e10vk
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2010
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from
to
Commission file number 1-32961
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 or organization)
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(I.R.S. Employer
Identification No.)
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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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Securities registered pursuant to Section 12(b) of the
Act:
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Common Stock, par value $0.01
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New York Stock Exchange
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(Title of class)
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(Name of exchange on which
registered)
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Securities registered pursuant to Section 12(g) of the
Act: None
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No x
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No x
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 preceding
12 months, and (2) has been subject to such filing
requirements for the past
90 days. Yes x No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding
12 months. Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. x
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer x
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting
company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No x
The aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately
$392.4 million as of June 30, 2010.
The number of outstanding shares of the registrants common
stock is 50,251,428 as of February 28, 2011.
DOCUMENTS
INCORPORATED BY REFERENCE
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Part III |
Portions of the Registrants Definitive Proxy Statement
relative to the 2011 Annual Meeting of Stockholders to be filed
with the Securities and Exchanges Commission no later than
120 days after the end of the Registrants fiscal year.
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CBIZ,
INC.
ANNUAL
REPORT ON
FORM 10-K
FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2010
Table of
Contents
2
The following text is qualified in its entirety by reference to
the more detailed information and consolidated financial
statements (including the notes thereto) appearing elsewhere in
this Annual Report on
Form 10-K.
Unless the context otherwise requires, references in this Annual
Report to we, our, us,
CBIZ, or the Company shall mean CBIZ,
Inc., a Delaware corporation, and its wholly-owned subsidiaries.
All references to years, unless otherwise noted, refer to
CBIZs fiscal year which ends on December 31.
Available
Information
CBIZs principal executive office is located at 6050 Oak
Tree Boulevard, South, Suite 500, Cleveland, Ohio 44131,
and the Companys telephone number is
(216) 447-9000.
CBIZs website is located at
http://www.cbiz.com.
CBIZ makes available, free of charge on its website, through the
investor information page, its annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and any amendments to those reports as soon as reasonably
practicable after CBIZ files (or furnishes) such reports with
the U.S. Securities and Exchange Commission
(SEC). The public may read and copy materials the
Company files (or furnishes) with the SEC at the SECs
Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549, and may obtain information on the
operations of the Public Reference Room by calling the SEC at
1-800-732-0330.
In addition, the SEC maintains an Internet Website that contains
reports, proxy and information statements and other information
about CBIZ at
http://www.sec.gov.
CBIZs corporate code of conduct and ethics and the
charters of the Audit Committee, the Compensation Committee and
the Nominating and Governance Committee of the Board of
Directors are available on the investor information page of
CBIZs website, referenced above, and in print to any
shareholder who requests them.
PART I
Overview
and History
CBIZ provides professional business services, products and
solutions that help its clients grow and succeed by better
managing their finances and employees. These services are
provided to businesses of various sizes, as well as individuals,
governmental entities and
not-for-profit
enterprises throughout the United States and parts of Canada.
CBIZ delivers its integrated services through the following four
practice groups:
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Financial Services
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Medical Management Professionals
(MMP)
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Employee Services
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National Practices
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CBIZ believes that its diverse and integrated service offerings
result in advantages for both the client and for CBIZ. By
providing custom solutions that help clients manage their
finances and employees, CBIZ enables its clients to focus their
resources on their own core business and operational
competencies. Additionally, working with one provider for
several solutions enables CBIZs clients to utilize their
resources more efficiently by eliminating the need to coordinate
with multiple service providers. The ability to combine several
services and offer them through one trusted provider
distinguishes CBIZ from other service providers.
CBIZ has been operating as a professional services business
since 1996, and built its professional services business through
acquiring accounting, benefits and other employee services
firms, valuation, medical billing and other service firms
throughout the United States. CBIZ is listed on the New York
Stock Exchange (NYSE) under the symbol
CBZ.
Business
Strategy
CBIZ strives to maximize shareholder value and believes this is
accomplished through growth in revenue and earnings per share,
as well as the strategic deployment of free cash-flow and
capital resources.
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Revenue
CBIZ believes revenue growth will be achieved through internal
organic growth, cross-serving additional services to its
existing clients, and targeted acquisitions. Each of these
components is critical to the long-term growth strategy, and
CBIZ expects each component to contribute to long-term revenue
growth.
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CBIZ believes it can capitalize on organic growth opportunities
including a fragmented and generally underserved market. CBIZ
offers a higher level of national resources than traditional
local professional service firms, but delivers these services
locally with a higher level of personal service than is expected
from traditional national firms. CBIZ is also able to leverage
technology to create efficiencies and to link together aligned
services such as benefits, payroll, HR, and COBRA administration.
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Cross-serving provides CBIZ with the opportunity to deliver
multiple services to existing clients, and thus contributes to
revenue growth through the expansion of business to such
clients. Cross-serving opportunities are identified by the
Companys employees as they provide services to their
existing clients. Being a trusted advisor to its clients
provides CBIZ with the opportunity to identify the clients
needs, while the diverse and integrated services offered by CBIZ
allow the Company to provide solutions to satisfy these needs.
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CBIZs acquisition strategy is to selectively acquire
businesses that expand the Companys market position and
strengthen its existing service offerings. Strategic businesses
that CBIZ seeks to acquire generally have strong and energetic
leadership, a positive local market reputation, commitment to
client service, the potential for cross-serving additional CBIZ
services to their clients, an ability to integrate quickly with
existing CBIZ operations and are accretive to earnings.
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Earnings
Per Share
CBIZ expects to grow earnings per share by achieving operating
leverage. CBIZ believes it can achieve operating leverage by
better managing productivity and efficiently delivering services
to its clients while growing revenue. Operating leverage
opportunities also include managing general and administrative
infrastructure costs and other costs that may be fixed or
increase at rates slower than revenue growth.
Cash
Flows and Capital Resources
As CBIZs strategy is to utilize capital resources for
strategic initiatives that will optimize shareholder return, its
first use of capital is focused on strategic acquisitions. CBIZ
also believes that repurchasing shares of its common stock is a
use of cash that provides such value. Accordingly, CBIZ
continually evaluates share repurchase opportunities and may
repurchase shares of its common stock when, after assessing
capital needed to fund acquisitions and seasonal working capital
needs, resources are available and such repurchases are
accretive to shareholders.
Services
CBIZ delivers its integrated services through four operating
practice groups. A general description of services provided by
practice group is provided in the table below.
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Financial Services
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Employee Services
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MMP
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National Practices
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Accounting Tax Financial Advisory Valuation Litigation Support Internal Audit Family Office Services Fraud Detection Real Estate Advisory
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Group Health
Property & Casualty
Retirement Planning
Payroll Services
Life Insurance
Human Capital
Management
Compensation
Consulting
Recruiting
Actuarial Services
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Coding and Billing
Accounts Receivable
Management
Full Practice
Management Services
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Managed Networking
and Hardware
Services
Health Care
Consulting
Mergers &
Acquisitions
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Practice
Groups
Revenue by practice group for the years ended December 31,
2010, 2009 and 2008, is provided in the table below (in
thousands):
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Year Ended December 31,
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2010
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2009
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2008
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Financial Services
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$
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382,234
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52.2
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%
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$
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379,690
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51.4
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%
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$
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311,763
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45.5
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%
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Employee Services
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174,097
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23.8
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%
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170,846
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23.1
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%
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181,793
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26.5
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%
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MMP
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148,425
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20.2
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%
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160,632
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21.7
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164,950
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24.1
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%
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National Practices
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27,749
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3.8
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%
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27,968
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3.8
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%
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27,068
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3.9
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%
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Total CBIZ
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$
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732,505
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100.0
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%
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$
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739,136
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100.0
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%
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$
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685,574
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100.0
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%
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A discussion of CBIZs practice groups and certain external
relationships and regulatory factors that currently impact those
practice groups are provided in the paragraphs below. See
Note 22 of the accompanying consolidated financial
statements for further discussion of CBIZs practice groups.
Financial
Services
The Financial Services practice group is divided into a
Financial Services division, which represents the various
accounting units spread geographically throughout the United
States that provides their services regionally, and a National
Services division consisting of those units that provide their
services nationwide. Both the Financial Services and National
Services divisions report either directly to the Chief Operating
Officer, Financial Services or to the President, Financial
Services. The Chief Operating Officer, Financial Services, and
the President, Financial Services report to CBIZs
President and Chief Operating Officer.
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, a vast majority
of whom are also 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 management, 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 totaled approximately $111.5 million,
$109.6 million and $87.3 million for the years ended
December 31, 2010, 2009 and 2008, 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 typically reduced on a proportional basis.
The ASAs have terms ranging up to eighteen years, are renewable
upon agreement by both parties, and have certain rights of
extension and termination.
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 CBIZ has contractual
relationships as a single entity in applying independence rules
established by the accountancy regulators and the SEC.
Accordingly, CBIZ does 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 CBIZ 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 CBIZ is associated have
implemented policies and procedures designed to enable the
Company 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-
5
reporting attest clients of associated CPA firms, and the
limited number and size of such clients, the Sarbanes-Oxley Act
independence limitations does not, and is not expected to,
materially affect CBIZ revenues.
The CPA firms with which CBIZ maintains ASAs may operate as
limited liability companies, limited liability partnerships or
professional corporations. The firms are separate legal entities
with separate governing bodies and officers. Neither the
existence of the ASAs nor the providing of services there under
is intended to constitute control of the CPA firms by CBIZ. CBIZ
and the CPA firms maintain their own respective liability and
risk of loss in connection with performance of their respective
services. Attest services are not permitted to be performed by
any individual or entity that is not licensed to do so. CBIZ is
not permitted to perform audits, reviews, compilations, or other
attest services, does not contract to perform them and does not
provide the associated attest reports. Given this legal
prohibition and course of conduct, CBIZ does not believe it is
likely that it would bear the risk of litigation losses related
to attest services provided by the CPA firms.
At December 31, 2010, CBIZ maintained ASAs with three CPA
firms. Most of the members
and/or
shareholders of the CPA firms are also CBIZ employees, and CBIZ
renders services to the CPA firms as an independent contractor.
CBIZs primary ASA is with Mayer Hoffman McCann, P.C.
(MHM P.C.), an independent national CPA firm
headquartered in Kansas City, Kansas. MHM P.C. has
279 shareholders, a vast majority of whom are also
employees of CBIZ. MHM maintains a nine member Board of
Directors. There are no board members of MHM P.C. who hold
senior officer positions at CBIZ. CBIZs association with
MHM P.C. offers clients access to the multi-state resources and
expertise of a national CPA firm.
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 ASAs
qualify as variable interest entities. See Note 1 of the
accompanying consolidated financial statements for further
discussion.
Employee
Services
CBIZs Employee Services group operates under a divisional
President who oversees the practice group, along with a senior
management team that supports the practice group leader along
functional, product, and unit management lines. The Employee
Services President reports to CBIZs Chief Executive
Officer. The business units that comprise CBIZs Employee
Services group are organized between Retail and National
Services. The Retail offices generally provide services locally
within their geographic area. The National group is comprised of
several specialty operations that provide unique services on a
national scale.
CBIZs Employee Services group maintains relationships with
many different insurance carriers. Some of these carriers have
compensation arrangements with CBIZ whereby some portion of
payments due may be contingent upon meeting certain performance
goals, or upon CBIZ providing client services that would
otherwise be provided by the carriers. These compensation
arrangements are provided to CBIZ as a result of its performance
and expertise, and may result in enhancing CBIZs ability
to access certain insurance markets and services on behalf of
CBIZ clients. The aggregate compensation related to these
arrangements received during the years ended December 31,
2010, 2009 and 2008 were less than 2% of consolidated CBIZ
revenue for the respective periods.
Medical
Management Professionals
MMP provides billing and coding services, as well as
full-practice management services for hospital-based physicians
primarily in the practice of radiology, emergency medicine,
anesthesiology and pathology. MMP has a President who reports to
CBIZs Chief Executive Officer. MMPs President is
supported by an executive management team which oversees
MMPs operating units along functional and product lines.
MMPs operating units are organized into four geographic
regions representing the East, Great Lakes, South and West
regions of the United States. Each region is managed by a two
person management team focused on finance and operations.
Changes in some managed care plans and federal Medicare and
Medicaid physician and practice expense reimbursement rules and
rates have, and may continue to, adversely affect revenue in the
existing physician and medical billing and collections business.
In addition, certain managed care payors may impose
precertification and other management programs which could limit
or control the use of, and reimbursement for, imaging and
diagnostic services. Certain managed care payors may institute
pay for performance and quality
initiative
6
programs that could limit or control physician, office and
facility, and practice services and procedures, as well as
reimbursement costs, and replace volume-based payment methods.
Since the Companys physician and medical billing and
collections business is typically paid a portion of the revenue
collected on behalf of the Companys clients, any reduction
in the volume of services or reimbursement rates for such
services or expenses for which the Companys clients are
eligible to be paid may adversely affect the Companys
ability to generate revenue and maintain margins. CBIZ will make
its best efforts to take appropriate actions to maintain margins
in this business, however there is no assurance that MMP will be
able to maintain margins at historic levels.
National
Practices
The National Practices group offers technology, health care
consulting, and merger and acquisition services. The units
within the National Practices group each have a Business Unit
President. These Business Unit Presidents either report to a
Senior Vice President and CBIZs President and Chief
Operating Officer, with one unit reporting to CBIZs Chief
Executive Officer.
Sales and
Marketing
CBIZs branding goals are focused on providing CBIZ with a
consistent image while at the same time providing a customizable
set of marketing tools for each practice and market to utilize
within each of the Companys distinct geographic and
industry markets. Three key strategies are employed to
accomplish these goals: thought leadership, market segmentation,
and sales/sales management process development.
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Thought leadership: CBIZ marketing efforts
continue to capitalize on the extensive knowledge and expertise
of CBIZ associates. This has been accomplished through media
visibility, webinars, and the creation of a wide variety of
white papers, newsletters, books, and other information
offerings.
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Market segmentation: The majority of CBIZ
marketing resources are devoted to the highly measurable and
high return on investment tactics that specifically target those
industries and areas where CBIZ has particularly deep
experience. These efforts typically involve local, regional or
national trade show and event sponsorships, targeted direct
mail, email, and telemarketing campaigns, and practice and
industry specific micro-sites, newsletters, etc.
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Sales/sales management process
development: CBIZ continues to create a
consistent and accountable business development culture with
several initiatives: training through the CBIZ Sales
Academy, enhanced management visibility through
Salesforce.com, and the implementation of performance management
scorecards and business development pipeline reports. Together,
these initiatives have helped create a more effective, efficient
and successful sales management process throughout the Company.
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Beginning in 2010 and continuing through 2011, CBIZ focus has
been on marketing strategies that specifically support each of
the Companys major practice areas: Financial Services,
Employee Services and MMP. In each of these segments, emphasis
has been put on marketing technology that has the highest and
most measurable return on investment, including enhanced
targeted email campaigns, webinars, and an improved web presence.
Customers
CBIZ provides professional business services to over 90,000
clients, including over 50,000 business clients. By providing
various professional services and administrative functions, CBIZ
enables its clients to focus their resources on their own
operational competencies. Reducing administrative functions
allows clients to enhance productivity, reduce costs and improve
service quality and efficiency by focusing on their core
business. Depending on a clients size and capabilities, it
may choose to utilize one, some or many of the diverse and
integrated services offered by CBIZ.
CBIZs clients come from a large variety of industries and
markets, with the Company targeting mid-sized companies that
have between 100 and 2,000 employees and annual revenues
between $5 million and $100 million. CBIZs
largest client, Edward Jones, contributed less than 3% of
CBIZs consolidated revenue in 2010. Management believes
that its client diversity helps insulate CBIZ from a downturn in
a particular industry or geographic market. Nevertheless,
economic conditions among select clients and groups of clients
may have an impact on the
7
demand for services provided by CBIZ. See Note 22 of the
accompanying consolidated financial statements for information
regarding revenue attributable to the geographic areas where
CBIZ operates.
Competition
The professional business services industry is highly fragmented
and competitive, with a majority of industry participants, such
as accounting, employee benefits, payroll providers, medical
management or professional service organizations, offering only
a limited number of services. Competition is based primarily on
client relationships, quality of professional advice, range and
quality of services or product offerings, customer service,
timeliness, geographic proximity, and competitive rates. CBIZ
competes with a number of multi-location regional or national
professional services firms and a large number of relatively
small independent firms in local markets. CBIZs
competitors in the professional business services industry
include, but are not limited to, independent consulting services
companies, independent accounting and tax firms, payroll service
providers, medical billing and coding companies, independent
insurance brokers and divisions of diversified services
companies.
Acquisitions
and Divestitures
CBIZ seeks to strengthen its operations and customer service
capabilities by selectively acquiring businesses that expand its
market position and strengthen its existing service offerings.
During the year ended December 31, 2010, CBIZ acquired
substantially all of the assets of four businesses, Goldstein
Lewin & Company (Goldstein Lewin),
National Benefit Alliance (NBA), South Winds, Inc.
(dba Benexx) and Kirkland, Russ, Murphy &
Tapp P.A. (KRMT). Two of these acquisitions were
made to strengthen the Companys presence in the Florida
market. Goldstein Lewin, located in Boca Raton, and KRMT,
located in Tampa, are both accounting and financial services
companies and provide a broad spectrum of services including
accounting and financial advisory services, tax planning and
compliance, wealth preservation and estate planning, technology
consulting, software consulting, business valuation and
litigation consulting. Goldstein Lewin and KRMT provide services
to private and publicly-traded businesses, as well as
not-for-profit
and governmental entities, and their operating results are
reported in the Financial Services practice group. NBA, an
employee benefits company located in Midvale, Utah, designs,
implements and administers employee benefit plans for government
contractors as well as commercial clients. The acquisition
strengthens and expands CBIZs expertise in servicing the
government contracting industry. Benexx, a retirement plan
consulting firm located in Baltimore, Maryland, provides 401(K)
and other qualified retirement plan services for small and
mid-sized companies. The acquisition of Benexx will add depth to
the Companys retirement plan practice and provide value
for existing clients. The operating results for NBA and Benexx
are reported in the Employee Services practice group.
Regulation
CBIZs operations are subject to regulations by federal,
state, local and professional governing bodies. Accordingly,
CBIZs business services may be impacted by legislative
changes by these bodies, particularly with respect to provisions
relating to payroll, benefits administration and insurance
services, pension plan administration, medical management
billing and collections, and tax and accounting. CBIZ remains
abreast of regulatory changes affecting its business, as these
changes often affect clients activities with respect to
employment, taxation, benefits, and accounting. For instance,
changes in income, estate, or property tax laws may require
additional consultation with clients subject to these changes to
ensure their activities comply with revised regulations.
CBIZ itself is subject to industry regulation and changes,
including changes in laws, regulations, and codes of ethics
governing its accounting, insurance, valuation, medical
management, registered investment advisory and broker-dealer
operations, as well as in other industries, the interpretation
of which may restrict CBIZs operations.
CBIZ is subject to certain privacy and information security laws
and regulations, including, but not limited to those under the
Health Insurance Portability and Accountability Act of 1996, The
Financial Modernization Act of 1999 (the Gramm-Leach-Bliley
Act), the Health Information Technology for Economic and
Clinical Health Act, and other provisions of federal and state
law which may restrict CBIZs operations and give rise to
expenses related to compliance.
8
As a public company, CBIZ is subject to the provisions of the
Sarbanes-Oxley Act of 2002 to reform the oversight of public
company auditing, improve the quality and transparency of
financial reporting by those companies and strengthen the
independence of auditors.
Liability
Insurance
CBIZ carries insurance policies including those for commercial
general liability, automobile liability, property, crime,
professional liability, directors and officers
liability, fiduciary liability, employment practices liability
and workers compensation subject to prescribed state
mandates. Excess liability coverage is carried over the
underlying limits provided by the commercial general liability,
directors and officers liability, professional
liability and automobile liability policies.
Employees
At December 31, 2010, CBIZ employed approximately
5,250 employees. CBIZ believes that it has a good
relationship with its employees. A large number of the
Companys employees hold professional licenses or degrees.
As a professional services company that differentiates itself
from competitors through the quality and diversity of its
service offerings, CBIZ believes that its employees are its most
important asset. Accordingly, CBIZ strives to remain competitive
as an employer while increasing the capabilities and performance
of its employees.
Seasonality
A disproportionately large amount of CBIZs revenue occurs
in the first half of the year. This is due primarily to
accounting and tax services provided by the Companys
Financial Services practice group, which is subject to
seasonality related to heavy volume in the first four months of
the year. CBIZs Financial Services group generated more
than 40% of its revenue in the first four months of each of the
past five years. Like most professional service companies, most
of CBIZs operating costs are relatively fixed in the short
term, which generally results in higher operating margins in the
first half of the year.
Uncertainty
of Forward-Looking Statements
This Annual Report contains forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933 (the Securities Act) and
Section 21E of the Securities Exchange Act of 1934
(the Exchange Act). All statements other than
statements of historical fact included in this Annual Report
including, without limitation, Business and
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 phrases 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
Form 10-K,
in the 2010 Annual Report 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. Many factors mentioned in
Item 1A. Risk Factors will be important in
determining future results. 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;
changes in governmental regulation and tax laws affecting its
operations; reversal or decline in the current trend of
outsourcing business services; revenue seasonality or
fluctuations in and collectability of receivables; liability for
errors and omissions of the Companys businesses;
regulatory investigations and future regulatory activity
(including without limitation inquiries into compensation
arrangements within the
9
insurance brokerage industry); and reliance on information
processing systems and availability of software licenses.
Consequently, no forward-looking statement can be guaranteed.
Our actual future results may vary materially. We undertake no
obligation to publicly update any 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. Also note that
we provide the following cautionary discussion of risks,
uncertainties and possibly inaccurate assumptions relevant to
our businesses. These are factors that we think could cause our
actual results to differ materially from expected and historical
results. Other factors besides those described here could also
adversely affect operating or financial performance. This
discussion is provided as permitted by the Private Securities
Litigation Reform Act of 1995.
The following factors may affect our actual operating and
financial results and could cause results to differ materially
from those in any forward-looking statements. You should
carefully consider the following information.
We may
be more sensitive to revenue fluctuations than other companies,
which could result in fluctuations in the market price of our
common stock.
A substantial majority of our operating expenses such as
personnel and related costs and occupancy costs, are relatively
fixed in the short term. As a result, we may not be able to
quickly reduce costs in response to any decrease in revenue.
This factor could cause our quarterly results to be lower than
expectations of securities analysts and shareholders, which
could result in a decline in the price of our common stock.
Payments
on accounts receivable may be slower than expected, or amounts
due on receivables or notes may not be fully
collectible.
Professional services firms often experience higher average
accounts receivable days outstanding compared to many other
industries, which may be magnified if the general economy
worsens. If our collections become slower, our liquidity may be
adversely impacted. We monitor the aging of receivables
regularly and make assessments of the ability of customers to
pay amounts due. We provide for potential bad debts each month
and recognize additional reserves against bad debts as we deem
it appropriate. Notwithstanding these measures, our customers
may face unexpected circumstances that adversely impact their
ability to pay their trade receivables or note obligations to us
and we may face unexpected losses as a result.
We are
dependent on the services of our executive officers and other
key employees, the loss of any of whom may have a material
adverse effect on our business, financial condition and results
of operations.
Our success depends in large part upon the abilities and
continued services of our executive officers and other key
employees, such as our business unit presidents. In the course
of business operations, employees may resign and seek employment
elsewhere. Certain principal employees, however, are bound in
writing to non-compete agreements barring competitive
employment, client solicitation, and solicitation of employees
for a period of between two and ten years following his or her
resignation. We cannot assure you that we will be able to retain
the services of our key personnel. If we cannot retain the
services of key personnel, there could be a material adverse
effect on our business, financial condition and results of
operations. While we generally have employment agreements and
non-competition agreements with key personnel, courts are at
times reluctant to enforce such non-competition agreements. In
addition, many of our executive officers and other key personnel
are either participants in our stock option plan or holders of a
significant amount of our common stock. We believe that these
interests provide additional incentives for these key employees
to remain with us. In order to support our growth, we intend to
continue to effectively recruit, hire, train and retain
additional qualified management personnel. Our inability to
attract and retain necessary personnel could have a material
adverse effect on our business, financial condition and results
of operations.
10
Restrictions
imposed by independence requirements and conflict of interest
rules may limit our ability to provide services to clients of
the attest firms with which we have contractual relationships
and the ability of such attest firms to provide attestation
services to our clients.
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 ASAs with independent licensed 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, a vast majority of whom are employed by CBIZ subsidiaries.
Under these ASAs, CBIZ provides a range of services to the CPA
firms, including: administrative functions such as office
management, 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. In the event
that accounts receivable and unbilled work in process become
uncollectible by the CPA firms, the service fee due to CBIZ is
typically reduced on a proportional basis.
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, nor do we
enter into any business relationship with, an SEC-reporting
attest client that the CPA firm performing an audit could not
maintain; further, we do not 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 CBIZ 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.
There can be no assurance that following the policies and
procedures implemented by us and the attest firms will enable us
and the attest firms to avoid circumstances that would cause us
and them to lack independence from an SEC-reporting attest
client; nor can there be any assurance that state accountancy
authorities will not extend current restrictions on the
profession to include private companies. To the extent that
licensed CPA firms for whom we provide administrative and other
services are affected, we may experience a decline in fee
revenue from these businesses as well. To date, revenues derived
from providing services in connection with attestation
engagements of the attest firms performed for SEC-reporting
clients have not been material.
Our
goodwill and intangible assets could become impaired, which
could lead to material non-cash charges against
earnings.
We assess potential impairment on our goodwill and intangible
asset balances, including client lists, on an annual basis, or
more frequently if there is any indication that the asset may be
impaired. Any impairment of goodwill or intangible assets
resulting from this periodic assessment would result in a
non-cash charge against current earnings, which could lead to a
material impact on our results of operations, statements of
financial position, and earnings per share. Any decline in
future revenues, cash flows or growth rates as a result of
further adverse changes in the economic environment or an
adverse change resulting from new governmental regulations,
could lead to an impairment of goodwill or intangible assets.
Certain
liabilities resulting from acquisitions are estimated and could
lead to a material impact on earnings.
Through its acquisition activities, CBIZ records liabilities for
estimated future contingent earnout payments. These liabilities
are reviewed quarterly and changes in assumptions used to
determine the amount of the liability could
11
lead to an adjustment that may have a material impact, favorable
or unfavorable, on the consolidated statements of operations.
Governmental
regulations and interpretations are subject to
changes.
Laws and regulations often result in changes in the amount or
the type of business services required by businesses and
individuals. We cannot be sure that future laws and regulations
will provide the same or similar opportunities for us to provide
business consulting and management services to businesses and
individuals. State insurance regulators have conducted inquiries
to clarify the nature of compensation arrangements within the
insurance brokerage industry. 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 insurance brokerage revenue from these sources.
