UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

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

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

Commission File Number 1-32961

CBIZ, INC.

(Exact name of registrant as specified in its charter)

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

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

(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 April 30, 2011
Common Stock, par value $0.01 per share		50,725,636

 

 

CBIZ, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

			Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets — March 31, 2011 and December 31, 2010			3
Consolidated Statements of Operations — Three Months Ended March 31, 2011 and 2010			4
Consolidated Statements of Cash Flows — Three Months Ended March 31, 2011 and 2010			5
Notes to the Consolidated Financial Statements			6-19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20-34
Item 3. Quantitative and Qualitative Disclosures About Market Risk			34
Item 4. Controls and Procedures			34
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings			36
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 6. Exhibits			37
Signature			38
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CBIZ, INC. AND SUBSIDIARIES

		MARCH 31,				DECEMBER 31,
		2011				2010
ASSETS
Current assets:
Cash and cash equivalents		$	231			$	724
Restricted cash			18,095				20,171
Accounts receivable, net			169,672				138,068
Income taxes refundable			—				3,684
Deferred income taxes — current			4,224				4,236
Other current assets			12,621				11,958
Assets of discontinued operations			710				640
Current assets before funds held for clients			205,553				179,481
Funds held for clients — current			110,216				73,987
Total current assets			315,769				253,468
Property and equipment, net			22,737				23,895
Deferred income taxes — non-current, net			—				837
Goodwill and other intangible assets, net			420,868				426,410
Assets of deferred compensation plan			35,429				33,361
Funds held for clients — non-current			3,985				10,216
Other assets			7,607				8,112
Total assets		$	806,395			$	756,299
LIABILITIES
Current liabilities:
Accounts payable		$	27,499			$	30,814
Income taxes payable — current			7,558				—
Accrued personnel costs			26,242				33,030
Notes payable — current			236				10,983
Convertible notes, net			39,700				39,250
Other current liabilities			26,444				27,321
Liabilities of discontinued operations			621				562
Current liabilities before client fund obligations			128,300				141,960
Client fund obligations			116,960				87,362
Total current liabilities			245,260				229,322
Convertible notes, net			117,168				116,577
Bank debt			132,800				118,900
Income taxes payable — non-current			5,424				5,285
Deferred income taxes — non-current			596				—
Deferred compensation plan obligations			35,429				33,361
Other non-current liabilities			19,672				23,182
Total liabilities			556,349				526,627
STOCKHOLDERS’ EQUITY
Common stock			1,099				1,096
Additional paid-in capital			541,454				539,389
Retained earnings			63,883				45,978
Treasury stock			(355,851	)			(355,851	)
Accumulated other comprehensive loss			(539	)			(940	)
Total stockholders’ equity			250,046				229,672
Total liabilities and stockholders’ equity		$	806,395			$	756,299

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

		THREE MONTHS ENDED
		MARCH 31,
		2011				2010
Revenue		$	209,891			$	209,381
Operating expenses			169,428				171,449
Gross margin			40,463				37,932
Corporate general and administrative expenses			9,661				8,984
Operating income			30,802				28,948
Other income (expense):
Interest expense			(4,915	)			(3,168	)
Gain on sale of operations, net			2,743				374
Other income, net			3,081				2,173
Total other income (expense), net			909				(621	)
Income from continuing operations before income tax expense			31,711				28,327
Income tax expense			13,587				11,471
Income from continuing operations after income tax expense			18,124				16,856
Loss from operations of discontinued operations, net of tax			(259	)			(436	)
Gain (loss) on disposal of discontinued operations, net of tax			40				(436	)
Net income		$	17,905			$	15,984
Earnings (loss) per share:
Basic:
Continuing operations		$	0.37			$	0.27
Discontinued operations			(0.01	)			(0.01	)
Net income		$	0.36			$	0.26
Diluted:
Continuing operations		$	0.36			$	0.27
Discontinued operations			—				(0.01	)
Net income		$	0.36			$	0.26
Basic weighted average shares outstanding			49,322				61,509
Diluted weighted average shares outstanding			49,755				62,065

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

		THREE MONTHS ENDED
		MARCH 31,
		2011				2010
Cash flows from operating activities:
Net income		$	17,905			$	15,984
Adjustments to reconcile net income to net cash used in operating activities:
Loss from operations of discontinued operations, net of tax			259				436
(Gain) loss on disposal of discontinued operations, net of tax			(40	)			436
Gain on sale of operations, net			(2,743	)			(374	)
Amortization of discount on convertible notes			1,041				1,042
Amortization of deferred financing costs			448				221
Bad debt expense, net of recoveries			1,323				1,087
Depreciation and amortization expense			5,030				5,125
Adjustment to contingent earnout liability			(1,109	)			(721	)
Deferred income taxes			1,100				(1,326	)
Employee stock awards			1,324				1,294
Excess tax benefits from share based payment arrangements			(114	)			(49	)
Changes in assets and liabilities, net of acquisitions and divestitures:
Restricted cash			2,076				4,021
Accounts receivable, net			(32,927	)			(40,827	)
Other assets			(649	)			1,078
Accounts payable			(3,319	)			(3,089	)
Income taxes payable/refundable			11,686				12,156
Accrued personnel costs and other liabilities			(4,771	)			(3,407	)
Net cash used in continuing operations			(3,480	)			(6,913	)
Operating cash flows used in discontinued operations			(270	)			(962	)
Net cash used in operating activities			(3,750	)			(7,875	)
Cash flows from investing activities:
Business acquisitions and contingent consideration, net of cash acquired			(10,860	)			(26,039	)
Purchases of client fund investments			(4,931	)			—
Proceeds from the sales and maturities of client fund investments			5,067				—
Proceeds from sales of divested and discontinued operations			486				874
Additions to property and equipment, net			(531	)			(887	)
Other			(1	)			(7	)
Net cash used in investing activities			(10,770	)			(26,059	)
Cash flows from financing activities:
Proceeds from bank debt			115,100				137,875
Payment of bank debt			(101,200	)			(108,425	)
Payment of contingent consideration for acquisitions			(330	)			—
Payment for acquisition of treasury stock			—				(29	)
Proceeds from exercise of stock options			628				645
Excess tax benefit from exercise of stock awards			114				49
Other			(285	)			(42	)
Net cash provided by financing activities			14,027				30,073
Net decrease in cash and cash equivalents			(493	)			(3,861	)
Cash and cash equivalents at beginning of year			724				7,178
Cash and cash equivalents at end of period		$	231			$	3,317

