CBIZ, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures - Management has evaluated the effectiveness of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report. This evaluation (“Controls Evaluation”) was done with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Disclosure Controls are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Limitations on the Effectiveness of Controls - Management, including the Company’s CEO and CFO, does not expect that its Disclosure Controls or its internal control over financial reporting (“Internal Controls”) will prevent all errors and all fraud. Although our Disclosure Controls are designed to provide reasonable assurance of achieving their objective, a control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of a control system are met. Further, any control system reflects limitations on resources, and the benefits of a control system must be considered relative to its costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of a control. A design of a control system is also based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. Conclusions - Based upon the Controls Evaluation, our CEO and CFO have concluded that as of the end of the period covered by this report, our Disclosure Controls are effective at the reasonable assurance level described above. There were no changes in our Internal Controls that occurred during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our Internal Controls. Management’s Report on Internal Control Over Financial Reporting - Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision of management, including our CEO and CFO, we conducted an evaluation of our internal control over financial reporting based on the framework provided in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2020. Our independent auditor, KPMG LLP, an independent registered public accounting firm, has issued an audit report on the effectiveness of our internal control over financial reporting which appears in Item 8 of this Annual Report. 33 Table of Contents ITEM 9B. OTHER INFORMATION. None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. Information with respect to this item not included below is incorporated by reference from our Definitive Proxy Statement for the 2021 Annual Stockholders’ Meeting to be filed with the SEC no later than 120 days after the end of CBIZ’s fiscal year. We have adopted a Code of Professional Conduct and Ethics Guide that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our Code of Professional Conduct and Ethics Guide is available on the investor information page of our website, located at https://www.cbiz.com , and in print to any shareholder who requests them. Any waiver or amendment to the code will be posted on our website. Information about our Executive Officers, Directors and Key Employees - The following table sets forth certain information regarding the directors, executive officers and certain key employees of CBIZ. Each executive officer and director of CBIZ named in the following table has been elected to serve until his/her successor is duly appointed or elected or until his/her earlier removal or resignation from office. No arrangement or understanding exists between any executive officer of CBIZ and any other person pursuant to which he or she was selected as an officer. Name Age Position(s) Executive Officers and Directors: Steven L. Gerard (1) 75 Chairman Jerome P. Grisko, Jr. (1) 59 President & Chief Executive Officer, Director Rick L. Burdick (1)(3)(4) 69 Lead Director and Vice Chairman Michael H. DeGroote (3) 60 Director Joseph S. DiMartino (3)(4) 77 Director Gina D. France (2)(3) 62 Director Sherrill W. Hudson (2)(4) 77 Director Todd J. Slotkin (2)(4) 67 Director A. Haag Sherman (2) 55 Director Benaree Pratt Wiley (3)(4) 74 Director Ware H. Grove 70 Senior Vice President and Chief Financial Officer Chris Spurio 55 President, Financial Services Michael P. Kouzelos 52 President, Benefits and Insurance Services Other Key Employees: Richard E. Mills 65 Chief Operating Officer, Financial Services Michael W. Gleespen 62 Secretary and General Counsel John A. Fleischer 59 Senior Vice President and Chief Information Officer Mark M. Waxman 62 Senior Vice President and Chief Marketing Officer Bruce J. Kowalski 60 Vice President, Tax Cynthia L. Sobe 53 Treasurer Philip P. Noftsinger 50 Vice President of Finance and Corporate Controller (1) Member of Executive Management Committee (2) Member of Audit Committee (3) Member of Nominating & Governance Committee (4) Member of Compensation & Human Capital Committee 34 Table of Contents Steven L. Gerard was elected by the Board to serve as its Chairman in October 2002. He was appointed Chief Executive Officer and Director in October 2000, and served as CEO until March 2016. Mr. Gerard continues to serve as non-executive Chairman. Mr. Gerard was Chairman and Chief Executive Officer of Great Point Capital, Inc., a provider of operational and advisory services from 1997 to October 2000. From 1991 to 1997, he was Chairman and Chief Executive Officer of Triangle Wire & Cable, Inc. and its successor Ocean View Capital, Inc. Mr. Gerard’s prior experience includes 16 years with Citibank, N.A. in various senior corporate finance and banking positions. Further, Mr. Gerard served seven years with the American Stock Exchange, where he last served as Vice President of the Securities Division. Mr. Gerard also serves on the Boards of Directors of Lennar Corporation and AutoNation, Inc. He previously served on the Board of the Las Vegas Sands Corporation and was a member of the Board of Directors of Joy Global, Inc. until its acquisition by Komatsu Limited in 2017. Jerome P. Grisko, Jr . was appointed to the CBIZ Board in November, 2015. Mr. Grisko was appointed Chief Executive Officer in March 2016, and has served as President since February 2000. He was also Chief Operating Officer from February 2000 until his appointment as Chief Executive Officer. Mr. Grisko joined CBIZ as Vice President, Mergers & Acquisitions in September 1998 and was promoted to Senior Vice President, Mergers & Acquisitions and Legal Affairs in December of 1998. Prior to joining CBIZ, Mr. Grisko was associated with the law firm of Baker & Hostetler LLP, where he practiced from September 1987 until September 1998, serving as a partner of such firm from January 1995 to September 1998. While at Baker & Hostetler, Mr. Grisko concentrated his practice in the area of mergers and acquisitions and general corporate law. Rick L. Burdick has served as a Director of CBIZ since October 1997, when he was elected as an independent director. On May 17, 2007, Mr. Burdick was elected by the Board to be its Lead Director, a non-officer position. Previously, in October 2002, he was elected by the Board as Vice Chairman, a non-officer position. Mr. Burdick is a Partner Emeritus at the law firm of Akin Gump Strauss Hauer & Feld LLP, and was a Partner in the firm from 1988 until 2019. Mr. Burdick serves as Lead Director on the Board of Directors of AutoNation, Inc. Michael H. DeGroote, son of CBIZ founder Michael G. DeGroote, was appointed a Director of CBIZ in November 2006. Mr. DeGroote currently serves as President of Westbury International, a full-service real estate development company, specializing in commercial/industrial land, residential development and property management. Prior to joining Westbury, Mr. DeGroote was Vice President of MGD Holdings and previously held a management position with Cooper Corporation, and previously served on the Board of Directors of Progressive Waste Solutions Ltd. He served on the Board of Governors of McMaster University in Hamilton, Ontario. Joseph S. DiMartino has served as a Director of CBIZ since November 1997, when he was elected as an independent director. Mr. DiMartino has been Chairman of the Boards of the funds in the BNY Mellon Corporation (formerly The Dreyfus Corporation) since January 1995. Mr. DiMartino served as President, Chief Operating Officer and Director of The Dreyfus Corporation from October 1982 until December 1994 and also served as a director of Mellon Bank Corporation. Gina D. France was appointed to the CBIZ Board in February, 2015. Ms. France founded France Strategic Partners, LLC, a strategy and transaction advisory firm, and has served as its President and Chief Executive Officer since 2003. Ms. France has over 40 years of experience in strategy, investment banking and corporate finance. Prior to founding France Strategic Partners, Ms. France was a Managing Director with Ernst & Young, LLP and directed the Firm’s Center for Strategic Transactions. Prior to her work with Ernst & Young, Ms. France was a Senior Vice President with Lehman Brothers, Inc. Ms. France serves on the boards of Huntington Bancshares, Inc., Cedar Fair, L.P. and on the boards of the BNY Mellon Family of Funds. Ms. France has previously served on the boards of FirstMerit Corporation, Dawn Food Products, Inc. and Mack Industries. Sherrill W. Hudson was appointed to the CBIZ Board in February, 2015. Until July 2016, upon the sale of the Company, Mr. Hudson was Chairman of the Board of TECO Energy, Inc. and was a member of its board since January 2003. He was executive chairman from August 2010 to December 2012, after having served as Chairman and Chief Executive Officer since July 2004. Mr. Hudson also serves on the boards of Lennar Corporation and United Insurance Holdings Corporation. He served on the Publix Super Markets, Inc. board from January 2003 until April 2015. Mr. Hudson is also Chairman Emeritus of the Florida Chapter of the National Association of Corporate Directors. Mr. Hudson retired from Deloitte & Touche, LLP in August 2002, after 37 years of service. Todd J. Slotkin has served as a Director of CBIZ since September 2003, when he was elected as an independent director. Mr. Slotkin is President & COO of KMP Music LLC, a music publishing firm. He is also currently a Senior Advisor at Alvarez & Marsal, and between 2014 and 2020 he served as the Global Business Head of Alvarez & 35 Table of Contents Marsal’s Asset Management Services. Mr. Slotkin is also an independent director of the Apollo Closed End Fund Complex (Apollo Floating Rate Fund, Apollo Tactical Income Fund). In 2011, Mr. Slotkin was appointed the Managing Partner of Newton Pointe LLC, an advisory firm, a position he also held during the period 2007-2008. Mr. Slotkin served on the Board of Martha Stewart Living Omnimedia from 2008 to 2012, and was head of its Audit Committee and Special Committee. Between 2008 and 2010, Mr. Slotkin was a Senior Managing Director of Irving Place Capital. From 2006 to 2007 Mr. Slotkin served as a Managing Director of Natixis Capital Markets. From 1992 to 2006, Mr. Slotkin served as a SVP (1992-1998) and EVP and Chief Financial Officer (1998-2006) of MacAndrews & Forbes Holdings Inc. Additionally, he was the Executive Vice President and Chief Financial Officer of publicly owned M&F Worldwide (1998-2006). Prior to 1992, Mr. Slotkin spent 17 years with Citigroup, ultimately serving as Senior Managing Director and Senior Credit Officer. He was the Global Head of Citigroup’s Leveraged Capital Group. Mr. Slotkin is a co-founder of the Food Allergy Research & Education, Inc., formerly known as the Food Allergy Initiative. A. Haag Sherman has served as a Director of CBIZ since August 2020, when he was elected as an independent director. Mr. Sherman has served as the Chief Executive Officer and a director of Tectonic Financial, Inc. (and its predecessor), a banking and financial holding company, since February 2015. Prior thereto, Mr. Sherman co-founded Salient Partners, LP, a Huston-based investment firm, in 2002 and served in various executive positions, including Chief Executive Officer and Chief Investment Officer, through October 2011. In addition, he previously served as an executive officer and partner of The Redstone Companies from 1998 to 2002 where he, among other things, managed a private equity portfolio. Mr. Sherman has served as a director of Hilltop Holdings, Inc. since its acquisition of PlainsCapital Corporation in November 2012. He previously served as a director of PlainsCapital from September 2009 to November 2012. He previously served as a member of the board of directors of Salient MLP & Energy Infrastructure Fund, Blue Dolphin Energy Company, Miller Energy Resources, Inc. and ZaZa Energy Corp. Mr. Sherman has served as an adjunct professor of law at The University of Texas School of Law. Mr. Sherman previously practiced corporate law at Akin Gump Strauss Hauer & Feld LLP from 1992 to 1996 and was an auditor at Price Waterhouse, a public accounting firm, from 1988 to 1989. Mr. Sherman is an attorney and certified public accountant. Benaree Pratt Wiley has served as a Director of CBIZ since May 2008, when she was elected as an independent director. Ms. Wiley is a Principal of The Wiley Group, a firm specializing in personnel strategy, talent management, and leadership development primarily for global insurance and consulting firms. Ms. Wiley served as the President and Chief Executive Officer of The Partnership, Inc., a talent management organization for multicultural professionals in the greater Boston region for fifteen years before retiring in 2005. Ms. Wiley is currently a director on the boards of the BNY Mellon Family of Funds and Blue Cross and Blue Shield of Massachusetts. Her civic activities include serving on the boards of the Efficacy Institute, Howard University Dress for Success Boston, Partners Continuing Care and Spaulding Hospital. Ware H. Grove has served as Senior Vice President and Chief Financial Officer of CBIZ since December 2000. Before joining CBIZ, Mr. Grove served as Senior Vice President and Chief Financial Officer of Bridgestreet Accommodations, Inc., which he joined in early 2000 to restructure financing, develop strategic operating alternatives, and assist with merger negotiations. Prior to joining Bridgestreet, Mr. Grove served for three years as Vice President and Chief Financial Officer of LESCO, Inc. Since beginning his career in corporate finance in 1972, Mr. Grove has held various financial positions with large companies representing a variety of industries, including Revco D.S., Inc., Computerland/Vanstar, Manville Corporation, The Upjohn Company, and First of America Bank. Mr. Grove served on the Board of Directors for Applica, Inc. (NYSE: APN) from September 2004 through January 2007, at which time the company was sold to a private equity firm. Chris Spurio was appointed Senior Vice President of CBIZ and President of CBIZ’s Financial Services practice group, effective January 1, 2014. Mr. Spurio joined CBIZ in January 1998 and served as Corporate Controller until July 1999. He then served as Vice President of Finance from July 1999 until September 2008. Mr. Spurio served as Executive Managing Director of the Financial Services Group’s Midwest Region from September 2008 through March 2010, and as the Group’s Chief Operating Officer from March 2010 through December 2013. Mr. Spurio was associated with KPMG LLP, an international accounting firm, from July 1988 to January 1998. Mr. Spurio is a CPA, CGMA and a member of the American Institute of Certified Public Accountants and the Ohio Society of Certified Public Accountants. Michael P. Kouzelos joined CBIZ in June 1998 and has held several positions in the Company. He was appointed President of the Benefits & Insurance practice group in May 2015, and was appointed Senior Vice President of Strategic Initiatives in September 2005. Mr. Kouzelos also served as the Chief Operating Officer of the Benefits & 36 Table of Contents Insurance division between April 2007 and May 2015, as Vice President of Strategic Initiatives from April 2001 through August 2005, as Vice President of Shared Services from August 2000 to March 2001, and as Director of Business Integration from June 1998 to July 2000. Mr. Kouzelos was associated with KPMG LLP, an international accounting firm, from 1990 to September 1996 and received his Master of Business Administration degree from The Ohio State University in May of 1998. Other Key Employees: Richard E. Mills has served as the Chief Operating Officer of CBIZ’s Financial Services practice group since January 2014. Prior to this appointment, Mr. Mills was President of CBIZ MHM, LLC — Kansas City, and responsible for offices in St. Louis, Topeka, Wichita and Tulsa. His responsibilities at a corporate level include business development, marketing, strategic planning, national training and organizational efficiency. Mr. Mills has also served as the Kansas City and Midwest Regional Attest Leader, and for many years consulted with clients on a variety of topics, including acquisitions, strategic planning, succession planning and improving profitability. His clients included not-for-profit organizations, construction companies, manufacturing and distribution companies. Mr. Mills began his career with Mayer Hoffman McCann in 1978. Michael W. Gleespen has served as Corporate Secretary since April 2001 and General Counsel since June 2001. Mr. Gleespen is an attorney and has served as CBIZ’s Vice President of Regulatory Compliance and Accountancy Compliance Officer and Technical Director since February 1998. Prior to joining CBIZ, Mr. Gleespen was an Assistant Ohio Attorney General in the Business & Government Regulation Section and the Court of Claims Defense Section from 1988 until 1998, during which time he was counsel to the Ohio Accountancy Board, the Ohio State Teachers Retirement System and represented many other state departments and agencies. Mr. Gleespen also held the post of Associate Attorney General for Pension, Disability and Annuity Plans and was the Co-Chairman of the Public Pension Plan Working Group. John A. Fleischer has served as Senior Vice President and Chief Information Officer of CBIZ since August 2014. Prior to joining CBIZ, Mr. Fleischer held CIO roles at TTT Holdings (a Talisman Capital Partners company), Ferro Corporation, The Goodyear Tire & Rubber Company, and T-Systems. Prior to these, he held senior IT roles at Volkswagen and Federal-Mogul Corporation. While at T-Systems, Mr. Fleischer also ran the U.S. consulting practice, which provided IT services to clients in a variety of industries. He began his career as a commissioned officer in the United States Army and served twelve years on active duty in numerous roles, which