þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 22-2769024 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
6050 Oak Tree Boulevard, South, Suite 500, Cleveland, Ohio | 44131 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Class of Common Stock | Outstanding at April 30, 2011 | |
Common Stock, par value $0.01 per share | 50,725,636 |
2
MARCH 31, | DECEMBER 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 231 | $ | 724 | ||||
Restricted cash |
18,095 | 20,171 | ||||||
Accounts receivable, net |
169,672 | 138,068 | ||||||
Income taxes refundable |
| 3,684 | ||||||
Deferred income taxes current |
4,224 | 4,236 | ||||||
Other current assets |
12,621 | 11,958 | ||||||
Assets of discontinued operations |
710 | 640 | ||||||
Current assets before funds held for clients |
205,553 | 179,481 | ||||||
Funds held for clients current |
110,216 | 73,987 | ||||||
Total current assets |
315,769 | 253,468 | ||||||
Property and equipment, net |
22,737 | 23,895 | ||||||
Deferred income taxes non-current, net |
| 837 | ||||||
Goodwill and other intangible assets, net |
420,868 | 426,410 | ||||||
Assets of deferred compensation plan |
35,429 | 33,361 | ||||||
Funds held for clients non-current |
3,985 | 10,216 | ||||||
Other assets |
7,607 | 8,112 | ||||||
Total assets |
$ | 806,395 | $ | 756,299 | ||||
LIABILITIES |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 27,499 | $ | 30,814 | ||||
Income taxes payable current |
7,558 | | ||||||
Accrued personnel costs |
26,242 | 33,030 | ||||||
Notes payable current |
236 | 10,983 | ||||||
Convertible notes, net |
39,700 | 39,250 | ||||||
Other current liabilities |
26,444 | 27,321 | ||||||
Liabilities of discontinued operations |
621 | 562 | ||||||
Current liabilities before client fund obligations |
128,300 | 141,960 | ||||||
Client fund obligations |
116,960 | 87,362 | ||||||
Total current liabilities |
245,260 | 229,322 | ||||||
Convertible notes, net |
117,168 | 116,577 | ||||||
Bank debt |
132,800 | 118,900 | ||||||
Income taxes payable non-current |
5,424 | 5,285 | ||||||
Deferred income taxes non-current |
596 | | ||||||
Deferred compensation plan obligations |
35,429 | 33,361 | ||||||
Other non-current liabilities |
19,672 | 23,182 | ||||||
Total liabilities |
556,349 | 526,627 | ||||||
STOCKHOLDERS EQUITY |
||||||||
Common stock |
1,099 | 1,096 | ||||||
Additional paid-in capital |
541,454 | 539,389 | ||||||
Retained earnings |
63,883 | 45,978 | ||||||
Treasury stock |
(355,851 | ) | (355,851 | ) | ||||
Accumulated other comprehensive loss |
(539 | ) | (940 | ) | ||||
Total stockholders equity |
250,046 | 229,672 | ||||||
Total liabilities and stockholders equity |
$ | 806,395 | $ | 756,299 | ||||
3
THREE MONTHS ENDED | ||||||||
MARCH 31, | ||||||||
2011 | 2010 | |||||||
Revenue |
$ | 209,891 | $ | 209,381 | ||||
Operating expenses |
169,428 | 171,449 | ||||||
Gross margin |
40,463 | 37,932 | ||||||
Corporate general and administrative expenses |
9,661 | 8,984 | ||||||
Operating income |
30,802 | 28,948 | ||||||
Other income (expense): |
||||||||
Interest expense |
(4,915 | ) | (3,168 | ) | ||||
Gain on sale of operations, net |
2,743 | 374 | ||||||
Other income, net |
3,081 | 2,173 | ||||||
Total other income (expense), net |
909 | (621 | ) | |||||
Income from continuing operations before income
tax expense |
31,711 | 28,327 | ||||||
Income tax expense |
13,587 | 11,471 | ||||||
Income from continuing operations after income
tax expense |
18,124 | 16,856 | ||||||
Loss from operations of discontinued operations,
net of tax |
(259 | ) | (436 | ) | ||||
Gain (loss) on disposal of discontinued operations,
net of tax |
40 | (436 | ) | |||||
Net income |
$ | 17,905 | $ | 15,984 | ||||
Earnings (loss) per share: |
||||||||
Basic: |
||||||||
Continuing operations |
$ | 0.37 | $ | 0.27 | ||||
Discontinued operations |
(0.01 | ) | (0.01 | ) | ||||
Net income |
$ | 0.36 | $ | 0.26 | ||||
Diluted: |
||||||||
Continuing operations |
$ | 0.36 | $ | 0.27 | ||||
Discontinued operations |
| (0.01 | ) | |||||
Net income |
$ | 0.36 | $ | 0.26 | ||||
Basic weighted average shares outstanding |
49,322 | 61,509 | ||||||
Diluted weighted average shares outstanding |
49,755 | 62,065 | ||||||
4
THREE MONTHS ENDED | ||||||||
MARCH 31, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 17,905 | $ | 15,984 | ||||
Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
Loss from operations of discontinued operations, net of tax |
259 | 436 | ||||||
(Gain) loss on disposal of discontinued operations, net of tax |
(40 | ) | 436 | |||||
Gain on sale of operations, net |
(2,743 | ) | (374 | ) | ||||
Amortization of discount on convertible notes |
1,041 | 1,042 | ||||||
Amortization of deferred financing costs |
448 | 221 | ||||||
Bad debt expense, net of recoveries |
1,323 | 1,087 | ||||||
Depreciation and amortization expense |
5,030 | 5,125 | ||||||
Adjustment to contingent earnout liability |
(1,109 | ) | (721 | ) | ||||
Deferred income taxes |
1,100 | (1,326 | ) | |||||
Employee stock awards |
1,324 | 1,294 | ||||||
Excess tax benefits from share based payment arrangements |
(114 | ) | (49 | ) | ||||
Changes in assets and liabilities, net of acquisitions and divestitures: |
||||||||
Restricted cash |
2,076 | 4,021 | ||||||
Accounts receivable, net |
(32,927 | ) | (40,827 | ) | ||||
Other assets |
(649 | ) | 1,078 | |||||
Accounts payable |
(3,319 | ) | (3,089 | ) | ||||
Income taxes payable/refundable |
11,686 | 12,156 | ||||||
Accrued personnel costs and other liabilities |
(4,771 | ) | (3,407 | ) | ||||
Net cash used in continuing operations |
(3,480 | ) | (6,913 | ) | ||||
Operating cash flows used in discontinued operations |
(270 | ) | (962 | ) | ||||
Net cash used in operating activities |
(3,750 | ) | (7,875 | ) | ||||
Cash flows from investing activities: |
||||||||
Business acquisitions and contingent consideration, net of
cash acquired |
(10,860 | ) | (26,039 | ) | ||||
Purchases of client fund investments |
(4,931 | ) | | |||||
Proceeds from the sales and maturities of client fund
investments |
5,067 | | ||||||
Proceeds from sales of divested and discontinued operations |
486 | 874 | ||||||
Additions to property and equipment, net |
(531 | ) | (887 | ) | ||||
Other |
(1 | ) | (7 | ) | ||||
Net cash used in investing activities |
(10,770 | ) | (26,059 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from bank debt |
115,100 | 137,875 | ||||||
Payment of bank debt |
(101,200 | ) | (108,425 | ) | ||||
Payment of contingent consideration for acquisitions |
(330 | ) | | |||||
Payment for acquisition of treasury stock |
| (29 | ) | |||||
Proceeds from exercise of stock options |
628 | 645 | ||||||
Excess tax benefit from exercise of stock awards |
114 | 49 | ||||||
Other |
(285 | ) | (42 | ) | ||||
Net cash provided by financing activities |
14,027 | 30,073 | ||||||
Net decrease in cash and cash equivalents |
(493 | ) | (3,861 | ) | ||||
Cash and cash equivalents at beginning of year |
724 | 7,178 | ||||||
