CBIZ, INC. 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2005
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-25890
CBIZ, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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22-2769024 |
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(State or other jurisdiction of incorporation
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(I.R.S. Employer Identification No.) |
or organization) |
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6050 Oak Tree Boulevard, South, Suite 500, Cleveland, Ohio
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44131 |
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(Address of principal executive offices)
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(Zip Code)
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(Registrants telephone number, including area code) 216-447-9000
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Century Business Services, Inc.
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Former name, former address and former fiscal year, if changed since last report |
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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 the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date:
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Outstanding at |
Class of Common Stock |
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July 31, 2005 |
Par value $.01 per share |
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74,075,714 |
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CBIZ, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Page |
PART I. |
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FINANCIAL INFORMATION: |
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Item 1. |
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Financial Statements |
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Consolidated Balance Sheets June 30, 2005 and December 31, 2004 |
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3 |
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Consolidated Statements of Operations Three and Six Months Ended June 30, 2005 and 2004 |
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4 |
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Consolidated Statements of Cash Flows Six Months Ended June 30, 2005 and 2004 |
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5 |
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Notes to the Consolidated Financial Statements |
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6-17 |
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Item 2. |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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18-37 |
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Item 3. |
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Quantitative and Qualitative Disclosures About Market Risk |
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37 |
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Item 4. |
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Controls and Procedures |
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38 |
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PART II. |
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OTHER INFORMATION : |
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Item 1. |
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Legal Proceedings |
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39 |
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
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39 |
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Item 4. |
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Submission of Matters to a Vote of Security Holders |
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40 |
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Item 6. |
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Exhibits |
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40 |
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Signature |
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40 |
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2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CBIZ, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
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JUNE 30, |
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DECEMBER 31, |
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2005 |
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2004 |
ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
3,506 |
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$ |
5,291 |
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Restricted cash |
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10,782 |
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10,089 |
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Accounts receivable, net |
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114,248 |
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100,426 |
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Notes receivable current |
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1,250 |
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1,377 |
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Income taxes recoverable |
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7,146 |
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Deferred income taxes current |
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3,919 |
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3,809 |
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Other current assets |
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7,726 |
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8,074 |
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Assets of businesses held for sale |
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10,721 |
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16,491 |
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Current assets before funds held for clients |
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152,152 |
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152,703 |
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Funds held for clients |
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57,725 |
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32,787 |
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Total current assets |
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209,877 |
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185,490 |
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Property and equipment, net |
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35,845 |
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36,569 |
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Notes receivable non-current |
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3,714 |
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4,726 |
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Deferred income taxes non-current |
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8,147 |
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6,543 |
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Goodwill and other intangible assets, net |
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178,768 |
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172,644 |
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Assets of deferred compensation plan |
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7,898 |
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4,285 |
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Other assets |
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3,817 |
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3,516 |
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Total assets |
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$ |
448,066 |
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$ |
413,773 |
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LIABILITIES |
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Current liabilities: |
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Accounts payable |
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$ |
25,477 |
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$ |
25,090 |
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Income taxes payable |
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2,099 |
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Accrued personnel costs |
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25,733 |
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24,401 |
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Other current liabilities |
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15,900 |
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16,360 |
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Liabilities of businesses held for sale |
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6,667 |
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7,464 |
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Current liabilities before client fund
obligations |
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75,876 |
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73,315 |
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Client fund obligations |
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57,725 |
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32,787 |
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Total current liabilities |
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133,601 |
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106,102 |
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Bank debt |
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50,250 |
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53,900 |
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Liabilities of deferred compensation plan |
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7,898 |
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4,285 |
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Other non-current liabilities |
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4,328 |
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2,989 |
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Total liabilities |
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196,077 |
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167,276 |
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STOCKHOLDERS EQUITY |
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Common stock |
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970 |
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964 |
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Additional paid-in capital |
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446,185 |
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444,584 |
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Accumulated deficit |
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(101,924 |
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(113,387 |
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Treasury stock |
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(93,227 |
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(85,650 |
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Accumulated other comprehensive loss |
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(15 |
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(14 |
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Total stockholders equity |
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251,989 |
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246,497 |
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Total liabilities and stockholders
equity |
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$ |
448,066 |
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$ |
413,773 |
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See the accompanying notes to the consolidated financial statements.
3
CBIZ, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
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THREE MONTHS ENDED |
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SIX MONTHS
ENDED |
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JUNE 30, |
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JUNE 30, |
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2005 |
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2004 |
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2005 |
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2004 |
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Revenue |
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$ |
139,635 |
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$ |
123,920 |
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$ |
294,993 |
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$ |
268,722 |
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Operating expenses |
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121,482 |
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109,151 |
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248,918 |
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223,275 |
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Gross margin |
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18,153 |
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14,769 |
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46,075 |
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45,447 |
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Corporate general and administrative expense |
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7,449 |
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6,023 |
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13,872 |
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11,749 |
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Depreciation and amortization expense |
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3,828 |
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4,072 |
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7,787 |
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7,967 |
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Operating income |
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6,876 |
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4,674 |
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24,416 |
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25,731 |
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Other income (expense): |
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Interest expense |
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(845 |
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(429 |
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(1,626 |
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(669 |
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Gain on sale of operations, net |
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534 |
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918 |
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Other income, net |
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999 |
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292 |
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1,557 |
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823 |
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Total other income (expense), net |
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154 |
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397 |
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(69 |
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1,072 |
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Income from continuing operations before
income tax expense |
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7,030 |
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5,071 |
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24,347 |
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26,803 |
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Income tax expense |
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2,577 |
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1,685 |
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9,764 |
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10,617 |
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Income from continuing operations |
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4,453 |
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3,386 |
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14,583 |
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16,186 |
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Loss from operations of discontinued businesses,
net of tax |
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(1,127 |
) |
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(1,004 |
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(3,011 |
) |
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(2,223 |
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Loss on disposal of discontinued businesses, net
of tax |
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(109 |
) |
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Net income |
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$ |
3,326 |
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$ |
2,382 |
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$ |
11,463 |
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$ |
13,963 |
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Earnings per share: |
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Basic: |
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Continuing operations |
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$ |
0.06 |
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$ |
0.04 |
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$ |
0.19 |
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$ |
0.20 |
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Discontinued operations |
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(0.02 |
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(0.01 |
) |
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(0.04 |
) |
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(0.03 |
) |
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Net income |
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$ |
0.04 |
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$ |
0.03 |
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$ |
0.15 |
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$ |
0.17 |
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Diluted: |
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Continuing operations |
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$ |
0.06 |
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$ |
0.04 |
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$ |
0.19 |
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$ |
0.19 |
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Discontinued operations |
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(0.02 |
) |
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(0.01 |
) |
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(0.04 |
) |
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(0.02 |
) |
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Net income |
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$ |
0.04 |
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$ |
0.03 |
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$ |
0.15 |
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$ |
0.17 |
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Basic weighted average shares outstanding |
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75,175 |
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|
77,885 |
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75,455 |
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81,661 |
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Diluted weighted average shares outstanding |
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76,947 |
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80,150 |
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77,338 |
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84,038 |
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See the accompanying notes to the consolidated financial statements.
4
CBIZ,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
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SIX MONTHS ENDED |
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JUNE 30, |
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2005 |
|
2004 |
Cash flows from operating activities |
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Net income |
|
$ |
11,463 |
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$ |
13,963 |
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Adjustments to reconcile net income to net cash
provided by operating activities: |
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Loss from operations of discontinued businesses, net of
tax |
|
|
3,011 |
|
|
|
2,223 |
|
Loss on disposal of discontinued businesses, net of tax |
|
|
109 |
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Gain on sale of operations, net |
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|
|
(918 |
) |
Bad debt expense, net of recoveries |
|
|
2,574 |
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|
|
2,375 |
|
Depreciation and amortization expense |
|
|
7,787 |
|
|
|
7,967 |
|
Deferred income taxes |
|
|
(1,714 |
) |
|
|
41 |
|
Stock awards |
|
|
237 |
|
|
|
148 |
|
Changes in assets and liabilities, net of acquisitions and
dispositions: |
|
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|
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|
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Restricted cash |
|
|
(693 |
) |
|
|
(1,660 |
) |
Accounts receivable, net |
|
|
(16,270 |
) |
|
|
(15,821 |
) |
Other assets |
|
|
(3,726 |
) |
|
|
(5,833 |
) |
Accounts payable |
|
|
287 |
|
|
|
409 |
|
Income taxes |
|
|
9,303 |
|
|
|
4,553 |
|
Accrued expenses and other liabilities |
|
|
5,575 |
|
|
|
2,180 |
|
|
|
|
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|
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|
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|
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|
|
|
Net cash provided by continuing operations |
|
|
17,943 |
|
|
|
9,627 |
|
Net cash provided by discontinued businesses |
|
|
1,962 |
|
|
|
827 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
19,905 |
|
|
|
10,454 |
|
|
|
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|
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|
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Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Business acquisitions, net of cash acquired and
contingent consideration earned |
|
|
(8,713 |
) |
|
|
(3,300 |
) |
Cash proceeds from divested operations and client lists |
|
|
|
|
|
|
3,029 |
|
Additions to property and equipment, net |
|
|
(3,323 |
) |
|
|
(4,108 |
) |
Net decrease in notes receivable |
|
|
1,139 |
|
|
|
1,111 |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(10,897 |
) |
|
|
(3,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from bank debt |
|
|
132,900 |
|
|
|
152,575 |
|
Proceeds from notes payable |
|
|
98 |
|
|
|
366 |
|
Payment of bank debt |
|
|
(136,550 |
) |
|
|
(119,750 |
) |
Payment of notes payable and capitalized leases |
|
|
(450 |
) |
|
|
(795 |
) |
Payment for acquisition of treasury stock |
|
|
(7,577 |
) |
|
|
(39,773 |
) |
Proceeds from exercise of stock options |
|
|
786 |
|
|
|
662 |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(10,793 |
) |
|
|
(6,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(1,785 |
) |
|
|
471 |
|
Cash and cash equivalents at beginning of year |
|
|
5,291 |
|
|
|
3,791 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
3,506 |
|
|
$ |
4,262 |
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the consolidated financial statements.
5
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 June 30, 2005, and December 31, 2004, and the results of their
operations for the three and six months ended June 30, 2005 and 2004 and cash flows for the
six months ended June 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 CBIZs annual report on Form 10-K for the year ended December 31,
2004. Also, see Managements 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.
Managements 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. Managements estimates and assumptions are derived from and
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 our
year-end results are finalized; thus, estimates are subject to change. Total personnel
costs were $87.8 million and $79.3 million for the three months ended June 30, 2005 and 2004
and $181.9 million and $163.4 million for the six months ended June 30, 2005 and 2004,
respectively. |
6
|
|
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 $8.9 million and $8.6 million for the three months ended June 30, 2005
and 2004 and $17.8 million and $17.3 million for the six months ended June 30, 2005 and
2004, respectively. |
|
|
|
Consolidation and integration charges are included in operating expenses, and 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. 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 CBIZs 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, CBIZs net income and
earnings per share pro-forma amounts would be as follows (in thousands, except per share
data): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED |
|
SIX MONTHS ENDED |
|
|
JUNE 30, |
|
JUNE 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Net income as reported |
|
$ |
3,326 |
|
|
$ |
2,382 |
|
|
$ |
11,463 |
|
|
$ |
13,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of stock-based
compensation, net of tax(1) |
|
|
(252 |
) |
|
|
(358 |
) |
|
|
(572 |
) |
|
|
(707 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro-forma net income |
|
$ |
3,074 |
|
|
$ |
2,024 |
|
|
$ |
10,891 |
|
|
$ |
13,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
0.04 |
|
|
$ |
0.03 |
|
|
$ |
0.15 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic pro-forma |
|
$ |
0.04 |
|
|
$ |
0.03 |
|
|
$ |
0.14 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted as reported |
|
$ |
0.04 |
|
|
$ |
0.03 |
|
|
$ |
0.15 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted pro-forma |
|
$ |
0.04 |
|
|
$ |
0.03 |
|
|
$ |
0.14 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A tax rate of 40.0% was applied to the fair value of options in determining
pro-forma net income for the three and six months ended June 30, 2005 and 2004. |
7
The above 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. Managements Discussion and Analysis of Financial Condition and Results
of Operations included herewith for a more detailed discussion of our 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 CBIZs consolidated financial statements.
In October 2004, the EITF reached a consensus on Issue No. 04-1, Accounting for
Preexisting 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
8
consummated after October 13, 2004. The adoption of EITF 04-1 did not have a material
effect on CBIZs consolidated financial statements.
