and First of America Bank. In September, 2004, Mr. Grove was appointed toserved on the Board of Directors for Applica, Inc. (NYSE: APN) and is a member of the Audit Committee.from September 2004 through January 2007.
Leonard Millerhas served as CBIZ Accounting, Tax and Advisory Services Practice Head since November 2000 and was appointed Senior Vice President in February 2002. Mr. Miller was the President and Director of Financial Operations for Miller Wagner & Company, Ltd. in Phoenix, Arizona for 22 years before the firm joined the Century Business Services family and became Miller Wagner Business Services, Inc. and Miller Wagner & Company, PLLC. Mr. Miller was the Regional Managing Partner for Lester Witte and Company, and was responsible for 11 of its offices prior to co-founding Miller Wagner & Company, Ltd. With over 40 years of experience, Mr. Miller is a recognized expert in the fields of finance, real estate, general business consulting and various litigation support matters. Mr. Miller’s professional affiliations include the American Institute of Certified Public Accountants (AICPA), the Arizona Society of Certified Public Accountants (ASCPA) and the Illinois Society of Certified Public Accountants (ISCPA).
Robert A. O’Byrnehas serves as a Senior Vice President of CBIZ since December 1998 and is responsible for CBIZ’s Benefits and Insurance Services. Mr. O’Byrne served as President and Chief Executive Officer of employee benefits brokerage/consulting firms Robert D. O’Byrne and Associates, Inc. and The Grant Nelson Group, Inc. prior to their acquisition by CBIZ in December 1997. Mr. O’Byrne has more than 25 years of experience in the insurance and benefits consulting field.
Michael W. Gleespenhas served as Corporate Secretary since April 2001 and General Counsel since June 2001. Mr. Gleespen is an attorney and has served as CBIZ’s Vice President of Regulatory Compliance and Accountancy Compliance Officer and Technical Director since February 1998. Prior to joining CBIZ, Mr. Gleespen was an Assistant Ohio Attorney General in the Business & Government Regulation Section and the Court of Claims Defense Section from 1988 until 1998, during which time he was counsel to the Ohio Accountancy Board, the Ohio State Teachers Retirement System and represented many other state departments and agencies. Mr. Gleespen also held the post of Associate Attorney General for Pension, Disability and Annuity Plans and was the Co-Chairman of the Public Pension Plan Working Group. Mr. Gleespen is a member of the Board of Directors of the Cancer Hope Foundation and is a member of the American Society of Corporate Secretaries.Secretaries and Governance Professionals.
Other Key Employees:
George A. DufourDavid Sibitswas appointed Senior Viceis President and Chief Technology Officer in July 2001.of CBIZ’s Financial Services practice group. Prior to joining CBIZ in May 2007, Mr. Dufour served as CorporateSibits was Executive Managing Director of Information Access Services for University Hospitals Health Systems (UHHS), where he achieved substantial cost savings by consolidating IS resources throughout the health system.RSM McGladrey’s Ohio region. Prior to joining UHHS in 1999, Mr. Dufour acted as Vice PresidentRSM McGladrey’s acquisition of American Express Tax and CIO for Akron General Health Systems. From 1986 through 1994, Mr. DufourBusiness Services (“TBS”), he was with Blue Cross/ Blue Shield of Ohio and served most recently there asthe Executive Managing Director of Information Systems Development.the TBS Eastern Region, which included 35 offices in 13 states. Mr. Dufour commenced his career in information technology, which includes tenures at Cook United, Cole National Corporation, General Tire & Rubber, Picker Corporation, and Sherwin Williams, in 1971 as the Director of Education for the Institute of Computer Management, a division of Litton Industries. Mr. Dufour is aSibits was an integral member of the northeast Ohio chapterTBS senior leadership team and worked with his colleagues at RSM McGladrey to ensure a smooth integration with TBS. Mr. Sibits was also the Managing Shareholder of Society for Information Management (SIM). Mr. Dufour earned his MBAHausser & Taylor LLC from Baldwin Wallace College.1992 to January 2004.
Mark M. Waxmanhas over twenty-five years experience in marketing and branding. Prior to joining CBIZ, he was CEO/ Creative Director of one of Silicon Valley’s most well-known advertising agencies, Carter Waxman. Most recently, he was a founding partner of SK Consulting (acquired by CBIZ in 1998) providing strategic marketing and branding services to a wide range of companies and industries. Mr. Waxman has been a featured marketing columnist and contributor to many business and trade publications, and currently serves on the Board of Trustees of the Montalvo Center for the Arts, the West Valley Mission Foundation, and Catholic Charities, and he recently served as the Chairman of the Board of the Silicon Valley Chamber of Commerce.

38

Teresa E. BruceRobert A. O’Byrnehas served as Vice President of Human ResourcesCBIZ’s Employee Services practice group since January 1999. From 1995 to 1999 Ms. BruceDecember 1998. Mr. O’Byrne served as DirectorPresident and Chief Executive Officer of Human Resources foremployee benefits brokerage/consulting firms Robert D. O’Byrne &and Associates, Inc. and The Grant Nelson Group, Inc., subsidiaries of prior to their acquisition by CBIZ now known as CBIZ Benefits and Insurance Services, Inc. Ms. Brucein December 1997. Mr. O’Byrne has over 19more than 25 years of experience in human resourcesthe insurance and is an active member of the Greater Kansas City Chapter of The Human Resources Management Associationbenefits consulting field.
G. Darrell Hulseyjoined MMP in July 1994 and Society of Human Resources Management, and is certified as a Senior Professional in Human Resources (SPHR).
Chris Spuriohas served as Vicewas appointed President of Finance since July 1999. Previously,MMP in May 2007. Mr. Spurio was Controller since January 1998.Hulsey has eighteen years of experience in the healthcare industry, specializing in operations management, regulatory compliance, information system design and implementation, third party contracting and strategic planning. Mr. Spurio also served as Acting Chief Financial Officer from May 2000 to December 2000. Mr. Spurio was associated with KPMG LLP, an international accounting firm, from July 1988 to January 1998, serving as a Senior Manager of such firm from July 1995 to January 1998. Mr. SpurioHulsey is a CPA and a member of the Radiology Business Managers Association, American Institute of Certified Public AccountantsPathology Foundation,


48

Medical Group Management Association, and Health Care Compliance Association, and has previously served on the Ohio Society of Certified Public Accountants.International Billing Association Compliance Committee.
Michael P. Kouzelosjoined CBIZ in June 1998 and was appointed Senior Vice President of Strategic Initiatives in September 2005. Mr. Kouzelos served as Vice President of Strategic Initiatives from April 2001 through August 2005, as Vice President of Shared Services from August 2000 to March 2001, and as Director of Business Integration from June 1998 to July 2000. Mr. Kouzelos was associated with KPMG LLP, an international accounting firm, from 1990 to September 1996 and received his Masters in Business Administration from The Ohio State University in May of 1998. Mr. Kouzelos is a CPA, Inactive, and a member of the American Institute of Certified Public Accountants and the Ohio Society of Certified Public Accountants.
George A. Dufourwas appointed Senior Vice President and Chief Technology Officer in July 2001. Prior to joining CBIZ, Mr. Dufour served as Corporate Director of Information Access Services for University Hospitals Health Systems (“UHHS”), where he achieved substantial cost savings by consolidating IS resources throughout the health system. Prior to joining UHHS in 1999, Mr. Dufour acted as Vice President and CIO for Akron General Health Systems. From 1986 through 1994, Mr. Dufour was with Blue Cross/Blue Shield of Ohio (“BCBSO”) and served most recently there as Director of Information Systems Development. Mr. Dufour also served as Vice President of MIS for Mutual Health Services, a subsidiary of BCBSO. Mr. Dufour commenced his career in information technology, which includes tenures at Cook United, Cole National Corporation, General Tire & Rubber, Picker Corporation, and Sherwin Williams, in 1971 as the Director of Education for the Institute of Computer Management, a division of Litton Industries. Mr. Dufour is a member of the northeast Ohio chapter of Society for Information Management and the National Information Technology Alliance for Professional Services firms. Mr. Dufour was awarded the 2007 Northeast Ohio CIO of the Year award from the Northeast Ohio Software Association. Mr. Dufour earned his MBA from Baldwin Wallace College.
Mark M. Waxmanhas over twenty-five years experience in marketing and branding. Prior to joining CBIZ, he was CEO/Creative Director of one of Silicon Valley’s most well-known advertising agencies, Carter Waxman. Most recently, he was a founding partner of SK Consulting (acquired by CBIZ in 1998) providing strategic marketing and branding services to a wide range of companies and industries. Mr. Waxman has been a featured marketing columnist and contributor to many business and trade publications, and currently serves as the Chairman of the Board of Artsopolis.com as well as on the Board of Trustees of the Montalvo Center for the Arts, the West Valley Mission Foundation, and Catholic Charities, and he recently served as the Chairman of the Board of the Silicon Valley Chamber of Commerce.
Teresa E. Burserved as Vice President of Human Resources since January 1999 and was appointed Senior Vice President in 2006. From 1995 to 1999 Ms. Bur served as Director of Human Resources for Robert D. O’Byrne & Associates, Inc. and The Grant Nelson Group, Inc., subsidiaries of CBIZ now known as CBIZ Employee Services, Inc. Ms. Bur has over 20 years of experience in human resources and is an active member of the Greater Kansas City Chapter of The Human Resources Management Association and Society of Human Resources Management, and is certified as a Senior Professional in Human Resources.
Kelly J. Kunajoined CBIZ in December 1998 and was appointed Corporate Treasurer in April 2005. Ms. Kuna served as Corporate Controller from July 1999 through March 2005, and as Manager of External Reporting from December 1998 to June 1999. Prior to joining CBIZ, Ms. Kuna was associated with KPMG LLP, an international accounting firm, from 1992 to December 1998, serving as a Senior Manager of such firm from July 1998 to December 1998. Ms. Kuna is a CPA and a member of the American Institute of Certified Public Accountants and the Ohio Society of Certified Public Accountants.
Robert A. Bosakjoined CBIZ in September 2001 and has served as Corporate Controller since April 2005. Prior to joining CBIZ, Mr. Bosak was associated with BridgeStreet Accommodations from February 1998 through June 2001, where he served as Corporate Controller and Director of Financial Operations.Operations for BridgeStreet Accommodations from February 1998 through June 2001. Prior to joining BridgeStreet Accommodations, Mr. Bosak was Corporate Controller of the Rock and Roll Hall of Fame and Museum, from June 1993 through February 1998. Mr. Bosak also worked in the public accounting industry with two Cleveland based firms from 1987 to 1993. Mr. Bosak is a CPA and a member of the American Institute of Certified Public Accountants and the Ohio Society of Certified Public Accountants.


49

Item 11.Executive CompensationCompensation.
Information with respect to this item is incorporated by reference from the discussion under the heading “Executive Compensation” in CBIZ’s Definitive Proxy Statement for the 20062009 Annual Stockholders’ Meeting to be filed with the Securities and Exchange CommissionSEC no later than 120 days after the end of CBIZ’s fiscal year.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersMatters.
Information with respect to this item is incorporated by reference from CBIZ’s Definitive Proxy Statement for the 20062009 Annual Stockholders’ Meeting to be filed with the Securities and Exchange CommissionSEC no later than 120 days after the end of CBIZ’s fiscal year.
Item 13.Certain Relationships and Related Transactions, and Director Independence.
Information with respect to this item not included below is incorporated by reference from CBIZ’s Definitive Proxy Statement for the 2009 Annual Stockholders’ Meeting to be filed with the SEC no later than 120 days after the end of CBIZ’s fiscal year.
The following is a summary of certain agreements and transactions between or among CBIZ and certain related parties. It is CBIZ’s policy to enter into transactions with related parties on terms that, on the whole, are no less favorable than those that would be available from unaffiliated parties. Based on CBIZ’s experience and the terms of its transactions with unaffiliated parties, it is the Audit Committee of the Board of Directors’ and managements’ belief that the transactions described below met these standards at the time of the transactions. Management reviews these transactions as they occur and monitors them for compliance with the Company’s Code of Conduct, internal procedures and applicable legal requirements. The Audit Committee reviews and ratifies such transactions annually, or as they are more frequently brought to the attention of the Committee by the Company’s Director of Internal Audit, General Counsel or other members of management.
A director is considered independent under NYSE rules if the Board of Directors determines that the director does not have any direct or indirect material relationship with CBIZ. Mr. Gerard is an employee of CBIZ and therefore has been determined by the Nominating and Governance Committee and the full Board to fall outside the definition of “independent director”. Rick L. Burdick, Michael H. DeGroote, Joseph S. DiMartino, Harve A. Ferrill, Richard C. Rochon, Todd J. Slotkin, Donald V. Weir and Benaree Pratt Wiley are Non-Employee Directors of CBIZ. The Nominating and Governance Committee and the Board of Directors have determined that each of Rick L. Burdick, Joseph S. DiMartino, Harve A. Ferrill, Richard C. Rochon, Todd J. Slotkin, Donald V. Weir and Benaree Pratt Wiley are “independent directors” within the meaning of the rules of the NYSE, since they had no material relationship with the Company other than their status and payment as Non-Employee Directors, and as Shareholders. The Nominating and Governance Committee and the Board of Directors have determined that Mssrs. DiMartino, Ferrill, Rochon, Slotkin and Weir are independent under the SEC’s audit committee independence standards.
In connection with these independence determinations, the Nominating and Governance Committee and the Board of Directors considered all of the relationships between each director and CBIZ, and in particular the following relationships:
• Rick L. Burdick, a Director of CBIZ, is a partner of Akin Gump Strauss Hauer & Feld LLP (“Akin, Gump”). Akin, Gump performed legal work for CBIZ during 2008, 2007 and 2006 for which the firm received approximately $0.9 million, $0.8 million and $0.6 million from CBIZ, respectively. The Nominating and Governance Committee and the Board of Directors have determined that Mr. Burdick should be considered an “independent director” under the meaning of the NYSE rules, since the amounts paid to the law firm of Akin Gump Strauss Hauer & Feld LLP for legal representation of CBIZ throughout 2008 were not collectively significant under the NYSE rules governing director independence.
• The Committee and the Board determined that Michael H. DeGroote should not be considered an “independent director” under the meaning of the NYSE rules, primarily in light of his familial relationship to a significant stockholder of the Company. Mr. DeGroote is the son of Michael G. DeGroote, the Company’s largest single shareholder for the purposes of determining independence. He is also an officer or


50

director of various privately held companies that obtain several types of insurance coverage through CBIZ. The commissions paid to CBIZ for the years ended December 31, 2008 and 2007 were approximately $0.1 million and $0.2 million, respectively.
• Richard C. Rochon, a Director of CBIZ, is also an officer or director of various entities which secure several types of insurance coverage through CBIZ. However, the commissions paid to CBIZ for the purpose of securing such coverage, totaling approximately $0.2 million for the years ended December 31, 2008 and 2007, do not collectively appear significant under the NYSE rules governing director independence. Therefore, the Nominating and Governance Committee and the Board of Directors determined that Mr. Rochon should be considered an “independent director”.
A number of the businesses acquired by CBIZ are located in properties that are indirectly owned indirectly by and leased from persons employed by CBIZ.CBIZ, none of whom are members of CBIZ’s senior management. In the aggregate, CBIZ paid approximately $1.3$1.2 million, $1.3$0.8 million and $1.4$0.6 million for the years ended 2005, 2004December 31, 2008, 2007 and 2003,2006, respectively, under such leases which management believes were at market rates.

39

Rick L. Burdick, a director of CBIZ, is a partner of Akin Gump Strauss Hauer & Feld, LLP (Akin, Gump). Akin, Gump performed legal work for CBIZ during 2005, 2004 and 2003 for which the firm received approximately $0.1 million, $0.2 million, and $0.2 million from CBIZ, respectively.
Robert A. O’Byrne, a Senior Vice President, Employee Services, has an interest in a partnership that receives commissions from CBIZ that are paid to certain eligible benefits and insurance producers in accordance with a formal program to provide benefits in the event of death, disability, retirement or other termination. The program was in existence at the time CBIZ acquired the former company, of which Mr. O’Byrne was an owner. The partnership received approximately $0.3 million, $0.3 million, and $0.4$0.2 million from CBIZ duringfor each of the years ended December 31, 2005, 20042008, 2007 and 2003, respectively.2006.
CBIZ maintains joint-referral relationships and administrative service agreements with independent licensed CPA firms under which CBIZ provides administrative services in exchange for a fee. These firms are owned by licensed CPAs who are employed by CBIZ subsidiaries, and provide audit and attest services to clients including CBIZ’s clients. The CPA firms with which CBIZ maintains service agreements operate as limited liability companies, limited liability partnerships or professional corporations. The firms are separate legal entities with separate governing bodies and officers. CBIZ has no ownership interest in any of these CPA firms, and neither the existence of the administrative service agreements nor the providing of services thereunderthere under is intended to constitute control of the CPA firms by CBIZ. CBIZ and the CPA firms maintain their own respective liability and risk of loss in connection with performance of each of its respective services, and CBIZ does not believe that its arrangements with these CPA firms result in additional risk of loss.
Although the service agreements do not constitute control, CBIZ is one of the beneficiaries of the agreements and may bear certain economic risks. As such, the CPA firms with which CBIZ maintains administrative service agreements may qualify as variable interest entities under FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities”, as amended. The impact to CBIZ of this accounting pronouncement is discussed in Note 1 to CBIZ’s consolidated financial statements included herewith.
CBIZ acted as guarantor on threefor letters of credit for a CPA firm with which it has an affiliation. The letters of credit total $2.4totaled $1.2 million and $1.3$1.4 million as of December 31, 2005,2008 and December 31, 2004,2007, respectively. In accordance with FASB Interpretation No. 45, (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” and its amendments, 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 financial statements. Management does not expect any material changes to result from these instruments as performance is not expected to be required.
In 2003, CBIZ executed a note receivable with a CPA firm whose partner group has since joined MHM P.C., a CPA firm with which CBIZ maintains an administrative services agreement. The balance on the note at December 31, 2005 and 2004 was approximately $0.1 million and $0.2 million, respectively.
In an effort to rationalize the business, CBIZ has divested of several operations that were underperforming, located in secondary markets or did not provide the level of synergistic cross-serving opportunities with other CBIZ businesses that is desired. In accordance with this strategy, CBIZ has sold and may sell in the future businesses to former employees or shareholders. Management believes that past transactions were priced at market rates, competitively bid, and entered into at arm’s length terms and conditions.
Item 14.Principal Accounting Fees and ServicesServices.
Information with respect to this item is incorporated by reference from CBIZ’s Definitive Proxy Statement for the 20062009 Annual Stockholders’ Meeting to be filed with the Securities and Exchange CommissionSEC no later than 120 days after the end of CBIZ’s fiscal year.

40

PART IV
Item 15.Exhibits, Financial Statement SchedulesSchedules.
(a) The following documents are filed as part of this Annual Report or incorporated by reference:
1. Financial Statements.
As to financial statements and supplementary information, reference is made to “Index to Financial Statements” onpage F-1 of this Annual Report.


51

2. Financial Statement Schedules.
As to financial statement schedules, reference is made to “Index to Financial Statements” onpage F-1 of this Annual Report.
3. Exhibits.
The following documents are filed as exhibits to thisForm 10-K pursuant to Item 601 ofRegulation S-K. Since its incorporation, CBIZ has operated under various names including: Republic Environmental Systems, Inc.; International Alliance Services, Inc.; Century Business Services, Inc.; and CBIZ, Inc. Exhibits listed below refer to these names collectively as “the Company”.
 1. Financial Statements.
Exhibit No.
Description
 
 As2.1 Purchase Agreement, dated November 24, 2008, among CBIZ, Inc., CBIZ Accounting Tax & Advisory of New York, LLC, Mahoney Cohen & Company, CPA, P.C., Mahoney Cohen Consulting Corp., Mahoney Cohen Family Office Services LLC and the members of Mahoney Cohen Family Office Services LLC (filed as Exhibit 2.1 to financial statementsthe Company’s Current Report onForm 8-K on November 25, 2008 and supplementary information, reference is made to “Index to Financial Statements” on page F-1 of this Annual Report.
incorporated herein by reference.
 2. Financial Statement Schedules.
As to financial statement schedules, reference is made to “Index to Financial Statements” on page F-1 of this Annual Report.
3. Exhibits.
The following documents are filed as exhibits to this Form 10-K pursuant to Item 601 of Regulation S-K. Since its incorporation, CBIZ has operated under various names including: Republic Environmental Systems, Inc.; International Alliance Services, Inc.; Century Business Services, Inc.; and CBIZ, Inc. Exhibits listed below refer to these names collectively as “the Company”.
3.1  
Exhibit No.Description
3.1 Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company’s Registration Statement on Form 10, fileno. 0-25890, and incorporated herein by reference).
3.2 Certificate of Amendment of the Certificate of Incorporation of the Company dated October 17, 1996 (filed as Exhibit 3.2 to the Company’s Annual Report onForm 10-K for the year ended December 31, 1996, and incorporated herein by reference).
3.3 Certificate of Amendment to the Certificate of Incorporation of the Company effective December 23,199723, 1997 (filed as Exhibit 3.3 to the Company’s Annual Report onForm 10-K for the year ended December 31, 1997, and incorporated herein by reference).
3.4 Certificate of Amendment of the Certificate of Incorporation of the Company dated September 10, 1998 (filed as Exhibit 3.4 to the Company’s Annual Report onForm 10-K for the year ended December 31, 1998, and incorporated herein by reference).
3.5*3.5  Certificate of Amendment of the Certificate of Incorporation of the Company, effective August 1, 2005.2005 (filed as Exhibit 3.5 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005, and incorporated herein by reference).
3.6 Amended and Restated Bylaws of the Company (filed as Exhibit 3.2 to the Company’s Registration Statement on Form 10, fileno. 0-25890, and incorporated herein by reference).
3.7 Amendment to Amended and Restated Bylaws of the Company dated November 1, 2007 (filed as Exhibit 3.1 to the Company’s Current Report onForm 8-K on November 7, 2007 and incorporated herein by reference).
4.1 Form of Stock Certificate of Common Stock of the Company (filed as Exhibit 4.1 to the Company’s Annual ReportForm 10-K for the year ended December 31, 1998, and incorporated herein by reference).
4.44.2  Employee Stock Investment Plan (filed as exhibit 4.4 to the Company’s Report onForm S-8 filed June 1, 2001, and incorporated herein by reference).
4.3 Indenture, dated as of May 30, 2006, between CBIZ, Inc. and U.S. Bank National Association as Trustee (filed as exhibit 4.1 to CBIZ’s Current Report onForm 8-K dated May 23, 2006 and incorporated herein by reference).
4.4 Registration Rights Agreement, dated as of May 30, 2006, between CBIZ, Inc. and Banc of America Securities, LLC (filed as exhibit 4.2 to CBIZ’s Current Report onForm 8-K dated May 23, 2006 and incorporated herein by reference).
10.1 2002 Stock Incentive Plan (filed as Appendix A to the Company’s Proxy Statement for the 2002 Annual Meeting of Stockholders dated April 1, 2002 and incorporated herein by reference).
10.2 Severance Protection Agreement by and between the Company and Jerome P. Grisko, Jr. (filed as exhibit 10.11 to the Company’s Report onForm 10-K for the year ended December 31, 2000, and incorporated herein by reference).


52

Exhibit No.
Description
10.3 Employment Agreement by and between the Company and Ware H. Grove (filed as exhibit 10.14 to the Company’s Report onForm 10-K for the year ended December 31, 2000, and incorporated herein by reference).
10.310.4  Employment Agreement by and between the Company and Steven L. Gerard (filed as exhibit 10.13 to the Company’s Report on Form 10-K for the year ended December 31, 2000, and incorporated herein by reference).
10.4Employment Agreement by and the Company and Ware H. Grove (filed as exhibit 10.14 to the Company’s Report on Form 10-K for the year ended December 31, 2000, and incorporated herein by reference).
10.5Amended and Restated Credit Agreement dated as of August 6, 2004, among the Company, Bank of America, N.A., as Agent, a Lender, Issuing Bank and Swing Line Bank, and The Other Financial Institutions Party Hereto (filed as exhibit 10.12 to the Company’s Report on Form 10-K for the year ended December 31, 2004, and incorporated herein by reference).