Accordingly, CBIZs ability to continue to operate in some
states may depend on our flexibility to modify our operational
structure in response to these changes in regulations.
Changes
in the United States healthcare environment, including new
health care legislation, may adversely affect the revenue and
margins in our medical management and healthcare benefit
businesses.
Our medical management business is typically paid a portion of
the revenue collected on behalf of our clients who are hospital
based physician practices primarily in the fields of radiology,
emergency medicine, anesthesiology and pathology. Changes in the
healthcare environment, including new health care legislation,
that affect the volume of procedures performed by our clients,
or that affect the reimbursement rates for procedures performed
by our clients, will impact our revenue and could adversely
impact margins in this business. Revenue and margins in this
business could also be adversely impacted if our clients lose
their hospital contracts as a result of hospital consolidations
or other reasons.
Medicare and Medicaid reimbursements are subject to regulation
and periodic legislated changes in eligibility and reimbursement
rates. In addition, certain managed care payors may change
reimbursement rates, or may impose precertification and other
management programs which could limit the use of, and
reimbursement for, imaging and diagnostic services. Certain
managed care payors may institute pay for
performance and quality initiative programs
that could limit or control physician, office and facility, and
practice services and procedures, as well as reimbursement
costs, and replace volume-based payment methods. Any legislated
changes in the U.S. national health care system, including
the recently enacted health care legislation, or changes by
managed care payors, could impact revenue and margins in this
business and depending upon the nature of the changes, could
have an adverse impact on this business.
Our employee benefits business, specifically our group health
consulting and brokerage segment, receives commissions for
brokering employer-sponsored healthcare policies with insurance
carriers on behalf of the client. In many cases, these
commissions consist of a ratable portion of the insurance
premiums on those policies, based upon a sliding scale
pertaining to the dollar volume of premiums
and/or the
number of participants in the plan.
Changes in the healthcare environment, including but not limited
to any legislated changes in the U.S. national health care
system, that affect the methods by which insurance carriers
remunerate brokers, could adversely impact our revenues and
margins in this business. Specifically, legislation or other
changes could afford our clients and their employees the ability
to seek insurance coverage through other means, including but
not limited to direct access with insurance carriers or other
similar avenues, which could eliminate or adversely alter the
remuneration brokers receive from insurance carriers for their
services.
Higher rates of unemployment in the U.S. could result in a
general reduction in the number of individuals with employer
sponsored health care coverage. A reduction in the number of
individuals with employer provided health care coverage could
result in a reduction in the volume of elective medical
procedures performed by the hospital based physician practices
served by our medical management business, which could have an
adverse impact on revenues and margins in this business. Also,
higher rates of unemployment in the U.S. could result in a
general reduction in the number of individuals with employer
sponsored health care coverage. This decline in employee
participation in healthcare insurance plans at our clients could
result in a reduction in the commissions we receive from
insurance carriers for our brokerage services, which could have
an adverse impact on revenues and margins in this business.
12
We are
subject to risks relating to processing customer transactions
for our payroll, medical practice management, and other
transaction processing businesses.
The high volume of client funds and data processed by us, or by
our out-sourced resources abroad, in our transaction related
businesses entails risks for which we may be held liable if the
accuracy or timeliness of the transactions processed is not
correct. We could incur significant legal expense to defend any
claims against us, even those claims without merit. While we
carry insurance against these potential liabilities, we cannot
be certain that circumstances surrounding such an error would be
entirely reimbursed through insurance coverage. We believe we
have controls and procedures in place to address our fiduciary
responsibility and mitigate these risks. However, if we are not
successful in managing these risks, our business, financial
condition and results of operations may be harmed.
We are
subject to risk as it relates to software that we license from
third parties.
We license software from third parties, much of which is
integral to our systems and our business. The licenses are
terminable if we breach our obligations under the license
agreements. If any of these relationships were terminated or if
any of these parties were to cease doing business or cease to
support the applications we currently utilize, we may be forced
to spend significant time and money to replace the licensed
software. However, we cannot assure you that the necessary
replacements will be available on reasonable terms, if at all.
We
could be held liable for errors and omissions.
All of our business services entail an inherent risk of
malpractice and other similar claims resulting from errors and
omissions. Therefore, we maintain errors and omissions insurance
coverage. Although we believe that our insurance coverage is
adequate, we cannot be certain that actual future claims or
related legal expenses would not exceed the coverage amounts. In
addition, we cannot be certain that the different insurance
carriers which provide errors and omissions coverage for
different lines of our business will not dispute their
obligation to cover a particular claim. If we have a large
claim, or a large number of claims, on our insurance, the rates
for such insurance may increase, and amounts expended in defense
or settlement of these claims prior to exhaustion of deductible
or self-retention levels may become significant, but contractual
arrangements with clients may constrain our ability to
incorporate such increases into service fees. Insurance rate
increases, disputes by carriers over coverage questions,
payments by us within deductible or self-retention limits, as
well as any underlying claims or settlement of such claims,
could have a material adverse effect on our business, financial
condition and results of operations.
We
invested in auction rate securities which are subject to risks
that may cause losses and affect our liquidity.
A portion of our funds held for clients were invested in auction
rate securities (ARS). ARS are variable-rate debt
instruments with longer stated maturities whose interest rates
are reset at predetermined short-term intervals through a Dutch
auction system. In accordance with our investment policy, all
investments carry an investment grade rating at the time of the
initial investment. As a result of the disruption in the credit
and capital markets, our ARS have experienced failed auctions
since 2008, and we have recorded impairment charges in the
consolidated income statements to reduce the carrying value of
our investments in ARS to estimated fair value. If the credit
markets related to ARS continue to remain inactive, our ability
to convert ARS to cash will continue to be hindered and
potential future impairment charges may be required, which could
adversely affect our results of operations and financial
condition.
We
have shares eligible for future sale that could adversely affect
the price of our common stock.
Future sales or issuances of common stock, or the perception
that sales could occur, could adversely affect the market price
of our common stock and dilute the percentage ownership held by
our stockholders. We have authorized 250 million shares,
and have approximately 50.3 million shares outstanding at
February 28, 2011. A substantial number of these shares
have been issued in connection with acquisitions. As part of
many acquisition transactions, shares are contractually
restricted from sale for periods up to two years, and as of
February 28, 2011, approximately 0.8 million shares of
common stock were under
lock-up
contractual restrictions that expire February
13
2012. We cannot be sure when sales by holders of our stock will
occur, how many shares will be sold or the effect that sales may
have on the market price of our common stock.
In 2006, CBIZ filed a registration statement with the SEC to
register the shares of Common Stock issuable by the Company upon
conversion (the Conversion Shares) of the
Companys issued and outstanding $100.0 million of
3.125% Convertible Senior Subordinated Notes due 2026 (the
2006 Notes). The registration statement was declared
effective on August 4, 2006. In September 2010,
$60 million of the 2006 Notes were retired by CBIZ, leaving
$40 million outstanding as of December 31, 2010.
Although the Company cannot at this time determine the number of
Conversion Shares it will issue upon conversion of the Notes, if
any, the number of Conversion Shares will be calculated as set
out in the Registration Statement on
Form S-3
filed by the Company with the SEC on July 21, 2006. In
addition, in September 2010, CBIZ issued $130.0 million of
4.875% Convertible Senior Subordinated Notes due 2014 (the
2010 Notes) pursuant to Rule 144A of the
Securities Act of 1933, as amended. The Company cannot at this
time determine the number of shares of common stock it will
issue upon conversion of these notes, although the number of
shares of common stock it will issue, if any, will be calculated
as defined in the indenture agreements with U.S. Bank
National Association as trustee.
Our
principal stockholders may have substantial control over our
operations.
At December 31, 2010, the stockholders identified below
beneficially owned (within the meaning of
Rule 13d-3
of the Exchange Act) the following aggregate amounts and
percentages of our common stock:
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Number
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% of CBIZs
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of Shares
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Outstanding
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(In millions)
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Common Stock
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Westbury (Bermuda) Ltd.
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7.7
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15.4
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%
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FMR LLC
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6.4
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12.7
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%
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Cardinal Capital Management LLC
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2.7
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5.4
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%
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P2 Capital Partners LLC
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2.4
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4.8
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%
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Investment Counselors of Maryland LLC
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2.3
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4.6
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%
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Sarbit Advisory Service, Inc.
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2.1
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4.2
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%
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Vanguard Group Inc.
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2.1
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4.2
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%
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BlackRock Fund Advisors
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2.0
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4.0
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%
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Dimensional Fund Advisors, Inc.
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1.7
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3.4
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%
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CBIZ Executive Officers and Directors
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4.4
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8.8
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%
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The foregoing as a group
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33.8
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67.5
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%
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Because of their stock ownership, these stockholders may exert
substantial influence or actions that require the consent of a
majority of our outstanding shares, including the election of
directors. CBIZs share repurchase activities may result in
increased ownership percentages of these individuals and
therefore increase the influence they may exert, if they do not
participate in these share repurchase transactions.
We
require a significant amount of cash for interest payments on
our debt and to expand our business as planned.
At December 31, 2010, our debt consisted of
$118.9 million in principal amount outstanding under our
credit facility and $170.0 million principal amount
outstanding under our convertible notes. Our debt requires us to
dedicate a significant portion of our cash flow from operations
to pay interest on our indebtedness, thereby reducing the funds
available to use for acquisitions, capital expenditures and
general corporate purposes. Our ability to make interest
payments on our debt, and to fund acquisitions, will depend upon
our ability to generate cash in the future. Insufficient cash
flow could place us at risk of default under our debt agreements
or could prevent us from expanding our business as planned. Our
ability to generate cash is subject to general economic,
financial, competitive, legislative, regulatory and other
factors that are beyond our control. Our business may not
generate sufficient cash flow from operations and future
borrowings may not be available to us under our senior credit
facility in an amount sufficient to enable us to fund our other
liquidity needs.
14
Terms
of our credit facility may adversely affect our ability to run
our business.
The terms of our credit facility, as well as the guarantees of
our subsidiaries, could impair our ability to operate our
business effectively and may limit our ability to take advantage
of business opportunities. For example, our credit facility may:
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restrict our ability to repurchase or redeem our capital stock
or debt, or merge or consolidate with another entity;
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limit our ability to borrow additional funds or to obtain other
financing in the future for working capital, capital
expenditures, acquisitions, investments and general corporate
purposes;
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limit our ability to dispose of our assets, create liens on our
assets, to extend credit or to issue dividends to our
shareholders; and
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make us more vulnerable to economic downturns and reduce our
flexibility in responding to changing business and economic
conditions.
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Our
failure to satisfy covenants in our debt instruments will cause
a default under those instruments.
Our debt instruments include a number of covenants relating to
financial ratios and tests. Our ability to comply with these
covenants may be affected by events beyond our control,
including prevailing economic, financial and industry
conditions. The breach of any of these covenants would result in
a default under these instruments. An event of default would
permit our lenders and other debt holders to declare all amounts
borrowed from them to be due and payable, together with accrued
and unpaid interest. If the lenders accelerate the repayment of
borrowings, we may not have sufficient assets to repay our debt.
We are
reliant on information processing systems.
Our ability to provide business services depends on our capacity
to store, retrieve, process and manage significant databases,
and expand and upgrade periodically our information processing
capabilities. Interruption or loss of our information processing
capabilities through loss of stored data, breakdown or
malfunctioning of computer equipment and software systems,
telecommunications failure, or damage caused by fire, tornadoes,
lightning, electrical power outage, or other disruption could
have a material adverse effect on our business, financial
condition and results of operations. Although we have disaster
recovery procedures in place and insurance to protect against
such contingencies, we cannot be sure that insurance or these
services will continue to be available at reasonable prices,
cover all our losses or compensate us for the possible loss of
clients occurring during any period that we are unable to
provide business services.
We may
not be able to acquire and finance additional businesses which
may limit our ability to pursue our business
strategy.
CBIZ acquired four businesses during 2010. Targeted acquisitions
are part of our growth strategy and it is our intention to
selectively acquire businesses or client lists that are
complementary to existing service offerings in our target
markets. However, we cannot be certain that we will be able to
continue identifying appropriate acquisition candidates and
acquire them on satisfactory terms and we cannot be assured that
such acquisitions, even if completed, will perform as expected
or will contribute significant synergies, revenues or profits.
In addition, we may also face increased competition for
acquisition opportunities, which may inhibit our ability to
complete transactions on terms that are favorable to us. There
are certain provisions under our credit facility that may limit
our ability to acquire additional businesses. In the event that
we are not in compliance with certain covenants as specified in
our credit facility, we could be restricted from making
acquisitions, restricted from borrowing funds from our credit
facility for other uses, or required to pay down the outstanding
balance on the line of credit. However, management believes that
funds available under the credit facility, along with cash
generated from operations, will be sufficient to meet our
liquidity needs, including planned acquisition activity in the
foreseeable future. To the extent we are unable to find suitable
acquisition candidates, an important component of our growth
strategy may not be realized.
15
The
business services industry is competitive and fragmented. If we
are unable to compete effectively, our business, financial
condition and results of operations may be negatively
impacted.
We face competition from a number of sources in both the
business services industry and from specialty insurance
agencies. Competition in both industries has led to
consolidation. Many of our competitors are large companies that
may have greater financial, technical, marketing and other
resources than us. In addition to these large companies and
specialty insurance agencies, we face competition in the
business services industry from in-house employee services
departments, local business services companies and independent
consultants, as well as from new entrants into our markets. We
cannot assure you that, as our industry continues to evolve,
additional competitors will not enter the industry or that our
clients will not choose to conduct more of their business
services internally or through alternative business services
providers. Although we intend to monitor industry trends and
respond accordingly, we cannot assure you that we will be able
to anticipate and successfully respond to such trends in a
timely manner. We cannot be certain that we will be able to
compete successfully against current and future competitors, or
that competitive pressure will not have a material adverse
effect on our business, financial condition and results of
operations.
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Item 1B.
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Unresolved
Staff Comments.
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None.
CBIZs corporate headquarters is located at 6050 Oak Tree
Boulevard, South, Suite 500, Cleveland, Ohio 44131, in
leased premises. CBIZ and its subsidiaries lease more than 150
offices in 36 states, and one in Toronto, Canada. Some of
CBIZs properties are subject to liens securing payment of
indebtedness of CBIZ and its subsidiaries. CBIZ believes that
its current facilities are sufficient for its current needs.
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Item 3.
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Legal
Proceedings.
|
In May, June, July, August and September of 2010, the Company
and its subsidiary, CBIZ MHM, LLC (fka CBIZ Accounting,
Tax & Advisory Services, LLC) (the CBIZ
Parties), were named as defendants in lawsuits filed in
the United States District Court for the District of Arizona
(Robert Facciola, et al v. Greenberg Traurig LLP, et al.)
and in the Superior Court for Maricopa County Arizona (Victims
Recovery, LLC v. Greenberg Traurig LLP, et al.; Roger
Ashkenazi, et al v. Greenberg Traurig LLP, et al.;
Mary Marsh, et al v. Greenberg Traurig LLP, et al.;
and ML Liquidating Trust v. Mayer Hoffman McCann, PC, et
al.), respectively. The Maricopa County cases were removed to
the United States District Court or Bankruptcy Court but have
since been remanded to the Superior Court for Maricopa County.
These remand orders are currently being appealed. The Facciola
plaintiffs seek to proceed as a class action. Additionally, in
November 2009, CBIZ MHM, LLC was named as a defendant in the
United States District Court for the District of Arizona
(Jeffery C. Stone v. Greenberg Traurig LLP, et al.). These
matters arise out of the bankruptcy proceedings related to
Mortgages Ltd., a mortgage lender to developers in the Phoenix,
Arizona area. Various other professional firms not related to
the Company are also defendants in these lawsuits. The motion
phase of these proceedings has commenced.
The plaintiffs, except for those in the Stone and ML Liquidating
Trust cases, are all alleged to have directly or indirectly
invested in real estate mortgages through Mortgages Ltd. The
Facciola, Victims Recovery, Ashkenazi and Marsh plaintiffs seek
monetary damages equivalent to the amounts of their investments.
The plaintiff in Stone sought monies it allegedly lost based on
the claim that Mortgages Ltd. did not fund development projects
in which it was a contractor. The Stone case has been
voluntarily dismissed by the plaintiff in that matter. The
plaintiff in the ML Liquidating Trust matter asserts errors and
omissions and breach of contract claims, and is seeking monetary
damages. The plaintiffs in these suits also seek pre- and
post-judgment interest, punitive damages and attorneys
fees.
Mortgages Ltd. had been audited by Mayer Hoffman McCann PC, a
CPA firm which has an administrative services agreement with
CBIZ. The claims against the CBIZ Parties seek to impose
auditor-type liabilities upon the Company for audits it did not
conduct. Specific claims include securities fraud, common law
fraud, negligent misrepresentation,
16
Arizona Investment Management Act violations, control-person
liability, aiding and abetting and conspiracy. CBIZ is not a CPA
firm, does not provide audits, and did not audit any of the
entities at issue in these lawsuits.
The CBIZ Parties deny all allegations of wrongdoing made against
them in these actions and are vigorously defending the
proceedings. The Company has been advised by Mayer Hoffman
McCann PC that it denies all allegations of wrongdoing made
against it and that it intends to continue vigorously defending
the matters. Although the proceedings are subject to
uncertainties inherent in the litigation process and the
ultimate disposition of these proceedings is not presently
determinable, management believes that the allegations are
without merit and that the ultimate resolution of these matters
will not have a material adverse effect on the consolidated
financial condition, results of operations or cash flows of CBIZ.
In addition to those items disclosed above, CBIZ is, from time
to time, subject to claims and suits arising in the ordinary
course of business. Although the ultimate disposition of such
proceedings is not presently determinable, management does not
believe that the ultimate resolution of these matters will have
a material adverse effect on the consolidated financial
condition, results of operations or cash flows of CBIZ.
|
|
Item 4.
|
(Removed
and Reserved).
|
17
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
Price
Range of Common Stock
CBIZs common stock is traded on the NYSE under the trading
symbol CBZ. The table below sets forth the range of
high and low sales prices for CBIZs common stock as
reported on the NYSE for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First quarter
|
|
$
|
7.84
|
|
|
$
|
6.09
|
|
|
$
|
8.99
|
|
|
$
|
6.08
|
|
Second quarter
|
|
$
|
7.53
|
|
|
$
|
6.27
|
|
|
$
|
8.12
|
|
|
$
|
6.75
|
|
Third quarter
|
|
$
|
6.78
|
|
|
$
|
5.20
|
|
|
$
|
7.51
|
|
|
$
|
6.34
|
|
Fourth quarter
|
|
$
|
6.50
|
|
|
$
|
5.22
|
|
|
$
|
7.76
|
|
|
$
|
6.69
|
|
On December 31, 2010, the last reported sale price of
CBIZs common stock as reported on the NYSE was $6.24 per
share. As of February 28, 2011, CBIZ had approximately
2,150 holders of record of its common stock, and the last sale
of CBIZs common stock as of that date was $7.08.
As required by the NYSE, CBIZ filed its annual CEO certification
regarding the Companys compliance with the NYSEs
corporate governance listing standards as required by NYSE
rule 303A. There were no qualifications in this
certification. In addition, CBIZ has filed Exhibits 31.1
and 31.2 to this Annual Report on
Form 10-K,
which represent the certifications of its Chief Executive
Officer and Chief Financial Officer as required under
Section 302 of the Sarbanes-Oxley Act of 2002.
Dividend
Policy
CBIZs credit facility does not permit CBIZ to declare or
make any dividend payments, other than dividend payments made by
one of CBIZs wholly owned subsidiaries to the parent
company. Historically, CBIZ has not paid cash dividends on its
common stock, and does not anticipate paying cash dividends in
the foreseeable future. CBIZs Board of Directors has
discretion over the payment and level of dividends on common
stock, subject to the limitations of the credit facility. The
Board of Directors decision is based, among other things,
on the Companys results of operations and financial
condition. CBIZ intends to retain future earnings to finance the
ongoing operations and growth of the business. Any future
determination as to dividend policy will be made at the
discretion of the Board of Directors and will be subject to the
terms and restrictions of CBIZs credit facility.
Issuer
Purchases of Equity Securities
|
|
(a)
|
Recent
sales of unregistered securities
|
On December 31, 2010, approximately 265,000 shares of
CBIZ common stock became issuable as contingent consideration
owed to former owners of businesses that were acquired by CBIZ.
The above referenced shares were issued in transactions not
involving a public offering in reliance on the exemption from
registration afforded by Section 4(2) of the Securities
Act. 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)
|
Issuer
purchases of equity securities
|
Periodically, CBIZs Board of Directors authorizes a Share
Repurchase Plan which allows the Company to purchase shares of
its common stock in the open market or in a privately negotiated
transaction according to SEC rules. On February 10, 2011,
February 11, 2010 and February 19, 2009, CBIZs
Board of Directors authorized Share Repurchase Plans, each of
which authorized the purchase of up to 5.0 million shares
of CBIZ common stock. Each
18
Share Repurchase Plan is effective beginning April 1 of the
respective plan year, and each expires one year from the
respective effective date. The repurchase plans do not obligate
CBIZ to acquire any specific number of shares and may be
suspended at any time.
Pursuant to an agreement (the Westbury Agreement)
entered into on September 14, 2010 by CBIZ with its largest
shareholder, Westbury (Bermuda) Ltd. (Westbury), a
company organized by CBIZ founder Michael G. DeGroote, CBIZ
purchased 7,716,669 shares of CBIZs common stock at
$6.25 per share for a total cost of approximately
$48.2 million. Pursuant to the Westbury Agreement, CBIZ
also purchased an option for $5.0 million, which expires on
September 30, 2013, to purchase up to approximately
7.7 million shares of CBIZs common stock at a price
of $7.25 per share, which constitutes the remaining shares of
CBIZs common stock held by Westbury.
On September 16, 2010, CBIZs Board of Directors
authorized a second supplemental repurchase program allowing for
an additional 4,578,894 shares of CBIZs common stock
to be repurchased using a portion of the proceeds from the 2010
Notes transaction.
Not including the shares repurchased from the 2010 supplemental
share repurchase plans discussed above, CBIZ repurchased
1.1 million shares under the share repurchase programs
during the year ended December 31, 2010 at an aggregate
cost (including fees and commissions) of $7.1 million.
There were no shares repurchased during the fourth quarter of
2010. At December 31, 2010, there were approximately
3.9 million shares that may yet be purchased under
repurchase plans approved by CBIZs Board of Directors.
19
Performance
Graph
The following graph compares the cumulative
5-year total
return attained by stockholders on CBIZ, Inc.s common
stock relative to the cumulative total returns of the S&P
500 index, the Russell 2000 index, and a Peer Group of six
companies that includes: Brown & Brown Inc,
H & R Block Inc, National Financial Partners Corp.,
Paychex Inc, Resources Connection Inc and Towers
Watson & Company. The graph tracks the performance of
a $100 investment in CBIZ common stock, in each index and in the
peer group (with the reinvestment of all dividends) from
December 31, 2005 to December 31, 2010.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among CBIZ, Inc., The S&P 500 Index, The Russell 2000 Index
And A Peer Group
|
|
* |
$100 invested on 12/31/05 in stock or index, including
reinvestment of dividends.
Fiscal year ending December 31.
|
Copyright
©
2011 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/2005
|
|
|
12/2006
|
|
|
12/2007
|
|
|
12/2008
|
|
|
12/2009
|
|
|
12/2010
|
CBIZ, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
115.78
|
|
|
|
$
|
162.96
|
|
|
|
$
|
143.69
|
|
|
|
$
|
127.91
|
|
|
|
$
|
103.65
|
|
S&P 500
|
|
|
$
|
100.00
|
|
|
|
$
|
115.80
|
|
|
|
$
|
122.16
|
|
|
|
$
|
76.96
|
|
|
|
$
|
97.33
|
|
|
|
$
|
111.99
|
|
Russell 2000
|
|
|
$
|
100.00
|
|
|
|
$
|
118.37
|
|
|
|
$
|
116.51
|
|
|
|
$
|
77.15
|
|
|
|
$
|
98.11
|
|
|
|
$
|
124.46
|
|
Peer Group
|
|
|
$
|
100.00
|
|
|
|
$
|
102.97
|
|
|
|
$
|
92.25
|
|
|
|
$
|
79.76
|
|
|
|
$
|
87.98
|
|
|
|
$
|
82.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The stock price performance included in this graph is not
necessarily indicative of future stock price performance.
20
|
|
Item 6.
|
Selected
Financial Data.
|
The following table presents selected historical financial data
for CBIZ. The information set forth below should be read in
conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations and the
accompanying consolidated financial statements and notes
thereto, which are included elsewhere in this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009(1)
|
|
|
2008(1)
|
|
|
2007(1)
|
|
|
2006(1)
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
732,505
|
|
|
$
|
739,136
|
|
|
$
|
685,574
|
|
|
$
|
619,010
|
|
|
$
|
562,071
|
|
Operating expenses
|
|
|
646,793
|
|
|
|
650,973
|
|
|
|
587,755
|
|
|
|
540,058
|
|
|
|
493,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
85,712
|
|
|
|
88,163
|
|
|
|
97,819
|
|
|
|
78,952
|
|
|
|
69,034
|
|
Corporate general and administrative expenses
|
|
|
29,614
|
|
|
|
30,722
|
|
|
|
28,691
|
|
|
|
29,462
|
|
|
|
29,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
56,098
|
|
|
|
57,441
|
|
|
|
69,128
|
|
|
|
49,490
|
|
|
|
39,521
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(15,308
|
)
|
|
|
(13,392
|
)
|
|
|
(10,786
|
)
|
|
|
(9,038
|
)
|
|
|
(6,003
|
)
|
Gain on sale of operations, net
|
|
|
466
|
|
|
|
989
|
|
|
|
745
|
|
|
|
144
|
|
|
|
21
|
|
Other income (expense), net(2)
|
|
|
3,532
|
|
|
|
6,622
|
|
|
|
(7,618
|
)
|
|
|
10,584
|
|
|
|
4,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(11,310
|
)
|
|
|
(5,781
|
)
|
|
|
(17,659
|
)
|
|
|
1,690
|
|
|
|
(1,038
|
)
|
Income from continuing operations before income tax expense
|
|
|
44,788
|
|
|
|
51,660
|
|
|
|
51,469
|
|
|
|
51,180
|
|
|
|
38,483
|
|
Income tax expense
|
|
|
16,848
|
|
|
|
19,714
|
|
|
|
19,647
|
|
|
|
20,785
|
|
|
|
15,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
27,940
|
|
|
|
31,946
|
|
|
|
31,822
|
|
|
|
30,395
|
|
|
|
23,209
|
|
Loss from operations of discontinued operations, net of tax
|
|
|
(2,453
|
)
|
|
|
(760
|
)
|
|
|
(1,150
|
)
|
|
|
(1,468
|
)
|
|
|
(833
|
)
|
(Loss) gain on disposal of discontinued operations, net of tax
|
|
|
(973
|
)
|
|
|
210
|
|
|
|
(268
|
)
|
|
|
3,882
|
|
|
|
911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,514
|
|
|
$
|
31,396
|
|
|
$
|
30,404
|
|
|
$
|
32,809
|
|
|
$
|
23,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares
|
|
|
57,692
|
|
|
|
61,200
|
|
|
|
61,839
|
|
|
|
65,061
|
|
|
|
71,004
|
|
Diluted weighted average common shares
|
|
|
58,193
|
|
|
|
61,859
|
|
|
|
62,572
|
|
|
|
66,356
|
|
|
|
73,052
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.48
|
|
|
$
|
0.52
|
|
|
$
|
0.51
|
|
|
$
|
0.46
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.42
|
|
|
$
|
0.51
|
|
|
$
|
0.49
|
|
|
$
|
0.49
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
756,299
|
|
|
$
|
713,098
|
|
|
$
|
699,868
|
|
|
$
|
574,078
|
|
|
$
|
512,382
|
|
Long-term debt(3)
|
|
$
|
235,663
|
|
|
$
|
203,848
|
|
|
$
|
215,040
|
|
|
$
|
116,990
|
|
|
$
|
85,037
|
|
Total liabilities
|
|
$
|
526,627
|
|
|
$
|
442,480
|
|
|
$
|
456,993
|
|
|
$
|
337,762
|
|
|
$
|
284,520
|
|
Total stockholders equity
|
|
$
|
229,672
|
|
|
$
|
270,618
|
|
|
$
|
241,599
|
|
|
$
|
234,726
|
|
|
$
|
226,888
|
|
Adjusted EBITDA(4)
|
|
$
|
81,959
|
|
|
$
|
84,561
|
|
|
$
|
75,636
|
|
|
$
|
66,162
|
|
|
$
|
58,372
|
|
|
|
|
(1)
|
|
Amounts for 2009, 2008, 2007 and
2006 have been reclassified to conform to the current year
presentation, including the impact of a business that was
classified as a discontinued operation during 2010.
|
|
(2)
|
|
Other income (expense), net
includes gains or losses attributable to assets held in the
Companys deferred compensation plan which totaled a gain
(loss) of $3.7 million, $5.5 million,
($7.6) million, $1.3 million, and $1.6 million
for 2010, 2009, 2008, 2007, and 2006, respectively. These gains
or losses do not impact income from continuing
operations as they are directly offset by compensation to
the Plan participants. During 2010, CBIZ recorded a
$2.0 million loss in other income (expense), net from the
early retirement of $60 million face value of its
convertible senior subordinated notes that were issued in 2006.