2. |
|
Accounts Receivable, Net |
|
|
|
Accounts receivable balances at June 30, 2005 and December 31, 2004 were as follows (in
thousands): |
|
|
|
|
|
|
|
|
|
|
|
JUNE 30, |
|
DECEMBER 31, |
|
|
2005 |
|
2004 |
Trade accounts receivable |
|
$ |
94,624 |
|
|
$ |
82,071 |
|
Unbilled revenue |
|
|
26,261 |
|
|
|
24,394 |
|
|
|
|
|
|
|
|
|
|
Total accounts receivable |
|
|
120,885 |
|
|
|
106,465 |
|
Allowance for doubtful accounts |
|
|
(6,637 |
) |
|
|
(6,039 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
114,248 |
|
|
$ |
100,426 |
|
|
|
|
|
|
|
|
|
|
3. |
|
Goodwill and Other Intangible Assets, Net |
|
|
|
The components of goodwill and other intangible assets, net at June 30, 2005 and December 31,
2004 were as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
JUNE 30, |
|
DECEMBER 31, |
|
|
2005 |
|
2004 |
Goodwill |
|
$ |
161,645 |
|
|
$ |
159,807 |
|
|
Intangibles: |
|
|
|
|
|
|
|
|
Client lists |
|
|
22,701 |
|
|
|
18,033 |
|
Other intangibles |
|
|
1,486 |
|
|
|
972 |
|
|
|
|
|
|
|
|
|
|
Total intangibles |
|
|
24,187 |
|
|
|
19,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and other intangible assets |
|
|
185,832 |
|
|
|
178,812 |
|
Accumulated amortization |
|
|
(7,064 |
) |
|
|
(6,168 |
) |
|
|
|
|
|
|
|
|
|
Goodwill and other intangible assets, net |
|
$ |
178,768 |
|
|
$ |
172,644 |
|
|
|
|
|
|
|
|
|
|
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 of client lists and other intangible assets was
approximately $0.7 million and $0.4 million for the three months ended June 30, 2005 and
2004, and $1.3 million and $0.8 million for the six months ended June 30, 2005 and 2004,
respectively.
9
4. |
|
Bank Debt |
|
|
|
Bank debt balances at June 30, 2005 and December 31, 2004 were as follows (in thousands,
except percentages): |
|
|
|
|
|
|
|
|
|
|
|
JUNE 30, |
|
DECEMBER 31, |
|
|
2005 |
|
2004 |
Bank debt: |
|
|
|
|
|
|
|
|
Revolving credit facility |
|
$ |
50,250 |
|
|
$ |
53,900 |
|
|
|
|
|
|
|
|
|
|
Weighted average rates (1) |
|
|
4.99 |
% |
|
|
3.54 |
% |
|
|
|
|
|
|
|
|
|
Range of effective rates (1) |
|
|
3.94% - 6.38 |
% |
|
|
2.98% - 5.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Rates are provided for the six months ended June 30, 2005, and the twelve months
ended December 31, 2004, respectively. |
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 $27.1 million of available funds under the facility at June 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 CBIZs 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 CBIZs ability to
acquire businesses, repurchase CBIZ common stock and to divest operations. As of June 30,
2005, CBIZ believes it was in compliance with its covenants.
The bank agreement also places restrictions on CBIZs 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 $2.1 million and $2.9 million as of June 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 $1.2 million and $1.3 million
as of June 30, 2005, and December 31, 2004, respectively. In accordance with FASB
Interpretation No. 45, Guarantors 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.
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. |
10
6. |
|
Consolidation and Integration Charges |
|
|
|
Consolidation and integration charges are comprised of expenses associated with CBIZs
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 and severance obligations. |
|
|
|
Consolidation and integration charges, which include non-cancelable lease obligations,
adjustments to lease accruals based on changes in sublease assumptions, severance
obligations and other costs such as moving costs, were $0.8 million and $0.7 million for the
three months ended June 30, 2005 and 2004 and $2.8 million and $1.0 million for the six
months ended June 30, 2005 and 2004, respectively. Significant consolidation and
integration initiatives during the first six months of 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 $1.2 million in consolidation and integration charges,
respectively. There were no significant consolidation activities during the first six
months of 2004. |
|
|
|
The consolidation and integration reserve balance as of December 31, 2004, and activity
during the six-month period ended June 30, 2005, were as follows (in thousands): |
|
|
|
|
|
|
|
Consolidation and |
|
|
Integration Reserve |
Reserve balance at December 31, 2004 |
|
$ |
3,410 |
|
Adjustments against income (1) |
|
|
2,802 |
|
Payments |
|
|
(2,068 |
) |
|
|
|
|
|
Reserve balance at June 30, 2005 |
|
$ |
4,144 |
|
|
|
|
|
|
|
|
|
(1) |
|
Adjustments against income are included in operating expenses in the accompanying
consolidated statements of operations. |
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 |
|
SIX MONTHS ENDED |
|
|
JUNE 30, |
|
JUNE 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,326 |
|
|
$ |
2,382 |
|
|
$ |
11,463 |
|
|
$ |
13,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares |
|
|
75,175 |
|
|
|
77,885 |
|
|
|
75,455 |
|
|
|
81,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
1,734 |
|
|
|
2,255 |
|
|
|
1,845 |
|
|
|
2,370 |
|
Restricted stock awards |
|
|
36 |
|
|
|
8 |
|
|
|
36 |
|
|
|
6 |
|
Contingent shares (1) |
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted weighted average
common shares |
|
|
76,947 |
|
|
|
80,150 |
|
|
|
77,338 |
|
|
|
84,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
0.04 |
|
|
$ |
0.03 |
|
|
$ |
0.15 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share |
|
$ |
0.04 |
|
|
$ |
0.03 |
|
|
$ |
0.15 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Contingent shares represent shares that will not be issued until future conditions
have been met. |
11
8. |
|
Acquisitions |
|
|
|
During the six months ended June 30, 2005, CBIZ completed acquisitions of a registered
investment firm in Cleveland, Ohio, an accounting and consulting practice in San Diego,
California, the client list of an accounting and consulting practice in Philadelphia,
Pennsylvania, and a valuation business in Milwaukee, Wisconsin which is reported as part of
our National Practices Other segment. Aggregate consideration for the acquisitions
consisted of approximately $6.6 million cash, $0.4 million in notes receivable 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 $12.8 million (payable in cash and stock) which is
contingent on the businesses meeting certain future revenue and earnings targets. |
|
|
|
During the six months ended June 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. Consideration 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 and 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, client lists and non-compete agreements
was allocated to goodwill. Acquisitions, including contingent consideration earned,
resulted in increases to goodwill, client lists and other intangible assets during the six
months ended June 30, 2005 and 2004 as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED JUNE 30, |
|
|
2005 |
|
2004 |
Goodwill |
|
$ |
1,838 |
|
|
$ |
2,275 |
|
|
|
|
|
|
|
|
|
|
Client lists |
|
$ |
5,020 |
|
|
$ |
2,766 |
|
|
|
|
|
|
|
|
|
|
Other intangible assets |
|
$ |
554 |
|
|
$ |
202 |
|
|
|
|
|
|
|
|
|
|
9. |
|
Divestitures |
|
|
|
During the first quarter of 2005, CBIZ closed an operation from the Accounting, Tax and
Advisory practice group, and also 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. 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. There were no divestitures during the second quarter of
2005. |
|
|
|
During the first quarter of 2004, CBIZ sold an Accounting, Tax, and Advisory (ATA) business
operation and a client list within the ATA 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
ATA practice group, a client list and related assets within the B&I 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. |
12
10. |
|
Segment Disclosures |
|
|
|
CBIZs 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 practice management 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 Practice Management. 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. |
|
|
|
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. |
13
|
|
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 six
months ended June 30, 2005 and 2004 was as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED JUNE 30, 2005 |
|
|
|
|
|
|
|
|
|
|
National Practices |
|
|
|
|
|
|
|
|
|
|
Accounting, |
|
Benefits |
|
Medical |
|
|
|
|
|
|
|
|
|
|
Tax & |
|
and |
|
Practice |
|
|
|
|
|
Corporate |
|
|
|
|
Advisory |
|
Insurance |
|
Mgmt. |
|
Other |
|
and Other |
|
Total |
Revenue |
|
$ |
58,657 |
|
|
$ |
36,862 |
|
|
$ |
24,281 |
|
|
$ |
19,835 |
|
|
$ |
|
|
|
$ |
139,635 |
|
Operating expenses |
|
|
51,856 |
|
|
|
28,893 |
|
|
|
19,691 |
|
|
|
17,099 |
|
|
|
3,943 |
|
|
|
121,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
6,801 |
|
|
|
7,969 |
|
|
|
4,590 |
|
|
|
2,736 |
|
|
|
(3,943 |
) |
|
|
18,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and admin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,449 |
|
|
|
7,449 |
|
Depreciation & amortization |
|
|
884 |
|
|
|
746 |
|
|
|
703 |
|
|
|
187 |
|
|
|
1,308 |
|
|
|
3,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
5,917 |
|
|
|
7,223 |
|
|
|
3,887 |
|
|
|
2,549 |
|
|
|
(12,700 |
) |
|
|
6,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(26 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(818 |
) |
|
|
(845 |
) |
Gain on sale of operations,
net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
|
49 |
|
|
|
85 |
|
|
|
36 |
|
|
|
206 |
|
|
|
623 |
|
|
|
999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
|
23 |
|
|
|
84 |
|
|
|
36 |
|
|
|
206 |
|
|
|
(195 |
) |
|
|
154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income
tax expense |
|
$ |
5,940 |
|
|
$ |
7,307 |
|
|
$ |
3,923 |
|
|
$ |
2,755 |
|
|
$ |
(12,895 |
) |
|
$ |
7,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED JUNE 30, 2004 |
|
|
|
|
|
|
|
|
|
|
National Practices |
|
|
|
|
|
|
|
|
|
|
Accounting, |
|
Benefits |
|
Medical |
|
|
|
|
|
|
|
|
|
|
Tax & |
|
and |
|
Practice |
|
|
|
|
|
Corporate |
|
|
|
|
Advisory |
|
Insurance |
|
Mgmt. |
|
Other |
|
and Other |
|
Total |
Revenue |
|
$ |
49,648 |
|
|
$ |
36,267 |
|
|
$ |
21,519 |
|
|
$ |
16,486 |
|
|
$ |
|
|
|
$ |
123,920 |
|
Operating expenses |
|
|
44,793 |
|
|
|
28,521 |
|
|
|
17,814 |
|
|
|
14,933 |
|
|
|
3,090 |
|
|
|
109,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
4,855 |
|
|
|
7,746 |
|
|
|
3,705 |
|
|
|
1,553 |
|
|
|
(3,090 |
) |
|
|
14,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and admin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,023 |
|
|
|
6,023 |
|
Depreciation & amortization |
|
|
951 |
|
|
|
730 |
|
|
|
675 |
|
|
|
200 |
|
|
|
1,516 |
|
|
|
4,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
3,904 |
|
|
|
7,016 |
|
|
|
3,030 |
|
|
|
1,353 |
|
|
|
(10,629 |
) |
|
|
4,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(13 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
(409 |
) |
|
|
(429 |
) |
Gain on sale of operations,
net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
534 |
|
|
|
534 |
|
Other income (expense),
net |
|
|
14 |
|
|
|
(52 |
) |
|
|
(8 |
) |
|
|
116 |
|
|
|
222 |
|
|
|
292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
|
1 |
|
|
|
(59 |
) |
|
|
(8 |
) |
|
|
116 |
|
|
|
347 |
|
|
|
397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income
tax expense |
|
$ |
3,905 |
|
|
$ |
6,957 |
|
|
$ |
3,022 |
|
|
$ |
1,469 |
|
|
$ |
(10,282 |
) |
|
$ |
5,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED JUNE 30, 2005 |
|
|
|
|
|
|
|
|
|
|
National Practices |
|
|
|
|
|
|
|
|
|
|
Accounting, |
|
Benefits |
|
Medical |
|
|
|
|
|
|
|
|
|
|
Tax & |
|
and |
|
Practice |
|
|
|
|
|
Corporate |
|
|
|
|
Advisory |
|
Insurance |
|
Mgmt. |
|
Other |
|
and Other |
|
Total |
Revenue |
|
$ |
138,087 |
|
|
$ |
72,587 |
|
|
$ |
47,455 |
|
|
$ |
36,864 |
|
|
$ |
|
|
|
$ |
294,993 |
|
Operating expenses |
|
|
107,694 |
|
|
|
58,733 |
|
|
|
39,319 |
|
|
|
33,004 |
|
|
|
10,168 |
|
|
|
248,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
30,393 |
|
|
|
13,854 |
|
|
|
8,136 |
|
|
|
3,860 |
|
|
|
(10,168 |
) |
|
|
46,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and admin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,872 |
|
|
|
13,872 |
|
Depreciation & amortization |
|
|
1,817 |
|
|
|
1,527 |
|
|
|
1,411 |
|
|
|
411 |
|
|
|
2,621 |
|
|
|
7,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
28,576 |
|
|
|
12,327 |
|
|
|
6,725 |
|
|
|
3,449 |
|
|
|
(26,661 |
) |
|
|
24,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(54 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(1,570 |
) |
|
|
(1,626 |
) |
Gain on sale of operations,
net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
|
153 |
|
|
|
158 |
|
|
|
35 |
|
|
|
499 |
|
|
|
712 |
|
|
|
1,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
|
99 |
|
|
|
156 |
|
|
|
35 |
|
|
|
499 |
|
|
|
(858 |
) |
|
|
(69 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income
tax expense |
|
$ |
28,675 |
|
|
$ |
12,483 |
|
|
$ |
6,760 |
|
|
$ |
3,948 |
|
|
$ |
(27,519 |
) |
|
$ |
24,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED JUNE 30, 2004 |
|
|
|
|
|
|
|
|
|
|
National Practices |
|
|
|
|
|
|
|
|
|
|
Accounting, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax & |
|
Benefits |
|
Medical |
|
|
|
|
|
Corporate |
|
|
|
|
Advisory |
|
and Insurance |
|
Practice Mgmt. |
|
Other |
|
and Other |
|
Total |
Revenue |
|
$ |
120,205 |
|
|
$ |
72,314 |
|
|
$ |
42,059 |
|
|
$ |
34,144 |
|
|
$ |
|
|
|
$ |
268,722 |
|
Operating expenses |
|
|
93,851 |
|
|
|
57,063 |
|
|
|
35,211 |
|
|
