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

For the quarterly period ended March 31, 2008

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

For the transition period from                      to                     

CBIZ, INC.

(Exact name of registrant as specified in its charter)

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

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

(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 is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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:

		Outstanding at
Class of Common Stock		April 30, 2008
Common Stock, par value $0.01 per share			62,494,782

 

 

CBIZ, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets – March 31, 2008 and December 31, 2007			3
Consolidated Statements of Operations – Three Months Ended March 31, 2008 and 2007			4
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2008 and 2007			5
Notes to the Consolidated Financial Statements			6-23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24-38
Item 3. Quantitative and Qualitative Disclosures About Market Risk			39
Item 4. Controls and Procedures			39
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings			40
Item 1A. Risk Factors			40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			40
Item 6. Exhibits			42
Signature			42
EX-31.1
EX-31.2
EX-32.2
EX-32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CBIZ, INC. AND SUBSIDIARIES

		MARCH 31,				DECEMBER 31,
		2008				2007
ASSETS
Current assets:
Cash and cash equivalents		$	11,086			$	12,144
Restricted cash			17,961				15,402
Accounts receivable, net			145,391				115,333
Notes receivable — current, net			1,322				1,722
Deferred income taxes — current			6,473				4,682
Other current assets			11,170				10,086
Assets of discontinued operations			781				2,312
Current assets before funds held for clients			194,184				161,681
Funds held for clients — current			68,410				88,048
Total current assets			262,594				249,729
Property and equipment, net			25,906				26,279
Notes receivable — non-current, net			1,838				2,017
Deferred income taxes — non-current			6,102				5,300
Goodwill and other intangible assets, net			276,652				268,388
Assets of deferred compensation plan			24,317				22,157
Funds held for clients — non-current			19,338				—
Other assets			4,152				4,122
Total assets		$	620,899			$	577,992
LIABILITIES
Current liabilities:
Accounts payable		$	29,523			$	27,293
Income taxes payable — current			10,892				—
Accrued personnel costs			24,621				40,281
Notes payable — current			2,858				10,602
Other current liabilities			21,064				13,969
Liabilities of discontinued operations			3,394				3,777
Current liabilities before client fund obligations			92,352				95,922
Client fund obligations			89,830				88,048
Total current liabilities			182,182				183,970
Convertible notes			100,000				100,000
Bank debt			75,000				30,000
Income taxes payable — non-current			8,264				8,029
Deferred compensation plan obligations			24,317				22,157
Other non-current liabilities			7,287				7,390
Total liabilities			397,050				351,546
STOCKHOLDERS’ EQUITY
Common stock			1,050				1,041
Additional paid-in capital			482,672				477,804
Accumulated deficit			(20,633	)			(37,414	)
Treasury stock			(237,684	)			(214,883	)
Accumulated other comprehensive loss			(1,556	)			(102	)
Total stockholders’ equity			223,849				226,446
Total liabilities and stockholders’ equity		$	620,899			$	577,992

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

		THREE MONTHS ENDED
		MARCH 31,
		2008				2007
Revenue		$	197,352			$	178,444
Operating expenses			158,330				144,038
Gross margin			39,022				34,406
Corporate general and administrative expense			7,252				8,682
Operating income			31,770				25,724
Other income (expense):
Interest expense			(1,717	)			(1,272	)
Gain on sale of operations, net			20				95
Other income (expense), net			(1,347	)			607
Total other expense, net			(3,044	)			(570	)
Income from continuing operations before income tax expense			28,726				25,154
Income tax expense			11,498				10,308
Income from continuing operations after income tax expense			17,228				14,846
Income (loss) from operations of discontinued operations, net of tax			2				(389	)
Loss on disposal of discontinued operations, net of tax			(449	)			(193	)
Net income		$	16,781			$	14,264
Earnings (loss) per share:
Basic:
Continuing operations		$	0.27			$	0.22
Discontinued operations			(0.01	)			—
Net income		$	0.26			$	0.22
Diluted:
Continuing operations		$	0.27			$	0.22
Discontinued operations			(0.01	)			(0.01	)
Net income		$	0.26			$	0.21
Basic weighted average shares outstanding			63,261				66,344
Diluted weighted average shares outstanding			64,266				68,023