Cash and cash equivalents at end of period |
$ | 231 | $ | 3,317 | ||||
5
1. | Summary of Significant Accounting Policies | |
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. | ||
In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting solely of normal recurring adjustments) considered necessary to present fairly the financial position of CBIZ, Inc. and its consolidated subsidiaries (CBIZ or the Company) as of March 31, 2011 and December 31, 2010, and the consolidated results of their operations and cash flows for the three months ended March 31, 2011 and 2010. Due to seasonality, potential changes in economic conditions, interest rate fluctuations and other factors, the results of operations for such interim periods are not necessarily indicative of the results for the full year. For further information, refer to the consolidated financial statements and notes thereto included in CBIZs Annual Report on Form 10-K for the year ended December 31, 2010. | ||
Principles of Consolidation | ||
The accompanying consolidated financial statements reflect the operations of CBIZ, Inc. and all of its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying consolidated financial statements do not reflect the operations or accounts of variable interest entities as the impact is not material to the financial condition, results of operations or cash flows of CBIZ. See CBIZs Annual Report on Form 10-K for the year ended December 31, 2010 for further discussion. | ||
Use of Estimates | ||
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect: the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses. 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 2010 consolidated financial statements and disclosures have been reclassified to conform to the current year presentation, including the impact of discontinued operations. | ||
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. | ||
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 policies is included in the Annual Report on Form 10-K for the year ended December 31, 2010. |
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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 required 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 significant 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 was effective for the first reporting period beginning after December 15, 2009, except as it pertained to the requirement to provide the Level 3 activity for purchases, sales, issuances and settlements on a gross basis. The Level 3 requirement is effective for fiscal years beginning after December 15, 2010. CBIZ has adopted all the provisions of ASU 2010-06 and the adoption did not have a material impact on CBIZs consolidated financial statements. | ||
2. | Accounts Receivable, Net | |
Accounts receivable balances at March 31, 2011 and December 31, 2010 were as follows (in thousands): |
2011 | 2010 | |||||||
Trade accounts receivable |
$ | 123,868 | $ | 119,205 | ||||
Unbilled revenue |
55,871 | 29,483 | ||||||
Total accounts receivable |
179,739 | 148,688 | ||||||
Allowance for doubtful accounts |
(10,067 | ) | (10,620 | ) | ||||
Accounts receivable, net |
$ | 169,672 | $ | 138,068 | ||||
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3. | Goodwill and Other Intangible Assets, Net | |
The components of goodwill and other intangible assets, net at March 31, 2011 and December 31, 2010 were as follows (in thousands): |
2011 | 2010 | |||||||
Goodwill |
$ | 341,936 | $ | 344,086 | ||||
Intangible assets: |
||||||||
Client lists |
116,661 | 117,029 | ||||||
Other intangible assets |
9,407 | 9,506 | ||||||
Total intangible assets |
126,068 | 126,535 | ||||||
Total goodwill and intangibles assets |
468,004 | 470,621 | ||||||
Accumulated amortization: |
||||||||
Client lists |
(41,853 | ) | (39,206 | ) | ||||
Other intangible assets |
(5,283 | ) | (5,005 | ) | ||||
Total accumulated amortization |
(47,136 | ) | (44,211 | ) | ||||
Goodwill and other intangible assets, net |
$ | 420,868 | $ | 426,410 | ||||
4. | Depreciation and Amortization | |
Depreciation and amortization expense for property and equipment and intangible assets for the three months ended March 31, 2011 and 2010 was as follows (in thousands): |
2011 | 2010 | |||||||
Operating expenses |
$ | 4,938 | $ | 5,020 | ||||
Corporate general and administrative expenses |
92 | 105 | ||||||
Total depreciation and amortization expense |
$ | 5,030 | $ | 5,125 | ||||
5. | Borrowing Arrangements | |
CBIZ has three primary debt arrangements at March 31, 2011 that provide the Company with the capital necessary to meet its working capital needs as well as the flexibility to continue with its strategic initiatives, including business acquisitions and share repurchases: the 2010 Convertible Senior Subordinated Notes (2010 Notes) totaling $130 million, the 2006 Convertible Senior Subordinated Notes (2006 Notes) totaling $40 million, and a $275 million unsecured credit facility. | ||
2010 Convertible Senior Subordinated Notes | ||
On September 27, 2010, CBIZ sold and issued $130.0 million of 2010 Notes to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended. The 2010 Notes are direct, unsecured, senior subordinated obligations of CBIZ and rank (i) junior in right of payment to all of CBIZs existing and future senior indebtedness, (ii) equal in right of payment with any other future senior subordinated indebtedness, and (iii) senior in right of payment to all existing and future obligations, if any, that are designated as subordinated to the 2010 Notes. The 2010 Notes bear interest at a rate of 4.875% per annum, payable in cash semi-annually in arrears on April 1 and October 1 beginning April 1, 2011. The 2010 Notes mature on October 1, 2015 unless earlier redeemed, repurchased or converted. |
8
CBIZ separately accounts for the debt and equity components of the 2010 Notes. The carrying amount of the debt and equity components at March 31, 2011 and December 31, 2010 were as follow (in thousands): |
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Principal amount of notes |
$ | 130,000 | $ | 130,000 | ||||
Unamortized discount |
(12,832 | ) | (13,423 | ) | ||||
Net carrying amount |
$ | 117,168 | $ | 116,577 | ||||
Additional paid-in-capital, net of tax |
$ | 8,555 | $ | 8,555 | ||||
The discount on the liability component of the 2010 Notes is being amortized using the effective interest method based upon an annual effective rate of 7.5%, which represents the market rate for similar debt without a conversion option at the issuance date. The discount is being amortized over the term of the 2010 Notes which is five years from the date of issuance. At March 31, 2011, the unamortized discount had a remaining amortization period of approximately 54 months. Refer to the Annual Report on Form 10-K for the year ended December 31, 2010 for additional information on the 2010 Notes. | ||
2006 Convertible Senior Subordinated Notes | ||