|
30,448 |
|
|
|
6,702 |
|
|
|
223,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
26,354 |
|
|
|
15,251 |
|
|
|
6,848 |
|
|
|
3,696 |
|
|
|
(6,702 |
) |
|
|
45,447 |
|
|
Corporate general and admin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,749 |
|
|
|
11,749 |
|
Depreciation & amortization |
|
|
1,852 |
|
|
|
1,401 |
|
|
|
1,337 |
|
|
|
404 |
|
|
|
2,973 |
|
|
|
7,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
24,502 |
|
|
|
13,850 |
|
|
|
5,511 |
|
|
|
3,292 |
|
|
|
(21,424 |
) |
|
|
25,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(18 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
(636 |
) |
|
|
(669 |
) |
Gain on sale of operations,
net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
918 |
|
|
|
918 |
|
Other income (expense),
net |
|
|
191 |
|
|
|
(8 |
) |
|
|
(8 |
) |
|
|
266 |
|
|
|
382 |
|
|
|
823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
|
173 |
|
|
|
(23 |
) |
|
|
(8 |
) |
|
|
266 |
|
|
|
664 |
|
|
|
1,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income
tax expense |
|
$ |
24,675 |
|
|
$ |
13,827 |
|
|
$ |
5,503 |
|
|
$ |
3,558 |
|
|
$ |
(20,760 |
) |
|
$ |
26,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
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 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, both of which are classified
as available for sale at June 30, 2005. In addition, CBIZ closed a business operation from
the Accounting, Tax and Advisory practice group during the first quarter of 2005. There
were no businesses divested during the second quarter of 2005. |
|
|
|
During the year ended December 31, 2004, CBIZ divested of three business operations
that qualified for treatment as discontinued businesses. There were no businesses divested
during the second quarter 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 six months ended June 30, 2005 and 2004 were as follows (in
thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED |
|
SIX MONTHS ENDED |
|
|
JUNE 30, |
|
JUNE 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Revenue |
|
$ |
1,454 |
|
|
$ |
3,490 |
|
|
$ |
2,288 |
|
|
$ |
6,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations of discontinued
businesses, before income tax
benefit |
|
$ |
(1,735 |
) |
|
$ |
(1,521 |
) |
|
$ |
(4,633 |
) |
|
$ |
(3,359 |
) |
Income tax benefit |
|
|
(608 |
) |
|
|
(517 |
) |
|
|
(1,622 |
) |
|
|
(1,136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations of discontinued
businesses, net of tax |
|
$ |
(1,127 |
) |
|
$ |
(1,004 |
) |
|
$ |
(3,011 |
) |
|
$ |
(2,223 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no gains or losses on the disposal of discontinued businesses for the three
months ended June 30, 2005 or 2004. Losses on the disposal of discontinued businesses for
the six months ended June 30, 2005 and 2004 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED |
|
|
JUNE 30, |
|
|
2005 |
|
2004 |
Loss on disposal of discontinued businesses,
before income tax benefit |
|
$ |
(167 |
) |
|
$ |
|
|
Income tax benefit |
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of discontinued businesses, net
of tax |
|
$ |
(109 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
At June 30, 2005 and December 31, 2004, the assets and liabilities of business
operations classified as discontinued businesses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
JUNE 30, |
|
DECEMBER 31, |
|
|
2005 |
|
2004 |
Assets: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
4,884 |
|
|
$ |
9,342 |
|
Funds held for clients |
|
|
4,394 |
|
|
|
5,450 |
|
Property and equipment, net |
|
|
1,114 |
|
|
|
1,326 |
|
Deferred income taxes, net |
|
|
250 |
|
|
|
250 |
|
Other assets |
|
|
79 |
|
|
|
123 |
|
|
|
|
|
|
|
|
|
|
Assets of businesses held for sale |
|
$ |
10,721 |
|
|
$ |
16,491 |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
664 |
|
|
$ |
919 |
|
Accrued personnel costs |
|
|
217 |
|
|
|
197 |
|
Client fund obligations |
|
|
4,394 |
|
|
|
5,450 |
|
Other liabilities |
|
|
1,392 |
|
|
|
898 |
|
|
|
|
|
|
|
|
|
|
Liabilities of businesses held for sale |
|
$ |
6,667 |
|
|
$ |
7,464 |
|
|
|
|
|
|
|
|
|
|
12. |
|
Subsequent Events |
|
|
|
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. |
|
|
|
CBIZ repurchased 550,000 shares of its common stock at a cost of approximately $2.3 million
during the period July 1 through July 18, 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. |
17
TABLE OF CONTENTS
Item 2. Managements 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 CBIZs financial position at
June 30, 2005 and December 31, 2004, results of operations for the three and six months ended June
30, 2005 and 2004, and cash flows for the six months ended June 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.
CBIZs 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 six months ended June 30, 2005, CBIZ acquired three businesses and a client list, including a
registered investment advisory firm in Cleveland, Ohio, an accounting and consulting practice in
San Diego, California, the clients of an accounting, advisory and consulting practice in
Philadelphia, Pennsylvania and a valuation firm in Milwaukee, Wisconsin.
CBIZ recently announced an affiliation with Kreston International, an international organization of
affiliated accounting firms. The affiliation with Kreston International will allow CBIZ an
opportunity to provide 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.
As part of its strategy to promote and strengthen cross-serving, CBIZ consolidates operations and
locations in fragmented markets. During the first half of 2005, CBIZ consolidated offices in the
Denver market, and continued consolidation activities in the Chicago market. CBIZ expects to
initiate co-location activities in the Atlanta and San-Diego markets during the second half of
2005.
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 six
months ended June 30, 2005, CBIZ closed a business operation from the Accounting, Tax and Advisory
practice group, and committed to the sale of a business operation 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.
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 six months ended June 30, 2005,
CBIZ repurchased approximately 1.9 million shares of CBIZ common stock at a total cost of $7.6
million. The credit facility and net cash provided by CBIZ operations were utilized to fund share
repurchases.
18
Due to seasonality in the Accounting, Tax and Advisory (ATA) and Benefits and Insurance (B&I)
practices, a disproportionately large amount of CBIZs 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 supplemental commissions from carriers. These revenue levels are
supported by operating costs that are generally fixed in nature, 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 CBIZs 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 $18.1 million and $10.4 million for the three months ended
June 30, 2005 and 2004 and $36.7 million and $26.3 million for the six months ended June 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.
19
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
CBIZs 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 CBIZs 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 six months ended June 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 has discussed the
nature of these inquires and compensation arrangements with each of the major insurance carriers
with whom we have established these arrangements, and we believe that our arrangements are
appropriate 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
practice management 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 June 1, 2005, revenue
from the periods April 1 through May 31 is included in same-unit revenue for the second quarter of
both years; revenue for the month of June, 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.
20
Three months ended June 30, 2005 and 2004
Revenue
The following table summarizes total revenue for the three months ended June 30, 2005 and 2004 (in
thousands, except percentages).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED JUNE 30, |
|
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
$ |
|
% |
|
|
2005 |
|
Total |
|
2004 |
|
Total |
|
Change |
|
Change |
Same-unit revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting, Tax and Advisory |
|
$ |
54,598 |
|
|
|
39.1 |
% |
|
$ |
49,467 |
|
|
|
39.9 |
% |
|
$ |
5,131 |
|
|
|
10.4 |
% |
Benefits & Insurance |
|
|
35,836 |
|
|
|
25.7 |
% |
|
|
36,267 |
|
|
|
29.3 |
% |
|
|
(431 |
) |
|
|
(1.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CBIZ MMP |
|
|
24,281 |
|
|
|
17.4 |
% |
|
|
21,519 |
|
|
|
17.4 |
% |
|
|
2,762 |
|
|
|
12.8 |
% |
National
Practices Other |
|
|
18,757 |
|
|
|
13.4 |
% |
|
|
16,486 |
|
|
|
13.3 |
% |
|
|
2,271 |
|
|
|
13.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total National Practices |
|
|
43,038 |
|
|
|
30.8 |
% |
|
|
38,005 |
|
|
|
30.7 |
% |
|
|
5,033 |
|
|
|
13.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same-unit revenue |
|
|
133,472 |
|
|
|
95.6 |
% |
|
|
123,739 |
|
|
|
99.9 |
% |
|
|
9,733 |
|
|
|
7.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired businesses |
|
|
6,163 |
|
|
|
4.4 |
% |
|
|
|
|
|
|
|
|
|
|
6,163 |
|
|
|
|
|
Divested operations |
|
|
|
|
|
|
|
|
|
|
181 |
|
|
|
0.1 |
% |
|
|
(181 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
139,635 |
|
|
|
|
|
|
$ |
123,920 |
|
|
|
|
|
|
$ |
15,715 |
|
|
|
12.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 7.9% growth in same-unit revenue for the three months ended June 30, 2005 from the comparable
period in 2004 was attributable to growth in the Accounting, Tax and Advisory, CBIZ MMP and
National Practices Other Practice Groups, offset by a slight decline in same-unit revenue in the
Benefits and Insurance practice group. A detailed discussion of revenue by practice group is
included under Operating Practice Groups below.
Operating Expenses
Operating expenses increased to $121.5 million for the three months ended June 30, 2005, from
$109.2 million for the comparable period in 2004, an increase of $12.3 million or 11.3%. As a
percent of revenue, operating expenses (excluding consolidation and integration charges) were 86.4%
and 87.5% for the three months ended June 30, 2005 and 2004, respectively. The primary components
of operating expenses are personnel costs and occupancy expense, representing 79.6% and 80.5% of
total operating expenses and 69.3% and 70.9% of revenue for the three months ended June 30, 2005
and 2004, respectively. As the majority of our operating costs are fixed in nature, gross margin
as a percentage of revenue generally improves with revenue growth. A more comprehensive analysis
of operating expenses (excluding consolidation and integration charges) and their impact on gross
margin is discussed by operating practice group below.
Consolidation and integration charges are reported as operating expenses in the accompanying
consolidated financial statements, and were 0.6% of revenue for the three months ended June 30,
2005 and 2004. There were no significant consolidation activities initiated during the second
quarters of 2005 or 2004.
Corporate general and administrative expenses increased to $7.4 million and 5.3% of revenue for the
three months ended June 30, 2005, from $6.0 million and 4.9% of revenue for the comparable period
in 2004. The increase in corporate general and administrative expenses was primarily attributable
to expenses related to our incentive compensation plan, which are estimated and accrued on a
monthly basis. As the final determination of incentive compensation is not made until after
year-end results are finalized, the estimates are subject to change. The incentive compensation
plan is further discussed under Estimates of Incentive Compensation Costs and Effective Income Tax
Rates below.
Depreciation and amortization expense was $3.8 million and 2.7% of revenue for the three months
ended June 30, 2005, compared to $4.1 million and 3.3% of revenue for the comparable period in
2004. The decrease in depreciation and amortization expense was primarily attributable to the
shift from purchasing computer-related equipment and furniture to leasing such items. Operating
lease costs are recorded as operating expenses rather than capitalized and recorded as depreciation
expense. Lease expenses related to these items totaled $0.9 million and $0.6 million for the three
months ended June 30, 2005 and 2004, respectively.
21
Interest expense increased to $0.8 million for the three months ended June 30, 2005, from $0.4
million for the three months ended June 30, 2004, an increase of $0.4 million or 97.0%. The
increase in interest expense was the result of higher average debt and interest rates during the
three months ended June 30, 2005 verses the comparable period in 2004. Average debt was $58.0
million for the three months ended June 30, 2005, compared to $48.1 million for the same period in
2004, and average interest rates were 5.4% and 3.3% during the three months ended June 30, 2005 and
2004, respectively. Higher average debt in the second quarter of 2005 compared to the second
quarter of 2004, was primarily due to share repurchases and acquisitions. Debt is further
discussed under Liquidity and Capital Resources.
Gain on sale of operations, net was $0.5 million for the three months ended June 30, 2004, and was
related primarily to the sale of a client list in the Benefits & Insurance practice group. There
were no operations sold during the second quarter of 2005.