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

		THREE MONTHS ENDED
		MARCH 31,
		2008				2007
Cash flows from operating activities:
Net income		$	16,781			$	14,264
Adjustments to reconcile net income to net cash used in operating activities:
(Gain) loss from operations of discontinued operations, net of tax			(2	)			389
Loss on disposal of discontinued operations, net of tax			449				193
Gain on sale of operations, net			(20	)			(95	)
Bad debt expense, net of recoveries			971				1,006
Depreciation and amortization expense			3,817				3,372
Deferred income taxes			(2,037	)			595
Excess tax benefits from share based payment arrangements			(1,181	)			(1,745	)
Employee stock awards			671				497
Changes in assets and liabilities, net of acquisitions and divestitures:
Restricted cash			(2,559	)			1,877
Accounts receivable, net			(31,018	)			(27,572	)
Other assets			(1,257	)			(506	)
Accounts payable			2,200				(2,499	)
Income taxes payable			12,774				10,253
Accrued personnel costs			(15,660	)			(14,539	)
Other liabilities			5,330				3,265
Net cash used in continuing operations			(10,741	)			(11,245	)
Operating cash flows used in discontinued operations			(750	)			(1,468	)
Net cash used in operating activities			(11,491	)			(12,713	)
Cash flows from investing activities:
Business acquisitions and contingent consideration, net of cash acquired			(16,325	)			(7,455	)
Acquisition of other intangible assets			(803	)			(1,602	)
Proceeds from sales of divested operations and client lists			20				87
Proceeds from sales of discontinued operations			1,547				2,089
Additions to property and equipment, net			(1,258	)			(1,098	)
Payments received on notes receivable			519				96
Net cash used in discontinued operations			—				(460	)
Net cash used in investing activities			(16,300	)			(8,343	)
Cash flows from financing activities:
Proceeds from bank debt			93,850				78,300
Payment of bank debt			(48,850	)			(49,100	)
Payment of notes payable and capitalized leases			(132	)			(159	)
Payment for acquisition of treasury stock			(22,190	)			(16,765	)
Proceeds from exercise of stock options			2,874				1,800
Excess tax benefit from exercise of stock awards			1,181				1,745
Net cash provided by financing activities			26,733				15,821
Net decrease in cash and cash equivalents			(1,058	)			(5,235	)
Cash and cash equivalents at beginning of year			12,144				12,971
Cash and cash equivalents at end of period		$	11,086			$	7,736

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

1.		Summary of Significant Accounting Policies
		The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements.
		In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting solely of normal recurring adjustments) considered necessary to present fairly the financial position of CBIZ, Inc. and its consolidated subsidiaries (CBIZ) as of March 31, 2008 and December 31, 2007, and the results of their operations and cash flows for the three months ended March 31, 2008 and 2007. 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, 2007.
		Organization
		CBIZ 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 Canada. CBIZ delivers its integrated services through the following four practice groups:

	•		Financial Services
	•		Employee Services
	•		Medical Management Professionals (MMP)
	•		National Practices

		See Note 14 for further information regarding CBIZ’s practice groups.
		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 further discussion under “Variable Interest Entities”.
		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 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, estimates of accrued liabilities (such as incentive compensation, self-insurance reserves and legal 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 2007 consolidated financial statements and disclosures have been reclassified to conform to the current year presentation to reflect the impact of discontinued operations.

CBIZ, INC. AND SUBSIDIARIES

		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 GAAP and SEC Staff Accounting Bulletin (SAB) No. 101, “Revenue Recognition in Financial Statements,” as amended by SAB No. 104 “Revenue Recognition” (SAB 104).
		Contract terms are typically contained in a signed agreement with our clients (or when applicable, other third parties) which generally define the scope of services to be provided, pricing of services, and payment terms generally ranging from invoice date to 90 days after invoice date. Billing may occur prior to, during, or upon completion of the 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, 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 Force No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (EITF 00-21). If the deliverables meet the criteria in EITF 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.
		Financial Services — Revenue primarily consists of fees for services rendered to our clients for accounting services, preparation of tax returns, consulting services, compliance projects, services pursuant to administrative service agreements (described under “Variable Interest Entities”), and valuation services including fairness opinions, business plans, litigation support, purchase price allocations and derivative valuations. Clients are billed for these services based upon a time and expense model, a predetermined agreed-upon fixed fee, or as a percentage of savings. Revenue recognition as it pertains to each of these arrangements is as follows:

	•		Time and Expense Arrangements — Revenue is recognized based upon actual hours incurred on client projects at expected net realizable rates per hour, plus agreed-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, collection is reasonably assured and all contingencies have been satisfied.

Employee Services — Revenue consists primarily of brokerage and agency commissions, fee income for administering health and retirement 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 provided below.

CBIZ, INC. AND SUBSIDIARIES

	•		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 data necessary from the carriers to properly record revenue becomes available; and life insurance commissions are recognized when the policy becomes effective (i.e. the insured is afforded protection under the policy). Commission revenue is reported net of sub-broker commissions, and reserves for estimated policy cancellations and terminations. The 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.
	•		Fee income — Fee income is recognized in the period in which services are provided, and may be based on predetermined agreed-upon fixed fees, actual hours incurred on an hourly fee basis, 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 $0.6 million and $0.5 million for the three months ended March 31, 2008 and 2007, respectively.

