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 September 30, 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 definitions 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 (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No þ

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

Class of Common Stock		Outstanding at October 31, 2008
Common Stock, par value $0.01 per share		61,793,639

 

 

CBIZ, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets — September 30, 2008 and December 31, 2007			3
Consolidated Statements of Operations — Three and Nine Months Ended September 30, 2008 and 2007			4
Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2008 and 2007			5
Notes to the Consolidated Financial Statements			6-22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23-43
Item 3. Quantitative and Qualitative Disclosures About Market Risk			43
Item 4. Controls and Procedures			44
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings			45
Item 1A. Risk Factors			45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			46
Item 6. Exhibits			46
Signature			47
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CBIZ, INC. AND SUBSIDIARIES

		SEPTEMBER 30,				DECEMBER 31,
		2008				2007
ASSETS
Current assets:
Cash and cash equivalents		$	7,501			$	12,144
Restricted cash			14,216				15,402
Accounts receivable, net			133,355				115,333
Notes receivable — current, net			1,864				1,722
Deferred income taxes — current			9,039				5,136
Other current assets			9,518				10,086
Assets of discontinued operations			219				1,858
Current assets before funds held for clients			175,712				161,681
Funds held for clients — current			65,905				88,048
Total current assets			241,617				249,729
Property and equipment, net			26,201				26,279
Notes receivable — non-current, net			1,158				2,017
Deferred income taxes — non-current, net			5,189				5,300
Goodwill and other intangible assets, net			279,200				268,388
Assets of deferred compensation plan			23,167				22,157
Funds held for clients — non-current			11,767				—
Other assets			3,637				4,122
Total assets		$	591,936			$	577,992
LIABILITIES
Current liabilities:
Accounts payable		$	28,176			$	27,293
Income taxes payable — current			1,237				—
Accrued personnel costs			35,925				40,281
Notes payable — current			1,856				10,602
Other current liabilities			19,222				13,969
Liabilities of discontinued operations			2,432				3,460
Current liabilities before client fund obligations			88,848				95,605
Client fund obligations			79,285				88,048
Total current liabilities			168,133				183,653
Convertible notes			100,000				100,000
Bank debt			60,000				30,000
Income taxes payable — non-current			7,149				8,346
Deferred compensation plan obligations			23,167				22,157
Other non-current liabilities			6,694				7,390
Total liabilities			365,143				351,546
STOCKHOLDERS’ EQUITY
Common stock			1,057				1,041
Additional paid-in capital			487,182				477,804
Accumulated deficit			(8,385	)			(37,414	)
Treasury stock			(252,702	)			(214,883	)
Accumulated other comprehensive loss			(359	)			(102	)
Total stockholders’ equity			226,793				226,446
Total liabilities and stockholders’ equity		$	591,936			$	577,992

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2008				2007				2008				2007
Revenue		$	168,195			$	151,180			$	541,281			$	486,282
Operating expenses			148,757				137,177				461,970				419,474
Gross margin			19,438				14,003				79,311				66,808
Corporate general and administrative expense			7,270				7,143				22,313				23,233
Operating income			12,168				6,860				56,998				43,575
Other income (expense):
Interest expense			(1,804	)			(1,284	)			(5,409	)			(4,250	)
Gain on sale of operations, net			229				20				470				125
Other income (expense), net			(3,018	)			747				(4,030	)			3,342
Total other expense, net			(4,593	)			(517	)			(8,969	)			(783	)
Income from continuing operations before income tax expense			7,575				6,343				48,029				42,792
Income tax expense			2,689				2,531				18,442				17,631
Income from continuing operations			4,886				3,812				29,587				25,161
Loss from discontinued operations, net of tax			(56	)			(189	)			(250	)			(1,134	)
Gain (loss) on disposal of discontinued operations, net of tax			132				1,023				(308	)			4,713
Net income		$	4,962			$	4,646			$	29,029			$	28,740
Earnings (loss) per share:
Basic:
Continuing operations		$	0.08			$	0.06			$	0.48			$	0.38
Discontinued operations			—				0.01				(0.01	)			0.06
Net income		$	0.08			$	0.07			$	0.47			$	0.44
Diluted:
Continuing operations		$	0.08			$	0.06			$	0.47			$	0.38
Discontinued operations			—				0.01				(0.01	)			0.05
Net income		$	0.08			$	0.07			$	0.46			$	0.43
Basic weighted average shares outstanding			61,171				64,842				62,080				65,437
Diluted weighted average shares outstanding			61,772				66,083				62,801				66,845