On May 30, 2006, CBIZ sold and issued $100.0 million in convertible senior subordinated notes and on September 27, 2010, CBIZ repurchased $60.0 million of the 2006 Notes. These 2006 Notes are direct, unsecured, senior subordinated obligations of CBIZ and rank (i) junior in right of payment to all of CBIZs existing and future senior indebtedness, (ii) equal in right of payment with any other future senior subordinated indebtedness, and (iii) senior in right of payment to all subordinated indebtedness. The 2006 Notes bear interest at a rate of 3.125% per annum, payable in cash semi-annually in arrears on each June 1 and December 1. The 2006 Notes mature on June 1, 2026 unless earlier redeemed, repurchased or converted. CBIZ may redeem the 2006 Notes for cash, either in whole or in part, anytime after June 6, 2011 at a redemption price equal to 100% of the principal amount of the 2006 Notes to be redeemed plus accrued and unpaid interest, including contingent interest and additional amounts, if any, up to but not including the date of redemption. In addition, holders of the 2006 Notes will have the right to 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, at a repurchase price equal to 100% of the principal amount of the 2006 Notes to be repurchased plus accrued and unpaid interest, including contingent interest and additional amounts, if any, up to but not including, the date of repurchase. At March 31, 2011 and December 31, 2010, the 2006 Notes are classified as a current liability based on the provision in the 2006 Indenture that gives the holders of the Notes the right to require CBIZ to repurchase the 2006 Notes on June 1, 2011. | ||
CBIZ separately accounts for the debt and equity components of the 2006 Notes. The carrying amount of the debt and equity components at March 31, 2011 and December 31, 2010 were as follow (in thousands): |
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Principal amount of notes |
$ | 40,000 | $ | 40,000 | ||||
Unamortized discount |
(300 | ) | (750 | ) | ||||
Net carrying amount |
$ | 39,700 | $ | 39,250 | ||||
Additional paid-in-capital, net of tax |
$ | 11,425 | $ | 11,425 | ||||
The discount on the liability component of the 2006 Notes is being amortized using the effective interest method based upon an annual effective rate of 7.8%, which represents the market rate for similar debt without a conversion option at the issuance date. The discount is being amortized over five years from the date of issuance, which coincides with the first date that holders can require CBIZ to repurchase the 2006 Notes. At March 31, 2011, the unamortized discount had a remaining amortization period of approximately |
9
two months. Refer to the Annual Report on Form 10-K for the year ended December 31, 2010 for additional information on the 2006 Notes. | ||
During the three months ended March 31, 2011 and 2010, CBIZ recognized interest expense on the 2010 Notes and 2006 Notes as follows (in thousands): |
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Contractual coupon interest |
$ | 1,897 | $ | 781 | ||||
Amortization of discount |
1,041 | 1,042 | ||||||
Amortization of deferred financing costs |
232 | 133 | ||||||
Total interest expense |
$ | 3,170 | $ | 1,956 | ||||
Bank Debt | ||
CBIZ maintains a $275 million unsecured credit facility (credit facility) with Bank of America as agent for a group of seven participating banks. On April 11, 2011, the credit facility was amended to extend the maturity date one year to June 2015, reduce interest on outstanding balances, reduce commitment fees on the unused amount, and adjust the leverage ratio limits to provide CBIZ with more flexibility. The balance outstanding under the credit facility was $132.8 million and $139.5 million at March 31, 2011 and 2010, respectively. Rates for the three months ended March 31, 2011 and 2010 were as follows: |
2011 | 2010 | |||
Weighted average rates |
3.97% | 3.09% | ||
Range of effective rates |
3.25% - 5.75% | 2.71% - 6.40% | ||
CBIZ had approximately $91.9 million of available funds under the credit facility at March 31, 2011. 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. There are no limitations on CBIZs ability to acquire businesses provided that the total and senior leverage ratios are less than 3.75 and 2.50, respectively. The total and senior leverage ratios are calculated in accordance with the credit agreement and as of March 31, 2011, were 3.70 and 1.68, respectively. Refer to the Annual Report on Form 10-K for the year ended December 31, 2010 for additional information on the credit facility. | ||
6. | Commitments and Contingencies | |
Letters of Credit and Guarantees | ||
CBIZ provides letters of credit to landlords (lessors) of its leased premises in lieu of cash security deposits which totaled $2.8 million and $3.0 million as of March 31, 2011 and December 31, 2010, respectively. In addition, CBIZ provides license bonds to various state agencies to meet certain licensing requirements. The amount of license bonds outstanding at March 31, 2011 and December 31, 2010 was $1.6 million and $1.5 million, respectively. | ||
CBIZ acted as guarantor on various letters of credit for a CPA firm with which it has an affiliation, which totaled $3.4 million as of March 31, 2011 and December 31, 2010. CBIZ has recognized a liability for the fair value of the obligations undertaken in issuing these guarantees, which is recorded as other current liabilities in the accompanying consolidated balance sheets. Management does not expect any material changes to result from these instruments as performance under the guarantees is not expected to be required. |
10
Self-Funded Health Insurance | ||
CBIZ maintains a self-funded comprehensive health benefit plan. Total expenses under this program are limited by stop-loss coverages on individually large claims. A third party administrator processes claims and payments, but does not assume liability for benefits payable under this plan. CBIZ assumes responsibility for funding the plan benefits out of general assets, however, employees contribute to the costs of covered benefits through premium charges, deductibles and co-pays. | ||
The third party administrator provides the Company with reports and other information which provides a basis for the estimate of the liability at the end of each reporting period. Although management believes that it uses the best available information to determine the amount of the liability, unforeseen health claims could result in adjustments and higher costs incurred if circumstances differ from the assumptions used in estimating the liability. The liability for the self-funded health insurance plan is included in other current liabilities in the consolidated balance sheets and was $4.6 million and $3.4 million at March 31, 2011 and December 31, 2010, respectively. CBIZs net healthcare costs include health claims, administration fees to the third-party administrators and premiums for stop-loss coverage. | ||