included directing large-scale systems development and integration projects in communications and computing. He is a Distinguished Military Graduate of Princeton University and received his Master of Business Administration degree from The Ohio State University. Mr. Fleischer serves on the Board of Trustees of the Lakeside Chautauqua Association. Mark M. Waxman has served as Chief Marketing Officer since 2001. Mr. Waxman has over thirty years of experience in marketing and branding. Prior to joining CBIZ, he was Chief Executive Officer/Creative Director of one of Silicon Valley’s most well-known advertising agencies, Carter Waxman. He was also a founding partner of SK Consulting (acquired by CBIZ in 1998) providing strategic marketing and branding services to a wide range of companies and industries. Mr. Waxman has been a featured marketing columnist and contributor to many business and trade publications, and currently serves on the Advisory Board of several Silicon Valley start-ups. He serves on the Board of Silicon Valley Creates, the Institute of Contemporary Art and the West Valley Mission Foundation. He has served as the Chairman of the Board for organizations including the Silicon Valley Chamber of Commerce, Artsopolis.com, the Silicon Valley Ad Club, and The San Jose Repertory Theatre. Bruce J. Kowalski joined CBIZ in December 2003 as Corporate Tax Manager and was appointed Vice President — Tax in April 2008. Mr. Kowalski has more than thirty years of corporate tax experience, beginning his career in 1982 with Price Waterhouse and holding various corporate tax positions with The Scott Fetzer Company and UCAR Carbon Company Inc. Mr. Kowalski is a CPA (inactive) and received his Masters of Taxation degree from the University of Akron. Cynthia L. Sobe joined CBIZ in August 2016 as Treasurer. Prior to joining CBIZ, Ms. Sobe served as Vice President, Corporate Treasurer for Crowne Group, LLC from November 2014 through January 2016. Prior to joining Crowne Group, LLC, Ms. Sobe was Vice President, Chief Financial Officer of AMRESCO, LLC (a division of VWR) from October 2012 to October 2014. Prior to joining AMRESCO, LLC, Ms. Sobe held various financial and accounting positions with companies representing a variety of industries, including Associated Materials, LLC, Jo-Ann Stores, LLC, Revco D.S., Inc., and Ernst & Young, LLP. Ms. Sobe is a CPA (inactive), and she received a 37 Table of Contents Master of Business Administration from Case Western Reserve University in May 2000. Ms. Sobe is a member of the American Institute of Certified Public Accountants and the Association for Financial Professionals. Philip P. Noftsinger was appointed Vice President of Finance and Corporate Controller for CBIZ in March 2020. Prior to his current role, Mr. Noftsinger has served in various leadership positions within CBIZ organizations, particularly as President of CBIZ's Employee Service Organization and President of CBIZ Payroll. Mr. Noftsinger also created the CBIZ Small Business Employment Index, which is a metric designed to gauge hiring in companies with less than 300 employees across the United States. Mr. Noftsinger can be seen on Fox Business, CNBC and Bloomberg on occasion to discuss the state of small business hiring and employment. His comments on the state of small businesses have also been carried in multiple print and web outlets including Smart Money, Accounting Today and The Wall Street Journal. Prior to joining CBIZ in September of 2004, Mr. Noftsinger was controller of Fortegra, Incorporated, a highly specialized IT consultation and integration firm in the energy and health-care industries. Mr. Noftsinger is a CPA and a member of the American Institute of Certified Public Accountants. ITEM 11. EXECUTIVE COMPENSATION. Information with respect to this item is incorporated by reference from our Definitive Proxy Statement for the 2021 Annual Stockholders’ Meeting to be filed with the SEC no later than 120 days after the end of our fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Information with respect to this item is incorporated by reference from our Definitive Proxy Statement for the 2021 Annual Stockholders’ Meeting to be filed with the SEC no later than 120 days after the end of our fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. Information with respect to this item is incorporated by reference from our Definitive Proxy Statement for the 2021 Annual Stockholders’ Meeting to be filed with the SEC no later than 120 days after the end of our fiscal year. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. Information with respect to this item is incorporated by reference from our Definitive Proxy Statement for the 2021 Annual Stockholders’ Meeting to be filed with the SEC no later than 120 days after the end of our fiscal year. PART IV ITEM 15. EXHIBITS. (a) The following documents are filed as part of this Annual Report or incorporated by reference: 1. Financial Statements. As to financial statements and supplementary information, reference is made to “Index to Financial Statements” on page F-1 of this Annual Report. 2. Exhibits. The following documents are filed as exhibits to this Form 10-K pursuant to Item 601 of Regulation S-K. Since its incorporation, CBIZ has operated under various names including: Republic Environmental Systems, Inc.; International Alliance Services, Inc.; Century Business Services, Inc.; and CBIZ, Inc. Exhibits listed below refer to these names collectively as the “Company”. Exhibit No. Description 3.1 Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-8, File No. 333-197284, and incorporated herein by reference). 38 Table of Contents 3.2 Certificate of Amendment of the Certificate of Incorporation of the Company, effective August 1, 2005 (filed as Exhibit 3.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, File No. 000-25890, dated March 16, 2006, and incorporated herein by reference). 3.3 Amended and Restated Bylaws of the Company (filed as Exhibit 3.3 to the Company’s Registration Statement on Form S-8, File No. 333-197284, and incorporated herein by reference). 3.4 Amendment to Amended and Restated Bylaws of the Company dated November 1, 2007 (filed as Exhibit 3.1 to the Company’s Report on Form 8-K, File No. 001-32961, dated November 1, 2007, and incorporated herein by reference). 4.1 Form of Stock Certificate of Common Stock of the Company (filed as Exhibit 4.1 to the Company’s Annual Report Form 10-K for the year ended December 31, 1998, File No. 000-25890, dated March 4, 1999, and incorporated herein by reference). 4.2 Employee Stock Investment Plan (filed as Exhibit 4.4 to the Company’s Report on Form S-8, File No. 000-333-62148, dated June 1, 2001, and incorporated herein by reference). 4.3 Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed as Exhibit 4.3 to the Company's Annual Report Form 10-K for the year ended December 31, 2019, File No. 001-32961, dated February 26, 2020, and incorporated herein by reference). 10.1 † 2002 Stock Incentive Plan (filed as Appendix A to the Company’s Proxy Statement for the 2002 Annual Meeting of Stockholders, File No. 000-25890, dated April 1, 2002, and incorporated herein by reference). 10.2 † Severance Protection Agreement by and between the Company and Jerome P. Grisko, Jr. (filed as Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, File No. 000-25890, dated April 2, 2001, and incorporated herein by reference). 10.3 † CBIZ, Inc. 2002 Amended and Restated Stock Incentive Plan (Amended and Restated as of May 12, 2011), (filed as Exhibit 10.1 to the Company’s Report on Form 10-Q, File No. 001-32961, dated August 9, 2011, and incorporated herein by reference). 10.4 † 2014 Stock Incentive Plan and 2002 Amended and Restated Stock Incentive Plan (filed as Exhibit 4.2 to Form S-8, dated July 7, 2014, and incorporated herein by reference). 10.5 † Consulting Agreement by and between the Company and Steven L. Gerard, dated March 9, 2016 (filed as Exhibit 10.1 to the Company’s Report on Form 10-Q, File No. 001-32961, dated March 3, 2016, and incorporated herein by reference). 10.6 † Employment Agreement by and between the Company and Jerome P. Grisko, Jr., dated September 1, 2016 (filed as Exhibit 10.1 to the Company’s Report on Form 8-K, File No. 001-32961, dated September 8, 2016, and incorporated herein by reference). 10.7 † Amended and Restated Employment Agreement by and between the Company and Ware H. Grove, dated March 30, 2017 (filed as Exhibit 10.1 to the Company’s Report on Form 8-K, File No. 001-32961, dated April 4, 2017, and incorporated herein by reference). 10.8 Loan Agreement dated as of August 16, 2018 by and among CBIZ Benefits and Insurance, Inc. and The Huntington Bank (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, File No. 001-32961, on November 1, 2018, and incorporated herein by reference). 39 Table of Contents 10.9 Amended and Restated Credit Agreement by and among CBIZ Operations, Inc., CBIZ, Inc., and Bank of America, N.A., as administrative agent, and the other financial institutions from time to time party thereto, dated April 3, 2018 (filed as Exhibit 10.1 to the Company’s Report on Form 8-K, File No. 001-32961, on April 5, 2018, and incorporated herein by reference). 10.10 † 2019 CBIZ, Inc. Omnibus Incentive Plan (filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-8, File No. 333-197284, and incorporated herein by reference). 10.11 First Amendment to Loan Agreement by and among CBIZ Benefit and Insurance, Inc. and the Huntington National Bank (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, File No. 001-32961, on November 1, 2019, and incorporated herein by reference). 10.12 Second Amendment to Loan Agreement by and among CBIZ Benefit and Insurance, Inc. and the Huntington National Bank (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, File No. 001-32961, on November 1, 2020, and incorporated herein by reference). 21.1* List of Subsidiaries of CBIZ, Inc. 23* Consent of KPMG LLP 24* Powers of attorney (included on the signature page hereto). 31.1* Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1** Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2** Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document* 101.SCH Inline XBRL Taxonomy Extension Schema Document* 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document* 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document* 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document* 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document* 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Exhibit 101 attachments)* ______________________________________________________ * Indicates documents filed herewith. ** Indicates documents furnished herewith. † Management contract or compensatory plan contract or arrangement filed pursuant to Item 601 of Regulation S-K. 40 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. CBIZ, INC. (REGISTRANT) By /s/ WARE H. GROVE Ware H. Grove Chief Financial Officer February 26, 2021 KNOW ALL MEN AND WOMEN BY THESE PRESENTS that each person whose signature appears below on this Annual Report hereby constitutes and appoints Jerome P. Grisko, Jr. and Ware H. Grove, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution for him and her and his and her name, place and stead, in all capacities (until revoked in writing), to sign any and all amendments to this Annual Report of CBIZ, Inc. and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that each attorney-in-fact and agent, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. 41 Table of Contents Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated above. Signature Title Date /s/ JEROME P. GRISKO, JR. President & Chief Executive Officer, Director (Principal Executive Officer) February 26, 2021 Jerome P. Grisko, Jr. /s/ WARE H. GROVE Chief Financial Officer (Principal Financial and Accounting Officer) February 26, 2021 Ware H. Grove /s/ STEVEN L. GERARD Chairman February 26, 2021 Steven L. Gerard /s/ RICK L. BURDICK Lead Director and Vice Chairman February 26, 2021 Rick L. Burdick /s/ MICHAEL H. DE GROOTE Director February 26, 2021 Michael H. DeGroote /s/ JOSEPH S. DI MARTINO Director February 26, 2021 Joseph S. DiMartino /s/ GINA D. FRANCE Director February 26, 2021 Gina D. France /s/ SHERRILL W. HUDSON Director February 26, 2021 Sherrill W. Hudson /s/ TODD J. SLOTKIN Director February 26, 2021 Todd J. Slotkin /s/ A. HAAG SHERMAN Director February 26, 2021 A.Haag Sherman /s/ BENAREE PRATT WILEY Director February 26, 2021 Benaree Pratt Wiley 42 Table of Contents CBIZ, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets as of December 31, 2020 and 2019 F- 4 Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018 F- 5 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018 F- 6 Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 F- 7 Notes to the Consolidated Financial Statements F- 8 F-1 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors CBIZ, Inc.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of CBIZ, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Change in Accounting Principle As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification Topic 842, Leases . Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting F-2 Table of Contents includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation of the estimation of losses for certain billed and unbilled receivables As discussed in Note 1 to the consolidated financial statements, the Company maintains allowances for doubtful accounts and unbilled services for estimated losses. As of December 31, 2020, the allowance for doubtful accounts was $14.9 million, or 6.4% of total accounts receivable. The allowance for doubtful accounts and unbilled services is recorded based on the Company’s historical experience, client credit-worthiness, the age of accounts receivable, and economic trends and conditions. We have identified the evaluation of the Company’s estimation of losses related to the Financial Services practice for billed and unbilled receivables as a critical audit matter. There is a high degree of subjectivity in assessing the assumptions, which are used in estimating losses related to billed and unbilled receivables. The assumptions include the probability of the Company’s collection of receivables based on historical experience, the consideration of economic conditions that may affect the ability of clients to pay billed and unbilled fees, and the Company’s ability to successfully execute the contracts in line with the current estimated level of effort. The following are the primary procedures we performed to address the critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to develop the assumptions used to estimate losses related to billed and unbilled receivables. For specific clients, we evaluated the established allowance for doubtful accounts and unbilled services by inquiring of relevant Company personnel. For a selection of clients, we evaluated the Company’s cash collections and billings subsequent to December 31, 2020. We assessed the Company’s loss estimation by inspecting relevant underlying documentation, including contractual documents, historical trends, age of accounts receivable, and contract realization analyses. We performed the following analyses over billed and unbilled receivables and related accounts: • Compared actual incurred bad debt for certain billed and unbilled receivables to the corresponding previously established allowance for doubtful accounts and unbilled services, and • Compared the age of the current billed and unbilled receivables as of December 31, 2020, which represents the days outstanding for the current billed and unbilled receivables to the age of the Company’s billed and unbilled receivables in prior periods. /s/ KPMG LLP We have served as the Company’s auditor since 1996. Cleveland, Ohio February 26, 2021 F-3 Table of Contents CBIZ, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2020 AND 2019 (In thousands, except per share data) 2020 2019 ASSETS Current assets: Cash and cash equivalents $ 4,652 $ 567 Restricted cash 23,951 29,595 Accounts receivable, net 216,175 222,031 Other current assets 24,213 24,325 Current assets before funds held for clients 268,991 276,518 Funds held for clients 167,440 179,502 Total current assets 436,431 456,020 Non-current assets: Property and equipment, net 41,346 39,412 Goodwill and other intangible assets, net 756,750 654,671 Assets of deferred compensation plan 127,332 106,851 Operating lease right-of-use asset, net 147,843 140,831 Other non-current assets 4,052 2,989 Total non-current assets 1,077,323 944,754 Total assets $ 1,513,754 $ 1,400,774 LIABILITIES Current liabilities: Accounts payable $ 64,119 $ 68,510 Income taxes payable 2,788 57 Accrued personnel costs 79,978 59,898 Contingent purchase price liability 20,288 16,193 Operating lease liability 30,483 29,030 Other current liabilities 13,629 13,218 Current liabilities before client fund obligations 211,285 186,906 Client fund obligations 166,989 179,020 Total current liabilities 378,274 365,926 Non-current liabilities: Bank debt 108,000 105,500 Debt issuance costs ( 808 ) ( 1,167 ) Total long-term debt 107,192 104,333 Income taxes payable 1,775 3,053 Deferred income taxes, net 8,752 11,720 Deferred compensation plan obligations 127,332 106,851 Contingent purchase price liability 34,103 15,896 Operating lease liability 142,020 132,018 Other non-current liabilities 11,686 1,739 Total non-current liabilities 432,860 375,610 Total liabilities 811,134 741,536 STOCKHOLDERS’ EQUITY Common stock, par value $ 0.01 per share; shares authorized 250,000 ; shares issued 134,144 and 133,056 ; shares outstanding 54,099 and 55,419 1,341 1,331 Additional paid-in capital 740,970 714,704 Retained earnings 557,875 479,576 Treasury stock, 80,045 and 77,637 shares ( 595,297 ) ( 535,693 ) Accumulated other comprehensive loss ( 2,269 ) ( 680 ) Total stockholders’ equity 702,620 659,238 Total liabilities and stockholders’ equity $ 1,513,754 $ 1,400,774 See the accompanying notes to the consolidated financial statements F-4 Table of Contents CBIZ, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018 (In thousands, except per share data) 2020 2019 2018 Revenue $ 963,897 $ 948,424 $ 922,003 Operating expenses 825,351 823,496 790,283 Gross margin 138,546 124,928 131,720 Corporate general and administrative expenses 46,066 44,406 39,173 Operating income 92,480 80,522 92,547 