Medical Management Professionals — Revenue is primarily related to fees charged to clients for billing, collection and full-practice management services, which are charged to clients based upon a percentage of net collections on our clients’ patient accounts or 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 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 — The business units that comprise this practice 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 and is recognized as follows:

CBIZ, INC. AND SUBSIDIARIES

	•		Consulting Services — Consulting services primarily relate to the maintenance and repair of hardware. These services are charged to customers based upon time and material, cost-plus an agreed-upon markup percentage, or a predetermined agreed-upon fixed fee. Revenue related to consulting services is recognized as services are performed or upon acceptance by the client, depending on the client contract terms.
	•		Service 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 sales is recognized upon delivery and acceptance of the product.
	•		Software, 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 do not involve significant production or modification of software. Revenue related to software, PCS and installation services is recognized in accordance with SOP 97-2.
			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 predetermined agreed-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 and Capital Advisory — 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.
		Operating Expenses
		Operating expenses represent costs incurred to operate our business units and are primarily comprised of personnel costs and occupancy 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. 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. Total personnel costs were $116.6 million and $106.3 million for the three months ended March 31, 2008 and 2007, respectively.
		The largest components of occupancy costs are rent expense and utilities. Base rent expense is recognized over respective lease terms, while utilities and common area maintenance charges are recognized as incurred. Total occupancy costs were $10.0 million and $9.1 million for the three months ended March 31, 2008 and 2007, respectively.

CBIZ, INC. AND SUBSIDIARIES

		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 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.
		Funds Held for Clients and Client Fund Obligations
		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. 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 underlying investments, and client fund obligations are reported as current liabilities. If the par value of investments held do not approximate fair value, the balance in Funds held for clients may not be equal to the balance in Client fund obligations. The amount of collected but not yet remitted funds may vary significantly during the year.
		Funds held for clients include cash, overnight investments and Auction Rate Securities (ARS). ARS are classified as available for sale securities in accordance with FASB Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”). See Note 7 for further discussion of ARS.
		Variable Interest Entities
		In accordance with the provisions of FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), 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 financial statements do not reflect the consolidation of the variable interest entities, as the impact 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 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 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 their 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. In the event that accounts receivable and unbilled work in process become uncollectible by the CPA firms, the service fee due to CBIZ is reduced on a pro rata 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.
		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

CBIZ, INC. AND SUBSIDIARIES

		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 is computed using the average market price for the period, in accordance with the treasury stock method.
		As further described in Note 5, CBIZ’s convertible senior subordinated notes (“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 March 31, 2008, the Company’s market price per share had not exceeded the conversion price of the Notes.
		New Accounting Pronouncements
		Effective January 1, 2008, CBIZ adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. For financial assets and liabilities, this statement is effective for fiscal periods beginning after November 15, 2007 and does not require any new fair value measurements, but rather expands the disclosure of fair value measurements. In February 2008, the FASB issued Staff Position No. 157-2 “Effective Date of FASB Statement No. 157” which delayed the effective date of FASB Statement 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 SFAS No. 157 to long-lived assets, goodwill and other intangible assets that are measured for impairment testing purposes. See Note 8 for further discussion of the adoption of SFAS No. 157.
		Effective January 1, 2008, CBIZ adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115” (“SFAS No. 159”). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, including interim periods within that fiscal year. The Company did not elect the fair value option for any of its existing financial instruments as of March 31, 2008 and the Company has not determined whether or not it will elect this option for financial instruments it may acquire in the future.
		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. CBIZ is currently evaluating the impact of adoption of SFAS No. 141R on the consolidated financial statements.
		In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”). SFAS 160 establishes requirements for ownership interests in subsidiaries held by parties other than the Company (sometimes called “minority interests”) be clearly identified, presented, and disclosed in the consolidated statement of financial position within equity, but separate from the parent’s equity. All changes in the parent’s ownership interests are required to be accounted for consistently as equity transactions and any noncontrolling equity investments in deconsolidated subsidiaries must be measured initially at fair

CBIZ, INC. AND SUBSIDIARIES

		value. This statement is effective for CBIZ beginning January 1, 2009. CBIZ is currently evaluating the potential impact of the adoption of SFAS No. 160 on its 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 requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. SFAS No. 161 is effective for CBIZ beginning January 1, 2009. The Company is currently evaluating the impact of the adoption of SFAS No. 161 on its consolidated financial statements.
		On May 9, 2008, the FASB issued FASB Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires issuers of convertible debt that may be settled wholly or partly in cash when converted to account for the debt and equity components separately. FSP APB 14-1 effective for fiscal years beginning after December 15, 2008 and must be applied retrospectively to all periods presented. This standard will have an impact on the Company’s financial statements, however, the Company has not yet determined the amount of the impact.
2.		Accounts Receivable, Net
		Accounts receivable balances at March 31, 2008 and December 31, 2007 were as follows (in thousands):

		2008				2007
Trade accounts receivable		$	111,572			$	98,881
Unbilled revenue			39,433				21,572
Other accounts receivable			599				712
Total accounts receivable			151,604				121,165
Allowance for doubtful accounts			(6,213	)			(5,832	)
Accounts receivable, net		$	145,391			$	115,333

3.		Goodwill and Other Intangible Assets, Net
		The components of goodwill and other intangible assets, net at March 31, 2008 and December 31, 2007 were as follows (in thousands):

		2008				2007
Goodwill		$	218,298			$	213,511
Intangibles:
Client lists			67,949				63,234
Intangible assets — other			7,805				8,125
Total intangibles			75,754				71,359
Total goodwill and other intangibles assets			294,052				284,870
Accumulated amortization			(17,400	)			(16,482	)
Goodwill and other intangible assets, net		$	276,652			$	268,388

Client lists are amortized over their expected periods of benefit not to exceed ten years. Other intangible assets, which consist primarily of non-compete agreements and trade-names, are amortized over periods ranging from two to ten years. Amortization expense for client lists and other intangible assets was approximately $1.9 million and $1.2 million for the three months ended March 31, 2008 and 2007, respectively.