Other income, net was $1.0 million for the three months ended June 30, 2005, and $0.3 million for
the comparable period in 2004. Other income (expense), net is comprised primarily of interest
income earned on funds held for clients at CBIZs payroll business, income earned on assets held in
a rabbi trust related to the deferred compensation plan, gains and losses on sales of assets, and
miscellaneous income such as contingent royalties from previous divestitures. The increase in
other income for the second quarter of 2005 from the comparable period in 2004 was primarily the
result of higher interest earned on restricted cash and funds held for clients primarily at CBIZs
payroll business, higher contingent royalties earned on previous divestitures and income earned on
assets of the deferred compensation plan.
CBIZ recorded income tax expense from continuing operations of $2.6 million and $1.7 million for
the three months ended June 30, 2005 and 2004, respectively. The effective tax rate for the three
months ended June 30, 2005 was 36.7%, compared to an effective rate of 33.2% for the comparable
period in 2004.
Operating Practice Groups
Accounting, Tax and Advisory Services.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED JUNE 30, |
|
|
2005 |
|
2004 |
|
Change |
|
|
(Dollars in thousands) |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit |
|
$ |
54,598 |
|
|
$ |
49,467 |
|
|
$ |
5,131 |
|
Acquired businesses |
|
|
4,059 |
|
|
|
|
|
|
|
4,059 |
|
Divested operations |
|
|
|
|
|
|
181 |
|
|
|
(181 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
58,657 |
|
|
$ |
49,648 |
|
|
$ |
9,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
51,856 |
|
|
|
44,793 |
|
|
|
7,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
6,801 |
|
|
$ |
4,855 |
|
|
$ |
1,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent |
|
|
11.6 |
% |
|
|
9.8 |
% |
|
|
1.8 |
% |
Same-unit
revenue for the three months ended June 30, 2005 increased by
$5.1 million or 10.4% from
the three months ended June 30, 2004. The growth in same-unit revenue was primarily due to an
increase in the aggregate number of hours charged to clients for consulting, litigation support and
Sarbanes-Oxley consulting and compliance services, combined with price increases for traditional
accounting and tax services. The growth in revenue from acquisitions
of $4.1 million was provided
by firms acquired in Denver, Colorado and San Diego, California. Divested operations represent one
small operation that did not provide opportunity for growth or cross-serving.
The largest components of operating expenses for the ATA group are personnel costs, occupancy costs
and professional service fees paid to third parties, representing
87.4% and 87.2% of total
operating expenses for the three months ended June 30, 2005 and 2004, respectively. For the three
months ended June 30, 2005, personnel costs increased $5.4 million from the comparable period in
2004, but decreased as a percentage of revenue to 67.8% in 2005 from
69.3% in 2004. Acquisitions,
net of divestitures, contributed $2.3 million of the increase in personnel costs; the remainder of
the increase in personnel costs was due to additional personnel necessary to accommodate revenue
growth, and annual increases in compensation rates for 2005. The decrease in personnel costs as a
percent of revenue was the result of improved utilization of personnel. Occupancy costs are
relatively fixed in nature and decreased as a percentage of revenue to 6.6% for the three months
ended June
22
30, 2005 from 7.3% for the comparable period in 2004, primarily due to the increase in
revenue previously discussed. Professional service fees paid to third parties increased $0.6
million to 2.8% of revenue for the three months ended June 30, 2005 from 2.1% for the same period
in 2004, as the result our utilization of third-party professionals to provide Sarbanes-Oxley
consulting and compliance services to our clients.
Gross margin as a percent of revenue increased by 1.8% for the three months ended June 30, 2005
from the comparable period in 2004, primarily due to the improved utilization of personnel combined
with an increase in rates charged to clients for accounting and tax services. CBIZ expects gross
margin as a percentage of revenue for the remainder of 2005, to continue to improve over 2004
levels.
Benefits and Insurance Services.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED JUNE 30, |
|
|
2005 |
|
2004 |
|
Change |
|
|
(Dollars in thousands) |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit |
|
$ |
35,836 |
|
|
$ |
36,267 |
|
|
$ |
(431 |
) |
Acquired businesses |
|
|
1,026 |
|
|
|
|
|
|
|
1,026 |
|
Divested operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
36,862 |
|
|
$ |
36,267 |
|
|
$ |
595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
28,893 |
|
|
|
28,521 |
|
|
|
372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
7,969 |
|
|
$ |
7,746 |
|
|
$ |
223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent |
|
|
21.6 |
% |
|
|
21.4 |
% |
|
|
0.2 |
% |
Same-unit revenue for the three months ended June 30, 2005 decreased by $0.4 million or 1.2% from
the three months ended June 30, 2004. The decline in same-unit revenue was primarily attributable
to the loss of a large client from our retail business, pricing of property and casualty policies
sold during the second quarter ended June 30, 2005 verses the comparable period in 2004, and a
decline in supplemental commissions received from insurance companies (further described under
Benefits and Insurance Practice above). The decline in same-unit revenue experienced by our
retail business was partially offset by growth in our group health business and the timing of
policies sold by our specialty life insurance business. Revenue from acquired businesses related
to a group benefits business in Owings Mills, Maryland and a registered investment advisory firm in
Cleveland, Ohio.
The largest components of operating expenses for the B&I group are personnel costs, commissions
paid to third party brokers, and occupancy costs, representing 87.3%
and 86.4% of total operating
expenses for the three months ended June 30, 2005 and 2004, respectively. Personnel costs
increased as a percentage of revenue to 56.6% for the second quarter
of 2005 from 55.0% for the
comparable period in 2004, primarily as a result of investments in sales and support personnel
intended to promote organic growth. CBIZ expects the investments in sales personnel to result in
margin improvement in future periods, after production levels have been established. Commissions
paid to third party brokers decreased as a percentage of revenue to 6.2% from 7.3% for the three
months ended June 30, 2005 and 2004, respectively, primarily due to a smaller portion of total
revenue for the B&I group being generated by external brokers. Occupancy costs are relatively
fixed in nature and decreased as a percentage of revenue to 5.6% for the quarter ended June 30,
2005 from 5.7% for the comparable period in 2004, primarily as a result of overall growth in
revenue.
Gross margin as a percent of revenue increased by 0.2% for the three months ended June 30, 2005
from the comparable period in 2004, primarily as the result of expense management efforts. The B&I
group has improved gross margin from the first quarter of 2005, and expects improvement to continue
throughout the remainder of 2005.
23
CBIZ Medical Management Professionals (CBIZ MMP).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED JUNE 30, |
|
|
2005 |
|
2004 |
|
Change |
|
|
(Dollars in thousands) |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit |
|
$ |
24,281 |
|
|
$ |
21,519 |
|
|
$ |
2,762 |
|
Acquired businesses |
|
|
|
|
|
|
|
|
|
|
|
|
Divested operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
24,281 |
|
|
$ |
21,519 |
|
|
$ |
2,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
19,691 |
|
|
|
17,814 |
|
|
|
1,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
4,590 |
|
|
$ |
3,705 |
|
|
$ |
885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent |
|
|
18.9 |
% |
|
|
17.2 |
% |
|
|
1.7 |
% |
CBIZ MMP revenue increased by $2.8 million, or 12.8%, for the three months ended June 30, 2005 as
compared to the three months ended June 30, 2004. Growth was attributable to new clients obtained
in 2005, the maturation of clients obtained in 2004, and growth in revenue from existing clients.
The largest components of operating expenses for CBIZ MMP are personnel costs, occupancy costs and
office expenses (primarily postage), representing 87.9% and 89.1% of total operating expenses for
the three months ended June 30, 2005 and 2004, respectively. Personnel costs increased by $1.1
million, but decreased as a percentage of revenue to 57.0% for the three months ended June 30,
2005, from 59.0% for the comparable period in 2004. The increase in personnel costs was directly
related to an increase in the number of client service staff employed by CBIZ MMP during 2005
compared to 2004, required to support the growth in revenue; additionally, CBIZ MMP added personnel
in the compliance and technology disciplines to support the current infrastructure and to position
the unit for continued growth in the future. The decrease in personnel costs as a percent of
revenue was the result of the growth in revenue as previously discussed. Occupancy costs remained
consistent as a percentage of revenue at 6.9% for the three months ended June 30, 2005 and 2004,
primarily due to additional space required and expenses incurred to accommodate overall growth of
the unit. Office expenses for the three months ended June 30, 2005 increased 5.1% from the
comparable period in 2004 in response to overall growth of the unit.
Gross margin as a percentage of revenue increased 1.7% for the three months ended June 30, 2005
over the comparable period in 2004. CBIZ expects operating expenses to continue to increase in 2005
over 2004 based on investments to upgrade CBIZ MMPs operating system that will allow for continued
growth. As a result of these investments, gross margin as a percentage of revenue is expected to
decline slightly throughout the remainder of 2005.
National
Practices Services Other.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED JUNE 30, |
|
|
2005 |
|
2004 |
|
Change |
|
|
(Dollars in thousands) |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit |
|
$ |
18,757 |
|
|
$ |
16,486 |
|
|
$ |
2,271 |
|
Acquired businesses |
|
|
1,078 |
|
|
|
|
|
|
|
1,078 |
|
Divested operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
19,835 |
|
|
$ |
16,486 |
|
|
$ |
3,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
17,099 |
|
|
|
14,933 |
|
|
|
2,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
2,736 |
|
|
$ |
1,553 |
|
|
$ |
1,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent |
|
|
13.8 |
% |
|
|
9.4 |
% |
|
|
4.4 |
% |
Same-unit revenue increased $2.3 million or 13.8% for the three months ended June 30, 2005 from the
comparable period in 2004, attributable primarily to our mergers and acquisitions and technology
businesses. The mergers and acquisitions business experienced approximately $1.0 million in higher
revenue during the second quarter of 2005 verses the comparable period in 2004, as the result of
two transactions that closed during the second quarter of 2005 versus one that closed during the
second quarter of 2004. Growth in revenue experienced by our technology business was largely the
result of certain client lists that were acquired during the
24
fourth quarter 2004, as well as a
large product sale made by one unit. Revenue from acquired businesses related to a technology firm
located in Cleveland, Ohio, and a valuation business in Milwaukee, Wisconsin.
The largest components of operating expenses for the National Practices Services Other segment
are personnel costs, direct costs and occupancy costs, representing 89.1% and 91.2% of total
operating expenses for the three months ended June 30, 2005 and 2004, respectively. Personnel
costs increased by $0.9 million, but decreased as a percentage of revenue to 59.1% for the three
months ended June 30, 2005, from 65.9% for the three months ended June 30, 2004. Personnel costs
decreased as a percentage of revenue due to growth in revenue attributable to the two mergers and
acquisitions transactions that closed during the second quarter of 2005, as well as the a larger
portion of revenue in the second quarter of 2005 being derived from product sales than in the
comparable period of 2004. Direct costs primarily consists of product costs associated with
hardware sales in the technology businesses, and increased $0.9 million to 12.7% of revenue for the
three months ended June 30, 2005, from 9.7% of revenue for the three months ended June 30, 2004. The
increase in direct costs as a percentage of revenue was the result of a larger portion of revenue
being derived from product sales during the second quarter of 2005 than in the second quarter of
2004. Occupancy costs are typically fixed in nature and decreased as a percentage of revenue to
4.9% in the second quarter of 2005 from 6.9% in the second quarter of 2004. The decrease in
occupancy costs as a percentage of revenue resulted from a combination of revenue growth, and the
shutdown of unprofitable facilities. CBIZ closed facilities in the mergers and acquisition and
valuation businesses in June 2004, as well as an unprofitable office in the valuation business
during the first quarter of 2005.
Gross margin as a percentage of revenue increased 4.4% for the three months ended June 30, 2005
from the comparable period in 2004, primarily as the result of the two mergers and acquisition
transactions that closed during the second quarter of 2005, as well as the additional product sales
that occurred in the technology businesses. CBIZ expects gross margin for the balance of 2005 to
be in line with 2004 levels.
