UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

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

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

Commission File Number 1-32961

CBIZ, INC.

(Exact name of registrant as specified in its charter)

Delaware		22-2769024
(State or other jurisdiction of incorporation		(I.R.S. Employer Identification No.)
or organization)

6050 Oak Tree Boulevard, South, Suite 500, Cleveland, Ohio		44131
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number, including area code) 216-447-9000

 

(Former name, former address and former fiscal year, if changed since last report)

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.               Yes þ     No o

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

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

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

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

               Yes o     No þ

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

Class of Common Stock		Outstanding at October 31, 2009
Common Stock, par value $0.01 per share		61,651,148

 

 

CBIZ, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

PART I.		FINANCIAL INFORMATION:				Page
		Item 1.		Financial Statements
				Consolidated Balance Sheets — September 30, 2009 and December 31, 2008			3
				Consolidated Statements of Operations — Three and Nine Months Ended September 30, 2009 and 2008			4
				Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2009 and 2008			5
				Notes to the Consolidated Financial Statements		6-27
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		28-49
		Item 3.		Quantitative and Qualitative Disclosures about Market Risk			49
		Item 4.		Controls and Procedures			50
PART II.		OTHER INFORMATION :
		Item 1.		Legal Proceedings			52
		Item 1A.		Risk Factors			52
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			52
		Item 6.		Exhibits			53
		Signature					53
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CBIZ, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)

		SEPTEMBER 30,				DECEMBER 31,
		2009				2008
ASSETS
Current assets:
Cash and cash equivalents		$	3,589			$	9,672
Restricted cash			13,983				15,786
Accounts receivable, net			148,945				129,164
Notes receivable — current, net			1,454				2,133
Income taxes refundable			—				3,271
Deferred income taxes — current			7,802				6,750
Other current assets			10,792				11,540
Assets of discontinued operations			230				249
Current assets before funds held for clients			186,795				178,565
Funds held for clients — current			60,134				103,097
Total current assets			246,929				281,662
Property and equipment, net			28,336				30,835
Notes receivable — non-current, net			1,123				927
Deferred income taxes — non-current, net			294				1,383
Goodwill and other intangible assets, net			365,593				350,216
Assets of deferred compensation plan			25,893				19,711
Funds held for clients — non-current			10,447				10,024
Other assets			3,197				3,834
Total assets		$	681,812			$	698,592
LIABILITIES
Current liabilities:
Accounts payable		$	27,031			$	29,013
Income taxes payable — current			3,051				—
Accrued personnel costs			36,826				40,869
Notes payable — current			4,121				1,064
Other current liabilities			16,866				18,478
Liabilities of discontinued operations			449				769
Current liabilities before client fund obligations			88,344				90,193
Client fund obligations			73,523				116,638
Total current liabilities			161,867				206,831
Convertible notes, net			92,832				89,887
Bank debt			115,700				125,000
Income taxes payable — non-current			6,544				6,797
Deferred compensation plan obligations			25,893				19,711
Other non-current liabilities			13,285				8,767
Total liabilities			416,121				456,993
STOCKHOLDERS’ EQUITY
Common stock			1,077				1,068
Additional paid-in capital			514,918				508,023
Retained earnings (accumulated deficit)			20,149				(10,155	)
Treasury stock			(269,396	)			(256,295	)
Accumulated other comprehensive loss			(1,057	)			(1,042	)
Total stockholders’ equity			265,691				241,599
Total liabilities and stockholders’ equity		$	681,812			$	698,592

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2009				2008				2009				2008
Revenue		$	179,023			$	168,159			$	588,272			$	540,713
Operating expenses			163,783				148,721				511,723				461,402
Gross margin			15,240				19,438				76,549				79,311
Corporate general and administrative expenses			8,491				7,270				23,887				22,313
Operating income			6,749				12,168				52,662				56,998
Other income (expense):
Interest expense			(3,181	)			(2,702	)			(10,221	)			(8,044	)
Gain on sale of operations, net			910				229				1,004				470
Other income (expense), net			3,144				(3,018	)			5,449				(4,030	)
Total other income (expense), net			873				(5,491	)			(3,768	)			(11,604	)
Income from continuing operations before income tax expense			7,622				6,677				48,894				45,394
Income tax expense			2,542				2,348				19,123				17,441
Income from continuing operations after income tax expense			5,080				4,329				29,771				27,953
Income (loss) from discontinued operations, net of tax			(4	)			(56	)			131				(250	)
Gain (loss) on disposal of discontinued operations, net of tax			27				132				178				(308	)
Net income		$	5,103			$	4,405			$	30,080			$	27,395
Earnings (loss) per share:
Basic:
Continuing operations		$	0.08			$	0.07			$	0.48			$	0.45
Discontinued operations			—				—				0.01				(0.01	)
Net income		$	0.08			$	0.07			$	0.49			$	0.44
Diluted:
Continuing operations		$	0.08			$	0.07			$	0.48			$	0.45
Discontinued operations			—				—				0.01				(0.01	)
Net income		$	0.08			$	0.07			$	0.49			$	0.44
Basic weighted average shares outstanding			61,176				61,171				61,302				62,080
Diluted weighted average shares outstanding			61,712				61,772				61,897				62,801

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

(In thousands)