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

		NINE MONTHS ENDED
		SEPTEMBER 30,
		2008				2007
Cash flows from operating activities:
Net income		$	29,029			$	28,740
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations, net of tax			250				1,134
(Gain) loss on disposal of discontinued operations, net of tax			308				(4,713	)
Gain on sale of operations, net			(470	)			(125	)
Impairment of auction rate security			1,381				—
Bad debt expense, net of recoveries			4,161				2,658
Depreciation and amortization expense			11,346				10,012
Deferred income taxes			(2,391	)			1,248
Excess tax benefits from share based payment arrangements			(1,719	)			(2,356	)
Employee stock awards			2,783				1,711
Changes in assets and liabilities, net of acquisitions and divestitures:
Restricted cash			1,186				619
Accounts receivable, net			(23,299	)			(18,739	)
Other assets			1,036				1,439
Accounts payable			1,016				(3,683	)
Income taxes payable			487				2,507
Accrued personnel costs			(4,349	)			(1,383	)
Other liabilities			4,558				1,175
Net cash provided by continuing operations			25,313				20,244
Operating cash flows used in discontinued operations			(1,539	)			(1,196	)
Net cash provided by operating activities			23,774				19,048
Cash flows from investing activities:
Business acquisitions and contingent consideration, net of cash acquired			(24,966	)			(18,922	)
Acquisition of other intangible assets			(810	)			(1,608	)
Proceeds from sales of divested and discontinued operations			4,893				28,003
Additions to property and equipment, net			(5,109	)			(4,232	)
Additions to notes receivable			(170	)			—
Payments received on notes receivable			373				182
Net cash used in discontinued operations			—				(640	)
Net cash provided by (used in) investing activities			(25,789	)			2,783
Cash flows from financing activities:
Proceeds from bank debt			218,600				218,510
Payment of bank debt			(188,600	)			(206,510	)
Payment of notes payable and capitalized leases			(410	)			(388	)
Payment for acquisition of treasury stock			(37,819	)			(30,812	)
Proceeds from exercise of stock options			3,988				3,576
Excess tax benefit from exercise of stock awards			1,719				2,356
Debt issuance costs			(106	)			—
Net cash used in financing activities			(2,628	)			(13,268	)
Net increase (decrease) in cash and cash equivalents			(4,643	)			8,563
Cash and cash equivalents at beginning of year			12,144				12,971
Cash and cash equivalents at end of period		$	7,501			$	21,534

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 September 30, 2008 and December 31, 2007, the results of their operations for the three and nine months ended September 30, 2008 and 2007, and cash flows for the nine months ended September 30, 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.
		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. CBIZ does not consolidate variable interest entities as the impact would not be material to the financial condition, results of operations or cash flows of CBIZ.
		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 including the impact of discontinued operations.
		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

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

		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 does 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.
		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”.
		CBIZ offers a vast array of products and business services to its clients. Those services are delivered through four practice groups. A description of revenue recognition, as it relates to those groups, is included in the Annual Report on Form 10-K for the year ended December 31, 2007.
		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 accordance with 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 SFAS No. 157 to fiscal years ending after November 15, 2008 for non-financial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Accordingly, CBIZ did not apply the provisions of 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”. 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 and 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

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

		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 retained noncontrolling equity investments in deconsolidated subsidiaries must be measured initially at fair 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 applies to all derivative instruments and related hedged items accounted for under SFAS No. 133. It requires entities to provide greater transparency about a) how and why an entity uses derivative instruments, b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and c) how derivative and related hedged items affect an entity’s financial position, results of operations, and cash flow. 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 instruments that may be settled wholly or partly in cash, to separately account for the liability and equity components of the instruments in a manner that reflects the nonconvertible debt borrowing rate when interest expense is recognized in subsequent periods. The resulting debt discount is amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense.
		FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 and will impact the accounting associated with CBIZ’s $100.0 million convertible senior subordinated notes (described in Note 5). The provisions of APB 14-1 must be applied retrospectively to all periods presented and will result in additional non-cash interest expense from what has been reported in historical financial statements. Management estimates that when retrospectively applied to the year ended December 31, 2008, the adoption of FSP APB 14-1 will impact diluted earnings per share by less than $0.05. This impact is based upon preliminary analysis that requires the use of estimates and assumptions. As the analysis has not been finalized, the estimate and assumptions are subject to change.

