The following discussion is intended to assist in the understanding of CBIZ's financial position at December 31, 2008 and 2007, and results of operations and cash flows for each of the years ended December 31, 2008, 2007 and 2006. This discussion should be read in conjunction with CBIZ's consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in "Uncertainty of Forward-Looking Statements" and "Item 1A. Risk Factors" in this Annual Report on Form 10-K.

Overview

During the year ended December 31, 2008, CBIZ acquired five businesses. Two of these businesses are accounting firms that were acquired on December 31, 2008 and will be reported in the Financial Services practice group. Mahoney Cohen & Company, has offices in New York City, New York, and Boca Raton and Miami, Florida. Tofias PC, has offices in Cambridge and New Bedford, Massachusetts and Providence and Newport, Rhode Island. Both Mahoney Cohen & Company and Tofias PC were ranked in the top 100 accounting firms in the United States and offer accounting, tax and financial advisory services to privately-held and public companies as well as high net worth individuals. Since each of these businesses was acquired on December 31, 2008, they did not impact CBIZ's consolidated statement of operations for the year ended December 31, 2008. However, the assets and liabilities of these businesses are included in the Company's consolidated balance sheets at December 31, 2008.

The other three businesses, a payroll company, an insurance agency and a national executive search firm are reported in the Employee Services practice group. The payroll business is located in Palm Desert, California and provides payroll processing services to a large number of clients in California and Arizona. The insurance business is located in Frederick, Maryland and is a broker of innkeepers' insurance programs. The national executive search firm is headquartered in Overland Park, Kansas and provides services to a diverse client base with a focus on higher education institutions.

During the year ended December 31, 2008, CBIZ divested two businesses that did not contribute to our long-term objectives for growth, both of which were classified as discontinued operations. These businesses were formerly reported in the Financial Services and National Practices groups. CBIZ also sold the assets of an Employee Services business that did not qualify for classification as a discontinued operation.

CBIZ purchased 4.8 million shares of its common stock at a total cost of $41.4 million during the year ended December 31, 2008. On February 19, 2009, CBIZ's Board of Directors authorized the purchase of up to 5.0 million shares of CBIZ common stock through March 31, 2010. The shares may be repurchased in the open market or through privately negotiated purchases according to SEC rules. During the period January 1 through February 28, 2009, CBIZ repurchased approximately 0.7 million shares of its common stock at a total cost of approximately $5.9 million.

During 2008, CBIZ entered into two agreements to amend its unsecured credit facility ("credit facility") with Bank of America, N.A., and other participating banks. The amendments effectively increased its borrowing commitment to $214.0 million with an accordion feature of up to $250.0 million. The credit facility will expire in November 2012.

In July 2008, the Internal Revenue Service completed its examination of the Company's federal income tax returns for the years 2003 through 2006. The Company paid $0.9 million during 2008 to settle the audits. Reserves for uncertain tax positions decreased $1.6 million during the year ended December 31, 2008 due to settlement of the IRS audits and the lapse of certain statutes of limitations.

CBIZ began to self-fund its employee health insurance programs effective January 1, 2008. Accordingly, the Company's 2008 financial statements reflect accrued liabilities and costs associated with these programs, and those accruals are based upon management's estimate of the ultimate costs to settle known claims as well as claims that may have arisen but have not yet been reported to the Company as of the balance sheet dates. CBIZ has obtained stop-loss coverage with third-party insurers to limit the total exposure for claims made under the self-funded plan, both on individually large claims and for the aggregate amount of claims. Prior to January 1, 2008, CBIZ's employee health insurance plans were fully insured.

Results of Operations - Continuing Operations

CBIZ provides professional business services that help clients manage their finances, employees and technology. CBIZ delivers its integrated services through the following four practice groups: Financial Services, Employee Services, Medical Management Professionals, and National Practices. A description of these groups' operating results and factors affecting their businesses is provided below.