41

Exhibit No.Description
10.6Amendment No. 1 to Amended and Restated Credit Agreement effective March 31, 2005 among the Company and each of the Guarantors (filed as exhibit 10.13 to the Company’s Report on Form 10-Q for the period ended March 31, 2005, and incorporated herein by reference).
10.7 Credit Agreement dated as of February 13, 2006 Among the Company, Bank of America, N.A., as Agent, a Lender, Issuing Bank and Swing Line Bank, and The Other Financial Institutions Party Hereto Banc of America Securities, LLC as Sole Lead Arranger and Book Manager (filed as exhibit 10.14 to the Company’s Current Report onForm 8-K dated February 13, 2006, and filed February 17, 2006, and incorporated herein by reference).
10.5 Amendment No. 1 to Credit Agreement dated as of May 23, 2006 by and among CBIZ, Inc., the several financial institutions from time to time party to the Credit Agreement and Bank of America, N.A., as administrative agent (filed as exhibit 10.1 to the Company’s Report onForm 8-K dated May 23, 2006, and incorporated herein by reference).
10.6 Waiver and Second Amendment to Credit Agreement dated as of March 12, 2007 by and among CBIZ, Inc., the Guarantors, the several financial institutions from time to time party to the Credit Agreement and Bank of America, N.A., as administrative agent (filed as exhibit 10.9 to the Company’s Report onForm 10-K for the year ended December 31, 2006, and incorporated herein by reference).
10.7 Amended Employment Agreement by and between the Company and Steven L. Gerard (filed as exhibit 99.1 to the Company’s Report onForm 8-K dated February 8, 2007, and incorporated herein by reference).
10.8 Employment Agreement by and between the Company and David J. Sibits, dated April 17, 2007 (filed as exhibit 10.8 to the Company’s Report onForm 10-K for the year ended December 31, 2007, and incorporated herein by reference).
10.9 Amendment No. 3 to Credit Agreement dated as of November 16, 2007, by and among CBIZ, Inc., the several financial institutions from time to time party to the Credit Agreement and Bank of America, N.A., as administrative agent (filed as exhibit 10.1 to the Company’s Report onForm 8-K dated November 16, 2007, and incorporated herein by reference).
10.10Amendment No. 4 to Credit Agreement dated as of April 3, 2008, by and among CBIZ. Inc., the several financial institutions from time to time party to the Credit Agreement and Bank of America, N.A., as administrative agent (filed as exhibit 10.1 to the Company’s Report onForm 8-K dated April 3, 2008, and incorporated herein by reference).
10.11Amendment No. 5 to Credit Agreement dated as of December 10, 2008, by and among CBIZ. Inc., the several financial institutions from time to time party to the Credit Agreement and Bank of America, N.A., as administrative agent (filed as exhibit 10.1 to the Company’s Report onForm 8-K dated December 11, 2008, and incorporated herein by reference).
10.12Amended Severance Protection Agreement between Jerome P. Grisko and CBIZ, Inc., dated December 31, 2008 (filed as exhibit 99.3 to the Company’s Report onForm 8-K dated December 31, 2008, and incorporated herein by reference).
21.1* List of Subsidiaries of CBIZ, Inc.
23* Consent of KPMG LLP.LLP
24* Powers of attorney (included on the signature page hereto).
31.1* Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002
31.2* Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002
32.1* Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.2002
32.2* Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.2002
 
*Indicates documents filed herewith.

53

42

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, CBIZ, Inc. has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
CBIZ, Inc.
(Registrant)
CBIZ, Inc.
(Registrant)
 By 
/s/Ware H. Grove
Ware H. Grove
Chief Financial Officer
March 15, 2006
Ware H. Grove
Chief Financial Officer
March 16, 2009
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below on this Annual Report hereby constitutes and appoints Steven L. Gerard and Ware H. Grove, and each of them, with full power to act without the other, his true and lawfulattorney-in-fact attorney-in-fact and agent, with full power of substitution for him and his name, place and stead, in all capacities (until revoked in writing), to sign any and all amendments to this Annual Report of CBIZ, Inc. and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto eachattorney-in-fact attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that eachattorney-in-fact attorney-in-fact and agent, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of CBIZ, Inc. and in the capacities and on the date indicated above.
   
/s/Steven L. Gerard

Steven L. Gerard
Chairman and Chief Executive Officer
(Principal Executive Officer)		 
/s/Joseph S. DiMartino

Joseph S. DiMartino
Director
  
/s/Ware H. Grove

Ware H. Grove
Chief Financial Officer
(Principal Financial and Accounting Officer)		 
/s/Harve A. Ferrill

Harve A. Ferrill
Director
  
/s/Gary W.Michael H. DeGroote

Gary W.
Michael H. DeGroote
Director		 
/s/Richard C. Rochon

Richard C. Rochon
Director
  
/s/Rick L. Burdick

Rick L. Burdick
Director		 
/s/Todd Slotkin

Todd Slotkin
Director
  
/s/Donald V. Weir

Donald V. Weir
Director		  
/s/  Benaree Pratt Wiley

Benaree Pratt Wiley
Director


54

43

CBIZ, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
     
  Page
CBIZ, Inc. and Subsidiaries
 
Report
Reports of Independent Registered Public Accounting Firm On Internal Control Over Financial Reporting
  F-2
Report of Independent Registered Public Accounting Firm - F-3 
Consolidated Balance Sheets as of December 31, 20052008 and 20042007
  F-4 
Consolidated Statements of Operations for the years ended December 31, 2005, 20042008, 2007 and 20032006
  F-5 
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2005, 20042008, 2007 and 20032006
  F-6 
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 20042008, 2007 and 20032006
  F-7 
Notes to the Consolidated Financial Statements
  F-8 
Schedule II — Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2005, 20042008, 2007 and 20032006
  F-39F-45 


F-1

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Stockholders
CBIZ, Inc.:Inc:
We have audited management’s assessment, Management’s Report On Internal Control Over Financial Reporting, included in Item 9C of Form 10-K, that CBIZ, Inc. and subsidiaries (Company) maintained effective(“the Company”) internal control over financial reporting as of December 31, 2005,2008, based on,criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, included in Item 9A ofForm 10-K. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment,assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control andbased on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005,2008, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company acquired Mahoney Cohen & Company CPA, P.C. and Tofias, P.C. on December 31, 2008, and management excluded from its assessment of effectiveness of the Company’s internal control over financial reporting as of December 31, 2008, Mahoney Cohen & Company CPA, P.C.’s and Tofias, P.C.’s internal control over financial reporting associated with total assets of $84.8 million included in the consolidated financial statements of the Company as of December 31, 2008. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Mahoney Cohen & Company CPA, P.C. and Tofias, P.C.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CBIZ, Inc. and subsidiaries as of December 31, 20052008 and 2004,2007, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2005,2008, and our report dated March 15, 200616, 2009 expressed an unqualified opinion on those consolidated financial statements.statements.
/s/KPMG LLP
Cleveland, Ohio
March 15, 200616, 2009


F-2

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
CBIZ, Inc.:
We have audited the accompanying consolidated financial statements of CBIZ, Inc. and subsidiaries (Company) as listed in the accompanying index onpage F-1. In connection with our auditsaudit of the consolidated financial statements we have also have audited the financial statement schedule as listed in the accompanying index onpage F-1. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CBIZ, Inc.the Company and subsidiaries as of December 31, 20052008 and 2004,2007, and the results of theirits operations and theirits cash flows for each of the years in the three-year period ended December 31, 2005,2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presentpresents fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company, in 2008, changed its method of accounting for fair value measurements, in 2007, changed its method of accounting for uncertainties in income taxes, and in 2006, changed its method for quantifying errors.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of theSample Company’s internal control over financial reporting as of December 31, 2005,2008, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15, 200616, 2009 expressed an unqualified opinion on management’s assessmentthe effectiveness of and the effective operation of,Company’s internal control over financial reporting.
/s/  KPMG LLP
Cleveland, Ohio
March 15, 200616, 2009


F-3

F-3

CBIZ, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 20052008 AND 20042007
(In thousands)thousands, except per share data)
           
  2005 2004
     
ASSETS
Current assets:        
 Cash and cash equivalents $8,909  $5,291 
 Restricted cash  9,873   10,089 
 Accounts receivable, net  99,185   99,021 
 Notes receivable — current  6,042   1,377 
 Income taxes recoverable  —   7,146 
 Deferred income taxes — current  3,241   3,743 
 Other current assets  9,504   7,964 
 Assets of discontinued operations  6,730   18,305 
       
  Current assets before funds held for clients  143,484   152,936 
Funds held for clients  65,669   32,787 
       
  Total current assets  209,153   185,723 
Property and equipment, net  33,486   36,023 
Notes receivable — non-current  3,575   4,726 
Deferred income taxes — non-current  9,193   7,200 
Goodwill and other intangible assets, net  185,535   172,644 
Assets of deferred compensation plan  9,803   4,285 
Other assets  3,833   3,514 
       
  Total assets $454,578  $414,115 
       
 
LIABILITIES
Current liabilities:        
 Accounts payable $26,436  $24,918 
 Income taxes payable  1,115   — 
 Accrued personnel costs  35,937   24,322 
 Other current liabilities  18,332   16,269 
 Liabilities of discontinued operations  5,939   8,146 
       
  Current liabilities before client fund obligations  87,759   73,655 
 Client fund obligations  65,669   32,787 
       
  Total current liabilities  153,428   106,442 
Bank debt  32,200   53,900 
Deferred compensation plan obligations  9,803   4,285 
Other non-current liabilities  4,486   2,991 
       
  Total liabilities  199,917   167,618 
       
STOCKHOLDERS’ EQUITY
Common stock, par value $0.01 per share; Shares authorized 250,000; Shares issued 98,381 and 96,407; Shares outstanding 73,822 and 75,651  984   964 
Additional paid-in capital  450,734   444,584 
Accumulated deficit  (94,714)  (113,387)
Treasury stock, 24,559 and 20,756 shares  (102,317)  (85,650)
Accumulated other comprehensive loss  (26)  (14)
       
  Total stockholders’ equity  254,661   246,497 
       
  Total liabilities and stockholders’ equity $454,578  $414,115 
       
         
  2008  2007 
 
ASSETS
Current assets:        
Cash and cash equivalents $9,672  $12,144 
Restricted cash  15,786   15,402 
Accounts receivable, net  130,824   115,333 
Notes receivable — current, net  2,133   1,722 
Income taxes refundable  3,271   150 
Deferred income taxes — current  6,750   5,136 
Other current assets  9,880   9,936 
Assets of discontinued operations  249   1,858 
         
Current assets before funds held for clients  178,565   161,681 
Funds held for clients — current  103,097   88,048 
         
Total current assets  281,662   249,729 
Property and equipment, net  30,835   26,279 
Notes receivable — non-current, net  927   2,017 
Deferred income taxes — non-current, net  5,111   5,300 
Goodwill and other intangible assets, net  350,216   268,388 
Assets of deferred compensation plan  19,711   22,157 
Funds held for clients — non-current  10,024   — 
Other assets  4,137   4,122 
         
Total assets $702,623  $577,992 
         
 
LIABILITIES
Current liabilities:        
Accounts payable $29,013  $27,293 
Accrued personnel costs  40,869   40,281 
Notes payable — current  1,064   10,602 
Other current liabilities  18,478   13,969 
Liabilities of discontinued operations  769   3,460 
         
Current liabilities before client fund obligations  90,193   95,605 
Client fund obligations  116,638   88,048 
         
Total current liabilities  206,831   183,653 
Convertible notes  100,000   100,000 
Bank debt  125,000   30,000 
Income taxes payable — non-current  6,797   8,346 
Deferred compensation plan obligations  19,711   22,157 
Other non-current liabilities  8,767   7,390 
         
Total liabilities  467,106   351,546 
         
 
STOCKHOLDERS’ EQUITY
Common stock, par value $0.01 per share; Shares authorized 250,000; Shares issued 106,789 and 104,151; Shares outstanding 62,472 and 64,637  1,068   1,041 
Additional paid-in capital  496,598   477,804 
Accumulated deficit  (4,812)  (37,414)
Treasury stock, 44,317 and 39,514 shares  (256,295)  (214,883)
Accumulated other comprehensive loss  (1,042)  (102)
         
Total stockholders’ equity  235,517   226,446 
         
Total liabilities and stockholders’ equity $702,623  $577,992 
         
See the accompanying notes to the consolidated financial statements.


F-4

F-4

CBIZ, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
Years Ended December 31, 2005, 2004 AND 2003
(In thousands, except per share data)
               
  2005 2004 2003
       
Revenue $559,269  $504,898  $482,254 
Operating expenses  485,295   438,417   419,932 
          
Gross margin  73,974   66,481   62,322 
Corporate general and administrative expense  24,911   24,099   18,745 
Depreciation and amortization expense  15,163   16,010   16,581 
          
Operating income  33,900   26,372   26,996 
Other income (expense):            
 Interest expense  (3,109)  (1,507)  (1,055)
 Gain on sale of operations, net  314   996   2,519 
 Other income (expense), net  5,052   3,532   (1,227)
          
  Total other income, net  2,257   3,021   237 
Income from continuing operations before income tax expense  36,157   29,393   27,233 
Income tax expense  14,571   8,045   11,918 
          
Income from continuing operations  21,586   21,348   15,315 
Loss from operations of discontinued operations, net of tax  (6,463)  (5,429)  (725)
Gain on disposal of discontinued operations, net of tax  3,550   132   726 
          
Net income $18,673  $16,051  $15,316 
          
Earnings (loss) per share:            
 Basic:            
  Continuing operations $0.29  $0.27  $0.17 
  Discontinued operations  (0.04)  (0.07)  — 
          
  Net income $0.25  $0.20  $0.17 
          
 Diluted:            
  Continuing operations $0.28  $0.26  $0.17 
  Discontinued operations  (0.04)  (0.06)  — 
          
  Net income $0.24  $0.20  $0.17 
          
Basic weighted average common shares outstanding  74,448   79,217   90,400 
          
Diluted weighted average common shares outstanding  76,827   81,477   92,762 
          
             
  2008  2007  2006 
 
Revenue $704,263  $640,315  $583,655 
Operating expenses  607,573   560,168   513,265 
             
Gross margin  96,690   80,147   70,390 
Corporate general and administrative expenses  28,691   29,462   29,526 
             
Operating income  67,999   50,685   40,864 
Other income (expense):            
Interest expense  (7,242)  (5,763)  (4,205)
Gain on sale of operations, net  745   144   21 
Other income (expense), net  (7,612)  10,589   4,921 
             
Total other income (expense), net  (14,109)  4,970   737 
Income from continuing operations before income tax expense  53,890   55,655   41,601 
Income tax expense  20,546   22,510   16,488 
             
Income from continuing operations  33,344   33,145   25,113 
Loss from operations of discontinued operations, net of tax  (474)  (2,187)  (1,623)
Gain (loss) on disposal of discontinued operations, net of tax  (268)  3,882   911 
             
Net income $32,602  $34,840  $24,401 
             
Earnings (loss) per share:            
Basic:            
Continuing operations $0.54  $0.51  $0.35 
Discontinued operations  (0.01)  0.03   (0.01)
             
Net income $0.53  $0.54  $0.34 
             
Diluted:            
Continuing operations $0.53  $0.50  $0.34 
Discontinued operations  (0.01)  0.03   (0.01)
             
Net income $0.52  $0.53  $0.33 
             
Basic weighted average common shares outstanding  61,839   65,061   71,004 
             
Diluted weighted average common shares outstanding  62,572   66,356   73,052 
             
See the accompanying notes to the consolidated financial statements.


F-5

F-5

CBIZ, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
Years Ended December 31, 2005, 2004 AND 2003
(In thousands)
                                    
              Accumulated  
  Issued   Additional       Other  
  Common Common Paid-In Accumulated Treasury Treasury Comprehensive  
  Shares Stock Capital Deficit Shares Stock Loss Totals
                 
December 31, 2002  95,121  $951  $439,684  $(144,754)  220  $(1,308) $(255) $294,318 
                         
Comprehensive income:                                
 Net income  —   —   —   15,316   —   —   —   15,316 
 Change in unrealized appreciation, net of tax                          254   254 
                         
   Total comprehensive income                              15,570 
Share repurchases  —   —   —   —   10,036   (33,578)  —   (33,578)
Divestiture consideration  —   —   —   —   46   (201)  —   (201)
Stock options  375   4   1,203   —   —   —   —   1,207 
Business acquisitions and contingent payments  177   2   520   —   —   —   —   522 
                         
December 31, 2003  95,673  $957  $441,407  $(129,438)  10,302  $(35,087) $(1) $277,838 
                         
Comprehensive income:                                
 Net income  —   —   —   16,051   —   —   —   16,051 
 Foreign currency translation adjustments                          (13)  (13)
                         
  Total comprehensive income                              16,038 
Share repurchases  —   —   —   —   10,424   (50,419)  —   (50,419)
Restricted stock  —   —   518   —   —   —   —   518 
Divestiture consideration  —   —   —   —   30   (144)  —   (144)
Stock options  519   5   1,696   —   —   —   —   1,701 
Business acquisitions and contingent payments  215   2   963   —   —   —   —   965 
                         
December 31, 2004  96,407  $964  $444,584  $(113,387)  20,756  $(85,650) $(14) $246,497 
                         
Comprehensive income:                                
 Net income  —   —   —   18,673   —   —   —   18,673 
 Foreign currency translation adjustments                          (12)  (12)
                         
  Total comprehensive income                              18,661 
Share repurchases  —   —   —   —   3,803   (16,667)  —   (16,667)
Restricted stock  247   2   453   —   —   —   —   455 
Stock options  1,658   17   5,401   —   —   —   —   5,418 
Business acquisitions and contingent payments  69   1   296   —   —   —   —   297 
                         
December 31, 2005  98,381  $984  $450,734  $(94,714)  24,559  $(102,317) $(26) $254,661 
                         
                                 
                    Accumulated
    
  Issued
     Additional
           Other
    
  Common
  Common
  Paid-In
  Accumulated
  Treasury
  Treasury
  Comprehensive
    
  Shares  Stock  Capital  Deficit  Shares  Stock  Loss  Totals 
 
December 31, 2005  98,381  $984  $450,734  $(94,714)  24,559  $(102,317) $(26) $254,661 
                                 
Cumulative effect of adjustments from the adoption of SAB 108, net of taxes  —   —   —   (2,604)  —   —   —   (2,604)
                                 
January 1, 2006  98,381  $984  $450,734  $(97,318)  24,559  $(102,317) $(26) $252,057 
                                 
Comprehensive income:                                
Net income  —   —   —   24,401   —   —   —   24,401 
Foreign currency translation  —   —   —   —   —   —   (43)  (43)
                                 
Total comprehensive income                              24,358 
Share repurchases  —   —   —   —   9,731   (74,515)  —   (74,515)
Restricted stock  151   1   (1)  —   —   —   —   — 
Stock options exercised  2,552   26   5,660   —   —   —   —   5,686 
Share-based compensation  —   —   1,940   —   —   —   —   1,940 
Tax benefit from employee share plans  —   —   3,003   —   —   —   —   3,003 
Business acquisitions  607   6   3,997   —   —   —   —   4,003 
Other  63   1   (14)  —   48   59   —   46 
                                 
December 31, 2006  101,754  $1,018  $465,319  $(72,917)  34,338  $(176,773) $(69) $216,578 
                                 
Adoption of FASB Interpretation No. 48  —   —   —   663   —   —   —   663 
                                 
January 1, 2007  101,754  $1,018  $465,319  $(72,254)  34,338  $(176,773) $(69) $217,241 
                                 
Comprehensive income:                                
Net income  —   —   —   34,840   —   —   —   34,840 
Foreign currency translation  —   —   —   —   —   —   (45)  (45)
Unrealized gains on available for sale securities, net of tax  —   —   —   —   —   —   12   12 
                                 
Total comprehensive income                              34,807 
Share repurchases  —   —   —   —   5,176   (38,110)  —   (38,110)
Restricted stock  243   2   (2)  —   —   —   —   — 
Stock options exercised  2,007   20   4,679   —   —   —   —   4,699 
Share-based compensation  —   —   2,294   —   —   —   —   2,294 
Tax benefit from employee share plans  —   —   2,998   —   —   —   —   2,998 
Business acquisitions  281   3   2,512   —   —   —   —   2,515 
Other  (134)  (2)  4   —   —   —   —   2 
                                 
December 31, 2007  104,151  $1,041  $477,804  $(37,414)  39,514  $(214,883) $(102) $226,446 
                                 
Comprehensive income:                                
Net income  —   —   —   32,602   —   —   —   32,602 
Foreign currency translation  —   —   —   —   —   —   (63)  (63)
Unrealized losses on available for sale securities, net of income tax benefit of $442  —   —   —   —   —   —   (670)  (670)
Unrealized losses on interest rate swap, net of income tax benefit of $121  —   —   —   —   —   —   (207)  (207)
                                 
Total comprehensive income                              31,662 
Share repurchases  —   —   —   —   4,803   (41,412)  —   (41,412)
Restricted stock  318   4   (4)  —   —   —   —   — 
Stock options exercised  1,135   11   4,086   —   —   —   —   4,097 
Share-based compensation  —   —   3,740   —   —   —   —   3,740 
Tax benefit from employee share plans  —   —   1,797   —   —   —   —   1,797 
Business acquisitions  1,185   12   9,175   —   —   —   —   9,187 
                                 
December 31, 2008  106,789  $1,068  $496,598  $(4,812)  44,317  $(256,295) $(1,042) $235,517 
                                 
See the accompanying notes to the consolidated financial statements.