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

1.		Summary of Significant Accounting Policies
		The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements.
		In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting solely of normal recurring adjustments) considered necessary to present fairly the financial position of CBIZ, Inc. and its consolidated subsidiaries (“CBIZ” or the “Company”) as of March 31, 2011 and December 31, 2010, and the consolidated results of their operations and cash flows for the three months ended March 31, 2011 and 2010. Due to seasonality, potential changes in economic conditions, interest rate fluctuations and other factors, the results of operations for such interim periods are not necessarily indicative of the results for the full year. For further information, refer to the consolidated financial statements and notes thereto included in CBIZ’s Annual Report on Form 10-K for the year ended December 31, 2010.
		Principles of Consolidation
		The accompanying consolidated financial statements reflect the operations of CBIZ, Inc. and all of its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying consolidated financial statements do not reflect the operations or accounts of variable interest entities as the impact is not material to the financial condition, results of operations or cash flows of CBIZ. See CBIZ’s Annual Report on Form 10-K for the year ended December 31, 2010 for further discussion.
		Use of Estimates
		The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect: the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses. Management’s estimates and assumptions include, but are not limited to, estimates of collectability of accounts receivable and unbilled revenue, the realizability of goodwill and other intangible assets, the fair value of certain assets, the valuation of stock options in determining compensation expense, estimates of accrued liabilities (such as incentive compensation, self-funded health insurance accruals, legal reserves, income tax uncertainties, future contingent purchase price obligations, and consolidation and integration reserves), the provision for income taxes, the realizability of deferred tax assets, and other factors. Management’s estimates and assumptions are derived from and are continually evaluated based upon available information, judgment and experience. Actual results could differ from those estimates.
		Reclassifications
		Certain amounts in the 2010 consolidated financial statements and disclosures have been reclassified to conform to the current year presentation, including the impact of discontinued operations.
		Revenue Recognition and Valuation of Unbilled Revenues
		Revenue is recognized only when all of the following are present: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee to the client is fixed or determinable, and collectability is reasonably assured.
		CBIZ offers a vast array of products and business services to its clients. Those services are delivered through four practice groups. A description of revenue recognition policies is included in the Annual Report on Form 10-K for the year ended December 31, 2010.

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

		New Accounting Pronouncements
		In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-29 (“ASU 2010-29”) “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations”, which amends Accounting Standards Codification (“ASC”) 805 by requiring disclosure of pro forma information for business combinations that occurred in the current reporting period. The required disclosures include pro forma revenue and earnings of the combined entity as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the comparable prior annual reporting period. ASU 2010-29 also expands supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for business combinations in which the acquisition date is on or after the first day of the annual period beginning on or after December 15, 2010. The adoption of ASU 2010-29 will result in the Company providing additional annual pro forma disclosures for significant business combinations that occur subsequent to December 31, 2010.
		In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”), which adds disclosure requirements about transfers in and out of Levels 1 and 2, for activity relating to Level 3 measurements, and clarifies input and valuation techniques. ASU 2010-06 was effective for the first reporting period beginning after December 15, 2009, except as it pertained to the requirement to provide the Level 3 activity for purchases, sales, issuances and settlements on a gross basis. The Level 3 requirement is effective for fiscal years beginning after December 15, 2010. CBIZ has adopted all the provisions of ASU 2010-06 and the adoption did not have a material impact on CBIZ’s consolidated financial statements.
2.		Accounts Receivable, Net
		Accounts receivable balances at March 31, 2011 and December 31, 2010 were as follows (in thousands):

		2011				2010
Trade accounts receivable		$	123,868			$	119,205
Unbilled revenue			55,871				29,483
Total accounts receivable			179,739				148,688
Allowance for doubtful accounts			(10,067	)			(10,620	)
Accounts receivable, net		$	169,672			$	138,068

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

3.		Goodwill and Other Intangible Assets, Net
		The components of goodwill and other intangible assets, net at March 31, 2011 and December 31, 2010 were as follows (in thousands):

		2011				2010
Goodwill		$	341,936			$	344,086
Intangible assets:
Client lists			116,661				117,029
Other intangible assets			9,407				9,506
Total intangible assets			126,068				126,535
Total goodwill and intangibles assets			468,004				470,621
Accumulated amortization:
Client lists			(41,853	)			(39,206	)
Other intangible assets			(5,283	)			(5,005	)
Total accumulated amortization			(47,136	)			(44,211	)
Goodwill and other intangible assets, net		$	420,868			$	426,410

4.		Depreciation and Amortization
		Depreciation and amortization expense for property and equipment and intangible assets for the three months ended March 31, 2011 and 2010 was as follows (in thousands):

		2011				2010
Operating expenses		$	4,938			$	5,020
Corporate general and administrative expenses			92				105
Total depreciation and amortization expense		$	5,030			$	5,125

5.		Borrowing Arrangements
		CBIZ has three primary debt arrangements at March 31, 2011 that provide the Company with the capital necessary to meet its working capital needs as well as the flexibility to continue with its strategic initiatives, including business acquisitions and share repurchases: the 2010 Convertible Senior Subordinated Notes (“2010 Notes”) totaling $130 million, the 2006 Convertible Senior Subordinated Notes (“2006 Notes”) totaling $40 million, and a $275 million unsecured credit facility.
		2010 Convertible Senior Subordinated Notes
		On September 27, 2010, CBIZ sold and issued $130.0 million of 2010 Notes to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended. The 2010 Notes are direct, unsecured, senior subordinated obligations of CBIZ and rank (i) junior in right of payment to all of CBIZ’s existing and future senior indebtedness, (ii) equal in right of payment with any other future senior subordinated indebtedness, and (iii) senior in right of payment to all existing and future obligations, if any, that are designated as subordinated to the 2010 Notes. The 2010 Notes bear interest at a rate of 4.875% per annum, payable in cash semi-annually in arrears on April 1 and October 1 beginning April 1, 2011. The 2010 Notes mature on October 1, 2015 unless earlier redeemed, repurchased or converted.