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, 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 |
11
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. | ||
7. | Financial Instruments | |
Corporate Bonds | ||
CBIZ held corporate bonds with par values totaling $18.4 million and $14.6 million at March 31, 2011 and December 31, 2010, respectively. Corporate bonds have maturity dates ranging from May 2011 through July 2015, and are included in Funds held for clients current on the consolidated balance sheets as these investments are highly liquid and are classified as available-for-sale. During the three months ended March 31, 2011, CBIZ purchased bonds with a par value totaling $4.9 million, sold bonds with a par value totaling $1.0 million, and had an additional $0.1 million par value of bonds that matured. | ||
Auction Rate Securities (ARS) | ||
During the first quarter of 2011, CBIZ sold one of its three investments in ARS at par. At March 31, 2011, CBIZ held two remaining investments in ARS with par values totaling $9.4 million and fair values totaling $6.6 million. In April 2011, CBIZ sold one of the two remaining ARS. A loss of approximately $0.1 million was recorded in Other income (loss), net in the consolidated statements of operations related to this ARS during the first quarter of 2011. The difference between par value and fair value for the one remaining ARS is deemed to be temporary and is therefore recorded as unrealized losses in accumulated other comprehensive loss (AOCL), net of tax. See Note 8 for further discussion of ARS. | ||
Interest Rate Swaps | ||
CBIZ has used interest rate swaps to manage interest rate risk exposure in the past and had two swap arrangements that expired in January 2011. CBIZ had no swap arrangements under contract at March 31, 2011, but management will continue to evaluate the potential use of interest rate swaps as it deems appropriate under certain operating and market conditions. | ||
At December 31, 2010, each of the interest rate swaps was classified as a liability derivative. The following table summarizes CBIZs outstanding interest rate swaps and their classification on the consolidated balance sheets at December 31, 2010 (in thousands). |
December 31, 2010 | ||||||||||||
Notional | Fair | Balance Sheet | ||||||||||
Amount | Value (b) | Location | ||||||||||
Interest rate swaps (a) |
$ | 20,000 | $ | 16 | Other current liabilities |
(a) | Represents two interest rate swaps, each with a notional value of $10.0 million and terms of two years that expired in January, 2011. Under the terms of the interest rate swaps, CBIZ paid interest at a fixed rate of 1.55% and 1.59%, respectively, plus applicable margin under the credit agreement, and received or paid interest that varied with the three-month LIBOR. Interest was calculated by reference to the respective $10.0 million notional amount of the interest rate swap and payments were exchanged every three months. | |
(b) | See additional disclosures regarding fair value measurements in Note 8. |
12
8. | Fair Value Measurements | |
The valuation hierarchy under GAAP categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows: |
| Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | ||
| Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | ||
| Level 3 inputs to the valuation methodology are unobservable and are significant to the fair value measurement. |
A financial instruments categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. | ||
The following table summarizes CBIZs assets and liabilities at March 31, 2011 and December 31, 2010 that are measured at fair value on a recurring basis subsequent to initial recognition, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands): |
Level | March 31, 2011 | December 31, 2010 | ||||||||
Deferred compensation plan assets |
1 | $ | 35,429 | $ | 33,361 | |||||
Corporate bonds |
1 | $ | 19,375 | $ | 15,255 | |||||
Auction rate securities |
1 | $ | 2,600 | $ | | |||||
Interest rate swaps |
2 | $ | | $ | (16 | ) | ||||
Auction rate securities |
3 | $ | 3,985 | $ | 10,216 | |||||
Contingent purchase price liabilities |
3 | $ | (15,826 | ) | $ | (17,265 | ) |
During the three months ended March 31, 2011, an ARS with a fair value of $2.6 million was transferred from Level 3 to Level 1 based on the sale of this investment in April 2011. During the three months ended March 31, 2011, there were no other transfers between the valuation hierarchy Levels 1, 2 or 3. The following table summarizes the change in fair values of the Companys assets and liabilities identified as Level 3 for the three months ended March 31, 2011 (pre-tax basis) (in thousands): |
Auction Rate | Contingent Purchase | |||||||
Securities | Price Liabilities | |||||||
Beginning balance January 1, 2011 |
$ | 10,216 | $ | (17,265 | ) | |||
Transfers out of Level 3 |
(2,600 | ) | | |||||
Sale of auction rate security |
(4,000 | ) | | |||||
Payment of contingent purchase price liability |
| 330 | ||||||
Unrealized gains included in accumulated other
comprehensive loss |
269 | | ||||||
Change in fair value of contingency |
| 1,152 | ||||||
Change in net present value of contingency |
| (43 | ) | |||||
Increase in expected cash flows of OTTI investment |
100 | | ||||||
Ending balance March 31, 2011 |
$ | 3,985 | $ | (15,826 | ) | |||
13
Auction Rate Securities During the first quarter of 2011, CBIZ sold one investment in ARS at par, leaving two investments in ARS at March 31, 2011 with par values totaling $9.4 million. For one of these ARS, the decline in fair value is considered to be temporary. The par value of this ARS is $4.4 million and the fair value was estimated to be $4.0 million at March 31, 2011 and December 31, 2010. For this ARS, CBIZ has determined that the impairment is temporary due to dislocation in the credit markets, the quality of the investments and the underlying collateral, and the probability of a passed auction or redemption in the future, considering the issuers ability to refinance if necessary. This ARS with temporary declines in fair value was classified as Level 3 and in included in Funds held for clients non-current, as CBIZ does not intend to sell this investment until an anticipated recovery of par value occurs. This ARS matures October 1, 2037. | ||
The par value of the remaining ARS is $5.0 million and the fair value was $2.6 million and $2.5 million at March 31, 2011 and December 31, 2010, respectively. This ARS is classified as Level 1 and the fair value is recorded in Funds held for clients current in the consolidated balance sheets at March 31, 2011 as this investment in ARS was sold on April 5, 2011 for $2.6 million. CBIZs policy to record transfers between levels is based on the changes in facts and circumstances of the respective asset or liability that is being reported at fair value. | ||