Six months ended June 30, 2005 and 2004
Revenue
The following table summarizes total revenue for the six months ended June 30, 2005 and 2004 (in
thousands, except percentages).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED JUNE 30, |
|
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
$ |
|
% |
|
|
2005 |
|
Total |
|
2004 |
|
Total |
|
Change |
|
Change |
Same-unit revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting, Tax and Advisory |
|
$ |
128,374 |
|
|
|
43.5 |
% |
|
$ |
119,573 |
|
|
|
44.5 |
% |
|
$ |
8,801 |
|
|
|
7.4 |
% |
Benefits & Insurance |
|
|
70,362 |
|
|
|
23.9 |
% |
|
|
72,314 |
|
|
|
26.9 |
% |
|
|
(1,952 |
) |
|
|
(2.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CBIZ MMP |
|
|
47,455 |
|
|
|
16.1 |
% |
|
|
42,059 |
|
|
|
15.7 |
% |
|
|
5,396 |
|
|
|
12.8 |
% |
National
Practices Other |
|
|
35,251 |
|
|
|
11.9 |
% |
|
|
34,144 |
|
|
|
12.7 |
% |
|
|
1,107 |
|
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total National Practices |
|
|
82,706 |
|
|
|
28.0 |
% |
|
|
76,203 |
|
|
|
28.4 |
% |
|
|
6,503 |
|
|
|
8.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same-unit revenue |
|
|
281,442 |
|
|
|
95.4 |
% |
|
|
268,090 |
|
|
|
99.8 |
% |
|
|
13,352 |
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired businesses |
|
|
13,551 |
|
|
|
4.6 |
% |
|
|
|
|
|
|
|
|
|
|
13,551 |
|
|
|
|
|
Divested operations |
|
|
|
|
|
|
|
|
|
|
632 |
|
|
|
0.2 |
% |
|
|
(632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
294,993 |
|
|
|
|
|
|
$ |
268,722 |
|
|
|
|
|
|
$ |
26,271 |
|
|
|
9.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 5.0% growth in same-unit revenue for the six months ended June 30, 2005 from the comparable
period in 2004 was attributable to growth in the Accounting, Tax and Advisory, CBIZ MMP and
National Practices Other Practice Groups, offset by a slight decline in same-unit revenue in the
Benefits and Insurance practice group. A detailed discussion of revenue by practice group is
included under Operating Practice Groups below.
25
Operating Expenses
Operating expenses increased to $248.9 million for the six months ended June 30, 2005, from $223.3
million for the comparable period in 2004, an increase of $25.6 million or 11.5%. As a percent of
revenue, operating expenses (excluding consolidation and integration charges) were 83.4% and 82.7%
for the six months ended June 30, 2005 and 2004, respectively. The primary components of operating
expenses are personnel costs and occupancy expense, representing 80.2% and 81.0% of total operating
expenses and 67.7% and 67.3% of revenue for the six months ended June 30, 2005 and 2004,
respectively. As the majority of our operating costs are fixed in nature, gross margin as a
percentage of revenue generally improves with revenue growth. However, for the six months ended
June 30, 2005 verses the comparable period in 2004, gross margin as a percentage of revenue
declined; this decline was primarily the result of consolidation and integration charges incurred
during the first quarter of 2005, as described in further detail below. A more comprehensive
analysis of operating expenses (excluding consolidation and integration charges) and their impact
on gross margin is discussed by operating practice group below.
Consolidation and integration charges are reported as operating expenses in the accompanying
consolidated financial statements, and were 1.0% and 0.4% of revenue for the six months ended June
30, 2005 and 2004, respectively. The increase in consolidation and integration charges was due
primarily to co-location activities in the Denver and Chicago markets during the first quarter of
2005.
Corporate general and administrative expenses increased to $13.9 million and 4.7% of revenue for
the six months ended June 30, 2005, from $11.7 million and 4.4% of revenue for the comparable
period in 2004. The increase in corporate general and administrative expenses was primarily the
result of $1.1 million in expenses related the settlement of a litigation matter in the first
quarter of 2005, expenses related to Sarbanes-Oxley 404 compliance efforts, and expenses related to
our incentive compensation plan which are estimated and accrued on a monthly basis. As the final
determination of incentive compensation is not made until after year-end results are finalized, the
estimates are subject to change. The incentive compensation plan is further discussed under
Estimates of Incentive Compensation Costs and Effective Income Tax Rates below.
Depreciation and amortization expense was $7.8 million and 2.6% of revenue for the six months ended
June 30, 2005, compared to $8.0 million and 3.0% of revenue for the comparable period in 2004. The
decrease in depreciation and amortization expense was primarily attributable to the shift from
purchasing computer-related equipment and furniture to leasing such items. Operating lease costs
are recorded as operating expenses rather than capitalized and recorded as depreciation expense.
Lease expenses related to these items totaled $1.7 million and $1.2 million for the six months
ended June 30, 2005 and 2004, respectively.
Interest expense increased to $1.6 million for the six months ended June 30, 2005, from $0.7
million for the six months ended June 30, 2004, an increase of $0.9 million, or 143.0%. The
increase in interest expense was the result of higher average debt and interest rates during the
six months ended June 30, 2005 verses the comparable period in 2004. Average debt was $59.4
million for the six months ended June 20, 2005 compared to $33.6 million for the same period in
2004, and average interest rates were 5.0% and 3.3% for the six months ended June 30, 2005 and
2004, respectively. Higher debt for the first six months of 2005 compared to the first six months
of 2004 was primarily due to $29.3 million in spending during the period July 1, 2004 through June
30, 2005, for share repurchases and acquisitions. Debt is further discussed under Liquidity and
Capital Resources.
Gain on sale of operations, net was $0.9 million for the six months ended June 30, 2004, and was
related primarily to the sale of client lists from the Benefits & Insurance and Accounting, Tax and
Advisory practice groups. There were no operations sold during the first or second quarters of
2005.
Other income, net was $1.6 million for the six months ended June 30, 2005, and $0.8 million for the
comparable period in 2004. Other income (expense), net is comprised primarily of interest income
earned on funds held for clients at CBIZs payroll business, income earned on assets held in a
rabbi trust related to the deferred compensation plan, gains and losses on sales of assets, and
miscellaneous income such as contingent royalties from previous divestitures. The increase in
other income for the six months ended June 30, 2005 from the comparable period in 2004, was
primarily the result of higher interest earned on restricted cash and funds held for clients
primarily at CBIZs payroll business and higher contingent royalties earned from previous
divestitures.
CBIZ recorded income tax expense from continuing operations of $9.8 million and $10.6 million for
the six months ended June 30, 2005 and 2004, respectively. Income taxes were adjusted in the
second quarter of 2005 based on an estimated effective tax rate of 40.1% for 2005, compared to an
estimated effective tax rate of 39.6% for the
26
comparable period in 2004. Effective tax rates for
the six months ended June 30, 2005 and 2004 are generally in line with statutory federal and state
tax rates.
Operating Practice Groups
Accounting, Tax and Advisory Services.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED JUNE 30, |
|
|
2005 |
|
2004 |
|
Change |
|
|
(Dollars in thousands) |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit |
|
$ |
128,374 |
|
|
$ |
119,573 |
|
|
$ |
8,801 |
|
Acquired businesses |
|
|
9,713 |
|
|
|
|
|
|
|
9,713 |
|
Divested operations |
|
|
|
|
|
|
632 |
|
|
|
(632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
138,087 |
|
|
$ |
120,205 |
|
|
$ |
17,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
107,694 |
|
|
|
93,851 |
|
|
|
13,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
30,393 |
|
|
$ |
26,354 |
|
|
$ |
4,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent |
|
|
22.0 |
% |
|
|
21.9 |
% |
|
|
0.1 |
% |
Same-unit revenue for the six months ended June 30, 2005 increased by $8.8 million or 7.4% from the
six months ended June 30, 2004. The growth in same-unit revenue was primarily due to an increase
in the aggregate number of hours charged to clients for consulting, litigation support and
Sarbanes-Oxley consulting and compliance services, combined with price increases for traditional
accounting and tax services. Growth in revenue from acquisitions of $9.7 million was primarily
provided by firms acquired in Denver, Colorado and San Diego, California. Divested operations
represent one small operation that did not provide opportunity for growth or cross-serving.
The largest components of operating expenses for the ATA group are personnel costs, occupancy costs
and professional service fees paid to third parties, representing
88.1% and 87.8% of total
operating expenses for the six months ended June 30, 2005 and 2004, respectively. For the six
months ended June 30, 2005, personnel costs increased $10.5 million from the comparable period in
2004, but decreased as a percentage of revenue to 60.6% in 2005 from
60.8% in 2004. Acquisitions,
net of divestitures, contributed $4.8 million of the increase in personnel costs; the remainder of
the increase in personnel costs was due to additional personnel necessary to accommodate revenue
growth, and annual increases in compensation rates for 2005. The decrease in personnel costs as a
percent of revenue was the result of improved utilization of personnel. Occupancy costs are
relatively fixed in nature and decreased as a percentage of revenue to 5.6% for the six months
ended June 30, 2005 from 6.2% for the comparable period in 2004, primarily due to the increase in
revenue previously discussed. Professional service fees paid to third parties increased $1.5
million to 2.5% of revenue for the six months ended June 30, 2005 from 1.6% for the comparable
period in 2004, as the result of our utilization of third-party professionals to provide
Sarbanes-Oxley consulting and compliance services to our clients.
Gross margin as a percent of revenue increased by 0.1% for the six months ended June 30, 2005 from
the comparable period in 2004, primarily due to improved utilization of personnel combined with an
increase in rates charged to clients for accounting and tax services. CBIZ expects gross margin as
a percent of revenue for the remainder of 2005, to continue to improve over 2004 levels.
27
Benefits and Insurance Services.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED JUNE 30, |
|
|
2005 |
|
2004 |
|
Change |
|
|
(Dollars in thousands) |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit |
|
$ |
70,362 |
|
|
$ |
72,314 |
|
|
$ |
(1,952 |
) |
Acquired businesses |
|
|
2,225 |
|
|
|
|
|
|
|
2,225 |
|
Divested operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
72,587 |
|
|
$ |
72,314 |
|
|
$ |
273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
58,733 |
|
|
|
57,063 |
|
|
|
1,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
13,854 |
|
|
$ |
15,251 |
|
|
$ |
(1,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent |
|
|
19.1 |
% |
|
|
21.1 |
% |
|
|
(2.0 |
%) |
Same-unit revenue for the six months ended June 30, 2005 decreased by $2.0 million or 2.7% from the
six months ended June 30, 2004. The decline in same-unit revenue was primarily attributable to the
loss of a large client in our retail business, a national business unit that sold fewer policies
during the first six months of 2005 compared to the same period in 2004, pricing of property and
casualty policies sold during the first six months of 2005 verses the comparable period in 2004,
and a decline in supplemental commissions received from insurance companies (further described
under Benefits and Insurance Practice above). The decline in same-unit revenue was partially
offset by continued strength in our group health businesses. The increase in revenue from acquired
businesses relates to a group benefits business in Owings Mills, Maryland and a registered
investment advisory firm in Cleveland, Ohio.
The largest components of operating expenses for the B&I group are personnel costs, commissions
paid to third party brokers, and occupancy costs, representing 87.2% and 86.4% of total operating
expenses for the six months ended June 30, 2005 and 2004, respectively. Personnel costs increased
as a percentage of revenue to 58.8% for the six months ended June 30,
2005 from 54.5% for the comparable period in 2004, primarily as a result of investments in sales and
support personnel intended to promote organic growth. CBIZ expects the investments in sales
personnel to result in margin improvement in future periods, after production levels have been
established. Commissions paid to third party brokers decreased as a percentage of revenue to 6.1%
from 7.7% for the six months ended June 30, 2005 and 2004, respectively, primarily due to a decline
in revenue at two national business units that specialize in life insurance, as the majority of the
units revenues are generated by external brokers. Occupancy costs are relatively fixed in nature
and decreased as a percentage of revenue to 5.7% for the six months ended June 30, 2005 from 5.9%
for the comparable period in 2004, primarily as a result of overall growth in revenue.
Gross margin as a percent of revenue decreased by 2.0% for the six months ended June 30, 2005 from
the comparable period in 2004, primarily due to the decline in revenue described above. Although
fees paid to external brokers to generate new business are variable with revenue, compensation paid
to internal support staff is relatively fixed, which results in an unfavorable impact to margins
when revenue declines. Gross margin for the B&I group improved during the second quarter of 2005,
versus the first quarter of 2005, and improvement is expected to continue throughout the remainder
of the year.
CBIZ Medical Management Professionals (CBIZ MMP).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED JUNE 30, |
|
|
2005 |
|
2004 |
|
Change |
|
|
(Dollars in thousands) |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit |
|
$ |
47,455 |
|
|
$ |
42,059 |
|
|
$ |
5,396 |
|
Acquired businesses |
|
|
|
|
|
|
|
|
|
|
|
|
Divested operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
47,455 |
|
|
$ |
42,059 |
|
|
$ |
5,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
39,319 |
|
|
|
35,211 |
|
|
|
4,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
8,136 |
|
|
$ |
6,848 |
|
|
$ |
1,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent |
|
|
17.1 |
% |
|
|
16.3 |
% |
|
|
0.8 |
% |
28
CBIZ MMP revenue increased by $5.4 million, or 12.8%, for the six months ended June 30, 2005 over
the comparable period 2004. Growth was attributable to new clients obtained in 2005, the
maturation of clients obtained in 2004, and growth in revenue from existing clients.
The largest components of operating expenses for CBIZ MMP are personnel costs, occupancy costs and
office expenses (primarily postage), representing 88.0% and 88.9% of total operating expenses for
the six months ended June 30, 2005 and 2004, respectively. Personnel costs increased by $2.7
million, but decreased as a percent of revenue to 58.5% from 59.7% for the six months ended June
30, 2005 and 2004, respectively. The increase in personnel costs was directly related to an
increase in the number of client service staff employed by CBIZ MMP during 2005 compared to 2004,
required to support the growth in revenue; additionally, CBIZ MMP added personnel in the compliance
and technology disciplines to support the current infrastructure and to position the unit for
continued growth in the future. The decrease in personnel costs as a percent of revenue was the
result of the growth in revenue as previously discussed. Occupancy costs increased as a percentage
of revenue to 7.1% for the six months ended June 30, 2005 from 7.0% for the comparable period in
2004, primarily due to additional space required and expenses incurred to accommodate overall
growth of the unit. Office expenses for the six months ended June 30, 2005 increased 6.4% from the
comparable period in 2004 in response to overall growth of the unit.