		NINE MONTHS ENDED
		SEPTEMBER 30,
		2009				2008
Cash flows from operating activities:
Net income		$	30,080			$	27,395
Adjustments to reconcile net income to net cash provided by operating activities:
(Income) loss from operations of discontinued operations, net of tax			(131	)			250
(Gain) loss on disposal of discontinued operations, net of tax			(178	)			308
Gain on sale of operations, net			(1,004	)			(470	)
Amortization of discount on convertible notes			2,946				2,729
Impairment of auction rate security			—				1,381
Bad debt expense, net of recoveries			6,257				4,161
Depreciation and amortization expense			15,259				11,346
Deferred income taxes			(138	)			(3,392	)
Excess tax benefits from share based payment arrangements			(397	)			(1,719	)
Employee stock awards			3,465				2,783
Changes in assets and liabilities, net of acquisitions and divestitures:
Restricted cash			1,803				1,186
Accounts receivable, net			(25,904	)			(23,368	)
Other assets			1,399				1,011
Accounts payable			(1,993	)			1,016
Income taxes payable			6,362				487
Accrued personnel costs			(4,048	)			(4,349	)
Other liabilities			324				4,558
Net cash provided by continuing operations			34,102				25,313
Operating cash flows used in discontinued operations			—				(1,539	)
Net cash provided by operating activities			34,102				23,774
Cash flows from investing activities:
Business acquisitions and contingent consideration, net of cash acquired			(17,112	)			(24,966	)
Acquisition of other intangible assets			(11	)			(810	)
Proceeds from sales of divested and discontinued operations			788				4,893
Additions to property and equipment, net			(3,446	)			(5,109	)
Additions to notes receivable			—				(170	)
Payments received on notes receivable			729				373
Net cash used in investing activities			(19,052	)			(25,789	)
Cash flows from financing activities:
Proceeds from bank debt			334,795				218,600
Payment of bank debt			(344,095	)			(188,600	)
Payment of notes payable and capitalized leases			(220	)			(410	)
Payment for acquisition of treasury stock			(13,101	)			(37,819	)
Proceeds from exercise of stock options			1,127				3,988
Excess tax benefit from exercise of stock awards			397				1,719
Debt issuance costs			(36	)			(106	)
Net cash used in financing activities			(21,133	)			(2,628	)
Net decrease in cash and cash equivalents			(6,083	)			(4,643	)
Cash and cash equivalents at beginning of year			9,672				12,144
Cash and cash equivalents at end of period		$	3,589			$	7,501

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.

Summary of Significant Accounting Policies

		The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements.
		In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting solely of normal recurring adjustments) considered necessary to present fairly the financial position of CBIZ, Inc. and its consolidated subsidiaries (“CBIZ” or the “Company”) as of September 30, 2009 and December 31, 2008, the consolidated results of their operations for the three and nine months ended September 30, 2009 and 2008, and the cash flows for the nine months ended September 30, 2009 and 2008. Due to seasonality, potential changes in economic conditions, interest rate fluctuations and other factors, the results of operations for such interim periods are not necessarily indicative of the results for the full year. For further information, refer to the consolidated financial statements and notes thereto included in CBIZ’s Annual Report on Form 10-K for the year ended December 31, 2008.
		Principles of Consolidation
		The accompanying consolidated financial statements reflect the operations of CBIZ and all of its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying consolidated financial statements do not reflect the operations or accounts of variable interest entities as the impact is not material to the financial condition, results of operations or cash flows of CBIZ. See CBIZ’s Annual Report on Form 10-K for the year ended December 31, 2008 for further discussion.
		Use of Estimates
		The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Management’s estimates and assumptions include, but are not limited to: estimates of collectability of accounts receivable and unbilled revenue, the realizability of goodwill and other intangible assets, the fair value of certain assets, the valuation of stock options in determining compensation expense, estimates of accrued liabilities (such as incentive compensation, self-funded health insurance accruals, legal reserves, future contingent purchase price obligations and consolidation and integration reserves), the provision for income taxes, the realizability of deferred tax assets, and other factors. Management’s estimates and assumptions are derived from and are continually evaluated based upon available information, judgment and experience. Actual results could differ from those estimates.
		Reclassifications
		Certain amounts in the 2008 consolidated financial statements and disclosures have been reclassified to conform to the current year presentation and revised to reflect the retroactive application of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470-20 “Debt with Conversion and Other Options”.
		Revenue Recognition and Valuation of Unbilled Revenues
		Revenue is recognized only when all of the following are present: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee to the client is fixed or determinable, and collectability is reasonably assured. These criteria are in accordance with GAAP.

CBIZ, INC. AND SUBSIDIARIES

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

		CBIZ offers a vast array of products and business services to its clients. Those services are delivered through four practice groups. A description of revenue recognition, as it related to those groups, is included in the Annual Report on Form 10-K for the year ended December 31, 2008.
		New Accounting Pronouncements
		Recently Issued Accounting Pronouncements
		In June 2009, the FASB issued new accounting guidance on consolidation of variable interest entities, which eliminates exceptions to consolidating qualifying special-purpose entities, changes the approach to determining the primary beneficiary of a variable interest entity (“VIE”) and requires companies to more frequently assess whether they must consolidate VIEs. This new guidance is effective for annual periods beginning after November 15, 2009. Adoption of this new guidance is not expected to have a material impact on CBIZ’s consolidated financial statements.
		Recently Adopted Accounting Pronouncements
		In June 2009, the FASB issued new accounting guidance entitled “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162”, (“Codification”). This new guidance identifies the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-SEC accounting literature not included in the Codification became non-authoritative. This new guidance is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The impact of adopting the Codification caused a change in references to authoritative GAAP in CBIZ’s consolidated financial statements, but did not have an impact on CBIZ’s consolidated balance sheets, consolidated statements of operations, or consolidated statements of cash flows.
		In May 2008, the FASB issued FASB ASC 470-20 “Debt with Conversion and Other Options,” which requires issuers of convertible debt instruments that may be settled wholly or partially with cash, to separately account for the liability and equity components of the instruments in a manner that reflects the convertible debt borrowing rate, absent the conversion feature, when interest expense is recognized in subsequent periods. The resulting debt discount is amortized over the period the convertible debt is expected to be outstanding as additional interest expense.
		FASB ASC 470-20 became effective for CBIZ on January 1, 2009 and impacts the accounting associated with CBIZ’s $100.0 million convertible senior subordinated notes (“Notes”) which were issued in May 2006 (further described in Note 5). The provisions of FASB ASC 470-20 were applied retrospectively and resulted in a reduction in the carrying value of the Notes, and increases to stockholders’ equity and interest expense from what was reported in historical financial statements. The additional interest expense is a non-cash expense and thus did not impact total operating, investing or financing cash flows.
		The liability component was determined based upon discounted cash flows and the discount was determined to be $19.1 million at the date of issuance. The equity component (recorded as additional paid-in-capital) is $11.4 million and represents the difference between the $100.0 million proceeds from issuance of the Notes and the fair value of the liability component, net of tax, and certain debt issuance costs.