Contingent Purchase Price Liabilities Contingent purchase price liabilities resulted from business acquisitions made after January 1, 2009, and are classified as Level 3 due to the utilization of a probability weighted discounted cash flow approach to determine the fair value of the contingency. The contingent purchase price liabilities are included in Other current liabilities and Accrued expenses non-current, depending on the expected settlement date. During the three months ended March 31, 2011, the contingent liability decreased as a result of payments totaling $0.3 million and a $1.2 million adjustment to the estimate of future contingent liabilities. See Note 12 for further discussion of contingent purchase price liabilities. | ||
The following table provides additional information with regards to the ARS with temporary impairments, aggregated by the length of time that the securities have been in a continuous unrealized loss position (in thousands): |
March 31, 2011 | December 31, 2010 | |||||||||||||||
12 Months or Greater | 12 Months of Greater | |||||||||||||||
Description of Security | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||
Auction rate securities |
$ | 3,985 | $ | 395 | $ | 7,716 | $ | 664 |
The following table presents financial instruments that are not carried at fair value but which require fair value disclosure as of March 31, 2011 and December 31, 2010 (in thousands): |
March 31, 2011 | December 31, 2010 | |||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
2006 Convertible Notes |
$ | 39,700 | $ | 39,950 | $ | 39,250 | $ | 40,050 | ||||||||
2010 Convertible Notes |
$ | 117,168 | $ | 157,535 | $ | 116,577 | $ | 141,670 |
Although the trading of CBIZs convertible notes is limited, the fair value of the convertible notes was determined based upon their most recent quoted market price. The convertible notes are carried at face value less any unamortized debt discount. | ||
The carrying value of CBIZs 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. |
14
9. | Other Comprehensive Income | |
Other comprehensive income (loss) is reflected as an increase (decrease) to stockholders equity and is not reflected in CBIZs results of operations. Other comprehensive income (loss) for the three months ended March 31, 2011 and 2010, net of tax, was as follows (in thousands): |
2011 | 2010 | |||||||
Net income |
$ | 17,905 | $ | 15,984 | ||||
Other comprehensive income (loss): |
||||||||
Net
unrealized gain (loss) on available-for-sale securities, net of income tax (expense) benefit of $(271) and $50,
respectively |
406 | (75 | ) | |||||
Net unrealized gain on interest rate swaps, net of
income tax expense of $6 and $3, respectively |
10 | 4 | ||||||
Foreign currency translation |
(15 | ) | (15 | ) | ||||
Total other comprehensive income (loss) |
401 | (86 | ) | |||||
Comprehensive income |
$ | 18,306 | $ | 15,898 | ||||
Accumulated other comprehensive loss, net of tax, was approximately $0.5 million and $0.9 million at March 31, 2011 and December 31, 2010, respectively. Accumulated other comprehensive loss consisted of adjustments, net of tax, to unrealized gains and losses on available-for-sale securities and foreign currency translation at March 31, 2011 and December 31, 2010, and also included adjustments for interest rate swaps at December 31, 2010. | ||
10. | Employer Share Plans | |
CBIZ has granted various stock-based awards under its 2002 Stock Incentive Plan, which is described in further detail in CBIZs Annual Report on Form 10-K for the year ended December 31, 2010. The terms and vesting schedules for stock-based awards vary by type and date of grant. Compensation expense for stock-based awards recognized during the three months ended March 31, 2011 and 2010 was as follows (in thousands): |
2011 | 2010 | |||||||
Stock options |
$ | 717 | $ | 760 | ||||
Restricted stock awards |
607 | 534 | ||||||
Total stock-based compensation expense |
$ | 1,324 | $ | 1,294 | ||||
Stock award activity during the three months ended March 31, 2011 was as follows (in thousands, except per share data): |
Stock | ||||||||||||||||
Options | Restricted Stock Awards | |||||||||||||||
Weighted Average | Weighted Average | |||||||||||||||
Exercise Price Per | Grant-Date Fair | |||||||||||||||
Number of Options | Share | Number of Shares | Value (1) | |||||||||||||
Outstanding at beginning of year |
5,653 | $ | 7.42 | 825 | $ | 7.33 | ||||||||||
Granted |
| | 70 | $ | 6.95 | |||||||||||
Exercised or released |
(182 | ) | $ | 3.45 | (56 | ) | $ | 7.00 | ||||||||
Expired or canceled |
(38 | ) | $ | 7.69 | | | ||||||||||
Outstanding at March 31, 2011 |
5,433 | $ | 7.55 | 839 | $ | 7.32 | ||||||||||
Exercisable at March 31, 2011 |
2,256 | $ | 7.80 | |||||||||||||
(1) | Represents weighted average market value of the shares; awards are granted at no cost to the recipients. |
15
11. | Earnings Per Share | |
The following table sets forth the computation of basic and diluted earnings per share for continuing operations for the three months ended March 31, 2011 and 2010 (in thousands, except per share data). |
2011 | 2010 | |||||||
Numerator: |
||||||||
Income from continuing operations after income tax expense |
$ | 18,124 | $ | 16,856 | ||||
Denominator: |
||||||||
Basic |
||||||||
Weighted average common shares outstanding |
49,322 | 61,509 | ||||||
Diluted |
||||||||
Stock options (1) |
90 | 164 | ||||||
Restricted stock awards (1) |
252 | 226 | ||||||
Contingent shares (2) |
91 | 166 | ||||||
Diluted weighted average common shares outstanding |
49,755 | 62,065 | ||||||
Basic earnings per share from continuing operations |
$ | 0.37 | $ | 0.27 | ||||
Diluted earnings per share from continuing operations |
$ | 0.36 | $ | 0.27 | ||||
(1) | A total of 5.2 million and 4.5 million stock based awards were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2011 and 2010, respectively, as their effect would be anti-dilutive. | |
(2) | Contingent shares represent additional shares to be issued for purchase price earned by former owners of businesses acquired by CBIZ once future conditions have been met. |
12. | Acquisitions | |
During the first quarter of 2011, CBIZ did not acquire any businesses or client lists. CBIZ paid $11.3 million during the first quarter of 2011 as contingent earnouts for previous acquisitions. In addition, during the first quarter of 2011, CBIZ reduced the fair value of the contingent purchase price liability related to CBIZs prior acquisitions by $1.2 million due to lower than originally projected future results of the acquired businesses. This reduction of $1.2 million is included in Other income, net in the consolidated statements of operations. See Note 8 for further discussion of contingent purchase price liabilities. | ||