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

2.		Accounts Receivable, Net
		Accounts receivable balances at September 30, 2008 and December 31, 2007 were as follows (in thousands):

		2008				2007
Trade accounts receivable		$	108,924			$	98,881
Unbilled revenue			30,590				21,572
Other accounts receivable			760				712
Total accounts receivable			140,274				121,165
Allowance for doubtful accounts			(6,919	)			(5,832	)
Accounts receivable, net		$	133,355			$	115,333

3.		Goodwill and Other Intangible Assets, Net
		The components of goodwill and other intangible assets, net at September 30, 2008 and December 31, 2007 were as follows (in thousands):

		2008				2007
Goodwill		$	224,507			$	213,511
Intangibles:
Client lists			68,183				63,234
Intangible assets — other			7,655				8,125
Total intangibles			75,838				71,359
Total goodwill and other intangibles assets			300,345				284,870
Accumulated amortization			(21,145	)			(16,482	)
Goodwill and other intangible assets, net		$	279,200			$	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 $2.0 million and $1.5 million for the three months ended and $5.9 million and $4.2 million for the nine months ended September 30, 2008 and 2007, respectively.
4.		Depreciation and Amortization Expense
		Depreciation and amortization expense for property, equipment and intangible assets is reported in operating expenses or general and administrative expense in the accompanying consolidated statements of operations. Depreciation and amortization expense for the three and nine months ended September 30, 2008 and 2007 was as follows (in thousands):

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2008				2007				2008				2007
Operating expenses		$	3,520			$	2,747			$	10,457			$	8,133
Corporate general and administrative expense			211				479				889				1,879
Total depreciation and amortization expense		$	3,731			$	3,226			$	11,346			$	10,012

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

5.		Borrowing Arrangements
		Convertible Senior Subordinated Notes
		CBIZ had $100.0 million of convertible senior subordinated notes (“Notes”) outstanding at September 30, 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 (“Indenture”). 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 $60.0 million and $30.0 million of outstanding borrowings under the facility at September 30, 2008 and December 31, 2007, respectively. Rates for the nine months ended September 30, 2008 and for the year ended December 31, 2007 were as follows:

			2008				2007
Weighted average rates			4.75%				7.05%
Range of effective rates			3.60% - 7.25%				6.09% - 8.25%

		CBIZ had approximately $81.1 million of available funds under the facility at September 30, 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 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.
		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.

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

		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 consists 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 September 30, 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 nine months ended September 30, 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 September 30, 2008 and December 31, 2007. In addition, CBIZ provides license bonds to various state agencies to meet certain licensing requirements. The amount of license bonds outstanding at September 30, 2008 and December 31, 2007 was $1.7 million and $1.4 million, respectively.
		CBIZ acted as guarantor on various letters of credit for a CPA firm with which it has an affiliation, which totaled $1.5 million and $1.4 million as of September 30, 2008 and December 31, 2007, respectively. In accordance with FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, as amended, CBIZ has recognized a liability for the fair value of the obligations undertaken in issuing these guarantees, which is recorded as “other current liabilities” in the accompanying consolidated balance sheets. Management

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

		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 to the estimated expense if circumstances differ from the assumptions used in estimating the liability. CBIZ’s net healthcare costs include health claims expenses, premiums for the stop-loss coverages and administration fees to the third-party administrator.
		Legal Proceedings
		CBIZ is from time to time subject to claims and suits arising in the ordinary course of business. Although the ultimate disposition of such proceedings is not presently determinable, management does not believe that the ultimate resolution of these matters will have a material adverse effect on the financial condition, results of operations or cash flows of CBIZ.
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 liquidity issues experienced in the credit and capital markets during 2008, CBIZ’s ARS have experienced failed auctions during the first nine months 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 September 30, 2008, CBIZ had four outstanding investments in ARS with par values totaling $19.4 million. One ARS was redeemed in October at its par value of $6.0 million. This ARS is recorded at par value in “Funds held for clients — current” in the accompanying consolidated balance sheets.
		The fair values of the remaining ARS do not approximate their par values. The declines in fair values of two of the ARS are currently considered to be temporary. These declines in fair value totaled $0.2 million at September 30, 2008 and are recorded as unrealized losses in accumulated other comprehensive loss. ARS with temporary declines in fair value are classified as “Funds held for clients — non-current”, as CBIZ intends and has the ability to hold these investments until anticipated recovery of par value occurs.
		The decline in fair value for one ARS was determined to be other-than-temporary. Accordingly, CBIZ recorded an impairment charge totaling approximately $1.4 million for the three and nine months ended