Gross margin as a percentage of revenue increased 0.8% for the six months ended June 30, 2005 over
the comparable period in 2004. CBIZ expects operating expenses to continue to increase in 2005
over 2004 based on investments to upgrade CBIZ MMPs operating system that will allow for continued
growth. As a result of these investments, gross margin as a percentage of revenue is expected to
decline slightly throughout the remainder of 2005.
National
Practices Services Other.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED JUNE 30, |
|
|
2005 |
|
2004 |
|
Change |
|
|
(Dollars in thousands) |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit |
|
$ |
35,251 |
|
|
$ |
34,144 |
|
|
$ |
1,107 |
|
Acquired businesses |
|
|
1,613 |
|
|
|
|
|
|
|
1,613 |
|
Divested operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
36,864 |
|
|
$ |
34,144 |
|
|
$ |
2,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
33,004 |
|
|
|
30,448 |
|
|
|
2,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
3,860 |
|
|
$ |
3,696 |
|
|
$ |
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent |
|
|
10.5 |
% |
|
|
10.8 |
% |
|
|
(0.3 |
%) |
Same-unit revenue for the six months ended June 30, 2005 increased by $1.1 million or 3.2% from the
six months ended June 30, 2004. The increase in same-unit revenue for the six months ended June
30, 2005 verses the comparable period in 2004, was primarily due to growth in our technology
businesses of $2.2 million, offset by a decline in revenue generated by the mergers and acquisition
business of $1.1 million. Growth in revenue experienced by our technology businesses was largely
the result of certain client lists that were acquired during the fourth quarter 2004, as well as a
large product sale made by one unit. The decline in revenue experienced by the mergers and
acquisition business was attributable to the number and size of transactions that closed during the
first six months of 2005 versus the comparable period in 2004. The mergers and acquisition
business closed two transactions during the first six months of 2005 as compared to three
transactions that closed during the first six months 2004. Revenue from acquired businesses
related to a technology firm located in Cleveland, Ohio, and a valuation business in Milwaukee,
Wisconsin.
The largest components of operating expenses for the National Practices Services Other segment
are personnel costs, direct costs and occupancy costs, representing 90.0% and 90.6% of total
operating expenses for the six months ended June 30, 2005 and 2004, respectively. Personnel costs
increased by $1.3 million, but decreased as a percentage of revenue to 63.8% from 64.9% for the six
months ended June 30, 2005 and 2004, respectively. Direct costs, which consists primarily of
product costs associated with hardware sales in the technology businesses, increased by $1.1
million to 11.5% of revenue from 9.1% of revenue for the six months ended June 30, 2005 and 2004,
respectively. Both the decrease in personnel costs and the increase in direct costs as a
percentage of revenue for the six months ended June 30, 2005 from the comparable period in 2004,
was the result of a larger portion of revenue being derived from product sales in the first six
months of 2005
29
verses the first six months in 2004. Occupancy costs are typically fixed in nature
and decreased as a percentage of revenue to 5.4% for the six months ended June 30, 2005, from 6.8%
for the comparable period in 2004. The decrease in occupancy costs as a percentage of revenue
resulted from a combination of revenue growth and the shutdown of unprofitable facilities. CBIZ
closed facilities in the mergers and acquisition and valuation businesses in June 2004, as well as
an unprofitable office in the valuation business during the first quarter of 2005.
The 0.3% decline in gross margin as a percent of revenue for the six months ended June 30, 2005
from the six months ended June 30, 2004, was primarily the result of the number and size of
transactions closed by our mergers and acquisitions business during the first six months of 2005
verses the comparable period in 2004, and was partially offset by improvements and operational
efficiencies in the payroll and valuation businesses. Although the mergers and acquisition
business is inherently unpredictable in nature, CBIZ expects gross margin for 2005 to be in line
with 2004.
Results
of Operations Discontinued Businesses
During the first quarter of 2005, CBIZ 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, both of which are classified as available for sale at
June 30, 2005. In addition, CBIZ closed a business operation from the Accounting, Tax and Advisory
practice group during the first quarter of 2005. There were no business operations divested during
the second quarter of 2005.
During the year ended December 31, 2004, CBIZ divested of three business operations. There were no
business divested during the second quarter of 2004, and there were no businesses available for
sale at December 31, 2004.
The operations described above qualified for treatment as discontinued businesses, and have been
classified as such in accordance with Statement of Financial
Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. Accordingly, the net assets,
liabilities, and results of operations of these businesses are reported separately in the
consolidated financial statements included herewith. Based upon the sales proceeds and costs of
closure, CBIZ recorded a loss on disposal of discontinued businesses, net of tax, of $0.1 million
for the six months ended June 30, 2005, all of which was recorded during the first quarter. CBIZ
expects to recognize a gain on the sale of the Benefits and Insurance business (previously
discussed) by the end of 2005. Revenue associated with discontinued businesses was $1.5 million
and $3.5 million for the three months ended June 30, 2005 and 2004, and $2.3 million and $6.7
million for the six months ended June 30, 2005 and 2004, respectively. The loss from operations of
these discontinued businesses, net of tax, was $1.1 million, and $1.0 million for the three months
ended June 30, 2005 and 2004 and $3.0 million, and $2.2 million for the six months ended June 30,
2005 and 2004, respectively.
Financial Condition
Total assets were $448.1 million, total liabilities were $196.1 million and shareholders equity was
$252.0 million as of June 30, 2005. Current assets of $209.9 million exceeded current liabilities
of $133.6 million by $76.3 million.
Cash and cash equivalents decreased by $1.8 million to $3.5 million at June 30, 2005 from December
31, 2004. Restricted cash was $10.8 million at June 30, 2005, an increase of $0.7 million from
December 31, 2004. Restricted cash represents those funds held in connection with CBIZs NASD
regulated operations and funds held in connection with the pass through of insurance premiums to
various carriers. Cash and restricted cash fluctuate during the year based on the timing of cash
receipts and related payments.
Accounts receivable, net were $114.2 million at June 30, 2005, an increase of $13.8 million from
December 31, 2004. Days sales outstanding (DSO) represents accounts receivable (before the
allowance for doubtful accounts) and unbilled revenue (net of realization adjustments) at the end
of the period, divided by daily revenue. CBIZ provides DSO data because such data is commonly used
as a performance measure by analysts and investors and as a measure of the Companys ability to
collect on receivables in a timely manner. DSO was 75 days, 73 days and 76 days at June 30, 2005,
December 31, 2004 and June 30, 2004, respectively.
Other current assets decreased by $0.3 million at June 30, 2005 from December 31, 2004 as the
result of an increase in prepaid expenses offset by a decrease in interest receivable. Prepaid
expenses increased over December 31, 2004 as the result of timing; CBIZ prepays insurance and
software maintenance costs in the first
30
quarter and amortizes them over twelve months. The
decrease in interest receivable relates to a tax refund that was received in February 2005, as
further discussed below.
Income taxes recoverable at December 31, 2004 relates to a favorable tax position which was
successfully resolved upon completion of the IRS examination of tax years 1998-2000. The tax
refund was received in February 2005.
Funds held for clients are directly offset by client fund obligations. Funds held for clients
fluctuate during the year based on the timing of cash receipts and related payments, and are
further described in Note 1 to the accompanying consolidated financial statements.
Goodwill and other intangible assets, net of accumulated amortization, increased by $6.1 million at
June 30, 2005 from December 31, 2004. Acquisitions, including contingent consideration earned,
resulted in a $7.4 million increase in intangible assets during the second quarter of 2005. In
addition, intangible assets decreased by $1.3 million as a result of amortization expense.
Assets of the deferred compensation plan represent participant deferral accounts. The assets are
held in a rabbi trust and are directly offset by liabilities of the plan, representing obligations
due to the participants. Although the assets of the plan are specifically designated as available
to CBIZ solely for the purpose of paying benefits under the deferred compensation plan, in the
event that CBIZ became insolvent, the assets would be available to all unsecured general creditors.
The plan is described in further detail in our Annual Report on Form 10-K for the year ended
December 31, 2004.
The accounts payable balance of $25.5 million at June 30, 2005 reflects amounts due to suppliers
and vendors; balances fluctuate during the year based on the timing of cash payments. Accrued
personnel costs represent amounts due for payroll, payroll taxes, employee benefits and incentive
compensation; balances fluctuate during the year based on the timing of payments and our estimate
of incentive compensation costs. Incentive compensation is described more fully under Estimates
of Incentive Compensation Costs and Effective Income Tax Rates below.
Other liabilities and accrued expenses (current and non-current) increased by $0.9 million at June
30, 2005 from December 31, 2004, primarily due to increases in consolidation and integration
reserves for consolidation activities in the Denver and Chicago markets, and increases in notes
payable related to consideration for various acquisitions, and capitalized furniture and equipment
leases.
Income taxes payable of $2.1 million at June 30, 2005 represents our estimate of taxes due on
current year income. At December 31, 2004, CBIZ recorded income taxes recoverable of $7.1 million,
which is discussed in further detail above.
During the six months ended June 30, 2005, CBIZ paid $16.3 million in cash for business
acquisitions and share repurchases, in addition to reducing the amount of outstanding debt under
the credit facility to $50.3 million at June 30, 2005 from $53.9 million at December 31, 2004.
Cash to fund acquisitions, share repurchases and the reduction in bank debt during the six months
ended June 30, 2005, was obtained from CBIZ operations.
Liquidity and Capital Resources
CBIZs principal source of net operating cash is derived from the collection of fees and
commissions from professional services rendered to its clients. In addition, CBIZ supplements net
operating cash with a senior secured credit facility. The $100.0 million facility carries an
option to increase the commitment to $125.0 million and allows for the allocation of funds for
strategic initiatives, including acquisitions and the repurchase of CBIZ common stock. The primary
use of the credit facility is for working capital, expansion and continued improvement of new and
existing service offerings, and business acquisitions. The facility has a five year term with an
expiration date of August 2009. The credit facility is secured by substantially all assets of CBIZ,
as well as the capital stock of its subsidiaries. Under the credit facility, CBIZ is required to
meet certain financial covenants with respect to (i) minimum net worth; (ii) maximum leverage
ratio; and (iii) a minimum fixed charge coverage ratio. CBIZ believes it was in compliance with its
covenants as of June 30, 2005 and projects that it will remain in compliance for the remainder of
2005.
31
At June 30, 2005, CBIZ had $50.3 million outstanding under its credit facility, and $3.3 million in
letters of credit outstanding. Available funds under the facility based on the terms of the
commitment were approximately $27.1 million at June 30, 2005. Management believes the available
funds from the credit facility, along with cash generated from operations provides CBIZ the
financial resources needed to meet business requirements for the next twelve months, including
capital expenditures, working capital requirements, and strategic investments.
See additional discussion in Note 4 to CBIZs consolidated financial statements included herewith.
CBIZ may also obtain funding by offering securities or debt, through public or private markets.
CBIZ currently has a number of shelf registrations active, under which it can offer such
securities. See our Annual Report on Form 10-K for the year ended December 31, 2004 for a
description of these shelf registration statements.
Sources and Uses of Cash
Cash flows from operating activities represents net income adjusted for certain non-cash items and
changes in assets and liabilities. CBIZ typically experiences strong cash flow from operations
during the second quarter of its fiscal year, as a significant amount of revenue generated by the
Accounting, Tax and Advisory practice group during the first four months of the year are billed and
collected during the second quarter. During the six months ended June 30, 2005, net cash provided
by operating activities was $19.9 million, compared to $10.5 million for the comparable period in
2004.
Cash flows from investing activities consist primarily of payments toward capital expenditures and
business acquisitions, proceeds from divested operations and the collection of notes receivable.
CBIZ used $10.9 million in net cash for investing activities during the six months ended June 30,
2005, compared to $3.3 million for the comparable period in 2004. Investing uses of cash during
the six months ended June 30, 2005 included: $8.7 million of net cash used towards business
acquisitions and $3.3 million for capital expenditures (net), offset by $1.1 million in net
collections on notes receivable. Investing uses of cash during the six months ended June 30, 2004
included: $3.3 million of net cash used toward business acquisitions and $4.1 million for capital
expenditures (net), offset by $3.0 million in proceeds from divested operations and $1.1 million in
net collections on notes receivable. Capital expenditures primarily consisted of technology
investments, as well as leasehold improvements and equipment purchases in connection with the
consolidation of certain offices.