In addition, CBIZ sold its investment in Albridge Solutions,
Inc., which resulted in a pre-tax gain of $0.8 million and
$7.3 million for the years ended December 31, 2008 and
2007, respectively. Other income (expense), net for 2008 also
includes an impairment charge of $2.3 million related to
the Companys investment in an auction rate security.
|
|
(3)
|
|
Represents bank debt, the long-term
portion of convertible notes, and the long-term portion of notes
payable, which are reported in other non-current
liabilities in CBIZs consolidated balance sheets.
|
|
(4)
|
|
Adjusted EBITDA represents income
from continuing operations before income tax expense, interest
expense, gain on sale of operations, net, and depreciation and
amortization expense. Adjusted EBITDA for 2010 also excludes the
loss resulting from the retirement of $60 million of its
convertible senior subordinated notes, and adjusted EBITDA for
2008 and 2007 excludes gains related to the sale of a long-term
investment. See note (2) above for a description of these
items. The Company has included Adjusted EBITDA because such
data is commonly used as a performance measure by analysts and
investors and as a measure of the Companys ability to
service debt. Adjusted EBITDA should not be regarded as an
alternative or replacement to any measurement of performance
under generally accepted accounting principles.
|
21
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The following discussion is intended to assist in the
understanding of CBIZs financial position at
December 31, 2010 and 2009, and results of operations and
cash flows for each of the years ended December 31, 2010,
2009 and 2008. This discussion should be read in conjunction
with CBIZs consolidated financial statements and related
notes included elsewhere in this Annual Report on
Form 10-K.
This discussion and analysis contains forward-looking statements
and should also be read in conjunction with the disclosures and
information contained in Uncertainty of Forward-Looking
Statements and Item 1A. Risk Factors in
this Annual Report on
Form 10-K.
Executive
Summary
Revenue for the year ended December 31, 2010 decreased by
0.9% to $732.5 million from $739.1 million for the
comparable period in 2009. The revenue decrease is attributable
to same unit revenue declines of $26.7 million, or 3.6%,
offset by increases in revenue attributable to newly acquired
operations of $20.1 million, or 2.7%.
Operating expenses declined $4.2 million or 0.6%, but
increased as a percentage of revenue to 88.3% for the year ended
December 31, 2010 from 88.1% for the year ended
December 31, 2009. Earnings per share from continuing
operations was $0.48 per diluted share for the year ended
December 31, 2010 compared to $0.52 for the year ended
December 31, 2009. Diluted earnings per share for the year
ended December 31, 2010 include the impact of the
$2.0 million pre-tax loss on retirement of convertible
bonds and the $1.7 million pre-tax restructuring charge
related to the consolidation of facilities with the Goldstein
Lewin acquisition.
Cash earnings per diluted share were $1.02 and $0.99 for the
years ended December 31, 2010 and 2009, respectively. CBIZ
believes cash earnings per diluted share more clearly
illustrates the impact of certain non-cash charges to income
from continuing operations and is a useful measure for the
Company and its analysts. Cash earnings per diluted share is a
measurement prepared on a basis other than generally accepted
accounting principles (GAAP), otherwise known as a
non-GAAP measure. As such, the Company has included this data
and has provided a reconciliation to the nearest GAAP
measurement, income per diluted share from continuing
operations. Reconciliations for the twelve months ended
December 31, 2010 and 2009 are provided in the
Results of Operations Continuing
Operations section that follows.
During the year ended December 31, 2010, CBIZ acquired
substantially all of the assets of four businesses: Goldstein
Lewin, NBA, Benexx and KRMT. Two of these acquisitions were made
to strengthen the Companys presence in the Florida market.
Goldstein Lewin, located in Boca Raton, and KRMT, located in
Tampa, are both accounting and financial services companies and
provide a broad spectrum of services including accounting and
financial advisory services, tax planning and compliance, wealth
preservation and estate planning, technology consulting,
software consulting, business valuation and litigation
consulting. Goldstein Lewin and KRMT provide services to private
and publicly-traded business, as well as
not-for-profit
and governmental entities, and their operating results are
reported in the Financial Services practice group. NBA, an
employee benefits company located in Midvale, Utah, designs,
implements and administers employee benefit plans for government
contractors as well as commercial clients. The acquisition
strengthens and expands CBIZs expertise in servicing the
government contracting industry. Benexx, a retirement plan
consulting firm located in Baltimore, Maryland, provides 401(K)
and other qualified retirement plan services for small and
mid-sized companies. The acquisition of Benexx will add depth to
the Companys retirement plan practice and provide value
for existing clients. The operating results for NBA and Benexx
are reported in the Employee Services practice group.
Effective June 4, 2010, CBIZ entered into a new credit
agreement with Bank of America as agent for a group of seven
participating banks. Under this new agreement, CBIZ maintains a
$275 million unsecured credit facility (credit
facility), which replaced the prior $214 million
credit agreement. The credit facility has a letter of credit
sub-facility
and matures in June 2014. On September 14, 2010, CBIZ
amended its $275 million unsecured credit facility. The
amendment allowed CBIZ to enter into a new convertible note
agreement, to repurchase shares of CBIZ common stock for an
aggregate cash consideration not to exceed a specified amount
from the proceeds of the new convertible notes, the flexibility
to consummate the purchase and option transactions with
Westbury, to address a variety of options to refinance
CBIZs 2006 Convertible Senior Subordinated Notes due in
June 2011, and to continue its strategic growth strategy which
includes future acquisitions.
22
Pursuant to the Westbury Agreement on September 14, 2010,
CBIZ repurchased 7,716,669 shares of CBIZs common
stock at $6.25 per share for a total cost of approximately
$48.2 million. Pursuant to the Westbury Agreement, CBIZ
also purchased an option for $5.0 million, which expires on
September 30, 2013, to purchase up to approximately
7.7 million shares of CBIZs common stock at a price
of $7.25 per share, which constitutes the remaining shares of
CBIZs common stock held by Westbury.
On September 27, 2010, CBIZ completed a $130.0 million
offering of Convertible Senior Subordinated Notes (2010
Notes). The 2010 Notes bear interest at 4.875% per annum
and mature on October 1, 2015. Net proceeds from the sale
of the 2010 Notes were used to repurchase $60.0 million of
the 3.125% Convertible Senior Subordinated Notes issued in
2006 (2006 Notes) through privately negotiated
transactions, purchase approximately 4.6 million shares of
CBIZ common stock at a total cost of approximately
$25.1 million, and use the remaining $41.1 million to
pay down the outstanding balance on the $275 million
unsecured credit facility.
CBIZ believes that repurchasing shares of its common stock under
the Companys stock purchase plan is a use of cash that
provides value to its shareholders. Not including the shares
purchased from Westbury and the shares repurchased with proceeds
from the 2010 Notes transaction, CBIZ purchased approximately
1.1 million shares of its common stock under this plan at a
total cost of approximately $7.1 million during the year
ended December 31, 2010. On February 10, 2011,
CBIZs Board of Directors authorized the purchase of up to
5.0 million shares of CBIZ common stock through
March 31, 2012. The shares may be repurchased in the open
market or through privately negotiated purchases according to
SEC rules.
On December 31, 2010, CBIZ entered into an agreement to
sell its individual wealth management business effective
January 1, 2011. Annual revenue from this business
approximated $6.0 million and was reported in the Employee
Services group. This transaction did not and is not expected to
have a material impact on CBIZs consolidated financial
statements.
Results
of Operations Continuing Operations
CBIZ provides professional business services that help clients
manage their finances and employees. CBIZ delivers its
integrated services through the following four practice groups:
Financial Services, Employee Services, MMP, and National
Practices. A description of these groups operating results
and factors affecting their businesses is provided below.
Same-unit
revenue represents total revenue adjusted to reflect comparable
periods of activity for acquisitions and divestitures. For
example, for a business acquired on July 1, 2009, revenue
for the period January 1, 2010 through June 30, 2010
would be reported as revenue from acquired businesses;
same-unit
revenue would include revenue for the periods July 1 through
December 31 of both years. Divested operations represent
operations that did not meet the criteria for treatment as
discontinued operations.
23
Year
Ended December 31, 2010 Compared to Year Ended
December 31, 2009
Revenue
The following table summarizes total revenue for the years ended
December 31, 2010 and 2009 (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
Same-unit
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services
|
|
$
|
368,652
|
|
|
$
|
379,690
|
|
|
$
|
(11,038
|
)
|
|
|
(2.9
|
)%
|
Employee Services
|
|
|
167,573
|
|
|
|
170,846
|
|
|
|
(3,273
|
)
|
|
|
(1.9
|
)%
|
MMP
|
|
|
148,425
|
|
|
|
160,632
|
|
|
|
(12,207
|
)
|
|
|
(7.6
|
)%
|
National Practices
|
|
|
27,749
|
|
|
|
27,968
|
|
|
|
(219
|
)
|
|
|
(0.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
same-unit
revenue
|
|
|
712,399
|
|
|
|
739,136
|
|
|
|
(26,737
|
)
|
|
|
(3.6
|
)%
|
Acquired businesses
|
|
|
20,106
|
|
|
|
|
|
|
|
20,106
|
|
|
|
|
|
Divested operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
732,505
|
|
|
$
|
739,136
|
|
|
$
|
(6,631
|
)
|
|
|
(0.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A detailed discussion of revenue by practice group is included
under Operating Practice Groups.
Gross margin and operating expenses The
majority of CBIZs operating costs are relatively fixed in
the short term, thus gross margin as a percentage of revenue
generally improves with revenue growth, but declines as revenue
contracts. The primary components of operating expenses for the
years ended December 31, 2010 and 2009 are illustrated in
the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
Change in
|
|
|
|
Operating
|
|
|
% of
|
|
|
Operating
|
|
|
% of
|
|
|
% of
|
|
|
|
Expense
|
|
|
Revenue
|
|
|
Expense
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Personnel costs
|
|
|
74.0
|
%
|
|
|
65.3
|
%
|
|
|
73.4
|
%
|
|
|
64.7
|
%
|
|
|
0.6
|
%
|
Deferred compensation costs
|
|
|
0.4
|
%
|
|
|
0.4
|
%
|
|
|
0.8
|
%
|
|
|
0.6
|
%
|
|
|
(0.2
|
)%
|
Occupancy costs
|
|
|
7.1
|
%
|
|
|
6.2
|
%
|
|
|
7.1
|
%
|
|
|
6.2
|
%
|
|
|
|
|
Depreciation and amortization
|
|
|
3.1
|
%
|
|
|
2.7
|
%
|
|
|
3.0
|
%
|
|
|
2.7
|
%
|
|
|
|
|
Travel and related costs
|
|
|
2.8
|
%
|
|
|
2.5
|
%
|
|
|
2.8
|
%
|
|
|
2.4
|
%
|
|
|
0.1
|
%
|
Other(1)
|
|
|
12.6
|
%
|
|
|
11.2
|
%
|
|
|
12.9
|
%
|
|
|
11.5
|
%
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
|
|
|
|
88.3
|
%
|
|
|
|
|
|
|
88.1
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
11.7
|
%
|
|
|
|
|
|
|
11.9
|
%
|
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Other operating expenses include
office expense, equipment costs, professional fees,
restructuring charges, bad debt and other expenses, none of
which are individually significant as a percentage of total
operating expenses.
|
Personnel costs as a percentage of revenue increased 0.6% to
65.3% for the year ended December 31, 2010 compared to the
same period in 2009. The increase in personnel costs as a
percentage of revenue was primarily the result of a 0.4%
increase in incentive compensation costs incurred in 2010 and an
increase of 0.2% in employee benefit costs. The increase or
decrease in personnel costs as a percentage of revenue
experienced by the individual practice groups is discussed in
further detail under Operating Practice Groups. The
decrease in deferred compensation costs of 0.2% resulted from
adjustments to the fair value of investments held in the
deferred compensation plan. The adjustments to the fair value of
investments held in relation to the deferred compensation plan
totaled gains of $3.2 million and $4.8 million for the
years ended December 31, 2010 and 2009, respectively. These
adjustments are recorded as compensation expense and are offset
by the same adjustments to other income
24
(expense), net, and thus do not have an impact on net
income. Although these adjustments are recorded as operating
expenses, they are not allocated to the individual practice
groups.
Corporate general and administrative expenses
Corporate general and administrative (G&A)
expenses decreased by $1.1 million to $29.6 million
for the year ended December 31, 2010, from
$30.7 million for the comparable period of 2009, and
decreased as a percent of revenue by 0.1% to 4.0% for the year
ended December 31, 2010. The primary components of
corporate general and administrative expenses for the years
ended December 31, 2010 and 2009 are illustrated in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
Change in
|
|
|
|
G&A
|
|
|
% of
|
|
|
G&A
|
|
|
% of
|
|
|
% of
|
|
|
|
Expense
|
|
|
Revenue
|
|
|
Expense
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Personnel costs
|
|
|
54.8
|
%
|
|
|
2.2
|
%
|
|
|
53.9
|
%
|
|
|
2.2
|
%
|
|
|
|
|
Professional services
|
|
|
15.7
|
%
|
|
|
0.6
|
%
|
|
|
13.5
|
%
|
|
|
0.6
|
%
|
|
|
|
|
Computer costs
|
|
|
5.4
|
%
|
|
|
0.2
|
%
|
|
|
6.0
|
%
|
|
|
0.2
|
%
|
|
|
|
|
Occupancy costs
|
|
|
3.9
|
%
|
|
|
0.2
|
%
|
|
|
4.6
|
%
|
|
|
0.2
|
%
|
|
|
|
|
Depreciation and amortization
|
|
|
1.3
|
%
|
|
|
0.1
|
%
|
|
|
2.2
|
%
|
|
|
0.1
|
%
|
|
|
|
|
Other(1)
|
|
|
18.9
|
%
|
|
|
0.7
|
%
|
|
|
19.8
|
%
|
|
|
0.8
|
%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate general and administrative expenses
|
|
|
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
4.1
|
%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Other corporate general and
administrative expenses include office expenses, travel and
related costs, insurance expense and other expenses, none of
which are individually significant as a percentage of total
corporate G&A expenses.
|
Interest expense Interest expense increased
by $1.9 million to $15.3 million for the year ended
December 31, 2010 from $13.4 million for the
comparable period in 2009. The increase in interest expense is a
result of three components: an increase of $2.4 million
related to the $130 million of convertible senior
subordinated notes that were issued in 2010, a decrease of
$0.9 million from the retirement of $60 million of
convertible senior subordinated notes that were issued in 2006,
and an increase of $0.4 million related to the credit
facility. For discussion on the convertible senior subordinated
notes, see Note 8 in the accompanying consolidated
financial statements. Regarding the credit facility, during 2010
CBIZ entered into a new credit facility agreement that increased
the borrowing capacity from $214 million to
$275 million, among other changes to the credit facility.
The new credit facility resulted in increased amortized deferred
debt charges and increased commitment fee charges recognized in
interest expense for the year ended December 31, 2010
versus the comparable period in 2009. Offsetting these deferred
debt and commitment fees was a decrease in average debt
outstanding and average interest rates in 2010 compared to 2009.
Average debt outstanding under the credit facility was
$126.0 million and $127.7 million and weighted average
interest rates were 3.66% and 3.73% for the years ended
December 31, 2010 and 2009, respectively. Debt is further
discussed under Liquidity and Capital Resources and
in Note 8 of the accompanying consolidated financial
statements.
Other income (expense), net Other income
(expense), net is primarily comprised of adjustments to the fair
value of investments held in a rabbi trust related to the
deferred compensation plan, interest income, gains and losses on
sales of assets, and other miscellaneous income and expenses
such as contingent royalties from previous divestitures and
adjustments to contingencies related to previous acquisitions.
Adjustments to the fair value of investments related to the
deferred compensation plan do not impact CBIZs net income
as they are offset by the same adjustments to compensation
expense (recorded as operating or corporate general and
administrative expenses in the consolidated statements of
operations). Other income (expense), net for the year ended
December 31, 2010 primarily consists of a $3.7 million
gain in the fair value of investments related to the deferred
compensation plan, an adjustment to the Companys
contingent liability related to prior acquisitions which
resulted in other income of $1.4 million, and interest
income of $0.4 million. The deferred compensation gain,
adjustment to the contingent liability, and interest income were
partially offset by a $2.0 million charge on the early
retirement of $60 million of CBIZs convertible senior
subordinated notes that were issued in 2006 and a
$0.3 million impairment charge related to an investment in
auction rate securities. Other income (expense), net for the
year ended December 31, 2009
25
primarily relates to a $5.5 million increase in the fair
value of investments related to the deferred compensation plan
and interest income of $0.5 million.
Income Taxes CBIZ recorded income tax expense
from continuing operations of $16.8 million and
$19.7 million for the years ended December 31, 2010
and 2009, respectively. The effective tax rate for the years
ended December 31, 2010 and 2009 was 37.6% and 38.2%,
respectively. The decrease in the effective tax rate for the
year ended December 31, 2010 from the comparable period in
2009 was primarily due to the lapse of certain statutes of
limitation in 2010. For further discussion regarding income tax
expense, see Note 7 to the accompanying consolidated
financial statements.
Earnings per share and cash earnings per
share Earnings per share from continuing
operations were $0.48 and $0.52 per diluted share for the years
ended December 31, 2010 and 2009. Earnings per share for
the year ended December 31, 2010 included the impact of the
$2.0 million pre-tax charge related to the early redemption
of $60 million of 2006 Notes and a $1.7 million
pre-tax charge related to the consolidation of facilities with
the Goldstein Lewin acquisition. Cash earnings per share were
$1.02 and $0.99 per diluted share for the years ended
December 31, 2010 and 2009, respectively. The Company
believes cash earnings and cash earnings per diluted share
(non-GAAP measures) more clearly illustrate the impact of
certain non-cash charges to income from continuing operations
and are a useful measure for the Company and its analysts.
Management uses these performance measures to evaluate
CBIZs business, including ongoing performance and the
allocation of resources. Cash earnings and cash earnings per
diluted share are provided in addition to the presentation of
GAAP measures and should not be regarded as a replacement or
alternative of performance under GAAP. The following is a
reconciliation of income from continuing operations to cash
earnings from operations and earnings per share from continuing
operations to cash earnings per share for the years ended
December 31, 2010 and 2009.
CASH
EARNINGS AND PER SHARE DATA
Reconciliation of Income from Continuing Operations to Cash
Earnings from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2010
|
|
|
Per Share
|
|
|
2009
|
|
|
Per Share
|
|
|
|
(In thousands, except per share data)
|
|
|
Income from continuing operations
|
|
$
|
27,940
|
|
|
$
|
0.48
|
|
|
$
|
31,946
|
|
|
$
|
0.52
|
|
Selected non-cash charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
20,333
|
|
|
|
0.35
|
|
|
|
20,498
|
|
|
|
0.33
|
|
Non-cash interest on convertible notes
|
|
|
4,210
|
|
|
|
0.07
|
|
|
|
3,961
|
|
|
|
0.06
|
|
Stock-based compensation
|
|
|
5,306
|
|
|
|
0.09
|
|
|
|
4,754
|
|
|
|
0.08
|
|
Loss on retirement of convertible bonds
|
|
|
1,996
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
Adjustment to contingent earnouts
|
|
|
(1,449
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
Non-cash restructuring charge
|
|
|
1,231
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash charges
|
|
$
|
31,627
|
|
|
$
|
0.54
|
|
|
$
|
29,213
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash earnings continuing operations
|
|
$
|
59,567
|
|
|
$
|
1.02
|
|
|
$
|
61,159
|
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Operating
Practice Groups
Financial
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit
|
|
$
|
368,652
|
|
|
$
|
379,690
|
|
|
$
|
(11,038
|
)
|
|
|
(2.9
|
)%
|
Acquired businesses
|
|
|
13,582
|
|
|
|
|
|
|
|
13,582
|
|
|
|
|
|
Divested operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
382,234
|
|
|
|
379,690
|
|
|
|
2,544
|
|
|
|
0.7
|
%
|
Operating expenses
|
|
|
328,676
|
|
|
|
328,977
|
|
|
|
(301
|
)
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
53,558
|
|
|
$
|
50,713
|
|
|
$
|
2,845
|
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent
|
|
|
14.0
|
%
|
|
|
13.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in
same-unit
revenue was primarily the result of a decrease in aggregate
hours charged to clients.
Same-unit
aggregate hours charged to clients declined approximately 7% for
the year ended December 31, 2010 compared to year ended
December 31, 2009, which was partially offset by a 3%
increase in effective rates realized for services provided in
the year ended December 31, 2010 versus the comparable
period in 2009. The decline in hours was due to decreased client
demand as well as by improved engagement efficiencies. The
improvement in rates realized for services provided was due to a
modest increase in rates as well as improved engagement
efficiencies. Revenue from acquired businesses was a result of
the acquisition of Goldstein Lewin, which occurred on
January 1, 2010 and to a lesser extent the acquisition of
KRMT, which occurred on November 1, 2010.
CBIZ provides a range of services to affiliated CPA firms under
joint referral and ASAs. Fees earned by CBIZ under the ASAs are
recorded as revenue in the accompanying consolidated statements
of operations and were approximately $111.5 million and
$109.6 million for years ended December 31, 2010 and
2009, respectively, a majority of which is related to services
rendered to privately-held clients. The increase in ASA fees is
primarily the result of the acquisitions.
The largest components of operating expenses for the Financial
Services group are personnel costs, occupancy costs, and travel
and related costs which represented 89.1% and 87.8% of total
operating expenses for the years ended December 31, 2010
and 2009, respectively. Personnel costs increased
$3.5 million for the year ended December 31, 2010
compared to the same period in 2009, and represented 79.0% and
77.9% of total operating expenses for the years ended
December 31, 2010 and 2009, respectively. The increase was
attributable to a $9.0 million increase associated with the
acquisitions of Goldstein Lewin and KRMT, offset by a reduction
in same-unit
personnel cost of $5.6 million. The $5.6 million
reduction in
same-unit
personnel costs was associated mainly with current year staff
reductions at those units that experienced reduced client demand
and offset higher overall incentive compensation costs.
Personnel costs represented 68.0% and 67.5% of revenue for the
years ended December 31, 2010 and 2009, respectively.
Occupancy costs are relatively fixed in nature and were
$23.9 million for the year ended December 31, 2010
compared to $24.2 million in the same period in the prior
year; these represented 7.3% and 7.4% of revenue for the years
ended December 31, 2010 and 2009, respectively. Travel and
related costs were $9.2 million and $8.3 million for
the years ended December 31, 2010 and 2009, respectively,
and increased slightly to 2.8% of revenue for the year ended
December 31, 2010 from 2.5% of revenue for the comparable
period of 2009.
Gross margin percentage improved to 14.0% for the year ended
December 31, 2010 compared to 13.4% for the same period in
2009. The improvement in gross margin percentage was
attributable to a decrease in
same-unit
personnel costs, lower bad debt expense, decreased controllable
spending from cost control initiatives and lower depreciation
and amortization expense for the year ended December 31,
2010 compared to the same period in the prior year. The decrease
in bad debt expense was due to an overall improvement in general
economic conditions in 2010 compared to 2009 which included
increased expense associated with specific client receivables.
27
Employee
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit
|
|
$
|
167,573
|
|
|
$
|
170,846
|
|
|
$
|
(3,273
|
)
|
|
|
(1.9
|
)%
|
Acquired businesses
|
|
|
6,524
|
|
|
|
|
|
|
|
6,524
|
|
|
|
|
|
Divested operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
174,097
|
|
|
|
170,846
|
|
|
|
3,251
|
|
|
|
1.9
|
%
|
Operating expenses
|
|
|
144,552
|
|
|
|
141,710
|
|
|
|
2,842
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
29,545
|
|
|
$
|
29,136
|
|
|
$
|
409
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent
|
|
|
17.0
|
%
|
|
|
17.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in
same-unit
revenue was primarily attributable to declines in the
Companys specialty life insurance, employee benefits and
property and casualty businesses, offset in part by increases in
the retirement plan advisory and individual wealth management
and human capital advisory businesses. The Companys
specialty life insurance revenues decreased approximately
$3.2 million from prior year levels due to fewer policy
placements; the employee benefits decreased approximately
$2.7 million due to client workforce downsizing; and the
property and casualty revenues declined $2.1 million due to
soft market conditions in pricing. Partially offsetting these
decreases was an increase of approximately $2.6 million in
the retirement advisory and individual wealth management
business due to higher asset values resulting largely from
favorable market performance, as well as an increase in human
capital advisory revenues of approximately $1.5 million due
to an increase in demand for recruiting and other outsourced
human resource services. The growth in revenue from acquired
businesses was provided by NBA, an employee benefits company in
Utah that was acquired in the first quarter of 2010, and Benexx,
a retirement plan business in Maryland that was acquired in the
third quarter of 2010.