CBIZ, INC. AND SUBSIDIARIES

4. Depreciation and Amortization

Depreciation and amortization expense for property and equipment and intangible assets for the three months ended March 31, 2008 and 2007 was as follows (in thousands):

		2008				2007
Operating expenses		$	3,440			$	2,564
Corporate general and administrative expense			377				808
Total depreciation and amortization expense		$	3,817			$	3,372

5.		Borrowing Arrangements
		Convertible Senior Subordinated Notes
		CBIZ had $100.0 million of convertible senior subordinated notes (“Notes”) outstanding at March 31, 2008. 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, 2007.
		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.
		Bank Debt
		CBIZ maintains an unsecured credit facility (facility) with Bank of America as agent bank for a group of five participating banks. CBIZ had $75.0 million and $30.0 million of outstanding borrowings under its credit facility at March 31, 2008 and December 31, 2007, respectively. Rates for the three months ended March 31, 2008 and for the year ended December 31, 2007 were as follows:

		2008				2007
Weighted average rates			5.49	%			7.05	%
Range of effective rates			3.99% - 7.25	%			6.09% - 8.25	%

		CBIZ had approximately $14.9 million of available funds under the facility at March 31, 2008. Available funds under the facility are reduced by letters of credit and obligations determined to be “other indebtedness” in accordance with the terms of the facility. The facility expires November 2012 and was amended effective April 3, 2008 to increase the commitment from $100.0 million to $150.0 million.
		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 facility, loans are charged an interest rate consisting of a base rate or LIBOR plus an applicable margin. Additionally, a commitment fee is charged on the unused portion of the facility.

CBIZ, INC. AND SUBSIDIARIES

		The 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 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 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 facility contains a provision that, in the event of a defined change in control, the 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 convertible senior subordinated notes) compared to EBITDA as defined by the facility.
6.		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 issued in connection with acquisitions may be contractually restricted from sale for periods up to two years. Acquisitions are further discussed in Note 12.
		Indemnifications
		CBIZ has various agreements in which 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 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 March 31, 2008, 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 three months ended March 31, 2008 and 2007, payments regarding such contracts and arrangements were not 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 $3.7 million as of March 31, 2008 and December 31, 2007. In addition, CBIZ

CBIZ, INC. AND SUBSIDIARIES

		provides license bonds to various state agencies to meet certain licensing requirements. The amount of license bonds outstanding at March 31, 2008 and December 31, 2007 was $1.4 million.
		CBIZ acted as guarantor on various letters of credit for a CPA firm with which it has an affiliation, which totaled $1.4 million as of March 31, 2008 and December 31, 2007. 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 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 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 and net earnings being affected 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 described above 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.
7.		Financial Instruments
		Auction Rate Securities
		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 recorded for our investments in ARS during the year ended December 31, 2007.
		As a result of recent liquidity issues experienced in the credit and capital markets, CBIZ’s ARS have experienced failed auctions during the first quarter of 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 March 31, 2008, the face value of ARS held by CBIZ totaled $23.4 million, of which $2.0 million was redeemed by the issuer in April 2008. On March 31, 2008, CBIZ reduced the carrying amount of the remaining ARS by $2.1 million, to $19.3 million. CBIZ determined this decline in fair market value to be

CBIZ, INC. AND SUBSIDIARIES

		temporary, and recorded the decline as an unrealized loss in accumulated other comprehensive loss. The impact to accumulated other comprehensive loss was $1.2 million, net of income taxes.
		CBIZ reclassified $19.3 million of the ARS with maturity dates beyond March 31, 2009 from current assets (Funds held for clients — current) to non-current assets (Funds held for clients — non-current), as CBIZ intends to hold these investments until anticipated recovery in value occurs.
		Interest Rate Swap
		In December 2007, effective January 3, 2008, CBIZ entered into a two-year, zero-cost interest rate swap (“swap”) for the purpose of managing cash flow and interest rate variability on a portion of outstanding borrowings under its credit facility. CBIZ does not enter into derivative instruments for trading or speculative purposes.
		Under the terms of the interest rate swap agreement, CBIZ pays interest at a fixed rate of 3.9% plus applicable margin under the credit agreement, and receives interest payments that are variable with one-month LIBOR. Interest is calculated by reference to the $10.0 million notional amount of the swap and payments are exchanged each month. During the quarter ended March 31, 2008, CBIZ recorded additional interest expense of approximately $6,000 related to the swap agreement.
		CBIZ has designated this swap as a cash flow hedge and accounts for this swap in accordance with the provisions of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133) and related amendments and interpretations. Accordingly, the interest rate swap is recorded as either an asset or liability in the consolidated balance sheets at fair value. Changes in fair value are recorded as a component of accumulated other comprehensive income in shareholders’ equity, net of tax, to the extent the swap is effective. Amounts recorded to accumulated other comprehensive income 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” on the consolidated balance sheets and was $0.3 million at March 31, 2008. Fair value represents the amount that CBIZ would have to pay to terminate the agreement at the reporting date. Over the next 12 months, CBIZ expects to reclassify approximately $0.1 million of deferred losses from accumulated other comprehensive loss to interest expense as related interest payments that are being hedged are recognized.
		At its inception, the critical terms of the swap matched the underlying risks being hedged, and as such the swap is expected to be highly effective in offsetting fluctuations in the designated interest payments resulting from changes in the benchmark interest rate. The swap is assessed for effectiveness and continued qualification for hedge accounting on a quarterly basis, and there was no ineffectiveness for the first quarter of 2008. If the swap were to be de-designated as a hedge, it would be accounted for as a financial instrument used for trading.
8.		Fair Value Measurements
		As discussed in Note 1, SFAS No. 157 was adopted for measuring and reporting financial assets and liabilities in the Company’s financial statements beginning January 1, 2008. SFAS 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.

