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, 2005

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, 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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No 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, 2005
Par value $.01 per share		73,041,548

 

 

CBIZ, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets — September 30, 2005 and December 31, 2004			3
Consolidated Statements of Operations — Three and Nine months Ended September 30, 2005 and 2004			4
Consolidated Statements of Cash Flows — Nine months Ended September 30, 2005 and 2004			5
Notes to the Consolidated Financial Statements			6-18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19-38
Item 3. Quantitative and Qualitative Disclosures About Market Risk			38
Item 4. Controls and Procedures			39
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings			40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			40
Item 6. Exhibits			41
Signature			41
EX-31.1 302 Certification - CEO
EX-31.2 302 Certification - CFO
EX-32.1 906 Certification - CEO
EX-32.2 906 Certification - CFO

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CBIZ, INC. AND SUBSIDIARIES

		SEPTEMBER 30,				DECEMBER 31,
		2005				2004
ASSETS
Current assets:
Cash and cash equivalents		$	5,515			$	5,291
Restricted cash			9,102				10,089
Accounts receivable, net			107,782				100,426
Notes receivable — current			1,367				1,377
Income taxes recoverable			—				7,146
Deferred income taxes — current			4,722				3,809
Other current assets			6,929				8,074
Assets of businesses held for sale			7,499				16,491
Current assets before funds held for clients			142,916				152,703
Funds held for clients			51,279				32,787
Total current assets			194,195				185,490
Property and equipment, net			34,526				36,569
Notes receivable — non-current			3,355				4,726
Deferred income taxes — non-current			9,989				6,543
Goodwill and other intangible assets, net			180,078				172,644
Assets of deferred compensation plan			8,833				4,285
Other assets			3,664				3,516
Total assets		$	434,640			$	413,773
LIABILITIES
Current liabilities:
Accounts payable		$	21,397			$	25,090
Income taxes payable			1,465				—
Accrued personnel costs			31,812				24,401
Other current liabilities			16,550				16,360
Liabilities of businesses held for sale			5,504				7,464
Current liabilities before client fund obligations			76,728				73,315
Client fund obligations			51,279				32,787
Total current liabilities			128,007				106,102
Bank debt			43,750				53,900
Deferred compensation plan obligations			8,833				4,285
Other non-current liabilities			4,459				2,989
Total liabilities			185,049				167,276
STOCKHOLDERS’ EQUITY
Common stock			975				964
Additional paid-in capital			447,906				444,584
Accumulated deficit			(99,889	)			(113,387	)
Treasury stock			(99,386	)			(85,650	)
Accumulated other comprehensive loss			(15	)			(14	)
Total stockholders’ equity			249,591				246,497
Total liabilities and stockholders’ equity		$	434,640			$	413,773

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2005				2004				2005				2004
Revenue		$	135,339			$	119,974			$	430,332			$	388,696
Operating expenses			120,836				107,479				369,754				330,754
Gross margin			14,503				12,495				60,578				57,942
Corporate general and administrative expense			6,364				6,008				20,236				17,757
Depreciation and amortization expense			3,807				4,047				11,594				12,014
Operating income			4,332				2,440				28,748				28,171
Other income (expense):
Interest expense			(787	)			(369	)			(2,413	)			(1,038	)
Gain on sale of operations, net			29				78				29				996
Other income, net			1,279				521				2,836				1,344
Total other income, net			521				230				452				1,302
Income from continuing operations before income tax expense			4,853				2,670				29,200				29,473
Income tax expense			2,091				1,059				11,855				11,676
Income from continuing operations			2,762				1,611				17,345				17,797
Loss from operations of discontinued businesses, net of tax			(1,529	)			(1,493	)			(4,540	)			(3,716	)
Gain on disposal of discontinued businesses, net of tax			802				238				693				238
Net income		$	2,035			$	356			$	13,498			$	14,319
Earnings per share:
Basic:
Continuing operations		$	0.04			$	0.02			$	0.23			$	0.22
Discontinued operations			(0.01	)			(0.01	)			(0.05	)			(0.04	)
Net income		$	0.03			$	0.01			$	0.18			$	0.18
Diluted:
Continuing operations		$	0.04			$	0.02			$	0.23			$	0.21
Discontinued operations			(0.01	)			(0.01	)			(0.05	)			(0.04	)
Net income		$	0.03			$	0.01			$	0.18			$	0.17
Basic weighted average shares outstanding			73,793				77,311				74,895				80,200
Diluted weighted average shares outstanding			75,988				79,373				76,886				82,480

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

		NINE MONTHS ENDED
		SEPTEMBER 30,
		2005				2004
Cash flows from operating activities
Net income		$	13,498			$	14,319
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from operations of discontinued businesses, net of tax			4,540				3,716
Gain on disposal of discontinued businesses, net of tax			(693	)			(238	)
Gain on sale of operations, net			(29	)			(996	)
Bad debt expense, net of recoveries			3,952				3,109
Notes payable extinguishment			—				(428	)
Depreciation and amortization expense			11,594				12,014
Deferred income taxes			(4,359	)			(3,457	)
Stock awards			571				286
Changes in assets and liabilities, net of acquisitions and dispositions:
Restricted cash			987				(2,927	)
Accounts receivable, net			(11,147	)			(12,784	)
Other assets			(4,101	)			(6,634	)
Accounts payable			(4,013	)			259
Income taxes			8,238				1,393
Accrued expenses and other liabilities			13,904				2,659
Net cash provided by continuing operations			32,942				10,291
Net cash provided by discontinued businesses			1,898				1,602
Net cash provided by operating activities			34,840				11,893
Cash flows from investing activities:
Business acquisitions, net of cash acquired and contingent consideration earned			(11,014	)			(4,322	)
Cash proceeds from divested operations and client lists			2,029				3,030
Additions to property and equipment, net			(4,806	)			(6,093	)
Net decrease in notes receivable			1,320				1,738
Net cash used in investing activities			(12,471	)			(5,647	)
Cash flows from financing activities:
Proceeds from bank debt			203,100				213,405
Proceeds from notes payable			196				—
Payment of bank debt			(213,250	)			(174,905	)
Payment of notes payable and capitalized leases			(624	)			(296	)
Payment for acquisition of treasury stock			(13,736	)			(45,287	)
Proceeds from exercise of stock options			2,169				1,023
Net cash used in financing activities			(22,145	)			(6,060	)
Net increase in cash and cash equivalents			224				186
Cash and cash equivalents at beginning of year			5,291				3,791
Cash and cash equivalents at end of period		$	5,515			$	3,977

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 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. 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, 2005, and December 31, 2004, and the results of their operations for the three and nine months ended September 30, 2005 and 2004, and cash flows for the nine months ended September 30, 2005, and 2004. 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, 2004. Also, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of critical accounting policies.