The largest components of operating expenses for the Employee
Services group are personnel costs, including commissions paid
to third party brokers, and occupancy costs, representing 83.2%
and 83.8% of total operating expenses for the years ended
December 31, 2010 and 2009, respectively. Excluding the
costs related to the acquired businesses of $4.1 million,
personnel costs decreased approximately $3.1 million,
primarily as a result of less commissions paid to third party
brokers related to a decline in specialty life insurance sales,
and a decrease in commissions paid to internal brokers due to
the decline in
same-unit
employee benefits and property and casualty revenues. Personnel
costs represented 63.3% and 63.9% of revenue for the years ended
December 31, 2010 and 2009, respectively. Occupancy costs
are relatively fixed in nature and were $9.7 million for
the years ended December 31, 2010 and 2009, excluding the
costs related to the acquired businesses of $0.4 million.
The slight decrease in gross margin percent was primarily
attributable to two offsetting factors. The shortfall in revenue
at the specialty life insurance operation, which typically
functions at a high margin, had a negative impact even though
corresponding variable external broker commissions were
proportionally lower. This was offset, in large part, by an
increase from retirement advisory and individual wealth
management revenues, as well as human capital advisory revenues,
as mentioned above. Asset based and investment revenues do not
have related direct costs, and human capital advisory revenues
have a more fixed cost structure; therefore, growth in those
revenues has a favorable impact on gross margin.
28
Medical
Management Professionals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit
|
|
$
|
148,425
|
|
|
$
|
160,632
|
|
|
$
|
(12,207
|
)
|
|
|
(7.6
|
)%
|
Acquired businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divested operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
148,425
|
|
|
|
160,632
|
|
|
|
(12,207
|
)
|
|
|
(7.6
|
)%
|
Operating expense
|
|
|
131,897
|
|
|
|
139,763
|
|
|
|
(7,866
|
)
|
|
|
(5.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
16,528
|
|
|
$
|
20,869
|
|
|
$
|
(4,341
|
)
|
|
|
(20.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent
|
|
|
11.1
|
%
|
|
|
13.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit
revenue consists of revenue from existing clients and net new
business sold.
Same-unit
revenue decreased 7.6% for the year ended December 31, 2010
versus the comparable period in 2009. Approximately 65% of the
decrease is attributable to client terminations, net of new
business sold, with the remaining 35% attributable to decreased
revenues from existing clients. The decline in revenue from
client terminations was attributable to many reasons including:
physician groups losing their hospital contracts, changes in
group ownership, hospital consolidations and increased
competitive pressures. The decline in revenue from existing
clients can be attributed to several factors including:
decreases in the number of procedures processed, decreases in
pricing and reimbursement rates and a change in the mix of
procedures resulting in a decrease in the average revenue per
procedure.
The largest components of operating expenses for MMP are
personnel costs, professional service fees (primarily fees
related to outside services for off-shore and electronic claims
processing), occupancy costs and office expenses (primarily
postage related to the Companys statement mailing
services), representing 86.3% and 87.0% of total operating
expenses for the years ended December 31, 2010 and 2009,
respectively. Personnel costs decreased $7.3 million for
the year ended December 31, 2010, and decreased as a
percentage of revenue to 56.2% compared to 56.5% for the
comparable period in 2009. The reduction in personnel costs was
partially offset by an increase in professional service fees of
$0.8 million. In response to the decline in revenue, MMP
has reduced headcount and related personnel costs in billing
operations through process improvements and labor saving
technologies. Office expenses decreased $1.0 million for
the year ended December 31, 2010 compared to the same
period in 2009, but were 7.9% of revenue for both periods.
Facilities costs decreased $0.3 million for the year ended
December 31, 2010, but increased as a percentage of revenue
to 6.9% versus 6.5% in the comparable period in 2009.
The decrease in gross margin is the result of continued pricing
and reimbursement pressure as discussed previously.
National
Practices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit
|
|
$
|
27,749
|
|
|
$
|
27,968
|
|
|
$
|
(219
|
)
|
|
|
(0.8
|
)%
|
Acquired businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divested operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
27,749
|
|
|
|
27,968
|
|
|
|
(219
|
)
|
|
|
(0.8
|
)%
|
Operating expenses
|
|
|
25,794
|
|
|
|
25,002
|
|
|
|
792
|
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
1,955
|
|
|
$
|
2,966
|
|
|
$
|
(1,011
|
)
|
|
|
(34.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent
|
|
|
7.0
|
%
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
The National Practices group is primarily comprised of a
cost-plus contract with CBIZs largest client (Edward
Jones), healthcare consulting, and the Companys mergers
and acquisition business. Revenues from the Edward Jones
business account for approximately two-thirds of the National
Practice groups revenue, with the healthcare consulting
and mergers and acquisitions accounting for the remaining
revenue. The decrease in revenue was attributable to a decrease
of approximately $1.1 million in the healthcare consulting
business and approximately $0.4 million in the mergers and
acquisitions business, offset by an increase in revenue of
approximately $1.3 million in services provided to Edward
Jones. The decrease in healthcare consulting was primarily the
result of a decrease in the medical audit services line of
business which provides services to healthcare providers to
ensure they are correctly applying for and receiving Medicare
and Medicaid reimbursements. The decrease in revenue related to
CBIZs mergers and acquisition business was due to less
success fees being earned as a result of fewer transactions
being closed. The increase in the Edward Jones revenue was
primarily a result of additional services provided under the
contract.
The largest components of operating expenses for the National
practices group are personnel costs, occupancy costs and travel
and related costs, representing 94.8% and 93.8% of operating
expenses for the years ended December 31, 2010 and 2009,
respectively. Personnel expenses increased $1.0 million and
were 85.1% of revenue for the year ended December 31, 2010
compared to 80.8% of revenue for the comparable period in 2009.
Approximately $1.2 million of the increase in personnel
cost was necessary to support revenue growth from services
provided to Edward Jones as well as annual merit increases. This
was offset by a $0.2 million decrease in personnel costs
related to the healthcare consulting business as a result of the
decline in revenue and demand for services. Travel and related
costs were consistent in both periods and were $0.4 million
for the years ended December 31, 2010 and 2009. Occupancy
costs are relatively fixed in nature and were $0.5 million
for the years ended December 31, 2010 and 2009.
The decrease in gross margin percent was primarily due to less
success fees earned by the mergers and acquisitions business as
well as the impact of the decline in healthcare consulting
revenue during the year ended December 31, 2010 versus
2009. Transactions completed by the mergers and acquisitions
business generally results in a large amount of revenue with
modest incremental costs. Fewer success fees have a
disproportionate negative impact on gross margin percent. The
decline in healthcare revenue resulted in a decrease in overall
healthcare related operating expenses, but not to the extent to
preserve gross margin.
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Revenue
The following table summarizes total revenue for the years ended
December 31, 2009 and 2008 (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
Same-unit
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services
|
|
$
|
289,465
|
|
|
$
|
311,763
|
|
|
$
|
(22,298
|
)
|
|
|
(7.2
|
)%
|
Employee Services
|
|
|
168,203
|
|
|
|
178,807
|
|
|
|
(10,604
|
)
|
|
|
(5.9
|
)%
|
MMP
|
|
|
160,632
|
|
|
|
164,950
|
|
|
|
(4,318
|
)
|
|
|
(2.6
|
)%
|
National Practices
|
|
|
27,968
|
|
|
|
27,068
|
|
|
|
900
|
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
same-unit
revenue
|
|
|
646,268
|
|
|
|
682,588
|
|
|
|
(36,320
|
)
|
|
|
(5.3
|
)%
|
Acquired businesses
|
|
|
92,862
|
|
|
|
|
|
|
|
92,862
|
|
|
|
|
|
Divested operations
|
|
|
6
|
|
|
|
2,986
|
|
|
|
(2,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
739,136
|
|
|
$
|
685,574
|
|
|
$
|
53,562
|
|
|
|
7.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A detailed discussion of revenue by practice group is included
under Operating Practice Groups.
30
Gross margin and operating expenses The
majority of CBIZs operating costs are relatively fixed in
the short term, thus gross margin as a percentage of revenue
generally improves with organic revenue growth, but declines as
revenue contracts. The primary components of operating expenses
for the years ended December 31, 2009 and 2008 are
illustrated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
Change in
|
|
|
|
Operating
|
|
|
% of
|
|
|
Operating
|
|
|
% of
|
|
|
% of
|
|
|
|
Expense
|
|
|
Revenue
|
|
|
Expense
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Personnel costs
|
|
|
73.4
|
%
|
|
|
64.7
|
%
|
|
|
73.9
|
%
|
|
|
63.3
|
%
|
|
|
1.4
|
%
|
Deferred compensation costs
|
|
|
0.8
|
%
|
|
|
0.6
|
%
|
|
|
(1.1
|
)%
|
|
|
(0.9
|
)%
|
|
|
1.5
|
%
|
Occupancy costs
|
|
|
7.1
|
%
|
|
|
6.2
|
%
|
|
|
6.7
|
%
|
|
|
5.8
|
%
|
|
|
0.4
|
%
|
Depreciation and amortization
|
|
|
3.0
|
%
|
|
|
2.7
|
%
|
|
|
2.4
|
%
|
|
|
2.0
|
%
|
|
|
0.7
|
%
|
Travel and related costs
|
|
|
2.8
|
%
|
|
|
2.4
|
%
|
|
|
3.6
|
%
|
|
|
3.0
|
%
|
|
|
(0.6
|
)%
|
Other(1)
|
|
|
12.9
|
%
|
|
|
11.5
|
%
|
|
|
14.5
|
%
|
|
|
12.5
|
%
|
|
|
(1.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
|
|
|
|
88.1
|
%
|
|
|
|
|
|
|
85.7
|
%
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
11.9
|
%
|
|
|
|
|
|
|
14.3
|
%
|
|
|
(2.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other operating expenses include office expense, equipment
costs, professional fees, restructuring charges, bad debt and
other expenses, none of which are individually significant as a
percentage of total operating expenses. |
Personnel costs as a percentage of revenue increased 1.4% to
64.7% for the year ended December 31, 2009 compared to the
same period in 2008. The increase in personnel costs as a
percentage of revenue is due to the base compensation being
fixed in the short term and not able to react quickly to the
decrease in same-store revenue. Deferred compensation costs
increase 1.5% from adjustments to the fair value of investments
held in relation to the deferred compensation plan. The fair
value of investments held in relation to the deferred
compensation plan totaled a gain of $4.8 million and a loss
of $6.4 million for the years ended December 31, 2009
and 2008, respectively. These adjustments are recorded as
compensation expense and are offset by the same adjustments to
other income (expense), and thus do not have an impact on net
income. Although these adjustments are recorded as operating
expenses, they are not allocated to the individual practice
groups. The increase or decrease in personnel costs as a
percentage of revenue experienced by the individual practice
groups is discussed in further detail under Operating
Practice Groups.
Corporate general and administrative expenses
Corporate G&A expenses increased by $2.0 million
to $30.7 million for the year ended December 31, 2009,
from $28.7 million for the comparable period of 2008, but
decreased as a percent of revenue. The primary components of
corporate general and administrative expenses for the years
ended December 31, 2009 and 2008 are illustrated in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
Change in
|
|
|
|
G&A
|
|
|
% of
|
|
|
G&A
|
|
|
% of
|
|
|
% of
|
|
|
|
Expense
|
|
|
Revenue
|
|
|
Expense
|
|
|
Revenue
|
|
|
Revenue
|
|
|
Personnel costs
|
|
|
53.9
|
%
|
|
|
2.2
|
%
|
|
|
52.3
|
%
|
|
|
2.2
|
%
|
|
|
|
|
Professional services
|
|
|
13.5
|
%
|
|
|
0.6
|
%
|
|
|
14.2
|
%
|
|
|
0.6
|
%
|
|
|
|
|
Computer costs
|
|
|
6.0
|
%
|
|
|
0.2
|
%
|
|
|
5.7
|
%
|
|
|
0.2
|
%
|
|
|
|
|
Occupancy costs
|
|
|
4.6
|
%
|
|
|
0.2
|
%
|
|
|
4.7
|
%
|
|
|
0.2
|
%
|
|
|
|
|
Depreciation and amortization
|
|
|
2.2
|
%
|
|
|
0.1
|
%
|
|
|
3.7
|
%
|
|
|
0.2
|
%
|
|
|
(0.1
|
)%
|
Other(1)
|
|
|
19.8
|
%
|
|
|
0.8
|
%
|
|
|
19.4
|
%
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate general and administrative expenses
|
|
|
|
|
|
|
4.1
|
%
|
|
|
|
|
|
|
4.2
|
%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other corporate general and administrative expenses include
office expenses, travel and related costs, insurance expense and
other expenses, none of which are individually significant as a
percentage of total corporate G&A expenses. |
31
Interest expense Interest expense increased
by $2.6 million to $13.4 million for the year ended
December 31, 2009 from $10.8 million for the
comparable period in 2008. The increase in interest expense
relates to higher average debt outstanding under the credit
facility in 2009 versus the comparable period in 2008, partially
offset by a decrease in average interest rates. Average debt
outstanding under the credit facility was $127.7 million
and $61.4 million and weighted average interest rates were
3.7% and 4.8% for the years ended December 31, 2009 and
2008, respectively. The increase in average debt outstanding for
the year ended December 31, 2009 versus 2008 was primarily
attributable to the December 31, 2008 acquisitions of
Mahoney Cohen & Company and Tofias PC, which were
financed through CBIZs credit facility. Debt is further
discussed under Liquidity and Capital Resources.
Other income (expense), net Other income
(expense), net is comprised of interest income, adjustments to
the fair value of investments held in a rabbi trust related to
the deferred compensation plan, gains and losses on sales of
assets, and asset impairment charges. Adjustments to the fair
value of investments related to the deferred compensation plan
do not impact CBIZs net income, as they are offset by the
same adjustments to compensation expense (recorded as operating
or corporate general and administrative expenses in the
consolidated statements of operations). Other income (expense),
net for the year ended December 31, 2009 primarily consists
of a $5.5 million increase in the fair value of investments
related to the deferred compensation plan and interest income of
$0.5 million. Other income (expense), net for the year
ended December 31, 2008 primarily relates to a
$7.6 million decline in fair value of investments related
to the deferred compensation plan and an impairment charge of
approximately $2.3 million related to the Companys
investment in an ARS, partially offset by a gain on the sale of
a long-term investment of $0.8 million and interest income
of $0.8 million.
Income Taxes CBIZ recorded income tax expense
from continuing operations of $19.7 million and
$19.6 million for the years ended December 31, 2009
and 2008, respectively. The effective tax rate for the years
ended December 31, 2009 and 2008 was 38.2%. For further
discussion regarding income tax expense, see Note 7 to the
accompanying consolidated financial statements.
Earnings per share and cash earnings per
share Earnings per share from continuing
operations were $0.52 and $0.51 per diluted share for the years
ended December 31, 2009 and 2008, and cash earnings per
share were $0.99 and $0.87 per diluted share for the years ended
December 31, 2009 and 2008, respectively. The Company
believes cash earnings and cash earnings per diluted share
(non-GAAP measures) more clearly illustrate the impact of
certain non-cash charges to income from continuing operations
and are a useful measure for the Company and its analysts.
Management uses these performance measures to evaluate
CBIZs business, including ongoing performance and the
allocation of resources. Cash earnings and cash earnings per
diluted share are provided in addition to the presentation of
GAAP measures and should not be regarded as a replacement or
alternative of performance under GAAP. The following is a
reconciliation of income from continuing operations to cash
earnings from operations and earnings per share from continuing
operations to cash earnings per share for the years ended
December 31, 2009 and 2008.
CASH
EARNINGS AND PER SHARE DATA
Reconciliation of Income from Continuing Operations to Cash
Earnings from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2009
|
|
|
Per Share
|
|
|
2008
|
|
|
Per Share
|
|
|
|
(In thousands, except per share data)
|
|
|
Income from continuing operations
|
|
$
|
31,946
|
|
|
$
|
0.52
|
|
|
$
|
31,822
|
|
|
$
|
0.51
|
|
Selected non-cash charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
20,498
|
|
|
|
0.33
|
|
|
|
14,922
|
|
|
|
0.24
|
|
Non-cash interest on convertible notes
|
|
|
3,961
|
|
|
|
0.06
|
|
|
|
3,670
|
|
|
|
0.06
|
|
Stock-based compensation
|
|
|
4,754
|
|
|
|
0.08
|
|
|
|
3,740
|
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash charges
|
|
$
|
29,213
|
|
|
$
|
0.47
|
|
|
$
|
22,332
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash earnings continuing operations
|
|
$
|
61,159
|
|
|
$
|
0.99
|
|
|
$
|
54,154
|
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Operating
Practice Groups
Financial
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit
|
|
$
|
289,465
|
|
|
$
|
311,763
|
|
|
$
|
(22,298
|
)
|
|
|
(7.2
|
)%
|
Acquired businesses
|
|
|
90,225
|
|
|
|
|
|
|
|
90,225
|
|
|
|
|
|
Divested operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
379,690
|
|
|
|
311,763
|
|
|
|
67,927
|
|
|
|
21.8
|
%
|
Operating expenses
|
|
|
328,977
|
|
|
|
265,033
|
|
|
|
63,944
|
|
|
|
24.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
50,713
|
|
|
$
|
46,730
|
|
|
$
|
3,983
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent
|
|
|
13.4
|
%
|
|
|
15.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in total revenue was attributable to the
acquisitions of Mahoney Cohen & Company and Tofias PC
on December 31, 2008. Although the Financial Services group
modestly increased the rates realized for services,
same-unit
revenue for year ended December 31, 2009 declined versus
the comparable period in 2008 due to a reduction in client
demand which resulted in a decrease in aggregate hours charged
to clients.
Same-unit
aggregate hours charged to clients declined approximately 12%
for the year ended December 31, 2009 compared to the prior
year, which was offset by an approximate 2% increase in rates
realized for services provided. Fees earned by CBIZ under its
ASAs, as previously described, are recorded as revenue in the
accompanying consolidated statements of operations and were
approximately $109.6 million and $87.3 million for the
years ended December 31, 2009 and 2008, respectively, a
majority of which is related to services rendered to
privately-held clients.
The largest components of operating expenses for the Financial
Services group are personnel costs, occupancy costs, and travel
related expenses which represented 87.8% and 88.2% of total
operating expenses for the years ended December 31, 2009
and 2008, respectively. Personnel costs increased
$48.5 million for the year ended December 31, 2009
compared to the same period in the prior year, and represented
77.9% and 78.4% of total operating expenses for the years ended
December 31, 2009 and 2008, respectively. The overall
increase was driven by a $58.3 million increase in costs
associated with the December 31, 2008 acquisitions, and was
partially offset by
same-unit
reductions in personnel cost of $9.8 million. Those
reductions were primarily attributable to furloughs and reduced
staffing levels in some locations that experienced reduced
client demand, partially offset by severance costs of
$1.4 million. Occupancy costs increased by
$6.9 million to 6.4% of revenue for the year ended
December 31, 2009 versus 5.5% of revenue for the comparable
period in 2008. The increase in occupancy costs primarily
relates to the acquired businesses. Travel related expenses
decreased to 2.2% of revenue for the year ended
December 31, 2009 from 2.8% of revenue for the comparable
period of 2008, primarily as a result of certain cost control
initiatives.
The decline in gross margin percentage was primarily
attributable to both an increase in personnel costs as a
percentage of revenue as described above, and an increase in
amortization expense related to intangible assets associated
with the December 31, 2008 acquisitions of Mahoney
Cohen & Company and Tofias PC. In addition, bad debt
expense increased to 1.9% of revenue for the year ended
December 31, 2009 from 1.8% of revenue for the comparable
period of 2008. The increase in bad debt expense was not related
to an overall deterioration in the collectability of accounts
receivable, but related to specific client receivables.
33
Employee
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit
|
|
$
|
168,203
|
|
|
$
|
178,807
|
|
|
$
|
(10,604
|
)
|
|
|
(5.9
|
)%
|
Acquired businesses
|
|
|
2,637
|
|
|
|
|
|
|
|
2,637
|
|
|
|
|
|
Divested operations
|
|
|
6
|
|
|
|
2,986
|
|
|
|
(2,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
170,846
|
|
|
|
181,793
|
|
|
|
(10,947
|
)
|
|
|
(6.0
|
)%
|
Operating expenses
|
|
|
141,710
|
|
|
|
150,833
|
|
|
|
(9,123
|
)
|
|
|
(6.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
29,136
|
|
|
$
|
30,960
|
|
|
$
|
(1,824
|
)
|
|
|
(5.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent
|
|
|
17.1
|
%
|
|
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in
same-unit
revenue was caused by several key factors including: a decrease
of approximately $2.8 million in
same-unit
human resources revenue due to lower client demand for
recruiting and other consulting services; reductions in revenue
of approximately $2.6 million in the retirement and
advisory businesses whose revenues are aligned with the
underlying asset valuations; and a decrease of approximately
$2.3 million in payroll revenue primarily as a result of
the decline in interest rates which negatively affected the
investment income earned on payroll funds held on behalf of
clients. In addition, group health and property and casualty
same-unit
revenues declined for the twelve months ended December 31,
2009. Group health revenue for the twelve months ended
December 31, 2009 declined approximately 2.4% versus the
comparable period in 2008. Property and casualty revenue
decreased 4.4% for the twelve months ended December 31,
2009 versus the comparable period in 2008 due to soft market
conditions in pricing. The growth in revenue from acquired
businesses was provided by a property and casualty business in
Frederick, Maryland, and a specialty recruiting business
headquartered in Overland Park, Kansas, both of which were
acquired during 2008, as well as employee benefits operations
based in New Jersey and Colorado, which were acquired in the
third quarter of 2009. The decline in revenue from divested
businesses relates to the sale of a specialty retirement
investment advisory operation in Atlanta, Georgia which occurred
in the third quarter of 2008.
The largest components of operating expenses for the Employee
Services group are personnel costs, including commissions paid
to third party brokers, and occupancy costs, representing 83.8%
and 82.5% of total operating expenses for the twelve months
ended December 31, 2009 and 2008, respectively. Personnel
costs decreased $5.5 million, but increased as a percentage
of revenue to 64.4% for the twelve months ended
December 31, 2009 from 62.2% for the comparable period in
2008. Approximately $1.4 million of the decline related to
the divestiture of the aforementioned business. The increase in
personnel costs as a percentage of revenue was primarily
attributable to annual merit increases and a decline in revenues
at the aforementioned businesses which have a predominantly
fixed compensation structure. Occupancy costs are relatively
fixed in nature and decreased $0.3 million for the twelve
months ended December 31, 2009 versus the same period in
2008.
The decline in gross margin of $1.8 million was primarily
attributable to lower asset values and interest rates, which
resulted in the previously mentioned revenue declines.
Investment revenue does not have related direct costs, thus
changes in investment revenues have a significant impact on
gross margin. Gross margin percentage increased 0.1% as a result
of certain cost control initiatives.
34
Medical
Management Professionals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit
|
|
$
|
160,632
|
|
|
$
|
164,950
|
|
|
$
|
(4,318
|
)
|
|
|
(2.6
|
)%
|
Acquired businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divested operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
160,632
|
|
|
|
164,950
|
|
|
|
(4,318
|
)
|
|
|
(2.6
|
)%
|
Operating expenses
|
|
|
139,763
|
|
|
|
143,395
|
|
|
|
(3,632
|
)
|
|
|
(2.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
20,869
|
|
|
$
|
21,555
|
|
|
$
|
(686
|
)
|
|
|
(3.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent
|
|
|
13.0
|
%
|
|
|
13.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit
revenue consists of revenue from existing clients and net new
business sold.
Same-unit
revenue decreased 2.6% for the year ended December 31, 2009
versus the comparable period in 2008 due to an approximately
3.2% decline attributable to new business sold, net of client
terminations, partially offset by a 0.6% increase attributable
to existing clients. The decline in revenue from new business
sold, net of client terminations, is primarily due to physician
groups losing their hospital contracts, hospital consolidations,
uncertainty surrounding pending healthcare legislation, and more
aggressive competition from other service providers. Revenue
from existing clients increased by approximately 3.5% as a
result of an increase in volume, mix of medical specialties and
reimbursement rates. This growth was offset by a decline in
pricing on existing clients of approximately 2.6%.
The largest components of operating expenses for MMP are
personnel costs, professional service fees (primarily fees
related to outside services for off-shore and electronic claims
processing), occupancy costs and office expenses (primarily
postage and supplies related to MMPs statement mailing
services), representing 87.0% and 86.4% of total operating
expenses for the years ended December 31, 2009 and
December 31, 2008, respectively. Personnel costs decreased
$2.5 million for the year ended December 31, 2009
compared to the same period in 2009. Personnel costs were 56.5%
of revenue in both periods. The decrease in personnel costs was
partially offset by an increase in professional service fees of
$1.2 million. MMP has reduced headcount and related
personnel costs with its expanded utilization of off-shore
processing and the overall reduction in revenue. The reductions
in headcount and personnel costs in billing operations were
partially offset by annual merit increases and increases in
internal support personnel necessary to manage process
improvements and centralization efforts. Office expenses
decreased to 7.9% of revenue for the year ended
December 31, 2009 versus 8.1% for the comparable period of
2008, primarily as the result of a change in the frequency of
statement mailing. Occupancy costs decreased $0.3 million
for the year ended December 31, 2009 compared to the
comparable period of 2008 primarily due to lower office rent
costs from office consolidations. Occupancy costs were 6.5% of
revenue in both periods.
MMP has taken various actions to maintain gross margin,
including the utilization of off-shore processing and other cost
control measures. These cost control measures have resulted in
declines in various expenses for the year ended
December 31, 2009 versus the comparable period in 2008,
including travel, postage and office supplies.
35
National
Practices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-unit
|
|
$
|
27,968
|
|
|
$
|
27,068
|
|
|
$
|
900
|
|
|
|
3.3
|
%
|
Acquired businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divested operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
27,968
|
|
|
|
27,068
|
|
|
|
900
|
|
|
|
3.3
|
%
|
Operating expenses
|
|
|
25,002
|
|
|
|
23,850
|
|
|
|
1,152
|
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
2,966
|
|
|
$
|
3,218
|
|
|
$
|
(252
|
)
|
|
|
(7.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin percent
|
|
|
10.6
|
%
|
|
|
11.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in revenue was attributable to an increase of
approximately $0.6 million in services provided under
CBIZs contractual relationship with its largest client,
Edward Jones, and an increase of approximately $1.0 million
in the healthcare consulting business, offset by a decrease of
approximately $0.7 million in the mergers and acquisitions
business. The increase in the Edward Jones revenue was primarily
a result of additional services provided under the contract. The
increase in healthcare consulting business was primarily due to
new engagements in the Medicaid eligibility services as well as
continued growth in the hospital consulting field. The decrease
in revenue related to CBIZs mergers and acquisition
business was due to less success fees being earned as a result
of fewer transactions being closed.