F-6

F-6

CBIZ, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
Years Ended December 31, 2005, 2004 AND 2003
(In thousands)
               
    2004 2003
  2005 (Revised) (Revised)
       
Cash flows from operating activities:
            
Net income $18,673  $16,051  $15,316 
Adjustments to reconcile net income to net cash provided by operating activities:            
 Loss from operations of discontinued operations  6,463   5,429   725 
 Gain on disposal of discontinued operations  (3,550)  (132)  (726)
 Gain on sale of operations, net  (314)  (996)  (2,519)
 Bad debt expense, net of recoveries  5,170   4,160   4,891 
 Impairment of notes receivable  —   —   2,394 
 Notes payable extinguishment  (65)  (743)  — 
 Depreciation and amortization  15,163   16,010   16,581 
 Deferred income taxes  (2,480)  (3,573)  1,800 
 Stock awards  1,466   449   280 
Changes in assets and liabilities, net of acquisitions and dispositions            
 Restricted cash  216   791   5,968 
 Accounts receivable, net  (5,599)  (11,987)  (10,018)
 Other assets  (8,318)  (6,782)  (1,571)
 Accounts payable  1,204   (2,666)  6,110 
 Income taxes  6,177   (6,974)  3,789 
 Accrued personnel  11,615   4,199   3,530 
 Accrued expenses and other liabilities  6,146   4,861   (10,288)
          
Net cash provided by continuing operations  51,967   18,097   36,262 
Operating cash flows provided by discontinued operations  855   1,589   2,674 
          
Net cash provided by operating activities  52,822   19,686   38,936 
          
Cash flows from investing activities:
            
Business acquisitions including contingent consideration earned, net of cash acquired  (12,611)  (5,662)  (3,849)
Proceeds from sales of divested operations  133   3,030   5,590 
Proceeds from sales of discontinued operations  2,000   1,549   1,599 
Additions to notes receivable  —   (2,267)  (913)
Additions to property and equipment, net  (6,903)  (7,384)  (10,408)
Decreases in notes receivable  1,672   2,462   2,667 
Investing cash flows provided by (used in) discontinued operations  1,457   (317)  707 
          
  Net cash used in investing activities  (14,252)  (8,589)  (4,607)
          
Cash flows from financing activities:
            
Proceeds from bank debt  253,200   288,855   225,950 
Proceeds from notes payable  87   —   324 
Payment of bank debt  (274,900)  (248,955)  (229,450)
Payment of notes payable and capitalized leases  (845)  (428)  (1,062)
Payment for acquisition of treasury stock  (16,667)  (50,419)  (33,578)
Proceeds from exercise of stock options  4,173   1,350   927 
          
 Net cash used in financing activities  (34,952)  (9,597)  (36,889)
          
Net increase (decrease) in cash and cash equivalents  3,618   1,500   (2,560)
Cash and cash equivalents at beginning of year  5,291   3,791   6,351 
          
Cash and cash equivalents at end of year $8,909  $5,291  $3,791 
          
             
  2008  2007  2006 
 
Cash flows from operating activities:
            
Net income $32,602  $34,840  $24,401 
Adjustments to reconcile net income to net cash provided by operating activities:
            
Loss from operations of discontinued operations, net of tax  474   2,187   1,623 
Gain on sale of long-term investment  (796)  (7,259)  — 
(Gain) loss on disposal of discontinued operations, net of tax  268   (3,882)  (911)
Gain on sale of operations, net  (745)  (144)  (21)
Asset impairments  2,251   524   — 
Provision for credit losses and bad debt, net of recoveries  6,812   3,864   3,334 
Notes payable extinguishment  (65)  (65)  (65)
Depreciation and amortization expense  15,111   13,535   14,101 
Deferred income taxes  (1,045)  322   (2,126)
Excess tax benefits from share based payment arrangements  (1,797)  (2,998)  (3,003)
Employee stock awards  3,740   2,294   1,940 
Changes in assets and liabilities, net of acquisitions and divestitures
            
Restricted cash  (384)  2,105   (7,516)
Accounts receivable, net  (15,135)  (12,168)  (11,746)
Other assets  1,572   (59)  932 
Accounts payable  1,269   (1,271)  1,662 
Income taxes  (2,843)  (2,726)  4,879 
Accrued personnel costs  (509)  3,104   247 
Other liabilities  3,745   118   (732)
             
Net cash provided by continuing operations  44,525   32,321   26,999 
Operating cash flows (used in) provided by discontinued operations  (3,456)  (2,191)  1,217 
             
Net cash provided by operating activities  41,069   30,130   28,216 
             
Cash flows from investing activities:
            
Business acquisitions and contingent consideration, net of cash acquired  (96,821)  (58,186)  (22,090)
Acquisition of other intangible assets  (1,615)  (1,613)  (2,425)
Proceeds from sale of investment  796   7,864   — 
Proceeds from sales of divested and discontinued operations  5,412   28,463   7,346 
Additions to notes receivable  (660)  (100)  — 
Payments received on notes receivable  636   272   1,895 
Additions to property and equipment, net  (8,130)  (6,111)  (6,076)
Investing cash flows used in discontinued operations  —   (476)  (514)
             
Net cash used in investing activities  (100,382)  (29,887)  (21,864)
             
Cash flows from financing activities:
            
Proceeds from convertible notes  —   —   100,000 
Proceeds from bank debt  353,175   284,485   144,000 
Payment of bank debt  (258,175)  (254,485)  (176,200)
Payment of acquired debt  (1,544)  —   — 
Payment of notes payable and capitalized leases, net  (428)  (531)  (664)
Deferred financing costs  (669)  (126)  (3,600)
Payment for acquisition of treasury stock  (41,412)  (38,110)  (74,515)
Proceeds from exercise of stock options  4,097   4,699   5,686 
Excess tax benefit from exercise of stock awards  1,797   2,998   3,003 
             
Net cash provided by (used in) financing activities  56,841   (1,070)  (2,290)
             
Net (decrease) increase in cash and cash equivalents  (2,472)  (827)  4,062 
Cash and cash equivalents at beginning of year  12,144   12,971   8,909 
             
Cash and cash equivalents at end of year $9,672  $12,144  $12,971 
             
See the accompanying notes to the consolidated financial statements.


F-7

F-7

CBIZ, INC. AND SUBSIDIARIESSUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.Organization and Summary of Significant Accounting Policies
Organization
CBIZ, Inc. is a diversified services company which, acting through its subsidiaries, provides professional business services primarily to small and medium-sized businesses, as well as individuals, governmental entities, and not-for-profit enterprises throughout the United States and Toronto,parts of Canada. CBIZ Inc. offers integrated services throughmanages and reports its threeoperations along four practice groups: Accounting, Tax and AdvisoryFinancial Services, (ATA), Benefits and InsuranceEmployee Services, (B&I),Medical Management Professionals (“MMP”) and National Practices. A further description of products and services offered by each of the practice groups is provided in Note 23.
Principles of Consolidation
The accompanying consolidated financial statements reflect the operations of CBIZ, Inc. and all of its wholly-owned subsidiaries (CBIZ)(“CBIZ”). All intercompany accounts and transactions have been eliminated in consolidation.
In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities”, as amended, CBIZ has determined that its relationship with certain Certified Public Accounting (“CPA”) firms with whom we maintain administrative service agreements (“ASAs”) qualify as variable interest entities. 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 further discussion
The CPA firms with which CBIZ maintains administrative service agreements may operate as limited liability companies, limited liability partnerships or professional corporations. The firms are separate legal entities with separate governing bodies and officers. CBIZ has no ownership interest in any of these CPA firms, and neither the existence of the ASAs nor the providing of services there under “Variable Interest Entities” below.is intended to constitute control of the CPA firms by CBIZ. CBIZ and the CPA firms maintain their own respective liability and risk of loss in connection with performance of each of their respective services.
Fees earned by CBIZ under the ASAs are recorded as revenue (at net realizable value) in the consolidated statements of operations. In the event that accounts receivable and unbilled work in process become uncollectible by the CPA firms, the service fee due to CBIZ is typically reduced on a proportional basis. Although the administrative service agreements do not constitute control, CBIZ is one of the beneficiaries of the agreements and may bear certain economic risks.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States 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 collectibility 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, accrued liabilities (such as incentive compensation)compensation, self-funded health insurance accruals, legal reserves and consolidation and integration reserves), income taxes 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 20042007 and 20032006 consolidated financial statements and disclosures have been reclassified to conform to the current year presentation. Reclassifications include, but may not be limited to: legal settlements (previously reported as other income (expense), net, which are now reported as corporate general and administrative expense),presentation, including the impact of discontinued operations and certain other expenses that were reclassified between operating and corporate general and administrative expenses.operations.


F-8

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Adjustment to Retained Earnings — Staff Accounting Bulletin No. 108
In 2005,September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 was adopted by CBIZ has separately disclosedfor its fiscal year ended December 31, 2006.
Historically CBIZ evaluated uncorrected differences using the operating“roll-over” method, which focused primarily on the impact of uncorrected differences, including the reversal of prior-year uncorrected differences, on the current-year consolidated statement of operations. As required by SAB 108, CBIZ must now evaluate misstatements under a “dual approach” method, which requires quantification under both the “roll-over” and investing portionsthe “iron curtain” methods. The “iron curtain” method quantifies misstatements based on the effects of correcting the cash flows attributableperiod-end balance sheet.
In accordance with the transition provisions of SAB 108, CBIZ recorded adjustments totaling $2.6 million which increased beginning accumulated deficit for the year ended December 31, 2006. These adjustments were considered to its discontinuedbe immaterial to our consolidated statements of operations which in prior periods were combined and reported as a single amount. Prior periods have been revised to conform toyears, under the current year presentation. There were no financing activities attributable to the operations of discontinued operations in 2005, 2004 or 2003.“roll-over” method.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and short-term highly liquid investments with an original maturity of three months or less at the date of purchase.
Restricted Cash
Restricted cash represents fees earned
Funds held by CBIZ in relation to its capital and investment advisory services are recorded in restricted cash, as those funds are restricted in accordance with applicable NASDFinancial Industry Regulatory Authority (“FINRA”) regulations. Restricted cash also represents fundsFunds on deposit from clients in connection with the pass throughpass-through of insurance premiums to the carrier;carrier are also recorded in restricted cash; the related liability for these funds is recorded in other current liabilities in the consolidated balance sheets.

F-8

CBIZ, INC. AND SUBSIDIARIESaccounts payable.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Funds Held for Clients and Client Fund Obligations
Payroll services
Services provided by CBIZ include the preparation of payroll checks, federal, state, and local payroll tax returns, and flexible spending account administration. In relation to these services, CBIZ collects funds from its clients’ accounts in advance of paying these client obligations. Funds that are collected before they are due are segregated and reported separately as “funds held for clients” in the consolidated balance sheets, and may include cash, cash equivalents and short-term investments.sheets. Other than certain federal and state regulations pertaining to flexible spending account administration, there are no regulatory or other contractual restrictions placed on these funds.
Funds held for clients are reported as current and non-current assets, as appropriate, based upon characteristics of the related clientunderlying investments, and Client fund obligations are included in the consolidated balance sheetsreported as current assets and current liabilities, respectively.liabilities. If the par value of investments held does not approximate fair value, the balance in Funds held for clients may not be equal to the balance in Client fund obligations. The amountsamount of collected but not yet remitted funds may vary significantly during the year.
One of the business units classified as a discontinued operation collects funds from clients’ accounts in advance of paying the related client obligations. These funds and related liabilities are reported as “assets of discontinued operations” and “liabilities of discontinued operations,” respectively, in the accompanying consolidated balance sheets. The amount of funds
Funds held for clients by our discontinued operations is disclosedinclude cash, overnight investments and Auction Rate Securities (“ARS”). ARS are classified as available for sale securities in Note 18.
Assets of Deferred Compensation Plan
Assets of the deferred compensation plan represent marketable investments that consist primarily of mutual funds, money market funds and equity securities. CBIZ classifies these marketable securities as “trading” securities underaccordance with FASB Statement of Financial Accounting Standard (SFAS)Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” In accordance with the provisionsSecurities”. See Note 6 for further discussion of this statement, the investment balance is stated at fair market value based on quoted market prices, and realized and unrealized gains and losses are reflected in earnings. The assets held in the deferred compensation plan reflect amounts due to employees, but are available for general creditors of CBIZ in the event CBIZ becomes insolvent. As such, CBIZ has recorded the investment as a non-current asset titled “assets of deferred compensation plan” and has established a corresponding other long-term liability entitled “deferred compensation plan obligations” in the consolidated balance sheets.ARS.
Derivative Instruments and Hedging Activities
CBIZ records derivative instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as subsequently amended by SFAS 137, SFAS 138 and SFAS 149. Derivatives are recognized as either assets or liabilities in the consolidated balance sheets and are measured at fair value. The treatment of gains and losses resulting from changes in the fair values of derivative instruments is dependent on the use of the


F-9

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
respective derivative instruments and whether they qualify for hedge accounting. See Note 6 for further discussion of derivative instruments.
CBIZ did not utilize derivative instruments in 2005 or 2004. In 2003, CBIZ terminated an interest rate swap that was originated in 2001. The interest rate swap agreement qualified as a cash flow hedge, which was used to manage the interest rate mix of its credit facility and related overall cost of borrowing. For the year ended December 31, 2002, the change in fair value relating to CBIZ’s hedging activity resulted in a loss of approximately $0.3 million, which is recorded in stockholders’ equity under accumulated other comprehensive loss.
Fair Value of Financial Instruments
The carrying amounts 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.
Accounts Receivable and Allowance for Doubtful Accounts
CBIZ carries accounts receivable at their face amount less allowances for doubtful accounts, and carries unbilled revenues at estimated net realizable value. Assessing the collectibility of receivables (billed and unbilled) requires

F-9

CBIZ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
management judgment. When evaluating the adequacy of the allowance for doubtful accounts and the overall collectibility of receivables, CBIZ analyzes historical bad debts, client credit-worthiness, the age of accounts receivable and current economic trends and conditions.
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. In addition, CBIZ conducts on-going evaluation of credit-worthiness of the financial institutions with which it does business. 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.
Goodwill and Other Intangible Assets
CBIZ utilizes the purchase method of accounting for all business combinations in accordance with SFAS No. 141, “Business Combinations.” Identifiable intangible assets include finite-lived purchased intangible assets, which primarily consist of client lists and non-compete agreements. These assets are amortized using the straight-line method over their expected periods of benefit, which is generally two to ten years.
In accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill is not amortized. Goodwill is tested for impairment annually during the fourth quarter of each year, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. To conduct a goodwill impairment test, the fair value of the reporting unit is compared to its carrying value. If the reporting unit’s carrying value exceeds its fair value, CBIZ recordswould record an impairment loss to the extent that the carrying value of goodwill exceeds its implied fair value. Fair values for reporting units are estimated using discounted cash flow valuation models.
Long-Lived Assets
Long-lived assets primarily include property and equipment and identifiable intangible assets with finite lives. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, these assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or groups of assets may not be recoverable. Recoverability of long-lived assets or groups of assets is assessed based on a comparison of the undiscounted cash flows to the recorded value of the asset. If an impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. Determining the fair value of long-lived assets includes significant judgment by management, and different judgments could yield different results.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are provided on the straight-line basis over the following estimated useful lives:
   
Buildings 25 to 40 years
Furniture and fixtures 5 to 10 years
Capitalized software 2 to 7 years
Equipment 3 to 7 years
Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining term of the respective lease.
Capitalized Software
The cost of software purchased or developed for internal use is capitalized in accordance with Statement of Position98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” The

F-10

CBIZ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
costs are amortized to expense using the straight linestraight-line method over an estimated useful life not to exceed seven years. Capitalized software is classified as property“property and equipment, net” in the consolidated balance sheets.


F-10

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due and deferred taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and operating loss and tax credit carryforwards. State income tax credits are accounted for byusing the flow-through method.
A valuation allowance is provided when it is more likely than not that some portion or all of thea deferred tax assetsasset will not be realized. CBIZ determines a valuation allowanceallowances based on the analysis of amounts available in the statutory carryback or carryforward periods, consideration of future deductible amounts, and assessment of the consolidatedand/or separate company profitability. Determining valuation allowances includes significant judgment by management, and different judgments could yield different results.
Effective January 1, 2007, CBIZ adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48, as amended, clarifies the accounting for uncertainty in income tax positions and requires applying a “more likely than not” threshold to the recognition of tax positions based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The cumulative effect of adopting FIN 48 resulted in a $0.7 million decrease in the total liability for unrecognized tax benefits, which was recorded as an adjustment reducing the January 1, 2007 accumulated deficit. See Note 8 for further discussion of FIN 48.
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, our fee to the client is fixed or determinable, and collectibility is reasonably assured. These criteria are in accordance with Generally Accepted Accounting Principles (GAAP)GAAP and SEC Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” as amended by SAB No. 104 (SAB 104)“Revenue Recognition”. CBIZ offers
Contract terms are typically contained in a vast arraysigned agreement with our clients (or when applicable, other third parties) which generally define the scope of products and business services to its clients. Thosebe provided, pricing of services, are delivered through three practice groups. A descriptionand payment terms generally ranging from invoice date to 90 days after invoice date. Billing may occur prior to, during, or upon completion of revenue recognition, as it relates to those groups, isthe service. We typically do not have acceptance provisions or right of refund arrangements included in these agreements. Contract terms vary depending on the scope of service provided, below.deliverables, and complexity of the engagement.
Certain of our client arrangements encompass multiple deliverables. CBIZ accounts for these arrangements in accordance with Emerging Issues Task ForceNo. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (EITF 00-21)(“EITF 00-21”). If the deliverables meet the criteria as outlined inEITF 00-21, the deliverables are divided into separate units of accounting and revenue is allocated to the deliverables based on their relative fair values. Revenue for each unit is recognized separately in accordance with CBIZ’s revenue recognition policy for each unit. For those arrangements where the deliverables do not qualify as a separate unit of accounting, revenue from all deliverables are treated as one accounting unit and recognized onevaluated for appropriate accounting treatment based upon the underlying facts and circumstances.
CBIZ offers a pro-rata basis over the termvast array of the arrangement.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 provided below.
Accounting, Tax and AdvisoryFinancial Services — Revenue primarily consists primarily of fees for services rendered to our clients for accounting services, preparation of tax returns, and consulting services, compliance projects, services pursuant to administrative service agreements (described under “Variable Interest Entities”), and valuation services including Sarbanes-Oxley consultingfairness opinions, business plans, litigation support, purchase price allocations and compliance projects. Revenuesderivative valuations. Clients are recorded in the period in whichbilled


F-11

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
for these services are provided and meet revenue recognition criteria in accordance with SAB 104. CBIZ bills clients based upon either; a time and expense model, a predeterminedagreed-upon fixed fee, or actual hours incurred on client projects at expected net realizable rates per hour, plus anyout-of-pocket expenses. The cumulative impact on any subsequent revision in the estimated realizable valueas a percentage of unbilled fees for a particular client projectsavings. Revenue recognition as it pertains to each of these arrangements is reflected in the period in which the change becomes known.as follows:
Through one of its ATA units, CBIZ provides flexible benefits administration services to clients, grants access of its proprietary software to third parties, and provides hosting to these parties. Revenue associated with set up and license fees related to our flexible benefits services are deferred and recognized pro rata over the life of the contract.
• Time and Expense Arrangements — Revenue is recognized based upon actual hours incurred on client projects at expected net realizable rates per hour, plusagreed-upon out-of-pocket expenses. The cumulative impact on any subsequent revision in the estimated realizable value of unbilled fees for a particular client project is reflected in the period in which the change becomes known.
• Fixed Fee Arrangements — Revenue for fixed-fee arrangements is recognized over the performance period based upon progress towards completion, which is determined based upon actual hours incurred on the client project compared to estimated total hours to complete the client project.
• Contingent Revenue Arrangements — Revenue is recognized when savings to the client is determined and collection is reasonably assured.
• Administrative Service Agreement Revenue — Revenue for administrative service fees is recognized as services are provided, based upon actual hours incurred.
Benefits and InsuranceEmployee Services — Revenue consists primarily of brokerage and agency commissions, and fee income for administering health and retirement plans.plans and payroll service fees. Revenue also includes investment income related to client payroll funds that are held in CBIZ accounts, as is industry practice. A description of the revenue recognition, based on the service provided, insurance product sold, and billing arrangement, is describedprovided below.
 • Commissions Revenue — Commissions relating to brokerage and agency activities whereby CBIZ has primary responsibility for the collection of premiums from insured’s (agency or indirect billing) are recognized as of the latter of the effective date of the insurance policy or the date billed to the customer; commissions to be received directly from insurance companies (direct billing) are recognized when the policydata necessary from the carriers to properly record revenue becomes effective;available; and

F-11

CBIZ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
life insurance commissions are recognized when the policy becomes effective. Commission revenue is reported net of sub-broker commissions. Commission revenue is reported net ofcommissions, and reserves for estimated policy cancellations and terminations. ThisThe cancellation and termination reserve is based upon estimates and assumptions using historical cancellation and termination experience and other current factors to project future experience. CBIZ periodically reviews the adequacy of the reserve and makes adjustments as necessary. The use of different estimates or assumptions could produce different results.
Commissions which are based upon certain performance targets are recognized at the earlier of written notification that the target has been achieved, or cash collection.
 • Commissions which are based upon certain performance targets are recognized at the earlier of written notification that the target has been achieved, or cash collection.
• Fee income — Fee income is recognized in the period in which services are provided, and may be based on predeterminedagreed-upon fixed fees, actual hours incurred on an hourly fee basis, fixed fee arrangements, or asset-based fees. Revenue for fixed-fee arrangements is recognized on a straight-line basis over the contract period, as these services are provided to clients continuously throughout the term of the arrangement. Revenue which is based upon actual hours incurred is recognized as services are performed.
Revenue for asset-based fees is recognized when the data necessary to compute revenue is determinable, which is typically when either, market valuation information is available, the data necessary to compute our fees is made available by third party administrators or when cash is received. CBIZ only recognizes revenue when cash is received for those arrangements where the data necessary to compute our fees is not available to the Company in a timely manner.
• Payroll — Revenue related to payroll processing fees is recognized when the actual payroll processing occurs. Revenue related to investment income earned on payroll funds is based upon actual amounts earned on those funds, is recognized in the period that the income is earned, and was $1.8 million, $1.8 million and $1.4 million for the years ended December 31, 2008, 2007 and 2006, respectively.


F-12

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Medical Management Professionals — Revenue is primarily related to fees charged to clients for billing, collection and full-practice management services, which are typically charged to clients based upon a percentage of net collections on our clients’ patient accounts or as a fee per transaction processed. Revenue also relates to fees charged to clients for statement mailing services. The revenue recognition as it pertains to each of these arrangements is as follows:
• Fee income — For those arrangements where fees to clients are determined based upon a percentage of net collections, revenue is determinable, earned and recognized when payments are received by our clients on their patient accounts. For those arrangements where clients are charged a fee for each transaction processed, revenue is typically recognized proportionately over a predetermined service period.
• Statement mailing services — Revenues for statement mailing services are recognized when statements are processed and mailed.
National Practices Services — The business units that comprise this practicethe National Practices group offer a variety of services. A description of revenue recognition associated with the primary services is provided below.
Technology Consulting — Revenue consists of consulting services and sales of hardware, software and service agreement contracts.
 • Mergers & AcquisitionsConsulting Services — Consulting services primarily relate to the maintenance and Capital Advisory —repair of hardware. These services are charged to customers based upon time and material, cost-plus anagreed-upon markup percentage, or a predeterminedagreed-upon fixed fee. Revenue associated with non-refundable retainersrelated to consulting services is recognized as services are performed or upon acceptance by the client, depending on a pro rata basis over the life of the engagement. Revenue associated with success fee transactions is recognized when the transaction is completed.client contract terms.
 
 • Technology ConsultingService Agreement Contracts — Revenue associated with service agreement contracts is recognized on a straight line basis over the period of the agreement.
• Hardware — Revenue associated with hardware and software sales is recognized upon delivery and acceptance of the product. Revenue associated with installation is recognized as services are performed, and revenue associated with service agreements is recognized on a straight-line basis. Consulting revenue is recognized on an hourly or per diem fee basis as services are performed.
 
 • ValuationSoftware, Post Contract Support and Installation Services — CBIZ is a re-seller of software and post contract support (“PCS”) that is provided by software vendors. CBIZ also provides installation and implementation services that generally do not involve significant production or modification of software. Revenue consists primarily of fees for valuationrelated to software, PCS and installation services such as fairness opinions, business plans, litigation support, purchase price allocations and derivative valuations. Revenues are recorded in the period in which services are provided and meet revenue recognition criteriais recognized in accordance with SAB 104. CBIZ bills clients based upon a predetermined agreed-upon fixed fee or actual hours incurred on client projects at expected net realizable rates per hour, plus anySOPout-of97-2.-pocket expenses. The cumulative impact on any subsequent revision in the estimated realizable value of unbilled fees for a particular client project is reflected in the period in which the change becomes known.
• Payroll — Revenue is recognized when the actual payroll processing occurs.
• Medical Management Group — Fees for services are primarily based on a percentage of net collections on our clients’ patient accounts receivable. As such, revenue is determinable, earned, and recognized, when payments are received on our clients’ patient accounts.
CBIZ sells installation and implementation services and PCS on a stand-alone basis. Software is typically sold with installation and implementation services. Revenue is allocated to each element based upon vendor specific objective evidence of fair value which is commensurate with prices charged to the customers for these items. Revenue related to the sale of software and PCS is recognized upon delivery, and installation and implementation service revenues are recognized as the services are performed.
Health Care Consulting — Clients are billed for health care consulting services based upon a predeterminedagreed-upon fixed fee, time and expense, or as a percentage of savings. Revenue for fixed fee and time and expense arrangements is recognized over the performance period based upon actual hours incurred, and revenue that is contingent upon savings is recognized after contingencies have been resolved and verified by a third party.
Mergers & Acquisitions — Clients are billed monthly for non-refundable retainer fees, or upon the completion of a transaction (success fees). Revenue associated with non-refundable retainer fees is recognized on a straight-line basis over the life of the engagement, as services are performed throughout the term of the contract period of the arrangement. Revenue associated with success fee transactions is recognized when the transaction is completed.