Principles of Consolidation

The accompanying consolidated financial statements reflect the operations of CBIZ and all of its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying consolidated financial statements do not reflect the operations or accounts of variable interest entities as the impact is not material to the financial condition, results of operations or cash flows of CBIZ. See further discussion under “Variable Interest Entities” below.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Management’s estimates and assumptions include, but are not limited to, estimates of collectibility of accounts receivable and unbilled revenue, the realizability of goodwill and other intangible assets, accrued liabilities (such as incentive compensation), 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 2004 consolidated financial statements have been reclassified to conform to the current year presentation. Reclassifications include, but may not be limited to: legal settlements (previously reported as other income (expense), net, which are now reported as corporate general and administrative expense), discontinued operations and certain other expenses that were reclassified between operating and corporate general and administrative expenses.

Operating Expenses

Operating expenses represent costs incurred by the business units, and consist primarily of personnel, occupancy and consolidation and integration related expenses. Personnel costs include base compensation, payroll taxes, and benefits, which are recognized as expense as they are incurred, and incentive compensation costs which are estimated and accrued on a monthly basis. The ultimate determination of incentive compensation is made after year-end results are finalized, thus estimates are subject to change. Total personnel costs were $88.2 million and $77.3 million for the three months ended September 30, 2005 and 2004, and $270.1 million and $240.7 million for the nine months ended September 30, 2005 and 2004, respectively.

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

The largest components of occupancy costs are rent expense and utilities. Rent expense is recognized over respective lease terms, and utilities are recognized as incurred. Total occupancy costs were $9.1 million and $8.6 million for the three months ended September 30, 2005 and 2004, and $26.9 million and $25.9 million for the nine months ended September 30, 2005 and 2004, respectively.

Consolidation and integration charges are accounted for in accordance with Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Accordingly, CBIZ recognizes a liability for non-cancellable lease obligations based upon the net present value of remaining lease payments, net of estimated sublease payments. The liability is determined and recognized as of the cease-use date and adjustments to the liability are made for changes in estimates in the period in which the change becomes known. See further discussion in Note 6.

Funds Held for Clients and Client Fund Obligations

As part of our payroll and property tax management services, CBIZ is engaged in the preparation of payroll checks, federal, state, and local payroll tax returns, property tax payments and flexible spending account administration. In relation to these services, CBIZ collects funds from its clients’ accounts in advance of paying these client obligations. Funds that are collected before they are due are held in an account in CBIZ’s name and invested in short-term investment grade instruments with a maturity of twelve months or less from the date of purchase. These funds, which may include cash, cash equivalents and short-term investments, are segregated and reported separately as funds held for clients. 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 and the related client fund obligations are included in the consolidated balance sheets as current assets and current liabilities, respectively. The amounts of collected but not yet remitted funds may vary significantly during the year.

Stock Based Awards

CBIZ accounts for its employee stock options in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. CBIZ provides pro-forma net income and pro-forma earnings per share disclosures for employee stock option grants as if the fair-value-based method had been applied in accordance with Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.” Had the cost of stock option plans been determined based on the fair value of options at the grant date, CBIZ’s net income and earnings per share pro-forma amounts would be as follows (in thousands, except per share data):

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2005				2004				2005				2004
Net income as reported		$	2,035			$	356			$	13,498			$	14,319
Fair value of stock-based compensation, net of tax (1)			(227	)			(358	)			(799	)			(1,065	)
Pro-forma net income (loss)		$	1,808			$	(2	)		$	12,699			$	13,254
Earnings per share:
Basic — as reported		$	0.03			$	0.01			$	0.18			$	0.18
Basic — pro-forma		$	0.02			$	—			$	0.17			$	0.17
Diluted — as reported		$	0.03			$	0.01			$	0.18			$	0.17
Diluted — pro-forma		$	0.02			$	—			$	0.16			$	0.16

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

Pro-forma results may not be representative of the effects on net income for future periods, as the level of forfeitures on existing grants and the value and amount of new grants issued in future periods may vary.

Restricted stock awards are independent of option grants, and are granted at no cost to the recipients. Recipients of restricted stock awards are entitled to the same dividend and voting rights as holders of other CBIZ common stock. Shares granted under the plan cannot be sold, pledged, transferred or assigned during the vesting period, and awards are subject to forfeiture if employment terminates prior to the release of restrictions. Restricted stock awards are considered to be issued and outstanding shares of common stock from the date of grant. The market value of shares awarded is recorded as unearned compensation, and is expensed ratably over the period which the restrictions lapse.

Variable Interest Entities

Effective January 1, 2004, CBIZ adopted FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (FIN 46), as amended. In accordance with the provisions of the aforementioned standard, CBIZ has determined that its relationship with certain Certified Public Accounting (CPA) firms with whom we maintain administrative service agreements (ASAs) qualify as variable interest entities. The accompanying financial statements do not reflect the consolidation of the variable interest entities, as the impact is not material to the financial condition, results of operations or cash flows of CBIZ.

