UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)          May 22, 2006

CBIZ, INC.

Delaware		0-25890		22-2769024
(State or Other Jurisdiction		(Commission		(I.R.S. Employer
of Incorporation)		File Number)		Identification No.)
6050 Oak Tree Boulevard, South, Suite 500, Cleveland, Ohio				44131
(Address of Principal Executive Offices)				(Zip Code)

216-447-9000
Registrant’s Telephone Number, Including Area

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

	o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
	o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
	o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
	o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 8.01 Other Events

On May 22, 2006, CBIZ, Inc. (the “Company”) issued a press release announcing its offer to qualified institutional buyers, pursuant to Rule 144A under the Securities Act of 1933, as amended (“Securities Act”), of $85 million aggregate principal amount of its Convertible Senior Subordinated Notes due 2026. A copy of this press release is filed herewith as Exhibit 99.1.

In this Current Report on Form 8-K the Company is updating the historical financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 (the “2005 Form 10-K”) for presentation of a business unit as discontinued operations, and to reflect a change in our reporting segments, and certain reclassifications.

As reported in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006 (the “10-Q”), we sold a business unit from our Financial Services practice group in April 2006. This transaction met the requirements under Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”) for classification as a discontinued operation.

Also as reported in our 10-Q, we realigned our operations into four client-centric practice groups in the first quarter of 2006. We also reclassified certain income and expenses (the “Reclassifications”) made during the first quarter of 2006 involving 1) interest income earned by our payroll unit which previously was reported as “other income” and is now reported as revenue, and 2) certain expenses reimbursable to CBIZ by its clients previously netted against revenue which are now reported as operating expenses.

Under requirements of the Securities and Exchange Commission (the “SEC”), the same classification as discontinued operations required by SFAS No. 144 is also required for previously issued financial statements included in the 2005 Form 10-K, if those financial statements are incorporated by reference in filings with the SEC made under the Securities Act even though those financial statements relate to periods prior to this business operation being classified as discontinued operations.

On May 10, 2006, the Company filed its 10-Q with the SEC and presented its results to reflect the discontinued operations, revised segment information and Reclassifications. These reclassifications had no effect on the Company’s reported net income for any reporting period and had no material effect on the Company’s results of operations or financial condition.

This report includes our reclassified audited consolidated financial statements for the years ended December 31, 2005, 2004 and 2003.

The reclassified consolidated financial information is attached to this Current Report on Form 8-K as Exhibit 99.2. Because we are reclassifying certain financial information in the 2005 Form 10-K only for discontinued operations, segment reporting and the Reclassifications, the revised sections of our 2005 Form 10-K included in this report have not been otherwise updated for events occurring after the date of our consolidated financial statements, which were originally presented in the 2005 Form 10-K filed on March 16, 2006. All other information in the 2005 Form 10-K remains unchanged. This report should be read in conjunction with our 2005 Form 10-K (except for Item 8 of Part II, which is contained in this report).

Item 9.01 Financial Statements and Exhibits

23.1		Consent of Independent Registered Public Accounting Firm
99.1		Press Release of CBIZ, Inc. dated May 22, 2006 announcing intention to offer Convertible Senior Subordinated Notes due 2026.
99.2		Revised Consolidated Financial Statements and Supplementary Data for the years ended December 31, 2005, 2004 and 2003 (Part II—Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, filed with the SEC on March 16, 2006).

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		CBIZ, INC.
Date: May 22, 2006		/s/ Ware H. Grove
		Ware H. Grove
		Chief Financial Officer

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
CBIZ, Inc.:

We consent to the incorporation by reference in the registration statement Nos. 333-35049, 333-74647 and 333-62148 on Form S-8; Nos. 333-64109, 333-76179 and 333-27825 on Form S-3; Nos. 333-15413, 333-46687, 333-90749 and 333-40331 on Form S-3, as amended; and Nos. 333-40313 and 333-81039 on Form S-4, as amended, of CBIZ, Inc. and subsidiaries (Company) of our report dated March 15, 2006 (May 22, 2006 as to the effects of discontinued operations, segment classification and other reclassifications discussed in Note 21), with respect to the consolidated balance sheets of the Company as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows, for each of the years in the three-year period ended December 31, 2005, and the related financial statement schedule, which report appears herein.

/s/   KPMG LLP

Cleveland, Ohio

May 22, 2006

Exhibit 99.1

FOR IMMEDIATE RELEASE		CONTACT:		Ware Grove Chief Financial Officer - -or- Lori Novickis Director, Corporate Relations CBIZ, Inc. Cleveland, Ohio (216) 447-9000

CBIZ TO OFFER $85 MILLION CONVERTIBLE SENIOR SUBORDINATED NOTES

NET SHARE SETTLEMENT FEATURE PROVIDES FOR PRINCIPAL TO BE REPAID IN CASH

Cleveland, Ohio (May 22, 2006)—CBIZ, Inc. (NASDAQ: CBIZ) today announced its intention to offer $85 million in aggregate principal amount of Convertible Senior Subordinated Notes due 2026. The Notes are being offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. The company also intends to grant the initial purchaser an option to purchase up to an additional $15 million in aggregate principal amount of the Notes.

The company intends to use approximately 50% of the proceeds from the sale of the Notes to repurchase shares of its common stock that may become available from certain institutional buyers of the Notes in connection with their hedging strategies concurrent with the issuance of the Notes. The remaining balance of the proceeds will be used to repay a portion of the $48 million outstanding balance under the company’s $100 million unsecured credit facility or for other general corporate purposes.