CBIZ, INC. AND SUBSIDIARIES

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

		The following table sets forth the effect of the retrospective application of FASB ASC 470-20 on accounting for convertible notes on certain previously reported line items (in thousands, except per share data):
		Consolidated Statements of Operations:

		Three Months Ended								Nine Months Ended
		September 30, 2008								September 30, 2008
		Originally Reported				As Adjusted				Originally Reported				As Adjusted
Interest expense		$	1,804			$	2,702			$	5,409			$	8,044
Income tax expense		$	2,689			$	2,348			$	18,442			$	17,441
Income from continuing operations		$	4,886			$	4,329			$	29,587			$	27,953
Net income		$	4,962			$	4,405			$	29,029			$	27,395
Earnings per share:
Basic:
Continuing operations		$	0.08			$	0.07			$	0.48			$	0.45
Discontinued operations			—				—				(0.01	)			(0.01	)
Net income		$	0.08			$	0.07			$	0.47			$	0.44
Diluted:
Continuing operations		$	0.08			$	0.07			$	0.47			$	0.45
Discontinued operations			—				—				(0.01	)			(0.01	)
Net income		$	0.08			$	0.07			$	0.46			$	0.44

Consolidated Balance Sheets:

		December 31, 2008
		Originally Reported				As Adjusted
Deferred income taxes — non-current, net		$	5,111			$	1,383
Other assets		$	4,137			$	3,834
Convertible notes		$	100,000			$	89,887
Additional paid-in-capital		$	496,598			$	508,023
Accumulated deficit		$	(4,812	)		$	(10,155	)
Total stockholders’ equity		$	235,517			$	241,599

		Recently Adopted Accounting Pronouncements (continued)
		In December 2007, the FASB issued new guidance on business combinations which establishes principles and requirements for how a reporting entity recognizes and measures the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree, as well as determines what information to disclose. The new guidance also requires acquisition costs that were previously capitalized be expensed as incurred. CBIZ adopted the provisions of this accounting guidance on January 1, 2009. See Note 12 for further discussion of acquisitions and the impact of this guidance.
		In March 2008, the FASB issued new accounting guidance on derivative instruments and hedging activities which requires additional disclosures about how and why a company uses derivative instruments, how derivative instruments are accounted for and how derivative instruments affect a company’s financial statements. CBIZ adopted the provisions of this accounting guidance on January 1, 2009. See Note 7 for further discussion.

CBIZ, INC. AND SUBSIDIARIES

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

		In April 2008, the FASB issued new accounting guidance on the determination of the useful life of intangible assets which amends the factors that should be considered in the determination of the useful life of a recognized intangible asset, and is intended to improve consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. CBIZ adopted the provisions of this accounting guidance on January 1, 2009. The adoption did not have a material impact on CBIZ’s consolidated financial statements.
		In April 2009, the FASB issued new accounting guidance on the recognition and presentation of other-than-temporary impairments. This guidance changes (1) the trigger for determining whether an other-than-temporary impairment (“OTTI”) exists and (2) the amount of an impairment charge to be recorded in earnings. To determine whether an other-than-temporary impairment exists, an entity is required to assess the likelihood of selling a security prior to recovering its cost basis as opposed to whether it has the intent and ability to hold a security to recovery or maturity. This guidance also expands and increases the frequency of existing disclosure about other-than-temporary impairments and requires new disclosures of the significant inputs used in determining a credit loss, as well as a rollforward of the credit loss each period. CBIZ adopted the provisions of this accounting guidance for the interim reporting period ended June 30, 2009. See Note 7 for additional information concerning this guidance.
		In April 2009, the FASB issued new accounting guidance on fair value measurements and disclosures for determining the fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. This release provides additional guidance to highlight and expand on the factors that should be considered in estimating fair value when there has been a significant decrease in market activity for a financial asset. This guidance also requires new disclosures relating to fair value measurement inputs and valuation techniques (including changes in inputs and valuation techniques). CBIZ adopted the provisions of this accounting guidance for the interim reporting period ended June 30, 2009. The adoption did not have a material impact on CBIZ’s consolidated financial statements.
		In April 2009, the FASB issued new accounting guidance related to interim disclosures about fair value of financial instruments, which increases the frequency of fair value disclosures from annual to quarterly to provide financial statement users with more timely information about the effects of current market conditions on their financial instruments. CBIZ adopted the provisions of this accounting guidance for the interim reporting period ended June 30, 2009. The adoption did not have a material impact on CBIZ’s consolidated financial statements.
		In May 2009, the FASB issued new accounting guidance on subsequent events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The guidance requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. CBIZ adopted the provisions of this accounting guidance for the interim reporting period ended June 30, 2009. See Note 15 for further disclosures required by this guidance.