The CPA firms with which CBIZ maintains administrative service agreements operate as limited liability companies, limited liability partnerships or professional corporations. The firms are separate legal entities with separate governing bodies and officers. CBIZ has no ownership interest in any of these CPA firms, and neither the existence of the ASAs nor the providing of services thereunder is intended to constitute control of the CPA firms by CBIZ. CBIZ and the CPA firms maintain their own respective liability and risk of loss in connection with performance of each of its respective services, and CBIZ does not believe that its arrangements with these CPA firms result in additional risk of loss.

Fees earned by CBIZ under the ASAs are recorded as revenue in the consolidated statements of operations. In the event that accounts receivable and unbilled work in process become uncollectible by the CPA firms, the service fee due to CBIZ is reduced on a pro-rata basis. Although the administrative service agreements do not constitute control, CBIZ is one of the beneficiaries of the agreements and may bear certain economic risks.

Refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herewith for a more detailed discussion of CBIZ’s relationship with these CPA firms.

New Accounting Pronouncements

In November 2004, the FASB Emerging Issues Task Force (EITF) reached a consensus on Issue No. 03-13 “Applying the Conditions in Paragraph 42 of SFAS 144 in Determining Whether to Report Discontinued Operations” (EITF 03-13). EITF 03-13 relates to components of an enterprise that are either disposed of or classified as held for sale in fiscal periods beginning after December 15, 2004. EITF 03-13 allows significant events or circumstances that occur after the balance sheet date but before the issuance of financial statements to be taken into consideration in the evaluation of whether a component should be presented as discontinued or continuing operations, and modifies assessment period guidance to allow for an assessment period greater than one year. EITF 03-13 also provides guidance on how an ongoing entity should evaluate whether the operations and cash flows of a disposed component have been or will be eliminated from the ongoing operations of the entity, and the types of continuing involvement that constitute significant continuing involvement in the operations of the disposed component. CBIZ adopted the requirements of EITF No. 03-13 during the first quarter of 2005. The adoption of EITF 03-13 did not have a material effect on CBIZ’s consolidated financial statements.

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

In October 2004, the EITF reached a consensus on Issue No. 04-1, “Accounting for Pre-existing Relationships between the Parties to a Business Combination” (EITF 04-1). EITF 04-1 requires that a business combination between two parties that have a pre-existing relationship be treated as a multiple-element transaction with one element being the business combination and the other element being the settlement of the pre-existing relationship. The consensus applies to any business combinations consummated after October 13, 2004. The adoption of EITF 04-1 did not have a material effect on CBIZ’s consolidated financial statements.

In September 2005, the FASB’s Emerging Issues Task Force reached a consensus on Issue No. 05-6, “Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination” (EITF 05-6). EITF 05-6 requires that leasehold improvements acquired in a business combination or purchased subsequent to the inception of a lease be amortized over the lesser of the useful life of the assets or a term that includes renewals that are reasonably assured at the date of the business combination or purchase. EITF 05-6 is effective for CBIZ for leasehold improvements that are purchased or acquired on or after July 1, 2005. The adoption of EITF 05-6 did not have a material effect on CBIZ’s consolidated financial statements.

In December 2004, the FASB issued Staff Position (FSP) No. FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” FSP 109-1 clarifies SFAS No. 109’s guidance that applies to the new tax deduction for qualified domestic production activities. The adoption of FSP 109-1 did not have a material impact on the financial position, results of operations or cash flows of CBIZ.

2.		Accounts Receivable, Net

Accounts receivable balances at September 30, 2005 and December 31, 2004 were as follows (in thousands):

		SEPTEMBER 30,				DECEMBER 31,
		2005				2004
Trade accounts receivable		$	88,010			$	82,071
Unbilled revenue			26,531				24,394
Total accounts receivable			114,541				106,465
Allowance for doubtful accounts			(6,759	)			(6,039	)
Accounts receivable, net		$	107,782			$	100,426

3.		Goodwill and Other Intangible Assets, Net

The components of goodwill and other intangible assets, net at September 30, 2005 and December 31, 2004 were as follows (in thousands):

		SEPTEMBER 30,				DECEMBER 31,
		2005				2004
Goodwill		$	163,005			$	159,807
Intangibles:
Client lists			23,285				18,033
Other intangibles			1,493				972
Total intangibles			24,778				19,005
Total goodwill and other intangible assets			187,783				178,812
Accumulated amortization			(7,705	)			(6,168	)
Goodwill and other intangible assets, net		$	180,078			$	172,644

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

Client lists are amortized over periods not exceeding ten years. Other intangibles, which consist primarily of non-compete agreements, are amortized over periods ranging from two to ten years. Amortization expense for client lists and other intangible assets was approximately $0.7 million and $0.5 million for the three months ended September 30, 2005 and 2004, and $2.0 million and $1.3 million for the nine months ended September 30, 2005 and 2004, respectively.

4.	Bank Debt

Bank debt balances at September 30, 2005 and December 31, 2004 were as follows (in thousands, except percentages):

		SEPTEMBER 30,				DECEMBER 31,
		2005				2004
Bank debt:
Revolving credit facility		$	43,750			$	53,900
Weighted average rates (1)			5.18	%			3.54	%
Range of effective rates (1)			3.94% - 6.75	%			2.98% - 5.25	%

CBIZ maintains a $100.0 million credit facility with Bank of America as agent bank for a group of five participating banks. The facility has a five year term expiring August 2009 and an option to increase the commitment to $125.0 million. The credit facility is secured by substantially all assets of CBIZ, as well as the capital stock of its subsidiaries. Management believes that the carrying amount of bank debt approximates its fair value, and CBIZ had approximately $46.1 million of available funds under the facility at September 30, 2005.

The credit facility provides CBIZ operating flexibility and funding to support seasonal working capital needs and other strategic initiatives such as acquisitions and share repurchases. Under the facility, loans are charged an interest rate consisting of a base rate or Eurodollar rate plus an applicable margin. Additionally, a commitment fee of 30 to 45 basis points 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. Limitations are also placed on CBIZ’s ability to acquire businesses, repurchase CBIZ common stock and to divest operations. As of September 30, 2005, CBIZ believes it was in compliance with its covenants.