The Notes may be converted, under certain circumstances, into cash and, at the company’s election, shares of the company’s common stock at a conversion rate to be determined, subject to adjustment upon certain events. The Notes contain a net settlement feature so that upon conversion, the company will deliver cash equal to the lesser of the aggregate principal amount of Notes to be converted and the company’s total conversion obligation, plus cash or shares of the company’s common stock at the company’s election, for the remainder, if any, of the conversion obligation.

The Notes will rank junior in right of payment with all of the company’s existing and future senior indebtedness. The Notes will bear interest at a fixed rate, payable semiannually, and beginning on June 6, 2011 the company may be required to pay contingent interest under certain circumstances.

Page 1 of 2

6050 Oak Tree Boulevard, South · Suite 500 · Cleveland, OH 44131 · Phone (216) 447-9000 · Fax (216) 447-9007

The Notes may not be redeemed by the company prior to June 6, 2011. Holders of the Notes may require the company to repurchase some or all of the Notes on June 1, 2011, June 1, 2016, June 1, 2021 and upon certain specified corporate transactions.

This press release does not constitute an offer to sell or the solicitation of any offer to buy any securities. The offering will be made only to qualified institutional buyers in accordance with rule 144A under the Securities Act of 1933, as amended. The securities to be offered have not been registered under the Securities Act, or any state securities laws, and unless so registered, may not be offered or sold in the United States, except pursuant to an exemption from, or in a transaction not subject to the registration requirements of the Securities Act and applicable state securities laws.

CBIZ, Inc. provides professional business services that help clients better manage their finances, employees and technology. As the largest benefits specialist, one of the largest accounting, valuation and medical practice management companies in the United States, CBIZ provides its clients with integrated financial services which include accounting and tax, internal audit, Sarbanes-Oxley 404 compliance, and valuation. Employee services include employee benefits, property and casualty insurance, payroll, HR consulting and wealth management. CBIZ also provides information technology, hardware and software solutions, government relations; healthcare consulting and medical practice management. These services are provided throughout a network of more than 140 Company offices in 34 states and the District of Columbia.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation reform Act of 1995. Risk factors that could cause actual results to differ are discussed in our Report on Form 10-K for the year ended December 31, 2005, and the reader is directed to these statements for a further discussion of important factors that could cause actual results to differ materially from those in the forward-looking statements.

For further information regarding CBIZ, call our Investor Relations Office at (216) 447-9000 or visit our web site at www.cbiz.com.

Page 2 of 2

6050 Oak Tree Boulevard, South · Suite 500 · Cleveland, OH 44131 · Phone (216) 447-9000 · Fax (216) 447-9007

Exhibit 99.2

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Report of Independent Registered Public Accounting Firm			6
Consolidated Balance Sheets as of December 31, 2005 and 2004			7
Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003			8
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2005, 2004 and 2003			9
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003			10
Notes to Consolidated Financial Statements			11
Schedule II – Valuation and Qualifying Accounts and Reserves for the Years Ended December 31, 2005, 2004 and 2003:			44

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
CBIZ, Inc.:

We have audited the consolidated financial statements of CBIZ, Inc. and subsidiaries (Company) as listed in the accompanying index on page 5. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index on page 5. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule 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 CBIZ, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, 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 consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP
Cleveland, Ohio
March 15, 2006 (May 22, 2006 as to the effects of discontinued operations, segment classification and other reclassifications discussed in Note 21)

CBIZ, INC. AND SUBSIDIARIES

		2005				2004
ASSETS
Current assets:
Cash and cash equivalents		$	8,909			$	5,291
Restricted cash			9,873				10,089
Accounts receivable, net			98,390				98,155
Notes receivable — current			6,042				1,377
Income taxes recoverable			—				7,146
Deferred income taxes — current			3,241				3,743
Other current assets			9,490				7,940
Assets of discontinued operations			8,485				20,147
Current assets before funds held for clients			144,430				153,888
Funds held for clients			65,669				32,787
Total current assets			210,099				186,675
Property and equipment, net			33,403				35,933
Notes receivable — non-current			3,575				4,726
Deferred income taxes — non-current			9,199				7,259
Goodwill and other intangible assets, net			184,673				171,782
Assets of deferred compensation plan			9,803				4,285
Other assets			3,832				3,514
Total assets		$	454,584			$	414,174
LIABILITIES
Current liabilities:
Accounts payable		$	26,427			$	24,915
Income taxes payable			1,115				—
Accrued personnel costs			35,920				24,319
Other current liabilities			18,332				16,272
Liabilities of discontinued operations			5,991				8,210
Current liabilities before client fund obligations			87,785				73,716
Client fund obligations			65,669				32,787
Total current liabilities			153,454				106,503
Bank debt			32,200				53,900
Deferred compensation plan obligations			9,803				4,285
Other non-current liabilities			4,466				2,989
Total liabilities			199,923				167,677
STOCKHOLDERS’ EQUITY
Common stock, par value $0.01 per share;
Shares authorized 250,000; Shares issued 98,381 and 96,407; Shares outstanding 73,822 and 75,651			984				964
Additional paid-in capital			450,734				444,584
Accumulated deficit			(94,714	)			(113,387	)
Treasury stock, 24,559 and 20,756 shares			(102,317	)			(85,650	)
Accumulated other comprehensive loss			(26	)			(14	)
Total stockholders’ equity			254,661				246,497
Total liabilities and stockholders’ equity		$	454,584			$	414,174