F-13

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Operating Expenses
Operating expenses represent costs of service as well asand other costs incurred to operate our business units. These costsunits and are primarily comprised of personnel related expenses,costs and occupancy expenses, and consolidation and integration related expenses. Personnel costs include base compensation, commissions, payroll taxes, income or losses earned on assets of the deferred compensation plan, and benefits, which are recognized as expense as they are incurred,incurred. Personnel costs also include stock-based and incentive compensation costs, which are estimated and accrued on a monthly basis. The ultimate determination of incentive compensation is made after year-end results are finalized, thus estimates are subject to change.finalized. Total personnel costs were $353.0$438.2 million, $317.7$408.7 million and $304.3$373.8 million for the years ended December 31, 2005, 2004,2008, 2007 and 2003,2006, respectively.
The largest components of occupancy costs are rent expense and utilities. RentBase rent expense is recognized over respective lease terms, (see “operating leases” below),while utilities and utilitiescommon area maintenance charges are recognized as incurred. Total occupancy costs were $35.5$40.3 million, $34.1$36.8 million and $33.6$35.2 million for the years ended December 31, 2005, 2004,2008, 2007 and 2003,2006, respectively.
Consolidation and integration charges are accounted for in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Accordingly, CBIZ recognizes a liability for non-cancelable lease obligations based upon the net present value of remaining lease payments, net of estimated sublease

F-12

CBIZ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
payments. The liability is determined and recognized as of the cease-use date and adjustments to the liability are made for changes in estimates in the period in which a change becomes known.
Operating Leases
CBIZ leases certain of its office facilities and equipment under various operating leases. Rent expense under such leases is recognized in accordance with SFAS No. 13, “Accounting for Leases” (“SFAS No. 13”). SFAS No. 13 requires lessees to record rent expense evenly throughout the term of the lease obligation when the lease commitment is a known amount, but allows for rent expense to be recorded on a cash basis when future rent payments under the obligation are unknown because the rent escalations are tied to factors that are not currently measurable (such as increases in the consumer price index). Differences between rent expense recognized and the cash payments required under operating lease obligations are recorded in the consolidated balance sheets as other current or non-current liabilities as appropriate.
CBIZ may receive incentives to lease office facilities in certain areas. In accordance with SFAS No. 13, such incentives are recorded as a deferred credit and recognized as a reduction to rent expense on a straight-line basis over the lease term. Leasehold improvements
Stock-Based Awards
CBIZ accounts for stock-based awards under Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which requires the measurement and recognition of compensation cost for all share-based payment awards made at the inception of or during the lease are amortizedto employees and directors to be based on their fair values. Accordingly, CBIZ recognizes stock-based compensation costs for only those shares expected to vest on a straight-line basis over the shorterrequisite service period of the asset life oraward, which is generally the lease term.
Variable Interest Entities
Effective January 1, 2004, CBIZ adopted FASB Interpretation No. 46, “Consolidationoption vesting term of Variable Interest Entities” (FIN 46), as amended. In accordance with the provisions of the aforementioned standard, CBIZ has determined that its relationship with certain Certified Public Accounting (CPA) firms with whom we maintain administrative service agreements (ASAs) qualify as variable interest entities. The accompanying financial statements do not reflect the consolidation of the variable interest entities, as the impactup to five years. Stock-based compensation expense is not material to the financial condition, results of operations or cash flows of CBIZ.
The CPA firms with which CBIZ maintains administrative service agreements operate as limited liability companies, limited liability partnerships or professional corporations. The firms are separate legal entities with separate governing bodies and officers. CBIZ has no ownership interest in any of these CPA firms, and neither the existence of the ASAs nor the providing of services thereunder is intended to constitute control of the CPA firms by CBIZ. CBIZ and the CPA firms maintain their own respective liability and risk of loss in connection with performance of each of its respective services, and CBIZ does not believe that its arrangements with these CPA firms result in additional risk of loss.
Fees earned by CBIZ under the ASAs are recorded as revenue (at net realizable value) in the consolidated statements of operations. operations as operating expenses or corporate general and administrative expenses, depending on where the respective individual’s compensation is recorded.
New Accounting Pronouncements
In December 2007, the eventFASB issued SFAS No. 141 (revised 2007) “Business Combinations” (“SFAS No. 141R”), which replaces SFAS No. 141, “Business Combinations.” SFAS No. 141R establishes principles and requirements for how an acquirer, a) recognizes and measures the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree, b) recognizes and measures the goodwill acquired, and c) determines what information to disclose. SFAS No. 141R also requires that accounts receivableall acquisition-related costs, including restructuring, be recognized separately from the acquisition, and unbilled workthat changes in process become uncollectible byacquired tax contingencies, including those existing at the CPA firms,date of adoption, be recognized in earnings if outside the service fee duemaximum allocation period (generally one year). SFAS No. 141R applies prospectively to CBIZbusiness combinations for which the acquisition date is reduced on a pro-rata basis. Althoughor after the administrative service agreements do not constitute control, CBIZ is onebeginning of the beneficiariesfirst annual reporting period beginning after December 15, 2008. The adoption of the agreements and may bear certain economic risks.
Earnings per Share


F-14

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by weighted average diluted shares. Weighted average diluted shares are determined using the weighted average number of common shares outstanding during the period plus the dilutive effect of potential future issues of common stock relating to CBIZ’s stock award programs and other potentially dilutive securities. In calculating diluted earnings per share, the dilutive effect of stock awards are computed using the average market price for the period in accordance with the treasury stock method.

F-13

CBIZ, INC. AND SUBSIDIARIESSUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock Based Awards
CBIZ accountsSFAS No. 141R will result in increased volatility in CBIZ’s results of operations and effective tax rate to the extent that uncertain tax positions related to prior acquisitions are resolved more or less favorably than originally estimated. Additionally, CBIZ’s results of operations will be impacted by the requirement that acquisition costs that were previously capitalized be expensed as incurred. Any business combination closed after December 31, 2008 may have a significantly different impact on CBIZ’s financial position and result of operations compared with its impact as recorded under SFAS No. 141, depending on the terms of acquisition. See Note 8 for its employee stock options in accordance with Accounting Principles Board Opinionfurther discussion of uncertain tax positions related to prior acquisitions.
On May 9, 2008, the FASB issued FASB Staff Position No. 25,APB14-1, “Accounting for Stock IssuedConvertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB14-1”). FSP APB14-1 requires issuers of convertible debt instruments that may be settled wholly or partly in cash, to Employees.” Accordingly, compensationseparately account for the liability and equity components of the instruments in a manner that reflects the nonconvertible debt borrowing rate when interest expense is recorded onrecognized in subsequent periods. The resulting debt discount is amortized over the dateperiod the convertible debt is expected to be outstanding as additional non-cash interest expense.
FSP APB14-1 is effective for fiscal years beginning after December 15, 2008 and will impact the accounting associated with CBIZ’s $100.0 million convertible senior subordinated notes (described in Note 9). The provisions of grant only ifAPB14-1 must be applied retrospectively to all periods presented and will result in a reduction in the current market pricecarrying value of convertible notes, and increases to stockholders’ equity and interest expense from what has been reported in historical financial statements. The additional interest expense required under FSP APB14-1 is a non-cash expense and thus will not impact total operating, investing or financing cash flows.
Had the underlying stock exceeds the exercise price. CBIZ provides pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value-based method hadprovisions of FSP APB14-1 been applied in accordance with Statementto the years ended December 31, 2008 and 2007, the carrying amount of Financial Accounting Standards No. 123, “Accountingconvertible notes would have been reduced to approximately $89.9 million and $86.2 million, respectively, and stockholders’ equity at December 31, 2008 and 2007 would have increased to approximately $241.4 million and $234.5, respectively.
The following table illustrates how the adoption of FSP APB14-1 would affect CBIZ’s Consolidated Statements of Operations for Stock-Based Compensation.” Had the cost of stock option plans been determined based on the fair value of options at the grant date, CBIZ’s net incomeyears ended December 31, 2008, 2007 and earnings per share pro forma amounts would be as follows2006 (in thousands, except per share data):.
                 
  As Reported Pro Forma(1)
     
  Basic Diluted Basic Diluted
         
2005
                
Net income $18,673  $18,673  $17,573  $17,573 
             
Net income per share $0.25  $0.24  $0.24  $0.23 
             
2004
                
Net income $16,051  $16,051  $14,629  $14,629 
             
Net income per share $0.20  $0.20  $0.18  $0.18 
             
2003
                
Net income $15,316  $15,316  $14,792  $14,792 
             
Net income per share $0.17  $0.17  $0.16  $0.16 
             
                         
  As Reported  Pro Forma 
  2008  2007  2006  2008  2007  2006 
 
Interest Expense $7,242  $5,763  $4,205  $10,787  $9,038  $6,004 
                         
Net Income $32,602  $34,840  $24,401  $30,404  $32,810  $23,286 
                         
Earnings Per Share — Basic $0.53  $0.54  $0.34  $0.49  $0.50  $0.33 
Earnings Per Share — Diluted $0.52  $0.53  $0.33  $0.49  $0.49  $0.32 
For the year ended December 31, 2009, pre-tax interest expense for CBIZ’s $100.0 million convertible senior subordinated notes is estimated to be $7.6 million, comprised of $3.1 million related to the 3.125% coupon rate and $4.5 million in non-cash interest expense.


F-15

 
CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(1) 2.  A tax rate of 40.0% was applied to the fair value of options in determining pro forma net income for each of the years ended December 31, 2005, 2004 and 2003.
The above results may not be representative of the effects on net income for future years. CBIZ applied the Black-Scholes option-pricing model to determine the fair value of each option granted during the years ended December 31, 2005, 2004 and 2003, using the following weighted-average assumptions:
             
  2005 2004 2003
       
Weighted average grant-date fair value of options granted $1.65  $1.42  $0.95 
Risk-free interest rate  3.90%  3.89%  2.36%
Expected volatility  49.71%  36.57%  35.54%
Expected option life (in years)  5.00   5.00   5.00 
Dividend yield  0.0%  0.0%  0.0%
Restricted stock awards are independent of option grants, and are granted at no cost to the recipients. The market value of shares awarded is recorded as unearned compensation, and is expensed ratably over the period which restrictions lapse.
Guarantees
CBIZ recognizes a liability for the fair value of obligations undertaken in issuing guarantees, in accordance with the Financial Accounting Standards Board issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, as amended (FIN 45). The liability is recognized at the inception of such guarantees, and is recorded as other current liabilities in the consolidated balance sheets.

F-14

CBIZ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2.Accounts Receivable, Net
Accounts receivable balances at December 31, 20052008 and 20042007 were as follows (in thousands):
          
  2005 2004
     
Trade accounts receivable $83,683  $81,023 
Unbilled revenue  19,582   21,353 
Other accounts receivable  1,721   2,615 
       
 Total accounts receivable  104,986   104,991 
Allowance for doubtful accounts  (5,801)  (5,970)
       
 Accounts receivable, net $99,185  $99,021 
       
         
  2008  2007 
 
Trade accounts receivable $113,549  $98,881 
Unbilled revenue  23,981   21,572 
Other accounts receivable  1,873   712 
         
Total accounts receivable  139,403   121,165 
Allowance for doubtful accounts  (8,579)  (5,832)
         
Accounts receivable, net $130,824  $115,333 
         
3.Notes Receivable, Net
Notes receivable balances, net of allowances of $0.3 million at December 31, 20052008 and 20042007, respectively, were as follows (in thousands):
           
  2005 2004
     
Current
        
Notes in lieu of cash as consideration for the sale of operations $5,378  $1,125 
Other  664   252 
       
 Total notes receivable — current  6,042   1,377 
Non-Current
        
Notes in lieu of cash as consideration for the sale of operations  1,215   2,169 
Other  2,360   2,557 
       
 Total notes receivable — non-current  3,575   4,726 
       
  Notes receivable $9,617  $6,103 
       
         
  2008  2007 
 
Current
        
Notes in lieu of cash as consideration for the sale of operations $1,179  $863 
Other  954   859 
         
Total notes receivable — current, net  2,133   1,722 
Non-Current
        
Notes in lieu of cash as consideration for the sale of operations  411   1,203 
Other  516   814 
         
Total notes receivable — non-current, net  927   2,017 
         
Notes receivable, net $3,060  $3,739 
         
4.Property and Equipment, Net
Property and equipment, net at December 31, 20052008 and 20042007 consisted of the following (in thousands):
          
  2005 2004
     
Buildings and leasehold improvements $12,806  $12,466 
Furniture and fixtures  18,023   16,129 
Capitalized software  41,874   39,683 
Equipment  28,500   28,927 
       
 Total property and equipment  101,203   97,205 
Accumulated depreciation and amortization  (67,717)  (61,182)
       
 Property and equipment, net $33,486  $36,023 
       
         
  2008  2007 
 
Buildings and leasehold improvements $16,467  $13,592 
Furniture and fixtures  23,673   20,720 
Capitalized software  40,974   39,744 
Equipment  18,346   17,376 
         
Total property and equipment  99,460   91,432 
Accumulated depreciation and amortization  (68,625)  (65,153)
         
Property and equipment, net $30,835  $26,279 
         


F-16

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Depreciation and amortization expense was approximately $11.2 million, $12.1 million,related to property and $13.1 million duringequipment for the years ended December 31, 2005, 20042008, 2007 and 2003, respectively, of which $6.3 million, $5.6 million2006 was as follows (in thousands):
             
  2008  2007  2006 
 
Operating expenses $6,346  $5,626  $5,862 
Corporate general and administrative expenses  878   2,031   3,705 
             
Total depreciation and amortization expense $7,224  $7,657  $9,567 
             
Included in total depreciation and $5.5 million represented theamortization expense is amortization of capitalized software.software of $2.6 million, $3.4 million and $5.0 million for the years ended December 31, 2008, 2007 and 2006, respectively.

F-15

During 2007, CBIZ INC. AND SUBSIDIARIESrecorded an impairment charge of approximately $0.5 million to write down certain internally developed software to its net realizable value. This charge was recorded in the Medical Management Professionals practice group and is included in operating expenses.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5.Goodwill and Other Intangible Assets, Net
The components of goodwill and other intangible assets, net at December 31, 20052008 and 20042007 were as follows (in thousands):
           
  2005 2004
     
Goodwill $168,902  $159,807 
Intangibles:        
 Client lists  23,498   18,033 
 Other intangibles  1,493   972 
       
 Total intangibles  24,991   19,005 
       
  Total goodwill and other intangibles assets  193,893   178,812 
Less accumulated amortization  (8,358)  (6,168)
       
  Goodwill and other intangible assets, net $185,535  $172,644 
       
         
  2008  2007 
 
Goodwill $260,535  $213,511 
Intangibles:
        
Client lists  103,812   63,234 
Other intangibles  8,990   8,125 
         
Total intangibles  112,802   71,359 
         
Total goodwill and other intangibles assets  373,337   284,870 
Accumulated amortization:
        
Client lists  (20,575)  (14,269)
Other intangibles  (2,546)  (2,213)
         
Total accumulated amortization  (23,121)  (16,482)
         
Goodwill and other intangible assets, net $350,216  $268,388 
         
Goodwill
Changes in the carrying amount of goodwill by operating segment for the years ended December 31, 2008 and 2007 were as follows (in thousands):
                     
        Medical
       
  Financial
  Employee
  Management
  National
  Total
 
  Services  Services  Professionals  Practices  Goodwill 
 
December 31, 2006 $99,103  $49,659  $21,279  $2,121  $172,162 
Additions  6,576   1,908   32,440   628   41,552 
Divestitures  (203)  —   —   —   (203)
                     
December 31, 2007 $105,476  $51,567  $53,719�� $2,749  $213,511 
Additions  36,093   8,926   2,701   (22)  47,698 
Divestitures  —   (674)  —   —   (674)
                     
December 31, 2008 $141,569  $59,819  $56,420  $2,727  $260,535 
                     


F-17

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Businesses acquired during 2008 resulted in additions to goodwill of approximately $42.9 million, of which $35.4 million was recorded in the Financial Services practice group related to the acquisitions of Mahoney Cohen & Company and Tofias PC on December 31, 2008. The remaining increase in goodwill during 2008 was a result of contingent purchase price earned by businesses acquired in prior years. Refer to Note 20 for further discussion of acquisition activities.
As further described in Notes 1 and 21, CBIZ has reclassified prior period financial statements and disclosures to reflect discontinued operations. As a result of the 2008 divestiture activity, a total of $0.6 million of goodwill from the Financial Services practice group was reclassified to assets of discontinued operations as of December 31, 2007 and 2006, and is not reflected in the table above. Assets of discontinued operations at December 31, 2007 included $0.6 million of goodwill. At December 31, 2008, there was no goodwill in assets of discontinued operations.
Client Lists and Other Intangibles
At December 31, 2008, the weighted average amortization period remaining for total intangible assets was 8.4 years. Client lists are amortized over their expected periods of benefit not exceedingto exceed ten years.years, and had a weighted-average amortization period of 8.6 years remaining at December 31, 2008. Other intangibles, which consist primarily of non-compete agreements and trade-names, are amortized over periods ranging from two to ten years.years, and had a weighted- average amortization period of 6.1 years remaining at December 31, 2008. Amortization expense (excluding impairment charges as described below) ofrelated to client lists and other intangible assets was approximately $2.6 million, $1.8 million and $1.5 million duringfor the years ended December 31, 2005, 20042008, 2007 and 2003, respectively. 2006 was as follows (in thousands):
             
  2008  2007  2006 
 
Operating expenses $7,691  $5,659  $4,316 
Corporate general and administrative expenses  196   219   218 
             
Total amortization expense $7,887  $5,878  $4,534 
             
Amortization expense for existing client lists and other intangible assets for each of the next five years ended December 31 is estimated to be (in thousands):
     
Year Ended December 31,  
   
2006 $2,541 
    
2007 $2,444 
    
2008 $2,205 
    
2009 $2,101 
    
2010 $1,859 
    
This estimate
     
2009 $11,853 
     
2010 $11,574 
     
2011 $11,364 
     
2012 $10,630 
     
2013 $9,837 
     
Future amortization expense excludes the impact of events that may occur subsequent to December 31, 2005,2008, including acquisitions, divestitures and additional purchase price that may be earned in connection with acquisitions that occurred prior to December 31, 2005.2008.
In accordance
6.  Financial Instruments
The carrying amounts 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. At December 31, 2008, the fair value of CBIZ’s $100.0 million convertible senior subordinated notes (“Notes”) was approximately $87.8 million, based upon quoted market prices. Since the Notes have a fixed interest rate and a conversion feature which is based upon the market value of CBIZ’s common stock, the fair value of the Notes will fluctuate as market rates of interest and the market value of CBIZ’s common stock fluctuate.


F-18

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 SFAS No. 144, “Accountinghighly-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.
Auction Rate Securities
As a result of liquidity issues experienced in the credit and capital markets, CBIZ’s ARS experienced failed auctions during the year ended December 31, 2008 and one of the investments was downgraded below the minimum rating required by the Company’s investment policy. While CBIZ continues to earn and receive interest on these investments at the contractual rates, the estimated fair value of our investments in ARS no longer approximates their face value.
At December 31, 2008, CBIZ had three outstanding investments in ARS with par values totaling $13.4 million and fair values totaling $10.0 million. The declines in fair values of two of the ARS are currently considered to be temporary. These declines in fair value totaled $1.1 million at December 31, 2008 and are recorded as unrealized losses in accumulated other comprehensive loss, after tax benefit. ARS with temporary declines in fair value are classified as “Funds held for clients — non-current” in the consolidated balance sheets, as CBIZ intends and has the ability to hold these investments until anticipated recovery of par value occurs.
The decline in fair value for the Impairment or Disposal of Long-Lived Assets”,remaining ARS was determined to be other-than-temporary. Accordingly, CBIZ recorded non-cash pre-taxan impairment charge totaling $2.3 million for the year ended December 31, 2008, which is included in “Other income (expense), net” in the accompanying consolidated statements of operations. The fair value of this ARS is recorded in “Funds held for clients — non-current” in the accompanying consolidated balance sheets.
At December 31, 2007, the fair value of our investments in ARS approximated face value and totaled $22.5 million. These ARS were recorded as “Funds held for clients — current” in the consolidated balance sheets. There were no impairment charges of $0.2 million and $0.3 millionrecorded for our investments in ARS during the years ended December 31, 20042007 or 2006.
Interest Rate Swap
Effective in January, 2008, CBIZ entered into a two-year, zero-cost interest rate swap (“swap”) for the purpose of managing cash flow and 2003, respectively. The impairment chargesinterest rate variability on a portion of outstanding borrowings under CBIZ’s unsecured credit facility (“credit facility”). CBIZ does not enter into derivative instruments for trading or speculative purposes.
Under the terms of the swap agreement, CBIZ pays interest at a fixed rate plus an applicable margin under the credit agreement, and receives or pays interest that varies with one-month LIBOR. Interest is calculated by reference to the $10.0 million notional amount of the swap and payments are reportedexchanged each month. During the year ended December 31, 2008, CBIZ recorded additional interest expense of approximately $0.1 million related to the swap agreement.
CBIZ designated the swap as depreciationa cash flow hedge and amortization expenseaccordingly, the interest rate swap is recorded as either an asset or liability in the accompanying consolidated balance sheets at fair value. Changes in fair value are recorded as a component of accumulated other comprehensive loss in stockholders’ equity, net of tax, to the extent the swap is effective. Amounts recorded to accumulated other comprehensive loss are reclassified to interest expense as interest on the hedged borrowings is recognized. Net amounts due related to the swap are recorded as adjustments to interest expense when earned or payable. Any ineffective portion of the swap is recorded to interest expense.
The fair value of the swap is included in “other non-current liabilities” in the consolidated balance sheets and was $0.3 million at December 31, 2008. Fair value represents the amount that CBIZ would have to pay to terminate the swap agreement at the reporting date. Over the next 12 months, CBIZ expects to reclassify approximately


F-19

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$0.3 million of deferred losses from accumulated other comprehensive loss to interest expense as related interest payments that are being hedged are recognized.
The swap is assessed for effectiveness on a quarterly basis and continues to qualify for hedge accounting. If the swap were to be de-designated as a hedge, it would be accounted for as a financial instrument used for trading. There was no ineffectiveness for the year ended December 31, 2008.
7.  Fair Value Measurements
Effective January 1, 2008, CBIZ adopted the provision of SFAS No. 157 for measuring and reporting financial assets and liabilities in the Company’s financial statements. In February 2008, the FASB issued Staff PositionNo. 157-2 “Effective Date of FASB Statement No. 157” which delayed the effective date of SFAS No. 157 to fiscal years ending after November 15, 2008 for non-financial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Accordingly, CBIZ did not apply the provisions of operationsSFAS No. 157 to long-lived assets, goodwill and relateother intangible assets that are measured for impairment testing purposes.
SFAS No. 157 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The 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 client liststhe fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The following table summarizes CBIZ’s assets and liabilities at December 31, 2008 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):
                 
     Fair Value Measurements at
 
     December 31, 2008 with 
  Portion of
  Quoted Prices
       
  Carrying Value
  in Active
  Significant
    
  Measured at
  Markets for
  Other
  Significant
 
  Fair Value
  Identical
  Observable
  Unobservable
 
  December 31,
  Assets
  Inputs
  Inputs
 
  2008  (Level 1)  (Level 2)  (Level 3) 
 
Assets of deferred compensation plan $19,711  $19,711  $—  $— 
Auction rate securities $10,024  $—  $—  $10,024 
Interest rate swap $(328) $—  $(328) $— 