The largest components of operating expenses for the National
practices group are personnel costs, direct costs and occupancy
costs, representing 95.7% and 94.3% of operating expenses for
the years ended December 31, 2009 and 2008, respectively.
Personnel expenses increased $1.3 million and were 80.8% of
revenue for the year ended December 31, 2009 compared to
78.7% of revenue for the comparable period in 2008.
Approximately $0.7 million of the increase in personnel
cost dollars was necessary to support revenue growth from
services provided to Edward Jones. The remainder of the increase
in personnel costs relates to annual merit increases to existing
employees and an overall increase in headcount, primarily to
support growth in the healthcare consulting business. Direct
costs primarily relate to third party labor used to support
special projects under the contractual agreement with Edward
Jones. Direct costs were 1.1% and 1.7% of revenue for the years
ended December 31, 2009 and 2008, respectively. The
decrease is the result of less special project work for the year
ended December 31, 2009 compared to the same period in
2008, coupled with the ability to use internal labor capacity
during 2009 as opposed to the use of outside labor in 2008.
Occupancy costs are relatively fixed in nature and were
$0.5 million for the years ended December 31, 2009 and
2008.
The decrease in gross margin percent was primarily due to less
success fees earned by the mergers and acquisitions business
during the year ended December 31, 2009 versus 2008.
Transactions completed by the mergers and acquisitions business
generally result in a large amount of revenue with modest
incremental costs. Fewer success fees have a disproportionate
negative impact on gross margin percent. This decrease in gross
margin percent was partially offset by the growth in the
healthcare consulting business.
Financial
Condition
Cash and cash equivalents were $0.7 million at
December 31, 2010, a decrease of $6.5 million from
December 31, 2009. Restricted cash was $20.2 million
at December 31, 2010, an increase of $2.7 million from
December 31, 2009. Restricted cash represents those funds
held in connection with CBIZs Financial Industry
Regulatory Authority (FINRA) regulated businesses,
funds held in connection with the pass through of insurance
premiums to various carriers, and cash held in escrow. Cash and
restricted cash fluctuate during the year based on the timing of
cash receipts and related payments.
36
Accounts receivable, net, were $138.4 million at
December 31, 2010, an increase of $9.8 million from
December 31, 2009, and days sales outstanding
(DSO) from continuing operations was 72 days
and 67 days at December 31, 2010 and December 31,
2009, respectively. 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
trailing twelve months 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.
Income taxes refundable increased by $0.3 million to
$3.7 million at December 31, 2010 from
$3.4 million at December 31, 2009. The increase in
income taxes refundable was primarily due to expected refunds
related to the completion of the Internal Revenue Service audit
of the Companys 2007 income tax return.
Deferred income taxes current decreased by
$3.4 million to $4.2 million at December 31, 2010
compared to $7.6 million at December 31, 2009. The
decrease in the net deferred current asset was primarily due to
the reclassification of certain deferred tax liabilities related
to the Companys 2006 Notes from deferred income
taxes non-current to deferred income
taxes current.
Funds held for clients (current and non-current) and client fund
obligations primarily relate to CBIZs payroll services
business. The balances in these accounts fluctuate with the
timing of cash receipts and the related cash payments. Client
fund obligations can differ from funds held for clients due to
changes in the market value of the underlying investments. The
nature of these accounts is further described in Note 1 of
the accompanying consolidated financial statements.
Property and equipment, net decreased by $2.9 million to
$23.9 million at December 31, 2010 from
$26.8 million at December 31, 2009. The decrease is
primarily the result of depreciation and amortization expense of
$7.3 million, partially offset by capital expenditures of
$4.4 million during 2010. Approximately $1.7 million
of the capital expenditures related to the four businesses that
were acquired during 2010. CBIZs property and equipment is
comprised of software, hardware, furniture and leasehold
improvements.
Goodwill and other intangible assets, net, increased by
$51.2 million to $426.4 at December 31, 2010 from
$375.2 at December 31, 2009. This increase is comprised of
$53.0 million and $11.2 million of net additions to
goodwill and intangible assets, respectively, offset by
$13.0 million of amortization expense for the twelve months
ended December 31, 2010. The increase in goodwill of
$53.0 million is comprised of $34.0 million from 2010
acquisitions and $19.0 from additional purchase price earned
related to acquisitions that closed prior to 2009.
Assets of the deferred compensation plan represent participant
deferral accounts and are directly offset by deferred
compensation plan obligations. Assets of the deferred
compensation plan were $33.4 million and $27.5 million
at December 31, 2010 and December 31, 2009,
respectively. The increase in assets of the deferred
compensation plan of $5.9 million consisted of net
participant contributions of $2.2 million and an increase
in the fair value of the investments of $3.7 million for
the twelve months ended December 31, 2010. The plan is
described in further detail in Note 13 of the accompanying
consolidated financial statements.
The accounts payable balances of $30.9 million and
$25.7 million at December 31, 2010 and
December 31, 2009, respectively, reflect amounts due to
suppliers and vendors. Balances fluctuate during the year based
on the timing of cash payments. Accrued personnel costs were
$33.2 million and $34.2 million at December 31,
2010 and December 31, 2009, respectively, and represent
amounts due for payroll, payroll taxes, employee benefits and
incentive compensation. Balances fluctuate during the year based
on the timing of payments and adjustments to the estimate of
incentive compensation costs.
Notes payable current decreased by $2.4 million
to $11.0 million at December 31, 2010 from
$13.4 million at December 31, 2009. Notes payable
activity is primarily attributable to current year contingent
proceeds earned by businesses acquired prior to January 1,
2009. During the twelve months ended December 31, 2010,
payments on these contingent liabilities were approximately
$15.7 million, which was partially offset by increases in
notes payable of $13.5 million due to additional purchase
price earned by acquired businesses. In addition, payments on
capital lease obligations during 2010 were $0.2 million.
Other liabilities (current and non-current) increased by
$22.9 million to $50.5 million at December 31,
2010 from $27.6 million at December 31, 2009. The
increase is primarily attributable to the addition of
approximately
37
$11.7 million of estimated contingent purchase price
liabilities related to 2010 business acquisitions,
$9.0 million of unearned proceeds and funds held in escrow
related to the sale of the Companys individual wealth
management business that was effective January 1, 2011,
$1.5 million remaining of a restructuring charge for a
Florida office consolidation related to the January 2010
acquisition in Boca Raton, and an increase of $2.0 million
related to interest payable on the 2010 Notes. These increases
were partially offset by $1.4 million relating to
adjustments reducing contingent earnout liabilities related to
prior acquisitions.
Income taxes payable non-current decreased
$1.4 million to $5.3 million at December 31, 2010
from $6.7 million at December 31, 2009. The decrease
in income taxes payable non-current was primarily
due to the lapse of certain statutes of limitations. Income
taxes are further discussed in Note 7 of the accompanying
consolidated financial statements.
Convertible notes, net (current and non-current) increased
$62.0 million to $155.8 million at December 31,
2010 from $93.8 million at December 31, 2009.
Convertible notes at December 31, 2009 were comprised of
the discounted book value of $100 million face value of the
2006 Notes. In September 2010, CBIZ issued an additional
$130 million face value of convertible notes (the
2010 Notes). Concurrent with the issuance of the
2010 Notes, $60 million of the 2006 Notes were repurchased.
The balance of $155.8 million at December 31, 2010
represents the discounted book value of $130 million of
2010 Notes and the discounted book value of the remaining
$40 million of 2006 Notes. The 2006 Notes are classified as
a current liability at December 31, 2010 as the holders of
the 2006 Notes have the right to require CBIZ to repurchase for
cash, all or a portion of, their 2006 Notes on June 1,
2011. The 2010 Notes and 2006 Notes are further disclosed in
Note 8 of the accompanying consolidated financial
statements.
Bank debt for amounts due on CBIZs credit facility
increased by $8.9 million to $118.9 million at
December 31, 2010 from December 31, 2009. This
increase is primarily due to expenditures of $53.2 million
to repurchase of 7.7 million shares of CBIZ common stock
and buy an option to purchase the remaining shares of common
stock from the Companys largest shareholder, and
$49.4 million in payments for current year acquisitions and
contingent payments on prior acquisitions. These increases were
partially offset by cash from operating activities and
approximately $41.1 million of net proceeds from the
issuance of the 2010 Notes which were used to pay down the
credit facility.
Stockholders equity decreased by $40.9 million to
$229.7 million at December 31, 2010 from
$270.6 million at December 31, 2009. The decrease in
stockholders equity was primarily attributable to share
repurchase activity of approximately 13.4 million shares at
a cost of $86.2 million, which includes 7.7 million
shares of common stock repurchased pursuant to the Westbury
Agreement and 4.6 million shares repurchased using proceeds
from the issuance of the 2010 Notes. This decrease was partially
offset by net income of $24.5 million, additional paid in
capital of $8.6 million relating to the issuance of the
2010 Notes, CBIZs stock award programs which contributed
$6.6 million and the issuance of $5.6 million in
common shares related to business acquisitions. The 2010 Notes
are further disclosed in Note 8 of the accompanying
consolidated financial statements.
Liquidity
and Capital Resources
CBIZs principal source of net operating cash is derived
from the collection of fees and commissions for professional
services and products rendered to its clients. CBIZ supplements
net operating cash with a $275 million unsecured credit
facility, $130 million in 2010 Notes, and $40 million
in 2006 Notes.
CBIZ entered into a new credit facility agreement on
June 4, 2010, amended September 14, 2010, with Bank of
America as agent bank for a group of seven participating banks.
Under this new agreement, CBIZ maintains a $275 million
unsecured credit facility, which replaced a $214 million
credit facility. The credit facility has a letter of credit
sub-facility
and matures in June 2014. At December 31, 2010, CBIZ had
$118.9 million outstanding under its credit facility and
had letters of credit and performance guarantees totaling
$6.4 million. Available funds under the credit facility,
based on the terms of the commitment, were approximately
$106.2 million at December 31, 2010. Management
believes that cash generated from operations, combined with the
available funds from the credit facility, provides CBIZ the
financial resources needed to meet business requirements for the
foreseeable future, including capital expenditures and working
capital requirements. In addition, the credit facility provides
CBIZ the capacity to repay the remaining $40 million of its
2006 Notes that are callable and putable in June 2011.
38
The credit facility also allows for the allocation of funds for
strategic initiatives, including acquisitions and the repurchase
of CBIZ common stock. Under the credit facility, CBIZ is
required to meet certain financial covenants with respect to
(i) minimum net worth; (ii) maximum total and senior
leverage ratios; and (iii) a minimum fixed charge coverage
ratio. CBIZ believes it is in compliance with its covenants as
of December 31, 2010. CBIZs ability to service its
debt and to fund strategic initiatives will depend upon its
ability to generate cash in the future.
The 2010 Notes were issued to qualified institutional buyers on
September 27, 2010 and mature on October 1, 2015. The
primary purpose of the 2010 Notes transaction was to provide a
financing alternative to repay the 2006 Notes. The holders of
the 2010 Notes may convert their 2010 Notes any time on or after
July 31, 2015. The 2006 Notes were sold to qualified
institutional buyers on May 30, 2006, mature on
June 1, 2026, and may be redeemed by CBIZ in whole or in
part anytime after June 6, 2011. In addition, holders of
the Notes can require CBIZ to repurchase for cash all or a
portion of their 2006 Notes on June 1, 2011, June 1,
2016 and June 1, 2021. Concurrent with the closing of the
2010 Notes, a portion of the proceeds was used to repurchase
$60 million of the $100 million outstanding 2006 Notes
through privately negotiated transactions. See Note 8 to
the accompanying financial statements for further discussion of
CBIZs debt instruments.
In addition to the debt instruments previously mentioned, CBIZ
may obtain, at a future date, additional funding by offering
securities or debt through public or private markets.
Sources
and Uses of Cash
The following table summarizes cash flows from operating,
investing and financing activities for the years ended
December 31, 2010, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Total cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
53,327
|
|
|
$
|
49,605
|
|
|
$
|
38,819
|
|
Investing activities
|
|
|
(44,025
|
)
|
|
|
(22,990
|
)
|
|
|
(100,382
|
)
|
Financing activities
|
|
|
(15,756
|
)
|
|
|
(26,859
|
)
|
|
|
56,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
$
|
(6,454
|
)
|
|
$
|
(244
|
)
|
|
$
|
(4,722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Cash flows from operating activities represent net income
adjusted for certain non-cash items and changes in assets and
liabilities. CBIZ typically experiences a net use of cash from
operations during the first quarter of its fiscal year, as
accounts receivable balances grow in response to the seasonal
increase in first quarter revenue generated by the Financial
Services practice group (primarily for accounting and tax
services). This net use of cash is followed by strong operating
cash flow during the second and third quarters, as a significant
amount of revenue generated by the Financial Services practice
group during the first four months of the year are billed and
collected in subsequent quarters.
During the year ended December 31, 2010, net cash provided
by operating activities was composed of net income of
$24.5 million, non-cash adjustments to net income of
$34.3 million, offset by a net loss on the discontinued
operations transactions and sale of operations totaling
$3.0 million. Non-cash adjustments to net income consist of
depreciation of fixed assets; amortization of intangibles assets
including client lists, non-compete agreements, discount on
convertible notes, and related deferred financing costs; loss on
redemption of 2006 Notes; adjustments related to contingent
earnouts; and expense related to stock-based compensation. These
non-cash adjustments to net income were partially offset by
negative changes in working capital of $6.1 million.
Working capital resulted in a use of cash primarily from slower
collections on accounts receivable as evidenced by the increase
in DSO to 72 days at December 31, 2010 from
66 days at December 31, 2009. This use of working
capital was partially offset by sources of cash due to active
vendor management, an increase in compensation incentive
accruals, and an increase in restructuring charges related to
the Florida office consolidation. Cash used by discontinued
operations was $2.4 million.
39
During the year ended December 31, 2009, net cash provided
by operations consisted of net income of $31.4 million and
non-cash adjustments to net income of $37.7 million,
partially offset by uses of cash from negative changes in
working capital of $19.9 million and net gains on the sale
of operations and the discontinued operations transactions
totaling $0.4 million. Non-cash items mainly consist of
depreciation and amortization, amortization of discount on
convertible notes and related deferred financing costs, and
expense related to stock-based compensation. Working capital
resulted in a use of cash primarily from an increase in accounts
receivable as a result of significant acquisitions closed on
December 31, 2008 (New York and Boston), the timing of
payments on accounts payable, and the reduction in the
compensation incentive accruals. These uses were partially
offset by the timing of tax payments and interest payments
related to the credit facility. Cash provided by discontinued
operations was $0.9 million.
During the year ended December 31, 2008, net cash provided
by operations consisted of net income of $30.4 million and
non-cash adjustments to net income of $27.8 million,
partially offset by uses of cash from negative changes in
working capital of $14.5 million and net gains on the sale
of operations and the discontinued operations transactions
totaling $0.1 million. Non-cash items mainly consist of
depreciation and amortization, amortization of discount on
convertible notes and related deferred financing costs, an
other-than-temporary
impairment of an auction rate security investment and expense
related to stock-based compensation. Working capital resulted in
a use of cash primarily from an increase in accounts receivable
as a result of slower collections as indicated by the increase
in DSO (excludes the impact of New York and Boston) to
66 days at December 31, 2008 from 65 days at
December 31, 2007, and due to the timing of payments on
accounts payable and the reduction in the compensation incentive
accruals. These uses were partially offset by the timing of tax
payments and interest payments related to the credit facility.
Cash used in discontinued operations was $4.8 million.
Investing
Activities
CBIZs investing activities typically result in a net use
of cash, and generally consist of: payments for business
acquisitions and client lists, contingent payments associated
with acquisitions of businesses prior to 2009, purchases of
intangible assets and capital equipment, proceeds received from
sales of divestitures and discontinued operations, and activity
related to notes receivable. Capital expenditures consisted of
investments in technology, leasehold improvements and purchases
of furniture and equipment.
Investing uses of cash during the year ended December 30,
2010 primarily consisted of $49.4 million for business
acquisitions and other intangible assets and $2.7 million
for capital expenditures. These uses were partially offset by
$8.1 million in proceeds received from the sales of various
operations and client lists.
Investing uses of cash during the year ended December 31,
2009 primarily consisted of $20.2 million of net cash used
towards business acquisitions and intangible assets, and
$4.0 million for net capital expenditures. These uses of
cash were partially offset by $0.9 million in proceeds
received from the sale of divested and discontinued operations
and $0.4 million in net activity on notes receivable.
Investing uses of cash during the year ended December 31,
2008 primarily consisted of $98.0 million of net cash used
towards business acquisitions and intangible assets, and
$8.1 million for net capital expenditures. These uses were
partially offset by $5.4 million in proceeds received from
the sale of divested and discontinued operations and
$0.8 million in proceeds from the sale of a long-term
investment.
Financing
Activities
CBIZs financing cash flows typically consist of net
borrowing and payment activity from the credit facility, the
issuance and repayment of debt instruments, repurchases of CBIZ
common stock, and proceeds from the exercise of stock options.
Net cash used in financing activities during the year ended
December 31, 2010 include $60.0 million used to
repurchase 2006 Notes at par, $86.2 million used to
repurchase 13.4 million shares of CBIZ common stock,
$6.6 million for debt issuance costs primarily related to
the issuance of the 2010 Notes, and $3.0 million in
payments for contingent consideration included as part of the
initial measurement of a 2009 business acquisitions. These uses
were substantially offset by sources of cash which included
$130.0 million in proceeds from the issuance
40
of the 2010 Notes, $8.9 million in net proceeds on the
credit facility, and $1.3 million in proceeds from the
exercise of stock options, including the related tax benefits.
Net cash used in financing activities for the year ended
December 31, 2009 included $15.0 million in net
payments on the credit facility, $13.3 million in cash used
to repurchase 1.8 million shares of CBIZ common stock in
the current year and settle share repurchase activity from the
prior year, offset by $1.8 million in proceeds from the
exercise of stock options, including the related tax benefits.
Sources of cash from financing activities during the year ended
December 31, 2008 included $95.0 million in net
borrowings on the credit facility and $5.9 million in
proceeds from the exercise of stock options, including the
related tax benefits. These sources of cash were partially
offset by $41.4 million in cash used to repurchase
approximately 4.8 million shares of CBIZ common stock.
Obligations
and Commitments
CBIZs aggregate amount of future obligations for the next
five years and thereafter is set forth below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Convertible notes(1)
|
|
$
|
170,000
|
|
|
$
|
40,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
130,000
|
|
|
$
|
|
|
Interest on convertible notes
|
|
|
32,315
|
|
|
|
6,963
|
|
|
|
6,338
|
|
|
|
6,338
|
|
|
|
6,338
|
|
|
|
6,338
|
|
|
|
|
|
Credit facility(2)
|
|
|
118,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,900
|
|
|
|
|
|
|
|
|
|
Notes payable(3)
|
|
|
11,169
|
|
|
|
10,983
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent purchase price liabilities(4)
|
|
|
17,265
|
|
|
|
2,582
|
|
|
|
8,633
|
|
|
|
6,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent purchase price obligations(5)
|
|
|
24,968
|
|
|
|
4,115
|
|
|
|
20,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring lease obligations(6)
|
|
|
10,547
|
|
|
|
2,240
|
|
|
|
2,182
|
|
|
|
1,591
|
|
|
|
1,201
|
|
|
|
1,239
|
|
|
|
2,094
|
|
Non-cancelable operating lease obligations(6)
|
|
|
158,791
|
|
|
|
34,482
|
|
|
|
30,077
|
|
|
|
24,644
|
|
|
|
17,918
|
|
|
|
15,408
|
|
|
|
36,262
|
|
Letters of credit in lieu of cash security deposits
|
|
|
3,016
|
|
|
|
1,586
|
|
|
|
|
|
|
|
45
|
|
|
|
250
|
|
|
|
|
|
|
|
1,135
|
|
Performance guarantees for non-consolidated affiliates
|
|
|
3,407
|
|
|
|
3,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License bonds and other letters of credit
|
|
|
1,528
|
|
|
|
1,507
|
|
|
|
20
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
551,906
|
|
|
$
|
107,865
|
|
|
$
|
68,289
|
|
|
$
|
38,668
|
|
|
$
|
144,608
|
|
|
$
|
152,985
|
|
|
$
|
39,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents $130 million par
value of 2010 Notes which mature on October 1, 2015, and
$40 million par value of 2006 Notes which mature on
June 1, 2026. The 2006 Notes may be putable by the holders
of the convertible notes on June 1, 2011 and can be
redeemed by the Company anytime after June 6, 2011.
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(2)
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Interest on the credit facility is
not included as the amount is not determinable due to the
revolving nature of the credit facility and the variability of
the related interest rate.
|
|
(3)
|
|
Represents contingent purchase
price adjustments that were earned in 2010, but not yet paid,
related to businesses CBIZ acquired prior to January 1,
2009.
|
|
(4)
|
|
Represents contingent earnout
liability that is expected to be paid over the next three years
to businesses CBIZ acquired on or after January 1, 2009.
|
|
(5)
|
|
Represents an estimate of potential
earnout payments to be made over the next two years to those
businesses CBIZ acquired prior to January 1, 2009.
|
|
(6)
|
|
Excludes cash expected to be
received under subleases.
|
The above table does not reflect $4.8 million of
unrecognized tax benefits, which the Company has accrued for
uncertain tax positions as CBIZ is unable to determine a
reasonably reliable estimate of the timing of the future
payments.
Off-Balance
Sheet Arrangements
CBIZ maintains ASAs with independent CPA firms (as described
more fully under Business Financial
Services and in Note 1 of the accompanying
consolidated financial statements), which qualify as variable
interest
41
entities. 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.
CBIZ provides guarantees of performance obligations for a CPA
firm with which CBIZ maintains an ASA. Potential obligations
under the guarantees totaled $3.4 million and
$2.6 million at December 31, 2010 and 2009,
respectively. 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 cash security deposits. Letters of
credit totaled $3.0 million and $3.5 million at
December 31, 2010 and 2009, respectively. In addition, CBIZ
provides license bonds to various state agencies to meet certain
licensing requirements. The amount of license bonds outstanding
at December 31, 2010 and 2009 was $1.5 million.
CBIZ has various agreements under which the Company 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 the Company customarily agrees to hold the other party
harmless against losses arising from a breach of
representations, warranties, covenants or agreements, related to
matters such as title to assets sold and certain tax matters.
Payment by CBIZ under such indemnification clauses are generally
conditioned upon the other party making a claim. Such claims are
typically subject to challenge by CBIZ and to dispute resolution
procedures specified in the particular contract. Further,
CBIZs obligations under these agreements may be limited in
terms of time
and/or
amount and, in some instances, CBIZ may have recourse against
third parties for certain payments made by CBIZ. It is not
possible to predict the maximum potential amount of future
payments under these indemnification agreements due to the
conditional nature of CBIZs obligations and the unique
facts of each particular agreement. Historically, CBIZ has not
made any payments under these agreements that have been material
individually or in the aggregate. As of December 31, 2010,
CBIZ was not aware of any obligations arising under
indemnification agreements that would require material payments.
Interest
Rate Risk Management
CBIZ periodically uses interest rate swaps to manage interest
rate risk exposure. The interest rate swaps effectively mitigate
CBIZs exposure to interest rate risk, primarily through
converting portions of the floating rate debt under the credit
facility, to a fixed rate basis. These agreements involve the
receipt or payment of floating rate amounts in exchange for
fixed rate interest payments over the life of the agreements
without an exchange of the underlying principal amounts. At
December 31, 2010, CBIZ had a total of $20.0 million
notional amount of interest rate swaps outstanding that expired
in January 2011. Management will continue to evaluate the
potential use of interest rate swaps as it deems appropriate
under certain operating and market conditions. CBIZ does not
enter into derivative instruments for trading or speculative
purposes.
CBIZ carries $130.0 million in 2010 Notes bearing a fixed
interest rate of 4.875% and $40.0 million in 2006 Notes
bearing a fixed interest rate of 3.125%. The 2010 Notes mature
on October 1, 2015 and may not be converted before
July 31, 2015. The 2006 Notes mature on June 1, 2026
and have call protection such that they may not be redeemed
until June 6, 2011 at the Companys option. CBIZ
believes the fixed nature of these borrowings mitigate its
interest rate risk.
In connection with payroll services provided to clients, CBIZ
collects funds from its clients accounts in advance of
paying these client obligations. These funds held for clients
are segregated and invested in accordance with the
Companys investment policy, which requires all investments
carry an investment grade rating at the time of initial
investment. The interest income on these investments mitigates
the interest rate risk for the borrowing costs of CBIZs
credit facility, as the rates on both the investments and the
outstanding borrowings against the credit facility are based on
market conditions.
Critical
Accounting Policies
Significant accounting policies are described more fully in
Note 1 to the accompanying consolidated financial
statements. The preparation of financial statements in
conformity with GAAP requires the Company to make
42
estimates and assumptions about future events that affect the
amounts reported in its financial statements. CBIZs
management bases its estimates on historical experience and
assumptions that it believes are reasonable under the related
facts and circumstances. The application of these critical
accounting policies involves the exercise of judgment and use of
assumptions for future uncertainties. Accordingly, actual
results could differ significantly from these estimates. The
policies discussed below address the most critical accounting
policies which are the most important to the portrayal of
CBIZs financial statements and require the most difficult,
subjective and complex judgments.
Revenue
Recognition and Valuation of Unbilled Revenues
Revenue is recognized only when all of the following are
present: persuasive evidence of an arrangement exists, delivery
has occurred or services have been rendered, the fee to the
client is fixed or determinable, and collectability is
reasonably assured. Contract terms are typically contained in a
signed agreement with the client (or when applicable, other
third parties) which generally defines the scope of services to
be provided, pricing of services, and payment terms generally
ranging from invoice date to 90 days after invoice date.
Billing may occur prior to, during, or upon completion of the
service. CBIZ typically does not have acceptance provisions or
right of refund arrangements included in these agreements.
Contract terms vary depending on the scope of service provided,
the deliverables, and the complexity of the engagement.
CBIZ offers a vast array of products and business services to
its clients. Those services are delivered through four practice
groups. A description of revenue recognition, as it relates to
those groups, is provided below.
Financial Services Revenue primarily
consists of fees for services rendered to clients for accounting
services, preparation of tax returns, consulting services,
compliance projects, services pursuant to ASAs (described under
Variable Interest Entities), and valuation services
including fairness opinions, business plans, litigation support,
purchase price allocations and derivative valuations. Clients
are billed for these services based upon a time and expense
model, a predetermined
agreed-upon
fixed fee, or as a percentage of savings.