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

		2005				2004				2003
Revenue		$	563,468			$	507,468			$	482,889
Operating expenses			488,763				440,991				420,579
Gross margin			74,705				66,477				62,310
Corporate general and administrative expense			24,911				24,099				18,745
Depreciation and amortization expense			15,139				15,963				16,565
Operating income			34,655				26,415				27,000
Other income (expense):
Interest expense			(3,109	)			(1,507	)			(1,055	)
Gain on sale of operations, net			314				996				2,519
Other income (expense), net			4,171				3,219				(1,513	)
Total other income, net			1,376				2,708				(49	)
Income from continuing operations before income tax expense			36,031				29,123				26,951
Income tax expense			14,525				7,945				11,814
Income from continuing operations			21,506				21,178				15,137
Loss from operations of discontinued operations, net of tax			(6,383	)			(5,259	)			(547	)
Gain on disposal of discontinued operations, net of tax			3,550				132				726
Net income		$	18,673			$	16,051			$	15,316
Earnings (loss) per share:
Basic:
Continuing operations		$	0.29			$	0.27			$	0.17
Discontinued operations			(0.04	)			(0.07	)			—
Net income		$	0.25			$	0.20			$	0.17
Diluted:
Continuing operations		$	0.28			$	0.26			$	0.16
Discontinued operations			(0.04	)			(0.06	)			0.01
Net income		$	0.24			$	0.20			$	0.17
Basic weighted average common shares outstanding			74,448				79,217				90,400
Diluted weighted average common shares outstanding			76,827				81,477				92,762

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

																										Accumulated
		Issued								Additional																Other
		Common				Common				Paid-In				Accumulated				Treasury				Treasury				Comprehensive
		Shares				Stock				Capital				Deficit				Shares				Stock				Loss				Totals
December 31, 2002			95,121			$	951			$	439,684			$	(144,754	)			220			$	(1,308	)		$	(255	)		$	294,318
Comprehensive income:
Net income			—				—				—				15,316				—				—				—				15,316
Change in unrealized appreciation, net of tax																											254				254
Total comprehensive income																															15,570
Share repurchases			—				—				—				—				10,036				(33,578	)			—				(33,578	)
Divestiture consideration			—				—				—				—				46				(201	)			—				(201	)
Stock options			375				4				1,203				—				—				—				—				1,207
Business acquisitions and contingent payments			177				2				520				—				—				—				—				522
December 31, 2003			95,673			$	957			$	441,407			$	(129,438	)			10,302			$	(35,087	)		$	(1	)		$	277,838
Comprehensive income:
Net income			—				—				—				16,051				—				—				—				16,051
Foreign currency translation adjustments																											(13	)			(13	)
Total comprehensive income																															16,038
Share repurchases			—				—				—				—				10,424				(50,419	)			—				(50,419	)
Restricted stock			—				—				518				—				—				—				—				518
Divestiture consideration			—				—				—				—				30				(144	)			—				(144	)
Stock options			519				5				1,696				—				—				—				—				1,701
Business acquisitions and contingent payments			215				2				963				—				—				—				—				965
December 31, 2004			96,407			$	964			$	444,584			$	(113,387	)			20,756			$	(85,650	)		$	(14	)		$	246,497
Comprehensive income:
Net income			—				—				—				18,673				—				—				—				18,673
Foreign currency translation adjustments																											(12	)			(12	)
Total comprehensive income																															18,661
Share repurchases			—				—				—				—				3,803				(16,667	)			—				(16,667	)
Restricted stock			247				2				453				—				—				—				—				455
Stock options			1,658				17				5,401				—				—				—				—				5,418
Business acquisitions and contingent payments			69				1				296				—				—				—				—				297
December 31, 2005			98,381			$	984			$	450,734			$	(94,714	)			24,559			$	(102,317	)		$	(26	)		$	254,661

See the accompanying notes to the consolidated financial statements.

CBIZ, INC. AND SUBSIDIARIES

						2004				2003
		2005				(Revised)				(Revised)
Cash flows from operating activities:
Net income		$	18,673			$	16,051			$	15,316
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from operations of discontinued operations			6,383				5,259				547
Gain on disposal of discontinued operations			(3,550	)			(132	)			(726	)
Gain on sale of operations, net			(314	)			(996	)			(2,519	)
Bad debt expense, net of recoveries			4,999				4,107				4,829
Impairment of notes receivable			—				—				2,394
Notes payable extinguishment			(65	)			(743	)			—
Depreciation and amortization			15,139				15,963				16,565
Deferred income taxes			(2,426	)			(3,616	)			1,794
Stock awards			1,466				449				280
Changes in assets and liabilities, net of acquisitions and dispositions
Restricted cash			216				791				5,968
Accounts receivable, net			(5,500	)			(11,945	)			(9,424	)
Other assets			(8,327	)			(6,770	)			(1,574	)
Accounts payable			1,198				(2,663	)			6,109
Income taxes			6,177				(6,974	)			3,789
Accrued personnel			11,601				4,228				3,519
Accrued expenses and other liabilities			6,123				4,863				(10,288	)
Net cash provided by continuing operations			51,793				17,872				36,579
Operating cash flows provided by discontinued operations			1,821				2,318				3,076
Net cash provided by operating activities			53,614				20,190				39,655
Cash flows from investing activities:
Business acquisitions including contingent consideration earned, net of cash acquired			(12,611	)			(5,662	)			(3,849	)
Proceeds from sales of divested operations			133				3,030				5,590
Proceeds from sales of discontinued operations			2,000				1,549				1,599
Additions to notes receivable			—				(2,267	)			(913	)
Additions to property and equipment, net			(6,885	)			(7,373	)			(10,357	)
Decreases in notes receivable			1,672				2,462				2,667
Investing cash flows provided by (used in) discontinued operations			647				(832	)			(63	)
Net cash used in investing activities			(15,044	)			(9,093	)			(5,326	)
Cash flows from financing activities:
Proceeds from bank debt			253,200				288,855				225,950
Proceeds from notes payable			87				—				324
Payment of bank debt			(274,900	)			(248,955	)			(229,450	)
Payment of notes payable and capitalized leases			(845	)			(428	)			(1,062	)
Payment for acquisition of treasury stock			(16,667	)			(50,419	)			(33,578	)
Proceeds from exercise of stock options			4,173				1,350				927
Net cash used in financing activities			(34,952	)			(9,597	)			(36,889	)
Net increase (decrease) in cash and cash equivalents			3,618				1,500				(2,560	)
Cash and cash equivalents at beginning of year			5,291				3,791				6,351
Cash and cash equivalents at end of year		$	8,909			$	5,291			$	3,791