Same-unit revenue represents total revenue adjusted to reflect comparable periods of activity for acquisitions and divestitures. For example, for a business acquired on July 1, 2007, revenue for the period January 1, 2008 through June 30, 2008 would be reported as revenue from acquired businesses; same-unit revenue would include revenue for the periods July 1 through December 31 of both years. Divested operations represent operations that did not meet the criteria for treatment as discontinued operations.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Revenue

The following table summarizes total revenue for the years ended December 31,
2008 and 2007 (in thousands, except percentages):


                                               Year Ended December 31,
                                                                  $            %
                                     2008          2007         Change      Change

         Same-unit revenue
         Financial Services        $ 312,122     $ 289,324     $ 22,798         7.9 %
         Employee Services           175,335       170,988        4,347         2.5 %
         MMP                         138,845       132,853        5,992         4.5 %
         National Practices           44,758        45,427         (669 )      (1.5 )%

         Total same-unit revenue     671,060       638,592       32,468         5.1 %
         Acquired businesses          33,123             -       33,123
         Divested operations              80         1,723       (1,643 )

         Total revenue             $ 704,263     $ 640,315     $ 63,948        10.0 %

A detailed discussion of revenue by practice group is included under "Operating Practice Groups".

Gross margin and operating expenses - The majority of CBIZ's operating costs are relatively fixed in the short term, thus gross margin as a percentage of revenue generally improves with revenue growth. The primary components of operating expenses for the years ended December 31, 2008 and 2007 are illustrated in the following table:

                                                    2008                            2007
                                            % of                            % of                          Change in
                                          Operating         % of          Operating         % of            % of
                                           Expense         Revenue         Expense         Revenue         Revenue

Personnel costs                                 72.1 %         62.2 %           73.0 %         63.8 %           (1.6 )%
Occupancy costs                                  6.6 %          5.7 %            6.6 %          5.8 %           (0.1 )%
Other(1)                                        21.3 %         18.4 %           20.4 %         17.9 %            0.5 %

Total operating expenses                                       86.3 %                          87.5 %           (1.2 )%

Gross margin                                                   13.7 %                          12.5 %            1.2 %

(1) Other operating expenses include office expense, depreciation and amortization expense, travel related expenses, equipment costs, professional fees and other expenses, none of which are individually significant as a percentage of total operating expenses.

Personnel costs as a percentage of revenue declined 1.7% to 62.2% for the year ended December 31, 2008 compared to the same period in 2007. The decline in personnel costs was primarily the result of adjustments to the fair value of investments held in relation to the deferred compensation plan which totaled a loss of $6.4 million and a gain of $1.1 million for the years ended December 31, 2008 and 2007, respectively. These adjustments are recorded as compensation expense and are offset by the same adjustments to other income (expense), and thus do not have an impact on net income. Although these adjustments are recorded as operating expenses, they are not allocated to the individual practice groups. The increase or decrease in personnel costs as a percentage of revenue experienced by the individual practice groups is discussed in further detail under "Operating Practice Groups".

Corporate general and administrative expenses - Corporate general and administrative ("G&A") expenses decreased by $0.8 million to $28.7 million for the year ended December 31, 2008, from $29.5 million for the comparable period of 2007. The primary components of corporate general and administrative expenses for the years ended December 31, 2008 and 2007 are illustrated in the following table:

                                                      2008                          2007
                                              % of                          % of                         Change in
                                               G&A           % of            G&A           % of            % of
                                             Expense        Revenue        Expense        Revenue         Revenue

Personnel costs                                  52.3 %          2.1 %         50.6 %          2.3 %           (0.2 )%
Depreciation and amortization                     3.7 %          0.2 %          7.6 %          0.4 %           (0.2 )%
Professional services                            14.2 %          0.6 %         13.5 %          0.6 %              -
Other(1)                                         29.8 %          1.2 %         28.3 %          1.3 %           (0.1 )%

Total corporate general and
administrative expenses                                          4.1 %                         4.6 %           (0.5 )%

(1) Other corporate general and administrative expenses include occupancy costs, office expense, equipment and computer costs, insurance expense and other expenses, none of which are individually significant as a percentage of total corporate general and administrative expenses.