During the first quarter of 2010, CBIZ acquired substantially all of the assets of two companies, Goldstein Lewin & Company and National Benefit Alliance. Goldstein Lewin & Company, an accounting and financial services company located in Boca Raton, Florida, was acquired on January 1, 2010 and is included in the operating results of the Financial Services practice group. National Benefit Alliance, an employee benefits company located in Midvale, Utah, was also acquired on January 1, 2010 and is included in the operating results of the Employee Services practice group. Aggregate consideration for these acquisitions consisted of approximately $13.2 million in cash, $1.8 million in CBIZ common stock, $0.3 million in guaranteed future consideration, and $10.0 million in contingent consideration, subject to the acquired operations achieving certain performance targets. | ||
The operating results of these businesses are included in the accompanying consolidated financial statements since the dates of acquisition. Client lists and non-compete agreements are recorded at fair value at the time of acquisition. The excess of purchase price over the fair value of net assets acquired, (including client lists and non-compete agreements) is allocated to goodwill. |
16
Additions to goodwill, client lists and other intangible assets resulting from contingent consideration earned on prior period acquisitions during the first quarter ended March 31, 2011, and for acquisitions and contingent consideration earned on prior period acquisitions during the three months ended March 31, 2010 were as follows (in thousands): |
2011 | 2010 | |||||||
Goodwill |
$ | 21 | $ | 18,751 | ||||
Client lists |
$ | 108 | $ | 5,560 | ||||
Other intangible assets |
$ | | $ | 246 | ||||
13. | Discontinued Operations and Divestitures | |
CBIZ will divest (through sale or closure) business operations that do not contribute to the Companys long-term objectives for growth, or that are not complementary to its target service offerings and markets. Divestitures are classified as discontinued operations provided they meet the criteria as provided in FASB ASC 205 Presentation of Financial Statements Discontinued Operations Other Presentation Matters. | ||
Discontinued Operations | ||
Gains or losses from the sale of discontinued operations are recorded as Gain (loss) on disposal of discontinued operations, net of tax, in the accompanying consolidated statements of operations. Additionally, proceeds that are contingent upon a divested operations actual future performance are recorded as gain on sale of discontinued operations in the period they are earned. During the first quarter of 2011, CBIZ decided to discontinue operations of a business that was previously reported in the Financial Services practice group. The business is being actively marketed and is expected to be sold during 2011. During the first quarter of 2010, CBIZ sold two businesses from the National Practices group. Proceeds from these sales consisted of $0.2 million in cash and resulted in a pre-tax loss of approximately $0.8 million. | ||
For those businesses that qualified for treatment as discontinued operations, the assets, liabilities and results of operations are reported separately in the accompanying consolidated financial statements. Revenue and results from operations of discontinued operations for the three months ended March 31, 2011 and 2010 are separately reported as Loss from operations of discontinued operations, net of tax in the consolidated statements of operations and were as follows (in thousands): |
2011 | 2010 | |||||||
Revenue |
$ | 577 | $ | 3,114 | ||||
Loss from operations of discontinued
operations, before income tax benefit |
$ | (425 | ) | $ | (727 | ) | ||
Income tax benefit |
166 | 291 | ||||||
Loss from operations of discontinued
operations, net of tax |
$ | (259 | ) | $ | (436 | ) | ||
For the three months ended March 31, 2011 and 2010, gain (loss) on the disposal of discontinued operations were as follows (in thousands): |
2011 | 2010 | |||||||
Gain (loss) on disposal of discontinued operations,
before income tax expense (benefit) |
$ | 67 | $ | (890 | ) | |||
Income tax expense (benefit) |
27 | (454 | ) | |||||
Gain (loss) on disposal of discontinued operations,
net of tax |
$ | 40 | $ | (436 | ) | |||
17
At March 31, 2011 and December 31, 2010, the assets and liabilities of businesses classified as discontinued operations consisted of the following (in thousands): |
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Assets: |
||||||||
Accounts receivable, net |
$ | 501 | $ | 381 | ||||
Property and equipment, net |
1 | 1 | ||||||
Other current assets |
208 | 258 | ||||||
Assets of discontinued operations |
$ | 710 | $ | 640 | ||||
Liabilities: |
||||||||
Accounts payable |
$ | 185 | $ | 90 | ||||
Accrued personnel costs |
201 | 228 | ||||||
Other current liabilities |
235 | 244 | ||||||
Liabilities of discontinued operations |
$ | 621 | $ | 562 | ||||
Divestitures | ||
Gains and losses from divested operations and assets that do not qualify for treatment as discontinued operations are recorded as Gain on sale of operations, net in the consolidated statements of operations. During the first quarter of 2011, CBIZ recognized a gain of $2.3 million from the sale of its individual wealth management business and gains of $0.4 million from the sales of client lists. Cash proceeds from the sale of the business and client lists totaled approximately $7.2 million, of which approximately $6.7 million was received on December 31, 2010. As part of the sale of the individual wealth management business in the first quarter of 2011, CBIZs goodwill was reduced by approximately $2.2 million. During the first quarter of 2010, CBIZ recognized a gain of $0.4 million from the sale of a client list. Cash proceeds from this sale were $0.4 million. | ||
14. | Segment Disclosures | |
CBIZs business units have been aggregated into four practice groups: Financial Services, Employee Services, Medical Management Professionals (MMP), and National Practices. The business units have been aggregated based on the following factors: similarity of the products and services provided to clients; similarity of the regulatory environment in which they operate; and similarity of economic conditions affecting long-term performance. The business units are managed along these segment lines. A general description of services provided by practice group is provided in the following table. |
Financial Services | Employee Services | MMP | National Practices | |||
Accounting
|
Group Health
|
Coding and Billing
|
Managed Networking and Hardware Services |
|||
Tax
|
Property & Casualty
|
Accounts Receivable Management
|
Health Care Consulting |
|||
Financial Advisory
|
Retirement Planning
|
Full Practice Management Services
|
Mergers & Acquisitions
|
|||
Valuation
|
Payroll Services |
|||||
Litigation Support
|
Life Insurance |
|||||
Internal Audit
|
Human Capital Management |
|||||
Family Office Services
|
Compensation Consulting |
|||||
Fraud Detection
|
Recruiting |
|||||
Real Estate Advisory
|
Actuarial Services |
18