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

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

		March 31,				December 31,
		2011				2010
Principal amount of notes		$	130,000			$	130,000
Unamortized discount			(12,832	)			(13,423	)
Net carrying amount		$	117,168			$	116,577
Additional paid-in-capital, net of tax		$	8,555			$	8,555

		The discount on the liability component of the 2010 Notes is being amortized using the effective interest method based upon an annual effective rate of 7.5%, which represents the market rate for similar debt without a conversion option at the issuance date. The discount is being amortized over the term of the 2010 Notes which is five years from the date of issuance. At March 31, 2011, the unamortized discount had a remaining amortization period of approximately 54 months. Refer to the Annual Report on Form 10-K for the year ended December 31, 2010 for additional information on the 2010 Notes.
		2006 Convertible Senior Subordinated Notes
		On May 30, 2006, CBIZ sold and issued $100.0 million in convertible senior subordinated notes and on September 27, 2010, CBIZ repurchased $60.0 million of the 2006 Notes. These 2006 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 2006 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 2006 Notes mature on June 1, 2026 unless earlier redeemed, repurchased or converted. CBIZ may redeem the 2006 Notes for cash, either in whole or in part, anytime after June 6, 2011 at a redemption price equal to 100% of the principal amount of the 2006 Notes to be redeemed plus accrued and unpaid interest, including contingent interest and additional amounts, if any, up to but not including the date of redemption. In addition, holders of the 2006 Notes will have the right to require CBIZ to repurchase for cash all or a portion of their 2006 Notes on June 1, 2011, June 1, 2016 and June 1, 2021, at a repurchase price equal to 100% of the principal amount of the 2006 Notes to be repurchased plus accrued and unpaid interest, including contingent interest and additional amounts, if any, up to but not including, the date of repurchase. At March 31, 2011 and December 31, 2010, the 2006 Notes are classified as a current liability based on the provision in the 2006 Indenture that gives the holders of the Notes the right to require CBIZ to repurchase the 2006 Notes on June 1, 2011.
		CBIZ separately accounts for the debt and equity components of the 2006 Notes. The carrying amount of the debt and equity components at March 31, 2011 and December 31, 2010 were as follow (in thousands):

		March 31,				December 31,
		2011				2010
Principal amount of notes		$	40,000			$	40,000
Unamortized discount			(300	)			(750	)
Net carrying amount		$	39,700			$	39,250
Additional paid-in-capital, net of tax		$	11,425			$	11,425

The discount on the liability component of the 2006 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 2006 Notes. At March 31, 2011, the unamortized discount had a remaining amortization period of approximately

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

		two months. Refer to the Annual Report on Form 10-K for the year ended December 31, 2010 for additional information on the 2006 Notes.
		During the three months ended March 31, 2011 and 2010, CBIZ recognized interest expense on the 2010 Notes and 2006 Notes as follows (in thousands):

		Three Months Ended
		March 31,
		2011				2010
Contractual coupon interest		$	1,897			$	781
Amortization of discount			1,041				1,042
Amortization of deferred financing costs			232				133
Total interest expense		$	3,170			$	1,956

		Bank Debt
		CBIZ maintains a $275 million unsecured credit facility (“credit facility”) with Bank of America as agent for a group of seven participating banks. On April 11, 2011, the credit facility was amended to extend the maturity date one year to June 2015, reduce interest on outstanding balances, reduce commitment fees on the unused amount, and adjust the leverage ratio limits to provide CBIZ with more flexibility. The balance outstanding under the credit facility was $132.8 million and $139.5 million at March 31, 2011 and 2010, respectively. Rates for the three months ended March 31, 2011 and 2010 were as follows:

		2011		2010
Weighted average rates		3.97%		3.09%
Range of effective rates		3.25% - 5.75%		2.71% - 6.40%

		CBIZ had approximately $91.9 million of available funds under the credit facility at March 31, 2011. The credit facility provides CBIZ operating flexibility and funding to support seasonal working capital needs and other strategic initiatives such as acquisitions and share repurchases. There are no limitations on CBIZ’s ability to acquire businesses provided that the total and senior leverage ratios are less than 3.75 and 2.50, respectively. The total and senior leverage ratios are calculated in accordance with the credit agreement and as of March 31, 2011, were 3.70 and 1.68, respectively. Refer to the Annual Report on Form 10-K for the year ended December 31, 2010 for additional information on the credit facility.
6.		Commitments and Contingencies
		Letters of Credit and Guarantees
		CBIZ provides letters of credit to landlords (lessors) of its leased premises in lieu of cash security deposits which totaled $2.8 million and $3.0 million as of March 31, 2011 and December 31, 2010, respectively. In addition, CBIZ provides license bonds to various state agencies to meet certain licensing requirements. The amount of license bonds outstanding at March 31, 2011 and December 31, 2010 was $1.6 million and $1.5 million, respectively.
		CBIZ acted as guarantor on various letters of credit for a CPA firm with which it has an affiliation, which totaled $3.4 million as of March 31, 2011 and December 31, 2010. CBIZ has recognized a liability for the fair value of the obligations undertaken in issuing these guarantees, which is recorded as other current liabilities in the accompanying consolidated balance sheets. Management does not expect any material changes to result from these instruments as performance under the guarantees is not expected to be required.