Cash flows from financing activities consist primarily of net borrowing and payment activity from
the credit facility, net borrowing and payment activity toward notes payable and capitalized
leases, repurchases of common stock, and proceeds from the exercise of stock options. Net cash
used in financing activities during the six months ended June 30, 2005 was $10.8 million compared
to $6.7 million for the comparable period in 2004. Financing sources of cash during the six months
ended June 30, 2005 included $0.8 million from the exercise of stock options, offset by $3.7
million in net payments towards the credit facility, $7.6 million in cash used to purchase shares
of CBIZ common stock and $0.4 million in net payments toward notes payable and capitalized leases.
During the six months ended June 30, 2004, financing sources of cash included $32.8 million in net
proceeds from the credit facility and $0.7 million from the exercise of stock options, offset by
$39.8 million in cash used to purchase shares of CBIZ common stock through a tender offer and open
market purchases, and $0.4 million in net payments toward notes payable and capitalized leases.
CBIZs contractual obligations for future payments as of June 30, 2005 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
Thereafter |
On-Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank debt |
|
$ |
50,250 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
50,250 |
|
|
$ |
|
|
Notes payable and capitalized
leases |
|
|
5,500 |
|
|
|
2,892 |
|
|
|
1,314 |
|
|
|
545 |
|
|
|
677 |
|
|
|
72 |
|
|
|
|
|
Non-cancelable operating
lease obligations |
|
|
195,609 |
|
|
|
15,746 |
|
|
|
28,551 |
|
|
|
25,585 |
|
|
|
22,744 |
|
|
|
19,134 |
|
|
|
83,849 |
|
Restructuring lease
obligations(1) |
|
|
8,414 |
|
|
|
1,403 |
|
|
|
2,439 |
|
|
|
2,112 |
|
|
|
1,441 |
|
|
|
719 |
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit |
|
|
2,064 |
|
|
|
36 |
|
|
|
1,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613 |
|
Performance guarantees for
non-consolidated affiliates |
|
|
1,171 |
|
|
|
21 |
|
|
|
500 |
|
|
|
650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Injunction bonds |
|
|
100 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
263,108 |
|
|
$ |
20,148 |
|
|
$ |
34,219 |
|
|
$ |
28,892 |
|
|
$ |
24,862 |
|
|
$ |
70,175 |
|
|
$ |
84,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Does not include cash received for subleases.
|
32
Off-Balance Sheet Arrangements
CBIZ maintains administrative service agreements with independent CPA firms (as described more
fully under Accounting, Tax, and Advisory (ATA) Practice above), which qualify as variable
interest entities under FASB Interpretation No. 46, Consolidation of Variable Interest
Entities, as amended. The impact to CBIZ of this accounting pronouncement is not material to the
financial condition, results of operations or cash flows of CBIZ, and is further discussed in Note
1 to the consolidated financial statements included herewith.
CBIZ provides guarantees of performance obligations for a CPA firm with which CBIZ maintains an
administrative service agreement. Potential obligations under the guarantees totaled $1.2 million
and $1.3 million at June 30, 2005 and December 31, 2004, respectively. In accordance with FASB
Interpretation No. 45, Guarantors 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. The liability is recorded as other current liabilities in the accompanying consolidated
balance sheets. CBIZ does not expect it will be required to make payments under these guarantees.
CBIZ provides letters of credit to landlords (lessors) of its leased premises in lieu of security
deposits. Letters of credit under our facility at June 30, 2005 and December 31, 2004 were $2.1
million and $2.9 million, respectively.
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. It is not possible to
predict the maximum potential amount of future payments under these indemnification agreements due
to the conditional nature of our obligations and the unique facts of each particular agreement.
Historically, payments made by us under these agreements have not been material. As of June 30,
2005, we were not aware of any indemnification agreements that would require material payments.
Interest Rate Risk Management
CBIZ has used interest rate swaps to manage the interest rate mix of its credit facility and
related overall cost of borrowing. Interest rate swaps involve the exchange of floating for fixed
rate interest payments to effectively convert floating rate debt into fixed rate debt based on a
one, three, or six-month U.S. dollar LIBOR. Interest rate swaps allow CBIZ to maintain a target
range of fixed to floating rate debt. During the six months ended June 30, 2005 and the twelve
months ended December 31, 2004, management did not utilize interest rate swaps. Management will
continue to evaluate the potential use of interest rate swaps as it deems appropriate under certain
operating and market conditions.
Critical Accounting Policies
The policies discussed below are considered by management to be critical to the understanding of
CBIZs consolidated financial statements because their application places significant demand on
managements judgment, and financial reporting results rely on estimation about the effects of
matters that are inherently uncertain. Specific risks for these critical accounting policies are
described in the following paragraphs. For all of these policies, management cautions that
estimates may require adjustment if future events develop differently than expected.
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, which is in accordance with
Generally Accepted Accounting Principles (GAAP) and SEC Staff Accounting Bulletin No. 104 (SAB
104). CBIZ offers a vast array of products and business services to its clients. Those services are
delivered through three practice groups. A description of revenue recognition, as it relates to
those groups, is provided below.
Certain of our client arrangements encompass multiple deliverables. CBIZ accounts for these
arrangements in accordance with Emerging Issues Task Force No. 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables (EITF 00-21). If the deliverables meet the criteria in
EITF 00-21, the deliverables are divided into separate units of accounting and revenue is allocated
to the deliverables based on their relative fair values.
33
Revenue for each unit is recognized
separately in accordance with CBIZs revenue recognition policy for each unit. For those
arrangements where the deliverables do not qualify as a separate unit of accounting, revenue from
all deliverables are treated as one accounting unit and evaluated for appropriate accounting
treatment based upon the underlying facts and circumstances.
Accounting, Tax and Advisory Services Revenue consists primarily of fees for accounting services,
preparation of tax returns and consulting services including Sarbanes-Oxley consulting and
compliance projects. Revenues are recorded in the period in which services are provided and meet
revenue recognition criteria in accordance with SAB 104. CBIZ bills clients based upon a
predetermined agreed-upon fixed fee or actual hours incurred on client projects at expected net
realizable rates per hour, plus any out-of-pocket expenses. The cumulative impact on any subsequent
revision in the estimated realizable value of unbilled fees for a particular client project is
reflected in the period in which the change becomes known.
Through one of its ATA units, CBIZ provides flexible benefits administration services to clients,
grants access of its proprietary software to third parties, and provides hosting to these parties.
Revenue associated with set up and license fees related to our flexible benefits services are
deferred and recognized pro rata over the life of the contract.
Benefits & Insurance Services Revenue consists primarily of brokerage and agency commissions, and
fee income for administering health and retirement plans. A description of the revenue recognition,
based on the insurance product and billing arrangement, is described below.
|
|
|
Commissions relating to brokerage and agency activities whereby CBIZ has primary
responsibility for the collection of premiums from insureds (agency or indirect billing)
are recognized as of the latter of the effective date of the insurance policy or the date
billed to the customer; commissions to be received directly from insurance companies (direct
billing) are recognized when the policy becomes effective; and life insurance commissions
are recognized when the policy becomes effective. Commission revenue is reported net of
sub-broker commissions. Commission revenue is reported net of reserves for estimated policy
cancellations and terminations. This reserve is based upon estimates and assumptions using
historical cancellation and termination experience and other current factors to project
future experience. CBIZ periodically reviews the adequacy of the reserve and makes
adjustments as necessary. The use of different estimates or assumptions could produce
different results. |
|
|
|
|
Supplemental commissions, which are based upon certain performance targets, are
recognized at the earlier of notification that the target has been achieved, or cash
collection. |
|
|
|
|
Fee income is recognized in the period in which services are provided, and may be based
on actual hours incurred on an hourly fee basis, fixed fee arrangements, or asset-based
fees. |
National Practices Services The business units that comprise this practice group offer a variety
of services. A description of revenue recognition associated with the primary services is provided
below.
|
|
|
Mergers & Acquisitions and Capital Advisory Revenue associated with non-refundable
retainers is recognized on a pro rata basis over the life of the engagement. Revenue
associated with success fee transactions is recognized when the transaction is completed. |
|
|
|
|
Technology Consulting Revenue associated with hardware and software sales is recognized
upon delivery and acceptance of the product. Revenue associated with installation and
service agreements is recognized as services are performed. Consulting revenue is recognized
on an hourly or per diem fee basis as services are performed. |
|
|
|
|
Valuation and Property Tax Revenue associated with retainer contracts is recognized on
a pro rata basis over the life of the contract, which is generally twelve months. Revenue
associated with contingency arrangements is recognized once written notification is received
from an outside third party (e.g., assessor in the case of a property tax engagement)
acknowledging that the contingency has been resolved. |
|
|
|
|
Medical Management Group Fees for services are primarily based on a percentage of net
collections on our clients patient accounts receivable. As such, revenue is determinable,
earned, and recognized, when payments are received on our clients patient accounts. |
34
Valuation of Accounts Receivable and Notes Receivable
The preparation of consolidated financial statements requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Specifically, management must make estimates of the
collectibility of accounts receivable, including unbilled accounts receivable, related to current
period service revenue. Management analyzes historical bad debts, client credit-worthiness, the age
of accounts receivable and current economic trends and conditions when evaluating the adequacy of
the allowance for doubtful accounts and the collectibility of notes receivable. Significant
management judgments and estimates must be made and used in connection with establishing the
allowance for doubtful accounts in any accounting period. Material differences may result if
management made different judgments or utilized different estimates.
Valuation of Goodwill
CBIZ utilizes the purchase method of accounting for all business combinations in accordance with
Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations. Intangible
assets, which include client lists and non-compete agreements, are amortized principally by the
straight-line method over their expected period of benefit, not to exceed ten years.
In accordance with the provisions of SFAS 142, Goodwill and Other Intangible Assets, goodwill is
not amortized. Goodwill is tested for impairment annually during the fourth quarter of each year,
and between annual tests if an event occurs or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying value. There was no goodwill
impairment during the three or six months ended June 30, 2005 or 2004.
Loss Contingencies
Loss contingencies, including litigation claims, are recorded as liabilities when it is probable
that a liability has been incurred and the amount of the loss is reasonably estimable. Contingent
liabilities are often resolved over long time periods. Estimating probable losses requires analysis
that often depends on judgment about potential actions by third parties.
Estimates of Incentive Compensation Costs and Effective Income Tax Rates
Incentive compensation costs and income tax expense are two significant expense categories that are
highly dependent upon management estimates and judgments, particularly at each interim reporting
date. In arriving at the amount of expense to recognize, management believes it makes reasonable
estimates and judgments using all significant information available.
Incentive compensation costs are accrued monthly, based upon expected financial results for the
year. As the ultimate determination of incentive compensation can not be made until after year-end
results are finalized, estimates made throughout the year are subject to change.
Circumstances that could cause our estimates of effective income tax rates to change include the
impact of information that subsequently became available as we prepared our corporate income tax
returns; the level of actual pre-tax income; revisions to tax positions taken as a result of
further analysis and consultation; and changes mandated as a result of audits by taxing
authorities.
Other Significant Policies
Other significant accounting policies not involving the same level of measurement uncertainties as
those discussed above are nevertheless important to understanding the consolidated financial
statements. Those policies are described in Note 1 to the consolidated financial statements
contained in our Annual Report on Form 10-K for the year ended December 31, 2004.
35
New Accounting Pronouncements
In April 2005, the Securities and Exchange Commission (Commission) adopted a new rule that amends
the compliance dates for Financial Accounting Standards Boards (FASB) Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)). Under
SFAS 123(R), registrants are required to implement the standard as of the beginning of the first
interim or annual period that begins after June 15, 2005. The Commissions new rule allows
companies to implement SFAS 123(R) at the beginning of their next fiscal year, instead of the next
reporting period that begins after June 15, 2005. As permitted by the Commissions new rule, CBIZ
will adopt the provisions of SFAS 123(R) effective January 1, 2006. SFAS 123(R) is discussed in
further detail in our Annual Report on Form 10-K for the year ended December 31, 2004.
In March 2005, the Commission issued Staff Accounting Bulletin No. 107, Share Based Payments (SAB
107). SAB 107 summarizes the views of the Commission regarding the interaction between SFAS 123(R)
and certain SEC rules and regulations, and also provides the Commissions views regarding the
valuation of share-based payment arrangements. CBIZ will consider the guidance provided by SAB 107
as it implements SFAS 123(R).
In May 2005, the FASB issued SFAS No. 154, Accounting for Changes and Error Corrections a
replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS No. 154 requires retrospective
application to prior periods financial statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative effect of the
change. SFAS No. 154 requires that retrospective application of a change in accounting principle
be limited to the direct effects of the change; indirect effects of a change in accounting
principle should be recognized in the period of the accounting change. SFAS No. 154 is effective
for CBIZ in the first quarter of 2006. Adoption is not expected to have a material impact on the
financial position, results of operations or cash flows of CBIZ.
In June 2005, the FASBs 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. Adoption of the provisions of
EITF 05-6 is not expected to have a material impact on the financial position, results of
operations or cash flows of CBIZ.