See the accompanying notes to the consolidated financial statements.

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 Toronto, Canada. During the first quarter of 2006, CBIZ realigned its operations into four client-centric practice groups: Financial Services, Employee Services, Medical Management Professionals and National Practices. A further description of changes made during the first quarter of 2006, as well as products and services offered by each of the practice groups, is provided in Note 20.

Principles of Consolidation

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

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Management’s estimates and assumptions include, but are not limited to, estimates of collectibility of accounts receivable and unbilled revenue, the realizability of goodwill and other intangible assets, accrued liabilities (such as incentive compensation), income taxes and other factors. Management’s estimates and assumptions are derived from and are continually evaluated based upon available information, judgment and experience. Actual results could differ from those estimates.

Reclassifications

Certain amounts in the 2005, 2004 and 2003 consolidated financial statements have been reclassified to conform to the current year presentation. Reclassifications include, but may not be limited to: interest income earned by our payroll unit previously reported as “other income” which is now reported as revenue; certain expenses reimbursable to CBIZ by its clients previously netted against revenue which are now reported as operating expenses; legal settlements previously reported as other income (expense), net, which are now reported as corporate general and administrative expense; discontinued operations; and certain other expenses that were reclassified between operating and corporate general and administrative expenses.

In 2005, CBIZ has separately disclosed the operating and investing portions of the cash flows attributable to its discontinued operations, which in prior periods were combined and reported as a single amount. Prior periods have been revised to conform to the current year presentation. There were no financing activities attributable to the operations of discontinued operations in 2005, 2004 or 2003.

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.

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

Restricted Cash

Restricted cash represents fees earned by CBIZ in relation to its capital and investment advisory services, as those funds are restricted in accordance with applicable NASD regulations. Restricted cash also represents funds on deposit from clients in connection with the pass through of insurance premiums to the carrier; the related liability for these funds is recorded in other current liabilities in the consolidated balance sheets.

Funds Held for Clients and Client Fund Obligations

Payroll services provided by CBIZ include the preparation of payroll checks, federal, state, and local payroll tax returns, and flexible spending account administration. In relation to these services, CBIZ collects funds from its clients’ accounts in advance of paying these client obligations. Funds that are collected before they are due are segregated and reported separately as “funds held for clients” in the consolidated balance sheets, and may include cash, cash equivalents and short-term investments. Other than certain federal and state regulations pertaining to flexible spending account administration, there are no regulatory or other contractual restrictions placed on these funds. Funds held for clients and the related client fund obligations are included in the consolidated balance sheets as current assets and current liabilities, respectively. The amounts of collected but not yet remitted funds may vary significantly during the year.

One of the business units classified as a discontinued operation collects funds from clients’ accounts in advance of paying the related client obligations. These funds and related liabilities are reported as “assets of discontinued operations” and “liabilities of discontinued operations,” respectively, in the accompanying consolidated balance sheets. The amount of funds held for clients by our discontinued operations is disclosed in Note 18.

Assets of Deferred Compensation Plan

Assets of the deferred compensation plan represent marketable investments that consist primarily of mutual funds, money market funds and equity securities. CBIZ classifies these marketable securities as “trading” securities under Statement of Financial Accounting Standard (SFAS) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” In accordance with the provisions of this statement, the investment balance is stated at fair market value based on quoted market prices, and realized and unrealized gains and losses are reflected in earnings. The assets held in the deferred compensation plan reflect amounts due to employees, but are available for general creditors of CBIZ in the event CBIZ becomes insolvent. As such, CBIZ has recorded the investment as a non-current asset titled “assets of deferred compensation plan” and has established a corresponding other long-term liability entitled “deferred compensation plan obligations” in the consolidated balance sheets.

Derivative Instruments and Hedging Activities

CBIZ records derivative instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as subsequently amended by SFAS 137, SFAS 138 and SFAS 149. 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.

CBIZ did not utilize derivative instruments in 2005 or 2004. In 2003, CBIZ terminated an interest rate swap that was originated in 2001. The interest rate swap agreement qualified as a cash flow hedge, which was used to manage the interest rate mix of its credit facility and related overall cost of borrowing. For the year ended December 31, 2002, the change in fair value relating to

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CBIZ’s hedging activity resulted in a loss of approximately $0.3 million, which is recorded in stockholders’ equity under accumulated other comprehensive loss.