CBIZ, INC. AND SUBSIDIARIES

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

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The following table summarizes CBIZ’s assets and liabilities at March 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 March 31, 2008 with
						Quoted Prices
		Portion of				in Active				Significant
		Carrying Value				Markets for				Other				Significant
		Measured at				Identical				Observable				Unobservable
		Fair Value				Assets				Inputs				Inputs
		March 31, 2008				(Level 1)				(Level 2)				(Level 3)
Deferred compensation plan assets		$	24,317			$	24,317			$	—			$	—
Auction rate securities		$	23,395			$	—			$	1,975			$	19,338
Interest rate swap		$	(294	)		$	—			$	—			$	(294	)

The following table summarizes the change in fair values of the Company’s assets and liabilities identified as Level 3 for the three months ended March 31, 2008 (pre-tax basis) (in thousands):

		Auction Rate				Interest Rate
		Securities				Swaps
Beginning balance		$	—			$	—
Transfers into Level 3			21,420				—
Unrealized losses included in accumulated other comprehensive loss			(2,082	)			(294	)
Ending balance		$	19,338			$	(294	)

		Due to the liquidity issues described in Note 7 and because quoted prices from broker-dealers were unavailable for CBIZ’s ARS, the majority of the investments in ARS were transferred from Level 2 to Level 3 during the first quarter of 2008. Accordingly, a fair value assessment of these securities 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. This fair value analysis resulted in a value of 90.3% of face value resulting in a $2.1 million temporary impairment.
		CBIZ has determined that the impairment is temporary due to the recent 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 the Company

CBIZ, INC. AND SUBSIDIARIES

		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 the 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.
9.		Other Comprehensive Income
		Other comprehensive income is reflected as an increase to shareholders’ equity and is not reflected in our results of operations. Other comprehensive income for the three months ended March 31, 2008 and 2007, respectively, net of tax, was as follows (in thousands):

		2008				2007
Net income		$	16,781			$	14,264
Net unrealized loss on available-for-sale securities, net of income tax benefit of $0.8			(1,252	)			6
Net unrealized loss on interest rate swap, net of income tax benefit of $0.1			(185	)			—
Foreign currency translation			(16	)			(11	)
Total other comprehensive income		$	15,328			$	14,259

		Accumulated other comprehensive loss, net of tax, was approximately $1.6 million and $0.1 million at March 31, 2008 and December 31, 2007, respectively. Accumulated other comprehensive loss consisted of adjustments, net of tax, to unrealized gains and losses on available-for-sale securities and the interest rate swap, and foreign currency translation.
10.		Employer Share Plans
		CBIZ has granted various stock-based awards under its 1996 Employee Stock Option Plan and 2002 Stock Incentive Plan, which are described in further detail in CBIZ’s Annual Report on Form 10-K for the year ended December 31, 2007. The terms and vesting schedules for stock-based awards vary by type and date of grant. In accordance with SFAS No. 123 (revised 2004), “Share-Based Payment”, compensation cost for stock-based awards recognized during the three months ended March 31, 2008 and 2007 was as follows (in thousands):

		2008				2007
Stock options		$	409			$	390
Restricted stock awards			262				107
Total stock-based compensation expense		$	671			$	497

Stock award activity during the three months ended March 31, 2008 was as follows (in thousands, except per share data):

CBIZ, INC. AND SUBSIDIARIES

		Stock
		Options								Restricted Stock Awards
						Weighted								Weighted
						Average								Average
		Number				Exercise				Number				Grant-Date
		of				Price Per				of				Fair
		Options				Share				Shares				Value (1)
Outstanding at beginning of year			3,638			$	5.43				516			$	6.28
Granted			—			$	—				49			$	9.25
Exercised			(811	)		$	3.54				—			$	—
Released			—			$	—				(56	)		$	6.35
Expired or canceled			(29	)		$	7.30				—			$	—
Outstanding at March 31, 2008			2,798			$	5.96				509			$	6.56
Exercisable at March 31, 2008			933			$	4.47

(1)		Represents weighted average market value of the shares; awards are granted at no cost to the recipients.
		CBIZ had approximately 9.7 million shares available for future grant under the stock option plans at March 31, 2008.