CBIZ, INC. AND SUBSIDIARIES

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

2.		Accounts Receivable, Net
		Accounts receivable balances at September 30, 2009 and December 31, 2008 were as follows (in thousands):

		2009				2008
Trade accounts receivable		$	120,812			$	113,549
Unbilled revenue			37,026				23,981
Total accounts receivable			157,838				137,530
Allowance for doubtful accounts			(8,893	)			(8,366	)
Accounts receivable, net		$	148,945			$	129,164

3.		Goodwill and Other Intangible Assets, Net
		The components of goodwill and other intangible assets, net, at September 30, 2009 and December 31, 2008 were as follows (in thousands):

		2009				2008
Goodwill		$	277,674			$	260,535
Intangible assets:
Client lists			110,053				103,812
Other intangible assets			9,388				8,990
Total intangible assets			119,441				112,802
Total goodwill and intangibles assets			397,115				373,337
Accumulated amortization:
Client lists			(27,899	)			(20,575	)
Other intangible assets			(3,623	)			(2,546	)
Total accumulated amortization			(31,522	)			(23,121	)
Goodwill and other intangible assets, net		$	365,593			$	350,216

4.		Depreciation and Amortization
		Depreciation and amortization expense for property and equipment and intangible assets for the three and nine months ended September 30, 2009 and 2008 was as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Operating expenses		$	4,940			$	3,520			$	14,735			$	10,457
Corporate general and administrative expense			164				211				524				889
Total depreciation and amortization expense		$	5,104			$	3,731			$	15,259			$	11,346

CBIZ, INC. AND SUBSIDIARIES

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

5.		Borrowing Arrangements
		Convertible Senior Subordinated Notes
		On May 30, 2006, CBIZ sold and issued $100.0 million in Notes. The Notes are direct, unsecured, senior subordinated obligations of CBIZ and rank (i) junior in right of payment to all of CBIZ’s existing and future senior indebtedness, (ii) equal in right of payment with any other future senior subordinated indebtedness, and (iii) senior in right of payment to all subordinated indebtedness. The terms of the Notes are governed by the Indenture dated as of May 30, 2006, with U.S. Bank National Association as trustee. The Notes and Indenture are further described in CBIZ’s Annual Report on Form 10-K for the year ended December 31, 2008.
		The Notes bear interest at a rate of 3.125% per annum, payable in cash semi-annually in arrears on each June 1 and December 1. The Notes mature on June 1, 2026 and may be redeemed by CBIZ in whole or in part anytime after June 6, 2011. The Notes are convertible into CBIZ common stock at a rate equal to 94.1035 shares per $1,000 principal amount of the Notes (equal to an initial conversion price of approximately $10.63 per share), subject to adjustment as described in the Indenture. Upon conversion, CBIZ will deliver for each $1,000 principal amount of Notes, an amount consisting of cash equal to the lesser of $1,000 or the conversion value (as defined in the Indenture) and, to the extent that the conversion value exceeds $1,000, at CBIZ’s election, cash or shares of CBIZ common stock in respect of the remainder.
		CBIZ separately accounts for the debt and equity components of the Notes. The carrying amount of the debt and equity components at September 30, 2009 and December 31, 2008 were as follows (in thousands):

		2009				2008
Principal amount of notes		$	100,000			$	100,000
Unamortized discount			(7,168	)			(10,113	)
Net carrying amount		$	92,832			$	89,887
Additional paid-in-capital		$	11,425			$	11,425

The discount on the liability component of the Notes is being amortized using the effective interest method based upon an annual effective rate of 7.8%, which represents the market rate for similar debt without a conversion option at the issuance date. The discount is being amortized over five years from the date of issuance, which coincides with the first date that holders can require CBIZ to repurchase the Notes. At September 30, 2009, the unamortized discount had a remaining amortization period of approximately 20 months.

During the three and nine months ended September 30, 2009 and 2008, CBIZ recognized interest expense on the Notes as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Contractual coupon interest		$	782			$	782			$	2,344			$	2,344
Amortization of discount			1,003				929				2,946				2,729
Total interest expense		$	1,785			$	1,711			$	5,290			$	5,073

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

Bank Debt

CBIZ maintains a $214.0 million unsecured credit facility (“credit facility”) with Bank of America as agent bank for a group of six participating banks. The credit facility has a letter of credit sub-facility and matures in November 2012. CBIZ had $115.7 million and $125.0 million of outstanding borrowings under its credit facility at September 30, 2009 and December 31, 2008, respectively. Rates for the nine months ended September 30, 2009 and 2008 were as follows:

		2009				2008
Weighted average rates			3.87%				4.75%
Range of effective rates			2.74% - 6.40	%			3.60% - 7.25	%

		CBIZ had approximately $59.7 million of available funds under the credit facility at September 30, 2009. Available funds under the credit facility are 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, letters of credit are charged based on the same applicable margin, and a commitment fee of 40.0 to 50.0 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 worth; (ii) maximum leverage ratio; and (iii) a minimum fixed charge coverage ratio. The credit facility also places restrictions on CBIZ’s ability to create liens or other encumbrances, to make certain payments, investments, loans and guarantees and to sell or otherwise dispose of a substantial portion of assets, or to merge or consolidate with an unaffiliated entity. According to the terms of the credit facility, CBIZ is not permitted to declare or make any dividend payments, other than dividend payments made by one of its wholly owned subsidiaries to the parent company. The credit facility contains a provision that, in the event of a defined change in control, the credit facility may be terminated.
		There are no limitations on CBIZ’s ability to acquire businesses or repurchase CBIZ common stock provided that the Leverage Ratio is less than 2.0. The Leverage Ratio is calculated as total debt (excluding the Notes) compared to EBITDA as defined by the credit facility. As of September 30, 2009, the Leverage Ratio as defined by the credit facility was 1.55.

6.		Commitments and Contingencies
		Acquisitions
		The purchase price that CBIZ pays for businesses and client lists has historically consisted of two components: an up-front, non-contingent portion, and a portion which is contingent upon the acquired businesses or client lists’ actual future performance. For acquisitions completed prior to January 1, 2009, the portion of purchase price contingent on future performance is recorded when earned. For acquisitions completed after December 31, 2008, the fair value of the purchase price contingency is recorded at the date of acquisition and re-measured each reporting period until the liability is extinguished. Shares of CBIZ common stock that are issued in connection with acquisitions may be contractually restricted from sale for periods up to two years. Acquisitions are further discussed in Note 12 to these consolidated financial statements.