Fair Value of Financial Instruments

The carrying amounts of CBIZ’s cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments. The carrying value of bank debt approximates fair value, as the interest rate on the bank debt is variable and approximates current market rates.

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 net realizable value. Assessing the collectibility of receivables (billed and unbilled) requires management judgment. When evaluating the adequacy of the allowance for doubtful accounts and the overall collectibility of receivables, CBIZ analyzes historical bad debts, client credit-worthiness, the age of accounts receivable and current economic trends and conditions.

Concentrations of Credit Risk

Financial instruments that may subject CBIZ to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. CBIZ places its cash and cash equivalents with highly-rated financial institutions, limiting the amount of credit exposure with any one financial institution. In addition, CBIZ conducts on-going evaluation of credit-worthiness of the financial institutions with which it does business. CBIZ’s client base consists of large numbers of geographically diverse customers dispersed throughout the United States; thus, concentration of credit risk with respect to accounts receivable is not considered significant.

Goodwill and Other Intangible Assets

CBIZ utilizes the purchase method of accounting for all business combinations in accordance with SFAS No. 141, “Business Combinations.” Identifiable intangible assets include finite-lived purchased intangible assets, which primarily consist of client lists and non-compete agreements. These assets are amortized using the straight-line method over their expected periods of benefit, generally two to ten years.

In accordance with the provisions of SFAS 142, “Goodwill and Other Intangible Assets,” goodwill is not amortized. Goodwill is tested for impairment annually during the fourth quarter of each year, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. To conduct a goodwill impairment test, the fair value of the reporting unit is compared to its carrying value. If the reporting unit’s carrying value exceeds its fair value, CBIZ records an impairment loss to the extent that the carrying value of goodwill exceeds its implied fair value. Fair values for reporting units are estimated using discounted cash flow valuation models.

Long-Lived Assets

Long-lived assets primarily include property and equipment and identifiable intangible assets with finite lives. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, these 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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 the straight-line basis over the following estimated useful lives:

Buildings		25 years
Furniture and fixtures		5 to 10 years
Capitalized software		2 to 7 years
Equipment		3 to 7 years

Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining term of the respective lease.

Capitalized Software

The cost of software purchased or developed for internal use is capitalized in accordance with Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” The costs are 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 in the consolidated balance sheets.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due 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 loss and tax credit carryforwards. State income tax credits are accounted for by the flow-through method.

A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. CBIZ determines a valuation allowance based on the analysis of amounts available in the statutory carryback or carryforward periods, consideration of future deductible amounts, and assessment of the consolidated and/or separate company profitability.

Revenue Recognition and Valuation of Unbilled Revenues

Revenue is recognized only when all of the following are present: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, our fee to the client is fixed or determinable, and collectibility is reasonably assured. These criteria are in accordance with generally accepted accounting principles (GAAP) and SEC Staff Accounting Bulletin No. 104 (SAB 104). CBIZ offers a vast array of products and business services to its clients. Those services are delivered through four practice groups. A description of revenue recognition, as it relates to those groups, is provided below.

Financial Services — Revenue consists primarily of fees for accounting services, preparation of tax returns, consulting services including Sarbanes-Oxley consulting and compliance projects, and valuation services including fairness opinions, business plans, litigation support, purchase price allocations and derivative valuations. Revenues are recorded in the period in which services are provided and meet revenue recognition criteria in accordance with SAB 104. CBIZ bills clients based upon a predetermined agreed-upon fixed fee or based on actual hours incurred on client

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

Through one of its Financial Services units, CBIZ provides flexible benefits administration services to clients, grants access of its proprietary software to third parties, and provides hosting to these parties. Revenue associated with set up and license fees related to our flexible benefits services are deferred and recognized pro rata over the life of the contract.

Employee Services — Revenue consists primarily of brokerage and agency commissions, payroll service fees, interest on client funds, and fee income for administering health and retirement plans. A description of the revenue recognition, based on the service provided, insurance product sold, and billing arrangement, is described below.

	•		Commissions relating to brokerage and agency activities whereby CBIZ has primary responsibility for the collection of premiums from insured’s (agency or indirect billing) are recognized as of the latter of the effective date of the insurance policy or the date billed to the customer; commissions to be received directly from insurance companies (direct billing) are recognized when the policy becomes effective; and life insurance commissions are recognized when the policy becomes effective. Commission revenue is reported net of sub-broker commissions, 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.
	•		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 is recognized in the period in which services are provided, and may be based on actual hours incurred on an hourly fee basis, fixed fee arrangements, or asset-based fees.
	•		Payroll— Revenue is recognized when the actual payroll processing occurs.

Medical Management Professionals— Fees for services are primarily based on a percentage of net collections on our clients’ patient accounts receivable. As such, revenue is determinable, earned, and recognized, when payments are received by our clients on their patient accounts.

National Practices— The business units that comprise this practice group offer a variety of services. A description of revenue recognition associated with the primary services is provided below.

	•		Technology Consulting — Revenue associated with hardware and software sales is recognized upon delivery and acceptance of the product. Revenue associated with installation is recognized as services are performed, and revenue associated with service agreements is recognized on a straight-line basis over the period of the agreement. Consulting revenue is recognized on an hourly or per diem fee basis as services are performed.
	•		Health Care Consulting— CBIZ bills clients based upon a predetermined agreed-upon fixed fee or based on actual hours incurred on client projects at expected net realizable rates per hour, plus agreed-upon out-of-pocket expenses, or as a percentage of savings after contingencies have been resolved and verified by a third party.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

•

Mergers & Acquisitions and Capital Advisory — Revenue associated with non-refundable retainers is recognized on a pro rata basis over the life of the engagement. Revenue associated with success fee transactions is recognized when the transaction is completed.