Other income (expense): Interest expense ( 4,983 ) ( 5,765 ) ( 6,645 ) (Loss) gain on sale of operations, net ( 509 ) 417 1,025 Other income (expense), net 16,500 17,715 ( 7,087 ) Total other income (expense), net 11,008 12,367 ( 12,707 ) Income from continuing operations before income tax expense 103,488 92,889 79,840 Income tax expense 25,141 21,840 18,267 Income from continuing operations 78,347 71,049 61,573 Loss from operations of discontinued operations, net of tax ( 48 ) ( 335 ) ( 3 ) Net income $ 78,299 $ 70,714 $ 61,570 Earnings (loss) per share: Basic: Continuing operations $ 1.44 $ 1.31 $ 1.13 Discontinued operations — ( 0.01 ) — Net income $ 1.44 $ 1.30 $ 1.13 Diluted: Continuing operations $ 1.42 $ 1.27 $ 1.09 Discontinued operations ( 0.01 ) ( 0.01 ) — Net income $ 1.41 $ 1.26 $ 1.09 Basic weighted average common shares outstanding 54,288 54,299 54,561 Diluted weighted average common shares outstanding 55,359 55,895 56,487 Comprehensive income: Net income $ 78,299 $ 70,714 $ 61,570 Other comprehensive income: Net unrealized (loss) gain on available-for-sale securities, net of income tax (benefit) expense of $( 14 ), $ 351 and $( 96 ) ( 42 ) 940 ( 259 ) Net unrealized (loss) on interest rate swaps, net of income tax (benefit) of $( 494 ), $( 380 ) and $( 8 ) ( 1,525 ) ( 1,222 ) ( 17 ) Foreign currency translation ( 22 ) ( 17 ) ( 24 ) Total other comprehensive loss ( 1,589 ) ( 299 ) ( 300 ) Total comprehensive income $ 76,710 $ 70,415 $ 61,270 See the accompanying notes to the consolidated financial statements F-5 Table of Contents CBIZ, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018 (In thousands) Issued Common Shares Treasury Shares Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Totals December 31, 2017 130,075 75,484 $ 1,301 $ 675,504 $ 345,302 $ ( 491,046 ) $ ( 182 ) $ 530,879 Cumulative-effect adjustment — — — — 2,091 — — 2,091 Adjusted balance at January 1, 2018 130,075 75,484 1,301 675,504 347,393 ( 491,046 ) ( 182 ) 532,970 Net income — — — — 61,570 — — 61,570 Other comprehensive loss — — — — — — ( 300 ) ( 300 ) Share repurchases — 848 — — — ( 17,484 ) — ( 17,484 ) Restricted stock 272 — 3 ( 3 ) — — — — Stock options exercised 864 — 8 6,283 — — — 6,291 Share-based compensation — — — 6,866 — — — 6,866 Business acquisitions 193 — 2 3,748 — — — 3,750 December 31, 2018 131,404 76,332 1,314 692,398 408,963 ( 508,530 ) ( 482 ) 593,663 Cumulative-effect adjustment ( 101 ) 101 — Net income — — — — 70,714 — — 70,714 Other comprehensive loss — — — — — — ( 299 ) ( 299 ) Share repurchases — 1,305 — — — ( 27,163 ) — ( 27,163 ) Restricted stock 228 — 2 ( 2 ) — — — — Stock options exercised 1,210 — 12 10,596 — — — 10,608 Share-based compensation — — — 7,254 — — — 7,254 Business acquisitions 214 — 3 4,458 — — — 4,461 December 31, 2019 133,056 77,637 1,331 714,704 479,576 ( 535,693 ) ( 680 ) 659,238 Net income — — — — 78,299 — — 78,299 Other comprehensive loss — — — — — — ( 1,589 ) ( 1,589 ) Share repurchases — 2,408 — — — ( 59,604 ) — ( 59,604 ) Restricted stock 25 — — — — — — — Stock options exercised 634 — 6 6,480 — — — 6,486 Share-based compensation — — — 8,869 — — — 8,869 Business acquisitions 429 — 4 10,917 — — — 10,921 December 31, 2020 134,144 80,045 $ 1,341 $ 740,970 $ 557,875 $ ( 595,297 ) $ ( 2,269 ) $ 702,620 See the accompanying notes to the consolidated financial statements F-6 Table of Contents CBIZ, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018 (In thousands) 2020 2019 2018 Cash flows from operating activities: Net income $ 78,299 $ 70,714 $ 61,570 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of operations, net of tax 509 ( 417 ) ( 1,025 ) Depreciation and amortization expense 23,139 22,345 23,675 Bad debt expense, net of recoveries 4,409 2,415 3,665 Adjustment to contingent earnout liability, net ( 629 ) 1,599 2,617 Deferred income taxes ( 770 ) 9,695 5,775 Employee stock awards 8,869 7,254 6,866 Excess tax benefits from share based payment arrangements ( 2,394 ) ( 4,773 ) ( 3,260 ) Other, net 485 1,077 400 Changes in assets and liabilities, net of acquisitions and divestitures: Accounts receivable, net 6,714 ( 15,529 ) ( 10,668 ) Other assets 1,472 907 ( 3,344 ) Accounts payable ( 8,800 ) 9,829 974 Income taxes payable 2,158 ( 687 ) 426 Accrued personnel costs 19,788 ( 4,093 ) 17,901 Other liabilities 13,667 ( 1,813 ) ( 140 ) Net cash provided by continuing operations 146,916 98,523 105,432 Operating cash flows used in discontinued operations ( 71 ) ( 338 ) ( 184 ) Net cash provided by operating activities 146,845 98,185 105,248 Cash flows from investing activities: Business acquisitions and purchases of client lists, net of cash acquired ( 71,430 ) ( 11,744 ) ( 29,080 ) Purchases of client fund investments ( 3,447 ) ( 27,216 ) ( 18,426 ) Proceeds from the sales and maturities of client fund investments 37,487 23,958 12,238 Additions to property and equipment ( 11,576 ) ( 13,873 ) ( 14,624 ) Other, net 2,560 1,190 2,316 Net cash used in investing activities ( 46,406 ) ( 27,685 ) ( 47,576 ) Cash flows from financing activities: Proceeds from bank debt 592,354 648,648 690,173 Payment of bank debt ( 589,854 ) ( 678,648 ) ( 733,173 ) Payment for acquisition of treasury stock ( 58,536 ) ( 27,163 ) ( 17,484 ) (Decrease) increase in client funds obligations ( 13,747 ) 10,069 ( 41,509 ) Payment of contingent consideration of acquisitions ( 12,859 ) ( 17,457 ) ( 11,787 ) Proceeds from exercise of stock options 6,486 10,608 6,291 Other, net ( 453 ) ( 606 ) ( 1,891 ) Net cash used in financing activities ( 76,609 ) ( 54,549 ) ( 109,380 ) Net increase (decrease) in cash, cash equivalents and restricted cash 23,830 15,951 ( 51,708 ) Cash, cash equivalents and restricted cash at beginning of year 146,505 130,554 182,262 Cash, cash equivalents and restricted cash at end of year $ 170,335 $ 146,505 $ 130,554 Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets Cash and cash equivalents $ 4,652 $ 567 $ 640 Restricted cash 23,951 29,595 27,481 Cash equivalents included in funds held for clients 141,732 116,343 102,433 Cash, cash equivalents and restricted cash at end of year $ 170,335 $ 146,505 $ 130,554 Supplemental disclosures of cash flow information: Cash paid for interest $ 4,739 $ 5,556 $ 6,340 Cash paid for income taxes, net of income tax refunds $ 25,939 $ 17,497 $ 15,327 See the accompanying notes to the consolidated financial statements F-7 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Selected Terms Used in Notes to Consolidated Financial Statements ASA - Administrative Service Agreement. ASC - Accounting Standards Codification. ASU - Accounting Standards Update. CECL - Current expected credit losses. CPA firm - Certified Public Accounting firm. FASB - The Financial Accounting Standards Board. GAAP - United States Generally Accepted Accounting Principles. LIBOR - London Interbank Offered Rate. Legacy ASC Topic 840 - ASC Topic 840, Leases New Lease Standard - ASC Topic 842, Leases ROU- Right of Use. SEC - United States Securities & Exchange Commission. Topic 326 - ASU No. 2016-13, Financial Instruments - Credit Losses. Organization - CBIZ, Inc. is a leading provider of financial, insurance and advisory services to businesses throughout the United States and parts of Canada. Acting through its subsidiaries, it has been serving small and medium-sized businesses, as well as individuals, governmental entities, and not-for-profit enterprises. CBIZ, Inc. manages and reports its operations along three practice groups: Financial Services, Benefits and Insurance Services and National Practices. A further description of products and services offered by each of the practice groups is provided in Note 21, Segment Disclosures, to the accompanying consolidated financial statements. Basis of Presentation - The accompanying consolidated financial statements reflect the operations of CBIZ, Inc. and all of its wholly-owned subsidiaries (“CBIZ,” the “Company,” “we,” “us” or “our”), after elimination of all intercompany accounts and transactions. We have prepared the accompanying consolidated financial statements in accordance with GAAP and pursuant to the rules and regulations of the SEC. We have determined that our relationship with certain CPA firms with whom we maintain ASAs qualify as variable interest entities. The accompanying consolidated financial statements do not reflect the operations or accounts of variable interest entities as the impact is not material to our consolidated financial condition, results of operations or cash flows. Fees earned by us under the ASAs are recorded at net realizable value as a component of “Revenue” in the accompanying Consolidated Statements of Comprehensive Income and were approximately $ 159.4 million, $ 157.6 million and $ 154.0 million for the years ended December 31, 2020, 2019 and 2018, respectively, the majority of which was related to services rendered to privately-held clients. In the event that accounts receivable and unbilled work in process become uncollectible by the CPA firms, the service fee due to us is typically reduced on a F-8 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) proportional basis. Although the ASAs do not constitute control, we are one of the beneficiaries of the agreements and may bear certain economic risks. Refer to Note 17, Related Parties, for further discussion regarding the ASAs. Significant Accounting Policies - We consider the following policies to be beneficial in understanding the judgments that are involved in the preparation of our consolidated financial statements and the uncertainties that could impact our financial condition, results of operations and cash flows. Use of Estimates - The preparation of consolidated financial statements in conformity with GAAP and pursuant to the rules and regulations of the SEC requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management’s estimates and assumptions are derived from and are continually evaluated based upon available information, judgment and experience. Actual results may differ materially from these estimates. Revenue Recognition - We account for revenue in accordance with Topic 606, Revenue from Contracts with Customers. We recognize revenue based on the five-step model; (i) identify the contract with the customer; (ii) identify the performance obligation in the contract; (iii) determine the contract price; (iv) allocate the transaction price; and (v) recognize revenue as each performance obligation is satisfied. If we determine that a contract with enforceable rights and obligations does not exist, revenues are deferred until all criteria for an enforceable contract are met. For further information on our various streams of revenue, refer to Note 2, Revenue, to the accompanying consolidated financial statements. Operating Expenses - Operating expenses represent costs of service and other costs incurred to operate our business units and are primarily comprised of personnel costs and occupancy related expenses. Personnel costs include (i) salaries and benefits; (ii) commissions paid to producers; (iii) incentive compensation; and (iv) share-based compensation. Incentive compensation costs and share-based compensation are estimated and accrued. The final determination of incentive compensation is made after year-end results are finalized. The largest components of occupancy costs are rent expense and utilities. Base rent expense is recognized over respective lease terms, while utilities and common area maintenance charges are recognized as incurred. Share-Based Compensation - The measurement of all share-based compensation arrangements is based on their respective grant date fair value. The grant date fair value of stock options is based on the Black-Scholes-Merton pricing model, which incorporates assumptions regarding the expected volatility, the expected option life, the risk-free interest rate and the expected dividend yield. The grant date fair value of restricted stock and restricted stock unit is based on the closing price of the underlying stock on the date of issuance. The grant date fair value of the performance share unit is based on the closing price of the underlying stock on the date of issuance and recorded based on achievement of target performance metrics. The expense related to stock options, restricted stock, and restricted stock units is recognized over the requisite service period which is generally three to four years . The expense related to performance share units is recorded over the three-year performance period based on the fair value on the grant date and adjusted each reporting period for the achievement of the performance metrics, based on our best estimate using available information. Share-based compensation expense is recorded in the accompanying Consolidated Statements of Comprehensive Income as “Operating expenses” or “Corporate general and administrative expenses,” depending on where the respective individual’s compensation is recorded. For additional discussion regarding share-based awards, refer to Note 14, Employee Share Plans, to the accompanying consolidated financial statements. Operating Leases – We determine if a contract is a lease at inception. We have leases for office space and facilities, automobiles, and certain information technology equipment. Certain of these leases include options to extend the lease and some include options to terminate the lease early. Effective January 1, 2019, we adopted the New Lease Standard using the modified retrospective method of applying the new standard at the adoption date. Under the New Lease Standard, all of our leases are classified as operating leases and the majority of which are for office space and facilities. The ROU assets and lease liabilities are recognized as of the commencement date based on the present value of the lease payments over the lease term. The lease term may include the options to extend or terminate the lease when it is reasonably certain that we will exercise the applicable option. Related rent expense under such leases is recognized evenly throughout the term of the lease when the total lease commitment is a known amount, and recorded on an as incurred basis when future rent payment increases under the obligation are F-9 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) unknown due to rent escalations being tied to factors that are not currently measurable (such as increases in the consumer price index). Differences between rent expense recognized and the cash payments required under these leases are recorded as a component of “Operating lease liability” in the Non-current liabilities section of the accompanying Consolidated Balance Sheets. We may receive incentives to lease office facilities in certain areas. Such incentives are recorded as a change in lease payments and may require us to remeasure the lease liability to reflect the change in lease payments. Cash and Cash Equivalents - Cash and cash equivalents consist of cash on hand and investments with an original maturity of three months or less when purchased. Restricted Cash - Restricted cash consists of funds held by us in relation to our capital and investment advisory services as those funds are restricted in accordance with applicable Financial Industry Regulatory Authority regulations. Restricted cash also consists of funds on deposit from clients in connection with the pass-through of insurance premiums to the carrier with the related liability for these funds recorded in “Accounts payable” in the accompanying Consolidated Balance Sheets. Accounts Receivable and Allowance for Doubtful Accounts - Accounts receivable, less allowances for doubtful accounts, reflects the net realizable value of receivables and approximates fair value. Unbilled revenues are recorded at estimated net realizable value. Assessing the collectability of receivables (billed and unbilled) requires management judgment based on a combination of factors. When evaluating the adequacy of the allowance for doubtful accounts and the overall probability of collecting on receivables, we analyze historical experience, client credit-worthiness, the age of the trade receivable balances, current economic conditions that may affect a client’s ability to pay and current and projected economic trends and conditions at the balance sheet date. At December 31, 2020 and 2019, the allowance for doubtful accounts was $ 14.9 million and $ 14.4 million, respectively, in the accompanying Consolidated Balance Sheets. Funds Held for Clients and Client Fund Obligations - Services provided by our payroll operations include the preparation of payroll checks, federal, state, and local payroll tax returns, and flexible spending account administration. In relation to these services, as well as other similar service offerings, we collect funds from our clients’ accounts in advance of paying client obligations. These funds, collected before they are due, are segregated and invested in accordance with our investment policy, which requires all investments carry an investment grade rating at the time of initial investment. These investments, primarily consisting of corporate and municipal bonds and U.S. treasury bills, are classified as available-for-sale and are included in the “Funds held for clients” line item on the accompanying Consolidated Balance Sheets. The underlying obligation is recorded as “Client fund obligation” on the Consolidated Balance Sheets. The balances in these accounts fluctuate with the timing of cash receipts and the related cash payments and may vary significantly during the year based on the timing of client’s payroll periods. Other than certain federal and state regulations pertaining to flexible spending account administration, there are no regulatory or other contractual restrictions placed on these funds. Refer to Note 6, Financial Instruments, to the accompanying consolidated financial statements for further discussion of investments related to funds held for clients. Property and Equipment - Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are provided on a straight-line basis over the following estimated useful lives: Buildings 25 to 40 years Furniture and fixtures 5 to 10 years Capitalized software 2 to 7 years Equipment 3 to 7 years Leasehold improvements are amortized using the straight-line method over the shorter of their estimated useful lives or the remaining respective lease term. The cost of software purchased or developed for internal use is capitalized and