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

		Indemnifications
		CBIZ has various agreements in which it may be obligated to indemnify the other party with respect to certain matters. Generally, these indemnification clauses are included in contracts arising in the normal course of business under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations, warranties, covenants or agreements, related to matters such as title to assets sold and certain tax matters. Payment by CBIZ under such indemnification clauses are generally conditioned upon the other party making a claim. Such claims are typically subject to challenge by CBIZ and to dispute resolution procedures specified in the particular contract. Further, CBIZ’s obligations under these agreements may be limited in terms of time and/or amount and, in some instances, CBIZ may have recourse against third parties for certain payments made by CBIZ. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of CBIZ’s obligations and the unique facts of each particular agreement. Historically, CBIZ has not made any payments under these agreements that have been material individually or in the aggregate. As of September 30, 2009, CBIZ was not aware of any material obligations arising under indemnification agreements that would require 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 nine months ended September 30, 2009 and 2008, payments regarding such contracts and arrangements were not material.
		Letters of Credit and Guarantees
		CBIZ provides letters of credit to lessors (landlords) of certain leased premises in lieu of cash security deposits which totaled $3.6 million and $4.6 million as of September 30, 2009 and December 31, 2008, respectively. In addition, CBIZ provides license bonds to various state agencies to meet certain licensing requirements. The amount of license bonds outstanding at September 30, 2009 and December 31, 2008 was $1.5 million and $1.7 million, respectively.
		CBIZ acted as guarantor on various letters of credit for a CPA firm with which it has an affiliation, which totaled $1.2 million as of September 30, 2009 and December 31, 2008. In accordance with GAAP, 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
		CBIZ maintains a self-funded comprehensive health benefit plan. Total expenses under this program are limited by stop-loss coverages on individually large claims. A third party administrator processes claims and payments, but does not assume liability for benefits payable under this plan. CBIZ assumes responsibility for funding the plan benefits out of general assets, however, employees contribute to the costs of covered benefits through premium charges, deductibles and co-pays.
		The third party administrator provides the Company with reports and other information which provides a basis for the estimate of the liability at the end of each reporting period. Although management believes that it uses the best available information to determine the amount of the liability, unforeseen health claims could result in adjustments and higher costs incurred if circumstances differ from the assumptions used in estimating the liability. The liability for the self-funded health insurance plan is included in other current liabilities in the consolidated balance sheets and was $5.0 million and $4.1

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

		million at September 30, 2009 and December 31, 2008, respectively. CBIZ’s net healthcare costs include health claims, administration fees to third-party administrators and premiums for stop-loss coverage.
		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 consolidated financial condition, results of operations or cash flows of CBIZ.

7.		Financial Instruments
		Concentrations of Credit Risk
		Financial instruments that may subject CBIZ to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. CBIZ places its cash and cash equivalents with highly-rated financial institutions, limiting the amount of credit exposure with any one financial institution. CBIZ’s client base consists of large numbers of geographically diverse customers dispersed throughout the United States; thus, concentration of credit risk with respect to accounts receivable is not considered significant.
		Corporate Bonds
		As part of the Company’s effort to invest the funds held for clients, CBIZ holds three corporate bonds with par values totaling $9.0 million during 2009. All three bonds are investment grade and are classified as available for sale. These bonds have maturity dates ranging from October, 2010 through January, 2011, and are included in “Funds held for clients — non-current” on the consolidated balance sheets. During the three and nine months ended September 30, 2009, CBIZ recorded an unrealized gain on these bonds of $35,000 and $22,000, respectively, which is recorded as other comprehensive income.
		Auction Rate Securities (“ARS”)
		During the second quarter of 2009, CBIZ adopted the provisions of the new accounting guidance, which resulted in a change in the recognition of other-than-temporary impairments on the Company’s ARS investments. The provisions require that the impairment be bifurcated into an amount related to the credit loss and an amount related to all other factors. Credit loss is defined as the difference between the present value of cash flows expected to be collected and the amortized cost basis of the investment. Credit losses related to other-than-temporary impairments are recorded in earnings and all other impairments are recorded in accumulated other comprehensive loss (“AOCL”).
		At September 30, 2009, CBIZ held three investments in ARS with par values totaling $13.4 million and fair values totaling $10.4 million. The difference between par value and fair value for two of the ARS are currently considered to be temporary and are therefore recorded as unrealized losses in AOCL, net of tax benefits. The decline in fair value of the remaining ARS was previously determined to be other-than-temporary, thus losses associated with this ARS are accounted for in accordance with the new accounting guidance. See Note 8 for further discussion regarding the ARS and related fair values.
		Due to the failed auctions and the uncertainty regarding the liquidity of these securities, CBIZ classifies its investments in auction-rate securities as funds held for clients — non-current in the consolidated balance sheets. The maturity dates for these ARS investments range from October, 2037 through February, 2042.

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

		CBIZ has sufficient liquidity in its client fund assets to fund client obligations and the Company does not anticipate that the current lack of liquidity of its ARS investments will affect its ability to conduct business. CBIZ has the ability and intent to hold the two ARS investments that are temporarily impaired until anticipated recovery in value occurs.
		Interest Rate Swaps
		CBIZ uses interest rate swaps to manage interest rate risk exposure. CBIZ’s interest rate swaps effectively modify the Company’s exposure to interest rate risk, primarily through converting portions of floating rate debt under the credit facility to a fixed rate basis. These agreements involve the receipt or payment of floating rate amounts in exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal amounts. CBIZ does not enter into derivative instruments for trading or speculative purposes.
		Each of CBIZ’s interest rate swaps has been designated as a cash flow hedge. Accordingly, the interest rate swaps are recorded as either assets or liabilities in the consolidated balance sheets at fair value. Changes in fair value are recorded as a component of AOCL, net of tax, to the extent the swaps are effective. Amounts recorded to AOCL are reclassified to interest expense as interest on the underlying debt is recognized. Net amounts due related to the swaps are recorded as adjustments to interest expense when incurred or payable.
		At inception, the critical terms of the interest rate swaps matched the underlying risks being hedged, and as such the interest rate swaps are expected to be highly effective in offsetting fluctuations in the designated interest payments resulting from changes in the benchmark interest rate. The interest rate swaps are assessed for effectiveness and continued qualification for hedge accounting on a quarterly basis. If CBIZ determines that a cash flow hedge is no longer highly effective, the hedge ineffectiveness is recognized in current period earnings and hedge accounting is discontinued with respect to that cash flow hedge.
		As a result of the use of derivative instruments, CBIZ is exposed to risk that the counterparties will fail to meet their contractual obligations. To mitigate the counterparty credit risk, CBIZ only enters into contracts with carefully selected major financial institutions based upon their credit ratings and other factors, and continually assess the creditworthiness of counterparties. At September 30, 2009, all of the counterparties to CBIZ’s interest rate swaps had investment grade ratings. To date, all counterparties have performed in accordance with their contractual obligations. There are no credit risk-related contingent features in CBIZ’s interest rate swaps nor do the swaps contain provisions under which the Company has, or would be required, to post collateral.