The bank agreement also places restrictions on CBIZ’s ability to create liens or other encumbrances, to make certain payments, investments, loans and guarantees and to sell or otherwise dispose of a substantial portion of assets, or to merge or consolidate with an unaffiliated entity. According to the terms of the agreement, 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 agreement contains a provision that, in the event of a defined change in control, the agreement may be terminated.

CBIZ provides letters of credit to landlords (lessors) of its leased premises in lieu of security deposits, which totaled $2.0 million and $2.9 million as of September 30, 2005, and December 31, 2004, respectively. CBIZ also acted as guarantor on various letters of credit for a CPA firm with which it has an affiliation, which totaled $2.5 million and $1.3 million as of September 30, 2005, and December 31, 2004, respectively. In accordance with FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, as amended, CBIZ has recognized a liability for the fair value of the obligations undertaken in issuing these guarantees, which is recorded as other current liabilities in the accompanying consolidated balance sheets. Management does not expect any material changes to result from these instruments as performance under the guarantees is not expected to be required.

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

5.		Contingencies

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.

6.		Consolidation and Integration Charges

Consolidation and integration charges are comprised of expenses associated with CBIZ’s on-going efforts to consolidate operations and locations in fragmented markets to promote and strengthen cross-serving between various practice groups. These expenses result from individual actions in several markets and are not part of one company-wide program.

Consolidation and integration charges include costs for moving facilities, non-cancelable lease obligations, adjustments to lease accruals based on changes in sublease assumptions and severance obligations, and totaled $0.7 million and $1.2 million for the three months ended September 30, 2005 and 2004, and $3.5 million and $2.3 million for the nine months ended September 30, 2005 and 2004, respectively. Significant consolidation and integration initiatives during 2005 included the consolidation of offices in the Denver market and the continuation of consolidation activities in the Chicago market, resulting in $0.6 million and $1.7 million in consolidation and integration charges during the nine months ended September 30, 2005, respectively. Consolidation charges for the nine months ended September 30, 2004 included $1.0 million related to real estate leasing costs in the Chicago market.

The consolidation and integration reserve balance as of December 31, 2004, and activity during the nine months ended September 30, 2005, were as follows (in thousands):

		Consolidation and
		Integration
		Reserve
Reserve balance at December 31, 2004		$	3,410
Adjustments against income (1)			3,496
Payments			(3,089	)
Reserve balance at September 30, 2005		$	3,817

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

7.		Earnings Per Share

CBIZ presents both basic and diluted earnings per share. The following data shows the amounts used in computing earnings per share and the effect on the weighted average number of dilutive potential common shares (in thousands, except per share data).

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2005				2004				2005				2004
Numerator:
Net income		$	2,035			$	356			$	13,498			$	14,319
Denominator:
Basic
Weighted average common shares			73,793				77,311				74,895				80,200
Diluted
Options			2,132				2,049				1,948				2,267
Restricted stock awards			60				11				40				11
Contingent shares (1)			3				2				3				2
Total diluted weighted average common shares			75,988				79,373				76,886				82,480
Basic net income per share		$	0.03			$	0.01			$	0.18			$	0.18
Diluted net income per share		$	0.03			$	0.01			$	0.18			$	0.17

8.		Acquisitions

During the nine months ended September 30, 2005, CBIZ completed acquisitions of a registered investment firm in Cleveland, Ohio, an accounting and consulting practice in San Diego, California, and a valuation business in Milwaukee, Wisconsin which is reported as part of our National Practices — Other segment. In addition, CBIZ acquired the client lists of an accounting and consulting practice in Philadelphia, Pennsylvania and of a Benefits and Insurance practice in Charlotte, North Carolina. Aggregate consideration for the acquisitions consisted of approximately $6.6 million cash, $0.4 million in notes and 45,000 shares of restricted common stock (estimated stock value of $0.2 million at acquisition) paid at closing, and up to an additional $13.2 million (payable in cash and stock) which is contingent on the businesses meeting certain future revenue or earnings targets.

During the nine months ended September 30, 2004, CBIZ completed the acquisition of a benefits and insurance firm in Chicago, Illinois, an accounting tax and advisory firm in Denver, Colorado, and a technology firm in Cleveland, Ohio which is reported as part of our National Practices — Other segment. Aggregate consideration for the acquisitions consisted of approximately $2.9 million cash and 136,000 shares of restricted common stock (estimated stock value of $0.6 million at acquisition) paid at closing, and up to an additional $5.7 million (payable in cash and stock) which is contingent on the businesses meeting certain future revenue or earnings targets.

The operating results of these firms have been 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) was 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, 2005 and 2004 were as follows (in thousands):

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

		NINE MONTHS ENDED
		SEPTEMBER 30,
		2005				2004
Goodwill		$	3,198			$	2,503
Client lists		$	5,605			$	2,912
Other intangible assets		$	597			$	202

9.		Divestitures

During the first quarter of 2005, CBIZ closed an operation from the Accounting, Tax and Advisory practice group, and committed to the sale of a business unit from the Benefits and Insurance practice group and to the closure of certain operations from a business unit in the National Practices — Other practice group. During the third quarter of 2005, CBIZ sold the Benefits and Insurance operation for proceeds that consisted of: $2.0 million cash received at closing; $4.1 million due from others which is subject to adjustment based upon actual cash collected on accounts receivable that were sold; and contingent proceeds which will be determined based upon the divested operation’s actual future performance. The contingent proceeds will be recorded as an adjustment to the gain on sale of discontinued businesses upon receipt of payments; adjustments to the note receivable will be recorded to the operations of discontinued businesses. These operations qualified for treatment as discontinued businesses and are classified as such in the accompanying consolidated financial statements as further discussed in Note 11.

CBIZ also sold a client list from the Benefits and Insurance practice group during the third quarter of 2005, which did not qualify for treatment as a discontinued business. The client list was sold for proceeds of approximately $29,000 cash, and resulted in a pretax gain of $29,000 which is reported as gain on sale of operations, net from continuing operations.