amortized using the straight-line method over an estimated useful life not to exceed seven years . We periodically review long-lived assets for impairment whenever events or changes in business circumstances F-10 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) indicate that the carrying value of the assets may not be recoverable. Under those circumstances, if the fair value were less than the carrying amount of the asset, we would recognize a loss for the difference. Goodwill and Other Intangible Assets - Goodwill represents the excess of the purchase price of the acquired businesses and the related fair value of the net assets acquired. At December 31, 2020, the carrying value of goodwill totaled $ 683.1 million, compared to total assets of $ 1.5 billion and total shareholders’ equity of $ 702.6 million. Intangible assets consist of identifiable intangibles other than goodwill. Identifiable intangible assets other than goodwill include client lists and non-compete agreements which require significant judgments in determining the fair value. We carry client lists and non-compete agreements at cost, less accumulated amortization, in the accompanying Consolidated Balance Sheets. Goodwill is reviewed for impairment annually during the fourth quarter or more frequently in the event of an impairment indicator. We are required to consider whether it is more likely than not (defined as a likelihood of more than 50%) that the fair value of each reporting unit has fallen below its carrying value, thus requiring us to perform an interim goodwill impairment test. Intangible assets with definite lives, such as client lists and non-compete agreements, are amortized using the straight-line method over their estimated useful lives (generally ranging from two to fifteen years ). We review these assets for impairment whenever events or changes in circumstances indicate an asset’s carrying value may not be recoverable. Recoverability is assessed based on a comparison of the undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value determined by a discounted cash flow analysis or market comparable method. The goodwill impairment test is performed at a reporting unit level. A reporting unit is an operating segment of a business or one level below an operating segment. At December 31, 2020, we had five reporting units. We may use either a qualitative or quantitative approach when testing a reporting unit’s goodwill for impairment. Under the qualitative assessment, we are not required to calculate the fair value of a reporting unit unless we determine that it is more likely than not that its fair value is less than its carrying amount. If under the quantitative assessment the fair value of a reporting unit is less than its carrying amount, then the amount of the impairment loss, if any, must be measured. Any such impairment charge would reduce earnings and could be material. After considering changes to assumptions used in our most recent quantitative testing for each reporting unit, including the capital market environment, economic and market conditions, industry competition and trends, our weighted average cost of capital, changes in management and key personnel, the price of our common stock, changes in our results of operations, the magnitude of the excess of fair value over the carrying amount of each reporting unit as determined in our most recent quantitative testing, and other factors, we concluded that it was more likely than not that the fair values of each of our reporting units exceeded their respective carrying values and, therefore, did not perform a quantitative impairment analysis. For further information regarding our goodwill balances, refer to Note 5, Goodwill and Other Intangible Assets, net, to the accompanying consolidated financial statements. Income Taxes - Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently payable and deferred taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and operating losses and tax credit carryforwards. State income tax credits are accounted for using the flow-through method. A valuation allowance is provided when it is more-likely-than-not that all or some portion of a deferred tax asset will not be realized. We determine valuation allowances based on all available evidence. Such evidence includes historical results, the reversal of deferred tax liabilities, expectations of future consolidated and/or separate company profitability and the feasibility of tax-planning strategies. Determining valuation allowances includes significant judgment by management, and different judgments could yield different results. Accounting for uncertain tax positions requires a more-likely-than-not threshold for recognition in the consolidated financial statements. We recognize a tax benefit based on whether it is more-likely-than-not that a tax position will be sustained. We record a liability to the extent that a tax position taken or expected to be taken on a tax return exceeds the amount recognized in the consolidated financial statements. F-11 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) Business Combinations - We recognize and measure identifiable tangible and intangible assets acquired and liabilities assumed as of the acquisition date at fair value. Fair value measurements require extensive use of estimates and assumptions, including estimates of future cash flows to be generated by the acquired assets. The operating results of acquired businesses are included in our consolidated financial statements beginning on the date of acquisition. The purchase price is equivalent to the fair value of consideration transferred. Goodwill is recognized for the excess of purchase price over the net fair value of assets acquired and liabilities assumed. Contingent Purchase Price Liabilities - Contingent purchase price liabilities consisting of cash payments and common stock issuances result from our business acquisitions and are recorded at fair value at the time of acquisition as “Contingent purchase price liability - current” and “Contingent purchase price liability - non-current” in the accompanying Consolidated Balance Sheets. We estimate the fair value of our contingent purchase price liabilities using a probability-weighted discounted cash flow model. We probability weight risk-adjusted estimates of future performance of acquired businesses, then calculate the contingent purchase price based on the estimates and discount them to present value representing management’s best estimate of fair value. The fair value of the contingent purchase price liabilities, which is considered a Level 3 unobservable input, is reassessed on a quarterly basis based on assumptions provided by practice group leaders and business unit controllers together with our corporate finance department. Any change in the fair value estimate, including the revaluation of common stock, is recorded in the earnings of that period. For the years ended December 31, 2020, 2019 and 2018, we recorded other income (expense) of $ 0.6 million, ($ 1.6 ) million and $( 2.6 ) million, respectively, related to net changes in the fair value of contingent consideration. Refer to Note 7, Fair Value Measurements, and Note 18, Business Combinations, for further discussion of our contingent purchase price liabilities and acquisitions. Interest Rate Derivative Instruments - We maintain interest rate swaps that are designated as cash flow hedges to manage the market risk from changes in interest rates on our floating-rate debt under our $ 400.0 million unsecured credit facility, by and among CBIZ Operations, Inc., CBIZ, Inc. and Bank of America, N.A., as administrative agent and bank, and other participating banks (the “2018 credit facility”). The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how we reflect the change in fair value of the derivative instrument. A derivative qualifies for hedge accounting treatment if, at inception, it meets defined correlation and effectiveness criteria. These criteria require that the anticipated cash flows and/or changes in fair value of the hedging instrument substantially offset those of the position being hedged. We utilize derivative instruments to manage interest rate risk associated with our floating-rate debt under the credit facility. Interest rate swap contracts mitigate the risk associated with the underlying hedged item. If the contract is designated as a cash flow hedge, the mark-to-market gains or losses on the swap are deferred and included as a component of accumulated other comprehensive loss, net of tax, to the extent effective, and reclassified to interest expense in the same period during which the hedged transaction affects earnings. For further discussion regarding derivative financial instruments, refer to Note 6, Financial Instruments, to the accompanying consolidated financial statements. Recent Accounting Pronouncements - The FASB ASC is the sole source of authoritative GAAP other than the SEC issued rules and regulations that apply only to SEC registrants. The FASB issues an ASU to communicate changes to the FASB codification. We assess and review the impact of all ASUs. ASUs not listed below were reviewed and determined to be either not applicable or are not expected to have a material impact on the consolidated financial statements. Accounting Standards Adopted in 2020 Credit Losses: Effective January 1, 2020, we adopted Topic 326, which replaces the incurred loss model with an expected loss model that is referred to as the current expected credit loss model. The CECL model requires the Company to immediately recognize an estimate of credit losses that are expected to occur over the life of financial instruments recorded at amortized cost, including trade receivables. Topic 326 also amends the other-than-temporary impairment model for available-for-sale securities by requiring the recognition of credit loss impairments as an allowance rather than a write-down on available-for-sale securities. The F-12 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. For financial instruments recorded at amortized cost, we did not recognize a cumulative-effect adjustment to retained earnings as the adoption of Topic 326 did not have a material impact on our consolidated financial statements. For available-for-sale securities, the updated guidance was applied prospectively. Fair Value Measurement: On January 1, 2020, we adopted ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This standard amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures. The adoption of this guidance did not have a material impact on our consolidated financial statements. Income Taxes: On January 1, 2020, we adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The adoption of this guidance did not have a material impact on our consolidated financial statements. Accounting Standards Issued But Not Yet Adopted Reference Rate Reform : In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU are effective for all entities through December 31, 2022. We are currently evaluating the effect of this new standard on our consolidated financial statements. NOTE 2. REVENUE The following tables disaggregate our revenue by source (in thousands): For the Year Ended December 31, 2020 Financial Services Benefits & Insurance National Practices Consolidated Accounting, tax, advisory and consulting $ 629,778 $ — $ — $ 629,778 Core Benefits and Insurance Services — 286,361 — 286,361 Non-core Benefits and Insurance Services — 11,397 — 11,397 Managed networking, hardware services — — 26,458 26,458 National Practices consulting — — 9,903 9,903 Total revenue $ 629,778 $ 297,758 $ 36,361 $ 963,897 For the Year Ended December 31, 2019 Financial Services Benefits & Insurance National Practices Consolidated Accounting, tax, advisory and consulting $ 616,567 $ — $ — $ 616,567 Core Benefits and Insurance Services — 283,783 — 283,783 Non-core Benefits and Insurance Services — 12,445 — 12,445 Managed networking, hardware services — — 25,982 25,982 National Practices consulting — — 9,647 9,647 Total revenue $ 616,567 $ 296,228 $ 35,629 $ 948,424 F-13 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) For the Year Ended December 31, 2018 Financial Services Benefits & Insurance National Practices Consolidated Accounting, tax, advisory and consulting $ 600,926 $ — $ — $ 600,926 Core Benefits and Insurance Services — 276,496 — 276,496 Non-core Benefits and Insurance Services — 11,941 — 11,941 Managed networking, hardware services — — 24,404 24,404 National Practices consulting — — 8,236 8,236 Total revenue $ 600,926 $ 288,437 $ 32,640 $ 922,003 Financial Services Revenue primarily consists of professional service fees derived from traditional accounting services, tax return preparation, administrative services, financial and risk advisory, consulting and valuation services. Clients are billed for these services based upon a fixed-fee, an hourly rate, or an outcome-based fee. Time related to the performance of all services is maintained in a time and billing system. Revenue for fixed-fee arrangements is recognized over time with the performance obligation measured in hours worked and anticipated realization. Anticipated realization is defined as the fixed fee divided by the product of the hours anticipated to complete a performance obligation and the standard billing rate. Anticipated realization rates are applied to hours charged to a contract when recognizing revenue. At the end of each reporting period, we evaluate the work performed to date to ensure that the amount of revenue recognized in each reporting period for the client arrangement is equal to the performance obligations met. Time and expense arrangement revenue is recognized over time with progress measured towards completion with value being transferred through our hourly fee arrangement at expected net realizable rates per hour, plus agreed-upon out-of-pocket expenses. The cumulative impact on any subsequent revision in the estimated realizable value of unbilled fees for a particular client project is reflected in the period in which the change becomes known. Prior to recognizing revenue for outcome-based arrangement, we estimate the transaction price, including variable consideration that is subject to a constraint based on risks specific to the arrangement. We evaluate the estimate in each reporting period and recognize revenue to the extent it is probable that a significant reversal of revenue will not occur. Revenue is recognized when the constraint is lifted at a point in time when the value is determined and verified by a third party. Benefits and Insurance Services Benefits and Insurance Services provides brokerage and consulting along lines of service which include group health benefits consulting and brokerage, property and casualty brokerage, retirement plan advisory, payroll, human capital management, actuarial, life insurance and other related services. Revenue consists primarily of fee income for administering health and retirement plans and brokerage commissions. Revenue also includes investment income related to client payroll funds that are held in CBIZ accounts, as is industry practice. We capitalize the cost to obtain a contract unless the contract period is one year or less. We pay commissions monthly and require the recipient of the commission to be employed by us at the time of the payment. Failure to remain employed at the date the commission is payable results in the forfeiture of commissions that would otherwise be due. Therefore, we have determined that the requirement of continued employment is substantive and accordingly, do not consider the commissions to be incremental costs of obtaining the customer contract and consequently a contract acquisition cost is not recognized for those commissions. Revenue related to group health benefits consulting consists of (i) commissions, (ii) fee income which can be fixed or variable based on a price per participant and (iii) contingent revenue. • Commission revenue and fee income are recognized over the contract period as these services are provided to clients continuously throughout the term of the arrangement. Our customers benefit from F-14 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) each month of service on its own and although volume and the number of participants may differ month to month, our obligation to perform substantially remains the same. • Contingent revenue arrangements are related to carrier-based performance targets. Due to the uncertainty of the outcome and the probability that a change in estimate would result in a significant reversal of revenue, we have applied a constraint on recording contingent revenue. Revenue is recognized when the constraint has been lifted which is the earlier of written notification from a carrier that the target has been achieved or cash collection. Contingent revenue is not a significant revenue stream to our consolidated financial position or results of operations. Revenue related to property and casualty consists of (i) commissions and (ii) contingent revenue. • Commissions relating to agency billing arrangements (pursuant to which we bill the insured, collect the funds and forward the premium to the insurance carrier less our commission) and direct billing arrangements (pursuant to which the insurance carrier bills the insured directly and forwards the commission to us) are both recognized on the effective date of the policy. Commission revenue is reported net of reserves for estimated policy cancellations and terminations. The cancellation and termination reserve is based upon estimates and assumptions using historical cancellation and termination experience and other current factors to project future experience. • Contingent revenue arrangements related to carrier-based performance targets include claim loss experience and other factors. Due to the uncertainty of the outcome and the probability that a change in estimate would result in a significant reversal of revenue, we have applied a constraint on recording contingent revenue. Revenue is recognized when the constraint has been lifted which is the earlier of written notification from a carrier that the target has been achieved or cash collection. Contingent revenue is not a significant revenue stream to our consolidated financial position or results of operations. Revenue related to retirement plan services consist of advisory, third party administration and actuarial