The improvement in corporate general and administrative expenses as a percentage of revenue was primarily the result of adjustments to the fair value of investments held in relation to the deferred compensation plan which totaled a loss of $1.2 million and a gain of $0.2 million for the years ended December 31, 2008 and 2007, respectively.

Interest expense - Interest expense increased by $1.4 million to $7.2 million for the year ended December 31, 2008 from $5.8 million for the comparable period in 2007. The increase in interest expense relates to higher average debt outstanding under the credit facility in 2008 versus the comparable period in 2007, partially offset by a decrease in average interest rates. Average debt outstanding under the credit facility was $61.4 million and $18.4 million and weighted average interest rates were 4.8% and 7.0% for the years ended December 31, 2008 and 2007, respectively. Outstanding debt and interest expense related to the convertible notes was the same in both periods, as the notes carry a fixed interest rate of 3.125%. Debt is further discussed under "Liquidity and Capital Resources".

Other income (expense), net - Other income, net is comprised of interest income, adjustments to the fair value of investments held in a rabbi trust related to the deferred compensation plan, and gains and losses on sales of assets. Adjustments to the fair value of investments related to the deferred compensation plan do not impact CBIZ's net income, as they are offset by the same adjustments to compensation expense (recorded as operating or corporate general and administrative expenses in the consolidated statements of operations). Other income (expense), net for the year ended December 31, 2008 primarily relates to a $7.6 million decline in fair value of investments related to the deferred compensation plan and an impairment charge of approximately $2.3 million related to the Company's investment in an ARS, partially offset by a gain on the sale of a long-term investment of $0.8 million and interest income of $0.8 million. Other income (expense), net for the year ended December 31, 2007 primarily related to a gain on the sale of a long-term investment of $7.3 million, interest income of $1.6 million and a $1.3 million increase in the fair value of investments related to the deferred compensation plan.

Income Taxes - CBIZ recorded income tax expense from continuing operations of $20.5 million and $22.5 million for the years ended December 31, 2008 and 2007, respectively. The effective tax rate for the year ended

December 31, 2008 was 38.1%, compared to an effective tax rate of 40.4% for the comparable period in 2007. The decrease in the effective tax rate for the year ended December 31, 2008 from the comparable period in 2007 was primarily the result of a decrease in estimated tax reserves related to the settlement of the IRS audit and the lapse of certain statutes of limitations. These items are further discussed in Note 8 to the accompanying consolidated financial statements.

Operating Practice Groups

Financial Services


                                              Year Ended December 31,
                                                                 $            %
                                    2008          2007         Change      Change
                                         (In thousands, except percentages)

           Revenue
           Same-unit              $ 312,122     $ 289,324     $ 22,798         7.9 %
           Acquired businesses            -             -            -           -
           Divested operations            -             -            -           -

           Total revenue            312,122       289,324       22,798         7.9 %
           Operating expenses       265,440       249,001       16,439         6.6 %

           Gross margin           $  46,682     $  40,323     $  6,359        15.8 %
           Gross margin percent        15.0 %        13.9 %

Approximately 60% of the growth in same-unit revenue was attributable to an increase in the aggregate number of hours charged to clients for consulting, valuation and litigation support services, and approximately 40% was attributable to increases in rates realized for services provided. Approximately $5.1 million of revenue was recognized from the completion of a large project during 2008.

The largest components of operating expenses for the Financial Services practice group are personnel costs, occupancy costs, and travel related expenses representing 88.2% and 89.0% of total operating expenses for the years ended December 31, 2008 and 2007, respectively. Personnel costs increased $11.8 million but decreased as a percent of revenue to 66.7% for the year ended December 31, 2008 from 67.9% for the comparable period in 2007. The dollar increase in personnel costs was primarily due to additional costs incurred for new employees and annual merit increases to existing employees. CBIZ continues to add personnel in the Financial Services practice group in order to accommodate the growth in revenue. Occupancy costs are relatively fixed in nature but were $0.6 million higher for the year ended December 31, 2008 versus the comparable period in 2007 due to additional space required to accommodate growth. Occupancy costs decreased as a percentage of revenue to 5.5% for the year ended December 31, 2008 from 5.8% for the comparable period in 2007. Travel related expenses increased $0.3 million for the year ended December 31, 2008 compared to December 31, 2007 and were 2.8% and 2.9% of revenue for the years ended December 31, 2008 and 2007, respectively.