F-20

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the change in fair values of the Company’s assets and liabilities identified as Level 3 for the year ended December 31, 2008 (pre-tax basis, in thousands):
     
  Auction Rate
 
  Securities 
 
Beginning balance — January 1, 2008 $— 
Transfers into Level 3  21,420 
Redemption of securities  (8,040)
Impairment recorded in operations  (2,251)
Unrealized losses included in accumulated other Comprehensive loss  (1,105)
     
Ending balance — December 31, 2008 $10,024 
     
Due to liquidity issues in the ARS market and because quoted prices from our Accounting, Tax and Advisory, and Benefits and Insurance practice groups thatbroker-dealers were purchasedunavailable for CBIZ’s ARS, the majority of the investments in 2000 and 1999, respectively. ThereARS were no impairment charges recordedtransferred from Level 2 to Level 3 during the year ended December 31, 2005.2008. Subsequent to the initial transfer into Level 3, securities totaling $8.0 million were redeemed by the issuer. For the remaining ARS, a fair value assessment was performed in accordance with SFAS No. 157. The 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. According to the fair value analysis, it was determined that one ARS issue was unlikely to recover its par value and therefore an other-than-temporary impairment of $2.3 million was recorded in the consolidated statements of operations for the year ended December 31, 2008.
Based on the fair value analysis, it was determined that the fair value of the remaining securities was 86.8% of par value, resulting in a temporary impairment of $1.1 million at December 31, 2008. For these remaining securities, CBIZ 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. In addition, CBIZ has sufficient liquidity in its client fund assets to fund client obligations and CBIZ does not anticipate that the current lack of liquidity of these investments will affect its ability to conduct business. Therefore, CBIZ has the ability and intent to hold ARS until anticipated recovery in value occurs. The decline in fair value has been recorded as an unrealized loss in accumulated other comprehensive loss, net of income taxes.
8.  Income Taxes
For financial reporting purposes, income from continuing operations before income taxes includes the following components (in thousands):
             
  2008  2007  2006 
 
United States $53,685  $55,472  $41,388 
Foreign (Canada)  205   183   213 
             
Total $53,890  $55,655  $41,601 
             


F-21

F-16

CBIZ, INC. AND SUBSIDIARIESSUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2005 and 2004 were as follows (in thousands):
                     
  Accounting,   Medical National  
  Tax and Benefits and Management Practices- Total
  Advisory Insurance Practice Other Goodwill
           
December 31, 2003 $91,367  $44,879  $17,212  $4,357  $157,815 
Additions  772   628   —   1,219   2,619 
Divestitures  (627)  —   —   —   (627)
                
December 31, 2004  91,512   45,507   17,212   5,576   159,807 
Additions  4,860   3,643   —   592   9,095 
Divestitures  —   —   —   —   — 
                
December 31, 2005 $96,372  $49,150  $17,212  $6,168  $168,902 
                
6.Income Taxes
Income tax expense (benefit) included in the consolidated statements of operations for the years ended December 31, 2005, 2004,2008, 2007 and 20032006 was as follows (in thousands):
                
  2005 2004 2003
       
Continuing operations:            
 
Current:
            
  Federal $16,463  $9,870  $8,191 
  Foreign  (58)  —   — 
  State and local  646   1,748   1,927 
          
   Total current income tax expense from continuing operations  17,051   11,618   10,118 
 
Deferred:
            
  Federal  (1,805)  (2,827)  1,899 
  Foreign  —   32   102 
  State and local  (675)  (778)  (201)
          
   Total deferred income tax expense from continuing operations  (2,480)  (3,573)  1,800 
          
   Total income tax expense continuing operations  14,571   8,045   11,918 
Operations of discontinued operations  (3,795)  (2,773)  (331)
Gain on sale of discontinued operations  2,085   266   731 
          
Total income tax expense $12,861  $5,538  $12,318 
          

F-17

CBIZ, INC. AND SUBSIDIARIES
             
  2008  2007  2006 
 
Continuing operations:
            
Current:
            
Federal $19,276  $19,739  $16,312 
Foreign  (8)  64   — 
State and local  2,941   3,500   2,637 
             
Total  22,209   23,303   18,949 
Deferred:
            
Federal  (1,974)  (756)  (2,438)
Foreign  —   68   35 
State and local  311   (105)  (58)
             
Total  (1,663)  (793)  (2,461)
             
Total income tax expense from continuing operations  20,546   22,510   16,488 
             
Discontinued operations:
            
Operations of discontinued operations:            
Current  (762)  (1,184)  (1,151)
Deferred  618   94   256 
             
Total  (144)  (1,090)  (895)
Gain on sale of discontinued operations:            
Current  162   6,266   737 
Deferred  —   1,021   79 
             
Total  162   7,287   816 
             
Total income tax expense from discontinued operations  18   6,197   (79)
             
Total income tax expense $20,564  $28,707  $16,409 
             
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The provision for income taxes attributable to earningsincome from continuing operations differed from the amount obtained by applying the federal statutory income tax rate to income from continuing operations before income taxes, as follows (in thousands, except percentages):
             
  2005 2004 2003
       
Tax at statutory rate $12,655  $10,288  $9,532 
State taxes (net of federal benefit)  1,403   1,444   1,719 
Tax credit carryforwards  (293)  (280)  (3,882)
Change in valuation allowance  (250)  (276)  4,555 
Settlement of IRS examination 1998-2000  —   (3,550)  640 
Non-deductible goodwill related to divested businesses  —   133   (361)
Business meals and entertainment — non-deductible  539   660   594 
Other, net  517   (374)  (879)
          
Provision for income taxes from continuing operations $14,571  $8,045  $11,918 
          
Effective income tax rate  40.3%  27.4%  43.8%
          
             
  2008  2007  2006 
 
Tax at statutory rate (35%) $18,862  $19,479  $14,560 
State taxes (net of federal benefit)  2,160   2,249   1,754 
Tax-exempt interest  (590)  (672)  (583)
Business meals and entertainment — non-deductible  734   782   704 
Other, net  (620)  672   53 
             
Provision for income taxes from continuing operations $20,546  $22,510  $16,488 
             
Effective income tax rate  38.1%  40.4%  39.6%
             


F-22

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The net changeincome tax benefits associated with the exercise of non-qualified stock options and restricted stock awards and reflected in the valuation allowanceadditionalpaid-in-capital were $1.8 million for the year ended December 31, 2005 was primarily due to changes in2008 and $3.0 million for each of the valuation allowances for state tax credit carryforwards, capital losses realized in excess of capital gains, and NOL carryforwards. The net change in the valuation allowance for the yearyears ended December 31, 2004 was primarily due to changes in the valuation of NOL carryforwards. The net change in the valuation allowance for the year ended December 31, 2003 was due to increases in valuation allowances for NOL carryforwards, state tax credit carryforwards,2007 and asset impairment charges, offset by a decrease in the valuation allowance for state deferred taxes related to an impairment of tax deductible goodwill.2006.
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities from continuing operations at December 31, 20052008 and 2004,2007, were as follows (in thousands):
          
  2005 2004
     
Deferred Tax Assets:
        
Net operating loss carryforwards $5,717  $6,167 
Allowance for doubtful accounts  1,528   2,307 
Employee benefits and compensation  5,637   3,452 
Cumulative change in accounting principle (SAB 101)  2,588   2,810 
Lease costs  2,356   1,139 
Goodwill and other intangibles  257   413 
State tax credit carryforwards  3,848   3,782 
Excess capital losses over capital gains  1,952   1,426 
Other deferred tax assets  473   527 
       
 Total gross deferred tax assets  24,356   22,023 
 Less: valuation allowance  (8,033)  (8,283)
       
 Net deferred tax assets  16,323   13,740 
       
Deferred Tax Liabilities:
        
Property and equipment depreciation  1,841   3,462 
Other deferred tax liabilities  2,048   (665)
       
 Total gross deferred tax liabilities  3,889   2,797 
       
Net deferred tax asset $12,434  $10,943 
       

F-18

         
  2008  2007 
 
Deferred Tax Assets:
        
Net operating loss carryforwards $5,197  $5,109 
Allowance for doubtful accounts  2,506   2,233 
Employee benefits and compensation  16,524   12,478 
Lease costs  3,076   3,381 
State tax credit carryforwards  3,264   3,544 
Asset impairments  1,342   — 
Other deferred tax assets  2,316   2,128 
         
Total gross deferred tax assets  34,225   28,873 
Less: valuation allowance  (4,747)  (3,824)
         
Total deferred tax assets, net $29,478  $25,049 
         
Deferred Tax Liabilities:
        
Property and equipment depreciation $1,927  $1,577 
Accrued interest  6,189   3,622 
Client list amortization  7,210   8,327 
Goodwill and other intangibles  1,456   714 
Other deferred tax liabilities  835   373 
         
Total gross deferred tax liabilities $17,617  $14,613 
         
Net deferred tax asset $11,861  $10,436 
         
CBIZ INC. AND SUBSIDIARIEShas established valuation allowances for portions of the state net operating loss (“NOL”) carryforwards and state income tax credit carryforwards at December 31, 2008 and December 31, 2007. The net change in the valuation allowance for the year ended December 31, 2008 was primarily related to changes in the valuation allowances for state NOL carryforwards. The net decrease in the valuation allowance for the year ended December 31, 2007 of $2.5 million was primarily due to the expiration of foreign NOL carryforwards and changes in the valuation allowances for state NOL carryforwards.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DuringIn assessing the fourth quarterrealizability of 2004,deferred tax assets, management considers whether it is more likely than not they will be realized. In making such a determination, we consider all available positive and negative evidence, including projected future taxable income, scheduled reversal of deferred tax liabilities, historical financial operations and tax planning strategies. Based upon review of these items, management believes it is more likely than not that the Company will realize the benefits of these deferred tax assets, net of the existing valuation allowances.
CBIZ and its subsidiaries file income tax returns in the United States, Canada, and most state jurisdictions. In July 2008, the Internal Revenue Service (IRS) made a final determination relative tocompleted its examination of CBIZ’sthe Company’s federal income tax returns for the years ended December 31, 1998, 1999, and 2000.2003 through 2006. The IRS agreed withCompany paid $0.9 million during 2008 to settle the audits. CBIZ’s favorable tax position, which resulted in anfederal income tax refund of $4.0 millionreturns for the years underending prior to January 1, 2005 are no longer subject to examination. At December 31,With limited exceptions, CBIZ’s state and local income tax returns andnon-U.S. income tax returns are no longer subject to tax authority examinations for years ending prior to January 1, 2004 this amount was recorded as income taxes recoverable in the accompanying consolidated balance sheet. and January 1, 2003, respectively.


F-23

CBIZ, also recorded a deferred tax liability of $1.3 million, and reversed an accrual for income taxes payable of $0.8 million related to the audit results. These items resulted in a net tax benefit of $3.5 million during the year ended December 31, 2004. The tax refund was received in February 2005.INC. AND SUBSIDIARES
Net operating loss (NOL)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOL carryforwards for continuing operations at December 31, 20052008 and 20042007 were as follows (in thousands):
                      
  NOL Carryforwards Deferred Tax Benefit  
      Expiration
  2005 2004 2005 2004 Dates
           
U.S. NOLs $1,538  $1,940  $538  $679   2008 
Canadian NOLs $4,361  $4,315   1,744   1,726   2006 
State NOLs $73,291  $70,404   3,435   3,762   Various 
                
 Total NOLs          5,717   6,167     
NOL valuation allowances          (4,805)  (4,436)    
                
 Net NOLs         $912  $1,731     
                
                     
  NOL Carryforwards  Deferred Tax Benefit  Expiration
 
  2008  2007  2008  2007  Dates 
 
U.S. NOL’s $3,505  $5,545  $1,227  $1,941   Various (1)
State NOL’s $83,481  $68,695   3,970   3,168   Various 
                     
Total NOL’s          5,197   5,109     
NOL valuation allowances          (3,860)  (3,042)    
                     
Net NOL’s         $1,337  $2,067     
                     
(1)Of the 2007 U.S. NOL balance of $5.5 million, approximately $2.1 million was utilized during 2008. Of the $3.5 million balance at December 31, 2008, approximately $2.4 million expires in 2022 and $1.1 million in 2027.
The availability of NOL’s is reported as deferred tax assets, net of applicable valuation allowances, in the accompanying consolidated balance sheets. CBIZ established valuation allowances for portionsDuring 2007, the Company acquired $5.5 million of federal NOL carryforwards with its acquisition of Healthcare Business Resources, Inc. Due to the change of ownership provisions of the U.S., Canadian and state NOL carryforwards, stateTax Reform Act of 1986, utilization of a portion of our domestic net operating loss related to this acquisition may be limited in future periods.
Effective January 1, 2007, CBIZ adopted FIN 48, which clarifies the accounting for uncertainty in income tax credit carryforwards,positions and requires applying a “more likely than not” threshold to the recognition of tax positions based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The adoption of FIN 48 resulted in a $0.7 million decrease in the total liability for capital losses realizedunrecognized tax benefits, which was recorded as an adjustment reducing the January 1, 2007 accumulated deficit. Unrecognized tax benefits as of January 1, 2007 totaled $4.5 million, of which $2.9 million would impact the effective tax rate, if recognized. In addition, total unrecognized tax benefits include $0.5 million in excesstax positions for which there is uncertainty as to the timing of capital gains.deductibility. If the taxing authorities do not allow our position of deducting these benefits over a shorter period of time, payment of cash to such authorities would be required in an earlier period; CBIZ’s annual effective tax rate would not be impacted.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
     
Balance at December 31, 2007 $7,390 
Additions for tax positions of the current year  253 
Additions for tax positions of prior years  192 
Reductions for tax positions of prior years  (689)
Reclassification from other liabilities  265 
Changes in judgment  (92)
Settlements  (339)
Lapse of statutes of limitation  (726)
     
Balance at December 31, 2008 $6,254 
     
Included in the balance of unrecognized tax benefits at December 31, 2008, are $5.3 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. This amount includes $3.8 million related to the 2007 acquisition noted above that, pursuant to the adoption of SFAS No. 141R, would affect the effective tax rate if recognized. See Note 1 for further discussion of SFAS No. 141R.


F-24

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company believes it is reasonably possible that certain of these unrecognized tax benefits could change in the next twelve months. CBIZ expects reductions in the liability for unrecognized tax benefits of approximately $0.3 million within the next twelve months due to expiration of statutes of limitation. Given the number of years that are currently subject to examination, we are unable to estimate the range of potential adjustments to the remaining balance of unrecognized tax benefits at this time.
CBIZ recognizes interest income, interest expense, and penalties related to unrecognized tax benefits as a component of income tax expense. During 2007 the Company accrued interest expense of $0.4 million and, as of December 31, 2007, had recognized a liability for interest expense and penalties of $1.2 million and $0.2 million, respectively, relating to unrecognized tax benefits. During 2008, the Company accrued interest expense of $0.3 million and, as of December 31, 2008, had recognized a liability for interest expense and penalties of $0.7 million and $0.1 million, respectively, relating to unrecognized tax benefits.
7.9.  Bank DebtBorrowing Arrangements
Bank debt balances
Convertible Senior Subordinated Notes
CBIZ had $100.0 million in convertible senior subordinated notes (“Notes”) outstanding at December 31, 2008 and 2007. 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 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. During the period commencing on June 6, 2011, and each six-month period from June 1 to November 30 or from December 1 to May 31 thereafter, CBIZ will pay contingent interest during the applicable interest period if the average “trading price” (as defined in the Indenture) of a Note for the years ended December 31, 2005five consecutive trading days ending on the third trading day immediately preceding the first day of the relevant six-month period equals or exceeds 120% of the principal amount of the Notes. The contingent interest will equal 0.25% per annum calculated on the average trading price of a Note for the relevant five trading day period.
The terms of the Notes are governed by the Indenture dated as of May 30, 2006, with U.S. Bank National Association as trustee (“Indenture”). The Notes mature on June 1, 2026 unless earlier redeemed, repurchased or converted. CBIZ may redeem the Notes for cash, either in whole or in part, anytime after June 6, 2011 at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and 2004 wereunpaid interest, including contingent interest and additional amounts, if any, up to but not including the date of redemption. 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, June 1, 2016 and June 1, 2021, at a repurchase price equal to 100% of the principal amount of the 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. 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 follows (in thousands, except percentages):
         
  2005 2004
     
Revolving credit facility $32,200  $53,900 
       
Weighted average rates  5.39%  3.54%
       
Range of effective rates  3.94% - 7.25%  2.98% - 5.25%
       
During 2005,described in the Indenture. Upon conversion, CBIZ maintainedwill deliver for each $1,000 principal amount of Notes, an amount consisting of cash equal to the lesser of $1,000 and 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.
If CBIZ undergoes a $100.0“fundamental change” (as defined in the Indenture), holders of the Notes will have the right, subject to certain conditions, to require CBIZ to repurchase for cash all or a portion of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest, including contingent interest and additional amounts, if any.


F-25

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Bank Debt
CBIZ maintains a $214.0 million unsecured credit facility with Bank of America as agent bank for a group of fivesix participating banks. The credit facility had an option to increase the commitment to $125.0 million and was secured by substantially all assets of CBIZ, as well as the capital stock of its subsidiaries. The credit facility includedhas a letter of credit sub-facility allowing CBIZand matures in November 2012. On April 3, 2008, Amendment No. 4 to issue letters ofthe credit upfacility increased the commitment from $100.0 million to $20.0$150.0 million by exercising the existing $50.0 million accordion. On December 10, 2008, Amendment No. 5 to the credit facility increased the commitment from $150.0 million to $214.0 million, added a sixth lender to the bank group, provided additional flexibility regarding other indebtedness baskets, and provided an accordion feature to increase the credit facility to $250.0 million. See Note 9
The balance outstanding under the credit facility was $125.0 million and $30.0 million at December 31, 2008 and 2007, respectively. Rates for further discussion regarding letters of credit. Management believes that the carrying amount of bank debt approximates its fair value,years ended December 31, 2008 and 2007 were as follows:
         
  2008 2007
 
Weighted average rates  4.80%   7.05% 
     
Range of effective rates  2.97% - 7.25%   6.09% - 8.25% 
     
CBIZ had approximately $54.1$71.0 million of available funds under the credit facility at December 31, 2005.2008. Total availability is reduced by letters of credit and obligations determined to be “other indebtedness” in accordance with the terms of 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. Under the credit facility, loans are charged an interest rate consisting of a base rate or Eurodollar rate plus an applicable margin. Additionally,margin, letters of credit are charged based on the same applicable margin, and a commitment fee of 3040.0 to 4550.0 basis points is charged on the unused portion of the 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

F-19

CBIZ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
worth; (ii) maximum leverage ratio; and (iii) a minimum fixed charge coverage ratio. Limitations are also placed on CBIZ’s ability to acquire businesses, repurchase CBIZ common stock and to divest operations.
The bank agreementcredit 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 agreement,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 agreementcredit facility contains a provision that, in the event of a defined change in control, the agreementcredit facility may be terminated.
Effective February 13, 2006, CBIZ entered into a new $100 million unsecured credit facility, which replaced the previous facility. The new facility has an option to increase the commitment to $150 million, is maintained by Bank of America, N.A. as agent bank for a group of five participating banks, and has a five year term expiring February 2011. Interest and commitment fees for the new facility
There are determined in a manner consistent with the previous facility, although the applicable margin and commitment fee percentages have been reduced. In addition, the maximum leverage ratio has been increased, andno limitations on share repurchases and acquisitions have been removedCBIZ’s ability to acquire businesses or repurchase CBIZ common stock provided that the leverage ratio (totalLeverage Ratio is less than 2.0. The Leverage Ratio is calculated as total debt (excluding the convertible senior subordinated notes) compared to EBITDA as defined by the facility) is less than 2.0.credit facility.
8.10.  Lease CommitmentsAccumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss at December 31, 2008 and 2007 were as follows: (in thousands):
         
  2008  2007 
 
Net unrealized gains (losses) on available-for- sale securities, net of income tax benefits of $442 and $0, respectively $(658) $12 
Net unrealized loss on interest rate swap, net of income tax benefits of $121  (207)  — 
Foreign currency translation  (177)  (114)
         
Accumulated other comprehensive loss $(1,042) $(102)
         


F-26

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11.  Lease Commitments
Operating Leases
CBIZ leases certain of its office facilities and equipment under various operating leases. Future minimum cash commitments under operating leases as of December 31, 20052008 were as follows (in thousands):
              
  Gross   Net
Years Ended Operating Lease   Operating Lease
December 31, Commitments(1) Subleases(1), (2) Commitments(1)
       
2006 $37,003  $1,730  $35,273 
2007  31,041   1,611   29,430 
2008  27,215   1,294   25,921 
2009  22,360   948   21,412 
2010  19,584   652   18,932 
Thereafter  66,475   370   66,105 
          
 Total $203,678  $6,605  $197,073 
          
 
             
  Gross
       
Years Ended
 Operating Lease
     Net Operating Lease
 
December 31,
 Commitments(1)  Sub-Leases(2)  Commitments(1) 
 
2009 $37,351  $2,306  $35,045 
2010  32,889   1,677   31,212 
2011  28,118   1,676   26,442 
2012  24,163   1,615   22,548 
2013  18,925   1,208   17,717 
Thereafter  54,611   2,483   52,128 
             
Total $196,057  $10,965  $185,092 
             
(1)Includes lease commitments accrued in the consolidation and integration reserve (further disclosed in Note 13) as of December 31, 2005.2008.
 
(2)A substantial portion of the sub-leases relate to restructuring lease obligations, and are reflected in the consolidation and integration chargesreserve as further described in Notes 1 and 10.Note 13.
Rent expense for continuing operations (excluding consolidation and integration charges) incurred under operating leases was $32.1$36.1 million, $30.9$34.0 million and $29.3$32.5 million for the years ended December 31, 2005, 20042008, 2007 and 2003,2006, respectively. Rent expense does not necessarily reflect cash payments, as further described under “Operating Leases” in Note 1.

F-20

CBIZ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Capital Leases
CBIZ leases furniture and fixtures for certain office facilities under various capital lease agreements. Property acquired under capital lease agreements and recorded as property“property and equipment, netnet” in the consolidated balance sheets at December 31, 20052008 and 20042007 was as follows (in thousands):
          
  2005 2004
     
Furniture and fixtures $2,715  $2,031 
Accumulated depreciation  (588)  (321)
       
 Furniture and fixtures, net $2,127  $1,710 
       
         
  2008  2007 
 
Furniture and fixtures $2,928  $2,613 
Accumulated depreciation  (1,311)  (1,039)
         
Furniture and fixtures, net $1,617  $1,574 
         
Depreciation of equipmentfurniture and fixtures acquired under capital lease agreements is recorded as depreciation and amortization expensein “operating expenses” in the consolidated statements of financial condition.
operations. At December 31, 20052008 and 2004,2007, current capital lease obligations totaled $0.6$0.2 million and $0.4 million and non-current capital lease obligations totaled $1.0$0.2 million and $1.2$0.1 million, respectively. These obligations are recorded as other“other current liabilities” and other“other non-current liabilitiesliabilities” in the accompanying consolidated balance sheets, as appropriate.