services. • Advisory revenue is based on the value of assets under management, as provided by a third party, multiplied by an agreed upon rate. Advisory services revenue is calculated monthly or quarterly based on the estimated value of assets under management, as it is earned over the duration of the reporting period and relates to performance obligations satisfied during that period. The variability related to the estimated asset values used to recognize revenue during the reporting period is resolved and the amount of related revenue recognized is adjusted when the actual value of assets under management is known. • Third party administration revenue is recognized over the contract period as these services are provided to clients continuously throughout the term of the arrangement. Our clients benefit from each month of service on its own, and although the volume of tasks may differ month to month, our obligation to perform substantially remains the same. • Actuarial revenue is recognized over the contract period with performance measured in hours in relation to the expected total hours. Under certain defined benefit plan administration arrangements, we charge new clients an initial, non-refundable, set-up fee as part of a multi-year service agreement. Revenue and costs related to the set-up fees are deferred and recognized over the life of the contract or the expected customer relationship, whichever is longer. Revenue related to payroll processing consists of a (i) fixed fee or (ii) variable fee based on a price per employee or check processed. Revenue is recognized when the actual payroll processing occurs. Our customers benefit from each month of service on its own and although volume and the variability may differ month to month, our obligation to perform substantially remains the same. Non-core Benefits and Insurance Services consists of transactional businesses that tend to fluctuate. These include life insurance, wholesale benefits agency and talent and compensation services. F-15 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) National Practices Managed networking, hardware services revenue consists of installation, maintenance and repair of computer hardware. These services are charged to a single customer based on cost plus an agreed-upon markup percentage, which has existed since 1999. National Practices consulting revenue is based upon a fixed fee, an hourly rate, or outcome-based. Revenue for fixed fee and time and expense arrangements is recognized over the performance period based upon actual hours incurred, while revenue for outcome-based arrangements is recognized similar to the outcome-based arrangements in the Financial Services practice group. Transaction Price Allocated to Future Obligations - The revenue recognition standard requires the disclosure of the aggregate amount of transaction price allocated to performance obligations that have not yet been satisfied as of the reporting date. The guidance provides certain practical expedients that limit this requirement, including performance obligations that are part of a contract that is one year or less. Since the majority of our contracts are one year or less, we have applied this practical expedient related to quantifying remaining performance obligations. In regards to contracts with terms in excess of one year, certain contract periods related to our government healthcare consulting, group health and benefits consulting, and property and casualty insurance businesses have an original specified contract duration in excess of one year, however, the agreements provide CBIZ and the client with the right to cancel or terminate the contract with no substantial penalty. We have applied the provisions of Topic 606 and the FASB Transition Resource Group memo number 10-14, and note that the definition of contract duration does not extend beyond the goods and services already transferred for contracts that provide both the Company and the client with the right to cancel or terminate the contract with no substantial penalty. NOTE 3. ACCOUNTS RECEIVABLE, NET Accounts receivable, net balances at December 31, 2020 and 2019 were as follows (in thousands): 2020 2019 Trade accounts receivable $ 167,575 $ 176,375 Unbilled revenue, at net realizable value 63,494 60,035 Total accounts receivable 231,069 236,410 Allowance for doubtful accounts ( 14,894 ) ( 14,379 ) Accounts receivable, net $ 216,175 $ 222,031 Changes in the allowance for doubtful accounts on accounts receivable are as follows (in thousands): 2020 2019 2018 Balance at beginning of period $ ( 14,379 ) $ ( 13,389 ) $ ( 13,827 ) Provision ( 9,323 ) ( 8,433 ) ( 7,052 ) Charge-offs, net of recoveries 8,808 7,443 7,490 Balance at end of period $ ( 14,894 ) $ ( 14,379 ) $ ( 13,389 ) NOTE 4. PROPERTY AND EQUIPMENT, NET Property and equipment, net at December 31, 2020 and 2019 consisted of the following (in thousands): F-16 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) 2020 2019 Buildings and leasehold improvements $ 37,022 $ 33,284 Furniture and fixtures 28,006 27,560 Capitalized software 34,503 37,203 Equipment 23,467 21,088 Total property and equipment 122,998 119,135 Accumulated depreciation ( 81,652 ) ( 79,723 ) Property and equipment, net $ 41,346 $ 39,412 Depreciation expense for property and equipment was $ 9.6 million, $ 8.3 million and $ 6.1 million in 2020, 2019 and 2018, respectively. NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS, NET A summary of changes in the carrying amount of goodwill by operating segment for the years ended December 31, 2020 and 2019 were as follows (in thousands): Financial Services Benefits and Insurance Services National Practices Total Goodwill December 31, 2018 $ 329,626 $ 233,008 $ 1,666 $ 564,300 Additions 5,077 19,292 — 24,369 Divestitures and other adjustment ( 456 ) — — ( 456 ) December 31, 2019 $ 334,247 $ 252,300 $ 1,666 $ 588,213 Additions 34,785 62,654 — 97,439 Divestitures and other adjustment ( 993 ) ( 1,576 ) — ( 2,569 ) December 31, 2020 $ 368,039 $ 313,378 $ 1,666 $ 683,083 We review goodwill at the reporting unit level at least annually, as of November 1, for impairment. We had five reporting units at November 1, 2020. No goodwill impairment was recognized as a result of the annual evaluation. The components of goodwill and other intangible assets, net at December 31, 2020 and 2019 were as follows (in thousands): 2020 2019 Goodwill $ 683,083 $ 588,213 Intangibles : Client lists 207,084 188,898 Other intangibles 11,244 9,882 Total intangibles 218,328 198,780 Total goodwill and other intangibles assets 901,411 786,993 Accumulated amortization: Client lists ( 137,284 ) ( 125,887 ) Other intangibles ( 7,377 ) ( 6,435 ) Total accumulated amortization ( 144,661 ) ( 132,322 ) Goodwill and other intangible assets, net $ 756,750 $ 654,671 Amortization expense for client lists and other intangible assets was $ 13.6 million, $ 14.1 million and $ 17.5 million in 2020, 2019 and 2018, respectively. The weighted-average useful lives of total intangible assets, client lists and other intangible assets were 6.8 years, 6.5 years and 6.8 years, respectively. Other intangible assets are amortized over periods ranging from 2 to 10 years. Based on the amount of intangible assets subject to amortization at F-17 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) December 31, 2020, the estimated amortization expense is $ 14.0 million for 2021, $ 12.3 million for 2022, $ 11.1 million for 2023, $ 9.6 million for 2024 and $ 8.2 million for 2025. NOTE 6. FINANCIAL INSTRUMENTS The carrying amounts of our cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments and are classified as Level 1 in the fair value hierarchy. The carrying value of bank debt approximates fair value, as the interest rate on the bank debt is variable and approximates current market rates. As a result, the fair value measurement of our bank debt is classified as Level 2 in the fair value hierarchy. Concentrations of Credit Risk - Financial instruments that may subject us to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. We place our cash and cash equivalents with highly-rated financial institutions, limiting the amount of credit exposure with any one financial institution. Our client base consists of large numbers of geographically diverse customers dispersed throughout the United States; thus, concentration of credit risk with respect to accounts receivable is not significant. Available-For-Sale Debt Securities - Available-for-sale debt securities consist primarily of corporate and municipal bonds and US treasury bills. The net par values of these securities total $ 24.9 million and $ 58.9 million at December 31, 2020 and 2019, respectively. The bonds have maturity dates or callable dates ranging from January 2021 through November 2024, and are included in “Funds held for clients — current” in the accompanying Consolidated Balance Sheets based on our intent and ability to sell these investments at any time under favorable conditions. At December 31, 2020, unrealized losses on the securities totaling approximately $ 0.1 million have not been recognized as a credit loss because the bonds are investment grade quality and management is not required or does not intend to sell prior to an expected recovery in value. The bond issuers continue to make timely principal and interest payments. The following table summarizes our bond activity for the years ended December 31, 2020 and 2019 (in thousands): 2020 2019 Fair value at January 1 $ 60,659 $ 56,556 Purchases 3,447 27,216 Sales ( 22,078 ) ( 1,686 ) Maturities and calls ( 15,409 ) ( 22,272 ) Decrease in bond premium ( 857 ) ( 460 ) Fair market value adjustment ( 54 ) 1,305 Fair value at December 31 $ 25,708 $ 60,659 In addition to the available-for-sale securities discussed above, we also held certified deposits and other depository assets in the amount of $ 2.5 million at December 31, 2019. We did no t have any depository items at December 31, 2020. Interest Rate Swaps - We utilize interest rate swaps to manage interest rate risk exposure associated with our floating-rate debt under the 2018 credit facility, or the forecasted acquisition of such liability. Under these interest rate swap contracts, we receive cash flows from counterparties at variable rates based on LIBOR and pay the counterparties a fixed rate. To mitigate counterparty credit risk, we only enter into contracts with selected major financial institutions with investment grade ratings and continually assess their creditworthiness. There are no credit risk-related contingent features in our interest rate swaps nor do the swaps contain provisions under which we would be required to post collateral. We do not purchase or hold any derivative instruments for trading or speculative purposes. The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how we reflect the change in fair value of the derivative instrument. A derivative qualifies for hedge accounting F-18 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) treatment if, at inception, it meets defined correlation and effectiveness criteria. These criteria require that the anticipated cash flows and/or changes in fair value of the hedging instrument substantially offset those of the position being hedged. We had no fair value hedging instruments at December 31, 2020 or 2019. Our interest rate swaps are designated as cash flow hedges. Accordingly, the interest rate swaps are recorded as either an asset or liability in the accompanying Consolidated Balance Sheets at fair value. The mark-to-market gains or losses on the swaps are deferred and included as a component of accumulated other comprehensive loss (“AOCL”), net of tax, to the extent the hedge is determined to be effective, and reclassified to interest expense in the same period during which the hedged transaction affects earnings. The interest rate swaps are assessed for effectiveness and continued qualification for hedge accounting on a quarterly basis. For the years ended December 31, 2020 and 2019, the interest rate swaps were deemed to be highly effective. The following table summarizes our outstanding interest rate swaps and their classification in the accompanying Consolidated Balance Sheets at December 31, 2020 and 2019 (in thousands). Refer to Note 7, Fair Value Measurements, to the accompanying consolidated financial statements for additional disclosures regarding fair value measurements. December 31, 2020 Notional Amount Fair Value Balance Sheet Location Interest rate swap $ 10,000 $ ( 13 ) Other current liability Interest rate swaps $ 85,000 $ ( 2,552 ) Other non-current liabilities December 31, 2019 Notional Amount Fair Value Balance Sheet Location Interest rate swaps $ 45,000 $ ( 591 ) Other non-current liabilities Interest rate swap $ 25,000 $ 66 Other current assets During 2020, we entered into a new 5-year interest rate swap with a notional value of $ 50.0 million and terminated one interest rate swap with a notional value of $ 25.0 million. As of December 31, 2020, we have four interest rate swaps outstanding. Under the terms of the interest rate swaps, we pay interest at a fixed rate of interest plus applicable margin as stated in the agreement, and receive interest that varies with the one-month LIBOR. The notional value, fixed rate of interest and expiration date of each interest rate swap as of December 31, 2020 is (i) $ 10 million – 1.120 % - February, 2021, (ii) $ 20 million – 1.770 % - May, 2022, (iii) $ 15 million – 2.640 % - June, 2023 and (iv) $ 50.0 million - 0.885 % - April, 2025. During the next twelve months, the amount of the December 31, 2020 AOCL balance that will be reclassified to earnings is expected to be immaterial. The following table summarizes the effects of the interest rate swap on our accompanying Consolidated Statements of Comprehensive Income for the years ended December 31, 2020 and 2019 (in thousands): Loss recognized in AOCL, net of tax (Loss) Gain reclassified from AOCL into expense Twelve Months Ended December 31, Twelve Months Ended December 31, Location 2020 2019 2020 2019 Interest rate swaps $ ( 1,525 ) $ ( 1,222 ) $ ( 974 ) $ 399 Interest expense NOTE 7. FAIR VALUE MEASUREMENTS FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is defined as the price that would be received on the sale of an asset or paid to transfer a liability in an F-19 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy: • Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities • Level 2 — Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability • Level 3 — Unobservable inputs for the asset or liability We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As circumstances change, we will reassess the level in which the inputs are included in the fair value hierarchy. For the years ended December 31, 2020 and 2019, there were no transfers between the valuation hierarchy Levels 1, 2 and 3. The following table summarizes our assets and liabilities at December 31, 2020 and 2019 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 us to determine such fair value (in thousands): Level December 31, 2020 December 31, 2019 Deferred compensation plan assets 1 127,332 106,851 Available-for-sale debt securities 1 25,708 60,659 Deferred compensation plan liabilities 1 ( 127,332 ) ( 106,851 ) Interest rate swaps, net 2 ( 2,565 ) ( 525 ) Contingent purchase price liabilities 3 ( 54,391 ) ( 32,089 ) Contingent Purchase Price Liabilities - During the years ended December 31, 2020 and 2019, we recorded income of $ 0.6 million and expense of $ 1.6 million, respectively, due to accretion, adjusting for expected results of acquired businesses and the revaluation of stock related to contingent payments. These changes are included in Other income (expense), net in the accompanying Consolidated Statements of Comprehensive Income. Refer to Note 18, Business Combinations, for further discussion of our acquisitions and contingent purchase price liabilities. The following table summarizes the change in fair value of our contingent purchase price liabilities identified as Level 3 for the years ended December 31, 2020 and 2019 (pre-tax basis, in thousands): Contingent Purchase Price Liabilities Beginning balance — January 1, 2019 $ ( 39,708 ) Additions from business acquisitions ( 10,150 ) Settlement of contingent purchase price payable 19,368 Change in fair value of contingency ( 865 ) Change in net present value of contingency ( 734 ) Balance — December 31, 2019 $ ( 32,089 ) Additions from business acquisitions ( 37,617 ) Settlement of contingent purchase price payable 14,686 Change in fair value of contingency 1,396 Change in net present value of contingency ( 767 ) Balance — December 31, 2020 $ ( 54,391 ) F-20 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) NOTE 8. INCOME TAXES For financial reporting purposes, income from continuing operations before income taxes includes the following components (in thousands): 2020 2019 2018 United States $ 103,306 $ 92,710 $ 79,669 Foreign (Canada) 182 179 171 Total $ 103,488 $ 92,889 $ 79,840 Income tax expense (benefit) included in the accompanying Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018 was as follows (in thousands): 2020 2019 2018 Continuing operations : Current: Federal $ 21,926 $ 12,776 $ 12,626 Foreign 78 48 45 State and local 5,584 4,110 2,808 Total 27,588 16,934 15,479 Deferred: Federal ( 1,968 ) 3,685 2,047 State and local ( 479 ) 1,221 741 Total ( 2,447 ) 4,906 2,788 Total income tax expense from continuing operations 25,141 21,840 18,267 Discontinued operations : Operations of discontinued operations: Current ( 11 ) ( 107 ) 2 Deferred — ( 1 ) ( 1 ) Total income tax expense from discontinued operations ( 11 ) ( 108 ) 1 Total income tax expense $ 25,130 $ 21,732 $ 18,268 The provision for income taxes attributable to income from continuing operations differed from the amount obtained by applying the federal statutory income tax rate to income from continuing operations before income taxes, as follows (in thousands, except percentages): 2020 2019 2018 Tax at U.S. federal statutory rates $ 21,733 $ 19,507 $ 16,766 State taxes (net of federal benefit) 5,354 4,774 3,745 Business meals and entertainment — non-deductible 458 987 915 Change in valuation allowance 176 932 264 Reserves for uncertain tax positions ( 1,290 ) ( 263 ) ( 1,124 ) Share-based compensation ( 2,394 ) ( 4,773 ) ( 3,260 ) Non-deductible expenses 787 713 785 Other, net 317 ( 37 ) 176 Provision for income taxes from continuing operations $ 25,141 $ 21,840 $ 18,267 Effective income tax rate 24.3 % 23.5 % 22.9 % F-21 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2020 and 2019, were as follows (in thousands): 2020 2019 Deferred tax assets: Net operating loss carryforwards $ 1,249 $ 1,594 Allowance for doubtful accounts 3,288 3,156 Employee benefits and compensation 30,151 26,442 Lease costs 6,291 4,889 State tax credit carryforwards 1,291 1,322 Deferral of employer FICA taxes 3,983 — Other deferred tax assets 424 30 Total gross deferred tax assets 46,677 37,433 Less: valuation allowance ( 2,663 ) ( 2,799 ) Total deferred tax assets, net 44,014 34,634 Deferred tax liabilities: Client list intangible assets 524 846 Goodwill and other intangibles 49,680 42,496 Property and equipment 2,071 2,291 Other deferred tax liabilities 491 721 Total gross deferred tax liabilities 52,766 46,354 Net deferred tax liability $ ( 8,752 ) $ ( 11,720 ) We have established valuation allowances for deferred tax assets related to certain employee benefits and compensation, state net operating loss (“NOL”) carryforwards and state income tax credit carryforwards at December 31, 2020 and December 31, 2019. The net decrease in the valuation allowance of $ 0.1 million for the year ended December 31, 2020 primarily related to changes in the valuation allowance for NOLs. In assessing the realization of deferred tax assets, management considers all available positive and negative evidence, including projected future taxable income, scheduled reversal of deferred tax liabilities, historical financial operations and tax planning strategies. Based upon review of these items, management believes it is more-likely-than-not that the Company will realize the benefits of these deferred tax assets, net of the existing valuation allowances. We file income tax returns in the United States, Canada, and most state jurisdictions. With limited exceptions, our state and local income tax returns and non-U.S. income tax returns are no longer subject to tax authority examinations for years ending prior to January 1, 2016 and January 1, 2015, respectively. The availability of NOLs and state tax credits are reported as deferred tax assets, net of applicable valuation allowances, in the accompanying Consolidated Balance Sheets. At December 31, 2020, we had state net operating loss carryforwards of $ 34.4 million and state tax credit carryforwards of $ 1.3 million. The state net operating loss carryforwards expire on various dates between 2021 and 2040 and the state tax credit carryforwards expire on various dates between 2021 and 2029. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): F-22 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) 2020 2019 2018 Balance at January 1 $ 2,536 $ 2,819 $ 3,882 Additions for tax positions of the current year 150 145 119 Settlements of prior year positions — ( 282 ) ( 16 ) Lapse of statutes of limitation ( 1,150 ) ( 146 ) ( 1,166 ) Balance at December 31 $ 1,536 $ 2,536 $ 2,819 Included in the balance of unrecognized tax benefits at December 31, 2020 are $ 0.9 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. We believe it is reasonably possible that certain of these unrecognized tax benefits could change in the next twelve months. We expect reductions in the liability for unrecognized tax benefits of approximately $ 0.5 million within the next twelve months due to expiration of statutes of limitation. Given the number of years that are currently subject to examination, we are unable to estimate the range of potential adjustments to the remaining balance of unrecognized tax benefits at this time. We recognize interest expense, and penalties related to unrecognized tax benefits as a component of income tax expense. During 2020, we recorded an immaterial decrease in accrued interest, and, as of December 31, 2020, we had recognized a liability for interest expense and penalties of $ 0.4 million and $ 0.2 million, respectively, relating to unrecognized tax benefits. During 2019, we accrued interest expense of less than $ 0.1 million and, as of December 31, 2019, had recognized a liability for interest expense and penalties of $ 0.7 million and $ 0.2 million, respectively, relating to unrecognized tax benefits. NOTE 9. DEBT AND FINANCING ARRANGEMENTS 2018 credit facility Our primary financing arrangement is the 2018 credit facility, which provides us with the capital necessary to meet our working capital needs as well as the flexibility to continue with our strategic initiatives, including business acquisitions and share repurchases. The 2018 credit facility matures on April 3, 2023. The balance outstanding under the 2018 credit facility was $ 108.0 million and $ 105.5 million at December 31, 2020 and 2019, respectively. Effective interest rates, including the impact of interest rate swaps associated with the 2018 credit facility, were as follows: 2020 2019 Weighted average rates 2.45 % 3.09 % Range of effective rates 1.10 % - 4.75 % 2.12 % - 5.50 % We have approximately $ 286.4 million of available funds under the 2018 credit facility at December 31, 2020, based on the terms of the commitment. Available funds under the credit facility are based on a multiple of earnings before interest, taxes, depreciation and amortization as defined in the credit facility, and are reduced by letters of credit, performance guarantees, other indebtedness and outstanding borrowings under the credit facility. Under the 2018 credit facility, loans are charged an interest rate consisting of a base rate or Eurodollar rate plus an applicable margin, letters of credit are charged based on the same applicable margin, and a commitment fee is charged on the unused portion of the credit facility. The 2018 credit facility contains certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, liens or other encumbrances, making certain payments, investments, or to sell or otherwise dispose of a substantial portion of assets, or to merge or consolidate with an unaffiliated entity. The 2018 credit facility also limits our ability to make dividend payments. Historically, we have not paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. Our Board of Directors has discretion over the payment and level of dividends on common stock, subject to the limitations of the credit facility and applicable law. The credit facility contains a provision that, in the event of a defined change in control, the credit facility may be terminated. In addition, the 2018 credit facility contains financial covenants that require us to meet certain requirements with respect to (i) a total leverage ratio and (ii) minimum fixed charge coverage ratio which may limit our ability to borrow up to the total commitment amount. As of December 31, 2020, we are in compliance with all covenants. F-23 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) Other line of credit We have an unsecured $ 20 million line of credit by and among CBIZ Benefits and Insurance, Inc., our wholly owned subsidiary, and the Huntington Bank. We utilize this line of credit to support our short-term funding requirements of payroll client fund obligations due to the investment of client funds, rather than liquidating client funds that have already been invested in available-for-sale securities. Refer to Note 6, Financial Instruments, for further discussion regarding these investments. The line of credit, which was renewed on August 6, 2020 and will terminate on August 5, 2021, did no t have a balance outstanding at December 31, 2020 and 2019. Borrowings under the line of credit bear interest at the prime rate. Interest expense Interest expense, including amortization of deferred financing costs, commitment fees, line of credit fees, and other applicable bank charges, was as follows (in thousands): 2020 2019 2018 2018 credit facility $ 4,919 $ 5,672 $ 6,509 Other line of credit 1 22 1 Other 63 71 135 $ 4,983 $ 5,765 $ 6,645 NOTE 10. ACCUMULATED OTHER COMPREHENSIVE LOSS The components of accumulated other comprehensive loss at December 31, 2020 and 2019 were as follows (in thousands): 2020 2019 Net unrealized gain on available-for-sale securities, net of income tax expense of $ 128 and $ 220 , respectively $ 351 $ 393 Net unrealized loss on interest rate swap, net of income tax benefit of $ 618 and $ 320 , respectively ( 1,900 ) ( 375 ) Foreign currency translation ( 720 ) ( 698 ) Accumulated other comprehensive loss $ ( 2,269 ) $ ( 680 ) NOTE 11. COMMITMENTS AND CONTINGENCIES Acquisitions - The purchase price that we normally pay for businesses and client lists consists of two components: an up-front non-contingent portion, and a portion which is contingent upon the acquired businesses or client lists’ future performance. The fair value of the contingent purchase price consideration is recorded at the date of acquisition and re-measured each reporting period until the liability is settled. Shares of our common stock that are issued in connection with acquisitions may be contractually restricted from sale for periods up to one year. Acquisitions are further disclosed in Note 18, Business Combinations. Indemnifications - We have various agreements in which we may be obligated to indemnify the other party with respect to certain matters. Generally, these indemnification clauses are included in contracts arising in the normal course of business under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations, warranties, covenants or agreements, related to matters such as title to assets sold and certain tax matters. Payment by us under such indemnification clauses are generally conditioned upon the other party making a claim. Such claims are typically subject to challenge by us and to dispute resolution procedures specified in the particular contract. Further, our obligations under these agreements may be limited in terms of time and/or amount and, in some instances, we may have recourse against third parties for certain payments made by us. It is not possible to predict the maximum potential amount of future payments under these F-24 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) indemnification agreements due to the conditional nature of our obligations and the unique facts of each particular agreement. Historically, we have not made any payments under these agreements that have been material individually or in the aggregate. As of December 31, 2020, we were not aware of any obligations arising under indemnification agreements that would require material payments, and therefore have not recorded a liability. Employment Agreements - We maintain severance and employment agreements with certain of our executive officers, whereby such officers may be entitled to payment in the event of termination of their employment. We also have arrangements with certain non-executive employees which may include severance and other employment provisions. We accrue for amounts payable under these contracts and arrangements as triggering events occur and obligations become known. During the years ended December 31, 2020, 2019 and 2018, payments under such contracts and arrangements were not material. Letters of Credit and Guarantees - We provide letters of credit to landlords (lessors) of our leased premises in lieu of cash security deposits which totaled $ 1.7 million and $ 1.3 million at December 31, 2020 and 2019, respectively. In addition, we provide license bonds to various state agencies to meet certain licensing requirements. The amount of license bonds outstanding was $ 2.2 million and $ 2.3 million at December 31, 2020 and 2019, respectively. Legal Proceedings - In 2010, CBIZ, Inc. 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 U.S. District Court for the District of Arizona and the Superior Court for Maricopa County, Arizona. The federal court case is captioned Robert Facciola, et al v. Greenberg Traurig LLP, et al, and the state court cases are captioned 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, P.C. (“Mayer Hoffman”), et al. Prior to these suits CBIZ MHM, LLC was named as a defendant in Jeffrey C. Stone v. Greenberg Traurig LLP, et al. These lawsuits arose out of the bankruptcy of Mortgages Ltd., a mortgage lender to developers in the Phoenix, Arizona area. Various other professional firms and individuals not related to the Company were also named defendants in these lawsuits. The lawsuits asserted claims for, among others things, violations of the Arizona Securities Act, common law fraud, and negligent misrepresentation, and sought to hold the CBIZ Parties vicariously liable for Mayer Hoffman’s conduct as Mortgage Ltd.’s auditor, as either a statutory control person under the Arizona Securities Act or a joint venturer under Arizona common law. With the exception of claims being pursued by two plaintiffs from the Ashkenazi lawsuit (“Baldino Group”), all other related matters have been dismissed or settled without payment by the CBIZ Parties. The Baldino Group’s claims, which allege damages of approximately $ 16.0 million, are currently pending, though no trial date has been set. On September 16, 2016, CBIZ, Inc. and its subsidiary CBIZ Benefits & Insurance Services, Inc. (“CBIZ Benefits”) were named as defendants in a lawsuit filed in the U.S. District Court for the Western District of Pennsylvania. The federal court case is brought by UPMC, d/b/a University of Pittsburgh Medical Center, and a health system it acquired, UPMC Altoona (formerly, Altoona Regional Health System). The lawsuit asserts professional negligence, breach of contract, and negligent misrepresentation claims against CBIZ, CBIZ Benefits and a former employee of CBIZ Benefits in connection with actuarial services provided by CBIZ Benefits to Altoona Regional Health System. The plaintiff now seeks compensatory damages of between $ 124.0 million and $ 266.0 million, plus punitive damages. The Court recently denied CBIZ Benefits’ motion for a summary judgment and trial is set for June 2021. On December 19, 2016, CBIZ Operations, Inc. (“CBIZ Operations”) was named as a defendant in a lawsuit filed by Zotec Partners, LLC ("Zotec") in the Marion County Indiana Superior Court. After various amendments, the lawsuit asserts claims under Indiana law for securities, statutory and common law fraud or deception, unjust enrichment, breach of contract, and vicarious liability against CBIZ Operations and a former employee of CBIZ MMP in connection with the sale of the CBIZ MMP medical billing practice to Zotec. The plaintiff claims that CBIZ Operations had a duty to disclose the unknown fact that the former employee had a financial arrangement with a Zotec vendor at the time CBIZ Operations sold CBIZ MMP to Zotec. The plaintiff is now seeking damages of up to $ 177.0 million out of the $ 200.0 million transaction price. Trial is scheduled for August 2021. We cannot predict the outcome of the above matters or estimate the possible loss or range of possible loss, if any. Although the proceedings are subject to uncertainties inherent in the litigation process and the ultimate F-25 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) disposition of these proceedings is not presently determinable, we intend to vigorously defend these cases and we believe we have meritorious defenses to these claims. In addition to those items disclosed above, we are, from time to time, subject to claims and suits arising in the ordinary course of business. NOTE 12. EMPLOYEE BENEFITS Employee Savings Plan - We sponsor a qualified 401(k) defined contribution plan that covers substantially all of our employees. Participating employees may elect to contribute, on a tax-deferred basis, up to 80 % of their pre-tax annual compensation (subject to a maximum permissible contribution under Section 401(k) of the Internal Revenue Code). Matching contributions by us are 50 % of the first 6 % of base compensation that the participant contributes, and additional amounts may be contributed at the discretion of the Board of Directors. Participants may elect to invest their contributions in various funds including: equity, fixed income, stable value, and balanced-lifecycle funds. Employer contributions (net of forfeitures) made to the plan during the years ended December 31, 2020, 2019 and 2018 were approximately $ 12.2 million, $ 11.1 million and $ 10.8 million, respectively. Non-qualified Deferred Compensation Plan - We sponsor a non-qualified deferred compensation plan, under which certain members of management and other highly compensated employees may elect to defer receipt of a portion of their annual compensation, subject to maximum and minimum percentage limitations. The amount of compensation deferred under the plan is credited to each participant’s deferral account and a non-qualified deferred compensation plan obligation is established by us. An amount equal to each participant’s compensation deferral is transferred into a rabbi trust and invested in various debt and equity securities as directed by the participants. The assets of the rabbi trust are held by us and recorded as “Assets of deferred compensation plan” in the accompanying Consolidated Balance Sheets. Assets of the non-qualified deferred compensation plan consist primarily of investments in mutual funds, money market funds and equity securities. The values of these investments are based on published market prices at the end of the period. Adjustments to the fair value of these investments are recorded in “Other income, net,” offset by the same adjustments to compensation expense (recorded as “Operating expenses” or “G&A expenses” in the accompanying Consolidated Statements of Comprehensive Income). We recorded income of $ 15.4 million for the year ended December 31, 2020 and income of $ 19.2 million for the year ended December 31, 2019 and expense of $ 4.9 million for the year ended December 31, 2018, related to these investments. These investments are specifically designated as available to us solely for the purpose of paying benefits under the non-qualified deferred compensation plan. However, the investments in the rabbi trusts would be available to all unsecured general creditors in the event that we become insolvent. Deferred compensation plan obligations represent amounts due to plan participants and consist of accumulated participant deferrals and changes in fair value of investments thereon since the inception of the plan, net of withdrawals. This liability is an unsecured