During the first quarter of 2004, CBIZ sold a business operation and a client list from the Accounting, Tax and Advisory practice group, for aggregate proceeds of $0.5 million cash and $0.4 million notes receivable. The sales resulted in a $0.4 million pretax gain, which is reported as gain on sale of operations, net from continuing operations in the consolidated financial statements. These sales did not satisfy the criteria for treatment as discontinued businesses.

During the second quarter of 2004, CBIZ sold two client lists and related assets within the Accounting, Tax and Advisory practice group, a client list and related assets within the Benefits and Insurance practice group, and committed to the disposal of a business unit within the National Practices — Other practice group. The client lists and related assets were sold for aggregate proceeds of $2.5 million cash, $0.7 million notes receivable, and CBIZ stock valued at $0.1 million, and resulted in a $0.5 million pretax gain which is reported as gain on sale of operations, net from continuing operations in the consolidated financial statements. The National Practices business unit satisfied the criteria for treatment as a discontinued operation, and is classified as such in the accompanying consolidated financial statements.

During the third quarter of 2004, CBIZ disposed of two operations within the Accounting, Tax and Advisory practice group, through a sale and a closure; the disposals qualified for treatment as discontinued businesses and are classified as such in the accompanying consolidated financial statements. CBIZ also sold a business unit within the Accounting, Tax and Advisory practice group during the third quarter of 2004 which did not qualify for treatment as a discontinued business. This sale resulted in a pretax gain of $78,000 and is reported as gain on sale of operations, net from continuing operations. Aggregate proceeds from the third quarter sales were approximately $2.8 million, and consisted of $1.7 million cash and $1.1 million in notes receivable.

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

10.		Segment Disclosures

CBIZ’s business units have been aggregated into three practice groups: Accounting, Tax and Advisory Services; Benefits and Insurance; and National Practices. The business units have been aggregated based on the following factors: similarity of the products and services provided to clients; similarity of the regulatory environment; and similarity of economic conditions affecting long-term performance. Additionally, the business units are managed along these segment lines, and each segment line reports to a Practice Group Leader. The Medical Management Professionals unit (CBIZ MMP), which reports under the National Practices group, exceeds the quantitative threshold of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” for aggregation and therefore is reported as a separate segment.

Accounting, Tax and Advisory Services. The Accounting, Tax and Advisory Services practice group offers services in the following areas: cash flow management; strategic planning; consulting; record-keeping; federal, state and local tax return preparation; tax planning based on financial and investment alternatives; tax structuring of business transactions such as mergers and acquisitions; quarterly and year-end payroll tax reporting; corporate, partnership and fiduciary tax planning and return preparation; chief financial officer services and other financial staffing services; financial investment analysis; succession, retirement, and estate planning; profitability, operational and efficiency enhancement consulting to a number of specialized industries; litigation support services; internal audit services and Sarbanes-Oxley consulting and compliance services.

Benefits and Insurance Services. The Benefits and Insurance practice group offers services in the following areas: employee benefits, brokerage, consulting, and administration, including the design, implementation and administration of qualified plans, such as 401(k) plans, profit-sharing plans, defined benefit plans, and money purchase plans; actuarial services; health and welfare benefits consulting, including group health insurance plans; dental and vision care programs; group life insurance programs; accidental death and dismemberment and disability programs; COBRA administration and voluntary insurance programs; health care and dependent care spending accounts; premium reimbursement plans; communications services to inform and educate employees about their benefit programs; executive benefits consulting on non-qualified retirement plans and business continuation plans; human capital advisory services; specialty high-risk life insurance; and wealth management services, including Registered Investment Advisory Services, Investment Policy Statements, also known as IPS, mutual fund selection based on IPS and ongoing mutual fund monitoring.

National Practices. The National Practices group offers services in the following areas: payroll processing and administration; valuations of commercial, tangible, and intangible assets and financial securities; property tax consulting and compliance services; mergers and acquisitions and capital advisory services; health care consulting; government relations; and technology consulting, including strategic technology planning, project management, development, network design and implementation and software selection and implementation.

Medical Management Professionals. The CBIZ MMP subsidiary of the National Practice group offers services to hospital-based physicians in the following areas: billing and accounts receivable management; coding and automated claims filing; comprehensive delinquent claims follow up and collections; compliance plans to meet government and other third party regulations; local office management; and comprehensive statistical and operational reporting; financial reporting, accounts payable, payroll, general ledger processing; design and implementation of managed care contracts with focus on negotiation strategies, pricing, cost containment and utilization tracking; review and negotiation of hospital contracts; evaluation of other strategic business partners; identification and coordination of practice manager and integration opportunities; and coordination of practice expansion efforts.

Corporate and Other. Included in Corporate and Other are operating expenses that are not directly allocated to the individual business units. These expenses are primarily comprised of incentive compensation and consolidation and integration charges.

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

Certain amounts in the 2004 segment data have been reclassified to account for the transfer of certain operations from the Benefits and Insurance practice group to the Accounting, Tax and Advisory practice group in January, 2005. Segment information for the three and nine months ended September 30, 2005 and 2004 was as follows (in thousands):

		THREE MONTHS ENDED SEPTEMBER 30, 2005
		Accounting,				Benefits								National
		Tax and				and				CBIZ				Practices				Corporate
		Advisory				Insurance				MMP				Other				& Other				Total
Revenue		$	55,011			$	36,888			$	25,189			$	18,251			$	—			$	135,339
Operating expenses			49,987				28,850				20,051				16,876				5,072				120,836
Gross margin			5,024				8,038				5,138				1,375				(5,072	)			14,503
Corporate general & admin			—				—				—				—				6,364				6,364
Depreciation & amortization			866				758				699				176				1,308				3,807
Operating income (loss)			4,158				7,280				4,439				1,199				(12,744	)			4,332
Other income (expense):
Interest expense			(25	)			(1	)			—				—				(761	)			(787	)
Gain on sale of operations, net			—				—				—				—				29				29
Other income, net			119				121				14				338				687				1,279
Total other income (expense)			94				120				14				338				(45	)			521
Income (loss) from continuing operations before income tax expense		$	4,252			$	7,400			$	4,453			$	1,537			$	(12,789	)		$	4,853