Revenue recognition as it pertains to each of these arrangements
is as follows:
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|
|
Time and Expense Arrangements Revenue is recognized
based upon actual hours incurred on client projects at expected
net realizable rates per hour, plus
agreed-upon
out-of-pocket
expenses. The cumulative impact on any subsequent revision in
the estimated realizable value of unbilled fees for a particular
client project is reflected in the period in which the change
becomes known.
|
|
|
|
Fixed Fee Arrangements Revenue for fixed-fee
arrangements is recognized over the performance period based
upon progress towards completion, which is determined based upon
actual hours incurred on the client project compared to
estimated total hours to complete the client project.
|
|
|
|
Contingent Revenue Arrangements Revenue is
recognized when savings to the client is determined and
collection is reasonably assured.
|
|
|
|
Administrative Service Agreement Revenue Revenue for
administrative service fees is recognized as services are
provided, based upon actual hours incurred.
|
Employee Services Revenue consists
primarily of brokerage and agency commissions, fee income for
administering health and retirement plans and payroll service
fees. Revenue also includes investment income related to client
payroll funds that are held in CBIZ accounts, as is industry
practice. A description of the revenue recognition, based on the
service provided, insurance product sold, and billing
arrangement, is provided below.
|
|
|
|
|
Commissions Revenue 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 data necessary from the carriers to properly record revenue
becomes available; and life insurance commissions are recognized
when the policy becomes effective. Commission revenue is
reported net of
sub-broker
commissions, and reserves for estimated policy cancellations and
terminations. The cancellation and termination reserve is based
upon estimates and assumptions using historical cancellation and
|
43
|
|
|
|
|
termination experience and other current factors to project
future experience. CBIZ periodically reviews the adequacy of the
reserve and makes adjustments as necessary. The use of different
estimates or assumptions could produce different results.
|
Commissions which are based upon certain performance targets are
recognized at the earlier of written notification that the
target has been achieved, or cash collection.
|
|
|
|
|
Fee income Fee income is recognized in the period in
which services are provided, and may be based on predetermined
agreed-upon
fixed fees, actual hours incurred on an hourly fee basis, or
asset-based fees. Revenue for fixed-fee arrangements is
recognized on a straight-line basis over the contract period, as
these services are provided to clients continuously throughout
the term of the arrangement. Revenue which is based upon actual
hours incurred is recognized as services are performed.
|
Revenue for asset-based fees is recognized when the data
necessary to compute revenue is determinable, which is typically
when either market valuation information is available, the data
necessary to compute the Companys fees is made available
by third party administrators or when cash is received. CBIZ
only recognizes revenue when cash is received for those
arrangements where the data necessary to compute fees is not
available to the Company in a timely manner.
|
|
|
|
|
Payroll Revenue related to payroll processing fees
is recognized when the actual payroll processing occurs. Revenue
related to investment income earned on payroll funds is based
upon actual amounts earned on those funds and is recognized in
the period that the income is earned.
|
MMP Revenue is primarily related to
fees charged to clients for billing, collection and
full-practice management services, which are typically charged
to clients based upon a percentage of net collections on the
Companys clients patient accounts or as a fee per
transaction processed. Revenue also relates to fees charged to
clients for statement mailing services. The revenue recognition
as it pertains to each of these arrangements is as follows:
|
|
|
|
|
Fee income For those arrangements where fees to
clients are determined based upon a percentage of net
collections, revenue is determinable, earned and recognized when
payments are received by the client on their patient accounts.
For those arrangements where clients are charged a fee for each
transaction processed, revenue is typically recognized
proportionately over a predetermined service period.
|
|
|
|
Statement mailing services Revenues for statement
mailing services are recognized when statements are processed
and mailed.
|
National Practices The business units
that comprise the National Practices group offer a variety of
services. A description of revenue recognition associated with
the primary services is provided below.
|
|
|
|
|
Technology Consulting Revenue consists of services
that primarily relate to the installation, maintenance and
repair of hardware. These services are charged to customers
based on cost plus an
agreed-upon
contractual markup percentage.
|
|
|
|
Health Care Consulting Clients are billed for health
care consulting services based upon a predetermined
agreed-upon
fixed fee, time and expense, or as a percentage of savings.
Revenue for fixed fee and time and expense arrangements is
recognized over the performance period based upon actual hours
incurred, and revenue that is contingent upon savings is
recognized after contingencies have been resolved and verified
by a third party.
|
|
|
|
Mergers & Acquisitions Clients are billed
monthly for non-refundable retainer fees, or upon the completion
of a transaction (success fees). Revenue associated with
non-refundable retainer fees is recognized on a straight-line
basis over the life of the engagement as services are performed
throughout the term of the contract period of the arrangement.
Revenue associated with success fee transactions is recognized
when the transaction is completed.
|
Valuation
of Accounts Receivable and Notes Receivable
Management determines the valuation of accounts receivable
(including unbilled accounts receivable) and notes receivable,
and the adequacy of the allowance for doubtful accounts based on
estimates of losses related to the
44
respective receivable balance. 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 collectability of notes receivable. Significant
management judgments and estimates must be made and used in
connection with establishing the allowance for doubtful accounts
for each accounting period. Material differences may result if
facts and circumstances change in relation to the original
estimation.
Valuation
of Goodwill
CBIZ utilizes the acquisition method of accounting for all
business combinations. Intangible assets, other than goodwill,
which include client lists and non-compete agreements, are
amortized over their expected period of benefit, not to exceed
ten years. In accordance with GAAP, goodwill is not amortized,
but rather is tested for impairment annually during the fourth
quarter of each year. Impairment testing may be performed
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.
CBIZ estimates the fair value of its reporting units utilizing a
combination of the discounted cash flow method (income approach)
and the market comparable method (market approach). Under the
income approach, fair value is estimated as the present value of
estimated future cash flows. This approach requires the use of
significant estimates regarding future revenues and expenses,
projected capital expenditures, changes in working capital and
the appropriate discount rate. The projection of future revenues
and expenses inherently includes significant assumptions related
to estimated economic trends, expected client behavior and other
factors which are beyond managements control. Under the
market approach, fair value is estimated by applying the
multiples of comparable companies and sales transactions to
CBIZs reporting units. The estimated fair value of each
reporting unit is compared with the respective reporting
units net carrying value. If the carrying value exceeds
fair value, a possible impairment of goodwill exists and further
evaluation is performed.
The aggregate fair value of the reporting units is compared to
CBIZs market capitalization as of the annual testing date.
In situations where CBIZs market capitalization is
significantly different than the estimated fair value for the
combined reporting units, management considers the impact of its
assumptions as well as the implied control premium to ensure
that the fair values of the reporting units are appropriate.
During the fourth quarter of 2010, CBIZ performed detailed
valuations on two of its reporting units based on the current
year decline in performance in each of the respective reporting
units. The reporting units tested were MMP and CBIZ Payroll. As
a result of the testing, the fair value of the MMP and CBIZ
Payroll reporting units each exceeded carrying value by at least
25%. No further evaluation was deemed necessary for these two
reporting units. However, future declines in service revenues or
interest rates, or future governmental regulations in the
medical industry could impact the business results of the
reporting units and could result in possible impairment of the
reporting units goodwill balances, which were
$59.8 million and $4.7 million for MMP and CBIZ
Payroll, respectively, at December 31, 2010.
The fair value of CBIZs other reporting units were carried
forward from prior years detailed testing as the fair
value of these reporting units substantially exceeded the
carrying value of that respective reporting unit, the financial
statements of these reporting units did not materially change,
and no events occurred that would lead management to believe
that the fair value determination would be less than the
carrying value of the reporting unit. Future decreases in
CBIZs stock price, or changes in comparable transaction
multiples or other changes in CBIZs business or the market
for its services, could reduce the fair value of these reporting
units and could result in impairments of goodwill and other
intangible assets. There was no goodwill impairment during the
years ended December 31, 2010, 2009 or 2008.
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.
45
Incentive
Compensation
Determining the amount of expense to recognize for incentive
compensation at interim and annual reporting dates involves
management judgment. Expenses accrued for incentive compensation
are based upon expected financial results for the year, and the
ultimate determination of incentive compensation is unable to be
made until after year-end results are finalized. Thus, amounts
accrued are subject to change in future interim periods if
actual future financial results are higher or lower than
expected. In arriving at the amount of expense to recognize,
management believes it makes reasonable judgments using all
significant information available.
Income
Taxes
Determining the consolidated provision for income tax expense,
income tax liabilities and deferred tax assets and liabilities
involves management judgment. Management estimates an annual
effective tax rate (which takes into consideration expected
full-year results), which is applied to the Companys
quarterly operating results to determine the provision for
income tax expense. In the event there is a significant, unusual
or infrequent item recognized in the quarterly operating
results, the tax attributable to that item is recorded in the
interim period in which it occurs. In addition, reserves are
established for uncertain tax positions and contingencies. See
Note 1 and Note 7 to the accompanying consolidated
financial statements for further information.
Circumstances that could cause CBIZs estimates of
effective income tax rates to change include the impact of
information that subsequently becomes available as CBIZ prepares
its corporate income tax returns; the level of actual pre-tax
income; revisions to tax positions taken as a result of further
analysis and consultation; the receipt and expected utilization
of federal and state income tax credits; and changes mandated as
a result of audits by taxing authorities. Management believes it
makes reasonable judgments using all significant information
available when estimating income taxes.
Other
Significant Policies
Other significant accounting policies, not involving the same
level of management judgment and uncertainty as those discussed
above, are also critical in understanding the consolidated
financial statements. Those policies are described in
Note 1 to the accompanying consolidated financial
statements.
New
Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update
(ASU)
No. 2010-29
(ASU
2010-29)
Business Combinations (Topic 805): Disclosure of
Supplementary Pro Forma Information for Business
Combinations, which amends Accounting Standards
Codification (ASC) 805 by requiring disclosure of
pro forma information for business combinations that occurred in
the current reporting period. The disclosures include pro forma
revenue and earnings of the combined entity as though the
acquisition date for all business combinations that occurred
during the year had been as of the beginning of the comparable
prior annual reporting period. ASU
2010-29 also
expands supplemental pro forma disclosures to include a
description of the nature and amount of material, nonrecurring
pro forma adjustments directly attributable to the business
combination in the reported pro forma revenue and earnings. ASU
2010-29 is
effective prospectively for business combinations in which the
acquisition date is on or after the first day of the annual
period beginning on or after December 15, 2010. The
adoption of ASU
2010-29 will
result in the Company providing additional annual pro forma
disclosures for business combinations that occur subsequent to
December 31, 2010.
In January 2010, the FASB issued ASU
2010-06,
Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements
(ASU
2010-06),
which adds disclosure requirements about transfers in and out of
Levels 1 and 2, for activity relating to Level 3
measurements, and clarifies input and valuation techniques. ASU
2010-06 is
effective for the first reporting period beginning after
December 15, 2009, except as it pertains to the requirement
to provide the Level 3 activity for purchases, sales,
issuances and settlements on a gross basis. This Level 3
requirement will be effective for fiscal years beginning after
December 15, 2010, and is not expected to have a material
impact on CBIZs consolidated financial statements. CBIZ
adopted the applicable provisions of the accounting guidance for
year ended December 31, 2010. The adoption did not have a
material impact on CBIZs consolidated financial statements.
46
In December 2009, the FASB issued ASU
2009-17,
Consolidations (Topic 810): Improvements to Financial
Reporting by Enterprises Involved with Variable Interest
Entities (ASU
2009-17).
ASU 2009-17
clarifies and improves financial reporting by entities involved
with variable interest entities. ASU
2009-17 is
effective as of the beginning of the annual period beginning
after November 15, 2009. CBIZ adopted the provisions of
this accounting guidance during 2010. The adoption did not have
a material impact on CBIZs consolidated financial
statements.
|
|
Item 7A.
|
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 Bank of
America, N.A., would affect the rate at which CBIZ could borrow
funds under its credit facility. CBIZs balance outstanding
under its credit facility at December 31, 2010 was
$118.9 million. If market rates were to increase or
decrease 100 basis points from the levels at
December 31, 2010, interest expense would increase or
decrease approximately $1.2 million annually.
CBIZ does not engage in trading market risk sensitive
instruments. CBIZ periodically uses interest rate swaps to
manage interest rate risk exposure. The interest rate swaps
effectively modify the Companys exposure to interest rate
risk, primarily through converting portions of its floating rate
debt under the credit facility to a fixed rate basis. These
agreements involve the receipt or payment of floating rate
amounts in exchange for fixed rate interest payments over the
life of the agreements without an exchange of the underlying
principal amounts. At December 31, 2010, CBIZ had a total
notional amount of $20.0 million related to its interest
rate swaps outstanding, which expired in January 2011.
Management will continue to evaluate the potential use of
interest rate swaps as it deems appropriate under certain
operating and market conditions. See Note 5 to the
accompanying consolidated financial statements for further
discussion regarding interest rate swaps.
In connection with CBIZs payroll business, funds held for
clients are segregated and invested in short-term investments,
which included ARS prior to the dislocation of this market. ARS
are variable-rate debt instruments with longer stated maturities
whose interest rates are reset at pre-determined short-term
intervals through a Dutch auction system. In accordance with the
Companys investment policy, all investments carry an
investment grade rating at the time of the initial investment.
Since 2008, conditions in the global credit markets have
resulted in the failure of auctions for the ARS that CBIZ holds
because the amount of securities submitted for sale exceed the
amount of bids. A failed auction does not necessarily represent
a default by the issuer of the underlying security. To date,
CBIZ has collected all interest on all of its auction rate
securities when due and expects to continue to do so in the
future. The principal associated with failed auctions will not
be accessible until successful auctions resume, a buyer is found
outside of the auction process, or issuers use a different form
of financing to replace these securities. CBIZ understands that
issuers and financial markets are working on alternatives that
may improve liquidity, although it is not yet clear when or to
what extent such efforts will be successful. If credit
conditions continue to recover, however, the likelihood of
alternative financing options becoming available to the issuers
of the securities will improve. While CBIZ continues to earn and
receive interest on these investments at the contractual rates,
the estimated fair value of its investment in ARS no longer
approximates face value. See Notes 6 and 7 to the
accompanying consolidated financial statements for further
discussion regarding ARS.
Despite the failed auctions with regards to ARS, CBIZ believes
it has adequate liquidity to operate and settle client
obligations as the majority of CBIZs client funds are
invested in highly-liquid, short-term money market funds.
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
The Financial Statements and Supplementary Data required
hereunder are included in this Annual Report as set forth in
Item 15(a) hereof.
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure.
|
None.
47
|
|
Item 9A.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
Management has evaluated the effectiveness of the Companys
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 CBIZs 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 the Company in the reports that CBIZ files or
submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms. Disclosure Controls include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by CBIZ in the reports that
it files under the Exchange Act is accumulated and communicated
to management, including the CEO and CFO, as appropriate to
allow timely decisions regarding required disclosure.
Limitations
on the Effectiveness of Controls
Management, including the Companys CEO and CFO, does not
expect that its Disclosure Controls or its internal control over
financial reporting (Internal Controls) will prevent
all error and all fraud. Although CBIZs Disclosure
Controls are designed to provide reasonable assurance of
achieving their objective, 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.
Conclusions
Based upon the Controls Evaluation, the Companys CEO and
CFO have concluded that as of the end of the period covered by
this report, CBIZs Disclosure Controls are effective at
the reasonable assurance level described above.
There were no changes in the Companys Internal Controls
that occurred during the quarter ended December 31, 2010
that have materially affected, or are reasonably likely to
materially affect, CBIZs Internal Controls.
Managements Report on Internal Control Over Financial
Reporting.
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting, as such term is defined in
Rule 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act of 1934. Under the supervision
of management, including the Companys CEO and CFO, CBIZ
conducted an evaluation of its internal control over financial
reporting based on the framework provided in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO Framework). Based on this evaluation, the
Companys management has concluded that CBIZs
internal control over financial reporting was effective as of
December 31, 2010.
CBIZs independent auditor, KPMG LLP, an independent
registered public accounting firm, has issued an audit report on
the effectiveness of CBIZs internal control over financial
reporting which appears in Item 8 of this Annual Report.
|
|
Item 9B.
|
Other
Information.
|
None.
48
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
Information with respect to this item not included below is
incorporated by reference from CBIZs Definitive Proxy
Statement for the 2011 Annual Stockholders Meeting to be
filed with the SEC no later than 120 days after the end of
CBIZs fiscal year.
The following table sets forth certain information regarding the
directors, executive officers and certain key employees of CBIZ.
Each executive officer and director of CBIZ named in the
following table has been elected to serve until his successor is
duly appointed or elected or until his earlier removal or
resignation from office. No arrangement or understanding exists
between any executive officer of CBIZ and any other person
pursuant to which he or she was selected as an officer.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s)
|
|
Executive Officers and Directors:
|
|
|
|
|
|
|
Steven L. Gerard(1)
|
|
|
65
|
|
|
Chairman and Chief Executive Officer
|
Rick L. Burdick(1)(3)
|
|
|
59
|
|
|
Lead Director and Vice Chairman
|
Michael H. DeGroote
|
|
|
50
|
|
|
Director
|
Joseph S. DiMartino(3)(4)
|
|
|
67
|
|
|
Director
|
Richard C. Rochon(2)(3)(4)
|
|
|
53
|
|
|
Director
|
Todd Slotkin(2)(3)(4)
|
|
|
58
|
|
|
Director
|
Donald V. Weir(2)(3)
|
|
|
69
|
|
|
Director
|
Benaree Pratt Wiley(3)(4)
|
|
|
64
|
|
|
Director
|
Jerome P. Grisko, Jr.(1)
|
|
|
49
|
|
|
President and Chief Operating Officer
|
Ware H. Grove
|
|
|
60
|
|
|
Senior Vice President and Chief Financial Officer
|
Michael W. Gleespen
|
|
|
52
|
|
|
Secretary and General Counsel
|
Other Key Employees:
|
|
|
|
|
|
|
David Sibits
|
|
|
59
|
|
|
President, Financial Services
|
Robert A. OByrne
|
|
|
54
|
|
|
President, Employee Services
|
G. Darrell Hulsey
|
|
|
41
|
|
|
President, MMP
|
Michael P. Kouzelos
|
|
|
42
|
|
|
Senior Vice President, Strategic Initiatives
|
George A. Dufour
|
|
|
64
|
|
|
Senior Vice President and Chief Technology Officer
|
Mark M. Waxman
|
|
|
54
|
|
|
Senior Vice President of Marketing
|
Teresa E. Bur
|
|
|
46
|
|
|
Senior Vice President, Human Resources
|
Kelly J. Marek
|
|
|
40
|
|
|
Treasurer
|
Robert A. Bosak
|
|
|
43
|
|
|
Controller
|
|
|
|
(1)
|
|
Member of Management Executive
Committee
|
|
(2)
|
|
Member of Audit Committee
|
|
(3)
|
|
Member of Nominating &
Governance Committee
|
|
(4)
|
|
Member of Compensation Committee
|
Executive
Officers and Directors:
Steven L. Gerard was elected by the Board to serve as its
Chairman in October, 2002. He was appointed Chief Executive
Officer and Director in October, 2000. Mr. Gerard was
Chairman and CEO of Great Point Capital, Inc., a provider of
operational and advisory services from 1997 to October 2000.
From 1991 to 1997, he was Chairman and CEO of Triangle
Wire & Cable, Inc. and its successor Ocean View
Capital, Inc. Mr. Gerards prior experience includes
16 years with Citibank, N.A. in various senior corporate
finance and banking positions. Further, Mr. Gerard
49
served seven years with the American Stock Exchange, where he
last served as Vice President of the Securities Division.
Mr. Gerard also serves on the Boards of Directors of Lennar
Corporation and Joy Global, Inc.
Rick L. Burdick has served as a Director of CBIZ since
October 1997, when he was elected as an independent director. On
May 17, 2007, Mr. Burdick was elected by the Board to
be its Lead Director, a non-officer position. Previously, in
October 2002, he was elected by the Board as Vice Chairman, a
non-officer position. Mr. Burdick has been a partner at the
law firm of Akin Gump Strauss Hauer & Feld LLP since
April 1988. Mr. Burdick serves on the Board of Directors of
AutoNation, Inc.
Michael H. DeGroote, son of CBIZ, Inc. founder Michael G.
DeGroote, was appointed a Director of CBIZ in November, 2006.
Mr. DeGroote currently serves as President of Westbury
International, a full-service real estate development company,
specializing in commercial/industrial land, residential
development and property management. Prior to joining Westbury,
Mr. DeGroote was Vice President of MGD Holdings and
previously held a management position with Cooper Corporation.
Mr. DeGroote serves on the Board of Governors of McMaster
University in Hamilton, Ontario.
Joseph S. DiMartino has served as a Director of CBIZ
since November 1997, when he was elected as an independent
director. Mr. DiMartino has been Chairman of the Board of
the Dreyfus Family of Funds since January 1995.
Mr. DiMartino served as President, Chief Operating Officer
and Director of The Dreyfus Corporation from October 1982 until
December 1994 and also served as a director of Mellon Bank
Corporation. Mr. DiMartino formerly served on the Boards of
SunAir Services, Inc., LEVCOR International, Inc., The Newark
Group and the Muscular Dystrophy Association within the last
five years.
Richard C. Rochon has served as a Director of CBIZ since
October 1996, when he was elected as an independent director.
Mr. Rochon is Chairman and Chief Executive Officer of Royal
Palm Capital Management, a private investment and management
firm that he founded in March 2002. From 1985 to February 2002
Mr. Rochon served in various capacities with Huizenga
Holdings, Inc., a management and holding company owned by H.
Wayne Huizenga, where he last served as President.
Mr. Rochon has also served as a director of Devcon
International, a provider of electronic security services, from
July 2004 until September 2009. Additionally, Mr. Rochon
has been a director of SunAir Services, Inc., a provider of
pest-control and lawn care services from February 2005 until
December 2009. Mr. Rochon was also a director of Bancshares
of Florida, a full-service commercial bank from 2002 through
February 2007. Mr. Rochon was Chairman and CEO of Coconut
Palm Acquisition Corp., a newly organized blank check company
from September 2005 through June 2007. Mr. Rochon was also
employed as a certified public accountant by the public
accounting firm of Coopers and Lybrand from 1979 to 1985.
Mr. Rochon received his B.S. in accounting from Binghamton
University in 1979 and Certified Public Accounting designation
in 1981.
Todd Slotkin has served as a Director of CBIZ since
September 2003, when he was elected as an independent director.
In 2011, Mr. Slotkin became the lead independent director
of Apollo Senior Floating Rate Fund, Inc. Between 2008 and 2010,
Mr. Slotkin was a Senior Managing Director and Portfolio
Manager of Irving Place Capital. From 2006 to 2007
Mr. Slotkin served as a Managing Director of Natixis
Capital Markets. From 1992 to 2006, Mr. Slotkin served as a
SVP
(1992-1998)
and EVP and Chief Financial Officer
(1998-2006)
of MacAndrews & Forbes Holdings Inc. Additionally, he
was the EVP and CFO of publicly owned M&F Worldwide
(1998-2006).
Prior to 1992, Mr. Slotkin spent 17 years with
Citigroup, ultimately serving as Senior Managing Director and
Senior Credit Officer. Mr. Slotkin serves on the Board of
Martha Stewart Living Omnimedia. He is Chairman, Director and
co-founder of the Food Allergy Initiative. Mr. Slotkin
formerly served on the Board of Managers of AlliedBarton and the
Board of Directors of TransTech Pharma within the last five
years.
Donald V. Weir has served as a Director of CBIZ since
September 2003, when he was elected as an independent director.
Mr. Weir is Vice President of Private Equity for Sanders
Morris Harris Group Inc. (SMHG) and has been with
SMHG for the past eleven years. Prior to this Mr. Weir was
CFO and director of publicly-held Deeptech International and two
of its subsidiaries, Tatham Offshore and Leviathan Gas Pipeline
Company, both of which were publicly-held companies. Prior to
his employment with Deeptech, Mr. Weir worked for eight
years with Sugar Bowl Gas Corporation, as Controller and
Treasurer and later in a consulting capacity. Mr. Weir was
associated with Price Waterhouse, an international accounting
firm, from 1966 to 1979.
50
Benaree Pratt Wiley has served as a Director of CBIZ
since May 2008, when she was elected as an independent director.
Ms. Wiley is a Principal of The Wiley Group, a firm
specializing in personnel strategy, talent management, and
leadership development primarily for global insurance and
consulting firms. Ms. Wiley served as the President and
Chief Executive Officer of The Partnership, Inc., a talent
management organization for multicultural professionals in the
greater Boston region for fifteen years before retiring in 2005.
Ms. Wiley is currently a director on the boards of the
Dreyfus Family of Funds and Blue Cross and Blue Shield of
Massachusetts. Ms. Wiley also chairs the PepsiCo African
American Advisory Board. Her civic activities include serving on
the boards of The Boston Foundation, the Efficacy Institute and
Howard University.
Jerome P. Grisko, Jr. has served as President and
Chief Operating Officer of CBIZ since February 2000.
Mr. Grisko joined CBIZ as Vice President,
Mergers & Acquisitions in September 1998 and was
promoted to Senior Vice President, Mergers &
Acquisitions and Legal Affairs in December of 1998. Prior to
joining CBIZ, Mr. Grisko was associated with the law firm
of Baker & Hostetler LLP, where he practiced from
September 1987 until September 1998, serving as a partner of
such firm from January 1995 to September 1998. While at
Baker & Hostetler, Mr. Grisko concentrated his
practice in the area of mergers, acquisitions and divestitures.
Ware H. Grove has served as Senior Vice President and
Chief Financial Officer of CBIZ since December 2000. Before
joining CBIZ, Mr. Grove served as Senior Vice President and
Chief Financial Officer of Bridgestreet Accommodations, Inc.,
which he joined in early 2000 to restructure financing, develop
strategic operating alternatives, and assist with merger
negotiations. Prior to joining Bridgestreet, Mr. Grove
served for three years as Vice President and Chief Financial
Officer of Lesco, Inc. Since beginning his career in corporate
finance in 1972, Mr. Grove has held various financial
positions with large companies representing a variety of
industries, including Revco D.S., Inc., Computerland/Vanstar,
Manville Corporation, The Upjohn Company, and First of America
Bank. Mr. Grove served on the Board of Directors for
Applica, Inc. (NYSE: APN) from September 2004 through January
2007.
Michael W. Gleespen has served as Corporate Secretary
since April 2001 and General Counsel since June 2001.
Mr. Gleespen is an attorney and has served as CBIZs
Vice President of Regulatory Compliance and Accountancy
Compliance Officer and Technical Director since February 1998.
Prior to joining CBIZ, Mr. Gleespen was an Assistant Ohio
Attorney General in the Business & Government
Regulation Section and the Court of Claims Defense Section
from 1988 until 1998, during which time he was counsel to the
Ohio Accountancy Board, the Ohio State Teachers Retirement
System and represented many other state departments and
agencies. Mr. Gleespen also held the post of Associate
Attorney General for Pension, Disability and Annuity Plans and
was the Co-Chairman of the Public Pension Plan Working Group.