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

		September 30, 2008, which is included in “Other income (expense), net” in the accompanying consolidated statements of operations. The fair value of this ARS is recorded in “Funds held for clients — non-current” in the accompanying consolidated balance sheets.
		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 the credit facility. CBIZ does not enter into derivative instruments for trading or speculative purposes.
		Under the terms of the swap agreement, CBIZ pays interest at a fixed rate of 3.9% plus applicable margin under the credit agreement, and receives or pays interest that varies with one-month LIBOR. Interest is calculated by reference to the $10.0 million notional amount of the swap and payments are exchanged each month. During the three months and nine months ended September 30, 2008, CBIZ recorded additional interest expense of approximately $37,000 and $74,000, respectively, related to the swap agreement.
		CBIZ designated the swap as a cash flow hedge and accounts for the swap in accordance with the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” 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 stockholders’ 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” in the consolidated balance sheets and was $0.1 million at September 30, 2008. Fair value represents the amount that CBIZ would have to pay to terminate the swap agreement at the reporting date. Over the next 12 months, CBIZ expects to reclassify approximately $0.1 million of deferred losses from accumulated other comprehensive loss to interest expense as related interest payments that are being hedged are recognized.
		The swap is assessed for effectiveness and continued qualification for hedge accounting on a quarterly basis, and if the swap were to be de-designated as a hedge it would be accounted for as a financial instrument used for trading. There was no ineffectiveness for the first nine months of 2008.
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 No. 157 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:

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

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

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The following table summarizes CBIZ’s assets and liabilities at September 30, 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 September 30, 2008 with
		Portion of Carrying				Quoted Prices in				Significant
		Value Measured at				Active Markets for				Other				Significant
		Fair Value				Identical Assets				Observable Inputs				Unobservable Inputs
		September 30, 2008				(Level 1)				(Level 2)				(Level 3)
Assets of deferred compensation plan		$	23,167			$	23,167			$	—			$	—
Auction rate securities		$	17,767			$	—			$	6,000			$	11,767
Interest rate swap		$	(103	)		$	—			$	—			$	(103	)

The following table summarizes the change in fair values of the Company’s assets and liabilities identified as Level 3 for the nine months ended September 30, 2008 (pre-tax basis) (in thousands):

		Auction Rate
		Securities				Interest Rate Swap
Beginning balance — January 1, 2008		$	—			$	—
Transfers into Level 3			21,420				—
Redemption of securities			(2,040	)			—
Impairment recorded in operations			(1,381	)			—
Unrealized losses included in accumulated other comprehensive loss			(232	)			(103	)
Transfers out of Level 3			(6,000	)			—
Ending balance — September 30, 2008		$	11,767			$	(103	)

		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 nine months of 2008. Subsequent to the initial transfer into Level 3, securities totaling $2.0 million were redeemed by the issuer and securities totaling $6.0 million were transferred to Level 2 based upon redemption of that security subsequent to September 30, 2008. For the remaining ARS, a fair value assessment was performed in accordance with SFAS No. 157. The assessment was performed on each security based on a discounted cash flow model utilizing various assumptions that included maximum interest rates for each issue, probabilities of successful auctions, failed auctions or default, the timing of cash flows, the quality and level of collateral of the securities, and the rate of recovery from bond insurers in the event of default. According to the fair value analysis, it was determined that one ARS issue was unlikely to recover its par value and therefore an other-than-temporary impairment of approximately $1.4 million was recorded in the consolidated statements of operations for the three and nine months ended September 30, 2008.
		Based on the fair value analysis, it was determined that the fair value of the remaining securities was 97.2% of par value, resulting in a temporary impairment of $0.2 million at September 30, 2008. For these remaining securities, CBIZ 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

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

		necessary. In addition, CBIZ has sufficient liquidity in its client fund assets to fund client obligations and CBIZ does not anticipate that the current lack of liquidity of these investments will affect its ability to conduct business. Therefore, CBIZ has the ability and intent to hold 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 stockholders’ equity and is not reflected in CBIZ’s results of operations. Other comprehensive income for the three and nine months ended September 30, 2008 and 2007 was as follows (in thousands):