		THREE MONTHS ENDED SEPTEMBER 30, 2004
		Accounting,				Benefits								National
		Tax and				and				CBIZ				Practices				Corporate
		Advisory				Insurance				MMP				Other				and Other				Total
Revenue		$	45,885			$	34,682			$	22,262			$	17,145			$	—			$	119,974
Operating expenses			42,364				27,763				17,929				15,633				3,790				107,479
Gross margin			3,521				6,919				4,333				1,512				(3,790	)			12,495
Corporate general & admin			—				—				—				—				6,008				6,008
Depreciation & amortization			968				729				688				206				1,456				4,047
Operating income (loss)			2,553				6,190				3,645				1,306				(11,254	)			2,440
Other income (expense):
Interest income (expense)			(13	)			74				—				—				(430	)			(369	)
Gain on sale of operations, net			—				—				—				—				78				78
Other income (expense), net			36				392				3				(277	)			367				521
Total other income (expense)			23				466				3				(277	)			15				230
Income (loss) from continuing operations before income tax expense		$	2,576			$	6,656			$	3,648			$	1,029			$	(11,239	)		$	2,670

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

		NINE MONTHS ENDED SEPTEMBER 30, 2005
		Accounting,				Benefits								National
		Tax and				and				CBIZ				Practices				Corporate
		Advisory				Insurance				MMP				Other				and Other				Total
Revenue		$	193,098			$	109,475			$	72,644			$	55,115			$	—			$	430,332
Operating expenses			157,681				87,583				59,370				49,880				15,240				369,754
Gross margin			35,417				21,892				13,274				5,235				(15,240	)			60,578
Corporate general & admin			—				—				—				—				20,236				20,236
Depreciation & amortization			2,683				2,285				2,110				587				3,929				11,594
Operating income (loss)			32,734				19,607				11,164				4,648				(39,405	)			28,748
Other income (expense):
Interest expense			(79	)			(3	)			—				—				(2,331	)			(2,413	)
Gain on sale of operations, net			—				—				—				—				29				29
Other income, net			272				279				49				837				1,399				2,836
Total other income (expense)			193				276				49				837				(903	)			452
Income (loss) from continuing operations before income tax expense		$	32,927			$	19,883			$	11,213			$	5,485			$	(40,308	)		$	29,200

		NINE MONTHS ENDED SEPTEMBER 30, 2004
		Accounting,				Benefits								National
		Tax and				and				CBIZ				Practices				Corporate
		Advisory				Insurance				MMP				Other				and Other				Total
Revenue		$	166,090			$	106,996			$	64,321			$	51,289			$	—			$	388,696
Operating expenses			136,215				84,826				53,140				46,081				10,492				330,754
Gross margin			29,875				22,170				11,181				5,208				(10,492	)			57,942
Corporate general & admin			—				—				—				—				17,757				17,757
Depreciation & amortization			2,820				2,130				2,025				610				4,429				12,014
Operating income (loss)			27,055				20,040				9,156				4,598				(32,678	)			28,171
Other income (expense):
Interest income (expense)			(31	)			59				—				—				(1,066	)			(1,038	)
Gain on sale of operations, net			—				—				—				—				996				996
Other income (expense), net			227				384				(5	)			(11	)			749				1,344
Total other income (expense)			196				443				(5	)			(11	)			679				1,302
Income (loss) from continuing operations before income tax expense		$	27,251			$	20,483			$	9,151			$	4,587			$	(31,999	)		$	29,473

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

11.		Discontinued Businesses

From time to time, CBIZ will divest (through sale or closure) business operations that are underperforming, located in secondary markets, or do not provide the level of synergistic cross-serving opportunities with other CBIZ businesses that is desired.

During the first quarter of 2005, CBIZ closed an operation from the Accounting, Tax and
Advisory practice group, and committed to the sale of a business unit from the Benefits and Insurance practice group and to the closure of certain operations from a business unit in the National Practices — Other practice group. There were no business operations divested during the second quarter of 2005. The sale of the business unit from the Benefits and Insurance practice group was completed during the third quarter of 2005.

During the year ended December 31, 2004, CBIZ divested of three business operations that qualified for treatment as discontinued businesses. Two business units from the Accounting, Tax and Advisory practice group were divested during the third quarter of 2004 through a sale and a closure, and a business unit from the National Practices — Other practice group was closed during the fourth quarter of 2004. There were no businesses divested during the first or second quarters of 2004, and there were no businesses available for sale at December 31, 2004.

These business operations are reported as discontinued businesses and the net assets, liabilities and results of operations are reported separately in the accompanying consolidated financial statements. Revenue and loss from operations of discontinued businesses for the three and nine months ended September 30, 2005 and 2004 were as follows (in thousands):

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2005				2004				2005				2004
Revenue		$	623			$	2,464			$	2,911			$	9,130
Loss from operations of discontinued businesses, before income tax benefit		$	(2,351	)		$	(2,190	)		$	(6,984	)		$	(5,549	)
Income tax benefit			(822	)			(697	)			(2,444	)			(1,833	)
Loss from operations of discontinued businesses, net of tax		$	(1,529	)		$	(1,493	)		$	(4,540	)		$	(3,716	)

Gains on the disposal of discontinued businesses for the three and nine months ended September 30, 2005 and 2004 were as follows (in thousands):

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2005				2004				2005				2004
Gain on disposal of discontinued businesses, before income tax expense		$	1,233			$	561			$	1,066			$	561
Income tax expense			431				323				373				323
Gain on disposal of discontinued businesses, net of tax		$	802			$	238			$	693			$	238

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

At September 30, 2005 and December 31, 2004, the assets and liabilities of business operations classified as discontinued businesses consisted of the following (in thousands):

		SEPTEMBER 30,				DECEMBER 31,
		2005				2004
Assets:
Accounts receivable, net		$	208			$	9,342
Due from others			3,377				—
Funds held for clients			3,500				5,450
Property and equipment, net			152				1,326
Deferred income taxes, net			250				250
Other assets			12				123
Assets of businesses held for sale		$	7,499			$	16,491
Liabilities:
Accounts payable		$	622			$	919
Accrued personnel costs			40				197
Client fund obligations			3,500				5,450
Other liabilities			1,342				898
Liabilities of businesses held for sale		$	5,504			$	7,464

12.		Subsequent Events

CBIZ repurchased 583,000 shares of its common stock at a cost of approximately $2.9 million during the period October 1 through October 26, 2005. Shares were repurchased pursuant to a Rule 10b5-1 trading plan, which allowed CBIZ to repurchase shares during a period when regulatory restrictions would normally have precluded CBIZ from being active in the trading market.