F-27

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Future minimum lease payments under capital leases and the present value of such payments at December 31, 20052008 were as follows (in thousands):
      
Years ended December 31,  
   
2006 $706 
2007  577 
2008  467 
2009  91 
2010  — 
Thereafter  — 
    
Total minimum lease payments  1,841 
Less imputed interest  (192)
    
 Present value of minimum lease payments $1,649 
    
     
Years Ended December 31,
   
 
2009 $259 
2010  160 
Thereafter  — 
     
Total minimum lease payments  419 
Less imputed interest  (33)
     
Present value of minimum lease payments $386 
     
9.12.  Commitments and Contingencies
Acquisitions
The purchase price that CBIZ pays for businesses and client lists generally consist 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. Non-contingent purchase price is recorded at the date of acquisition and contingent purchase price is recorded as it is earned. Shares of CBIZ common stock that are part of many acquisition transactions may be contractually restricted from sale for periods up to two years. Acquisitions are further disclosed in Note 17.20.
Indemnifications
CBIZ has various agreements in which we 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 we customarily agree 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 timeand/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

F-21

CBIZ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
material individually or in the aggregate. As of December 31, 2005,2008, CBIZ was not aware of any obligations arising under indemnification agreements that would require material payments.
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 years ended December 31, 2005, 20042008, 2007 and 2003,2006, payments regarding such contracts and arrangements havewere not been material.
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 $2.0$4.6 million and $2.9$3.7 million at December 31, 20052008 and 2004,2007, respectively. In addition, CBIZ provides


F-28

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
license bonds to various state agencies to meet certain licensing requirements. The amount of license bonds outstanding at December 31, 20052008 and 20042007 was $1.2$1.7 million and $1.6$1.4 million, respectively.
CBIZ acted as guarantor on various letters of credit for a CPA firm with which it has an affiliation, which totaled $2.4$1.2 million and $1.3$1.4 million at December 31, 20052008 and 2004,2007, respectively. In accordance with FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, as amended, 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.
Self-Funded Health Insurance
Effective January 1, 2008, CBIZ converted its comprehensive employee health benefit plan from a fully-insured plan to a self-funded program. Total expenses under this program are limited by stop-loss coverages on both individually large claims as well as an overall aggregate amount of 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 Company’s policy is to accrue a liability for both known claims and for estimated claims that have been incurred but not reported, as of each reporting date. 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 to the estimated expense if circumstances differ from the assumptions used in estimating the liability. CBIZ’s net healthcare costs include health claims expenses, premiums for the stop-loss coverages and administration fees to the third-party administrator.
Legal Proceedings
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 financial condition, results of operations or cash flows of CBIZ.
10.13.  Consolidation and Integration Reserve
Consolidation and integration charges are accounted for in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Accordingly, CBIZ recognizes a liability for non-cancelable lease obligations based upon the net present value of remaining lease payments, net of estimated sublease payments. The liability is determined and recognized as of the cease-use date and adjustments to the liability are made for changes in estimates in the period in which a change becomes known.
Consolidation and integration charges are comprised of expenses associated with CBIZ’s on-going efforts to consolidate operations and locations in fragmented markets to promote and strengthen cross-serving between various practice groups. These expenses result from individual actions in several markets and are not part of one company-wide program.
Consolidation and integration charges include costs for moving facilities, non-cancelable lease obligations, adjustments to lease accruals based on changes in sublease assumptions, severance obligations, and other related expenses. Significant
During the years ended December 31, 2008 and 2007, there were no significant consolidation and integration initiativesinitiatives. The charges against income during 2005 included2008 and 2007 related to the consolidationnet present value of officesinterest and changes in the Denver marketassumptions for spaces under sub-lease. Additionally, as a result of divestiture activity during 2007, facilities in


F-29

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
New York were vacated and the continuation of consolidation activities in the Chicago market, resulting in $0.5 million and $1.3 million inrelated consolidation and integration charges during the twelve months ended December 31, 2005, respectively. During 2004, CBIZ incurred consolidation and integration chargeswere recorded against gain (loss) on sale of approximately $1.0 million related to real estate leasing costsdiscontinued operations, net of tax, in the Chicago market. Other consolidation and integration initiatives during 2004 were individually insignificant. During 2003, CBIZ initiated the consolidationconsolidated statements of offices in Orange County, California, and Cleveland, Ohio, which resulted in $0.5 million of costs for non-cancelable lease obligations and moving expenses. In addition, CBIZ continued the consolidation in the Kansas City market, which was initiated in 2002.

F-22

CBIZ, INC. AND SUBSIDIARIESoperations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Consolidation and integration reserve balances at December 31, 2005, 20042008, 2007 and 2003, and activity2006, represent the net present value of future lease obligations, net of expected sub-lease payments. Activity during the years ended December 31, 20052008 and 2004 were2007 was as follows (in thousands):
     
  Consolidation and
  Integration Reserve
   
Reserve balance at December 31, 2003 $4,857 
Adjustments against income(1)  2,502 
Payments(2)  (3,949)
    
Reserve balance at December 31, 2004  3,410 
Adjustments against income(1)  3,598 
Payments(2)  (3,905)
    
Reserve balance at December 31, 2005 $3,103 
    
 
     
  Consolidation
 
  and Integration
 
  Reserve 
 
Reserve balance at December 31, 2006 $2,312 
Adjustments against income(1)  1,968 
Adjustments against gain on sale of discontinued operations(2)  1,606 
Payments(3)  (1,758)
     
Reserve balance at December 31, 2007  4,128 
Adjustments against income(1)  1,081 
Payments(3)  (3,509)
     
Reserve balance at December 31, 2008. $1,700 
     
(1)Adjustments against income are included in operating expenses“operating expenses” in the accompanying consolidated statements of operations.
 
(2)Adjustments against gain on sale of discontinued operations are reported in “Gain (loss) on sale of discontinued operations, net of tax” in the accompanying consolidated statements of operations.
(3)Payments are net of sub-lease payments received.
Cash commitments required under these obligations are included in the schedule of future minimum cash commitments in Note 11. Determination of the consolidation and integration reserve includes significant judgment and estimates by management, primarily with respect to CBIZ’s ability to sublease vacated space. Actual results could differ from those estimates.
Consolidation and integration charges incurred during the years ended December 31, 2005, 20042008, 2007 and 2003,2006, and recorded as operating expenses in the accompanying consolidated statements of operations were as follows (in thousands):
             
  2005 2004 2003
       
Severance expense $93  $—  $293 
Lease consolidation and abandonment  3,598   2,502   1,086 
Other consolidation charges  —   248   506 
          
Total consolidation and integration charges $3,691  $2,750  $1,885 
          
             
  2008  2007  2006 
 
Lease consolidation and abandonment $1,081  $1,968  $1,271 
Severance and other consolidation expenses  203   208   111 
             
Total consolidation and integration charges $1,284  $2,176  $1,382 
             
11.14.  Employee Benefits
Employee Savings Plan
CBIZ sponsors a qualified 401(k) defined contribution plan that covers substantially all of its employees. Participating employees may elect to contribute, on a tax-deferred basis, up to 80% of their pre-tax annual compensation (subject to a maximum permissible contribution under Section 401(k) of the Internal Revenue Code). Matching contributions by CBIZ are 50% of the first 6% of base compensation that the participant contributes, and additional amounts may be contributed at the discretion of the Board of Directors. Participants may elect to invest their contributions in various funds, including: stock; fixed income; stable value; and balanced –— lifecycle funds. Employer contributions (net of forfeitures) made to the plan during the years ended December 31, 2005, 20042008, 2007 and 2003,2006, were approximately $5.0$7.1 million, $5.2$6.5 million and $5.1$6.1 million, respectively.


F-30

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred Compensation Plan
CBIZ implementedsponsors a deferred compensation plan, during the first quarter of 2004, under which certain members of management and other highly compensated employees may elect to defer receipt of a portion of their annual compensation, subject to maximum and minimum percentage limitations. The amount of compensation deferred under the plan is credited to each participant’s deferral account and a deferred compensation plan obligation is established by CBIZ. An amount equalingequal to each participant’s compensation deferral is transferred into a rabbi trust and invested in various debt and equity securities as directed by the participants. The assets of the rabbi trust are held by CBIZ and recorded as assets“assets of deferred compensation planplan” in the accompanying consolidated balance sheets.

F-23

CBIZ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Assets of the deferred compensation plan consist primarily of investments in mutual funds, money market funds and equity securities. The values of these investments are based on published market quotes at the end of the period. Adjustments to the fair value of these investments are recorded as other income (expense), offset by the same adjustments to compensation expense (recorded as operating or corporate general and administrative expenses in the consolidated statements of operations,operations). For the year ended December 31, 2008, a loss of $7.6 million was recorded in other income (expense) related to these investments and were approximately $0.6income of $1.3 million and $0.4$1.6 million was recorded for the years ended December 31, 20052007 and 2004,2006, respectively. These investments are specifically designated as available to CBIZ solely for the purpose of paying benefits under the deferred compensation plan. However, in the event that CBIZ became insolvent, the investments would be available to all unsecured general creditors.
The deferred
Deferred compensation plan obligation representsobligations represent amounts due to participants of the plan, and consist of accumulated participant deferrals and earningschanges in fair value of investments thereon since the inception of the plan, net of withdrawals. This liability is an unsecured general obligation of CBIZ, and is recorded as deferred“deferred compensation plan obligationsobligations” in the accompanying consolidated balance sheets.
12.15.  Common Stock
CBIZ’s authorized common stock consists of 250 million shares of common stock, par value $0.01 per share (Common Stock)(“Common Stock”). The holders of CBIZ’s Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. There are no cumulative voting rights with respect to the election of directors. Accordingly, the holder or holders of a majority of the outstanding shares of Common Stock will be able to elect the directors of CBIZ then standing for election as terms expire. Holders of Common Stock have no preemptive rights and are entitled to such dividends as may be declared by the Board of Directors of CBIZ out of funds legally available therefore. The holders of CBIZ’s Common Stock isare not entitled to any sinking fund, redemption or conversion provisions.rights. On liquidation, dissolution or winding up of CBIZ, the holders of Common Stock are entitled to share ratably in the net assets of CBIZ remaining after the payment of any and all creditors. The outstanding shares of Common Stock are duly authorized, validly issued, fully paid and non-assessable. The transfer agent and registrar for the Common Stock is Computershare Investor Services, LLC.
CBIZ completes registration filings related to its Common Stock to register shares under the Securities Act of 1933. CBIZ has filed an effective registration statement with the SEC to register the sale of up to 15 million shares of common stock that may be offered from time to time in connection with acquisitions.
Treasury Stock
In February 2005, CBIZ’s Board2006, CBIZ filed a registration statement with the SEC to register an undeterminable number of Directors authorized the share repurchase of up to 5.0 million shares of CBIZ common stock. During the year ended December 31, 2005, CBIZ repurchased approximately 3.8 million shares of its common stock in the open market, at an aggregate purchase price of approximately $16.7 million. The repurchase plan expired December 31, 2005.
In March 2004, CBIZ’s Board of Directors authorized share repurchases of up to 8.5 million shares of CBIZ common stock. A supplement to the plan was approvedCommon Stock issuable by the BoardCompany upon conversion (the “Conversion Shares”) of Directorsthe Company’s issued and outstanding convertible senior subordinated notes. The registration statement has been declared effective. Although the Company cannot at this time determine the number of Conversion Shares it will issue upon conversion of the Notes, if any, the number of Conversion Shares will be calculated as set out in May 2004, authorizing CBIZ to purchase an additional 2.0 million shares of CBIZ common stock, for a total of 10.5 million shares. In April 2004, CBIZ completed a tender offer that resultedtheS-3 Registration Statement filed by the Company with the SEC on July 21, 2006. The Notes are further discussed in the purchase of approximately 7.5 million shares of CBIZ common stock at a purchase price of $5.00 per share, or a total cost (including legal and other direct expenses) of approximately $37.8 million. During the year ended December 31, 2004, CBIZ also repurchased approximately 2.9 million shares of its common stock in the open market, at an aggregate purchase price of approximately $12.6 million. The repurchase plan expired December 31, 2004.Note 9.
In June 2003, CBIZ’s Board of Directors authorized a share repurchase of up to 15.0 million shares of CBIZ common stock (not to exceed $52.5 million). In July 2003, CBIZ completed a modified Dutch Auction tender offer which resulted in the purchase of approximately 10.0 million shares of CBIZ common stock at a purchase price of $3.30 per share, or a total cost (including legal and other direct expenses) of approximately $33.2 million. During the year ended December 31, 2003, CBIZ also repurchased 104,000 shares of its common


F-31

F-24

CBIZ, INC. AND SUBSIDIARIESSUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
stock
Treasury Stock
CBIZ’s Board of Directors approved various share repurchase programs that were effective during the years ended December 31, 2008, 2007 and 2006. Under these programs, shares may be purchased in the open market at an aggregate purchase price of approximately $0.4 million.or in privately negotiated transactions according to SEC rules. The repurchase plan expired December 31, 2003.
programs do not obligate CBIZ to acquire any specific number of shares and may be suspended at any time. Repurchased shares are held in treasury, and may be reserved for future use in connection with acquisitions, employee share plans and other general purposes. TheUnder CBIZ’s amended credit facility (described in Note 9), there are no limitations on CBIZ’s ability to repurchase plans allow CBIZ common stock, provided that the Leverage Ratio (calculated as total debt, excluding the convertible senior subordinated notes, compared to purchase shares through the open market or through privately negotiated purchases. The repurchase programs do not obligate CBIZ to acquire any specific number of shares and may be suspended at any time. During 2005, repurchases were subject to annual dollar and financial ratio limitations underEBITDA as defined by the credit facility. Atfacility) is less than 2.0.
CBIZ repurchased 4.8 million, 5.2 million and 9.7 million shares under these programs during the years ended December 31, 2005, CBIZ believes it was2008, 2007 and 2006, at an aggregate cost (including fees and commissions) of $41.4 million, $38.1 million and $74.5 million, respectively. Shares repurchased during the year ended December 31, 2006 included approximately 6.6 million shares that were repurchased at a cost of $52.5 million concurrent with closing the convertible senior subordinated notes (described in compliance with this covenant.Note 9).
13.16.  Employee Share Plans
Employee Stock InvestmentPurchase Plan
Effective June 1, 2001, CBIZ established
The 2007 Employee Stock Purchase Plan (“ESPP”) became effective on August 16, 2007 and replaced the Employee Stock Investment Plan which provides CBIZPlan. The ESPP allows qualified employees with a method of purchasingto purchase shares of CBIZ’s common stock. Participation in the plan is openstock through payroll deductions up to all CBIZ employees whose payroll is processed by the designated CBIZ payroll provider. CBIZ assumes all administrative expenses for the plan, and pays all opening and transaction charges related to the enrollment and purchasea limit of $25,000 of stock other than fees that participants are required to pay uponper calendar year. Purchase periods begin on the salesixteenth day of the shares. CBIZ does not provide a discount to employeesmonth and end on the fifteenth day of the subsequent month. The price an employee pays for shares is 85% of the purchasefair market value of CBIZ common stock.
Participants may also purchase shares of CBIZ stock by making optional cash investments in accordance withon the provisionslast day of the plan. Shares of CBIZpurchase period. There are no vesting or other restrictions on the stock purchased by participants inemployees under the plan mayESPP except for a one-year holding period from the date of purchase.
The total number of shares of common stock that can be treasury or new issue stock, orpurchased under the ESPP shall not exceed one million shares. For the years ended December 31, 2008 and 2007, approximately 0.2 million and 0.1 million shares were purchased under the ESPP and approximately $0.2 million and $0.1 million was recorded as compensation expense.
Stock Awards
Stock awards outstanding at CBIZ’s option, CBIZ stock purchased in the open market or negotiated transactions. Treasury or new issue stock is purchased from CBIZ at the market price on the applicable investment date. The price of CBIZ stock purchased in the open market or in negotiated transactions is the weighted average price at which the shares are actually purchased.
Stock Options
CBIZ’s outstanding stock options have beenDecember 31, 2008 were granted pursuant to two plans: The 1996 Employee Stock Option Plan, and the 2002 Stock Incentive Plan. The 2002 Stock Incentive Plan (“the Plan”), which is an amendment and restatement of the 1996 Employee Stock Option Plan. Under the 2002 Stock Incentive Plan, aA maximum of 15.0 million stock options, restricted stock or other stock based compensation awards may be awarded, which number shall include those shares that are available for grantgranted under the prior plan. UnderShares subject to award under the 1996 Employee Stock Option Plan a maximumplan may be authorized and unissued shares of 15.0CBIZ common stock or may be treasury shares.
CBIZ has granted stock options and restricted stock awards under the plan. The terms and vesting schedules for stock-based awards vary by type and date of grant. Approximately 8.5 million shares were available for future grant at December 31, 2008.
During the years ended December 31, 2008, 2007 and 2006, CBIZ recognized compensation expense for these awards, as follows (in thousands):
             
  2008  2007  2006 
 
Stock options $2,312  $1,560  $1,667 
Restricted stock awards  1,428   734   273 
             
Total stock-based compensation expense before income tax benefit $3,740  $2,294  $1,940 
             


F-32

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CBIZ utilizes the Black-Scholes-Merton option-pricing model to be awarded.determine the fair value of stock options on the date of grant. The fair value of stock options granted during the years ended December 31, 2008, 2007 and 2006 were determined using the following weighted average assumptions:
             
  2008  2007  2006 
 
Expected volatility(1)  34.28%  44.64%  47.91%
Expected option life (years)(2)  4.34   4.25   4.16 
Risk-free interest rate(3)  2.70%  4.55%  4.83%
Expected dividend yield(4)  0.00%  0.00%  0.00%
(1)The expected volatility assumption was determined based upon the historical volatility of CBIZ’s stock price, using daily price intervals.
(2)For stock options granted during the year ended December 31, 2008, pursuant to SAB No. 110, Share-Based Payment, the expected option life was determined based upon CBIZ’s historical data using a midpoint scenario, which assumes all options are exercised halfway between the expiration date and the weighted average time it takes the option to vest. For stock options granted during the years ended December 31, 2007 and 2006, the expected option life assumption was determined using the “simplified method” pursuant to SAB No. 107, Share-Based Payment, which considers the vesting and contractual terms of the options.
(3)The risk-free interest rate assumption was based upon zero-coupon U.S. Treasury bonds with a term approximating the expected life of the respective options.
(4)The expected dividend yield assumption was determined in view of CBIZ’s historical and estimated dividend payouts. CBIZ does not expect to change its dividend payout policy in the foreseeable future.
Stock Options
Stock options awarded undergranted during the 1996 Employeeyears ended December 31, 2008, 2007 and 2006 were generally subject to a 25% incremental vesting schedule over a four-year period commencing from the date of grant. Stock Option Plan and The 2002 Stock Incentive Plan, areoptions granted prior to January 1, 2006 were generally subject to a 20% incremental vesting schedule over a five-year period commencing from the date of grant. TheStock options are awarded at a price not less than fair market value at the time of the award and expire six years from the date of grant, and are awarded with an exercise price equal to the market value of CBIZ’s common stock on the date of grant.
At the discretion of the Compensation Committee of the Board of Directors, options awarded under the plans may vest immediately or in a time period shorter than fivefour years. Under each of the plans, stock options awarded to non-employee directors have generally been granted with immediate vesting. In addition, certain members of executive management have been granted stock options with vesting terms of shorter than five years.
Stock options may be granted alone or in addition to other awards and may be of two types: incentive stock options and nonqualified stock options. In the event the optionee of an incentive stock option owns, at the time such stock option is awarded or granted, more than ten percent (10%) of the voting power of all classes of stock of CBIZ, the option price shall not be less than 110% of such fair market value.
Total shares available for future grant under the plan were approximately 5.3 million, 5.3 million and 4.4 million at December 31, 2005, 2004 and 2003, respectively.


F-33

F-25

CBIZ, INC. AND SUBSIDIARIESSUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock option activity during the year ended December 31, 2008 was as follows:
                 
     Weighted
  Weighted
    
     Average
  Average
  Aggregate
 
  Number
  Exercise
  Remaining
  Intrinsic
 
  of Options
  Price Per
  Contractual
  Value
 
  (In thousands)  Share  Term  (In millions) 
 
Outstanding at December 31, 2007  3,638  $5.43         
Granted  1,279  $8.24         
Exercised  (1,135) $3.61         
Expired or canceled  (86) $6.33         
                 
Outstanding at December 31, 2008  3,696  $6.93   3.8 years  $6.3 
                 
Vested and exercisable at December 31, 2008  1,258  $5.69   2.5 years  $3.7 
                 
The weighted-average grant-date fair value of stock options granted during the years ended December 31, 2005, 20042008, 2007 and 20032006 was as follows (in thousands, except per share data):
                         
  2005 2004 2003
       
    Weighted   Weighted   Weighted
    Average   Average   Average
  Number Exercise Number Exercise Number Exercise
  of Price Per of Price Per of Price Per
  Options Share Options Share Options Share
             
Outstanding at beginning of year  8,523  $3.32   10,155  $4.58   10,952  $4.81 
Granted  468  $3.45   473  $4.31   558  $3.12 
Exercised  (1,658) $2.52   (519) $2.60   (375) $2.47 
Expired or canceled  (530) $13.36   (1,586) $11.98   (980) $7.19 
                   
Outstanding at end of year  6,803  $2.72   8,523  $3.32   10,155  $4.58 
                   
Exercisable at end of year  4,551  $2.47   5,390  $3.46   5,764  $5.64 
                   
$3.4 million, $3.0 million and $2.5 million, respectively. The table below provides information aboutaggregate intrinsic value of stock options outstanding and exercisable atexercised during the years ended December 31, 2005 (in thousands, except per share data):2008, 2007 and 2006 was $5.7 million, $10.2 million and $11.9 million, respectively. The intrinsic value is calculated as the difference between CBIZ’s stock price on the exercise date and the exercise price of each option exercised.
                      
  Options Outstanding Options Exercisable
     
    Weighted Weighted   Weighted
    Average Average   Average
    Remaining Exercise   Exercise
  Number of Contractual Price Per Number of Price Per
Range of Exercise Price Options Life (Years) Share Options Share
           
$5.01 - $8.44  36   0.0  $8.44   36  $8.44 
$3.00 - $5.00  3,698   2.4  $3.56   2,007  $3.50 
$1.13 - $2.99  3,069   1.4  $1.63   2,508  $1.55 
                
 Total  6,803   1.9  $2.72   4,551  $2.47 
                
At December 31, 2008, CBIZ had unrecognized compensation cost for non-vested stock options of $5.2 million to be recognized over a weighted average period of approximately 1.8 years.
Restricted Stock Awards
Under the 2002 Stock Incentive Plan, (described above), certain employees and non-employee directors were granted restricted stock awards. Restricted stock awards are independent of option grants, and are granted at no cost to the recipients. The awards are subject to forfeiture if employment terminates prior to the release of restrictions, generally one to five years from the date of grant. Recipients of restricted stock awards are entitled to the same dividend and voting rights as holders of other CBIZ common stock and the awards are considered to be issued and outstanding from the date of grant. However, sharesShares granted under the plan cannot be sold, pledged, transferred or assigned during the vesting period.
Restricted stock award activity during the yearsyear ended December 31, 2005 and 20042008 was as follows (in thousands, except per share data):follows:
                 
  2005 2004
     
    Weighted   Weighted
    Average   Average
  Number Price Number Price
  of Per of Per
  Shares Share(1) Shares Share(1)
         
Outstanding at beginning of year  119  $4.35   —   — 
Granted  128  $3.56   119  $4.35 
Vested and released from restrictions  (11) $4.58   —   — 
Forfeited  —   —   —     
             
Outstanding at end of year  236  $3.91   119  $4.35 
             
 
         
     Weighted
 
  Number
  Average
 
  of Shares
  Grant-Date
 
  (In thousands)  Fair Value(1) 
 
Non-vested at December 31, 2007  516  $6.28 
Granted  327  $8.38 
Vested  (203) $6.06 
Forfeited  (9) $7.23 
         
Non-vested at December 31, 2008  631  $7.42 
         
(1)Represents weighted average market value of the shares;shares as the awards are granted at no cost to the recipients.
At December 31, 2008, CBIZ had unrecognized compensation cost for restricted stock awards of $3.3 million to be recognized over a weighted average period of approximately 1.8 years. The total fair value of shares vested during the years ended December 31, 2008, 2007 and 2006 was approximately $1.2 million, $0.5 million and $0.1 million, respectively.