Gross margin improvement was primarily due to leveraging the increase in revenue against personnel costs and operating expenses which are generally fixed in the short term. The improvement in gross margin was partially offset by an increase in bad debt expense related to specific client receivables. Bad debt expense increased by $3.0 million for the year ended December 31, 2008 versus the comparable period in 2007.

Employee Services


                                              Year Ended December 31,
                                                                 $            %
                                    2008          2007         Change      Change
                                         (In thousands, except percentages)

           Revenue
           Same-unit              $ 175,335     $ 170,988     $  4,347         2.5 %
           Acquired businesses        7,018             -        7,018
           Divested operations           80         1,723       (1,643 )

           Total revenue            182,433       172,711        9,722         5.6 %
           Operating expenses       151,472       140,833       10,639         7.6 %

           Gross margin           $  30,961     $  31,878     $   (917 )      (2.9 )%
           Gross margin percent        17.0 %        18.5 %

The increase in same-unit revenue was primarily attributable to growth in the Company's retail and payroll service businesses. The retail growth was due primarily to an approximate 5% increase in revenue from group health products, but was negatively impacted by soft market conditions in pricing for property and casualty insurance and a decline in asset values which impacted revenues from the Company's retirement investment advisory services. Same-unit payroll service revenue increased approximately 7% as a result of an increase in number of clients served and related volume increases. The growth in revenue from acquired businesses was provided by a property and casualty business in Frederick, Maryland, a payroll services business in Palm Desert, California, and a specialty recruiting business headquartered in Overland Park, Kansas, all of which were acquired during 2008. The decline in revenue from divested businesses relates to the sale of certain specialty retirement investment advisory operations in Atlanta, Georgia which occurred in the third quarter of 2008.

The largest components of operating expenses for the Employee Services group are personnel costs, including commissions paid to third party brokers, and occupancy costs, representing 82.3% and 83.1% of total operating expenses for the years ended December 31, 2008 and 2007, respectively. Personnel costs increased $7.0 million to 62.9% of revenue for the year ended December 31, 2008 from 62.4% for the comparable period in 2007. Acquired businesses contributed $4.2 million of the increase in personnel costs. The increase in personnel costs as a percentage of revenue was primarily related to merit increases and investments in additional personnel to support growth of the business. Occupancy costs increased $0.7 million for the year ended December 31, 2008 versus the comparable period in 2007, largely due to the acquired businesses, but did not change as a percentage of revenue.

The decline in gross margin was attributable to a change in service mix as a result of growth in the payroll and human capital advisory businesses, as these businesses typically provide lower margins than the retail businesses. Additionally, the decline in gross margin relates to lower interest rates which impacted investment income earned on payroll funds, and declines in market values which impacted the Company's asset based fees.

Medical Management Professionals ("MMP")

                                              Year Ended December 31,
                                                                 $            %
                                    2008          2007         Change      Change
                                         (In thousands, except percentages)

           Revenue
           Same-unit              $ 138,845     $ 132,853     $  5,992         4.5 %
           Acquired businesses       26,105             -       26,105
           Divested operations            -             -            -

           Total revenue            164,950       132,853       32,097        24.2 %
           Operating expenses       143,395       115,976       27,419        23.6 %

           Gross margin           $  21,555     $  16,877     $  4,678        27.7 %
           Gross margin percent        13.1 %        12.7 %

Same-unit revenue consists of revenue from existing clients and net new business sold. Revenue from existing clients increased by approximately 2% for the year ended December 31, 2008 versus the comparable period in 2007. Growth from existing clients was provided by an increase in volume of approximately 4%, offset by certain reductions in Medicare reimbursement rates, declines in pricing and the mix of medical specialties which collectively totaled approximately 2%. Revenue from new business sold (net of client terminations) contributed approximately 3% of the increase in same-unit revenue. Growth in revenue from acquired businesses was provided by a business located in Montgomery, Alabama which provides billing services, practice management and consulting services to anesthesia and pain management providers primarily in the southern United States, and a business headquartered in Ponte Vedra Beach, Florida which provides coding, billing and accounts receivable management services for emergency medicine physician practices along the east coast of the United States. These businesses were acquired in the second and fourth quarters of 2007, respectively.