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

		Self-Funded Health Insurance
		CBIZ maintains a self-funded comprehensive health benefit plan. Total expenses under this program are limited by stop-loss coverages on individually large claims. A third party administrator processes claims and payments, but does not assume liability for benefits payable under this plan. CBIZ assumes responsibility for funding the plan benefits out of general assets, however, employees contribute to the costs of covered benefits through premium charges, deductibles and co-pays.
		The third party administrator provides the Company with reports and other information which provides a basis for the estimate of the liability at the end of each reporting period. Although management believes that it uses the best available information to determine the amount of the liability, unforeseen health claims could result in adjustments and higher costs incurred if circumstances differ from the assumptions used in estimating the liability. The liability for the self-funded health insurance plan is included in other current liabilities in the consolidated balance sheets and was $4.6 million and $3.4 million at March 31, 2011 and December 31, 2010, respectively. CBIZ’s net healthcare costs include health claims, administration fees to the third-party administrators and premiums for stop-loss coverage.
		Legal Proceedings
		In May, June, July, August and September of 2010, the Company and its subsidiary, CBIZ MHM, LLC (fka CBIZ Accounting, Tax & Advisory Services, LLC) (“the CBIZ Parties”), were named as defendants in lawsuits filed in the United States District Court for the District of Arizona (Robert Facciola, et al v. Greenberg Traurig LLP, et al.) and in the Superior Court for Maricopa County Arizona (Victims Recovery, LLC v. Greenberg Traurig LLP, et al.; Roger Ashkenazi, et al v. Greenberg Traurig LLP, et al.; Mary Marsh, et al v. Greenberg Traurig LLP, et al.; and ML Liquidating Trust v. Mayer Hoffman McCann, PC, et al.), respectively. The Maricopa County cases were removed to the United States District Court or Bankruptcy Court but have since been remanded to the Superior Court for Maricopa County. These remand orders are currently being appealed. The Facciola plaintiffs seek to proceed as a class action. Additionally, in November 2009, CBIZ MHM, LLC was named as a defendant in the United States District Court for the District of Arizona (Jeffery C. Stone v. Greenberg Traurig LLP, et al.). These matters arise out of the bankruptcy proceedings related to Mortgages Ltd., a mortgage lender to developers in the Phoenix, Arizona area. Various other professional firms not related to the Company are also defendants in these lawsuits. The motion phase of these proceedings has commenced.
		The plaintiffs, except for those in the Stone and ML Liquidating Trust cases, are all alleged to have directly or indirectly invested in real estate mortgages through Mortgages Ltd. The Facciola, Victims Recovery, Ashkenazi and Marsh plaintiffs seek monetary damages equivalent to the amounts of their investments. The plaintiff in Stone sought monies it allegedly lost based on the claim that Mortgages Ltd. did not fund development projects in which it was a contractor. The Stone case has been voluntarily dismissed by the plaintiff in that matter. The plaintiff in the ML Liquidating Trust matter asserts errors and omissions and breach of contract claims, and is seeking monetary damages. The plaintiffs in these suits also seek pre- and post-judgment interest, punitive damages and attorneys’ fees.
		Mortgages Ltd. had been audited by Mayer Hoffman McCann PC, a CPA firm which has an administrative services agreement with CBIZ. The claims against the CBIZ Parties seek to impose auditor-type liabilities upon the Company for audits it did not conduct. Specific claims include securities fraud, common law fraud, negligent misrepresentation, Arizona Investment Management Act violations, control-person liability, aiding and abetting and conspiracy. CBIZ is not a CPA firm, does not provide audits, and did not audit any of the entities at issue in these lawsuits.
		The CBIZ Parties deny all allegations of wrongdoing made against them in these actions and are vigorously defending the proceedings. The Company has been advised by Mayer Hoffman McCann PC that it denies all allegations of wrongdoing made against it and that it intends to continue vigorously defending the matters. Although the proceedings are subject to uncertainties inherent in the litigation process and the ultimate disposition of these proceedings is not presently determinable, management believes that the allegations are without merit and that the ultimate resolution of these matters will not

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

		have a material adverse effect on the consolidated financial condition, results of operations or cash flows of CBIZ.
		In addition to those items disclosed above, CBIZ is, from time to time, subject to claims and suits arising in the ordinary course of business. Although the ultimate disposition of such proceedings is not presently determinable, management does not believe that the ultimate resolution of these matters will have a material adverse effect on the consolidated financial condition, results of operations or cash flows of CBIZ.
7.		Financial Instruments
		Corporate Bonds
		CBIZ held corporate bonds with par values totaling $18.4 million and $14.6 million at March 31, 2011 and December 31, 2010, respectively. Corporate bonds have maturity dates ranging from May 2011 through July 2015, and are included in “Funds held for clients — current” on the consolidated balance sheets as these investments are highly liquid and are classified as available-for-sale. During the three months ended March 31, 2011, CBIZ purchased bonds with a par value totaling $4.9 million, sold bonds with a par value totaling $1.0 million, and had an additional $0.1 million par value of bonds that matured.
		Auction Rate Securities (“ARS”)
		During the first quarter of 2011, CBIZ sold one of its three investments in ARS at par. At March 31, 2011, CBIZ held two remaining investments in ARS with par values totaling $9.4 million and fair values totaling $6.6 million. In April 2011, CBIZ sold one of the two remaining ARS. A loss of approximately $0.1 million was recorded in “Other income (loss), net” in the consolidated statements of operations related to this ARS during the first quarter of 2011. The difference between par value and fair value for the one remaining ARS is deemed to be temporary and is therefore recorded as unrealized losses in accumulated other comprehensive loss (“AOCL”), net of tax. See Note 8 for further discussion of ARS.
		Interest Rate Swaps
		CBIZ has used interest rate swaps to manage interest rate risk exposure in the past and had two swap arrangements that expired in January 2011. CBIZ had no swap arrangements under contract at March 31, 2011, but management will continue to evaluate the potential use of interest rate swaps as it deems appropriate under certain operating and market conditions.
		At December 31, 2010, each of the interest rate swaps was classified as a liability derivative. The following table summarizes CBIZ’s outstanding interest rate swaps and their classification on the consolidated balance sheets at December 31, 2010 (in thousands).

December 31, 2010

Notional

Fair

Balance Sheet

Amount

Value (b)

Location

Interest rate swaps (a)

$

20,000

$

16

Other current liabilities

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.
		The following table summarizes CBIZ’s assets and liabilities at March 31, 2011 and December 31, 2010 that are measured at fair value on a recurring basis subsequent to initial recognition, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

		Level		March 31, 2011				December 31, 2010
Deferred compensation plan assets		1		$	35,429			$	33,361
Corporate bonds		1		$	19,375			$	15,255
Auction rate securities		1		$	2,600			$	—
Interest rate swaps		2		$	—			$	(16	)
Auction rate securities		3		$	3,985			$	10,216
Contingent purchase price liabilities		3		$	(15,826	)		$	(17,265	)

During the three months ended March 31, 2011, an ARS with a fair value of $2.6 million was transferred from Level 3 to Level 1 based on the sale of this investment in April 2011. During the three months ended March 31, 2011, there were no other transfers between the valuation hierarchy Levels 1, 2 or 3. 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, 2011 (pre-tax basis) (in thousands):

		Auction Rate				Contingent Purchase
		Securities				Price Liabilities
Beginning balance — January 1, 2011		$	10,216			$	(17,265	)
Transfers out of Level 3			(2,600	)			—
Sale of auction rate security			(4,000	)			—
Payment of contingent purchase price liability			—				330
Unrealized gains included in accumulated other comprehensive loss			269				—
Change in fair value of contingency			—				1,152
Change in net present value of contingency			—				(43	)
Increase in expected cash flows of OTTI investment			100				—
Ending balance — March 31, 2011		$	3,985			$	(15,826	)