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2008				2007				2008				2007
Net income		$	4,962			$	4,646			$	29,029			$	28,740
Net unrealized gains (losses) on available- for-sale securities, net of income tax			830				2				(145	)			8
Net unrealized gain (loss) on interest rate swap, net of income tax			14				—				(65	)			—
Foreign currency translation			(19	)			(12	)			(47	)			(27	)
Total other comprehensive income		$	5,787			$	4,636			$	28,772			$	28,721

		Accumulated other comprehensive loss, net of tax, was approximately $0.4 million and $0.1 million at September 30, 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, as well as adjustments to 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 expense for stock-based awards recognized during the three and nine months ended September 30, 2008 and 2007 was as follows (in thousands):

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2008				2007				2008				2007
Stock options		$	577			$	404			$	1,737			$	1,194
Restricted stock awards			382				221				1,046				517
Total stock-based compensation expense		$	959			$	625			$	2,783			$	1,711

Stock award activity during the nine months ended September 30, 2008 was as follows (in thousands, except per share data):

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

		Stock								Restricted Stock
		Options								Awards
						Weighted								Weighted
						Average								Average
						Exercise								Grant-Date
						Price Per								Fair
		Number of Options				Share				Number of Shares				Value (1)
Outstanding at beginning of year			3,638			$	5.43				516			$	6.28
Granted			1,279			$	8.24				327			$	8.38
Exercised			(1,105	)		$	3.61				—				—
Released			—				—				(203	)		$	6.06
Expired or canceled			(73	)		$	6.33				(7	)		$	8.23
Outstanding at September 30, 2008			3,739			$	6.91				633			$	7.41
Exercisable at September 30, 2008			1,290			$	5.64

11.		Earnings Per Share
		The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2008 and 2007 (in thousands, except per share data).

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2008				2007				2008				2007
Numerator:
Income from continuing operations after income tax expense		$	4,886			$	3,812			$	29,587			$	25,161
Denominator:
Basic
Weighted average common shares			61,171				64,842				62,080				65,437
Diluted
Stock options (1)			455				924				558				1,102
Restricted stock awards			134				132				154				118
Contingent shares (2)			12				185				9				188
Total diluted weighted average common shares			61,772				66,083				62,801				66,845
Basic earnings per share from continuing operations		$	0.08			$	0.06			$	0.48			$	0.38
Diluted earnings per share from continuing operations		$	0.08			$	0.06			$	0.47			$	0.38

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

12.		Acquisitions
		During the nine months ended September 30, 2008, CBIZ acquired a payroll business, an insurance agency and a national executive search firm, all three of which are reported in the Employee Services practice group. The payroll business is located in Palm Desert, California and provides payroll processing services to a large number of clients primarily in California and Arizona. The insurance business is located in Frederick, Maryland and is a broker of innkeepers’ insurance programs. The national executive search firm is headquartered in Overland Park, Kansas and provides services to commercial and industrial companies, development-stage organizations and non-profit organizations. In addition, CBIZ acquired three client lists during the nine months ended September 30, 2008, two of which are reported in the Employee Services practice group and the other is reported in the Financial Services practice group. Aggregate consideration for these acquisitions consisted of approximately $11.4 million in cash and approximately 23,600 shares of common stock paid at closing, and up to an additional $7.9 million in cash and approximately 25,900 shares of common stock which is contingent upon future financial performance of the acquired businesses and client lists. In addition, CBIZ paid approximately $13.6 million in cash and issued approximately 80,500 shares of common stock during the first nine months of 2008 as contingent proceeds for previous acquisitions.
		During the nine months ended September 30, 2007, CBIZ acquired an accounting firm and a medical billing service company. The accounting firm is located in Phoenix, Arizona and is reported in the Financial Services practice group. The medical billing services company is based in Montgomery, Alabama and is reported in the Medical Management Professionals practice group. In addition, CBIZ acquired four client lists during the nine months ended September 30, 2007, three of which are reported in the Employee Services practice group and the other is reported in the Financial Services practice group. Aggregate consideration for the acquisitions consisted of approximately $10.4 million in cash and 62,400 shares of common stock paid at closing, and up to an additional $8.8 million (payable in cash and common stock) which is contingent on certain future revenue and earnings targets. In addition, CBIZ paid approximately $8.5 million in cash and issued approximately 21,800 shares of common stock during the nine months ended September 30, 2007 as contingent proceeds for previous acquisitions.
		The operating results of these businesses were included in the accompanying consolidated financial statements since the dates of acquisition. Client lists and non-compete agreements were recorded at fair value at the time of acquisition. The excess of purchase price over the fair value of net assets acquired, (including client lists and non-compete agreements) were allocated to goodwill.
		Additions to goodwill, client lists and other intangible assets resulting from acquisitions and contingent consideration earned during the nine months ended September 30, 2008 and 2007 were as follows (in thousands):