general obligation of ours and is recorded as “Deferred compensation plan obligations” in the accompanying Consolidated Balance Sheets. The assets and liabilities related to the non-qualified deferred compensation plan at December 31, 2020 and 2019 were $ 127.3 million and $ 106.9 million, respectively. NOTE 13. COMMON STOCK Share Repurchase Program - Our Board of Directors approved various share repurchase programs that were effective during the years ended December 31, 2020, 2019 and 2018. Under these programs, shares may be purchased in the open market or in privately negotiated transactions according to SEC rules. The Share Repurchase Program does not obligate us to acquire any specific number of shares and may be suspended at any time. Repurchased shares are held in treasury and may be reserved for future use in connection with acquisitions, employee share plans and other general purposes. Under our credit facility, described in Note 9, Debt and Financing Arrangements, share repurchases are unlimited when total leverage is less than 3.0 . When leverage is greater than 3.0 , the annual share repurchase is limited to $ 35.0 million. F-26 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) Under the Share Repurchase Program, we repurchased 2.3 million and 1.2 million shares on the open market at a cost (including fees and commissions) of $ 57.6 million and $ 25.3 million during the years ended December 31, 2020 and 2019, respectively. Shares repurchased to settle statutory employee withholding related to vesting of stock awards were 0.1 million shares at a cost of $ 2.0 million during the year ended December 31, 2020 and 0.1 million shares at a cost of $ 1.9 million during the year ended December 31, 2019. NOTE 14. EMPLOYEE STOCK PLANS Employee Stock Purchase Plan - The 2007 Employee Stock Purchase Plan (“ESPP”), which has a termination date of June 30, 2022, allows qualified employees to purchase shares of common stock through payroll deductions up to a limit of $ 25,000 of stock per calendar year. The price an employee pays for shares is 85 % of the fair market value of our common stock on the last day of the purchase period. Purchase periods begin on the sixteenth day of the month and end on the fifteenth day of the subsequent month. Other than a one-year holding period from the date of purchase, there are no vesting or other restrictions on the stock purchased by employees under the ESPP. The total number of shares of common stock that can be purchased under the ESPP shall not exceed 2.0 million shares. Stock Awards – Effective May 9, 2019, the CBIZ shareholders approved CBIZ, Inc. 2019 Stock Omnibus Incentive Plan (“2019 Plan”), which amended and restated the CBIZ, Inc. 2014 Stock Incentive Plan (“2014 Plan”), of which we have granted various stock-based awards through the year ended December 31, 2020. Effective January 1, 2020, the 2019 Plan replaced and superseded the 2014 Plan. The operating terms of the 2019 Plan are substantially similar to those of the 2014 Plan. Under the 2019 Plan, which expires in 2029, a maximum of 3.1 million stock options, restricted stock or other stock based compensation awards may be granted. Shares subject to award under the 2019 Plan may be either authorized but unissued shares of our common stock or treasury shares. The terms and vesting schedules for the share-based awards vary by type and date of grant. At December 31, 2020, approximately 2.7 million shares were available for future grant under the 2019 Plan. During the years ended December 31, 2020, 2019 and 2018, we recognized compensation expense (before income tax expense) for these awards as follows (in thousands): 2020 2019 2018 Stock options $ 1,878 $ 1,848 $ 2,609 Restricted stock units and awards 4,960 4,375 4,257 Performance share units 2,031 1,031 — Total share-based compensation expense $ 8,869 $ 7,254 $ 6,866 F-27 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) Stock Options - Certain employees and non-employee directors were granted stock options. Stock options awarded to non-employee directors have generally been granted with immediate vesting. Stock options awarded to employees are generally subject to a 25 % incremental vesting schedule over a four-year period commencing from the date of grant. At the discretion of the Compensation Committee of the Board of Directors, options awarded under the 2019 Plan may vest in a time period shorter than four years . Stock options expire six years from the date of grant and are awarded with an exercise price equal to the market value of our common stock on the date of grant. Stock options may be granted alone or in addition to other awards and may be of two types: incentive stock options and non-qualified stock options. During the year ended December 31, 2020, we granted 50 thousand stock options to a non-employee director. We did no t grant any stock options during the year ended December 31, 2019. Stock option activity during the year ended December 31, 2020 was as follows (number of options in thousands): Number of Options Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (in millions) Outstanding at December 31, 2019 2,412 $ 13.58 Granted 50 $ 24.62 Exercised ( 634 ) $ 10.23 Expired or canceled ( 8 ) $ 18.15 Outstanding at December 31, 2020 1,820 $ 15.02 2.28 years $ 21.1 Vested and exercisable at December 31, 2020 1,375 $ 14.00 2.04 years $ 17.3 • The weighted-average grant-date fair value of stock options granted during the years ended December 31, 2020 and 2018 was $ 0.3 million and $ 3.0 million, respectively. • The aggregate intrinsic value of stock options exercised during each of the years ended December 31, 2020, 2019 and 2018 was $ 8.9 million, $ 18.8 million and $ 10.9 million, respectively. The intrinsic value is calculated as the difference between our stock price on the exercise date and the exercise price of each option exercised. • At December 31, 2020, we had unrecognized compensation cost for non-vested stock options of $ 1.1 million to be recognized over a weighted average period of approximately 0.97 years. We utilized the Black-Scholes-Merton option-pricing model to determine the fair value of stock options on the date of grant. The fair value of stock options granted during the years ended December 31, 2020 and 2018 were $ 5.79 and $ 4.73 , respectively. The following weighted average assumptions were utilized: 2020 2018 Expected volatility (1) 27.27 % 22.04 % Expected option life (years) (2) 4.67 4.62 Risk-free interest rate (3) 0.19 % 2.80 % Expected dividend yield (4) — % — % (1) The expected volatility assumption was determined based upon the historical volatility of our stock price, using daily price intervals. (2) The expected option life was determined based upon our historical data using a midpoint scenario, which assumes all options are exercised halfway between the expiration date and the weighted average time it takes the option to vest. (3) The risk-free interest rate assumption was upon zero-coupon U.S. Treasury bonds with a term approximating the expected life of the respective options. (4) The expected dividend yield assumption was determined in view of our historical and estimated dividend payouts. We do not expect to change our dividend payout policy in the foreseeable future. Restricted Stock Units and Awards - Under the 2019 Plan, certain employees and non-employee directors were granted restricted stock units and awards. Restricted stock units and awards are independent of option grants and F-28 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) vest at no cost to the recipients. Restricted stock units and awards are subject to forfeiture if employment terminates prior to the release of restrictions, generally one to four years from the date of grant. Recipients of restricted stock units and awards are entitled to the same dividend and voting rights as holders of other CBIZ common stock, subject to certain restrictions during the vesting period, and these are considered to be issued and outstanding from the date of grant. Shares granted under the 2019 Plan cannot be sold, pledged, transferred or assigned during the vesting period . Restricted stock units and awards activity during the year ended December 31, 2020 was as follows (in thousands, except per share data): Number of Shares Weighted Average Grant-Date Fair Value (1) Non-vested at December 31, 2019 577 $ 17.87 Granted 178 $ 24.48 Vested ( 276 ) $ 16.74 Forfeited ( 18 ) $ 19.56 Non-vested at December 31, 2020 461 $ 21.03 (1) Represents weighted average market value of the shares as the awards are granted at no cost to the recipients. • At December 31, 2020, we had unrecognized compensation cost for restricted stock units and awards of $ 6.2 million to be recognized over a weighted average period of approximately 1.20 years. • The total fair value of shares vested during the years ended December 31, 2020, 2019 and 2018 was approximately $ 4.6 million, $ 3.9 million and $ 4.1 million, respectively. • The market value of shares awarded during the years ended December 31, 2020, 2019 and 2018 was $ 4.3 million, $ 4.5 million and $ 5.1 million, respectively. This market value was recorded as unearned compensation and is recognized as expense ratably over the periods which the restrictions lapse. • Awards outstanding at December 31, 2020 will be released from restrictions at dates ranging from February, 2021 through February, 2023. Performance Share Units (“PSUs”) – PSUs are earned based on our financial performance over a contractual term of three years and the associated expense is recognized over that period based on the fair value of the award. A three-year cliff vesting schedule of the PSUs is dependent upon the Company’s performance relative to pre-established goals based on earnings per share target (weighted 70 %) and total growth in revenue (weighted 30 %). The fair value of PSUs is calculated using the market value of our common stock on the date of grant. For performance achieved above specified levels, the recipient may earn additional shares of stock, not to exceed 200 % of the number of PSUs initially granted. The following table presents our PSU award activity during the twelve months ended December 31, 2020 (in thousands, except per share data): Number of PSUs (in thousands) Grant-Date Fair Value Per Unit Outstanding at December 31, 2019 200 $ 19.82 Granted 132 $ 25.75 Expired or cancelled ( 25 ) $ 22.14 Outstanding at December 31, 2020 307 $ 22.18 F-29 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) NOTE 15. EARNINGS PER SHARE The following table sets forth the reconciliation of the numerator and the denominator of basic earnings per share and diluted earnings per share from continuing operations for the years ended December 31, 2020, 2019 and 2018 (in thousands, except per share data): Year Ended December 31, 2020 2019 2018 Numerator: Income from continuing operations $ 78,347 $ 71,049 $ 61,573 Denominator: Basic Weighted average common shares outstanding 54,288 54,299 54,561 Diluted Stock options (1) 802 1,288 1,542 Restricted stock awards 195 234 302 Contingent shares (2) 74 74 82 Diluted weighted average common shares outstanding (3) 55,359 55,895 56,487 Earnings Per Share: Basic earnings per share from continuing operations $ 1.44 $ 1.31 $ 1.13 Diluted earnings per share from continuing operations $ 1.42 $ 1.27 $ 1.09 (1) For the years ended December 31, 2020, 2019 and 2018, a total of 0.3 million, 0.5 million and 0.4 million stock based awards, respectively, were excluded from the calculation of diluted earnings per share as their exercise prices would render them anti-dilutive. (2) Contingent shares represent additional shares to be issued for purchase price earned by former owners of businesses acquired by us once future conditions have been met. For further details, refer to Note 18, Business Combinations . (3) The denominator used in calculating diluted earnings per share did not include 0.3 million and 0.2 million performance share units for the twelve months ended December 31, 2020 and 2019, respectively. The performance conditions associated with these performance share units were not met and consequently none of these performance share units were considered as issuable for the years ended December 31, 2020 and 2019. NOTE 16. LEASES We determine if a contract is a lease at inception. We have leases for office space and facilities, automobiles and certain information technology equipment. All of our leases are classified as operating leases and the majority of which are for office space and facilities. F-30 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) Supplemental balance sheet information related to the Company’s operating leases as of December 31, 2020 and 2019 was as follows (in thousands): December 31, 2020 December 31, 2019 Weighted-average remaining lease term 6.7 years 6.9 years Weighted-average discount rate 3.6 % 3.6 % The components of lease cost and other lease information as of and during the year ended December 31, 2020 and 2019 are as follows (in thousands): December 31, 2020 December 31, 2019 Operating lease cost $ 34,781 $ 37,275 Cash paid for amounts included in measurement of lease liabilities Operating cash flows for operating leases $ 35,426 $ 37,667 Our leases have remaining lease terms ranging from 1 to 10 years. These leases generally contain renewal options for periods ranging from two to five years . Because the Company is not reasonably certain to exercise these renewal options, the options are not included in the lease term, and associated potential option payments are excluded from lease payments. Lease expense, as accounted for under Legacy ASC Topic 840, was $ 38.0 million for the year ended December 31, 2018. Maturities of operating lease liabilities at December 31, 2020 and minimum cash commitments under operating leases at December 31, 2019 were as follows (in thousands): December 31, 2020 2021 $ 36,270 2022 30,354 2023 27,709 2024 24,401 2025 22,662 Thereafter 52,432 Total undiscounted lease payments 193,828 Less: imputed interest ( 21,325 ) Total lease liabilities $ 172,503 December 31, 2019 2020 $ 34,775 2021 32,371 2022 26,112 2023 24,273 2024 21,578 Thereafter 67,025 Total undiscounted lease payments 206,134 Less: imputed interest ( 45,086 ) Total lease liabilities $ 161,048 NOTE 17. RELATED PARTIES F-31 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) The following is a summary of certain agreements and transactions between or among us and certain related parties. Management reviews these transactions as they occur and monitors them for compliance with our Code of Conduct, internal procedures and applicable legal requirements. The Audit Committee reviews and ratifies such transactions annually, or as they are more frequently brought to the attention of the Audit Committee by our Director of Internal Audit, General Counsel or other members of Management. A number of the businesses acquired by us are located in properties owned indirectly by and leased from persons employed by us, none of whom are members of our senior management. In the aggregate, we paid approximately $ 2.2 million, $ 2.4 million and $ 3.0 million during the years ended December 31, 2020, 2019 and 2018, respectively, under such leases. We maintain joint-referral relationships and administrative service agreements with independent licensed CPA firms under which we provide administrative services in exchange for a fee. Fees earned by us under the ASAs are recorded as “Revenue” (at net realizable value) in the accompanying Consolidated Statements of Comprehensive Income and were approximately $ 159.4 million in 2020, $ 157.6 million in 2019 and $ 154.0 million in 2018. These firms are owned by licensed CPAs who are employed by our subsidiaries and provide audit and attest services to clients including our clients. The CPA firms with which we maintain administrative service agreements operate as limited liability companies, limited liability partnerships or professional corporations. The firms are separate legal entities with separate governing bodies and officers. We have no ownership interest in any of these CPA firms, and neither the existence of the administrative service agreements nor the providing of services thereunder is intended to constitute control of the CPA firms by us. CBIZ and the CPA firms maintain their own respective liability and risk of loss in connection with performance of each of its respective services, and we do not believe that our arrangements with these CPA firms result in additional risk of loss. NOTE 18. BUSINESS COMBINATIONS Our acquisition strategy focuses on businesses with a leadership team that is committed to best in class culture, extraordinary client service and cross-serving potential. CBIZ has a long history of acquiring businesses that share common cultural values with us and provide value-added services to the small and midsize business market. The valuation of any business is a subjective process and includes industry, geography, profit margins, expected cash flows, client retention, nature of recurring or non-recurring project-based work, growth rate assumptions and competitive market conditions. During the year ended December 31, 2020, we completed the following acquisitions: • Effective February 1, 2020, we acquired substantially all the assets of Alliance Insurance Services, Inc. ("Alliance"), a provider of insurance and advisory services based in Washington DC. Alliance is included as a component of our Benefits and Insurance Services practice group. • Effective February 1, 2020, we acquired substantially all the assets of Pension Dynamics, LLC ("PD"), a full service retirement and benefits plan advisor based in Pleasant Hill, California. PD is included as a component of our Benefits and Insurance Services practice group. • Effective February 1, 2020, we acquired substantially all the assets of Sunshine Systems, Inc. ("Sunshine"), a payroll solutions provider based in Massachusetts.Sunshine is included as a component of our Benefits and Insurance Services practice group. • Effective July 1, 2020, we acquired substantially all the assets of Prince-Wood Insurance, L.L.C. ("PWI"), a provider of financial insurance and advisory services based in Woodbridge, Virginia. PWI is included as a component of our Benefits and Insurance practice group. • Effective September 1, 2020, we acquired substantially all the assets of ARC Consulting LLC and ARC