Certain of our client arrangements encompass multiple deliverables. CBIZ accounts for these arrangements in accordance with Emerging Issues Task Force No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (EITF 00-21). If the deliverables meet the criteria in EITF 00-21, the deliverables are divided into separate units of accounting and revenue is allocated to the deliverables based on their relative fair values. Revenue for each unit is recognized separately in accordance with CBIZ’s revenue recognition policy for each unit. For those arrangements where the deliverables do not qualify as a separate unit of accounting, revenue from all deliverables are treated as one accounting unit and evaluated for appropriate accounting treatment based upon the underlying facts and circumstances.

Operating Expenses

Operating expenses represent costs of service, as well as other costs incurred to operate our business units. These costs are primarily personnel related expenses, occupancy expenses, and consolidation and integration related expenses. Personnel costs include base compensation, commissions, payroll taxes, and benefits, which are recognized as expense as they are incurred, and incentive compensation costs which are estimated and accrued on a monthly basis. The ultimate determination of incentive compensation is made after year-end results are finalized, thus estimates are subject to change. Total personnel costs were $351.9 million, $316.6 million and $303.1 million for the years ended December 31, 2005, 2004, and 2003, respectively.

The largest components of occupancy costs are rent expense and utilities. Rent expense is recognized over respective lease terms (see “operating leases” below), and utilities are recognized as incurred. Total occupancy costs were $35.4 million, $34.1 million and $33.5 million for the years ended December 31, 2005, 2004, and 2003, respectively.

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

Operating Leases

CBIZ leases certain of its office facilities and equipment under various operating leases. Rent expense under such leases is recognized in accordance with SFAS 13, “Accounting for Leases”. SFAS 13 requires lessees to record rent expense evenly throughout the term of the lease obligation when the lease commitment is a known amount, but allows for rent expense to be recorded on a cash basis when future rent payments under the obligation are unknown because the rent escalations are 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 obligations, are recorded in the consolidated balance sheets as other current or non-current liabilities as appropriate.

CBIZ may receive incentives to lease office facilities in certain areas. In accordance with SFAS 13, 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. Leasehold improvements made at the inception of or during the lease are amortized over the shorter of the asset life or the lease term.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Variable Interest Entities

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

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

Fees earned by CBIZ under the ASAs are recorded as revenue (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 reduced on a pro-rata basis. Although the administrative service agreements do not constitute control, CBIZ is one of the beneficiaries of the agreements and may bear certain economic risks.

Earnings per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by weighted average diluted shares. Weighted average diluted shares are determined using the weighted average number of common shares outstanding during the period plus the dilutive effect of potential future issues of common stock relating to CBIZ’s stock award programs and other potentially dilutive securities. In calculating diluted earnings per share, the dilutive effect of stock awards are computed using the average market price for the period in accordance with the treasury stock method.

Stock Based Awards

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

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

		As Reported								Pro Forma (1)
		Basic				Diluted				Basic				Diluted
2005
Net income		$	18,673			$	18,673			$	17,573			$	17,573
Net income per share		$	0.25			$	0.24			$	0.24			$	0.23
2004
Net income		$	16,051			$	16,051			$	14,629			$	14,629
Net income per share		$	0.20			$	0.20			$	0.18			$	0.18
2003
Net income		$	15,316			$	15,316			$	14,792			$	14,792
Net income per share		$	0.17			$	0.17			$	0.16			$	0.16

The above results may not be representative of the effects on net income for future years. CBIZ applied the Black-Scholes option-pricing model to determine the fair value of each option granted during the years ended December 31, 2005, 2004 and 2003, using the following weighted-average assumptions:

		2005				2004				2003
Weighted average grant-date fair value of options granted		$	1.65			$	1.42			$	0.95
Risk-free interest rate			3.90	%			3.89	%			2.36	%
Expected volatility			49.71	%			36.57	%			35.54	%
Expected option life (in years)			5.00				5.00				5.00
Dividend yield			0.0	%			0.0	%			0.0	%

Restricted stock awards are independent of option grants, and are granted at no cost to the recipients. The market value of shares awarded is recorded as unearned compensation, and is expensed ratably over the period which restrictions lapse.

Guarantees

CBIZ recognizes a liability for the fair value of obligations undertaken in issuing guarantees, in accordance with the Financial Accounting Standards Board issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, as amended (FIN 45). The liability is recognized at the inception of such guarantees, and is recorded as other current liabilities in the consolidated balance sheets.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Accounts Receivable, Net

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

		2005				2004
Trade accounts receivable		$	83,122			$	80,328
Unbilled revenue			19,264				21,063
Other accounts receivable			1,717				2,611
Total accounts receivable			104,103				104,002
Allowance for doubtful accounts			(5,713	)			(5,847	)
Accounts receivable, net		$	98,390			$	98,155

3. Notes Receivable

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

		2005				2004
Current
Notes in lieu of cash as consideration for the sale of operations		$	5,378			$	1,125
Other			664				252
Total notes receivable — current			6,042				1,377
Non-Current
Notes in lieu of cash as consideration for the sale of operations			1,215				2,169
Other			2,360				2,557
Total notes receivable — non-current			3,575				4,726
Notes receivable		$	9,617			$	6,103

4. Property and Equipment, Net

Property and equipment, net at December 31, 2005 and 2004 consisted of the following (in thousands):

		2005				2004
Buildings and leasehold improvements		$	12,783			$	12,445
Furniture and fixtures			17,951				16,064
Capitalized software			41,872				39,682
Equipment			28,376				28,811
Total property and equipment			100,982				97,002
Accumulated depreciation and amortization			(67,579	)			(61,069	)
Property and equipment, net		$	33,403			$	35,933

Depreciation and amortization expense was approximately $11.2 million, $12.1 million, and $13.1 million during the years ended December 31, 2005, 2004 and 2003, respectively, of which $6.3 million, $5.6 million and $5.5 million represented the amortization of capitalized software.