		2008				2007
Numerator:
Income from continuing operations after income tax expense		$	17,228			$	14,846
Denominator:
Basic
Weighted average common shares			63,261				66,344
Diluted
Options(1)			734				1,368
Restricted stock awards			202				139
Contingent shares (2)			69				172
Total diluted weighted average common shares			64,266				68,023
Basic earnings per share from continuing operations		$	0.27			$	0.22
Diluted earnings per share from continuing operations		$	0.27			$	0.22

(1)		A total of 1.0 million and 0.6 million options were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2008 and 2007 as their effect would be anti-dilutive.
(2)		Contingent shares represent additional shares to be issued for purchase price earned by former owners of businesses acquired by CBIZ once future conditions have been met.

CBIZ, INC. AND SUBSIDIARIES

		2008				2007
Goodwill		$	4,787			$	1,509
Client lists		$	5,351			$	1,315
Other intangible assets		$	81			$	65

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 SFAS No. 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”.
		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 first quarter of 2008, CBIZ sold an operation from the Financial Services practice group. Proceeds from this sale consisted of approximately $1.5 million in cash and resulted in a pre-tax loss of approximately $0.1 million. In addition, CBIZ committed to the closure of a business operation in the National Practices group and recorded an estimated loss of $0.3 million related to the closure of that operation.

CBIZ, INC. AND SUBSIDIARIES

		During the first quarter of 2007, CBIZ sold an operation from the Financial Services practice group for proceeds that consisted of $0.6 million cash and $0.6 million in notes receivable, and resulted in a net loss of $0.2 million. CBIZ also received a $1.5 million payment during the first quarter of 2007 related to contingent proceeds for an Employee Services operation that was sold during 2005. Contingent proceeds were recognized as “Gain (loss) on disposal of discontinued operations, net of tax” in previous periods.
		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 months ended March 31, 2008 and 2007 were as follows (in thousands):

		2008				2007
Revenue		$	387			$	7,852
Income (loss) from operations of discontinued operations, before income tax benefit (expense)		$	6			$	(600	)
Income tax benefit (expense)			(4	)			211
Income (loss) from operations of discontinued operations, net of tax		$	2			$	(389	)

Losses on the disposal of discontinued operations for the three months ended March 31, 2008 and 2007 were as follows (in thousands):

		2008				2007
Loss on disposal of discontinued operations, before income tax expense		$	(378	)		$	(41	)
Income tax expense			71				152
Loss on disposal of discontinued operations, net of tax		$	(449	)		$	(193	)

At March 31, 2008 and December 31, 2007, the assets and liabilities of businesses classified as discontinued operations consisted of the following (in thousands):

		MARCH 31,				DECEMBER 31,
		2008				2007
Assets:
Accounts receivable, net		$	434			$	1,251
Deferred income taxes			320				454
Goodwill and other intangible assets, net			—				569
Other assets			27				38
Assets of discontinued operations		$	781			$	2,312
Liabilities:
Accounts payable		$	552			$	610
Accrued personnel costs			140				151
Deferred income taxes			317				317
Other liabilities			2,385				2,699
Liabilities of discontinued operations		$	3,394			$	3,777

CBIZ, INC. AND SUBSIDIARIES

		Divestitures

		CBIZ sold certain assets and client lists in prior periods which did not qualify for treatment as discontinued operations. The gain on sale of certain client lists has been deferred and the deferred gains are recorded as “other non-current liabilities” in the accompanying consolidated balance sheets. The gain on these sales is being recorded as “Gain on sale of operations, net” as cash payments are received. Additionally, CBIZ may earn additional proceeds on the sale of certain client lists (sold in previous years), which are contingent upon future revenue generated by the client lists. CBIZ records these proceeds as other income when they are earned.
14.		Segment Disclosures
		CBIZ’s business units have been aggregated into four practice groups: Financial Services, Employee Services, Medical Management Professionals (MMP), and National Practices. The business units have been aggregated based on the following factors: similarity of the products and services provided to clients; similarity of the regulatory environment; and similarity of economic conditions affecting long-term performance. The business units are managed along these segment lines.
		A general description of services provided by practice group, is provided in the table below.

Financial Services		Employee Services		National Practices		MMP
•    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		•    Managed Networking      and Hardware Services •    IT Consulting •    Project Management •    Software Solutions •    Mergers & Acquisitions •    Health Care Consulting		•    Coding and Billing •    Accounts Receivable      Management •    Full Practice      Management Services

		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 certain compensation costs (including incentive compensation, stock compensation, and adjustments to the fair value of the investments held in the deferred compensation plan), infrastructure costs and consolidation and integration charges.
		Accounting policies of the practice groups are the same as those described in Note 1, “Summary of Significant Accounting Policies.” 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.

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 Financial Services practice group 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 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 their 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 other attest services, does not contract to perform them and does not provide audit, review, compilation, or other 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.

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 FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), as amended. See further discussion in Note 1 of the consolidated financial statements included herewith.