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

		Auction Rate Securities — During the first quarter of 2011, CBIZ sold one investment in ARS at par, leaving two investments in ARS at March 31, 2011 with par values totaling $9.4 million. For one of these ARS, the decline in fair value is considered to be temporary. The par value of this ARS is $4.4 million and the fair value was estimated to be $4.0 million at March 31, 2011 and December 31, 2010. For this ARS, CBIZ has determined that the impairment is temporary due to dislocation in the credit markets, the quality of the investments and the underlying collateral, and the probability of a passed auction or redemption in the future, considering the issuer’s ability to refinance if necessary. This ARS with temporary declines in fair value was classified as Level 3 and in included in “Funds held for clients — non-current”, as CBIZ does not intend to sell this investment until an anticipated recovery of par value occurs. This ARS matures October 1, 2037.
		The par value of the remaining ARS is $5.0 million and the fair value was $2.6 million and $2.5 million at March 31, 2011 and December 31, 2010, respectively. This ARS is classified as Level 1 and the fair value is recorded in “Funds held for clients — current” in the consolidated balance sheets at March 31, 2011 as this investment in ARS was sold on April 5, 2011 for $2.6 million. CBIZ’s policy to record transfers between levels is based on the changes in facts and circumstances of the respective asset or liability that is being reported at fair value.
		Contingent Purchase Price Liabilities — Contingent purchase price liabilities resulted from business acquisitions made after January 1, 2009, and are classified as Level 3 due to the utilization of a probability weighted discounted cash flow approach to determine the fair value of the contingency. The contingent purchase price liabilities are included in “Other current liabilities” and “Accrued expenses — non-current”, depending on the expected settlement date. During the three months ended March 31, 2011, the contingent liability decreased as a result of payments totaling $0.3 million and a $1.2 million adjustment to the estimate of future contingent liabilities. See Note 12 for further discussion of contingent purchase price liabilities.
		The following table provides additional information with regards to the ARS with temporary impairments, aggregated by the length of time that the securities have been in a continuous unrealized loss position (in thousands):

		March 31, 2011								December 31, 2010
		12 Months or Greater								12 Months of Greater
Description of Security		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Auction rate securities		$	3,985			$	395			$	7,716			$	664

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

		March 31, 2011								December 31, 2010
		Carrying Value				Fair Value				Carrying Value				Fair Value
2006 Convertible Notes		$	39,700			$	39,950			$	39,250			$	40,050
2010 Convertible Notes		$	117,168			$	157,535			$	116,577			$	141,670

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

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

9.		Other Comprehensive Income
		Other comprehensive income (loss) is reflected as an increase (decrease) to stockholders’ equity and is not reflected in CBIZ’s results of operations. Other comprehensive income (loss) for the three months ended March 31, 2011 and 2010, net of tax, was as follows (in thousands):

		2011				2010
Net income		$	17,905			$	15,984
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities, net of income tax (expense) benefit of $(271) and $50, respectively			406				(75	)
Net unrealized gain on interest rate swaps, net of income tax expense of $6 and $3, respectively			10				4
Foreign currency translation			(15	)			(15	)
Total other comprehensive income (loss)			401				(86	)
Comprehensive income		$	18,306			$	15,898

		Accumulated other comprehensive loss, net of tax, was approximately $0.5 million and $0.9 million at March 31, 2011 and December 31, 2010, respectively. Accumulated other comprehensive loss consisted of adjustments, net of tax, to unrealized gains and losses on available-for-sale securities and foreign currency translation at March 31, 2011 and December 31, 2010, and also included adjustments for interest rate swaps at December 31, 2010.
10.		Employer Share Plans
		CBIZ has granted various stock-based awards under its 2002 Stock Incentive Plan, which is described in further detail in CBIZ’s Annual Report on Form 10-K for the year ended December 31, 2010. The terms and vesting schedules for stock-based awards vary by type and date of grant. Compensation expense for stock-based awards recognized during the three months ended March 31, 2011 and 2010 was as follows (in thousands):

		2011				2010
Stock options		$	717			$	760
Restricted stock awards			607				534
Total stock-based compensation expense		$	1,324			$	1,294

Stock award activity during the three months ended March 31, 2011 was as follows (in thousands, except per share data):

		Stock
		Options								Restricted Stock Awards
						Weighted Average								Weighted Average
						Exercise Price Per								Grant-Date Fair
		Number of Options				Share				Number of Shares				Value (1)
Outstanding at beginning of year			5,653			$	7.42				825			$	7.33
Granted			—				—				70			$	6.95
Exercised or released			(182	)		$	3.45				(56	)		$	7.00
Expired or canceled			(38	)		$	7.69				—				—
Outstanding at March 31, 2011			5,433			$	7.55				839			$	7.32
Exercisable at March 31, 2011			2,256			$	7.80

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

11.		Earnings Per Share
		The following table sets forth the computation of basic and diluted earnings per share for continuing operations for the three months ended March 31, 2011 and 2010 (in thousands, except per share data).

		2011				2010
Numerator:
Income from continuing operations after income tax expense		$	18,124			$	16,856
Denominator:
Basic
Weighted average common shares outstanding			49,322				61,509
Diluted
Stock options (1)			90				164
Restricted stock awards (1)			252				226
Contingent shares (2)			91				166
Diluted weighted average common shares outstanding			49,755				62,065
Basic earnings per share from continuing operations		$	0.37			$	0.27
Diluted earnings per share from continuing operations		$	0.36			$	0.27

12.		Acquisitions
		During the first quarter of 2011, CBIZ did not acquire any businesses or client lists. CBIZ paid $11.3 million during the first quarter of 2011 as contingent earnouts for previous acquisitions. In addition, during the first quarter of 2011, CBIZ reduced the fair value of the contingent purchase price liability related to CBIZ’s prior acquisitions by $1.2 million due to lower than originally projected future results of the acquired businesses. This reduction of $1.2 million is included in “Other income, net” in the consolidated statements of operations. See Note 8 for further discussion of contingent purchase price liabilities.
		During the first quarter of 2010, CBIZ acquired substantially all of the assets of two companies, Goldstein Lewin & Company and National Benefit Alliance. Goldstein Lewin & Company, an accounting and financial services company located in Boca Raton, Florida, was acquired on January 1, 2010 and is included in the operating results of the Financial Services practice group. National Benefit Alliance, an employee benefits company located in Midvale, Utah, was also acquired on January 1, 2010 and is included in the operating results of the Employee Services practice group. Aggregate consideration for these acquisitions consisted of approximately $13.2 million in cash, $1.8 million in CBIZ common stock, $0.3 million in guaranteed future consideration, and $10.0 million in contingent consideration, subject to the acquired operations achieving certain performance targets.
		The operating results of these businesses are included in the accompanying consolidated financial statements since the dates of acquisition. Client lists and non-compete agreements are recorded at fair value at the time of acquisition. The excess of purchase price over the fair value of net assets acquired, (including client lists and non-compete agreements) is allocated to goodwill.