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

Unless the context otherwise requires, references in this 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 September 30, 2005 and December 31, 2004, results of operations for the three and nine months ended September 30, 2005 and 2004, and cash flows for the nine months ended September 30, 2005 and 2004, 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 in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2004.

Executive Summary

CBIZ is a diversified services company which, acting through its subsidiaries, provides professional business services to businesses of various sizes, as well as individuals, governmental entities and not-for-profit enterprises throughout the United States and Toronto, Canada. CBIZ delivers integrated services through three practice groups: Accounting, Tax and Advisory (ATA); Benefits and Insurance (B&I); and National Practices.

The substantial portion of our revenue is derived from professional service activities provided for our clients, and our revenue is driven by our ability to generate new opportunities, by the prices we obtain for our service offerings and by the utilization of our professional workforce.

CBIZ’s business strategy is to grow in the professional business services industry by:

	•		offering a wide array of infrastructure support services;
	•		cross-serving these services to our existing customer base;
	•		attracting new customers with our diverse business services offerings;
	•		leveraging our practice area expertise across all our businesses; and
	•		developing our core service offerings in target markets through selective acquisitions.

CBIZ seeks to strengthen its operations and customer service capabilities by making acquisitions in markets where it currently operates and where the prospects are favorable to increase its market share and become a more significant provider of a comprehensive range of business services. During the nine months ended September 30, 2005, CBIZ acquired three businesses including a registered investment advisory firm in Cleveland, Ohio, an accounting and consulting practice in San Diego, California, and a valuation firm in Milwaukee, Wisconsin. In addition, CBIZ acquired two client lists which complement our Accounting, Tax and Advisory and Benefits and Insurance practices.

During the third quarter of 2005, CBIZ joined Kreston International, an international organization of affiliated accounting firms. The affiliation with Kreston International will allow CBIZ to access accounting services in more than 70 countries around the world, which we believe will enable us to provide more services to our existing clients, including services to clients with international needs. In addition, the affiliation with Kreston International makes CBIZ one of the preferred U.S. providers of accounting services to foreign firms, which we believe will provide us with additional clients.

As part of its strategy to promote and strengthen cross-serving, CBIZ consolidates operations and locations in fragmented markets. During the nine months ended September 30, 2005, CBIZ consolidated offices in the Denver and Atlanta markets, and continued consolidation activities in the Chicago market.

CBIZ continually evaluates its business operations, and may from time to time sell or close operations that are underperforming, located in secondary markets, or do not provide the level of synergistic cross-serving opportunities with other CBIZ businesses that is desired. During the nine months ended September 30, 2005, CBIZ sold a business operation from the Benefits and Insurance practice group, closed a business operation from the Accounting, Tax and Advisory practice group, and committed to the closure of certain operations from a business unit in the National Practices — Other practice group.

CBIZ believes that repurchasing shares of its common stock is a use of cash that provides value to stockholders, and accordingly the Board of Directors approved a plan allowing CBIZ to repurchase up to 5.0 million shares of its common stock during 2005. During the nine months ended September 30, 2005, CBIZ repurchased

approximately 3.2 million shares of CBIZ common stock at a total cost of $13.7 million. The credit facility and net cash provided by CBIZ operations were utilized to fund share repurchases.

Due to seasonality in the Accounting, Tax and Advisory (ATA) and Benefits and Insurance (B&I) practices, a disproportionately large amount of CBIZ’s revenue is earned in the first half of the year. The ATA practice experiences heavy volume in the first four months of the year primarily as a result of year-end accounting and tax services, and the B&I practice experiences some seasonality with regards to the timing of certain commissions from carriers. These revenue levels are supported by operating costs that are relatively fixed in the short term, and thus result in higher operating margins in the first half of the year. The seasonality of our businesses also results in a net use of cash from operations in the first quarter of the year, followed by cash provided from operations in subsequent quarters. The impact on cash flow occurs as the majority of accounts receivable for services provided and billed to clients in the first four months of the year are not collected until subsequent quarters.

Effective August 1, 2005, pursuant to approval by our board of directors and shareholders, CBIZ changed its corporate name from “Century Business Services, Inc.” to “CBIZ, Inc.” CBIZ believes that this name change is integral to promoting greater name recognition in the marketplace, and to reinforcing our image as a unified provider of business services.

Business Services

A comprehensive description of the business services currently offered by CBIZ through its three practice groups is included in our Annual Report on Form 10-K for the year ended December 31, 2004. The following paragraphs provide a summary of certain external relationships and regulatory factors currently impacting our business.

Accounting, Tax and Advisory (ATA) Practice

Restrictions imposed by independence requirements and state accountancy laws and regulations preclude CBIZ from rendering audit and attest services (other than internal audit services). As such, CBIZ and its subsidiaries maintain joint-referral relationships and administrative service agreements (ASAs) with independent licensed Certified Public Accounting (CPA) firms under which audit and attest services may be provided to CBIZ’s clients by such CPA firms. These firms are owned by licensed CPAs who are employed by CBIZ subsidiaries.