Other Key
Employees:
David Sibits is President of CBIZs Financial
Services practice group. Prior to joining CBIZ in May 2007,
Mr. Sibits was Executive Managing Director of RSM
McGladreys Ohio region from 2005 to 2007. Prior to RSM
McGladreys acquisition of American Express Tax and
Business Services (TBS), he was the Executive
Managing Director of the TBS Eastern Region, which included 35
offices in 13 states. Mr. Sibits was an integral
member of the TBS senior leadership team and worked with his
colleagues at RSM McGladrey to ensure a smooth integration with
TBS. Mr. Sibits was also the Managing Shareholder of
Hausser & Taylor LLC from 1992 to January 2004.
Robert A. OByrne has served as President of
CBIZs Employee Services practice group since December
1998. Mr. OByrne served as President and Chief
Executive Officer of employee benefits brokerage/consulting
firms Robert D. OByrne and Associates, Inc. and The Grant
Nelson Group, Inc. prior to their acquisition by CBIZ in
December 1997. Mr. OByrne has more than 30 years
of experience in the insurance and benefits consulting field.
G. Darrell Hulsey was one of the original founders
of MMP and was appointed President of MMP in May 2007.
Mr. Hulsey has twenty years of experience in the healthcare
industry, specializing in operations management, regulatory
compliance, information system design and implementation, third
party contracting and strategic planning. Mr. Hulsey is a
member of the Radiology Business Managers Association, American
Pathology Foundation, Medical Group Management Association, and
Health Care Compliance Association, and has previously served on
the International Billing Association Compliance Committee.
51
Michael P. Kouzelos joined CBIZ in June 1998, was
appointed Senior Vice President of Strategic Initiatives in
September 2005 and also currently serves as the Chief Operating
Officer of the Employee Services Division. Mr. Kouzelos
served as Vice President of Strategic Initiatives from April
2001 through August 2005, as Vice President of Shared Services
from August 2000 to March 2001, and as Director of Business
Integration from June 1998 to July 2000. Mr. Kouzelos was
associated with KPMG LLP, an international accounting firm, from
1990 to September 1996 and received his Masters in Business
Administration from The Ohio State University in May of 1998.
Mr. Kouzelos is a CPA, Inactive, and a member of the
American Institute of Certified Public Accountants and the Ohio
Society of Certified Public Accountants.
George A. Dufour was appointed Senior Vice President and
Chief Technology Officer in July 2001. Prior to joining CBIZ,
Mr. Dufour served as Corporate Director of Information
Access Services for University Hospitals Health Systems
(UHHS), where he achieved substantial cost savings
by consolidating IS resources throughout the health system.
Prior to joining UHHS in 1999, Mr. Dufour acted as Vice
President and CIO for Akron General Health Systems. From 1986
through 1994, Mr. Dufour was with Blue Cross/Blue Shield of
Ohio (BCBSO) and served most recently there as
Director of Information Systems Development. Mr. Dufour
also served as Vice President of MIS for Mutual Health Services,
a subsidiary of BCBSO. Mr. Dufour commenced his career in
information technology, which includes tenures at Cook United,
Cole National Corporation, General Tire & Rubber,
Picker Corporation, and Sherwin Williams, in 1971 as the
Director of Education for the Institute of Computer Management,
a division of Litton Industries. Mr. Dufour is a member of
the northeast Ohio chapter of Society for Information Management
and the National Information Technology Alliance for
Professional Services firms. Mr. Dufour currently serves on
the Board of Directors of the Information Technology Alliance,
is an advisory member for the Northeast Ohio CIO Symposium, a
member of the Technology Advisory Committee for the Cleveland
Sight Center and an advisory member of the Cleveland CIO Forum
and Executive IT Summit. Mr. Dufour was awarded the 2007
Northeast Ohio CIO of the Year award from the Northeast Ohio
Software Association. Mr. Dufour earned his MBA from
Baldwin Wallace College.
Mark M. Waxman has served as Senior Vice President of
Marketing since 2001. Mr. Waxman has over twenty-five years
experience in marketing and branding. Prior to joining CBIZ, he
was CEO/Creative Director of one of Silicon Valleys most
well-known advertising agencies, Carter Waxman. Most recently,
he was a founding partner of SK Consulting (acquired by CBIZ in
1998) providing strategic marketing and branding services
to a wide range of companies and industries. Mr. Waxman has
been a featured marketing columnist and contributor to many
business and trade publications, and currently serves as the
Chairman of the Board of Artsopolis.com as well as on the Board
of Trustees of the Montalvo Center for the Arts and the West
Valley Mission Foundation, and is a past Chairman of the Board
of the Silicon Valley Chamber of Commerce.
Teresa E. Bur served as Vice President of Human Resources
since January 1999 and was appointed Senior Vice President in
2006. From 1995 to 1999 Ms. Bur served as Director of Human
Resources for Robert D. OByrne & Associates,
Inc. and The Grant Nelson Group, Inc., subsidiaries of CBIZ now
known as CBIZ Employee Services, Inc. Ms. Bur has over
20 years of experience in human resources and is an active
member of the Greater Kansas City Chapter of The Human Resources
Management Association and Society of Human Resources
Management, and is certified as a Senior Professional in Human
Resources.
Kelly J. Marek joined CBIZ in December 1998 and was
appointed Corporate Treasurer in April 2005. Mrs. Marek
served as Corporate Controller from July 1999 through March
2005, and as Manager of External Reporting from December 1998 to
June 1999. Prior to joining CBIZ, Mrs. Marek was associated
with KPMG LLP, an international accounting firm, from 1992 to
December 1998, serving as a Senior Manager of such firm from
July 1998 to December 1998. Mrs. Marek is a CPA and a
member of the American Institute of Certified Public
Accountants, the Ohio Society of Certified Public Accountants
and the Association for Financial Professionals. Mrs. Marek
currently serves as President of the Northeast Ohio Treasury
Management Association.
Robert A. Bosak joined CBIZ in September 2001 and has
served as Corporate Controller since April 2005. Prior to
joining CBIZ, Mr. Bosak served as Corporate Controller and
Director of Financial Operations for BridgeStreet Accommodations
from February 1998 through June 2001. Prior to joining
BridgeStreet Accommodations, Mr. Bosak was Corporate
Controller of the Rock and Roll Hall of Fame and Museum, from
June 1993 through February 1998. Mr. Bosak also worked in
the public accounting industry with two Cleveland based firms
from 1987
52
to 1993. Mr. Bosak is a CPA and a member of the American
Institute of Certified Public Accountants and the Ohio Society
of Certified Public Accountants. Mr. Bosak currently serves
as a member of the Accounting and Audit Committee of the Ohio
Society of Certified Public Accountants.
|
|
Item 11.
|
Executive
Compensation.
|
Information with respect to this item is incorporated by
reference from the discussion under the heading Executive
Compensation in CBIZs Definitive Proxy Statement for
the 2011 Annual Stockholders Meeting to be filed with the
SEC no later than 120 days after the end of CBIZs
fiscal year.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
Information with respect to this item is incorporated by
reference from CBIZs Definitive Proxy Statement for the
2011 Annual Stockholders Meeting to be filed with the SEC
no later than 120 days after the end of CBIZs fiscal
year.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
Information with respect to this item not included below is
incorporated by reference from CBIZs Definitive Proxy
Statement for the 2011 Annual Stockholders Meeting to be
filed with the SEC no later than 120 days after the end of
CBIZs fiscal year.
The following is a summary of certain agreements and
transactions between or among CBIZ and certain related parties.
It is CBIZs policy to enter into transactions with related
parties on terms that, on the whole, are no less favorable than
those that would be available from unaffiliated parties. Based
on CBIZs experience and the terms of its transactions with
unaffiliated parties, it is the Audit Committee of the Board of
Directors and managements belief that the
transactions described below met these standards at the time of
the transactions. Management reviews these transactions as they
occur and monitors them for compliance with the Companys
Code of Conduct, internal procedures and applicable legal
requirements. The Audit Committee reviews and ratifies such
transactions annually, or as they are more frequently brought to
the attention of the Committee by the Companys Director of
Internal Audit, General Counsel or other members of management.
A director is considered independent under NYSE rules if the
Board of Directors determines that the director does not have
any direct or indirect material relationship with CBIZ.
Mr. Gerard is an employee of CBIZ and therefore has been
determined by the Nominating and Governance Committee and the
full Board to fall outside the definition of independent
director. Rick L. Burdick, Michael H. DeGroote, Joseph S.
DiMartino, Richard C. Rochon, Todd J. Slotkin, Donald V. Weir
and Benaree Pratt Wiley are Non-Employee Directors of CBIZ. The
Nominating and Governance Committee and the Board of Directors
have determined that each of Rick L. Burdick, Joseph S.
DiMartino, Richard C. Rochon, Todd J. Slotkin, Donald V. Weir
and Benaree Pratt Wiley are independent directors
within the meaning of the rules of the NYSE, since they had no
material relationship with the Company other than their status
and payment as Non-Employee Directors, and as Stockholders. The
Nominating and Governance Committee and the Board of
Directors have determined that Mssrs. DiMartino, Rochon, Slotkin
and Weir are independent under the SECs audit committee
independence standards.
In connection with these independence determinations, the
Nominating and Governance Committee and the Board of Directors
considered all of the relationships between each director and
CBIZ, and in particular the following relationships:
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|
|
|
|
Rick L. Burdick, a Director of CBIZ, is a partner of Akin Gump
Strauss Hauer & Feld LLP (Akin Gump). Akin
Gump performed legal work for CBIZ during 2010, 2009 and 2008
for which the firm received approximately $0.8 million,
$0.4 million and $0.9 million from CBIZ, respectively.
The Nominating and Governance Committee and the Board of
Directors have determined that Mr. Burdick should be
considered an independent director under the meaning
of the NYSE rules, since the amounts paid to the law firm of
Akin Gump for legal representation of CBIZ throughout 2010 were
not collectively significant under the NYSE rules governing
director independence.
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53
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The Committee and the Board determined that Michael H. DeGroote
should not be considered an independent director
under the meaning of the NYSE rules, primarily in light of his
relationship to a significant stockholder of the Company.
Mr. DeGroote is the son of Michael G. DeGroote, the
beneficiary of a trust which is the largest single shareholder
for the purposes of determining independence. He is also an
officer or director of various privately held companies that
obtain several types of insurance coverage through CBIZ. The
commissions paid to CBIZ for each of the years ended
December 31, 2010, 2009 and 2008 were approximately
$0.1 million.
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|
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|
Richard C. Rochon, a Director of CBIZ, is also an officer or
director of various entities which secured, prior to 2010,
several types of insurance coverage through CBIZ. However, the
commissions paid to CBIZ for the purpose of securing such
coverage, totaling approximately $0.2 million for the years
ended December 31, 2009 and 2008, do not collectively
appear significant under the NYSE rules governing director
independence. During 2010, no coverage for these entities was
acquired through CBIZ following the disposition of these
entities by Mr. Rochons investment group. Therefore,
the Nominating and Governance Committee and the Board of
Directors determined that Mr. Rochon should be considered
an independent director.
|
Pursuant to the Westbury Agreement entered into on
September 14, 2010 by CBIZ with its largest shareholder,
Westbury, a company organized by CBIZ founder Michael G.
DeGroote, CBIZ purchased 7,716,669 shares of CBIZs
common stock at $6.25 per share for a total cost of
approximately $48.2 million. Pursuant to the Westbury
Agreement, CBIZ also purchased an option for $5.0 million,
which expires on September 30, 2013, to purchase up to
approximately 7.7 million shares of CBIZs common
stock at a price of $7.25 per share, which constitutes the
remaining shares of CBIZs common stock held by Westbury.
A number of the businesses acquired by CBIZ are located in
properties that are indirectly owned by persons employed by
CBIZ, none of whom are members of CBIZs senior management.
In the aggregate, CBIZ paid approximately $0.8 million,
$1.0 million and $1.2 million for the years ended
December 31, 2010, 2009 and 2008, respectively, under such
leases which management believes were at market rates.
Robert A. OByrne, President, Employee Services, has an
interest in a partnership that receives commissions from CBIZ
that are paid to certain eligible benefits and insurance
producers in accordance with a formal program to provide
benefits in the event of death, disability, retirement or other
termination. The program was in existence at the time CBIZ
acquired the former company, of which Mr. OByrne was
an owner. During 2010, the partnership did not receive any
payments from CBIZ, and during the years ended December 31,
2009 and 2008, the partnership received from CBIZ approximately
$0.1 million $0.2 million, respectively.
CBIZ maintains joint-referral relationships and ASAs with
independent licensed CPA firms under which CBIZ provides
administrative services in exchange for a fee. These firms are
owned by licensed CPAs who are employed by CBIZ subsidiaries,
and provide audit and attest services to clients including
CBIZs clients. The CPA firms with which CBIZ maintains
service agreements operate as limited liability companies 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 there under
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.
CBIZ acted as guarantor for letters of credit for a CPA firm
with which it has an affiliation. The letters of credit totaled
$3.4 million and $2.6 million as of December 31,
2010 and 2009, respectively. 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 financial statements. Management
does not expect any material changes to result from these
instruments as performance is not expected to be required.
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Item 14.
|
Principal
Accountant Fees and Services.
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Information with respect to this item is incorporated by
reference from CBIZs Definitive Proxy Statement for the
2011 Annual Stockholders Meeting to be filed with the SEC
no later than 120 days after the end of CBIZs fiscal
year.
54
PART IV
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Item 15.
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Exhibits,
Financial Statement Schedules.
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(a) The following documents are filed as part of this
Annual Report or incorporated by reference:
1. Financial Statements.
As to financial statements and supplementary information,
reference is made to Index to Financial Statements
on
page F-1
of this Annual Report.
2. Financial Statement Schedules.
As to financial statement schedules, reference is made to
Index to Financial Statements on
page F-1
of this Annual Report.
3. Exhibits.
The following documents are filed as exhibits to this
Form 10-K
pursuant to Item 601 of
Regulation S-K.
Since its incorporation, CBIZ has operated under various names
including: Republic Environmental Systems, Inc.; International
Alliance Services, Inc.; Century Business Services, Inc.; and
CBIZ, Inc. Exhibits listed below refer to these names
collectively as the Company.
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Exhibit No.
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|
Description
|
|
|
2.1
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Purchase Agreement, dated November 24, 2008, among CBIZ,
Inc., CBIZ Accounting Tax & Advisory of New York, LLC,
Mahoney Cohen & Company, CPA, P.C., Mahoney Cohen
Consulting Corp., Mahoney Cohen Family Office Services LLC and
the members of Mahoney Cohen Family Office Services LLC (filed
as Exhibit 2.1 to the Companys Report on
Form 8-K
on November 25, 2008 and incorporated herein by reference).
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3.1
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Amended and Restated Certificate of Incorporation of the Company
(filed as Exhibit 3.1 to the Companys Registration
Statement on Form 10, file
no. 0-25890,
and incorporated herein by reference).
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3.2
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Certificate of Amendment of the Certificate of Incorporation of
the Company dated October 17, 1996 (filed as
Exhibit 3.2 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 1996, and incorporated
herein by reference).
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3.3
|
|
|
Certificate of Amendment to the Certificate of Incorporation of
the Company effective December 23, 1997 (filed as
Exhibit 3.3 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 1997, and incorporated
herein by reference).
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3.4
|
|
|
Certificate of Amendment of the Certificate of Incorporation of
the Company dated September 10, 1998 (filed as
Exhibit 3.4 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 1998, and incorporated
herein by reference).
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3.5
|
|
|
Certificate of Amendment of the Certificate of Incorporation of
the Company, effective August 1, 2005 (filed as
Exhibit 3.5 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2005, and incorporated
herein by reference).
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3.6
|
|
|
Amended and Restated Bylaws of the Company (filed as
Exhibit 3.2 to the Companys Registration Statement on
Form 10, file
no. 0-25890,
and incorporated herein by reference).
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3.7
|
|
|
Amendment to Amended and Restated Bylaws of the Company dated
November 1, 2007 (filed as Exhibit 3.1 to the
Companys Report on
Form 8-K
dated November 1, 2007, and incorporated herein by
reference).
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4.1
|
|
|
Form of Stock Certificate of Common Stock of the Company (filed
as Exhibit 4.1 to the Companys Annual Report
Form 10-K
for the year ended December 31, 1998, and incorporated
herein by reference).
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4.2
|
|
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Employee Stock Investment Plan (filed as Exhibit 4.4 to the
Companys Report on
Form S-8
filed June 1, 2001, and incorporated herein by reference).
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4.3
|
|
|
Indenture, dated as of May 30, 2006, between CBIZ, Inc. and
U.S. Bank National Association as Trustee (filed as
Exhibit 4.1 to the Companys Report on
Form 8-K
dated May 23, 2006, and incorporated herein by reference).
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55
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|
|
Exhibit No.
|
|
Description
|
|
|
4.4
|
|
|
Registration Rights Agreement, dated as of May 30, 2006,
between CBIZ, Inc. and Banc of America Securities, LLC (filed as
Exhibit 4.2 to the Companys Report on
Form 8-K
dated May 23, 2006, and incorporated herein by reference).
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4.5
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|
|
Indenture, dated as of September 27, 2010, between CBIZ,
Inc. and U.S. Bank National Association as Trustee (filed as
Exhibit 4.1 to the Companys Report on
Form 8-K
dated September 27, 2010, and incorporated herein by
reference).
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10.1
|
|
|
2002 Stock Incentive Plan (filed as Appendix A to the
Companys Proxy Statement for the 2002 Annual Meeting of
Stockholders dated April 1, 2002, and incorporated herein
by reference).
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|
10.2
|
|
|
Severance Protection Agreement by and between the Company and
Jerome P. Grisko, Jr. (filed as Exhibit 10.11 to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2000, and incorporated
herein by reference).
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10.3
|
|
|
Employment Agreement by and between the Company and Ware H.
Grove (filed as Exhibit 10.14 to the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2000, and incorporated
herein by reference).
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|
10.4
|
|
|
Amended Employment Agreement by and between the Company and
Steven L. Gerard (filed as Exhibit 99.1 to the
Companys Report on
Form 8-K
dated February 8, 2007, and incorporated herein by
reference).
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10.5
|
|
|
Employment Agreement by and between the Company and David J.
Sibits, dated April 17, 2007 (filed as Exhibit 10.8 to
the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007, and incorporated
herein by reference).
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10.6
|
|
|
Credit agreement dated as of June 4, 2010 by and among
CBIZ, Inc., Bank of America, N.A., as agent, lender, issuing
band and swing line bank, and the other financial institutions
from time to time party to the Credit Agreement (filed as
Exhibit 10.1 to the Companys Report on
Form 8-K
dated June 4, 2010, and incorporated herein by reference).
|
|
10.7
|
|
|
Stock and Option Purchase Agreement dated September 14,
2010, by and among Westbury (Bermuda) Ltd., Westbury Trust,
Michael G. DeGroote, and CBIZ, Inc. (filed as Exhibit 10.1
to the Companys Report on
Form 8-K
dated September 17, 2010, and incorporated herein by
reference).
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10.8
|
|
|
First Amendment to Credit Agreement, dated as of
September 14, 2010, by and among CBIZ, Inc., the Guarantors
(as defined in the Credit Agreement), the several financial
institutions from time to time party thereto, and Bank of
America, N.A., as administrative agent (filed as
Exhibit 10.2 to the Companys Report on
Form 8-K
dated September 17, 2010, and incorporated herein by
reference).
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|
10.9
|
|
|
Purchase Agreement, dated as of September 21, 2010, between
CBIZ, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as representative of the initial purchasers named
in Schedule A thereto (filed as Exhibit 10.1 to the
Companys Report on
Form 8-K
dated September 27, 2010, and incorporated herein by
reference).
|
|
10.10
|
|
|
Amended and Restated Employment Agreement by and between the
Company and Ware H. Grove, dated November 22, 2010 (filed
as Exhibit 99.1 to the Companys Report on
Form 8-K
dated November 22, 2010, and incorporated herein by
reference).
|
|
21.1*
|
|
|
List of Subsidiaries of CBIZ, Inc.
|
|
23*
|
|
|
Consent of KPMG LLP
|
|
24*
|
|
|
Powers of attorney (included on the signature page hereto).
|
|
31.1*
|
|
|
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2*
|
|
|
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1*
|
|
|
Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.2*
|
|
|
Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
*
|
|
Indicates documents filed herewith.
|
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, CBIZ, Inc. has duly caused this
Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CBIZ, INC.
(Registrant)
Ware H. Grove
Chief Financial Officer
March 15, 2011
KNOW ALL MEN AND WOMEN BY THESE PRESENTS that each person whose
signature appears below on this Annual Report hereby constitutes
and appoints Steven L. Gerard and Ware H. Grove, and each of
them, with full power to act without the other, his true and
lawful attorney-in-fact and agent, with full power of
substitution for him and her and his and her name, place and
stead, in all capacities (until revoked in writing), to sign any
and all amendments to this Annual Report of CBIZ, Inc. and to
file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto each attorney-in-fact and agent, full
power and authority to do and perform each and every act and
thing requisite and necessary fully to all intents and purposes
as he might or could do in person, thereby ratifying and
confirming all that each attorney-in-fact and agent, or their or
his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report has been signed below by the following
persons on behalf of CBIZ, Inc. and in the capacities and on the
date indicated above.
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|
|
|
|
|
|
|
|
|
/s/ Steven
L. Gerard
Steven
L. Gerard
Chairman and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
/s/ Ware
H. Grove
Ware
H. Grove
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
|
|
|
/s/ Rick
L. Burdick
Rick
L. Burdick
Director
|
|
|
|
/s/ Michael
H. DeGroote
Michael
H. DeGroote
Director
|
|
|
|
|
|
/s/ Joseph
S. DiMartino
Joseph
S. DiMartino
Director
|
|
|
|
/s/ Richard
C. Rochon
Richard
C. Rochon
Director
|
|
|
|
|
|
/s/ Todd
Slotkin
Todd
Slotkin
Director
|
|
|
|
/s/ Donald
V. Weir
Donald
V. Weir
Director
|
|
|
|
|
|
/s/ Benaree
Pratt Wiley
Benaree
Pratt Wiley
Director
|
|
|
|
|
57
CBIZ,
INC. AND SUBSIDIARIES
INDEX TO
FINANCIAL STATEMENTS
|
|
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|
|
|
|
Page
|
|
|
|
|
F-2 - F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-49
|
|
F-1
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
CBIZ, Inc.:
We have audited CBIZ, Inc.s (the Company) internal control
over financial reporting as of December 31, 2010, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on
Internal Control Over Financial Reporting included in
Item 9A. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed 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. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of CBIZ, Inc. and subsidiaries as of
December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders equity and
comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 2010, and our
report dated March 15, 2011 expressed an unqualified
opinion on those consolidated financial statements.
Cleveland, Ohio
March 15, 2011
F-2
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
CBIZ, Inc.:
We have audited the accompanying consolidated balance sheets of
CBIZ, Inc. and subsidiaries (the Company) as of
December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders equity and
comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 2010 as listed in
the accompanying index on
page F-1.
In connection with our audits of the consolidated financial
statements, we have also audited the financial statement
schedule listed in the accompanying index on
page F-1.
These consolidated financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2010 and 2009,
and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2010,
in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 15, 2011 expressed
an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
Cleveland, Ohio
March 15, 2011
F-3
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
724
|
|
|
$
|
7,178
|
|
Restricted cash
|
|
|
20,171
|
|
|
|
17,511
|
|
Accounts receivable, net
|
|
|
138,433
|
|
|
|
128,659
|
|
Income taxes refundable
|
|
|
3,684
|
|
|
|
3,391
|
|
Deferred income taxes current
|
|
|
4,236
|
|
|
|
7,579
|
|
Other current assets
|
|
|
12,069
|
|
|
|
12,463
|
|
Assets of discontinued operations
|
|
|
141
|
|
|
|
4,221
|
|
|
|
|
|
|
|
|
|
|
Current assets before funds held for clients
|
|
|
179,458
|
|
|
|
181,002
|
|
Funds held for clients current
|
|
|
73,987
|
|
|
|
87,925
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
253,445
|
|
|
|
268,927
|
|
Property and equipment, net
|
|
|
23,896
|
|
|
|
26,833
|
|
Deferred income taxes non-current, net
|
|
|
837
|
|
|
|
237
|
|
Goodwill and other intangible assets, net
|
|
|
426,410
|
|
|
|
375,211
|
|
Assets of deferred compensation plan
|
|
|
33,361
|
|
|
|
27,457
|
|
Funds held for clients non-current
|
|
|
10,216
|
|
|
|
10,545
|
|
Other assets
|
|
|
8,134
|
|
|
|
3,888
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
756,299
|
|
|
$
|
713,098
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
30,897
|
|
|
$
|
25,704
|
|
Accrued personnel costs
|
|
|
33,221
|
|
|
|
34,242
|
|
Notes payable current
|
|
|
10,983
|
|
|
|
13,410
|
|
Convertible notes, net
|
|
|
39,250
|
|
|
|
|
|
Other current liabilities
|
|
|
27,321
|
|
|
|
13,885
|
|
Liabilities of discontinued operations
|
|
|
289
|
|
|
|
2,291
|
|
|
|
|
|
|
|
|
|
|
Current liabilities before client fund obligations
|
|
|
141,961
|
|
|
|
89,532
|
|
Client fund obligations
|
|
|
87,362
|
|
|
|
101,279
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
229,323
|
|
|
|
190,811
|
|
Convertible notes, net
|
|
|
116,577
|
|
|
|
93,848
|
|
Bank debt
|
|
|
118,900
|
|
|
|
110,000
|
|
Income taxes payable non-current
|
|
|
5,285
|
|
|
|
6,686
|
|
Deferred compensation plan obligations
|
|
|
33,361
|
|
|
|
27,457
|
|
Other non-current liabilities
|
|
|
23,181
|
|
|
|
13,678
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
526,627
|
|
|
|
442,480
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
Common stock, par value $0.01 per share; shares authorized
250,000; shares issued 109,626 and 108,075; shares outstanding
50,048 and 61,936
|
|
|
1,096
|
|
|
|
1,081
|
|
Additional paid-in capital
|
|
|
539,389
|
|
|
|
518,637
|
|
Retained earnings
|
|
|
45,978
|
|
|
|
21,464
|
|
Treasury stock, 59,578 and 46,139 shares
|
|
|
(355,851
|
)
|
|
|
(269,642
|
)
|
Accumulated other comprehensive loss
|
|
|
(940
|
)
|
|
|
(922
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
229,672
|
|
|
|
270,618
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
756,299
|
|
|
$
|
713,098
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the consolidated financial
statements.