		2008				2007
Goodwill		$	11,660			$	2,535
Client lists		$	5,636			$	10,612
Other intangible assets		$	114			$	274

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 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

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

		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. Proceeds that are contingent upon a divested operation’s actual future performance are recorded as gain on sale of discontinued operations in the period they are earned.
		During the nine months ended September 30, 2008, CBIZ sold an operation from the Financial Services practice group, closed an operation from National Practices group and received contingent proceeds from a Financial Services operation that was sold in the third quarter of 2007. CBIZ received cash proceeds totaling $1.6 million and recognized pre-tax losses totaling $0.2 million as the result of these divestitures.
		During the nine months ended September 30, 2007, CBIZ sold three operations, two of which were previously reported in the Financial Services practice group and the other was reported in the Employee Services practice group. CBIZ received proceeds of $25.9 million cash and $0.6 million in notes receivable, and recognized pre-tax gains of $12.5 million as a result of these sales.
		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 losses from discontinued operations for the three and nine months ended September 30, 2008 and 2007 were as follows (in thousands):

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2008				2007				2008				2007
Revenue		$	32			$	3,898			$	537			$	17,976
Loss from discontinued operations, before income tax benefit		$	(89	)		$	(619	)		$	(393	)		$	(2,098	)
Income tax benefit			33				430				143				964
Loss from discontinued operations net of tax		$	(56	)		$	(189	)		$	(250	)		$	(1,134	)

Gain (loss) on the disposal of discontinued operations for the three and nine months ended September 30, 2008 and 2007 were as follows (in thousands):

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2008				2007				2008				2007
Gain (loss) on disposal of discontinued operations, before income tax expense		$	210			$	3,915			$	(155	)		$	12,494
Income tax expense			78				2,892				153				7,781
Gain (loss) on disposal of discontinued operations, net of tax		$	132			$	1,023			$	(308	)		$	4,713

At September 30, 2008 and December 31, 2007, the assets and liabilities of businesses classified as discontinued operations consisted of the following (in thousands):

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

		SEPTEMBER 30,				DECEMBER 31,
		2008				2007
Assets:
Current assets		$	192			$	1,251
Goodwill and other intangible assets, net			—				569
Other assets			27				38
Assets of discontinued operations		$	219			$	1,858
Liabilities:
Accounts payable		$	137			$	610
Accrued personnel costs			124				151
Other liabilities			2,171				2,699
Liabilities of discontinued operations		$	2,432			$	3,460

		Divestitures
		Gains or losses from divested operations and assets that do not qualify for treatment as discontinued operations are recorded as “gain on sale of operations, net” in the consolidated statements of operations.
		During the nine months ended September 30, 2008, CBIZ sold an operation and two client lists that were previously reported in the Employee Services practice group. During the nine months ended September 30, 2007, CBIZ sold two client lists that were previously reported in the Employee Services practice group. Additionally, gains were recognized during the nine months ended September 30, 2008 and 2007 related to client lists that were sold in previous years. “Gain on sale of operations, net” totaled $0.5 million and $0.1 million, for the nine months ended September 30, 2008 and 2007, respectively. Proceeds for the nine months ended September 30, 2008 consisted of cash and notes totaling $2.7 million and $0.1 million, respectively. Proceeds for the nine months ended September 30, 2007 consisted of cash and notes totaling $0.1 million and $0.2 million, respectively.
		In addition to the cash proceeds described under “discontinued operations” and “divestitures” above, CBIZ received cash payments totaling $0.6 million and $2.0 million during the nine months ended September 30, 2008 and 2007, respectively, on outstanding notes receivable related to divestitures made in previous years. The gains and losses related to these divestitures were recorded in previous years.
14.		Segment Disclosures
		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), 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 listed in the table below.

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 costs include items such as incentive compensation, gains or losses attributable to assets held in the Company’s deferred compensation plan, stock based compensation, and certain advertising expenses.