Employee Services

CBIZ’s Employee 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 amounts recognized under these arrangements during the three months ended March 31, 2008 and 2007 were approximately 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.

Medical Management Professionals

Changes in some managed care plans and federal Medicare and Medicaid physician and practice expense reimbursement rules and rates have impacted revenues and margins 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 management 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 and procedures, as well as reimbursement costs, and replace volume-based payment methods. Since a majority of our physician and medical billing and collections 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 maintain margins. CBIZ believes that the impact of the changes in reimbursement rates described above began in April 2007. As part of the Company’s efforts to maintain margins in this business, two acquisitions were made during 2007. The acquired companies service physicians groups whose specialties were less impacted by the DRA changes noted above. CBIZ continuously monitors the regulatory factors that impact the Medical Management business.

Auction Rate Securities (“ARS”)

As a result of the recent liquidity issues experienced in the credit and capital markets, CBIZ’s ARS have experienced failed auctions during the first quarter of 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 face value.

At March 31, 2008, the face value of ARS held by CBIZ totaled $23.4 million, of which $2.0 million was redeemed by the issuer in April 2008. On March 31, 2008, CBIZ reduced the carrying amount of the remaining ARS by $2.1 million, to $19.3 million. CBIZ determined this decline in fair market value to be temporary, and recorded the decline as an unrealized loss in accumulated other comprehensive loss. The impact to accumulated other comprehensive loss was $1.2 million, net of income taxes.

CBIZ reclassified $19.3 million of the ARS with maturity dates beyond March 31, 2009 from current assets (Funds held for clients — current) to non-current assets (Funds held for clients - non-current), as CBIZ intends to hold these investments until anticipated recovery in value occurs.

CBIZ continues to monitor the market for ARS and consider its impact on the fair value of its 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 in future periods. The principal associated with failed auctions will not be accessible until successful auctions occur, a buyer is found outside of the auction process, the issuers establish a different form of financing to replace these securities, issuers repay principal over time from cash flows prior to final maturity, or final payments come due according to contractual maturities ranging from 20 to 40 years. We understand that issuers and financial markets are working on alternatives that may improve liquidity, although it is not yet clear when or if such efforts will be successful. We expect that over time we will recover our investment associated with these ARS through one of the means described above.

Executive Summary

CBIZ acquired two businesses during the first quarter of 2008. One business is located in Palm Desert, California and offers payroll processing services. The second business is located in Frederick, Maryland and provides insurance programs to the innkeepers industry. Both businesses are reported in the Employee Services practice group.

During the first quarter of 2008, CBIZ committed to the divestiture of two businesses and classified them as discontinued operations. These businesses were formerly reported in the Financial Services and National Practices groups. See Note 13 to these consolidated financial statements for further disclosure.

CBIZ believes that repurchasing shares of its common stock is a use of cash that provides value to its shareholders. Accordingly, CBIZ purchased 2.5 million shares of its common stock in the open market at a total cost of $22.8 million, of which $22.2 million settled during the first quarter of 2008. On February 7, 2008, CBIZ’s Board of Directors authorized the purchase of up to 5.0 million shares of CBIZ common stock through March 31, 2009. At March 31, 2008 CBIZ had approximately 4.8 million shares remaining to be purchased under this plan. For the period April 1, 2008 through April 30, 2008, CBIZ purchased an additional 0.9 million shares at a cost of $7.3 million.

Effective April 3, 2008, CBIZ entered into an agreement to amend its credit facility with Bank of America, N.A. and other participating banks. The amendment serves to increase the commitment from $100.0 million to $150.0 million.

Effective January 1, 2008, CBIZ converted its comprehensive health benefit plan from a fully-insured plan to a self-funded program. The financial statements reflect accrued liabilities and expenses for this plan, with the liability based on estimates of costs to settle known claims as well as incurred but not reported claims. CBIZ maintains stop-loss coverage with third-party insurers to limit the exposure for both individually significant claims and the overall aggregate amount of claims made under the self-funded plan.

Results of Operations — Continuing Operations

Same-unit revenue represents total revenue adjusted to reflect comparable periods of activity for acquisitions and divestitures. For example, for a business acquired on March 1, 2007, revenue for the month of March would be included in same-unit revenue for first quarter of both years; revenue for the period January 1, 2008 through February 28, 2008 would be reported as revenue from acquired businesses. Revenue from divested operations represents operations that were sold or closed and did not meet the criteria for treatment as discontinued operations.

Three Months Ended March 31, 2008 and 2007

Revenue

The following table summarizes total revenue for the three months ended March 31, 2008 and 2007 (in thousands, except percentages).

		THREE MONTHS ENDED MARCH 31,
						% of								% of				$				%
		2008				Total				2007				Total				Change				Change
Same-unit revenue
Financial Services		$	98,805				50.1	%		$	92,032				51.6	%		$	6,773				7.4	%
Employee Services			46,184				23.4	%			45,037				25.2	%			1,147				2.5	%
MMP			31,841				16.1	%			29,608				16.6	%			2,233				7.5	%
National Practices			10,526				5.3	%			11,767				6.6	%			(1,241	)			(10.5	)%
Total same-unit revenue			187,356				94.9	%			178,444				100.0	%			8,912				5.0	%
Acquired businesses			9,996				5.1	%			—				—				9,996
Divested operations			—				—				—				—				—
Total revenue		$	197,352				100.0	%		$	178,444				100.0	%		$	18,908				10.6	%

A detailed discussion of revenue by practice group is included under “Operating Practice Groups” below.