Corporate and Other. Included in Corporate and Other are operating expenses that are not directly allocated to the individual business units. These expenses are primarily comprised of gains or losses attributable to assets held in the Companys deferred compensation plan, stock-based compensation, certain health care costs, consolidation and integration charges, certain advertising costs and other various expenses. | ||
Accounting policies of the practice groups are the same as those described in Note 1 to the Annual Report on Form 10-K for the year ended December 31, 2010. Upon consolidation, all intercompany accounts and transactions are eliminated, thus inter-segment revenue is not included in the measure of profit or loss for the practice groups. Performance of the practice groups is evaluated on operating income excluding the costs of certain infrastructure functions (such as information systems, finance and accounting, human resources, legal and marketing), which are reported in the Corporate and Other segment. Segment information for the three months ended March 31, 2011 and 2010 was as follows (in thousands): |
THREE MONTHS ENDED MARCH 31, 2011 | ||||||||||||||||||||||||
Corporate | ||||||||||||||||||||||||
Financial | Employee | National | and | |||||||||||||||||||||
Services | Services | MMP | Practices | Other | Total | |||||||||||||||||||
Revenue |
$ | 122,108 | $ | 44,435 | $ | 35,411 | $ | 7,937 | $ | | $ | 209,891 | ||||||||||||
Operating expenses |
89,727 | 36,596 | 32,074 | 6,657 | 4,374 | 169,428 | ||||||||||||||||||
Gross margin |
32,381 | 7,839 | 3,337 | 1,280 | (4,374 | ) | 40,463 | |||||||||||||||||
Corporate general & admin |
| | | | 9,661 | 9,661 | ||||||||||||||||||
Operating income (loss) |
32,381 | 7,839 | 3,337 | 1,280 | (14,035 | ) | 30,802 | |||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||
Interest expense |
| (6 | ) | | | (4,909 | ) | (4,915 | ) | |||||||||||||||
Gain on sale of operations, net |
| | | | 2,743 | 2,743 | ||||||||||||||||||
Other income (expense), net |
58 | 371 | 69 | | 2,583 | 3,081 | ||||||||||||||||||
Total other income (expense) |
58 | 365 | 69 | | 417 | 909 | ||||||||||||||||||
Income (loss) from continuing
operations before income
tax expense |
$ | 32,439 | $ | 8,204 | $ | 3,406 | $ | 1,280 | $ | (13,618 | ) | $ | 31,711 | |||||||||||
THREE MONTHS ENDED MARCH 31, 2010 | ||||||||||||||||||||||||
Corporate | ||||||||||||||||||||||||
Financial | Employee | National | And | |||||||||||||||||||||
Services | Services | MMP | Practices | Other | Total | |||||||||||||||||||
Revenue |
$ | 120,569 | $ | 46,788 | $ | 35,318 | $ | 6,706 | $ | | $ | 209,381 | ||||||||||||
Operating expenses |
88,321 | 37,149 | 34,090 | 6,490 | 5,399 | 171,449 | ||||||||||||||||||
Gross margin |
32,248 | 9,639 | 1,228 | 216 | (5,399 | ) | 37,932 | |||||||||||||||||
Corporate general & admin |
| | | | 8,984 | 8,984 | ||||||||||||||||||
Operating income (loss) |
32,248 | 9,639 | 1,228 | 216 | (14,383 | ) | 28,948 | |||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||
Interest expense |
(3 | ) | (6 | ) | | | (3,159 | ) | (3,168 | ) | ||||||||||||||
Gain on sale of operations, net |
| | | | 374 | 374 | ||||||||||||||||||
Other income (expense), net |
75 | 138 | 89 | | 1,871 | 2,173 | ||||||||||||||||||
Total other income (expense) |
72 | 132 | 89 | | (914 | ) | (621 | ) | ||||||||||||||||
Income (loss) from continuing
operations before income
tax expense |
$ | 32,320 | $ | 9,771 | $ | 1,317 | $ | 216 | $ | (15,297 | ) | $ | 28,327 | |||||||||||
19
20
THREE MONTHS ENDED MARCH 31, | ||||||||||||||||||||||||
%of | %of | $ | % | |||||||||||||||||||||
2011 | Total | 2010 | Total | Change | Change | |||||||||||||||||||
Same-unit revenue |
||||||||||||||||||||||||
Financial Services |
$ | 117,379 | 55.9 | % | $ | 120,569 | 57.6 | % | $ | (3,190 | ) | (2.6 | )% | |||||||||||
Employee Services |
43,899 | 20.9 | % | 44,522 | 21.2 | % | (623 | ) | (1.4 | )% | ||||||||||||||
MMP |
35,411 | 16.9 | % | 35,318 | 16.9 | % | 93 | 0.3 | % | |||||||||||||||
National Practices |
7,937 | 3.8 | % | 6,706 | 3.2 | % | 1,231 | 18.4 | % | |||||||||||||||
Total same-unit revenue |
204,626 | 97.5 | % | 207,115 | 98.9 | % | (2,489 | ) | (1.2 | )% | ||||||||||||||
Acquired businesses |
5,239 | 2.5 | % | | | 5,239 | ||||||||||||||||||
Divested operations |
26 | | 2,266 | 1.1 | % | (2,240 | ) | |||||||||||||||||
Total revenue |
$ | 209,891 | 100.0 | % | $ | 209,381 | 100.0 | % | $ | 510 | 0.2 | % | ||||||||||||
2011 | 2010 | |||||||||||||||||||
% of Operating | % of | Change in | ||||||||||||||||||
Expense | % of Revenue | Operating Expense | % of Revenue | % of Revenue | ||||||||||||||||
Personnel costs |
74.1 | % | 59.9 | % | 74.6 | % | 61.1 | % | (1.2 | )% | ||||||||||
Occupancy costs |
6.6 | % | 5.4 | % | 6.7 | % | 5.5 | % | (0.1 | )% | ||||||||||
Depreciation and amortization |
2.9 | % | 2.4 | % | 2.9 | % | 2.4 | % | | |||||||||||
Travel and related costs |
2.8 | % | 2.3 | % | 2.6 | % | 2.1 | % | 0.2 | % | ||||||||||
Other (1) |
12.7 | % | 10.0 | % | 12.6 | % | 10.3 | % | (0.3 | )% | ||||||||||
Subtotal |
80.0 | % | 81.4 | % | (1.4 | )% | ||||||||||||||
Deferred compensation |
0.9 | % | 0.7 | % | 0.6 | % | 0.5 | % | 0.2 | % | ||||||||||
Total operating expenses |
80.7 | % | 81.9 | % | (1.2 | )% | ||||||||||||||
Gross margin |
19.3 | % | 18.1 | % | 1.2 | % | ||||||||||||||
21
(1) | Other operating expenses include office expenses, equipment costs, professional fees, restructuring charges, bad debt and other expenses, none of which are individually significant as a percentage of total operating expenses. |
2011 | 2010 | |||||||||||||||||||
% of | % of | |||||||||||||||||||
G&A | G&A | Change in | ||||||||||||||||||
Expense | % of Revenue | Expense | % of Revenue | % of Revenue | ||||||||||||||||
Personnel costs |
68.7 | % | 3.2 | % | 56.4 | % | 2.4 | % | 0.8 | % | ||||||||||
Professional services |
9.1 | % | 0.4 | % | 19.5 | % | 0.8 | % | (0.4 | )% | ||||||||||
Computer costs |
4.6 | % | 0.2 | % | 4.2 | % | 0.2 | % | | |||||||||||
Occupancy costs |
2.4 | % | 0.1 | % | 3.2 | % | 0.1 | % | | |||||||||||
Depreciation and amortization |
1.0 | % | | 1.2 | % | 0.1 | % | (0.1 | )% | |||||||||||
Other (1) |
14.2 | % | 0.7 | % | 15.5 | % | 0.7 | % | | |||||||||||
Total G&A expenses |
4.6 | % | 4.3 | % | 0.3 | % | ||||||||||||||
(1) | Other G&A expenses include office expenses, travel and related costs, insurance expense and other expenses, none of which are individually significant as a percentage of total G&A expenses. |
22
THREE MONTHS ENDED MARCH 31, | ||||||||||||||||
2011 | Per Share | 2010 | Per Share | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Income from continuing operations |
$ | 18,124 | $ | 0.36 | $ | 16,856 | $ | 0.27 | ||||||||
Selected non-cash charges: |
||||||||||||||||
Depreciation and amortization |
5,030 | 0.10 | 5,125 | 0.08 | ||||||||||||
Non-cash interest on convertible notes |
1,041 | 0.02 | 1,042 | 0.02 | ||||||||||||
Stock-based compensation |