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

5. Goodwill and Other Intangible Assets, Net

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

		2005				2004
Goodwill		$	168,040			$	158,945
Intangibles:
Client lists			23,498				18,033
Other intangibles			1,493				972
Total intangibles			24,991				19,005
Total goodwill and other intangibles assets			193,031				177,950
Less accumulated amortization			(8,358	)			(6,168	)
Goodwill and other intangible assets, net		$	184,673			$	171,782

Client lists are amortized over periods not exceeding ten years. Other intangibles, which consist primarily of non-compete agreements, are amortized over periods ranging from two to ten years. Amortization expense (excluding impairment charges as described below) of client lists and other intangible assets was approximately $2.6 million, $1.8 million and $1.5 million during the years ended December 31, 2005, 2004 and 2003, respectively. Amortization expense for client lists and other intangible assets for each of the next five years is estimated to be (in thousands):

Year ended December 31,
2006		$	2,541
2007		$	2,444
2008		$	2,205
2009		$	2,101
2010		$	1,859

This estimate excludes the impact of events that may occur subsequent to December 31, 2005, including acquisitions, divestitures and additional purchase price that may be earned in connection with acquisitions that occurred prior to December 31, 2005.

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, CBIZ recorded non-cash pre-tax impairment charges of $0.2 million and $0.3 million during the years ended December 31, 2004 and 2003, respectively. The impairment charges are reported as depreciation and amortization expense in the accompanying consolidated statements of operations and relate to client lists from our Financial Services, and Employee Services practice groups that were purchased in 2000 and 1999, respectively. There were no impairment charges recorded during the year ended December 31, 2005.

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

Changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2005 and 2004 were as follows (in thousands):

										Medical
		Financial				Employee				Management				National				Total
		Services				Services				Professionals				Practices				Goodwill
December 31, 2003		$	94,862			$	44,879			$	17,212			$	—			$	156,953
Additions			772				628				—				1,219				2,619
Divestitures			(627	)			—				—				—				(627	)
December 31, 2004			95,007				45,507				17,212				1,219				158,945
Additions			4,975				3,643				—				477				9,095
Divestitures			—				—				—				—				—
December 31, 2005		$	99,982			$	49,150			$	17,212			$	1,696			$	168,040

6. Income Taxes

Income tax expense (benefit) included in the consolidated statements of operations for the years ended December 31, 2005, 2004, and 2003 was as follows (in thousands):

		2005				2004				2003
Continuing operations:
Current:
Federal		$	16,370			$	9,816			$	8,100
Foreign			(58	)			—				—
State and local			640				1,744				1,921
Total current income tax expense from continuing operations			16,952				11,560				10,021
Deferred:
Federal			(1,755	)			(2,867	)			1,893
Foreign			—				32				102
State and local			(672	)			(780	)			(202	)
Total deferred income tax expense from continuing operations			(2,427	)			(3,615	)			1,793
Total income tax expense continuing operations			14,525				7,945				11,814
Operations of discontinued operations			(3,749	)			(2,673	)			(227	)
Gain on sale of discontinued operations			2,085				266				731
Total income tax expense		$	12,861			$	5,538			$	12,318

The provision for income taxes attributable to earnings from continuing operations differed from the amount obtained by applying the federal statutory income tax rate to income from continuing operations before income taxes, as follows (in thousands, except percentages):

		2005				2004				2003
Tax at statutory rate		$	12,612			$	10,194			$	9,435
State taxes (net of federal benefit)			1,400				1,438				1,712
Tax credit carryforwards			(293	)			(280	)			(3,882	)
Change in valuation allowance			(250	)			(276	)			4,555
Settlement of IRS examination 1998-2000			—				(3,550	)			640
Non-deductible goodwill related to divested businesses			—				133				(361	)
Business meals and entertainment – non-deductible			539				660				594
Other, net			517				(374	)			(879	)
Provision for income taxes from continuing operations		$	14,525			$	7,945			$	11,814
Effective income tax rate			40.3	%			27.3	%			43.8	%

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

The net change in the valuation allowance for the year ended December 31, 2005 was primarily due to changes in the valuation allowances for state tax credit carryforwards, capital losses realized in excess of capital gains, and NOL carryforwards. The net change in the valuation allowance for the year ended December 31, 2004 was primarily due to changes in the valuation of NOL carryforwards. The net change in the valuation allowance for the year ended December 31, 2003 was due to increases in valuation allowances for NOL carryforwards, state tax credit carryforwards, and asset impairment charges, offset by a decrease in the valuation allowance for state deferred taxes related to an impairment of tax deductible goodwill.