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

Additions to goodwill, client lists and other intangible assets resulting from contingent consideration earned on prior period acquisitions during the first quarter ended March 31, 2011, and for acquisitions and contingent consideration earned on prior period acquisitions during the three months ended March 31, 2010 were as follows (in thousands):

		2011				2010
Goodwill		$	21			$	18,751
Client lists		$	108			$	5,560
Other intangible assets		$	—			$	246

13.		Discontinued Operations and Divestitures
		CBIZ will divest (through sale or closure) business operations that do not contribute to the Company’s long-term objectives for growth, or that are not complementary to its target service offerings and markets. Divestitures are classified as discontinued operations provided they meet the criteria as provided in FASB ASC 205 “Presentation of Financial Statements — Discontinued Operations — Other Presentation Matters”.
		Discontinued Operations
		Gains or losses from the sale of discontinued operations are recorded as “Gain (loss) on disposal of discontinued operations, net of tax”, in the accompanying consolidated statements of operations. Additionally, proceeds that are contingent upon a divested operation’s actual future performance are recorded as gain on sale of discontinued operations in the period they are earned. During the first quarter of 2011, CBIZ decided to discontinue operations of a business that was previously reported in the Financial Services practice group. The business is being actively marketed and is expected to be sold during 2011. During the first quarter of 2010, CBIZ sold two businesses from the National Practices group. Proceeds from these sales consisted of $0.2 million in cash and resulted in a pre-tax loss of approximately $0.8 million.
		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, 2011 and 2010 are separately reported as “Loss from operations of discontinued operations, net of tax” in the consolidated statements of operations and were as follows (in thousands):

		2011				2010
Revenue		$	577			$	3,114
Loss from operations of discontinued operations, before income tax benefit		$	(425	)		$	(727	)
Income tax benefit			166				291
Loss from operations of discontinued operations, net of tax		$	(259	)		$	(436	)

For the three months ended March 31, 2011 and 2010, gain (loss) on the disposal of discontinued operations were as follows (in thousands):

		2011				2010
Gain (loss) on disposal of discontinued operations, before income tax expense (benefit)		$	67			$	(890	)
Income tax expense (benefit)			27				(454	)
Gain (loss) on disposal of discontinued operations, net of tax		$	40			$	(436	)

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

At March 31, 2011 and December 31, 2010, the assets and liabilities of businesses classified as discontinued operations consisted of the following (in thousands):

		March 31,				December 31,
		2011				2010
Assets:
Accounts receivable, net		$	501			$	381
Property and equipment, net			1				1
Other current assets			208				258
Assets of discontinued operations		$	710			$	640
Liabilities:
Accounts payable		$	185			$	90
Accrued personnel costs			201				228
Other current liabilities			235				244
Liabilities of discontinued operations		$	621			$	562

		Divestitures
		Gains and losses from divested operations and assets that do not qualify for treatment as discontinued operations are recorded as “Gain on sale of operations, net” in the consolidated statements of operations. During the first quarter of 2011, CBIZ recognized a gain of $2.3 million from the sale of its individual wealth management business and gains of $0.4 million from the sales of client lists. Cash proceeds from the sale of the business and client lists totaled approximately $7.2 million, of which approximately $6.7 million was received on December 31, 2010. As part of the sale of the individual wealth management business in the first quarter of 2011, CBIZ’s goodwill was reduced by approximately $2.2 million. During the first quarter of 2010, CBIZ recognized a gain of $0.4 million from the sale of a client list. Cash proceeds from this sale were $0.4 million.
14.		Segment Disclosures
		CBIZ’s business units have been aggregated into four practice groups: Financial Services, Employee Services, Medical Management Professionals (“MMP”), and National Practices. The business units have been aggregated based on the following factors: similarity of the products and services provided to clients; similarity of the regulatory environment in which they operate; and similarity of economic conditions affecting long-term performance. The business units are managed along these segment lines. A general description of services provided by practice group is provided in the following table.

Financial Services		Employee Services		MMP		National Practices
• Accounting		• Group Health		• Coding and Billing		• Managed Networking and Hardware Services
• Tax		• Property & Casualty		• Accounts Receivable Management		• Health Care Consulting
• Financial Advisory		• Retirement Planning		• Full Practice Management Services		• Mergers & Acquisitions
• Valuation		• Payroll Services
• Litigation Support		• Life Insurance
• Internal Audit		• Human Capital Management
• Family Office Services		• Compensation Consulting
• Fraud Detection		• Recruiting
• Real Estate Advisory		• Actuarial Services

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

		Corporate and Other. Included in Corporate and Other are operating expenses that are not directly allocated to the individual business units. These expenses are primarily comprised of gains or losses attributable to assets held in the Company’s deferred compensation plan, stock-based compensation, certain health care costs, consolidation and integration charges, certain advertising costs and other various expenses.
		Accounting policies of the practice groups are the same as those described in Note 1 to the Annual Report on Form 10-K for the year ended December 31, 2010. Upon consolidation, all intercompany accounts and transactions are eliminated, thus inter-segment revenue is not included in the measure of profit or loss for the practice groups. Performance of the practice groups is evaluated on operating income excluding the costs of certain infrastructure functions (such as information systems, finance and accounting, human resources, legal and marketing), which are reported in the “Corporate and Other” segment. Segment information for the three months ended March 31, 2011 and 2010 was as follows (in thousands):

		THREE MONTHS ENDED MARCH 31, 2011
																		Corporate
		Financial				Employee								National				and
		Services				Services				MMP				Practices				Other				Total
Revenue		$	122,108			$	44,435			$	35,411			$	7,937			$	—			$	209,891
Operating expenses			89,727				36,596				32,074				6,657				4,374				169,428
Gross margin			32,381				7,839				3,337				1,280				(4,374	)			40,463
Corporate general & admin			—				—				—				—				9,661				9,661
Operating income (loss)			32,381				7,839				3,337				1,280				(14,035	)			30,802
Other income (expense):
Interest expense			—				(6	)			—				—				(4,909	)			(4,915	)
Gain on sale of operations, net			—				—				—				—				2,743				2,743
Other income (expense), net			58				371				69				—				2,583				3,081
Total other income (expense)			58				365				69				—				417				909
Income (loss) from continuing operations before income tax expense		$	32,439			$	8,204			$	3,406			$	1,280			$	(13,618	)		$	31,711

		THREE MONTHS ENDED MARCH 31, 2010
																		Corporate
		Financial				Employee								National				And
		Services				Services				MMP				Practices				Other				Total
Revenue		$	120,569			$	46,788			$	35,318			$	6,706			$	—			$	209,381
Operating expenses			88,321				37,149				34,090				6,490				5,399				171,449
Gross margin			32,248				9,639				1,228				216				(5,399	)			37,932
Corporate general & admin			—				—				—				—				8,984				8,984
Operating income (loss)			32,248				9,639				1,228				216				(14,383	)			28,948
Other income (expense):
Interest expense			(3	)			(6	)			—				—				(3,159	)			(3,168	)
Gain on sale of operations, net			—				—				—				—				374				374
Other income (expense), net			75				138				89				—				1,871				2,173
Total other income (expense)			72				132				89				—				(914	)			(621	)
Income (loss) from continuing operations before income tax expense		$	32,320			$	9,771			$	1,317			$	216			$	(15,297	)		$	28,327

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “we”, “our”, “CBIZ”, or the “Company” shall mean CBIZ, Inc., a Delaware corporation, and its operating subsidiaries.