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

At September 30, 2009, each of the interest rate swaps was classified as a liability derivative. The following table summarizes CBIZ’s outstanding interest rate swaps and their effects on the consolidated balance sheets at September 30, 2009 and December 31, 2008 (in thousands).

		September 30, 2009
		Notional				Fair				Balance Sheet
		Value				Value (c)				Location
Interest rate swap (a)		$	10,000			$	97			Other current liabilities
Interest rate swaps (b)			20,000				199			Other non-current liabilities
Total interest rate swaps		$	30,000			$	296

		December 31, 2008
		Notional				Fair				Balance Sheet
		Value				Value (c)				Location
Interest rate swap (a)		$	10,000			$	328			Other non-current liabilities
Total interest rate swap		$	10,000			$	328

The following table summarizes the effects of interest rate swaps on CBIZ’s consolidated statements of operations for the three and nine months ended September 30, 2009 and 2008 (in thousands). All swaps were deemed to be effective for the three and nine months ended September 30, 2009 and 2008.

		Gain (Loss) Recognized								Gain (Loss) Reclassified
		in AOCL, net of tax								from AOCL into Expense
		Three Months Ended								Three Months Ended
		September 30,								September 30,
		2009				2008				2009				2008				Location
Interest rate swaps		$	(8	)		$	14			$	141			$	37			Interest expense

		Nine Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008				Location
Interest rate swaps		$	20			$	(65	)		$	353			$	74			Interest expense

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

8.		Fair Value Measurements
		The valuation hierarchy under GAAP categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:

	•		Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
	•		Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
	•		Level 3 — inputs to the valuation methodology are unobservable and are significant to the fair value measurement.

		A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. 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.
		Effective January 1, 2009, CBIZ adopted the new accounting guidance for all nonfinancial assets and liabilities that are measured at fair value on a non-recurring basis, such as goodwill and identifiable intangible assets. The adoption of this provision for nonfinancial assets and liabilities that are measured at fair value on a non-recurring basis did not impact CBIZ’s financial position or results of operations for the three and nine months ended September 30, 2009.
		The following table summarizes CBIZ’s assets and liabilities at September 30, 2009 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 September 30, 2009 with
						Quoted Prices
						in Active				Significant
		Portion of				Markets for				Other				Significant
		Carrying Value				Identical				Observable				Unobservable
		Measured at				Assets				Inputs				Inputs
		Fair Value				(Level 1)				(Level 2)				(Level 3)
Deferred compensation plan assets		$	25,893			$	25,893			$	—			$	—
Auction rate securities		$	10,417			$	—			$	—			$	10,417
Corporate bonds		$	9,263			$	9,263			$	—			$	—
Contingent purchase price payable		$	5,554			$	—			$	—			$	5,554
Interest rate swaps		$	296			$	—			$	296			$	—

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

The following table summarizes the change in fair values of the Company’s assets and liabilities identified as Level 3 for the nine months ended September 30, 2009 (pre-tax basis) (in thousands):

						Contingent
		Auction Rate				Purchase
		Securities				Price Payable
Beginning balance — December 31, 2008		$	10,024			$	—
Additions from business acquisitions			—				5,566
Unrealized gains included in accumulated other comprehensive loss, net			387				—
Change in fair value of contingency							(12	)
Increase in expected cash flows of OTTI investment			6				—
Ending balance — September 30, 2009		$	10,417			$	5,554

		Due to liquidity issues in the ARS market and because quoted prices from broker-dealers were unavailable for CBIZ’s ARS, the investments in ARS were classified as Level 3. Accordingly, a fair value assessment of these securities 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. Regarding the contingent purchase price payable resulting from the business acquisitions, CBIZ utilized a probability weighted income approach to determine the fair value of the contingency.
		For the one ARS investment that was determined in 2008 to be unlikely to recover its par value, CBIZ bifurcated the other-than-temporary impairment into credit loss and other impairment. For the three months ended September 30, 2009, the credit loss portion of the impairment decreased, which resulted in no adjustment to earnings as subsequent recoveries in fair value related to credit loss are not recognized until realized.
		The following table provides a rollforward of the credit losses, pre-tax, recognized in earnings related to this ARS for the nine months ended September 30, 2009 for which a portion of the other-than-temporarily-impairment was recognized in other comprehensive income (in thousands):

		Accumulated
		Credit Losses
Balance at January 1, 2009		$	2,251
Cumulative adjustment to retained earnings at adoption			(372	)
Balance at April 1, 2009		$	1,879
Additions related to OTTI losses not previously recognized			—
Reductions due to sales			—
Reductions due to change in intent or likelihood of sale			—
Additions due to increases in previously recognized OTTI losses			—
Reductions due to increases in expected cash flows			6
Balance at September 30, 2009		$	1,873

For the remaining two ARS investments, both of which were determined to be temporarily impaired, the current fair value analysis resulted in an unrealized gain of $5,000 and $405,000 for the three and nine months ended September 30, 2009, respectively. The prior unrealized losses were recorded to AOCL in the consolidated balance sheets, thus the unrealized gain was recorded to offset the prior recorded loss. For both of these ARS issues, CBIZ has determined that the impairment is temporary due to dislocation in the credit markets, the quality of the investments and their underlying collateral, and the probability of a passed auction or redemption in the future, considering the issuers’ ability to refinance if