1,324 | 0.03 | 1,294 | 0.02 | ||||||||||||
Adjustment to contingent earnouts |
(1,152 | ) | (0.02 | ) | (715 | ) | (0.01 | ) | ||||||||
Non-cash restructuring charge |
| | 1,264 | 0.02 | ||||||||||||
Non-cash charges |
$ | 6,243 | $ | 0.13 | $ | 8,010 | $ | 0.13 | ||||||||
Cash earnings continuing operations |
$ | 24,367 | $ | 0.49 | $ | 24,866 | $ | 0.40 | ||||||||
23
CBIZ delivers its integrated services through four practice groups: Financial Services, Employee Services, Medical Management Professionals (MMP) and National Practices. A brief description of these groups operating results and factors affecting their businesses is provided below. |
THREE MONTHS ENDED MARCH 31, | ||||||||||||||||
$ | % | |||||||||||||||
2011 | 2010 | Change | Change | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Revenue |
||||||||||||||||
Same-unit |
$ | 117,379 | $ | 120,569 | $ | (3,190 | ) | (2.6 | )% | |||||||
Acquired businesses |
4,729 | | 4,729 | |||||||||||||
Divested operations |
| | | |||||||||||||
Total revenue |
$ | 122,108 | $ | 120,569 | $ | 1,539 | 1.3 | % | ||||||||
Operating expenses |
89,727 | 88,321 | 1,406 | 1.6 | % | |||||||||||
Gross margin |
$ | 32,381 | $ | 32,248 | $ | 133 | 0.4 | % | ||||||||
Gross margin percent |
26.5 | % | 26.7 | % | ||||||||||||
24
THREE MONTHS ENDED MARCH 31, | ||||||||||||||||
$ | % | |||||||||||||||
2011 | 2010 | Change | Change | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Revenue |
||||||||||||||||
Same-unit |
$ | 43,899 | $ | 44,522 | $ | (623 | ) | (1.4 | )% | |||||||
Acquired businesses |
510 | | 510 | |||||||||||||
Divested operations |
26 | 2,266 | (2,240 | ) | ||||||||||||
Total revenue |
$ | 44,435 | $ | 46,788 | $ | (2,353 | ) | (5.0 | )% | |||||||
Operating expenses |
36,596 | 37,149 | (553 | ) | (1.5 | )% | ||||||||||
Gross margin |
$ | 7,839 | $ | 9,639 | $ | (1,800 | ) | (18.7 | )% | |||||||
Gross margin percent |
17.6 | % | 20.6 | % | ||||||||||||
25
THREE MONTHS ENDED MARCH 31, | ||||||||||||||||
$ | % | |||||||||||||||
2011 | 2010 | Change | Change | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Same-unit revenue |
$ | 35,411 | $ | 35,318 | $ | 93 | 0.3 | % | ||||||||
Operating expenses |
32,074 | 34,090 | (2,016 | ) | (5.9 | )% | ||||||||||
Gross margin |
$ | 3,337 | $ | 1,228 | $ | 2,109 | 171.7 | % | ||||||||
Gross margin percent |
9.4 | % | 3.5 | % | ||||||||||||
THREE MONTHS ENDED MARCH 31, | ||||||||||||||||
$ | % | |||||||||||||||
2011 | 2010 | Change | Change | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Same-unit revenue |
$ | 7,937 | $ | 6,706 | $ | 1,231 | 18.4 | % | ||||||||
Operating expenses |
6,657 | 6,490 | 167 | 2.6 | % | |||||||||||
Gross margin |
$ | 1,280 | $ | 216 | $ | 1,064 | 492.6 | % | ||||||||
Gross margin percent |
16.1 | % | 3.2 | % | ||||||||||||
26
27
28
Total cash provided by (used in): | 2011 | 2010 | ||||||
Operating activities |
$ | (3,750 | ) | $ | (7,875 | ) | ||
Investing activities |
(10,770 | ) | (26,059 | ) | ||||
Financing activities |
14,027 | 30,073 | ||||||
Decrease in cash and cash equivalents |
$ | (493 | ) | $ | (3,861 | ) | ||
29
30
Total | 2011(1) | 2012 | 2013 | 2014 | 2015 | Thereafter | ||||||||||||||||||||||
Convertible notes (2) |
$ | 170,000 | $ | 40,000 | $ | | $ | | $ | | $ | 130,000 | $ | | ||||||||||||||
Interest on convertible notes |
32,315 | 6,963 | 6,338 | 6,338 | 6,338 | 6,338 | | |||||||||||||||||||||
Credit facility (3) |
132,800 | | | | 132,800 | | | |||||||||||||||||||||
Income taxes payable (4) |
7,558 | 7,558 | | | | | | |||||||||||||||||||||
Notes payable |
236 | | 236 | | | | | |||||||||||||||||||||
Contingent purchase price
liabilities(5) |
15,826 | 2,253 | 7,188 | 6,385 | | | | |||||||||||||||||||||
Contingent purchase price
obligations(6) |
24,865 | 4,098 | 20,767 | | | | | |||||||||||||||||||||
Restructuring lease
obligations (7) |
9,991 | 1,684 | 2,181 | 1,592 | 1,201 | 1,239 | 2,094 | |||||||||||||||||||||
Non-cancelable operating
lease obligations (7) |
151,217 | 25,668 | 30,366 | 24,978 | 18,169 | 15,620 | 36,416 | |||||||||||||||||||||
Letters of credit in lieu of cash
security deposits |
2,816 | 1,386 | | 45 | 250 | | 1,135 | |||||||||||||||||||||
Performance guarantees for
non-consolidated affiliates |
3,407 | 3,407 | | | | | | |||||||||||||||||||||
License bonds and other letters
of credit |
1,588 | 1,081 | 496 | 10 | 1 | | | |||||||||||||||||||||
Total |
$ | 552,619 | $ | 94,098 | $ | 67,572 | $ | 39,348 | $ | 158,759 | $ | 153,197 | $ | 39,645 | ||||||||||||||
(1) | Represents contractual obligations from April 1, 2011 to December 31, 2011. | |
(2) | 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. | |
(3) | 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. | |
(4) | Does not reflect $4.9 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. | |
(5) | 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. | |
(6) | 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. | |
(7) | Excludes cash expected to be received under subleases. |
31
32
33
34
35
36
10.1
|
Second Amendment to the Credit Agreement, dated as of April 11, 011, by and among CBIZ, Inc. Bank of America, N.A., as administrative agent, 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, File No. 001-32961, dated April 13, 2011, and incorporated herein by reference). | |
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. |
37
CBIZ, Inc. (Registrant) |
||||
Date: May 10, 2011 | By: | /s/ Ware H. Grove | ||
Ware H. Grove | ||||
Chief Financial Officer Duly Authorized Officer and Principal Financial Officer |
||||
38
1. | I have reviewed this quarterly report on Form 10-Q of CBIZ, Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
Date: May 10, 2011 | /s/ STEVEN L. GERARD | |||
Steven L. Gerard | ||||
Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of CBIZ, Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
Date: May 10, 2011 | /s/ WARE H. GROVE | |||
Ware H. Grove | ||||
Chief Financial Officer |
(i) | the Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and | ||
(ii) | the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer. |
Date: May 10, 2011 | /s/ STEVEN L. GERARD | |||
Steven L. Gerard | ||||
Chief Executive Officer | ||||
Subscribed and sworn to before me this 10th day of May, 2011. |
||||
/s/ MICHAEL W. GLEESPEN | ||||
Name: | Michael W. Gleespen | |||
Title: | Notary Public & Attorney-At-Law | |||
Registered in Franklin County, Ohio No Expiration Date |
(i) | the Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and | ||
(ii) | the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer. |
Date: May 10, 2011 | /s/ WARE H. GROVE | |||
Ware H. Grove | ||||
Chief Financial Officer | ||||
Subscribed and sworn to before me this 10th day of May, 2011. |
||||
/s/ MICHAEL W. GLEESPEN | ||||
Name: | Michael W. Gleespen | |||
Title: | Notary Public & Attorney-At-Law | |||
Registered in Franklin County, Ohio No Expiration Date |
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