F-4
CBIZ,
INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 2010, 2009 AND
2008
(In
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenue
|
|
$
|
732,505
|
|
|
$
|
739,136
|
|
|
$
|
685,574
|
|
Operating expenses
|
|
|
646,793
|
|
|
|
650,973
|
|
|
|
587,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
85,712
|
|
|
|
88,163
|
|
|
|
97,819
|
|
Corporate general and administrative expenses
|
|
|
29,614
|
|
|
|
30,722
|
|
|
|
28,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
56,098
|
|
|
|
57,441
|
|
|
|
69,128
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(15,308
|
)
|
|
|
(13,392
|
)
|
|
|
(10,786
|
)
|
Gain on sale of operations, net
|
|
|
466
|
|
|
|
989
|
|
|
|
745
|
|
Other income (expense), net
|
|
|
3,532
|
|
|
|
6,622
|
|
|
|
(7,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(11,310
|
)
|
|
|
(5,781
|
)
|
|
|
(17,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax expense
|
|
|
44,788
|
|
|
|
51,660
|
|
|
|
51,469
|
|
Income tax expense
|
|
|
16,848
|
|
|
|
19,714
|
|
|
|
19,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
27,940
|
|
|
|
31,946
|
|
|
|
31,822
|
|
Loss from operations of discontinued operations, net of tax
|
|
|
(2,453
|
)
|
|
|
(760
|
)
|
|
|
(1,150
|
)
|
(Loss) gain on disposal of discontinued operations, net of tax
|
|
|
(973
|
)
|
|
|
210
|
|
|
|
(268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,514
|
|
|
$
|
31,396
|
|
|
$
|
30,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.48
|
|
|
$
|
0.52
|
|
|
$
|
0.51
|
|
Discontinued operations
|
|
|
(0.06
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.42
|
|
|
$
|
0.51
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.48
|
|
|
$
|
0.52
|
|
|
$
|
0.51
|
|
Discontinued operations
|
|
|
(0.06
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.42
|
|
|
$
|
0.51
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
|
57,692
|
|
|
|
61,200
|
|
|
|
61,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
58,193
|
|
|
|
61,859
|
|
|
|
62,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the consolidated financial
statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Issued
|
|
|
|
|
|
Additional
|
|
|
Deficit/
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Treasury
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Shares
|
|
|
Stock
|
|
|
Loss
|
|
|
Totals
|
|
|
December 31, 2007
|
|
|
104,151
|
|
|
$
|
1,041
|
|
|
$
|
489,229
|
|
|
$
|
(40,559
|
)
|
|
|
39,514
|
|
|
$
|
(214,883
|
)
|
|
$
|
(102
|
)
|
|
$
|
234,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,404
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63
|
)
|
|
|
(63
|
)
|
Unrealized losses on available for sale securities, net of
income tax benefit of $442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(670
|
)
|
|
|
(670
|
)
|
Unrealized losses on interest rate swap, net of income tax
benefit of $121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(207
|
)
|
|
|
(207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,464
|
|
Share repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,803
|
|
|
|
(41,412
|
)
|
|
|
|
|
|
|
(41,412
|
)
|
Restricted stock
|
|
|
318
|
|
|
|
4
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
1,135
|
|
|
|
11
|
|
|
|
4,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,097
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
3,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,740
|
|
Tax benefit from employee share plans
|
|
|
|
|
|
|
|
|
|
|
1,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,797
|
|
Business acquisitions
|
|
|
1,185
|
|
|
|
12
|
|
|
|
9,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
106,789
|
|
|
$
|
1,068
|
|
|
$
|
508,023
|
|
|
$
|
(10,155
|
)
|
|
|
44,317
|
|
|
$
|
(256,295
|
)
|
|
$
|
(1,042
|
)
|
|
$
|
241,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,396
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64
|
)
|
|
|
(64
|
)
|
Unrealized gains on available for sale securities, net of income
tax expense of $214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
321
|
|
|
|
321
|
|
Unrealized gains on interest rate swap, net of income tax
expense of $51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,739
|
|
Cumulative effect of adoption of accounting for
other-than-temporary
impaired investments, net of income tax benefit of $149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
(223
|
)
|
|
|
|
|
Share repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,822
|
|
|
|
(13,347
|
)
|
|
|
|
|
|
|
(13,347
|
)
|
Restricted stock
|
|
|
385
|
|
|
|
4
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
364
|
|
|
|
4
|
|
|
|
1,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,321
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,754
|
|
Tax benefit from employee share plans
|
|
|
|
|
|
|
|
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
478
|
|
Business acquisitions
|
|
|
537
|
|
|
|
5
|
|
|
|
4,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
108,075
|
|
|
$
|
1,081
|
|
|
$
|
518,637
|
|
|
$
|
21,464
|
|
|
|
46,139
|
|
|
$
|
(269,642
|
)
|
|
$
|
(922
|
)
|
|
$
|
270,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,514
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71
|
)
|
|
|
(71
|
)
|
Unrealized losses on available for sale securities, net of
income tax benefit of $38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
|
|
(57
|
)
|
Unrealized gains on interest rate swap, net of income tax
expense of $64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,496
|
|
Issuance of convertible notes, net of taxes of $5,024
|
|
|
|
|
|
|
|
|
|
|
8,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,555
|
|
Share repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,439
|
|
|
|
(86,209
|
)
|
|
|
|
|
|
|
(86,209
|
)
|
Restricted stock
|
|
|
379
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
304
|
|
|
|
3
|
|
|
|
1,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,220
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
5,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,306
|
|
Tax benefit from employee share plans
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
Business acquisitions
|
|
|
868
|
|
|
|
9
|
|
|
|
5,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
109,626
|
|
|
$
|
1,096
|
|
|
$
|
539,389
|
|
|
$
|
45,978
|
|
|
|
59,578
|
|
|
$
|
(355,851
|
)
|
|
$
|
(940
|
)
|
|
$
|
229,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the consolidated financial
statements.
F-6
CBIZ,
INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 2010, 2009 AND
2008
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,514
|
|
|
$
|
31,396
|
|
|
$
|
30,404
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
|
|
2,453
|
|
|
|
760
|
|
|
|
1,150
|
|
Loss (gain) on disposal of discontinued operations, net of tax
|
|
|
973
|
|
|
|
(210
|
)
|
|
|
268
|
|
Gain on sale of long-term investment
|
|
|
|
|
|
|
|
|
|
|
(796
|
)
|
Gain on sale of operations, net
|
|
|
(466
|
)
|
|
|
(989
|
)
|
|
|
(745
|
)
|
Loss on redemption of convertible bonds
|
|
|
1,996
|
|
|
|
|
|
|
|
|
|
Asset impairments
|
|
|
263
|
|
|
|
|
|
|
|
2,251
|
|
Amortization of discount on convertible notes
|
|
|
4,210
|
|
|
|
3,961
|
|
|
|
3,670
|
|
Amortization of deferred financing costs
|
|
|
1,252
|
|
|
|
882
|
|
|
|
735
|
|
Amortization of discount on contingent earnout liability
|
|
|
177
|
|
|
|
|
|
|
|
|
|
Provision for credit losses and bad debt, net of recoveries
|
|
|
4,465
|
|
|
|
7,826
|
|
|
|
6,686
|
|
Depreciation and amortization expense
|
|
|
20,333
|
|
|
|
20,498
|
|
|
|
14,922
|
|
Adjustment to contingent earnout liability
|
|
|
(1,516
|
)
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(2,079
|
)
|
|
|
245
|
|
|
|
(2,392
|
)
|
Employee stock awards
|
|
|
5,306
|
|
|
|
4,754
|
|
|
|
3,740
|
|
Excess tax benefits from share based payment arrangements
|
|
|
(54
|
)
|
|
|
(478
|
)
|
|
|
(1,797
|
)
|
Changes in assets and liabilities, net of acquisitions and
divestitures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
(416
|
)
|
|
|
524
|
|
|
|
(2,633
|
)
|
Accounts receivable, net
|
|
|
(12,736
|
)
|
|
|
(10,311
|
)
|
|
|
(12,405
|
)
|
Other assets
|
|
|
1,273
|
|
|
|
124
|
|
|
|
(52
|
)
|
Accounts payable
|
|
|
5,265
|
|
|
|
(2,256
|
)
|
|
|
1,386
|
|
Income taxes payable
|
|
|
(1,054
|
)
|
|
|
(86
|
)
|
|
|
(2,843
|
)
|
Accrued personnel costs
|
|
|
(1,246
|
)
|
|
|
(6,113
|
)
|
|
|
(644
|
)
|
Other liabilities
|
|
|
2,804
|
|
|
|
(1,774
|
)
|
|
|
2,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operations
|
|
|
55,717
|
|
|
|
48,753
|
|
|
|
43,577
|
|
Operating cash flows (used in) provided by discontinued
operations
|
|
|
(2,390
|
)
|
|
|
852
|
|
|
|
(4,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
53,327
|
|
|
|
49,605
|
|
|
|
38,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisitions and contingent consideration, net of cash
acquired
|
|
|
(49,402
|
)
|
|
|
(20,185
|
)
|
|
|
(96,335
|
)
|
Acquisition of other intangible assets
|
|
|
(19
|
)
|
|
|
(17
|
)
|
|
|
(1,615
|
)
|
Proceeds from sale of investment
|
|
|
|
|
|
|
|
|
|
|
796
|
|
Payments on sales of divested and discontinued operations
|
|
|
8,060
|
|
|
|
895
|
|
|
|
5,412
|
|
Additions to property and equipment, net
|
|
|
(2,682
|
)
|
|
|
(4,029
|
)
|
|
|
(8,118
|
)
|
Other
|
|
|
18
|
|
|
|
419
|
|
|
|
(24
|
)
|
Investing cash flows used in discontinued operations
|
|
|
|
|
|
|
(73
|
)
|
|
|
(498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(44,025
|
)
|
|
|
(22,990
|
)
|
|
|
(100,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from bank debt
|
|
|
554,955
|
|
|
|
429,345
|
|
|
|
353,175
|
|
Payment of bank debt
|
|
|
(546,055
|
)
|
|
|
(444,345
|
)
|
|
|
(258,175
|
)
|
Proceeds from issuance of convertible notes
|
|
|
130,000
|
|
|
|
|
|
|
|
|
|
Repurchase of convertible notes
|
|
|
(60,000
|
)
|
|
|
|
|
|
|
|
|
Payment of acquired debt
|
|
|
|
|
|
|
|
|
|
|
(1,544
|
)
|
Payment of notes payable and capitalized leases, net
|
|
|
(154
|
)
|
|
|
(274
|
)
|
|
|
(428
|
)
|
Deferred financing costs
|
|
|
(6,596
|
)
|
|
|
(37
|
)
|
|
|
(669
|
)
|
Payment for acquisition of treasury stock
|
|
|
(86,209
|
)
|
|
|
(13,347
|
)
|
|
|
(41,412
|
)
|
Payment of contingent consideration of acquisitions
|
|
|
(2,971
|
)
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
1,220
|
|
|
|
1,321
|
|
|
|
4,097
|
|
Excess tax benefit from exercise of stock awards
|
|
|
54
|
|
|
|
478
|
|
|
|
1,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(15,756
|
)
|
|
|
(26,859
|
)
|
|
|
56,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(6,454
|
)
|
|
|
(244
|
)
|
|
|
(4,722
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
7,178
|
|
|
|
7,422
|
|
|
|
12,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
724
|
|
|
$
|
7,178
|
|
|
$
|
7,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the consolidated financial
statements.
F-7
CBIZ,
INC. AND SUBSIDIARIES
|
|
1.
|
Organization
and Summary of Significant Accounting Policies
|
Organization
CBIZ, Inc. is a diversified services company which, acting
through its subsidiaries, provides professional business
services primarily to small and medium-sized businesses, as well
as individuals, governmental entities, and
not-for-profit
enterprises throughout the United States and parts of Canada.
CBIZ manages and reports its operations along four practice
groups: Financial Services, Employee Services, Medical
Management Professionals (MMP) and National
Practices. A further description of products and services
offered by each of the practice groups is provided in
Note 22.
Principles
of Consolidation
The accompanying consolidated financial statements reflect the
operations of CBIZ, Inc. and all of its wholly-owned
subsidiaries (CBIZ or the Company). All
intercompany accounts and transactions have been eliminated in
consolidation.
CBIZ has determined that its relationship with certain Certified
Public Accounting (CPA) firms with whom it maintains
administrative service agreements (ASAs) qualify as
variable interest entities. The accompanying consolidated
financial statements do not reflect the operations or accounts
of variable interest entities as the impact is not material to
the consolidated financial condition, results of operations or
cash flows of CBIZ.
The CPA firms with which CBIZ maintains administrative service
agreements may operate as limited liability companies 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 there under
is intended to constitute control of the CPA firms by CBIZ. CBIZ
and the CPA firms maintain their own respective liability and
risk of loss in connection with performance of each of their
respective services.
Fees earned by CBIZ under the ASAs are recorded as revenue (at
net realizable value) in the consolidated statements of
operations. In the event that accounts receivable and unbilled
work in process become uncollectible by the CPA firms, the
service fee due to CBIZ is typically reduced on a proportional
basis. Although the ASAs do not constitute control, CBIZ is one
of the beneficiaries of the agreements and may bear certain
economic risks.
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 collectability of accounts receivable
and unbilled revenue, the realizability of goodwill and other
intangible assets, the fair value of certain assets, the
valuation of stock options in determining compensation expense,
estimates of accrued liabilities (such as incentive
compensation, self-funded health insurance accruals, legal
reserves, income tax uncertainties, future contingent purchase
price obligations, and consolidation and integration reserves),
the provision for income taxes, the realizability of deferred
tax assets, and other factors. Managements estimates and
assumptions are derived from and are continually evaluated based
upon available information, judgment and experience. Actual
results could differ from those estimates.
Reclassifications
Certain amounts in the 2009 and 2008 consolidated financial
statements and disclosures have been reclassified to conform to
the current year presentation, including the impact of
discontinued operations.
F-8
CBIZ,
INC. AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash and
Cash Equivalents
Cash and cash equivalents include cash on hand and short-term
highly liquid investments with an original maturity of three
months or less at the date of purchase.
Restricted
Cash
Funds held by CBIZ in relation to its capital and investment
advisory services are recorded in restricted cash, as those
funds are restricted in accordance with applicable Financial
Industry Regulatory Authority (FINRA) regulations.
Funds on deposit from clients in connection with the
pass-through of insurance premiums to the carrier are also
recorded in restricted cash; the related liability for these
funds is recorded in accounts payable. Funds held in escrow
related to sales of operations are also classified as restricted
cash.
Funds
Held for Clients and Client Fund Obligations
Services provided by CBIZ include the preparation of payroll
checks, federal, state, and local payroll tax returns, and
flexible spending account administration. In relation to these
services, as well as other similar service offerings, CBIZ
collects funds from its clients accounts in advance of
paying client obligations. Funds that are collected before they
are due are segregated and reported separately as Funds
Held for Clients in the consolidated balance sheets. Other
than certain federal and state regulations pertaining to
flexible spending account administration, there are no
regulatory or other contractual restrictions placed on these
funds.
Funds Held for Clients are reported as current and non-current
assets, as appropriate, based upon characteristics of the
underlying investments, and Client Fund Obligations are
reported as current liabilities. If the par value of investments
held does not approximate fair value, the balance in Funds Held
for Clients may not be equal to the balance in Client
Fund Obligations. The amount of collected but not yet
remitted funds may vary significantly during the year. Funds
Held for Clients include cash, overnight investments, corporate
bonds and auction rate securities (ARS). See
Note 5 for further discussion of ARS.
Derivative
Instruments and Hedging Activities
Derivatives are recognized as either assets or liabilities in
the consolidated balance sheets and are measured at fair value.
The treatment of gains and losses resulting from changes in the
fair values of derivative instruments is dependent on the use of
the respective derivative instruments and whether they qualify
for hedge accounting. See Note 5 for further discussion of
derivative instruments.
Accounts
Receivable and Allowance for Doubtful Accounts
CBIZ carries accounts receivable at their face amount less
allowances for doubtful accounts, and carries unbilled revenues
at estimated net realizable value. Assessing the collectability
of receivables (billed and unbilled) requires management
judgment. When evaluating the adequacy of the allowance for
doubtful accounts and the overall collectability of receivables,
CBIZ analyzes historical bad debts, client credit-worthiness,
the age of accounts receivable and current economic trends and
conditions.
Goodwill
CBIZ utilizes the acquisition method of accounting for all
business combinations. In accordance with generally accepted
accounting principles, goodwill is not amortized, but rather is
tested for impairment annually during the fourth quarter of each
year. Impairment testing may be performed 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. To conduct a goodwill impairment test, CBIZ
estimates the fair value of its reporting units utilizing a
combination of the discounted cash flow (income approach) and
market comparable (market approach) methods. Under the income
approach, fair value is estimated as the present value of
estimated future cash flows. Under the
F-9
CBIZ,
INC. AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
market approach, fair value is estimated by applying the
multiples of comparable companies and sales transactions to
CBIZs reporting units.
The estimated fair value of each reporting unit is compared with
the respective reporting units net asset carrying value.
If the carrying value exceeds fair value, a possible impairment
of goodwill exists and further evaluation is performed.
Long-Lived
Assets
Long-lived assets primarily include property and equipment and
intangible assets, which primarily consist of client lists and
non-compete agreements. The intangible assets are amortized over
their expected periods of benefit, which generally ranges from
two to ten years. Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of such assets or groups of assets may not be
recoverable. Recoverability of long-lived assets or groups of
assets is assessed based on a comparison of the undiscounted
cash flows to the recorded value of the asset. If an impairment
is indicated, the asset is written down to its estimated fair
value based on a discounted cash flow analysis. Determining the
fair value of long-lived assets includes significant judgment by
management, and different judgments could yield different
results.
Property
and Equipment
Property and equipment is recorded at cost less accumulated
depreciation and amortization. Depreciation and amortization are
provided on a straight-line basis over the following estimated
useful lives:
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Buildings
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25 to 40 years
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Furniture and fixtures
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5 to 10 years
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Capitalized software
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2 to 7 years
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Equipment
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3 to 7 years
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Leasehold improvements are amortized over the shorter of their
estimated useful lives or the remaining term of the respective
lease.
The cost of software purchased or developed for internal use is
capitalized and amortized to expense using the straight-line
method over an estimated useful life not to exceed seven years.
Capitalized software is classified as property and
equipment, net in the consolidated balance sheets.
Income
Taxes
Income taxes are provided for the tax effects of transactions
reported in the consolidated financial statements and consist of
taxes currently payable and deferred taxes. Deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax basis, and operating losses and tax credit
carryforwards. State income tax credits are accounted for using
the flow-through method.
A valuation allowance is provided when it is more likely than
not that some portion of a deferred tax asset will not be
realized. CBIZ determines valuation allowances based on all
available evidence. Such evidence includes historical results,
the reversal of deferred tax liabilities, expectations of future
consolidated
and/or
separate company profitability and the feasibility of
tax-planning strategies. Determining valuation allowances
includes significant judgment by management, and different
judgments could yield different results.
Accounting for uncertain tax positions requires a
more-likely-than-not threshold for recognition in the
consolidated financial statements. The Company recognizes a tax
benefit based on whether it is more-likely-than-not that a tax
position will be sustained. The Company records a liability to
the extent that a tax position taken or expected to be taken on
a tax return exceeds the amount recognized in the consolidated
financial statements.
F-10
CBIZ,
INC. AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue
Recognition and Valuation of Unbilled Revenues
Revenue is recognized only when all of the following are
present: persuasive evidence of an arrangement exists, delivery
has occurred or services have been rendered, the Companys
fee to the client is fixed or determinable, and collectability
is reasonably assured. Contract terms are typically contained in
a signed agreement with the client (or when applicable, other
third parties) which generally defines the scope of services to
be provided, pricing of services, and payment terms generally
ranging from invoice date to 90 days after invoice date.
Billing may occur prior to, during, or upon completion of the
service. CBIZ typically does not have acceptance provisions or
right of refund arrangements included in these agreements.
Contract terms vary depending on the scope of service provided,
the deliverables, and the complexity of the engagement.
CBIZ offers a vast array of products and business services to
its clients. Those services are delivered through four practice
groups. A description of revenue recognition, as it relates to
those groups, is provided below.
Financial Services Revenue primarily
consists of fees for services rendered to the Companys
client for accounting services, preparation of tax returns,
consulting services, compliance projects, services pursuant to
administrative service agreements (described under
Variable Interest Entities), and valuation services
including fairness opinions, business plans, litigation support,
purchase price allocations and derivative valuations. Clients
are billed for these services based upon a time and expense
model, a predetermined
agreed-upon
fixed fee, or as a percentage of savings.
Revenue recognition as it pertains to each of these arrangements
is as follows:
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Time and Expense Arrangements Revenue is recognized
based upon actual hours incurred on client projects at expected
net realizable rates per hour, plus
agreed-upon
out-of-pocket
expenses. The cumulative impact on any subsequent revision in
the estimated realizable value of unbilled fees for a particular
client project is reflected in the period in which the change
becomes known.
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Fixed Fee Arrangements Revenue for fixed-fee
arrangements is recognized over the performance period based
upon progress towards completion, which is determined based upon
actual hours incurred on the client project compared to
estimated total hours to complete the client project.
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Contingent Revenue Arrangements Revenue is
recognized when savings to the client is determined and
collection is reasonably assured.
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Administrative Service Agreement Revenue Revenue for
administrative service fees is recognized as services are
provided, based upon actual hours incurred.
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Employee Services Revenue consists
primarily of brokerage and agency commissions, fee income for
administering health and retirement plans and payroll service
fees. Revenue also includes investment income related to client
payroll funds that are held in CBIZ accounts, as is industry
practice. A description of the revenue recognition, based on the
service provided, insurance product sold, and billing
arrangement, is provided below.
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Commissions Revenue Commissions relating to
brokerage and agency activities whereby CBIZ has primary
responsibility for the collection of premiums from the insured
(agency or indirect billing) are recognized as of the latter of
the effective date of the insurance policy or the date billed to
the customer; commissions to be received directly from insurance
companies (direct billing) are recognized when the data
necessary from the carriers to properly record revenue becomes
available; and life insurance commissions are recognized when
the policy becomes effective. Commission revenue is reported net
of
sub-broker
commissions, and reserves for estimated policy cancellations and
terminations. The cancellation and termination reserve is based
upon estimates and assumptions using historical cancellation and
termination experience and other current factors to project
future experience. CBIZ periodically reviews the adequacy of the
reserve and makes adjustments as necessary. The use of different
estimates or assumptions could produce different results.
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F-11
CBIZ,
INC. AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Commissions which are based upon certain performance targets are
recognized at the earlier of written notification that the
target has been achieved, or cash collection.
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Fee income Fee income is recognized in the period in
which services are provided, and may be based on predetermined
agreed-upon
fixed fees, actual hours incurred on an hourly fee basis, or
asset-based fees. Revenue for fixed-fee arrangements is
recognized on a straight-line basis over the contract period, as
these services are provided to clients continuously throughout
the term of the arrangement. Revenue which is based upon actual
hours incurred is recognized as services are performed.
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Revenue for asset-based fees is recognized when the data
necessary to compute revenue is determinable, which is typically
when either market valuation information is available, the data
necessary to compute fees is made available by third party
administrators or when cash is received. CBIZ only recognizes
revenue when cash is received for those arrangements where the
data necessary to compute the Companys fee is not
available to the Company in a timely manner.
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Payroll Revenue related to payroll processing fees
is recognized when the actual payroll processing occurs. Revenue
related to investment income earned on payroll funds is based
upon actual amounts earned on those funds and is recognized in
the period that the income is earned.
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MMP Revenue is primarily related to
fees charged to clients for billing, collection and
full-practice management services, which are typically charged
to clients based upon a percentage of net collections on the
Companys clients patient accounts or as a fee per
transaction processed. Revenue also relates to fees charged to
clients for statement mailing services. The revenue recognition
as it pertains to each of these arrangements is as follows:
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Fee income For those arrangements where fees to
clients are determined based upon a percentage of net
collections, revenue is determinable, earned and recognized when
payments are received by the client on their patient accounts.
For those arrangements where clients are charged a fee for each
transaction processed, revenue is typically recognized
proportionately over a predetermined service period.
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Statement mailing services Revenues for statement
mailing services are recognized when statements are processed
and mailed.
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National Practices The business units
that comprise the National Practices group offer a variety of
services. A description of revenue recognition associated with
the primary services is provided below.
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Technology Consulting Revenue consists of services
that primarily relate to the installation, maintenance and
repair of hardware. These services are charged to customers
based on cost plus an
agreed-upon
markup percentage.
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Health Care Consulting Clients are billed for health
care consulting services based upon a predetermined
agreed-upon
fixed fee, time and expense, or as a percentage of savings.
Revenue for fixed fee and time and expense arrangements is
recognized over the performance period based upon actual hours
incurred, and revenue that is contingent upon savings is
recognized after contingencies have been resolved and verified
by a third party.
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Mergers & Acquisitions Clients are billed
monthly for non-refundable retainer fees, or upon the completion
of a transaction (success fees). Revenue associated with
non-refundable retainer fees is recognized on a straight-line
basis over the life of the engagement as services are performed
throughout the term of the contract period of the arrangement.
Revenue associated with success fee transactions is recognized
when the transaction is completed.
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Operating
Expenses
Operating expenses represent costs of service and other costs
incurred to operate CBIZs business units and are primarily
comprised of personnel costs and occupancy related expenses.
Personnel costs include base
F-12
CBIZ,
INC. AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
compensation, commissions, payroll taxes, gains or losses earned
on assets of the deferred compensation plan, and benefits, which
are recognized as expense as they are incurred. Personnel costs
also include stock-based and incentive compensation costs, which
are estimated and accrued on a monthly basis. The ultimate
determination of incentive compensation is made after year-end
results are finalized. Total personnel costs were
$481.5 million, $482.8 million and $427.6 million
for the years ended December 31, 2010, 2009 and 2008,
respectively.
The largest components of occupancy costs are rent expense and
utilities. Base rent expense is recognized over respective lease
terms, while utilities and common area maintenance charges are
recognized as incurred. Total occupancy costs were
$45.7 million, $46.1 million, and $39.5 million
for the years ended December 31, 2010, 2009 and 2008,
respectively.
Operating
Leases
CBIZ leases certain of its office facilities and equipment under
various operating leases. Rent expense under such leases is
recognized evenly throughout the term of the lease obligation
when the total lease commitment is a known amount, and recorded
on a cash basis when future rent payment increases under the
obligation are unknown due to rent escalations being tied to
factors that are not currently measurable (such as increases in
the consumer price index). Differences between rent expense
recognized and the cash payments required under operating lease
agreements are recorded in the consolidated balance sheets as
other non-current liabilities.
CBIZ may receive incentives to lease office facilities in
certain areas. Such incentives are recorded as a deferred credit
and recognized as a reduction to rent expense on a straight-line
basis over the lease term.
Stock-Based
Awards