The largest components of operating expenses for MMP are personnel costs, occupancy costs and office expenses (primarily postage related to statement mailing services provided to clients), representing 81.9% and 83.8% of total operating expenses for the years ended December 31, 2008 and 2007, respectively. Personnel costs increased $15.6 million, but declined as a percentage of revenue to 56.5% for the year ended December 31, 2008 from 58.5% for the year ended December 31, 2007. Acquired businesses contributed $12.1 million of the increase in personnel costs with the remainder being attributable to annual merit increases to existing employees and the addition of certain internal support personnel to position the unit for continued growth. The improvement in personnel costs as a percentage of revenue relates to an increase of off-shore processing, and the business that was acquired in the fourth quarter of 2007. The improvement in personnel costs as a percentage of revenue was partially offset by fees paid to off-shore vendors which increased to 1.9% of revenue for the year ended December 31, 2008 from 0.4% of revenue for the comparable period in 2007.

Occupancy costs increased by $2.2 million for the year ended December 31, 2008 versus the comparable period in 2007, primarily attributable to the acquired businesses, but did not change as a percentage of revenue. Office expenses increased $2.5 million, but decreased as a percentage of revenue to 8.1% for the year ended December 31, 2008 from 8.2% for the comparable period in 2007. The increase in office expenses primarily relates to the acquired businesses and the decrease in office expenses as a percentage of revenue relates to a change in the frequency of statement mailing.

Gross margin increased to 13.1% for the year ended December 31, 2008 from 12.7% for the comparable period in 2007. Gross margin for the year ended December 31, 2007 was favorably impacted by the write-down of certain internally developed software which totaled approximately 0.4% of revenue. MMP has taken various actions to maintain gross margin, including the utilization of off-shore processing and other cost control measures. In addition, the two acquired businesses service anesthesia and emergency medicine practices which typically provide higher margins than MMP's same-unit revenue which is primarily attributable to services rendered to radiology practices.

National Practices


                                              Year Ended December 31,
                                                                $            %
                                    2008          2007        Change      Change
                                        (In thousands, except percentages)

           Revenue
           Same-unit              $  44,758     $ 45,427     $   (669 )      (1.5 )%
           Acquired businesses            -            -            -
           Divested operations            -            -            -

           Total revenue             44,758       45,427         (669 )      (1.5 )%
           Operating expenses        42,400       41,247        1,153         2.8 %

           Gross margin           $   2,358     $  4,180     $ (1,822 )     (43.6 )%
           Gross margin percent         5.3 %        9.2 %

The decrease in revenue was attributable to the technology businesses and consisted of declines in product, service agreement and consulting revenue of $0.3 million, $0.9 million and $0.4 million, respectively. The decline in revenue in the technology businesses primarily relates to delays in larger capital projects as clients are deferring investment decisions in response to the current economic environment. The decline in revenue attributable to the technology businesses was partially offset by an increase in revenue in the healthcare consulting and mergers and acquisitions businesses of $0.8 million and $0.2 million, respectively. The increase in healthcare consulting revenue is attributable to new services that were introduced in 2008.

The largest components of operating expenses for the National Practices group are personnel costs, direct costs and occupancy costs, representing 92.3% and 92.2% of total operating expenses for the years ended December 31, 2008 and 2007, respectively. Personnel costs increased $1.8 million to 69.3% of revenue for the year ended December 31, 2008 from 64.4% of revenue for the comparable period in 2007. More than half of the increase in personnel cost dollars was necessary to support revenue growth from CBIZ's largest client. The remainder of . . .