F-34

F-26

CBIZ, INC. AND SUBSIDIARIESSUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The market value of shares awarded during 2005the years ended December 31, 2008, 2007 and 20042006 was $0.5$2.7 million, $1.8 million and $0.5$1.2 million, respectively. This market value was recorded as unearned compensation and is being expensed ratably over the periods which the restrictions lapse. Compensation expense recognized for restricted stock awards amounted to $0.2 million and $0.1 million during the years ended December 31, 2005 and 2004, respectively. Awards outstanding at December 31, 20052008 will be released from restrictions at dates ranging from February 20062009 through April 2010.2012.
14.17.  Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by weighted average diluted shares. Weighted average diluted shares are determined using the weighted average number of common shares outstanding during the period plus the dilutive effect of potential future issues of common stock relating to CBIZ’s stock award programs, CBIZ’s convertible senior subordinated notes, and other potentially dilutive securities. In calculating diluted earnings per share, the dilutive effect of stock awards are computed using the average market price for the period, in accordance with the treasury stock method.
As described in Note 9, CBIZ’s convertible senior subordinated notes may result in future issuances of CBIZ common stock. Under the net share settlement method, potential shares issuable under the Notes will be considered dilutive, and will be included in the calculation of weighted average diluted shares if the Company’s market price per share exceeds the $10.63 conversion price of the Notes. As of December 31, 2008, 2007 and 2006, the Company’s market price per share had not exceeded the conversion price of the Notes.
The following table sets forth the computation of basic and diluted earnings per share from continuing operations (in thousands, except per share data):
              
  Year Ended December 31,
   
  2005 2004 2003
       
Numerator:
            
Net income $18,673  $16,051  $15,316 
          
Denominator:
            
Basic weighted average common shares  74,448   79,217   90,400 
          
Diluted
            
Options(1)  2,169   2,240   2,362 
Restricted stock awards  52   18   — 
Contingent shares(2)  158   2   — 
          
 Total diluted weighted average common shares  76,827   81,477   92,762 
          
Basic net income per share $0.25  $0.20  $0.17 
          
Diluted net income per share $0.24  $0.20  $0.17 
          
 
             
  Year Ended December 31, 
  2008  2007  2006 
 
Numerator:
            
Income from continuing operations $33,344  $33,145  $25,113 
             
Denominator:
            
Basic
            
Weighted average common shares outstanding  61,839   65,061   71,004 
             
Diluted
            
Stock Options(1)  517   959   1,924 
Restricted stock awards  160   147   116 
Contingent shares(2)  56   189   8 
             
Diluted weighted average common shares outstanding  62,572   66,356   73,052 
             
Earnings Per Share:
            
Basic earnings per share from continuing operations $0.54  $0.51  $0.35 
             
Diluted earnings per share from continuing operations $0.53  $0.50  $0.34 
             
(1)For the years ended December 31, 2005, 20042008, 2007 and 2003,2006, a total of 36, 5481,941, 633 and 4,039654 options (in thousands), respectively, were excluded from the calculation of diluted earnings per share as their exercise priceprices 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 that will not be issued untilonce future conditions have been met. See further discussion of acquisitions in Note 17.20.


F-35

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15.18.  Supplemental Cash Flow Disclosures
Cash paid (received) for interest and income taxes during the years ended December 31, 2005, 20042008, 2007, and 20032006 was as follows (in thousands):
             
  2005 2004 2003
       
Interest $3,134  $1,342  $1,045 
          
Income taxes $6,112  $14,675  $(2,262)
          

F-27

CBIZ, INC. AND SUBSIDIARIES
             
  2008  2007  2006 
 
Interest $6,361  $4,548  $3,594 
             
Income taxes $24,290  $25,093  $13,596 
             
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Supplemental Disclosures of Non-Cash Investing and Financing Activities
Non-cash investing and financing activities during the years ended December 31, 2005, 20042008, 2007 and 20032006 were as follows (in thousands):
             
  2005 2004 2003
       
Property and equipment acquired under capital lease obligations $407  $1,857  $— 
          
Business acquisitions, including contingent consideration earned $3,712  $2,033  $4,036 
          
Non-cash proceeds from divested operations $201  $1,865  $207 
          
Non-cash proceeds from discontinued operations $4,569  $530  $494 
          
             
  2008  2007  2006 
 
Business acquisitions, including contingent consideration earned $10,237  $12,166  $10,713 
             
Acquisition of intangible assets $—  $—  $3,200 
             
Proceeds from sales of divested and discontinued operations $231  $1,516  $1,582 
             
Non-cash consideration paid for business acquisitions and intangible assets and proceeds received from divested operations were generally in the form of notes receivable, notes payable and CBIZ common stock.
16.19.  Related Parties
The following is a summary of certain agreements and transactions between or among CBIZ and certain related parties. It is CBIZ’s policy to enter into transactions with related parties on terms that, on the whole, are no less favorable than those that would be available from unaffiliated parties. Based on CBIZ’s experience and the terms of its transactions with unaffiliated parties, it is the Audit Committee of the Board of Directors’ and managements’ belief that the transactions described below met these standards at the time of the transactions. Management reviews these transactions as they occur and monitors them for compliance with the Company’s Code of Conduct, internal procedures and applicable legal requirements. The Audit Committee reviews and ratifies such transactions annually, or as they are more frequently brought to the attention of the Committee by the Company’s Director of Internal Audit, General Counsel or other members of Management.
A number of the businesses acquired by CBIZ are located in properties owned indirectly by and leased from persons employed by CBIZ.CBIZ, none of whom are members of CBIZ’s senior management. In the aggregate, CBIZ paid approximately $1.3$1.2 million, $1.3$0.8 million and $1.4$0.6 million forduring the years ended 2005, 2004December 31, 2008, 2007 and 2003,2006, respectively, under such leases which management believes were at market rates.
Rick L. Burdick, a director of CBIZ, is a partner of Akin Gump Strauss Hauer & Feld LLP (Akin, Gump)(“Akin, Gump”). Akin, Gump performed legal work for CBIZ during 2005, 2004the years ended December 31, 2008, 2007 and 20032006 for which the firm received approximately $0.1$0.9 million, $0.2$0.8 million and $0.2$0.6 million from CBIZ, respectively.
Robert A. O’Byrne, a Senior Vice President, Employee Services, has an interest in a partnership that receives commissions from CBIZ that are paid to certain eligible benefits and insurance producers in accordance with a formal program to provide benefits in the event of death, disability, retirement or other termination. The program was in existence at the time CBIZ acquired the former company, of which Mr. O’Byrne was an owner. The partnership received approximately $0.3 million, $0.3 million, and $0.4$0.2 million from CBIZ during each of the years ended December 31, 2005, 20042008, 2007 and 2003, respectively.2006.
CBIZ maintains joint-referral relationships and administrative service agreements with independent licensed CPA firms under which CBIZ provides administrative services in exchange for a fee. These firms are owned by licensed CPAs who are employed by CBIZ subsidiaries, and provide audit and attest services to clients including CBIZ’s


F-36

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
clients. The CPA firms with which CBIZ maintains service agreements operate as limited liability companies, limited liability partnerships or professional corporations. The firms are separate legal entities with separate governing bodies and officers. CBIZ has no ownership interest in any of these CPA firms, and neither the existence of the administrative service agreements nor the providing of services thereunderthere under is intended to constitute control of the CPA firms by CBIZ. CBIZ and the CPA firms maintain their own respective liability and risk of loss in connection with performance of each of its respective services, and CBIZ does not believe that its arrangements with these CPA firms result in additional risk of loss.
Although the service agreements do not constitute control, CBIZ is one of the beneficiaries of the agreements and may bear certain economic risks. As such, the CPA firms with which CBIZ maintains administrative service agreements may qualify as variable interest entities under FASB Interpretation No. 46 (FIN 46), “Consolidation

F-28

CBIZ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of Variable Interest Entities”, as amended. The impact to CBIZ of this accounting pronouncement is discussed in the Note 1.
CBIZ acted as guarantor for letters of credit for a CPA firm with which it has an affiliation. The letters of credit total $2.4totaled $1.2 million and $1.3$1.4 million as of December 31, 2005,2008 and December 31, 2004,2007, respectively. In accordance with FASB Interpretation No. 45, (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” and its amendments, 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 financial statements. Management does not expect any material changes to result from these instruments as performance is not expected to be required.
In 2003, CBIZ executed a note receivable with a CPA firm whose partner group has since joined MHM P.C., a CPA firm with which CBIZ maintains an administrative services agreement. The balance on the note at December 31, 2005 and 2004 was approximately $0.1 million and $0.2 million, respectively.
In an effort to rationalize the business, CBIZ has divested of several operations that were underperforming, located in secondary markets or did not provide the level of synergistic cross-serving opportunities with other CBIZ businesses that is desired. In accordance with this strategy, CBIZ has sold and may sell in the future businesses to former employees or shareholders. Management believes that past transactions were priced at market rates, competitively bid, and entered into at arm’s length terms and conditions.
17.20.  Acquisitions
During the year ended December 31, 2005,2008, CBIZ acquired five businesses. Two of the businesses are accounting firms that were acquired on December 31, 2008 and will be reported in the Financial Services practice group. Mahoney Cohen & Company has offices in New York City, New York, and Boca Raton and Miami, Florida. Tofias PC has offices in Cambridge and New Bedford, Massachusetts and Providence and Newport, Rhode Island. Both Mahoney Cohen & Company and Tofias PC offer accounting, tax and financial advisory services to privately-held and public companies as well as high net worth individuals. The other three business operations consisting of:businesses, a registered investment firm in Cleveland, Ohio which complements the B&I practice;payroll company, an accounting and consulting practice in San Diego, California;insurance agency and a valuationnational executive search firm are reported in the Employee Services practice group. The payroll business is located in Milwaukee, WisconsinPalm Desert, California and provides payroll processing services to a large number of clients in California and Arizona. The insurance business is located in Frederick, Maryland and is a broker of innkeepers’ insurance programs. The national executive search firm is headquartered in Overland Park, Kansas and provides services to a diverse client base with a focus on higher education institutions. CBIZ also acquired three client lists during 2008, two of which are reported in the Employee Services practice group and the third which is reported as part ofin the National Practices – Other segment. In addition, CBIZ acquired the client lists of an accounting and consultingFinancial Services practice in Philadelphia, Pennsylvania and of a Benefits and Insurance practice in Charlotte, North Carolina. group.
Aggregate consideration for the acquisitionsbusinesses and client lists acquired during 2008 consisted of approximately $6.6 million cash, $0.4$83.1 million in notescash (net of cash acquired) and approximately 45,0001.1 million shares of restricted common stock (estimated stock value of $0.2 million(valued at acquisition)approximately $8.5 million) paid at closing, and up to an additional $13.2$73.1 million (payable in cash and common stock) which is contingent upon the future financial performance of the acquired businesses and client lists. The purchase price for these acquisitions was allocated to goodwill, client lists and other intangible assets in the amounts of $42.9 million, $41.4 million and $1.4 million, respectively, with the remainder being allocated primarily to working capital and property and equipment. In addition, CBIZ paid approximately $13.7 million in cash and issued approximately 80,500 shares of common stock during the year ended December 31, 2008 as contingent proceeds and towards notes payable for previous acquisitions.
During the year ended December 31, 2007, CBIZ acquired an accounting firm and two medical management companies. The accounting firm is located in Phoenix, Arizona and is reported in the Financial Services practice group. The medical management companies consist of a company located in Montgomery, Alabama that provides medical billing, practice management and consulting services to anesthesia and pain management providers primarily in the southeastern United States, and a company headquartered in Ponte Vedra Beach, Florida that provides coding, billing and collection services for emergency medicine physicians at sites along the east coast of the United States. Both medical management companies were merged into the Medical Management Professionals practice group. In addition, CBIZ acquired five client lists during 2007, four of which are reported in the Employee Services practice group and the other is reported in the Financial Services practice group. Aggregate consideration for these acquisitions consisted of approximately $49.5 million in cash (net of cash acquired) and approximately 77,400 shares of common stock (valued at approximately $0.6 million) paid at closing, and up to an additional $12.9 million (payable in cash and common stock) which is contingent upon the future financial performance of the


F-37

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
acquired businesses and client lists. In addition, CBIZ paid approximately $8.7 million in cash and issued approximately 203,500 shares of common stock during the year ended December 31, 2007 as contingent proceeds and towards notes payable for previous acquisitions.
During the year ended December 31, 2006, CBIZ acquired two insurance businesses and a medical management company which are reported within the Employee Services and Medical Management Professionals practice groups, respectively. The insurance businesses consist of a property and casualty insurance broker located in San Jose, California, and an insurance business offering property and casualty, commercial bonds and employee benefits with offices in St. Joseph and Kansas City, Missouri. The medical management company is based in Flint, Michigan and provides medical billing services and in-house computer systems primarily to hospital-based physician practices in Michigan, Ohio and Indiana. Additionally, CBIZ acquired three client lists during 2006, two of which are reported in the Employee Services practice group and the third which is reported in the Financial Services practice group. Aggregate consideration for these acquisitions consisted of approximately $14.0 million in cash (net of cash acquired) and 232,400 shares of common stock (valued at approximately $1.5 million) paid at closing, and up to an additional $10.1 million (payable in cash and stock) which is contingent onupon the future financial performance of the acquired businesses meeting certain future revenue or earnings targets.
Duringand client lists. In addition, CBIZ paid approximately $8.1 million in cash and issued approximately 374,100 shares of common stock during the year ended December 31, 2004, CBIZ completed acquisitions of benefits2006, as contingent proceeds and insurance firms in Chicago, Illinois, and Owing Mills, Maryland, as well as an accounting tax and advisory firm in Denver, Colorado, and a technology firm in Cleveland, Ohio which is reported as part of the National Practices – Other segment. Aggregate considerationtowards notes payable for the acquisitions consisted of approximately $3.7 million cash and approximately 215,500 shares of restricted common stock (estimated stock value of $1.0 million at acquisition) paid at closing, and up to an additional $8.0 million (payable in cash and stock) which is contingent on the businesses meeting certain future revenue and earnings targets.previous acquisitions.
In addition to the businesses acquired during 2004, CBIZ purchased three client lists which complement the National Practices – Other segment. The purchase price for these client lists is primarily dependent upon future results, and is not expected to be material individually or in the aggregate.
During the year ended December 31, 2003, CBIZ completed the acquisition of benefits and insurance firms in Boca Raton, Florida and Salt Lake City, Utah, as well as accounting, tax and advisory firms in Orange County, California and Stamford, Connecticut. In addition to the acquisitions of these businesses, CBIZ purchased the client lists of four benefits agencies. The aggregate purchase price of these acquisitions and client lists was approximately $11.2 million, comprised of $2.8 million in cash and 177,000 shares of restricted common stock (estimated stock value of $0.3 million at acquisition) paid at closing, $2.1 million of notes contributed, and up to an additional $6.0 million payable in cash which is contingent on the businesses meeting certain future revenue targets.

F-29

CBIZ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The operating results of these firmsacquisitions have been included in the accompanying consolidated financial statements since the dates of acquisition. Pro forma information has not been provided as the impact was not material to the financial condition, results of operations or cash flows of CBIZ. Client lists and non-compete agreements were 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) was allocated to goodwill. Additions to goodwill, client lists and other intangible assets resulting from acquisitions and contingent consideration earned during the twelve monthsyears ended December 31, 20052008 and 20042007 were as follows (in thousands):
         
  2005 2004
     
Goodwill $9,095  $2,619 
       
Client lists $5,817  $5,111 
       
Other intangible assets $597  $307 
       
         
  2008  2007 
 
Goodwill $47,698  $41,552 
         
Client lists $41,243  $26,067 
         
Other intangible assets $1,443  $842 
         
18.21.  Discontinued Operations and Divestitures
From time to time,
CBIZ will divest (through sale or closure) business operations that are underperforming, located in secondary markets, or do not providecontribute to the level of synergistic cross-serving opportunities with other CBIZ businessesCompany’s long-term objectives for growth, or that is desired.are not complementary to its target service offerings and markets. Divestitures are classified as discontinued operations provided they meet the criteria as provided in SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” and EITFNo. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets in Determining Whether to Report Discontinued Operations.”Operations”.
During 2005, CBIZ closed an operation
Discontinued Operations
Gains or losses from the Accounting, Tax and Advisory practice group, sold an operation from the Benefits and Insurance practice group, and committed to the divestituresale of a business unit in the National Practices – Other practice group. These operations qualified for treatment as discontinued operations and are classifiedrecorded as such“gain (loss) on disposal of discontinued operations, net of tax”, in the accompanying consolidated financial statements.
The Benefits and Insurance operation was sold forstatements of operations. Additionally, proceeds that consisted of: $2.0 million cash received at closing; $4.1 million due from others which is subject to adjustment basedare contingent upon actual cash collected on accounts receivable that were sold; and contingent proceeds which are determined based upon thea divested operation’s actual future performance. Contingent proceedsperformance are recorded as gain on sale of discontinued operations asin the period they are earned,earned.
During 2008, CBIZ sold an operation from the Financial Services practice group, closed an operation from the National Practice group and totaled $4.6received contingent proceeds from a Financial Services operation that was sold in the third quarter of 2007. CBIZ received cash proceeds of approximately $1.6 million (pretax) duringand recognized pre-tax losses of approximately $0.1 million as a result of these divestitures.


F-38

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During 2007, CBIZ sold three operations from the fourth quarterFinancial Services practice group, sold one operation from the Employee Services practice group, and year ended December 31,received cash payments related to a business that was sold in 2005. AdjustmentsProceeds from these sales consisted of approximately $27.8 million in cash and $1.6 million in notes receivable, and resulted in a pre-tax gain of approximately $11.2 million. CBIZ may receive contingent future proceeds for up to three years based on a percentage of certain sales revenues of one of the amount duedivested Financial Services operations and contingent future proceeds not to exceed $2.0 million from othersthe divested Employee Services operation, provided certain revenue targets are recorded toachieved.
During 2006, CBIZ sold an operation from the Financial Services practice group, sold certain property tax operations of discontinued operations. During 2005, CBIZ also committed to the divestiture offrom a business unit in the National Practices – Other practice group. CBIZ plansgroup and earned contingent proceeds related to divesta business that was sold in 2005. These sales and contingent proceeds resulted in a pre-tax gain of this business in two portions, one of which will be soldapproximately $1.7 million and the other which will be closed. The National Practices business operation will have continuing cash flows in 2006, as the business will continue to operate until sale and closure are complete. CBIZ expects the closure to be completed by the third quarter of 2006, and expects that the remaining portion will be sold before December 31, 2006.
CBIZ also sold two client lists during 2005, one each from the Accounting, Tax and Advisory and Benefits and Insurance practice groups. These client lists were sold for aggregate proceeds consisted of $0.1approximately $7.3 million cash and $0.2 million in net notes receivable, and resulted in a pretax gain of $0.3 million. As these sales did not qualify for treatment as discontinued operations, the gains are reported as gain on sale of operations, net from continuing operations in the accompanying consolidated statement of operations.notes.
During 2004, CBIZ sold or closed five business operations, consisting of four ATA operations, and an operation from the National Practices – Other segment. In addition to the divestiture of these operations, CBIZ sold three client lists from the ATA practice group and a client list from the B&I practice group. Sales were made for aggregate proceeds of $4.6 million cash, $2.3 million in notes receivable and CBIZ stock valued at $0.1 million. Three of the divestitures qualified for treatment as discontinued operations and are classified as such in the accompanying consolidated financial statements. Operations that did not qualify for treatment as discontinued

F-30

CBIZ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
operations were sold for a pre-tax gain of $1.0 million, which is reported as gain on sale of operations, net from continuing operations.
During 2003, CBIZ sold or closed eight business operations consisting of four ATA operations, two Benefit and Insurance operations and two National Practice operations. CBIZ also sold four client lists and related assets within the ATA practice group. These businesses and client lists were sold for aggregate proceeds of $7.2 million cash, $0.2 million in stock, $0.4 million in notes receivable, and $0.1 million in other receivables. Six of the business operations satisfied the criteria for treatment as discontinued operations, and were classified as such in the accompanying financial statements. The two operations and client lists which did not qualify for treatment as discontinued operations were sold for a pretax gain of $2.5 million, which is reported as gain on sale of operations, net from continuing operations.
CBIZ may earn additional proceeds on the sale of certain client lists, which are contingent upon future revenue generated by the client lists. CBIZ records these proceeds as other income when they are earned.
For those business operations that qualified for treatment as discontinued operations, the net assets, liabilities and results of operations are reported separately in the accompanying consolidated financial statements. Revenue and loss from operations of discontinued operations for the years ended December 31, 2005, 2004,2008, 2007 and 20032006 were as follows (in thousands):
             
  2005 2004 2003
       
Revenue $5,980  $18,531  $37,034 
          
Loss from operations of discontinued operations before income tax benefit $(10,258) $(8,202) $(1,056)
Income tax benefit  (3,795)  (2,773)  (331)
          
Loss from operations of discontinued operations, net of tax $(6,463) $(5,429) $(725)
          
             
  2008  2007  2006 
 
Revenue $566  $18,436  $32,552 
             
Loss from operations of discontinued operations before income tax benefit $(618) $(3,277) $(2,518)
Income tax benefit  144   1,090   895 
             
Loss from operations of discontinued operations, net of tax $(474) $(2,187) $(1,623)
             
Gains (losses) on disposals of discontinued operations for the years ended December 31 2005, 20042008, 2007 and 20032006 were as follows (in thousands):
             
  2005 2004 2003
       
Gain on disposal of discontinued operations, before income tax expense(1) $5,635  $398  $1,457 
Income tax expense  2,085   266   731 
          
Gain on disposal of discontinued operations, net of tax $3,550  $132  $726 
          
 
             
  2008  2007  2006 
 
Gain (loss) on disposal of discontinued operations, before income tax expense $(106) $11,169  $1,727 
Income tax expense  (162)  (7,287)  (816)
             
Gain (loss) on disposal of discontinued operations, net of tax $(268) $3,882  $911 
             
(1) Includes contingent proceeds in the amount of $4,569, for the Benefits and Insurance operation that was sold in the third quarter of 2005.

F-31

CBIZ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At December 31, 20052008 and 2004,2007, the assets and liabilities of business operations classified as discontinued operations consisted of the following (in thousands):
          
  2005 2004
     
Assets:
        
Accounts receivable, net $1,319  $10,747 
Due from buyer  1,513   — 
Funds held for clients  3,392   5,450 
Property and equipment, net  414   1,872 
Other assets  92   236 
       
 Assets of discontinued operations $6,730  $18,305 
       
Liabilities:
        
Accounts payable $317  $1,090 
Other liabilities  2,166   1,265 
Client fund obligations  3,392   5,450 
Deferred income tax liability, net  64   341 
       
 Liabilities of discontinued operations $5,939  $8,146 
       
         
  2008  2007 
 
Assets:
        
Accounts receivable, net $238  $1,251 
Goodwill and other intangible assets, net  —   569 
Other current assets  11   38 
         
Assets of discontinued operations $249  $1,858 
         
Liabilities:
        
Accounts payable $97  $610 
Accrued personnel costs  10   151 
Other current liabilities  662   2,699 
         
Liabilities of discontinued operations $769  $3,460 
         


F-39

F-32

CBIZ, INC. AND SUBSIDIARIESSUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
19.     Quarterly Financial Data (Unaudited)
Divestitures
Gains or 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 and totaled $0.7 million, $0.1 million and $21,000 for the years ended December 31, 2008, 2007 and 2006, respectively. These gains relate to sales made in the respective period, contingent consideration earned on sales made in previous periods, and deferred gains that are recognized as cash payments are received. CBIZ received cash proceeds for divestiture activity totaling $3.8 million, $0.7 million and $21,000 for the years ended December 31, 2008, 2007 and 2006, respectively.
22.  Quarterly Financial Data (Unaudited)
The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 20052008 and 20042007 (in thousands, except per share amounts).
                   