Placement Group LLC (collectively "ARC"), a provider of financial, insurance and advisory services based in San Francisco, California. ARC is included as a component of our Financial Services practice group. F-32 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) • Effective December 1, 2020, we acquired substantially all the assets of BeyondPay, Inc., a full service human capital management and payroll service provider based in Clinton, New Jersey. BeyondPay is included as a component of our Benefits and Insurance practice group. • Effective December 31, 2020, we acquired substantially all the assets of Borden Perlman Insurance Agency, Inc. ("BP"), a leading provider of financial, insurance and advisory services located in Ewing, New Jersey. BP is included as a component of our Benefits and Insurance practice group. Aggregated consideration for these seven acquisitions consisted of approximately $ 73.4 million in cash (including $ 1.7 million acquired client funds and $ 0.5 million cash acquired), $ 8.7 million in our common stock, and $ 38.9 million in contingent consideration. The maximum potential undiscounted amount of all future payments that we could be required to make under the contingent arrangement is $ 43.0 million. As of December 31, 2020, the aggregated fair value of the contingent consideration related to these acquisitions was $ 38.0 million, of which $ 10.9 million was recorded in “Contingent purchase price liability – current” and $ 27.1 million was recorded in “Contingent purchase price liability – non-current” in the accompanying Consolidated Balance Sheets. Refer to Note 7, Fair Value Measurements, for additional information regarding contingent purchase price liability fair value and fair value adjustments. Annualized aggregated revenue for these acquisitions is estimated to be approximately $ 45.2 million. Pro forma results of operations for these acquisitions are not presented because the effects of these acquisitions were not significant either individually or in aggregate to our consolidated “Income from continuing operations before income taxes.” During the year ended December 31, 2019, we acquired substantially all of the assets of the following businesses. • Effective January 1, 2019, we acquired substantially all of the assets of Wenner Group, LLC (“Wenner”), located in Denver, Colorado. Wenner is a full service accounting, tax, compliance and financial consulting firm. Wenner is included as a component of our Financial Services practice group. • Effective July 1, 2019, we acquired substantially all of the assets of Paydayta, Inc. (d.b.a. Paytime) (“Paytime”), an Ohio-based payroll service provider. Paytime is included as a component of our Benefit and Insurance Services practice group. • Effective July 1, 2019, we acquired substantially all of the assets of Gavion, LLC (“Gavion”), a registered investment advisor based in Memphis, Tennessee. Gavion provides investment consulting services to a diverse base of institutional clients. Gavion is included as a component of our Benefit and Insurance Services practice group. • Effective August 1, 2019, we acquired substantially all of the assets of QBA Benefits, LLC. (“QBA”), an employee benefits agency based in Cleveland, Ohio. QBA provides employee benefits related services to small and mid-sized clients across multiple industries such as services, technology, energy, and manufacturing. QBA is included as a component of our Benefit and Insurance Services practice group. • Effective August 1, 2019, we acquired substantially all of the assets of Ericson CPAs (“Ericson”), an accounting firm based in San Luis Obispo, California. Ericson provides tax compliance, consulting, and planning services to a diverse base of clients. Ericson is included as a component of our Financial Services practice group. • Effective September 1, 2019, we acquired substantially all of the assets of Brinig Taylor Zimmer, Inc. (“BTZ”), a specialized financial consulting firm based in San Diego, California. BTZ provides forensic accounting, litigation consulting and business valuation services to a wide range of clients from individual to small business and large public traded entities. BTZ is included as a component of our Financial Services practice group. F-33 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) Aggregated consideration for these six acquisitions consisted of approximately $ 19.4 million in cash (including $ 6.9 million acquired client funds and $ 0.8 million cash acquired), $ 2.0 million in our common stock, and $ 11.2 million in contingent consideration. The maximum potential undiscounted amount of all future payments that we could be required to make under the contingent arrangement is $ 11.5 million . As of December 31, 2019, the aggregated fair value of the contingent consideration related to these acquisitions was $ 10.3 million, of which $ 2.8 million was recorded in “Contingent purchase price liability – current” and $ 7.5 million was recorded in “Contingent purchase price liability – non-current” in the accompanying Consolidated Balance Sheets. Refer to Note 7. Fair Value Measurements, for additional information regarding contingent purchase price liability fair value and fair value adjustments. Annualized aggregated revenue for these acquisitions is estimated to be approximately $ 17.4 million. Pro forma results of operations for these acquisitions are not presented because the effects of these acquisitions were not significant either individually or in aggregate to our consolidated “Income from continuing operations before income taxes.” We anticipate completion of the purchase accounting for certain 2020 acquisitions by June 30, 2021, and, as such, provisional amounts of certain assets acquired, liabilities assumed, and purchase price are reported as of December 31, 2020. The following table summarizes the amounts of identifiable assets acquired, liabilities assumed and aggregate purchase price for the acquisitions in 2020 and 2019 (in thousands): 2020 2019 Cash $ 536 $ 826 Accounts receivable, net 5,381 1,843 Funds held for clients 1,716 6,878 Operating lease right-of-use asset, net 2,746 2,789 Other assets 431 99 Identifiable intangible assets 20,703 7,725 Operating lease liability - current ( 793 ) ( 1,013 ) Other current liabilities ( 3,460 ) ( 2,245 ) Operating lease liability - noncurrent ( 1,953 ) ( 1,776 ) Client fund obligations ( 1,716 ) ( 6,878 ) Total identifiable net assets 23,591 8,248 Goodwill 97,439 24,369 Aggregate purchase price $ 121,030 $ 32,617 The goodwill of $ 97.4 million and $ 24.4 million arising from the acquisitions in 2020 and 2019, respectively, primarily resulted from expected future cash flows as well as the synergies created by the integration of the new businesses within the CBIZ organization, including cross-selling opportunities expected with our Financial Services group and the Benefit and Insurance Services group, to help strengthen our existing service offerings and expand our market position. All of the goodwill is deductible for income tax purposes. Acquisitions of client lists In 2020, we purchased three client lists reported in the Benefits and Insurance Services practice group and one client list reported in the Financial Services practice group. Total consideration for these client lists was $ 0.6 million, of which $ 0.4 million was contingent. In 2019, we purchased one client list, which was recorded in the Benefits and Insurance Services practice group. Total consideration for this client list was $ 0.3 million in cash paid at closing and an additional $ 0.2 million in contingent consideration. Change in Contingent Purchase Price Liability for Previous Acquisitions We are required to evaluate in subsequent reporting periods the fair value of contingent consideration related to previous acquisitions. We decreased the fair value of the contingent purchase price liability related to prior acquisitions in 2020 by $ 0.6 million due to expected results of acquired businesses and the revaluation of stock F-34 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) related to contingent payments. We increased the fair value of the contingent purchase price liability related to prior acquisitions in 2019 by $ 1.6 million, due to expected results of acquired businesses and the revaluation of stock related to contingent payments. The changes are included in "Other income (expense), net" in the accompanying Consolidated Statements of Comprehensive Income. For further discussion on contingent purchase price liabilities, refer to Note 7, Fair Value Measurements, to the accompanying consolidated financial statements. Contingent Payments for Previous Business Acquisitions and Client Lists Under the terms of the acquisition agreements, we pay cash consideration and issue shares of our common stock as contingent earnout for previous acquisitions. In the years ended December 31, 2020 and 2019, we paid cash of $ 12.5 million and $ 16.9 million respectively, and issued shares of our common stock of approximately 0.1 million shares in each year. In the years ended December 31, 2020 and 2019, we paid $ 0.4 million and $ 0.9 million, respectively, in cash for previous client list purchases. NOTE 19. DIVESTITURES Divested operations and assets that do not qualify for treatment as discontinued operations are recorded as “(Loss) gain on sale of operations, net” in the accompanying Consolidated Statements of Comprehensive Income. In 2020, we sold a small book of business in the Benefit and Insurance practice group and two small accounting firms in the Financial Services practice group and recorded a loss of $ 0.5 million. In 2019, we sold a small office in the Financial Services practice group and recorded a gain of $ 0.4 million. F-35 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) NOTE 20. QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2020 and 2019 (in thousands, except per share amounts). 2020 March 31, June 30, September 30, December 31, Revenue $ 277,455 $ 236,943 $ 238,389 $ 211,110 Operating expenses 199,827 209,016 204,760 211,748 Gross margin 77,628 27,927 33,629 ( 638 ) Corporate general and administrative expenses 10,489 11,160 11,339 13,078 Operating income (loss) 67,139 16,767 22,290 ( 13,716 ) Other (expense) income: Interest expense ( 1,119 ) ( 2,074 ) ( 974 ) ( 816 ) Gain (loss) on sale of operations, net 95 57 ( 74 ) ( 587 ) Other (expense) income, net ( 15,800 ) 13,336 5,914 13,050 Total other (expense) income, net ( 16,824 ) 11,319 4,866 11,647 Income (loss) from continuing operations before income tax expense 50,315 28,086 27,156 ( 2,069 ) Income tax expense (benefit) 13,453 6,607 7,060 ( 1,979 ) Income (loss) from continuing operations 36,862 21,479 20,096 ( 90 ) Loss from operations of discontinued operations, net of tax ( 14 ) ( 11 ) ( 19 ) ( 4 ) Net income (loss) $ 36,848 $ 21,468 $ 20,077 $ ( 94 ) Earnings (loss) per share: Basic: Continuing operations $ 0.68 $ 0.40 $ 0.37 $ — Discontinued operations — — — — Net income (loss) $ 0.68 $ 0.40 $ 0.37 $ — Diluted: Continuing operations $ 0.66 $ 0.39 $ 0.36 $ — Discontinued operations — — — — Net income (loss) $ 0.66 $ 0.39 $ 0.36 $ — Basic weighted average common shares 54,571 54,142 54,403 54,039 Diluted weighted average common shares 55,945 55,116 55,360 54,039 F-36 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) 2019 March 31, June 30, September 30, December 31, Revenue $ 269,998 $ 235,498 $ 239,790 $ 203,138 Operating expenses 215,496 198,148 209,146 200,706 Gross margin 54,502 37,350 30,644 2,432 Corporate general and administrative expenses 11,680 10,566 11,670 10,490 Operating income (loss) 42,822 26,784 18,974 ( 8,058 ) Other income (expense): Interest expense ( 1,401 ) ( 1,587 ) ( 1,521 ) ( 1,256 ) Gain (loss) on sale of operations, net 497 50 ( 145 ) 15 Other income (expense), net 9,260 ( 3,311 ) 6,767 4,999 Total other income (expense), net 8,356 ( 4,848 ) 5,101 3,758 Income (loss) from continuing operations before income tax expense 51,178 21,936 24,075 ( 4,300 ) Income tax expense (benefit) 13,613 5,322 6,069 ( 3,164 ) Income (loss) from continuing operations 37,565 16,614 18,006 ( 1,136 ) Loss from operations of discontinued operations, net of tax ( 96 ) ( 22 ) ( 200 ) ( 17 ) Net income (loss) $ 37,469 $ 16,592 $ 17,806 $ ( 1,153 ) Earnings (loss) per share: Basic: Continuing operations $ 0.69 $ 0.31 $ 0.33 $ ( 0.02 ) Discontinued operations — — — — Net income (loss) $ 0.69 $ 0.31 $ 0.33 $ ( 0.02 ) Diluted: Continuing operations $ 0.67 $ 0.30 $ 0.32 $ ( 0.02 ) Discontinued operations — — — — Net income (loss) $ 0.67 $ 0.30 $ 0.32 $ ( 0.02 ) Basic weighted average common shares 54,287 54,090 54,268 54,547 Diluted weighted average common shares 55,915 55,495 55,816 54,547 Quarterly earnings per share amounts do not always add to the full-year amounts due to the averaging of common shares outstanding. NOTE 21. SEGMENT DISCLOSURES Our business units have been aggregated into three practice groups: (i) Financial Services, (ii) Benefits and Insurance Services and (iii) National Practices, based on the following factors: similarity of the products and services provided to clients, similarity of the regulatory environment and similarity of economic conditions affecting F-37 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) 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 table below. Financial Services Benefits and Insurance Services National Practices Accounting and Tax Group Health Benefits Consulting Managed Networking and Hardware Services Government Healthcare Consulting Payroll Healthcare Consulting Financial Advisory Property and Casualty Valuation Retirement Plan Services Risk & Advisory Services 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 certain healthcare costs, gains or losses attributable to assets held in our non-qualified deferred compensation plan, share-based compensation, consolidation and integration charges, certain professional fees, certain advertising costs and other various expenses. Upon consolidation, 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 those costs listed above, which are reported in the “Corporate and Other” segment. We operate in the United States and Canada and revenue generated from such operations during the years ended December 31, 2020, 2019 and 2018 was as follows (in thousands): Year Ended December 31, 2020 2019 2018 United States $ 962,272 $ 946,801 $ 920,481 Canada 1,625 1,623 1,522 Total revenue $ 963,897 $ 948,424 $ 922,003 There is no one customer that represents a significant portion of our revenue. F-38 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) Segment information for the years ended December 31, 2020, 2019 and 2018 is presented below (in thousands). We do not manage our assets on a segment basis, therefore segment assets are not presented below. For the Year Ended December 31, 2020 Financial Services Benefits and Insurance Services National Practices Corporate and Other Total Revenue $ 629,778 $ 297,758 $ 36,361 $ — $ 963,897 Operating expenses 525,209 248,357 32,637 19,148 825,351 Gross margin 104,569 49,401 3,724 ( 19,148 ) 138,546 Corporate general and administrative expenses — — — 46,066 46,066 Operating income (loss) 104,569 49,401 3,724 ( 65,214 ) 92,480 Other income (expense): Interest expense — ( 34 ) — ( 4,949 ) ( 4,983 ) (Loss) gain on sale of operations, net ( 612 ) 103 — — ( 509 ) Other income, net 262 196 1 16,041 16,500 Total other (expense) income ( 350 ) 265 1 11,092 11,008 Income (loss) from continuing operations before income tax expense $ 104,219 $ 49,666 $ 3,725 $ ( 54,122 ) $ 103,488 For the Year Ended December 31, 2019 Financial Services Benefits and Insurance Services National Practices Corporate and Other Total Revenue $ 616,567 $ 296,228 $ 35,629 $ — $ 948,424 Operating expenses 515,240 246,245 32,474 29,537 823,496 Gross margin 101,327 49,983 3,155 ( 29,537 ) 124,928 Corporate general and administrative expenses — — — 44,406 44,406 Operating income (loss) 101,327 49,983 3,155 ( 73,943 ) 80,522 Other income (expense): Interest expense — ( 57 ) — ( 5,708 ) ( 5,765 ) Gain (loss) on sale of operations, net 578 — — ( 161 ) 417 Other (expense) income, net ( 121 ) 238 1 17,597 17,715 Total other income 457 181 1 11,728 12,367 Income (loss) from continuing operations before income tax expense $ 101,784 $ 50,164 $ 3,156 $ ( 62,215 ) $ 92,889 F-39 Table of Contents CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued) For the Year Ended December 31, 2018 Financial Services Benefits and Insurance Services National Practices Corporate and Other Total Revenue $ 600,926 $ 288,437 $ 32,640 $ — $ 922,003 Operating expenses 508,653 239,646 30,003 11,981 790,283 Gross margin 92,273 48,791 2,637 ( 11,981 ) 131,720 Corporate general and administrative expenses — — — 39,173 39,173 Operating income (loss) 92,273 48,791 2,637 ( 51,154 ) 92,547 Other income (expense): Interest expense — ( 102 ) — ( 6,543 ) ( 6,645 ) Gain on sale of operations, net — — — 1,025 1,025 Other (expense) income, net ( 263 ) 493 3 ( 7,320 ) ( 7,087 ) Total other (expense) income ( 263 ) 391 3 ( 12,838 ) ( 12,707 ) Income (loss) from continuing operations before income tax expense $ 92,010 $ 49,182 $ 2,640 $ ( 63,992 ) $ 79,840 NOTE 22. SUBSEQUENT EVENTS Subsequent to December 31, 2020 up to February 16, 2021, we repurchased approximately 0.6 million shares of our common stock in the open market at a total cost of approximately $ 16.2 million. On February 11, 2021, our Board of Directors authorized the continuation of the Share Repurchase Program, which has been renewed annually for the past seventeen years . It is effective beginning March 31, 2021, to which the amount of shares to be purchased will be reset to 5.0 million, and expires one year from the respective effective date. This authorization allows us to purchase shares of our common stock (i) in the open market, (ii) in privately negotiated transactions, or (iii) under Rule 10b5-1trading plans. Effective January 1, 2021, we acquired substantially all the assets of the Middle Market Advisory Group (“MMA”). MMA, based in Englewood, CO, is a provider of tax compliance and consulting services to middle market companies and family groups in the real estate, automotive, technology and SAAS, construction, and manufacturing industries. Annualized revenue is estimated to be approximately $ 3.6 million. MMA will be included as a component of our Financial Services practice group. F-40