Accounting policies for 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, 2007. 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 expenses reported in the “Corporate and Other” segment.

Segment information for the three and nine months ended September 30, 2008 and 2007 was as follows (in thousands):

		THREE MONTHS ENDED SEPTEMBER 30, 2008
		Financial				Employee								National				Corporate
		Services				Services				MMP				Practices				and Other				Total
Revenue		$	70,204			$	44,513			$	41,345			$	12,133			$	—			$	168,195
Operating expenses			63,690				37,029				35,764				11,202				1,072				148,757
Gross margin			6,514				7,484				5,581				931				(1,072	)			19,438
Corporate general & admin			—				—				—				—				7,270				7,270
Operating income (loss)			6,514				7,484				5,581				931				(8,342	)			12,168
Other income (expense):
Interest expense			(2	)			(5	)			—				—				(1,797	)			(1,804	)
Gain on sale of operations, net			—				—				—				—				229				229
Other income (expense), net			48				271				85				2				(3,424	)			(3,018	)
Total other income (expense)			46				266				85				2				(4,992	)			(4,593	)
Income (loss) from continuing operations before income tax expense		$	6,560			$	7,750			$	5,666			$	933			$	(13,334	)		$	7,575

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

		THREE MONTHS ENDED SEPTEMBER 30, 2007
		Financial				Employee								National				Corporate
		Services				Services				MMP				Practices				and Other				Total
Revenue		$	64,893			$	42,343			$	32,420			$	11,524			$	—			$	151,180
Operating expenses			58,963				35,168				27,991				10,633				4,422				137,177
Gross margin			5,930				7,175				4,429				891				(4,422	)			14,003
Corporate general & admin			—				—				—				—				7,143				7,143
Operating income (loss)			5,930				7,175				4,429				891				(11,565	)			6,860
Other income (expense):
Interest expense			(8	)			(11	)			—				—				(1,265	)			(1,284	)
Gain on sale of operations, net			—				—				—				—				20				20
Other income, net			58				462				50				8				169				747
Total other income (expense)			50				451				50				8				(1,076	)			(517	)
Income (loss) from continuing operations before income tax expense		$	5,980			$	7,626			$	4,479			$	899			$	(12,641	)		$	6,343

		NINE MONTHS ENDED SEPTEMBER 30, 2008
		Financial				Employee								National				Corporate
		Services				Services				MMP				Practices				and Other				Total
Revenue		$	243,964			$	139,075			$	124,010			$	34,232			$	—			$	541,281
Operating expenses			199,840				114,272				108,174				32,381				7,303				461,970
Gross margin			44,124				24,803				15,836				1,851				(7,303	)			79,311
Corporate general & admin			—				—				—				—				22,313				22,313
Operating income (loss)			44,124				24,803				15,836				1,851				(29,616	)			56,998
Other income (expense):
Interest expense			(10	)			(18	)			—				—				(5,381	)			(5,409	)
Gain on sale of operations, net			—				—				—				—				470				470
Other income (expense), net			226				1,079				221				17				(5,573	)			(4,030	)
Total other income (expense)			216				1,061				221				17				(10,484	)			(8,969	)
Income (loss) from continuing operations before income tax expense		$	44,340			$	25,864			$	16,057			$	1,868			$	(40,100	)		$	48,029

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

		NINE MONTHS ENDED SEPTEMBER 30, 2007
		Financial				Employee								National				Corporate
		Services				Services				MMP				Practices				and Other				Total
Revenue		$	226,037			$	130,217			$	94,144			$	35,884			$	—			$	486,282
Operating expenses			184,558				105,174				82,252				32,556				14,934				419,474
Gross margin			41,479				25,043				11,892				3,328				(14,934	)			66,808
Corporate general & admin			—				—				—				—				23,233				23,233
Operating income (loss)			41,479				25,043				11,892				3,328				(38,167	)			43,575
Other income (expense):
Interest expense			(38	)			(19	)			—				—				(4,193	)			(4,250	)
Gain on sale of operations, net			—				—				—				—				125				125
Other income, net			237				1,376				143				24				1,562				3,342
Total other income (expense)			199				1,357				143				24				(2,506	)			(783	)
Income (loss) from continuing operations before income tax expense		$	41,678			$	26,400			$	12,035			$	3,352			$	(40,673	)		$	42,792