  2005
   
  March 31, June 30, September 30, December 31,
         
Revenue $154,229  $138,725  $134,214  $132,101 
Operating expenses  126,097   120,295   119,582   119,321 
             
Gross margin  28,132   18,430   14,632   12,780 
Corporate general and administrative  6,421   7,449   6,364   4,677 
Depreciation and amortization  3,900   3,789   3,765   3,709 
             
Operating income  17,811   7,192   4,503   4,394 
Other income (expense):                
 Interest expense  (781)  (845)  (787)  (696)
 Gain on sale of operations, net  —   —   29   285 
 Other income, net  558   999   1,279   2,216 
             
  Total other income (expense), net  (223)  154   521   1,805 
Income from continuing operations before income tax expense  17,588   7,346   5,024   6,199 
Income tax expense  7,282   2,688   2,151   2,450 
             
Income from continuing operations  10,306   4,658   2,873   3,749 
Loss from operations of discontinued operations, net of tax  (2,060)  (1,332)  (1,640)  (1,431)
Gain (loss) on disposal of discontinued operations, net of tax  (109)  —   802   2,857 
             
Net income $8,137  $3,326  $2,035  $5,175 
             
Earnings (loss) per share:                
Basic:                
 Continuing operations $0.14  $0.06  $0.04  $0.05 
 Discontinued operations  (0.03)  (0.02)  (0.01)  0.02 
             
 Net income $0.11  $0.04  $0.03  $0.07 
             
Diluted:                
 Continuing operations $0.13  $0.06  $0.04  $0.05 
 Discontinued operations  (0.03)  (0.02)  (0.01)  0.02 
             
 Net income $0.10  $0.04  $0.03  $0.07 
             
Basic weighted average common shares  75,738   75,175   73,793   73,123 
             
Diluted weighted average common shares  77,718   76,947   75,988   75,947 
             
                 
  2008 
  March 31,  June 30,  September 30,  December 31, 
 
Revenue $197,163  $175,391  $168,159  $163,550 
Operating expenses  158,141   154,540   148,721   146,171 
                 
Gross margin  39,022   20,851   19,438   17,379 
Corporate general and administrative  7,252   7,791   7,270   6,378 
                 
Operating income  31,770   13,060   12,168   11,001 
Other income (expense):                
Interest expense  (1,717)  (1,888)  (1,804)  (1,833)
Gain on sale of operations, net  20   221   229   275 
Other income (expense), net  (1,347)  335   (3,018)  (3,582)
                 
Total other expense, net  (3,044)  (1,332)  (4,593)  (5,140)
Income from continuing operations before income tax expense  28,726   11,728   7,575   5,861 
Income tax expense  11,498   4,255   2,689   2,104 
                 
Income from continuing operations  17,228   7,473   4,886   3,757 
Gain (loss) from operations of discontinued operations, net of tax  2   (196)  (56)  (224)
Gain (loss) on disposal of discontinued operations, net of tax  (449)  9   132   40 
                 
Net income $16,781  $7,286  $4,962  $3,573 
                 
Earnings (loss) per share:                
Basic:                
Continuing operations $0.27  $0.12  $0.08  $0.06 
Discontinued operations  (0.01)  —   —   — 
                 
Net income $0.26  $0.12  $0.08  $0.06 
                 
Diluted:                
Continuing operations $0.27  $0.12  $0.08  $0.06 
Discontinued operations  (0.01)  —   —   — 
                 
Net income $0.26  $0.12  $0.08  $0.06 
                 
Basic weighted average common shares  63,261   61,830   61,171   61,136 
                 
Diluted weighted average common shares  64,266   62,440   61,772   61,765 
                 


F-40

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During the fourth quarter and year ended December 31, 2008, CBIZ recorded other-than-temporary impairment charges of $0.9 million and $2.3 million, respectively, related to the Company’s investment in an ARS. This charge was reported in “Other income (expense), net” in the consolidated statements of operations. ARS are further disclosed in Note 6.
During the fourth quarter of 2005,2008, CBIZ recorded a $4.6gain of $0.8 million pre-tax gain on the disposal of discontinued operations ($2.9 million net of tax). The gain recorded in the fourth quarter represents contingent proceeds related to a benefits and insurance operationlong-term investment that was sold in the thirdfourth quarter of 2005. Contingent proceeds are recorded as they are earned, and are determined based upon2007. This gain was reported in “Other income (expense), net” in the actual performanceconsolidated statements of the business that was sold. Divestitures are further discussed in Note 18.

F-33

CBIZ, INC. AND SUBSIDIARIESoperations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
                   
  2004
   
  March 31, June 30, September 30, December 31,
         
Revenue $143,692  $122,508  $118,814  $119,884 
Operating expenses  112,679   107,789   106,212   111,737 
             
Gross margin  31,013   14,719   12,602   8,147 
Corporate general and administrative  5,726   6,023   6,008   6,342 
Depreciation and amortization  3,861   4,044   4,017   4,088 
             
Operating income (loss)  21,426   4,652   2,577   (2,283)
Other income (expense):                
 Interest expense  (240)  (429)  (369)  (469)
 Gain on sale of operations, net  384   534   78   — 
 Other income, net  531   292   524   2,185 
             
  Total other income, net  675   397   233   1,716 
Income (loss) from continuing operations before income tax expense (benefit)  22,101   5,049   2,810   (567)
Income tax expense (benefit)  9,061   1,677   1,108   (3,801)
             
Income from continuing operations  13,040   3,372   1,702   3,234 
Loss from operations of discontinued operations, net of tax  (1,459)  (990)  (1,584)  (1,396)
Gain (loss) on disposal of discontinued operations, net of tax  —   —   238   (106)
             
Net income $11,581  $2,382  $356  $1,732 
             
Earnings (loss) per share:                
Basic:                
 Continuing operations $0.15  $0.04  $0.02  $0.04 
 Discontinued operations  (0.01)  (0.01)  (0.01)  (0.02)
             
 Net income $0.14  $0.03  $0.01  $0.02 
             
Diluted:                
 Continuing operations $0.15  $0.04  $0.02  $0.04 
 Discontinued operations  (0.02)  (0.01)  (0.01)  (0.02)
             
 Net income $0.13  $0.03  $0.01  $0.02 
             
Basic weighted average common shares  85,437   77,885   77,311   76,287 
             
Diluted weighted average common shares  87,912   80,150   79,373   78,449 
             
                 
  2007 
  March 31,  June 30,  September 30,  December 31, 
 
Revenue $178,126  $156,292  $151,118  $154,779 
Operating expenses  143,715   137,891   137,108   141,454 
                 
Gross margin  34,411   18,401   14,010   13,325 
Corporate general and administrative  8,682   7,408   7,143   6,229 
                 
Operating income  25,729   10,993   6,867   7,096 
Other income (expense):                
Interest expense  (1,272)  (1,694)  (1,284)  (1,513)
Gain on sale of operations, net  95   10   20   19 
Other income, net  602   1,986   740   7,261 
                 
Total other income (expense), net  (575)  302   (524)  5,767 
Income from continuing operations before income tax expense  25,154   11,295   6,343   12,863 
Income tax expense  10,308   4,792   2,531   4,879 
                 
Income from continuing operations  14,846   6,503   3,812   7,984 
Loss from operations of discontinued operations, net of tax  (389)  (556)  (189)  (1,053)
Gain (loss) on disposal of discontinued operations, net of tax  (193)  3,883   1,023   (831)
                 
Net income $14,264  $9,830  $4,646  $6,100 
                 
Earnings (loss) per share:                
Basic:                
Continuing operations $0.22  $0.10  $0.06  $0.12 
Discontinued operations  —   0.05   0.01   (0.03)
                 
Net income $0.22  $0.15  $0.07  $0.09 
                 
Diluted:                
Continuing operations $0.22  $0.10  $0.06  $0.12 
Discontinued operations  (0.01)  0.05   0.01   (0.03)
                 
Net income $0.21  $0.15  $0.07  $0.09 
                 
Basic weighted average common shares  66,344   65,142   64,842   64,327 
                 
Diluted weighted average common shares  68,023   66,459   66,083   65,607 
                 
During the fourth quarter of 2004,2007, CBIZ sold a long-term investment for cash proceeds of $7.9 million, which resulted in a $7.3 million pre-tax gain reported in “Other income, net” in the consolidated statements of operations. The after-tax impact of this gain on diluted earnings per share from continuing operations was $0.07 for the fourth quarter and year ended December 31, 2007.


F-41

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During the fourth quarter of 2007, CBIZ completed the sale of a discontinued operation from the Financial Services practice group for cash proceeds of $0.4 million and notes receivable in the amount of $0.9 million. CBIZ recorded a $3.5$1.3 million net tax benefit related primarily to a favorable tax position which was successfully resolved upon completion of the Internal Revenue Service examination for the years ended December 31, 1998, 1999 and 2000. In addition, CBIZ recorded $0.4 million in interest income related to the refund,pre-tax loss on disposal which is recorded as other income (expense),included in “gain (loss) on disposal of discontinued operations, net of tax” in the accompanying consolidated statements of operations. See Note 21 for further discussiondiscussion.
During the fourth quarter of 2007, CBIZ recorded an impairment charge of approximately $0.5 million to write down certain internally developed software to its net realizable value. This charge was recorded in the tax benefitMedical Management Professionals practice group and refundis included in Note 6.

F-34

CBIZ, INC. AND SUBSIDIARIESoperating expenses.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
23.  Segment Disclosures
20.     Segment Disclosures
CBIZ’s business units have been aggregated into threefour practice groups: Accounting, Tax and AdvisoryFinancial Services; Benefits and Insurance;Employee Services; Medical Management Professionals; 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; and similarity of economic conditions affecting long-term performance. Additionally, theThe business units are managed along these segment lines,lines.
A general description of services provided by practice group is provided in the table below.
Financial Services
Employee Services
MMP
National Practices
•   Accounting
•   Tax
•   Financial Advisory
•   Litigation Support
•   Valuation
•   Internal Audit
•   Fraud Detection
•   Real Estate Advisory
•   Group Health
•   Property & Casualty
•   COBRA / Flex
•   Retirement Planning
•   Wealth Management
•   Life Insurance
•   Human Capital
    Management
•   Payroll Services
•   Actuarial Services
•   Recruiting		•   Coding and Billing
•   Accounts Receivable
    Management
•   Full Practice
    Management Services		•   Managed Networking
    and Hardware Services
•   Technology Security
    Solutions
•   Technology
    Consulting
•   Project Management
•   Software Solutions
•   Health Care
    Consulting
•   Mergers &
    Acquisitions
Corporate and each segment line reportsOther.  Included in Corporate and Other are operating expenses that are not directly allocated to a Practice Group Leader. The Medical Management Professionals unit (CBIZ MMP), which reports under the National Practices group, exceedsindividual business units. These expenses are primarily comprised of certain health care costs, gains or losses attributable to assets held in the quantitative threshold of SFAS No. 131, “Disclosures about Segments of an EnterpriseCompany’s deferred compensation plan, stock-based compensation, consolidation and Related Information,” for aggregationintegration charges, and therefore is reported as a separate segment.certain advertising costs.
Accounting policies of the practice groups are the same as those described in Note 1, “Summary of Significant Accounting Policies.”1. 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.
Accounting, Tax and Advisory Services.The Accounting, Tax and Advisory Services practice group offers services in the following areas: cash flow management; strategic planning; consulting; record-keeping; federal, state and local tax return preparation; tax planning based on financial and investment alternatives; tax structuring of business transactions such as mergers and acquisitions; quarterly and year-end payroll tax reporting; corporate, partnership and fiduciary tax planning and return preparation; outsourced financial staffing services including chief financial officer services; financial investment analysis; succession, retirement, and estate planning; profitability, operational and efficiency enhancement consulting to a number of specialized industries; litigation support services; internal audit services and Sarbanes-Oxley consulting and compliance services.
Benefits and Insurance Services.The Benefits and Insurance practice group offers services in the following areas: employee benefits, brokerage, consulting, and administration, including the design, implementation and administration of qualified plans, such as 401(k) plans, profit-sharing plans, defined benefit plans, and money purchase plans; actuarial services; health and welfare benefits consulting, including group health insurance plans; dental and vision care programs; group life insurance programs; accidental death and dismemberment and disability programs; COBRA administration and voluntary insurance programs; health care and dependent care spending accounts; premium reimbursement plans; communications services to inform and educate employees about their benefit programs; executive benefits consulting on non-qualified retirement plans and business continuation plans; human capital advisory services; specialty high-risk life insurance; and wealth management services, including Registered Investment Advisory Services, Investment Policy Statements, also known as IPS, mutual fund selection based on IPS and ongoing mutual fund monitoring.
National Practices.The National Practices group offers services in the following areas: payroll processing and administration; valuations of commercial, tangible, and intangible assets and financial securities; mergers and acquisitions and capital advisory services; health care consulting; government relations; and technology consulting, including strategic technology planning, project management, development, network design and implementation and software selection and implementation.
Medical Management Professionals.The CBIZ MMP subsidiary of the National Practice group offers services to hospital-based physicians in the following areas: billing and accounts receivable management; coding and claims filing; comprehensive delinquent claims follow up and collections; compliance plans to meet government and other third party regulations; local office management; and comprehensive statistical and operational reporting; financial reporting, accounts payable, payroll, general ledger processing; design and implementation of managed care contracts with focus on negotiation strategies, pricing, cost containment and utilization tracking; review and negotiation of hospital contracts; evaluation of other strategic business partners; identification and coordination of practice manager and integration opportunities; and coordination of practice expansion efforts.

F-35

CBIZ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 incentive compensation and consolidation and integration charges.
CBIZ operates in the United States and Toronto, Canada and thererevenue generated from such operations during the years ended December 31, 2008, 2007 and 2006 was as follows (in thousands):
             
  Year Ended December 31, 
  2008  2007  2006 
 
United States $702,763  $638,915  $582,345 
Canada  1,500   1,400   1,310 
             
Total Revenue $704,263  $640,315  $583,655 
             


F-42

CBIZ, INC. AND SUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
There is no one customer that represents a significant portion of sales.CBIZ’s revenue.
Certain amounts in the 2004 and 2003 segment data have been reclassified to account for the transfer of certain operations from the Benefits and Insurance practice group to the Accounting, Tax and Advisory practice group in January, 2005.
Segment information for the years ended December 31, 2005, 20042008, 2007 and 20032006 was as follows (in thousands):
                           
  Year Ended December 31, 2005
   
  Accounting, Benefits   National Corporate  
  Tax and and CBIZ Practices and  
  Advisory Insurance MMP Other Other Total
             
Revenue $245,549  $146,216  $97,583  $69,921  $—  $559,269 
Operating expenses  208,316   116,149   80,033   60,969   19,828   485,295 
                   
Gross margin  37,233   30,067   17,550   8,952   (19,828)  73,974 
Corporate general & admin  —   —   —   —   24,911   24,911 
Depreciation & amortization  3,565   3,014   2,773   572   5,239   15,163 
                   
Operating income (loss)  33,668   27,053   14,777   8,380   (49,978)  33,900 
Other income (expense):                        
 Interest expense  (115)  (4)  —   —   (2,990)  (3,109)
 Gain on sale of operations, net  —   —   —   —   314   314 
 Other income, net  439   422   98   1,215   2,878   5,052 
                   
  Total other income  324   418   98   1,215   202   2,257 
                   
Income (loss) from continuing operations before income tax expense $33,992  $27,471  $14,875  $9,595  $(49,776) $36,157 
                   
                         
  Year Ended December 31, 2008 
  Financial
  Employee
     National
  Corporate
    
  Services  Services  MMP  Practices  and Other  Total 
 
Revenue $312,122  $182,433  $164,950  $44,758  $—  $704,263 
Operating expenses  265,440   151,472   143,395   42,400   4,866   607,573 
                         
Gross margin  46,682   30,961   21,555   2,358   (4,866)  96,690 
Corporate general & admin  —   —   —   —   28,691   28,691 
                         
Operating income (loss)  46,682   30,961   21,555   2,358   (33,557)  67,999 
Other income (expense):                        
Interest expense  (12)  (25)  —   (6)  (7,199)  (7,242)
Gain on sale of operations, net  —   —   —   —   745   745 
Other income (expense), net  285   1,268   290   18   (9,473)  (7,612)
                         
Total other income (expense)  273   1,243   290   12   (15,927)  (14,109)
                         
Income (loss) from continuing operations before income tax expense $46,955  $32,204  $21,845  $2,370  $(49,484) $53,890 
                         
                         
  Year Ended December 31, 2007 
  Financial
  Employee
     National
  Corporate
    
  Services  Services  MMP  Practices  and Other  Total 
 
Revenue $289,324  $172,711  $132,853  $45,427  $—  $640,315 
Operating expenses  249,001   140,833   115,976   41,247   13,111   560,168 
                         
Gross margin  40,323   31,878   16,877   4,180   (13,111)  80,147 
Corporate general & admin  —   —   —   —   29,462   29,462 
                         
Operating income (loss)  40,323   31,878   16,877   4,180   (42,573)  50,685 
Other income (expense):                        
Interest expense  (44)  (28)  —   —   (5,691)  (5,763)
Gain on sale of operations, net  —   —   —   —   144   144 
Other income, net  260   1,911   198   12   8,208   10,589 
                         
Total other income  216   1,883   198   12   2,661   4,970 
                         
Income (loss) from continuing operations before income tax expense $40,539  $33,761  $17,075  $4,192  $(39,912) $55,655 
                         


F-43

F-36

CBIZ, INC. AND SUBSIDIARIESSUBSIDIARES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
                           
  Year Ended December 31, 2004
   
  Accounting, Benefits   National Corporate  
  Tax and and CBIZ Practices and  
  Advisory Insurance MMP Other Other Total
             
Revenue $212,010  $141,258  $87,261  $64,369  $—  $504,898 
Operating expenses  182,564   112,987   71,885   57,208   13,773   438,417 
                   
Gross margin  29,446   28,271   15,376   7,161   (13,773)  66,481 
Corporate general & admin  —   —   —   —   24,099   24,099 
Depreciation & amortization  3,687   2,825   2,719   714   6,065   16,010 
                   
Operating income (loss)  25,759   25,446   12,657   6,447   (43,937)  26,372 
Other income (expense):                        
 Interest income (expense)  (43)  57   (1)  20   (1,540)  (1,507)
 Gain on sale of operations, net  —   —   —   —   996   996 
 Other income, net  363   782   25   423   1,939   3,532 
                   
  Total other income  320   839   24   443   1,395   3,021 
                   
Income (loss) from continuing operations before income tax expense $26,079  $26,285  $12,681  $6,890  $(42,542) $29,393 
                   
                           
  Year Ended December 31, 2003
   
  Accounting, Benefits   National Corporate  
  Tax and and CBIZ Practices and  
  Advisory Insurance MMP Other Other Total
             
Revenue $202,069  $144,009  $75,785  $60,391  $—  $482,254 
Operating expenses  176,594   112,136   61,566   61,176   8,460   419,932 
                   
Gross margin  25,475   31,873   14,219   (785)  (8,460)  62,322 
Corporate general & admin  —   —   —   —   18,745   18,745 
Depreciation & amortization  4,272   2,797   2,595   813   6,104   16,581 
                   
Operating income (loss)  21,203   29,076   11,624   (1,598)  (33,309)  26,996 
Other income (expense):                        
 Interest expense  (49)  (63)  (5)  (1)  (937)  (1,055)
 Gain on sale of operations, net  —   —   —   —   2,519   2,519 
 Other income (expense), net  652   53   (17)  185   (2,100)  (1,227)
                   
  Total other income (expense)  603   (10)  (22)  184   (518)  237 
                   
Income (loss) from continuing operations before income tax expense $21,806  $29,066  $11,602  $(1,414) $(33,827) $27,233 
                   
                         
  Year Ended December 31, 2006 
  Financial
  Employee
     National
  Corporate
    
  Services  Services  MMP  Practices  and Other  Total 
 
Revenue $261,391  $157,973  $117,369  $46,922  $—  $583,655 
Operating expenses  228,183   129,914   100,691   41,347   13,130   513,265 
                         
Gross margin  33,208   28,059   16,678   5,575   (13,130)  70,390 
Corporate general & admin  —   —   —   —   29,526   29,526 
                         
Operating income (loss)  33,208   28,059   16,678   5,575   (42,656)  40,864 
Other income (expense):                        
Interest expense  (85)  (3)  —   —   (4,117)  (4,205)
Gain on sale of operations, net  —   —   —   —   21   21 
Other income, net  401   1,978   144   3   2,395   4,921 
                         
Total other income (expense)  316   1,975   144   3   (1,701)  737 
                         
Income (loss) from continuing operations before income tax expense $33,524  $30,034  $16,822  $5,578  $(44,357) $41,601 
                         

F-44

F-37

CBIZ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
21.     Subsequent Events
In January 2006, CBIZ completed the acquisitions of two companies. Valley Global Insurance Brokers is a property and casualty insurance broker focusing primarily on the construction and technology industries. Valley Global Insurance Brokers is located in San Jose, California and will complement our Benefits and Insurance practice group. The TriMed Group provides medical billing services and in-house computer systems primarily to hospital-based physician practices. The TriMed Group is located in Flint, Michigan and will be merged into CBIZ’s Medical Management Professionals business.
In January 2006, CBIZ and Mayer Hoffman McCann P.C. extended the term of their administrative service agreement through 2019, which expiration date is subject to further extension upon agreement by the Parties.
In January 2006, CBIZ acquired the trade name of a nationally recognized practice which will be complementary to our accounting, tax and advisory practice. Such trade name is being licensed to Mayer Hoffman McCann P.C. for a ten year period.
On February 9, 2006, CBIZ’s Board of Directors authorized the purchase of up to 5.0 million shares of CBIZ common stock through March 31, 2007. The shares may be repurchased in the open market or through privately negotiated purchases.
Effective February 13, 2006, CBIZ entered into a new $100 million unsecured credit facility, with an option to increase the commitment to $150 million. The credit facility is maintained by Bank of America, N.A. as agent bank for a group of five participating banks and has a five year term expiring February 2011.
Effective February 21, 2006, CBIZ’s Board of Directors granted 627,000 restricted performance shares pursuant to the 2002 Stock Incentive Plan. Performance awards will only vest and become exercisable provided that CBIZ meets certain pre-determined earnings per share targets at December 31, 2007.

F-38

CBIZ, INC. AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND

RESERVES FOR THE YEARS ENDED DECEMBER 31, 2005, 2004,2008, 2007 AND 2003
2006
(In thousands)
                          
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
         
    Additions    
         
  Balance at Charged to Charged to Acquisitions Charge-offs, Balance at
  Beginning of Cost and Other and Net of End of
  Period Expense Accounts Divestitures Recoveries Period
             
Year ended December 31, 2005:                        
Allowance deducted from assets to which they apply:                        
 Allowance for doubtful accounts $5,970  $5,446  $(396) $—  $(5,219) $5,801 
                   
Year ended December 31, 2004:                        
Allowance deducted from assets to which they apply:                        
 Allowance for doubtful accounts $6,231  $4,438  $374  $57  $(5,130) $5,970 
                   
Year ended December 31, 2003:                        
Allowance deducted from assets to which they apply:                        
 Allowance for doubtful accounts $6,467  $5,144  $77  $(164) $(5,293) $6,231 
                   
                         
COLUMN A COLUMN B  COLUMN C  COLUMN D  COLUMN E 
     Additions       
  Balance at
  Charged to
  Charged
  Acquisitions
  Charge-offs,
  Balance at
 
  Beginning of
  Cost and
  to Other
  and
  Net of
  End of
 
  Period  Expense  Accounts  Divestitures  Recoveries  Period 
 
Year ended December 31, 2008
                        
Allowance deducted from assets to which they apply:                        
Allowance for doubtful accounts $5,832  $7,309  $140  $—  $(4,702) $8,579 
                         
Year ended December 31, 2007:
                        
Allowance deducted from assets to which they apply:                        
Allowance for doubtful accounts $5,773  $4,404  $6  $—  $(4,351) $5,832 
                         
Year ended December 31, 2006
                        
Allowance deducted from assets to which they apply:                        
Allowance for doubtful accounts $5,257  $3,707  $(7) $—  $(3,184) $5,773 
                         


F-45

F-39