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. The

primary components of operating expenses for the three months ended March 31, 2008 and 2007 are illustrated below:

		2008								2007
		% of								% of								Change in
		Operating				% of				Operating				% of				% of
		Expense				Revenue				Expense				Revenue				Revenue
Personnel costs			73.7	%			59.1	%			73.8	%			59.6	%			(0.5	)%
Occupancy costs			6.3	%			5.1	%			6.3	%			5.1	%			—
Other (1)			20.0	%			16.0	%			19.9	%			16.0	%			—
Total operating expense							80.2	%							80.7	%			(0.5	)%
Gross margin							19.8	%							19.3	%			0.5	%

Adjustments to the fair value of investments held in relation to the deferred compensation plan are recorded as compensation expense and contributed 0.9% of the improvement in personnel costs as a percentage of revenue. These adjustments 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. For the practice groups, personnel costs as a percentage of revenue increased by 0.4% for the first quarter of 2008 versus the comparable period in 2007. The increase in personnel costs as a percentage of revenue experienced by the practice groups is discussed in further detail under “Operating Practice Groups” below.

Corporate general and administrative expense — Corporate general and administrative (“G&A”) expenses decreased by $1.4 million to $7.3 million for the three months ended March 31, 2008, from $8.7 million for the comparable period of 2007. The primary components of corporate general and administrative expenses for the three months ended March 31, 2008 and 2007 are illustrated below:

		2008								2007
		% of								% of								Change in
		G&A				% of				G&A				% of				% of
		Expense				Revenue				Expense				Revenue				Revenue
Personnel costs			61.0	%			2.2	%			52.2	%			2.5	%			(0.3	)%
Depreciation and amortization			5.2	%			0.2	%			9.3	%			0.5	%			(0.3	)%
Professional services			12.2	%			0.4	%			13.4	%			0.7	%			(0.3	)%
Other (1)			21.6	%			0.9	%			25.1	%			1.2	%			(0.3	)%
Total corporate general and administrative expenses							3.7	%							4.9	%			(1.2	)%

The decrease in G&A expense was primarily attributable to legal-related expenses, depreciation and amortization expense and compensation expense as it relates to the deferred compensation plan. Legal-related expenses were $0.9 million lower in the first quarter of 2008 than the comparable period of 2007. CBIZ believes that this decline was the result of timing, and thus the decline in legal-related expenses for the first quarter of 2008 versus the comparable period of 2007 is not expected to continue for the remainder of the year. Adjustments to the fair value of investments held in relation to the deferred compensation plan are recorded as compensation expense and contributed $0.3 million to the decline in G&A expenses. These adjustments are offset by the same adjustment to other income (expense), and thus do not have an impact on net income. Depreciation and amortization expense decreased by $0.4 million primarily due to certain capitalized software that became fully depreciated during 2007.

Interest expense — Interest expense was $1.7 million and $1.3 million for the three months ended March 31, 2008 and 2007, respectively. Average debt was $148.4 million for the three months ended March 31, 2008, compared to $108.1 million for the comparable period in 2007, and weighted-average interest rates were 3.9% and 3.5% during the three months ended March 31, 2008 and 2007, respectively.

Other income (expense), net — Other income (expense), net is comprised of interest income, adjustments 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 contributed $2.1 million to the decline in other income (expense), net for the first quarter of 2008 versus the comparable period in 2007. These adjustments do not impact CBIZ’s net income as they are offset by the same adjustments to compensation expense which is recorded as operating and corporate general administrative expenses in the consolidated statements of operations.

Income tax expense — CBIZ recorded income tax expense from continuing operations of $11.5 million and $10.3 million for the three months ended March 31, 2008 and 2007, respectively. The effective tax rate for the three months ended March 31, 2008 was 40.0%, compared to an effective rate of 41.0% for the comparable period in 2007. The effective tax rate for the three months ended March 31, 2008 decreased from the comparable period in 2007 primarily due to a net decrease in recurring nondeductible expenses.

Operating Practice Groups

CBIZ delivers its integrated services through four practice groups: Financial Services, Employee Services, Medical Management Professionals (MMP) and National practices. A brief description of these groups’ operating results and factors affecting their businesses is provided below.

Financial Services

		THREE MONTHS ENDED MARCH 31,
										$				%
		2008				2007				Change				Change
		(In thousands, except percentages)
Revenue
Same-unit		$	98,805			$	92,032			$	6,773				7.4	%
Acquired businesses			—				—				—
Divested operations			—				—				—
Total revenue		$	98,805			$	92,032			$	6,773				7.4	%
Operating expenses			70,712				65,781				4,931				7.5	%
Gross margin		$	28,093			$	26,251			$	1,842				7.0	%
Gross margin percent			28.4	%			28.5	%