The following discussion is intended to assist in the understanding of CBIZ’s financial position at March 31, 2011 and December 31, 2010, and results of operations and cash flows for the three months ended March 31, 2011 and 2010, and should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2010. This discussion and analysis contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q and in “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2010.

Overview

CBIZ provides professional business services that help clients manage their finances and employees. These services are provided to businesses of various sizes, as well as individuals, governmental entities and not-for-profit enterprises throughout the United States and parts of Canada. CBIZ delivers its integrated services through four practice groups: Financial Services, Employee Services, Medical Management Professionals (“MMP”), and National Practices. See Note 14 to the accompanying consolidated financial statements for a general description of services provided by each practice group.

See the Annual Report on Form 10-K for the year ended December 31, 2010 for further discussion of external relationships and regulatory factors that currently impact CBIZ’s operations.

Executive Summary

Revenue for the first quarter of 2011 increased by $0.5 million or 0.2% versus the comparable period in 2010. Revenue from acquired operations in the third and fourth quarters of 2010, net of divestitures, contributed $3.0 million, or 1.4% of revenue growth, which was offset by same-unit revenue declines of 1.2%, or $2.5 million.

Operating expenses declined $2.0 million, or 1.2%, and decreased as a percentage of revenue to 80.7% for the first quarter of 2011 from 81.9% for the first quarter of 2010. Earnings per share from continuing operations was $0.36 per diluted share for the first quarter of 2011 and $0.27 for the comparable period in 2010. Earnings per share for the first quarter of 2010 included a charge of $0.02 per diluted share for lease restructuring activities in connection with the acquisition of Goldstein Lewin & Company in Boca Raton, Florida.

Cash earnings per diluted share were $0.49 and $0.40 for the first quarters of 2011 and 2010, respectively. CBIZ believes cash earnings per diluted share more clearly illustrates the impact of certain non-cash charges or credits to income from continuing operations and is a useful measure for the Company, its investors and its analysts. Cash earnings per diluted share is a measurement prepared on a basis other than generally accepted accounting principles (“GAAP”), otherwise known as a non-GAAP measure. As such, the Company has included this data and has provided a reconciliation to the nearest GAAP measurement, “income per diluted share from continuing operations”. Reconciliations for the three months ended March 31, 2011 and 2010 are provided in the “Results of Operations — Continuing Operations” section that follows.

During the first quarter of 2011, CBIZ sold its individual wealth management business and recognized a pre-tax gain on the sale of $2.3 million. This sale transaction was recorded as a divestiture as it did not meet the specific requirements to be treated as a discontinued operation. Revenue related to this business was approximately $2.3 million for the first quarter of 2010, thus same-store revenues were impacted by this amount in 2011. This business was formerly reported in the Employee Services practice group. See Note 13 to the accompanying consolidated financial statements for further disclosure.

On February 10, 2011, CBIZ’s Board of Directors authorized the purchase of up to 5.0 million shares of CBIZ outstanding common stock in open market or privately negotiated purchases through March 31, 2012.

On April 11, 2011, the Company amended its credit facility to extend the maturity date one year to June 2015, reduce interest on outstanding balances, reduce commitment fees on the unused amount, and adjust the leverage ratio limits to provide CBIZ with more flexibility.

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, 2010, 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, 2011 through February 28, 2011 would be reported as revenue from acquired businesses.

Three Months Ended March 31, 2011 and 2010

Revenue

The following table summarizes total revenue for the three months ended March 31, 2011 and 2010 (in thousands, except percentages).

		THREE MONTHS ENDED MARCH 31,
						%of								%of				$				%
		2011				Total				2010				Total				Change				Change
Same-unit revenue
Financial Services		$	117,379				55.9	%		$	120,569				57.6	%		$	(3,190	)			(2.6	)%
Employee Services			43,899				20.9	%			44,522				21.2	%			(623	)			(1.4	)%
MMP			35,411				16.9	%			35,318				16.9	%			93				0.3	%
National Practices			7,937				3.8	%			6,706				3.2	%			1,231				18.4	%
Total same-unit revenue			204,626				97.5	%			207,115				98.9	%			(2,489	)			(1.2	)%
Acquired businesses			5,239				2.5	%			—				—				5,239
Divested operations			26				—				2,266				1.1	%			(2,240	)
Total revenue		$	209,891				100.0	%		$	209,381				100.0	%		$	510				0.2	%

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

Gross margin and operating expenses — Operating expenses decreased by $2.0 million to $169.4 million for the first quarter of 2011 from $171.4 million for the comparable period of 2010, and decreased as a percentage of revenue to 80.7% from 81.9% for the first quarters of 2011 and 2010, respectively. The operating expenses for the first quarter of 2010 included a $1.4 million charge for restructuring activities in Boca Raton, Florida. The primary components of operating expenses for the first quarters of 2011 and 2010 are illustrated in the following table:

		2011								2010
		% of Operating								% of								Change in
		Expense				% of Revenue				Operating Expense				% of Revenue				% of Revenue
Personnel costs			74.1	%			59.9	%			74.6	%			61.1	%			(1.2	)%
Occupancy costs			6.6	%			5.4	%			6.7	%			5.5	%			(0.1	)%
Depreciation and amortization			2.9	%			2.4	%			2.9	%			2.4	%			—
Travel and related costs			2.8	%			2.3	%			2.6	%			2.1	%			0.2	%
Other (1)			12.7	%			10.0	%			12.6	%			10.3	%			(0.3	)%
Subtotal							80.0	%							81.4	%			(1.4	)%
Deferred compensation			0.9	%			0.7	%			0.6	%			0.5	%			0.2	%
Total operating expenses							80.7	%							81.9	%			(1.2	)%
Gross margin							19.3	%							18.1	%			1.2	%

The decrease in operating expenses as a percentage of revenue attributable to personnel costs consisted of an approximately 1.4% decrease in salaries and wages, partially offset by a 0.2% increase in incentive compensation. The decrease in salaries and wages was a result of a reduction in staffing at certain locations due to a decrease in client demand and improved engagement efficiencies. The increase in incentive based compensation was primarily due to an improvement in margins in certain locations. The increase or decrease in personnel costs as a percentage of revenue experienced by the individual practice groups is discussed in further detail under “Operating Practice Groups”.