Under these ASAs, CBIZ provides a range of services to the CPA firms, including (but not limited to): administrative functions such as office, bookkeeping, and accounting; preparing marketing and promotion materials; providing office space, computer equipment, and systems support; and leasing administrative and professional staff. Services are performed in exchange for a fee. Fees earned by CBIZ under the ASAs are recorded as revenue in the accompanying consolidated statements of operations and amounted to approximately $10.4 million and $6.1 million for the three months ended September 30, 2005 and 2004 and $47.1 million and $32.4 million for the nine months ended September 30, 2005 and 2004, respectively, a majority of which is related to services rendered to privately-held clients. In the event that accounts receivable and unbilled work in process become uncollectible by the CPA firms, the service fee due to CBIZ is reduced on a pro-rata basis. The ASAs typically have terms ranging up to ten years, and are renewable upon agreement by both parties.

With respect to CPA firm clients that are required to file audited financial statements with the SEC, the SEC staff views CBIZ and the CPA firms with which we have contractual relationships as a single entity in applying independence rules established by the accountancy regulators and the SEC. Accordingly, we do not hold any financial interest in an SEC-reporting attest client of an associated CPA firm, enter into any business relationship with an SEC-reporting attest client that the CPA firm performing an audit could not maintain, or sell any non-audit services to an SEC-reporting attest client that the CPA firm performing an audit could not maintain, under the auditor independence limitations set out in the Sarbanes-Oxley Act of 2002 and other professional accountancy independence standards. Applicable professional standards generally permit the ATA practice group to provide additional services to privately-held companies, in addition to those services which may be provided to SEC-reporting attest clients of an associated CPA firm. CBIZ and the CPA firms with which we are associated have implemented policies and procedures designed to enable us to maintain independence and freedom from conflicts of interest in accordance with applicable standards. Given the pre-existing limits set by CBIZ on its relationships with SEC-reporting attest clients of associated CPA firms, and the limited number and size of such clients, the imposition of Sarbanes-Oxley Act independence limitations did not and is not expected to materially affect CBIZ revenues.

The CPA firms with which CBIZ maintains ASAs operate as limited liability companies, limited liability partnerships or professional corporations. The firms are separate legal entities with separate governing bodies and officers. Neither the existence of the ASAs nor the providing of services thereunder is intended to constitute control of the CPA firms by CBIZ. CBIZ and the CPA firms maintain their own respective liability and risk of loss in connection with performance of its respective services. Attest services can not be performed by any individual or entity which is not licensed to do so. CBIZ can not perform audits or reviews, does not contract to perform them and does not provide audit or review reports. Given this legal prohibition and course of conduct, CBIZ does not believe it is likely that we would bear the risk of litigious losses related to attest services provided by the CPA firms.

Although the ASAs do not constitute control, CBIZ is one of the beneficiaries of the agreements and may bear certain economic risks. As such, the CPA firms with which CBIZ maintains administrative service agreements qualify as variable interest entities under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities”. See further discussion in Note 1 of the accompanying consolidated financial statements.

Benefits and Insurance (B&I) Practice

CBIZ’s Benefits and Insurance Services group maintains relationships with some but not all insurance carriers. Some of these carriers have compensation arrangements with CBIZ whereby some portion of payments due may be contingent upon meeting certain performance goals. These compensation arrangements are provided to CBIZ as a result of our performance and expertise by which products and services are provided to the client and may result in enhancing CBIZ’s ability to access certain insurance markets and services on behalf of CBIZ clients. The aggregate of these payments received during the year ended December 31, 2004 and during the nine months ended September 30, 2005, was less than 2.0% of consolidated CBIZ revenues for the respective periods.

State insurance regulators have conducted inquiries to clarify the nature of compensation arrangements within the insurance brokerage industry. To date, CBIZ, along with other major insurance brokerage companies, has received several requests for information regarding our compensation arrangements related to these practices from such authorities. CBIZ also recently received a subpoena from the New York Attorney General regarding its insurance brokerage compensation arrangements. CBIZ has discussed the nature of these inquires and compensation arrangements with each of the major insurance carriers with whom we have established these arrangements. We believe that our arrangements are not unlawful and that any changes to compensation arrangements in the future will have minimal impact on CBIZ, barring future regulatory action. Future regulatory action may limit or eliminate our ability to enhance revenue through all current compensation arrangements, and may result in a diminution of future revenue from these sources.

Results of Operations — Continuing Operations

CBIZ delivers products and services through three practice groups. A brief description of these groups’ operating results and factors affecting their businesses is provided below. The Medical Management Professionals unit (CBIZ MMP), which reports under the National Practices group, exceeds the quantitative threshold of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” for aggregation and therefore is reported as a separate segment.

Same-unit revenue represents total revenue adjusted to reflect comparable periods of activity for acquisitions and divestitures. For example, for an operation divested on September 1, 2005, revenue from the periods July 1 through August 31 is included in same-unit revenue for third quarter of both years; revenue for the month of September, 2004 is reported as revenue from divested operations. Revenue from divested operations represents operations that did not meet the criteria for treatment as discontinued businesses.

Three months ended September 30, 2005 and 2004

Revenue

The following table summarizes total revenue for the three months ended September 30, 2005 and 2004 (in thousands, except percentages).

		THREE MONTHS ENDED SEPTEMBER 30,
						% of								% of				$				%
		2005				Total				2004				Total				Change				Change
Same-unit revenue
Accounting, Tax and Advisory		$	51,430				38.0	%		$	45,885				38.2	%		$	5,545				12.1	%
Benefits and Insurance			35,877				26.5	%			34,682				28.9	%			1,195				3.4	%
CBIZ MMP			25,189				18.6	%			22,262				18.6	%			2,927				13.1	%
National Practices — Other			17,947				13.3	%			17,145				14.3	%			802				4.7	%
Total National Practices			43,136				31.9	%			39,407				32.9	%			3,729				9.5	%
Total same-unit revenue			130,443				96.4	%			119,974				100.0	%			10,469				8.7	%
Acquired businesses			4,896				3.6	%			—								4,896
Divested operations			—								—								—
Total revenue		$	135,339							$	119,974							$	15,365				12.8	%