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

		necessary. For the nine months ended September 30, 2008, pre-tax losses of $0.2 million relating to these two ARS were recorded in AOCL.
		The following table provides additional information with regards to the ARS with temporary impairments, aggregated by the length of time that the securities have been in a continuous unrealized loss position (in thousands):

		September 30, 2009
		Less Than 12 Months								12 Months or Greater								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
Description of Security		Value				Losses				Value				Losses				Value				Losses
Auction rate securities		$	—			$	—			$	7,680			$	700			$	7,680			$	700

		December 31, 2008
		Less Than 12 Months								12 Months or Greater								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
Description of Security		Value				Losses				Value				Losses				Value				Losses
Auction rate securities		$	7,275			$	1,105			$	—			$	—			$	7,275			$	1,105

The following table presents financial instruments that are not carried at fair value but which require fair value disclosure as of September 30, 2009 and December 31, 2008 (in thousands):

		September 30, 2009								December 31, 2008
		Carrying				Fair				Carrying				Fair
		Value				Value				Value				Value
Convertible notes		$	92,832			$	95,571			$	89,887			$	87,800

		Although the trading of CBIZ’s Notes is limited, the fair value of the Notes was determined based upon their most recent quoted market price. The Notes are carried at face value less any unamortized debt discount.
		The carrying value of CBIZ’s cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments. The carrying value of bank debt approximates fair value, as the interest rate on the bank debt is variable and approximates current market rates.

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

9.

Other Comprehensive Income

Other comprehensive income is reflected as an increase to stockholders’ equity and is not reflected in CBIZ’s results of operations. Other comprehensive income for the three and nine months ended September 30, 2009 and 2008, net of tax, was as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Net income		$	5,103			$	4,405			$	30,080			$	27,395
Net unrealized gain (loss) on available- for-sale securities, net of income taxes (1)			24				830				244				(145	)
Net unrealized gain (loss) on interest rate swaps, net of income taxes (2)			(8	)			14				20				(65	)
Foreign currency translation			(15	)			(19	)			(56	)			(47	)
Total other comprehensive income		$	5,104			$	5,230			$	30,288			$	27,138

Accumulated other comprehensive loss, net of tax, was approximately $1.1 million and $1.0 million at September 30, 2009 and December 31, 2008, respectively. Accumulated other comprehensive loss consisted of adjustments, net of tax, to unrealized gains and losses on available-for-sale securities and interest rate swaps, and foreign currency translation.

10.

Employer Share Plans

CBIZ has granted various stock-based awards under its 2002 Stock Incentive Plan, which is described in further detail in CBIZ’s Annual Report on Form 10-K for the year ended December 31, 2008. The terms and vesting schedules for stock-based awards vary by type and date of grant. Compensation expense for stock-based awards recognized during the three and nine months ended September 30, 2009 and 2008 was as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Stock options		$	749			$	577			$	1,996			$	1,737
Restricted stock awards			536				382				1,469				1,046
Total stock-based compensation expense		$	1,285			$	959			$	3,465			$	2,783

Stock award activity during the nine months ended September 30, 2009 was as follows (in thousands, except per share data):

		Stock								Restricted Stock
		Options								Awards
						Weighted								Weighted
						Average								Average
		Number				Exercise				Number				Grant-Date
		of				Price Per				of				Fair
		Options				Share				Shares				Value (1)
Outstanding at beginning of year			3,696			$	6.93				631			$	7.42
Granted			1,356			$	7.70				385			$	7.59
Exercised or released			(316	)		$	3.57				(263	)		$	7.02
Expired or canceled			(44	)		$	7.16				—			$	—
Outstanding at September 30, 2009			4,692			$	7.38				753			$	7.65
Exercisable at September 30, 2009			1,760			$	6.78

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

11.		Earnings Per Share
		The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2009 and 2008 (in thousands, except per share data):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Numerator:
Income from continuing operations		$	5,080			$	4,329			$	29,771			$	27,953
Denominator:
Basic
Weighted average common shares outstanding			61,176				61,171				61,302				62,080
Diluted
Stock options (1)			206				455				245				558
Restricted stock awards (1)			102				134				124				154
Contingent shares (2)			228				12				226				9
Diluted weighted average common shares outstanding			61,712				61,772				61,897				62,801
Basic earnings per share from continuing operations		$	0.08			$	0.07			$	0.48			$	0.45
Diluted earnings per share from continuing operations		$	0.08			$	0.07			$	0.48			$	0.45

(1)		A total of 4.5 million and 3.8 million share based awards were excluded from the calculation of diluted earnings per share for the three and nine months ended September 30, 2009, respectively, and a total of 2.3 million and 1.8 million share based awards were excluded from the calculation of diluted earnings per share for the three and nine months ended September 30, 2008, respectively, as their exercise prices would render them anti-dilutive.
(2)		Contingent shares represent additional shares to be issued for purchase price earned by former owners of businesses acquired by CBIZ once future conditions have been met.

12.		Acquisitions
		During the nine months ended September 30, 2009, CBIZ acquired substantially all of the assets of two businesses. EAO Consultants, LLC, a New Jersey based employee benefits firm, was acquired on July 1, 2009, and MeyersDining, LLC, a Boulder, Colorado based insurance agency, was acquired on September 30, 2009. The acquisitions will enable CBIZ to broaden the range of services it offers in the New York and New Jersey markets and in the Boulder and Denver, Colorado markets. The operating results of the acquisitions are included in the consolidated financial statements from the date of acquisition and are reported in the Employee Services practice group.
		Aggregate consideration for these acquisitions is expected to be approximately $14.3 million, which consists of $7.8 million in cash, $0.9 in CBIZ common stock and $5.6 million in contingent consideration, subject to the acquired operations achieving certain performance targets.
		The preliminary aggregate purchase price for these acquisitions was allocated as follows (in thousands):