Corporate general and administrative expenses — Corporate general and administrative (“G&A”) expenses increased by $0.7 million to $9.7 million for the first quarter of 2011 from $9.0 million for the comparable period of 2010, and increased as a percentage of revenue to 4.6% for the first quarter of 2011 from 4.3% for the first quarter of 2010. The primary components of G&A expenses for the first quarters of 2011 and 2010 are illustrated in the following table:

		2011								2010
		% of								% of
		G&A								G&A								Change in
		Expense				% of Revenue				Expense				% of Revenue				% of Revenue
Personnel costs			68.7	%			3.2	%			56.4	%			2.4	%			0.8	%
Professional services			9.1	%			0.4	%			19.5	%			0.8	%			(0.4	)%
Computer costs			4.6	%			0.2	%			4.2	%			0.2	%			—
Occupancy costs			2.4	%			0.1	%			3.2	%			0.1	%			—
Depreciation and amortization			1.0	%			—				1.2	%			0.1	%			(0.1	)%
Other (1)			14.2	%			0.7	%			15.5	%			0.7	%			—
Total G&A expenses							4.6	%							4.3	%			0.3	%

The increase in G&A expenses as a percentage of revenue attributable to personnel costs is primarily due to an increase in incentive based compensation accruals as a greater percentage of the estimated annual incentive payout was accrued in the first quarter of 2011 compared to the same period in 2010. Offsetting the personnel costs increase was a reduction in professional services, primarily related to legal expenses. The decrease in legal expenses during the first quarter of 2011 compared to the first quarter of 2010 was primarily due to legal expenses being slightly higher than normal during the first quarter of 2010 as the Company brought several longstanding legal matters to a conclusion. A favorable judgment was granted and the Company recouped a significant portion of these fees subsequently in 2010.

Interest expense — Interest expense increased by $1.7 million to $4.9 million for the first quarter of 2011 from $3.2 million for the comparable period in 2010. The increase in interest expense relates to a net increase of $1.2 million related to the senior subordinated convertible notes and an increase of $0.5 million related to the credit facility. The increase related to the senior subordinated convertible notes is primarily due to an increase of $62.0 million in carrying amount to $156.9 million at March 31, 2011 from $94.9 million at March 31, 2010. The increase in interest expense related to the credit facility is due to an increase in the weighted average interest rates and an increase in amortization of deferred debt costs. Average debt outstanding under the credit facility was $126.2 million and $127.5 million and weighted average interest rates were 4.0% and 3.1% for the first quarters in 2011 and 2010, respectively. The increase in deferred debt costs is due to additional costs incurred related to the new credit facility that was put into effect in June 2010. See Note 5 of the accompanying consolidated financial statements for further discussion of CBIZ’s debt arrangements.

Gain on sale of operations, net — The gain on sale of operations, net was $2.7 million for the first quarter 2011 and is primarily due to the sale of the Company’s individual wealth management business. The wealth management business was reported in the Employee Services practice group.

Other income, net — Other income, net is primarily comprised of gains and losses in the fair value of investments held in a rabbi trust related to the deferred compensation plan and adjustments to contingent liabilities related to prior acquisitions. Gains in the fair value of investments related to the deferred compensation contributed $0.4 million of the $0.9 million increase in other income, net, for the first quarter of 2011 versus the comparable period in 2010. These adjustments do not impact CBIZ’s net income as they are offset by the corresponding increase to compensation expense which is recorded as operating and G&A expenses in the consolidated statements of operations. In addition, adjustments to contingent liabilities were $1.2 million in the first quarter of 2011 compared to $0.7 million for the comparable period in 2010, thus comprising the remaining increase in other income, net.

Income tax expense — CBIZ recorded income tax expense from continuing operations of $13.6 million and $11.5 million for the first quarters of 2011 and 2010, respectively. The effective tax rate for the first quarter of 2011 was 42.8%, compared to an effective rate of 40.5% for the comparable period in 2010. The increase in the effective tax rate was primarily due to non-tax deductible goodwill related to the sale of the individual wealth management business that was completed in the first quarter of 2011 and higher effective state income tax rates in the first quarter of 2011 compared to the same period last year.

Earnings per share and cash earnings per share — Earnings per share from continuing operations were $0.36 and $0.27 per diluted share for the three months ended March 31, 2011 and 2010 and cash earnings per share were $0.49 and $0.40 per diluted share for the three months ended March 31, 2011 and 2010, respectively. The Company believes cash earnings and cash earnings per diluted share (non-GAAP measures) more clearly illustrate the impact of certain non-cash charges and credits to income from continuing operations and are a useful measure for the Company, its investors and its analysts. Management uses these performance measures to evaluate CBIZ’s business, including ongoing performance and the allocation of resources. Cash earnings and cash earnings per diluted share are provided in addition to the presentation of GAAP measures and should not be regarded as a replacement or alternative of performance under GAAP. The following is a reconciliation of income from continuing operations to cash earnings from operations and diluted earnings per share from continuing operations to cash earnings per share for the three months ended March 31, 2011 and 2010.

CASH EARNINGS AND PER SHARE DATA
Reconciliation of Income from Continuing Operations to Cash Earnings from Continuing Operations

		THREE MONTHS ENDED MARCH 31,
		2011				Per Share				2010				Per Share
		(In thousands, except per share data)
Income from continuing operations		$	18,124			$	0.36			$	16,856			$	0.27
Selected non-cash charges:
Depreciation and amortization			5,030				0.10				5,125				0.08
Non-cash interest on convertible notes			1,041				0.02				1,042				0.02
Stock-based compensation			1,324				0.03				1,294				0.02
Adjustment to contingent earnouts			(1,152	)			(0.02	)			(715	)			(0.01	)
Non-cash restructuring charge			—				—				1,264				0.02
Non-cash charges		$	6,243			$	0.13			$	8,010			$	0.13
Cash earnings — continuing operations		$	24,367			$	0.49			$	24,866			$	0.40