In March 2005, the FASB issued Interpretation No. 47 (FIN 47), Accounting for Conditional Asset
Retirement Obligations an interpretation of FASB Statement No. 143. FIN 47 clarifies that an
entity is required to recognize a liability for the fair value of a conditional asset retirement
obligation if the fair value of the liability can be reasonably estimated. Uncertainty about the
timing and (or) method of settlement of a conditional asset retirement obligation should be
factored into the measurement of the liability when sufficient information exists. FIN 47 is
effective for CBIZ no later than December 31, 2005. The adoption of FIN 47 is not expected to have
a material impact on the financial position, results of operations or cash flows of CBIZ.
The American Jobs Creation Act of 2004 (the Act) was enacted by the U.S. Congress on October 22,
2004. The Act repeals an export incentive, creates a new deduction for qualified domestic
manufacturing activities, and includes a special one-time deduction of 85 percent of certain
foreign earnings repatriated to the U.S. In December 2004, the FASB issued Staff Position (FSP)
Nos. 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,
and 109-2 Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision
within the American Jobs Creation Act of 2004. FSP 109-1 clarifies the guidance in SFAS No. 109,
Accounting for Income Taxes, that applies to the new tax deduction for qualified domestic
production activities and requires that the deduction be accounted for as a special tax deduction
rather than as a tax rate reduction. FSP No. 109-2 provides guidance under SFAS No. 109 with
respect to recording the potential impact of the repatriation provisions of the American Jobs
Creation Act of 2004 on an enterprises income tax expense and deferred tax liability and states
that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate
the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for
purposes of applying SFAS No. 109. Adoption of the provisions of FSP Nos. 109-1 and 109-2 is not
expected to have a material impact on the financial position, results of operations or cash flows
of CBIZ.
36
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
All statements other than statements of historical fact included in this Quarterly Report,
including without limitation, Managements Discussion and Analysis of Financial Condition and
Results of Operations regarding CBIZs financial position, business strategy and plans and
objectives for future performance are forward-looking statements. You can identify these statements
by the fact that they do not relate strictly to historical or current facts. Forward-looking
statements are commonly identified by the use of such terms and phrases as intends, believes,
estimates, expects, projects, anticipates, foreseeable future, seeks, and words or
phases of similar import in connection with any discussion of future operating or financial
performance. In particular, these include statements relating to future actions, future performance
or results of current and anticipated services, sales efforts, expenses, and financial results.
From time to time, we also may provide oral or written forward-looking statements in other
materials we release to the public. Any or all of our forward-looking statements in this Quarterly
Report on Form 10-Q and in any other public statements that we make, are subject to certain risks
and uncertainties that could cause actual results to differ materially from those projected. Such
forward-looking statements can be affected by inaccurate assumptions we might make or by known or
unknown risks and uncertainties. Should one or more of these risks or assumptions materialize, or
should the underlying assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected. Such risks and uncertainties include, but are not limited to,
CBIZs ability to adequately manage its growth; CBIZs dependence on the services of its CEO and
other key employees; competitive pricing pressures; general business and economic conditions; and
changes in governmental regulation and tax laws affecting its operations. Consequently, no
forward-looking statement can be guaranteed.
A more detailed description of risks and uncertainties may be found in CBIZs Annual Report on Form
10-K for the year ended December 31, 2004. CBIZ undertakes no obligation to publicly update
forward-looking statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related subjects in the
quarterly, periodic and annual reports we file with the SEC. This discussion is provided as
permitted by the Private Securities Litigation Reform Act of 1995.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
CBIZs floating rate debt under its credit facility exposes the Company to interest rate risk.
Interest rate risk results when the maturity or repricing intervals of interest-earning assets and
interest-bearing liabilities are different. A change in the Federal Funds Rate, or the Reference
Rate set by the Bank of America, would affect the rate at which CBIZ could borrow funds under its
credit facility. If market interest rates were to increase or decrease immediately and uniformly by
100 basis points from the levels at June 30, 2005, interest expense would increase or decrease by
approximately $0.5 million annually.
CBIZ does not engage in trading market risk sensitive instruments. CBIZ has used interest rate
swaps to manage the interest rate mix of its credit facility and related overall cost of borrowing.
Interest rate swaps involve the exchange of floating for fixed rate interest payments to
effectively convert floating rate debt into fixed rate debt based on a one, three, or six-month
U.S. dollar LIBOR. Interest rate swaps allow CBIZ to maintain a target range of fixed to floating
rate debt. Management will continue to evaluate the potential use of interest rate swaps as it
deems appropriate under certain operating and market conditions.
37
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
We evaluated the effectiveness of our disclosure controls and procedures (Disclosure Controls) as
of the end of the period covered by this report. This evaluation (Controls Evaluation) was done
with the participation of our Chairman and Chief Executive Officer (CEO) and Chief Financial
Officer (CFO).
Disclosure Controls are controls and other procedures that are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Securities Exchange
Act of 1934 (Exchange Act) is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms. Disclosure Controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by
us in the reports that we file under the Exchange Act is accumulated and communicated to our
management, including our CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure.
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our Disclosure Controls or our
internal controls over financial reporting (Internal Controls) will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide only reasonable,
but not absolute, assurance that the objectives of a control system are met. Further, any control
system reflects limitations on resources, and the benefits of a control system must be considered
relative to its costs. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any,
within CBIZ have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people, or by management override of a control. A design of a control system is also
based upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because of the inherent limitations in
a cost-effective control system, misstatements due to error or fraud may occur and may not be
detected.
We have expended extensive internal and external resources to document and test our internal
controls as required by Section 404 of the Sarbanes-Oxley Act of 2002. The report of our
management regarding internal control over financial reporting and the attestation report of our
independent registered public accounting firm are included in Item 8 of our Annual Report on Form
10-K for the year ended December 31, 2004.
In the course of our ongoing evaluation, we have identified internal control deficiencies in a
number of business processes. These deficiencies were not material to our operations or financial
reporting either individually or in the aggregate. In each instance, we have undertaken efforts to
remediate any deficiencies identified. We are continuing to implement new IT systems where needed
to support corporate functions or business unit operations in order to further enhance operating
efficiencies. As these new systems and procedures are implemented, we continue to evaluate the
effectiveness of our Disclosure Controls and our Internal Controls.
Conclusions
Based upon the Controls Evaluation, our CEO and CFO have concluded that, subject to the limitations
noted above, the Disclosure Controls are effective in providing reasonable assurance that material
information required to be disclosed by us in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the SECs
rules and forms.
Other than disclosed above, there were no changes in our Internal Controls that occurred during the
quarter ended June 30, 2005 that have materially affected, or are reasonably likely to materially
affect, our Internal Controls.
38
PART II OTHER INFORMATION
Item 1. 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) CBIZ paid cash and issued 6,086 shares of common stock as contingent consideration earned by
the former owners of a business that was acquired on January 1, 2004. The shares were issued on
May 9, 2005, in a transaction not involving a public offering in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. The persons to whom the
shares were issued had access to full information about CBIZ and represented that they acquired the
shares for their own account and not for the purpose of distribution. The certificates for the
shares contain a restrictive legend advising that the shares may not be offered for sale, sold, or
otherwise transferred without having first been registered under the Securities Act or pursuant to
an exemption from the Securities Act.
(c) On February 10, 2005, CBIZs Board of Directors authorized the share repurchase of up to 5.0
million shares of CBIZ common stock. The plan expires December 31, 2005, and CBIZ does not intend
to terminate the plan prior to its expiration. Stock repurchase activity during the three months
ended June 30, 2005 is summarized in the table below (in thousands, except per share data).
Issuer Purchases of Equity Securities
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Maximum |
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Total Number |
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Number of |
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|
|
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|
|
|
|
|
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of Shares |
|
Shares That |
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Total |
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Average |
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Purchased as |
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May Yet Be |
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Number of |
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Price |
|
Part of Publicly |
|
Purchased |
|
|
Shares |
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Paid Per |
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Announced |
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Under the |
Period |
|
Purchased |
|
Share (1) |
|
Plan |
|
Plan |
April 1 April 30, 2005 (2) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
4,910 |
|
May 1 May 31, 2005 (2) |
|
|
685 |
|
|
$ |
3.91 |
|
|
|
685 |
|
|
|
4,225 |
|
June 1 June 30, 2005 (2) |
|
|
1,101 |
|
|
$ |
4.11 |
|
|
|
1,101 |
|
|
|
3,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total second quarter purchases |
|
|
1,786 |
|
|
$ |
4.03 |
|
|
|
1,786 |
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(1) |
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Average price paid per share includes fees and commissions. |
|
(2) |
|
Open market repurchases. |
See Note 4 to the accompanying consolidated financial statements for a description of working
capital restrictions and limitations upon the payment of dividends.
39
Item 4. Submission of Matters to a Vote of Security Holders
Listed below are the results of matters that were submitted to vote at the Annual Meeting of
Stockholders held on May 12, 2005:
1) |
|
Election of the following individuals to the Board of Directors to serve until the 2008
Annual Meeting of Stockholders: |
|
|
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|
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|
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Authority Granted |
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Authority Withheld |
Joseph S. DiMartino |
|
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52,335,986 |
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479,573 |
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Richard C. Rochon |
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51,397,168 |
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1,418,391 |
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Donald V. Weir |
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52,202,999 |
|
|
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612,560 |
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2) |
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Change the Companys name from Century Business Services, Inc. to CBIZ, Inc. |
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Shares For |
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Shares Against |
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|
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Abstained |
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52,411,277 |
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395,375 |
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8,907 |
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Item 6. Exhibits
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31.1 |
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Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
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31.2 |
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Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
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32.1 |
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Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
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32.2 |
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Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
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CBIZ, Inc.
(Registrant) |
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Date: August 8, 2005 |
By: |
/s/ Ware H. Grove
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Ware H. Grove |
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|
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Chief Financial Officer |
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|
40
EX-31.1
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF CBIZ, INC.
I, Steven L. Gerard, Chief Executive Officer, certify that:
|
1. |
|
I have reviewed this report on Form 10-Q of CBIZ, Inc.; |
|
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
|
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared; |
|
|
b) |
|
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles; |
|
|
c) |
|
evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and |
|
|
d) |
|
disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over
financial reporting; and |
|
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and
the audit committee of the registrants board of directors (or persons performing the
equivalent functions): |
|
a) |
|
all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
|
|
b) |
|
any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
|
|
|
Date: August 8, 2005
|
|
/s/ Steven L. Gerard |
|
|
|
|
|
Steven L. Gerard |
|
|
Chief Executive Officer |
EX-31.2
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER OF CBIZ, INC.
I, Ware H. Grove, Chief Financial Officer, certify that:
|
1. |
|
I have reviewed this report on Form 10-Q of CBIZ, Inc.; |
|
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
|
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared; |
|
|
b) |
|
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles; |
|
|
c) |
|
evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and |
|
|
d) |
|
disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter
in the case of the annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial
reporting; and |
|
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and
the audit committee of the registrants board of directors (or persons performing the
equivalent functions): |
|
a) |
|
all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
|
|
b) |
|
any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
|
|
|
Date: August 8, 2005
|
|
/s/ Ware H. Grove |
|
|
|
|
|
Ware H. Grove |
|
|
Chief Financial Officer |
EX-32.1
Exhibit 32.1
Certification of Chief Executive Officer of CBIZ, Inc.
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and
accompanies the quarterly report on Form 10-Q for the quarter ended June 30, 2005 (the Form 10-Q)
of CBIZ, Inc. (the Issuer).
I, Steven L. Gerard, the Chief Executive Officer of the Issuer, certify that to the best of my
knowledge:
|
(i) |
|
the Form 10-Q fully complies with the requirements of Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934; and |
|
|
(ii) |
|
the information contained in the Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the Issuer. |
|
|
|
Date: August 8, 2005
|
|
/s/ Steven L. Gerard |
|
|
|
|
|
Steven L. Gerard |
|
|
Chief Executive Officer |
Subscribed and sworn to before me
this 8th day of August, 2005.
|
|
|
/s/ Michael W. Gleespen
|
|
|
Name: Michael W. Gleespen
|
|
|
Title: Notary Public & Attorney-At-Law |
|
|
Registered in Franklin County, Ohio |
|
|
No Expiration Date |
|
|
EX-32.2
Exhibit 32.2
Certification of Chief Financial Officer of CBIZ, Inc.
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and
accompanies the quarterly report on Form 10-Q for the quarter ended June 30, 2005 (the Form 10-Q)
of CBIZ, Inc. (the Issuer).
I, Ware H. Grove, the Chief Financial Officer of the Issuer, certify that to the best of my
knowledge:
|
(i) |
|
the Form 10-Q fully complies with the requirements of Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934; and |
|
|
(ii) |
|
the information contained in the Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the Issuer. |
|
|
|
Date: August 8, 2005
|
|
/s/ Ware H. Grove |
|
|
|
|
|
Ware H. Grove |
|
|
Chief Financial Officer |
Subscribed and sworn to before me
this 8th day of August, 2005.
|
|
|
/s/ Michael W. Gleespen
|
|
|
Name: Michael W. Gleespen
|
|
|
Title: Notary Public & Attorney-At-Law |
|
|
Registered in Franklin County, Ohio |
|
|
No Expiration Date |
|
|