Recognized amounts of identifiable assets acquired and liabilities assumed
Fixed assets		$	27
Identifiable intangible assets			4,768
Financial liabilities			(5	)
Total identifiable net assets		$	4,790
Goodwill			9,489
Aggregate purchase price		$	14,279

		Under the terms of the acquisition agreements, a portion of the purchase price is contingent on future performance of the businesses acquired. The potential undiscounted amount of all future payments that CBIZ could be required to make under the contingent arrangements is between $0 and $6.1 million. In accordance with GAAP, CBIZ was required to record the fair value of these obligations at the acquisition date. CBIZ determined, utilizing a probability weighted income approach, that the fair value of the contingent consideration arrangements was $5.6 million and has included that amount as a long term liability.
		The goodwill of $9.5 million arising from the acquisitions consists largely of expected future earnings and cash flow from the existing management team, as well as the synergies created by the integration of the new businesses within the CBIZ organization, including cross selling opportunities expected with our Financial Services group and the Employee Services group to help strengthen our existing service offerings and expand our market position. The goodwill recognized is deductible for income tax purposes.
		In addition, during the first nine months ended September 30, 2009, CBIZ purchased two client lists, one of which is reported in the Financial Services practice group and the other is reported in the Employee Services practice group. Aggregate consideration for these acquisitions consisted of $0.1 million cash paid at closing and up to an additional $0.4 million in cash which is contingent upon future financial performance of the client lists. In addition, CBIZ paid $12.7 million in cash and issued approximately 131,600 shares of common stock during the nine months ended September 30, 2009 as contingent proceeds and payments against notes payable for previous acquisitions.
		During the nine months ended September 30, 2008, CBIZ acquired a payroll business, an insurance agency and a national executive search firm, all three of which are reported in the Employee Services practice group. The payroll business is located in Palm Desert, California and provides payroll processing services to a large number of clients primarily 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 commercial and industrial companies, development-stage organizations and non-profit organizations. In addition, CBIZ acquired three client lists during the nine months ended September 30, 2008, two of

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

		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 $11.4 million in cash and approximately 23,600 shares of common stock paid at closing, and up to an additional $7.9 million in cash and approximately 25,900 shares of common stock which is contingent upon future financial performance of the acquired businesses and client lists. In addition, CBIZ paid approximately $13.6 million in cash and issued approximately 80,500 shares of common stock during the first nine months of 2008 as contingent proceeds for previous acquisitions.
		The operating results of these businesses are included in the accompanying consolidated financial statements since the dates of acquisition. Client lists and non-compete agreements are recorded at fair value at the time of acquisition. The excess of purchase price over the fair value of net assets acquired, (including client lists and non-compete agreements) is allocated to goodwill.
		Additions to goodwill, client lists and other intangible assets resulting from acquisitions and contingent consideration earned during the nine months ended September 30, 2009 and 2008 were as follows (in thousands):

		2009				2008
Goodwill		$	17,139			$	11,660
Client lists		$	7,160			$	5,636
Other intangible assets		$	420			$	114

CBIZ acquired Mahoney Cohen & Company and Tofias PC on December 31, 2008, the results of which were included in CBIZ’s operating results beginning January 1, 2009. The following table provides pro forma results of operations for these two businesses for the comparative period in 2008 assuming both businesses were acquired on January 1, 2008 (in thousands, except per share data). The pro forma results of operations are presented for illustrative purposes only and are not necessarily indicative of the results of operations that would have been obtained had these businesses actually been acquired at January 1, 2008, nor are they intended to be a projection of future results of operations.

		Nine Months Ended September 30, 2008
		Consolidated				Pro Forma				Pro Forma
		As Reported				Adjustments				Consolidated
Revenue		$	540,713			$	73,711			$	614,424
Net income		$	27,395			$	5,954			$	33,349
Net income per share:
Basic		$	0.44			$	0.09			$	0.53
Diluted		$	0.44			$	0.08			$	0.52
Weighted average shares outstanding:
Basic			62,080				1,081				63,161
Diluted			62,801				1,081				63,882

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

13.		Discontinued Operations and Divestitures
		From time to time, CBIZ divests (through sale or closure) business operations that do not contribute to the Company’s long-term objectives for growth, or that are not complementary to its target service offerings and markets. Divestitures are classified as discontinued operations provided they meet the criteria as provided in FASB ASC 205 “Presentation of Financial Statements — Discontinued Operations — Other Presentation Matters”.
		Discontinued Operations
		Gains or losses from the sale of discontinued operations are recorded as “gain (loss) on disposal of discontinued operations, net of tax”, in the accompanying consolidated statements of operations. Additionally, proceeds that are contingent upon a divested operation’s actual future performance are recorded as gain on sale of discontinued operations in the period they are earned. During the nine months ended September 30, 2009, CBIZ did not close or sell any operations that met the requirements to be classified as a discontinued operation. Gains recorded for the nine months ended September 30, 2009 related to contingent proceeds for a Financial Services operation that was sold during 2007 and an adjustment to reserves established for an operation that was closed in 2008.
		During the nine months ended September 30, 2008, CBIZ sold an operation from the Financial Services practice group, closed an operation from National Practice group and received contingent proceeds from a Financial Services operation that was sold in the third quarter of 2007. CBIZ received cash proceeds totaling $1.6 million and recognized pre-tax losses totaling $0.2 million as the result of these divestitures.
		For those businesses that qualified for treatment as discontinued operations, the assets, liabilities and results of operations are reported separately in the accompanying consolidated financial statements. Revenue and results from operations of discontinued operations for the three and nine months ended September 30, 2009 and 2008 are separately reported as “income from operations of discontinued operations, net of tax” in the consolidated statements of operations and were as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Revenue		$	—			$	32			$	—			$	537
Income (loss) from discontinued operations, before income tax		$	(7	)		$	(89	)		$	208			$	(393	)
Income tax (expense) benefit			3				33				(77	)			143
Income (loss) from discontinued operations, net of tax		$	(4	)		$	(56	)		$	131			$	(250	)