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities from continuing operations at December 31, 2005 and 2004, were as follows (in thousands):

		2005				2004
Deferred Tax Assets:
Net operating loss carryforwards		$	5,717			$	6,164
Allowance for doubtful accounts			1,525				2,307
Employee benefits and compensation			5,625				3,452
Cumulative change in accounting principle (SAB 101)			2,588				2,810
Lease costs			2,356				1,139
Goodwill and other intangibles			257				413
State tax credit carryforwards			3,848				3,782
Excess capital losses over capital gains			1,952				1,426
Other deferred tax assets			473				515
Total gross deferred tax assets			24,341				22,008
Less: valuation allowance			(8,033	)			(8,283	)
Net deferred tax assets			16,308				13,725
Deferred Tax Liabilities:
Property and equipment depreciation			1,829				3,388
Other deferred tax liabilities			2,039				(665	)
Total gross deferred tax liabilities			3,868				2,723
Net deferred tax asset		$	12,440			$	11,002

During the fourth quarter of 2004, the Internal Revenue Service (IRS) made a final determination relative to its examination of CBIZ’s federal income tax returns for the years ended December 31, 1998, 1999, and 2000. The IRS agreed with CBIZ’s favorable tax position, which resulted in an income tax refund of $4.0 million for the years under examination. At December 31, 2004, this amount was recorded as income taxes recoverable in the accompanying consolidated balance sheet. CBIZ also recorded a deferred tax liability of $1.3 million, and reversed an accrual for income taxes payable of $0.8 million related to the audit results. These items resulted in a net tax benefit of $3.5 million during the year ended December 31, 2004. The tax refund was received in February 2005.

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

Net operating loss (NOL) carryforwards for continuing operations at December 31, 2005 and 2004 were as follows (in thousands):

		NOL Carryforwards								Deferred Tax Benefit								Expiration
		2005				2004				2005				2004				Dates
U.S. NOLs		$	1,538			$	1,940			$	538			$	679				2008
Canadian NOLs		$	4,361			$	4,315				1,744				1,726				2006
State NOLs		$	73,291			$	70,404				3,435				3,762			Various
Total NOLs											5,717				6,167
NOL valuation allowances											(4,805	)			(4,436	)
Net NOLs										$	912			$	1,731

The availability of NOL’s is reported as deferred tax assets, net of applicable valuation allowances, in the accompanying consolidated balance sheets. CBIZ established valuation allowances for portions of the U.S., Canadian and state NOL carryforwards, state income tax credit carryforwards, and for capital losses realized in excess of capital gains.

7. Bank Debt

Bank debt balances for the years ended December 31, 2005 and 2004 were as follows (in thousands, except percentages):

		2005				2004
Revolving credit facility		$	32,200			$	53,900
Weighted average rates			5.39	%			3.54	%
Range of effective rates			3.94% -7.25	%			2.98% - 5.25	%

During 2005, CBIZ maintained a $100.0 million credit facility with Bank of America as agent bank for a group of five participating banks. The credit facility had an option to increase the commitment to $125.0 million and was secured by substantially all assets of CBIZ, as well as the capital stock of its subsidiaries. The credit facility included a letter of credit sub-facility, allowing CBIZ to issue letters of credit up to $20.0 million. See Note 9 for further discussion regarding letters of credit. Management believes that the carrying amount of bank debt approximates its fair value, and CBIZ had approximately $54.1 million of available funds under the facility at December 31, 2005.

The credit facility provides CBIZ operating flexibility and funding to support seasonal working capital needs and other strategic initiatives such as acquisitions and share repurchases. Under the facility, loans are charged an interest rate consisting of a base rate or Eurodollar rate plus an applicable margin. Additionally, a commitment fee of 30 to 45 basis points is charged on the unused portion of the facility.

The facility is subject to certain financial covenants that may limit CBIZ’s ability to borrow up to the total commitment amount. Covenants require CBIZ to meet certain requirements with respect to (i) minimum net worth; (ii) maximum leverage ratio; and (iii) a minimum fixed charge coverage ratio. Limitations are also placed on CBIZ’s ability to acquire businesses, repurchase CBIZ common stock and to divest operations.

The bank agreement also places restrictions on CBIZ’s ability to create liens or other encumbrances, to make certain payments, investments, loans and guarantees and to sell or otherwise dispose of a substantial portion of assets, or to merge or consolidate with an unaffiliated entity. According to the terms of the agreement, CBIZ is not permitted to declare or

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

make any dividend payments, other than dividend payments made by one of its wholly owned subsidiaries to the parent company. The agreement contains a provision that, in the event of a defined change in control, the agreement may be terminated.

Effective February 13, 2006, CBIZ entered into a new $100 million unsecured credit facility, which replaced the previous facility. The new facility has an option to increase the commitment to $150 million, is maintained by Bank of America, N.A. as agent bank for a group of five participating banks, and has a five year term expiring February 2011. Interest and commitment fees for the new facility are determined in a manner consistent with the previous facility, although the applicable margin and commitment fee percentages have been reduced. In addition, the maximum leverage ratio has been increased, and limitations on share repurchases and acquisitions have been removed provided that the leverage ratio (total debt compared to EBITDA as defined by the facility) is less than 2.0.

8. Lease Commitments

Operating Leases

CBIZ leases certain of its office facilities and equipment under various operating leases. Future minimum cash commitments under operating leases as of December 31, 2005 were as follows (in thousands):

		Gross								Net Operating
Years Ended		Operating Lease								Lease
December 31,		Commitments (1)				Subleases(1),(2)				Commitments(1)
2006		$	37,003			$	1,730			$	35,273
2007			31,041				1,611				29,430
2008			27,215				1,294				25,921
2009			22,360				948				21,412
2010			19,584				652				18,932
Thereafter			66,475				370				66,105
Total		$	203,678			$	6,605			$	197,073