UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
| |
ý | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|
| |
| For the quarterly period ended September 30, 2014. |
or
|
| |
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|
| |
| For the transition period from _______________ to _______________ |
Commission File No. 1-13998
Insperity, Inc.
(Exact name of registrant as specified in its charter)
|
| | |
Delaware | | 76-0479645 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
19001 Crescent Springs Drive | | |
Kingwood, Texas | | 77339 |
(Address of principal executive offices) | | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code): (281) 358-8986
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
| | | |
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
As of October 27, 2014, 25,332,418 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
|
| | |
| TABLE OF CONTENTS | |
| | |
| Part I | |
| | |
Item 1. | | |
| | |
Item 2. | | |
| | |
Item 3. | | |
| | |
Item 4. | | |
| | |
Part II |
| | |
Item 1. | | |
| | |
Item 1a. | | |
| | |
Item 2. | | |
| | |
Item 6. | | |
PART I
ITEM 1. FINANCIAL STATEMENTS
INSPERITY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
| | (Unaudited) | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 179,458 |
| | $ | 225,755 |
|
Restricted cash | | 57,222 |
| | 51,928 |
|
Marketable securities | | 45,953 |
| | 46,340 |
|
Accounts receivable, net: | | |
| | |
|
Trade | | 3,730 |
| | 7,453 |
|
Unbilled | | 237,748 |
| | 199,628 |
|
Other | | 3,336 |
| | 2,928 |
|
Prepaid insurance | | 30,613 |
| | 10,638 |
|
Other current assets | | 12,851 |
| | 12,053 |
|
Income taxes receivable | | 2,740 |
| | 409 |
|
Deferred income taxes | | — |
| | 8,185 |
|
Total current assets | | 573,651 |
| | 565,317 |
|
| | | | |
Property and equipment: | | |
| | |
|
Land | | 5,214 |
| | 4,115 |
|
Buildings and improvements | | 68,471 |
| | 67,939 |
|
Computer hardware and software | | 87,631 |
| | 85,241 |
|
Software development costs | | 40,628 |
| | 38,522 |
|
Furniture and fixtures | | 36,855 |
| | 36,479 |
|
Aircraft | | 35,879 |
| | 35,879 |
|
| | 274,678 |
| | 268,175 |
|
Accumulated depreciation and amortization | | (191,913 | ) | | (181,760 | ) |
Total property and equipment, net | | 82,765 |
| | 86,415 |
|
| | | | |
Other assets: | | |
| | |
|
Prepaid health insurance | | 9,000 |
| | 9,000 |
|
Deposits – health insurance | | 3,700 |
| | 3,700 |
|
Deposits – workers’ compensation | | 93,686 |
| | 81,878 |
|
Goodwill and other intangible assets, net | | 14,808 |
| | 18,434 |
|
Other assets | | 1,748 |
| | 1,816 |
|
Total other assets | | 122,942 |
| | 114,828 |
|
Total assets | | $ | 779,358 |
| | $ | 766,560 |
|
INSPERITY, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
| | (Unaudited) | | |
Current liabilities: | | | | |
Accounts payable | | $ | 3,255 |
| | $ | 2,678 |
|
Payroll taxes and other payroll deductions payable | | 105,026 |
| | 165,604 |
|
Accrued worksite employee payroll cost | | 211,028 |
| | 173,801 |
|
Accrued health insurance costs | | 26,351 |
| | 5,103 |
|
Accrued workers’ compensation costs | | 59,393 |
| | 52,930 |
|
Accrued corporate payroll and commissions | | 26,474 |
| | 21,611 |
|
Other accrued liabilities | | 23,008 |
| | 14,960 |
|
Total current liabilities | | 454,535 |
| | 436,687 |
|
| | | | |
Noncurrent liabilities: | | | | |
|
Accrued workers’ compensation costs | | 73,009 |
| | 68,905 |
|
Deferred income taxes | | 3,806 |
| | 7,696 |
|
Total noncurrent liabilities | | 76,815 |
| | 76,601 |
|
| | | | |
Commitments and contingencies | |
|
| |
|
|
| | | | |
Stockholders’ equity: | | |
| | |
|
Common stock | | 308 |
| | 308 |
|
Additional paid-in capital | | 136,972 |
| | 135,653 |
|
Treasury stock, at cost | | (151,091 | ) | | (138,688 | ) |
Accumulated other comprehensive income, net of tax | | 24 |
| | 29 |
|
Retained earnings | | 261,795 |
| | 255,970 |
|
Total stockholders’ equity | | 248,008 |
| | 253,272 |
|
Total liabilities and stockholders’ equity | | $ | 779,358 |
| | $ | 766,560 |
|
See accompanying notes.
INSPERITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | |
Revenues (gross billings of $3.362 billion, $3.236 billion, $10.231 billion and $9.736 billion, less worksite employee payroll cost of $2.802 billion, $2.696 billion, $8.469 billion and $8.037 billion, respectively) | | $ | 560,303 |
| | $ | 539,869 |
| | $ | 1,761,923 |
| | $ | 1,698,979 |
|
| | | | | | | | |
Direct costs: | | |
| | |
| | |
| | |
|
Payroll taxes, benefits and workers’ compensation costs | | 459,486 |
| | 442,460 |
| | 1,459,477 |
| | 1,395,706 |
|
| | | | | | | | |
Gross profit | | 100,817 |
| | 97,409 |
| | 302,446 |
| | 303,273 |
|
| | | | | | | | |
Operating expenses: | | |
| | |
| | |
| | |
|
Salaries, wages and payroll taxes | | 49,384 |
| | 43,797 |
| | 148,245 |
| | 137,697 |
|
Stock-based compensation | | 2,701 |
| | 2,749 |
| | 8,346 |
| | 8,351 |
|
Commissions | | 3,790 |
| | 3,609 |
| | 10,753 |
| | 10,349 |
|
Advertising | | 4,885 |
| | 4,273 |
| | 18,182 |
| | 19,243 |
|
General and administrative expenses | | 20,295 |
| | 20,567 |
| | 64,143 |
| | 62,592 |
|
Impairment charge | | — |
| | — |
| | 2,485 |
| | — |
|
Depreciation and amortization | | 5,302 |
| | 5,302 |
| | 15,827 |
| | 15,692 |
|
| | 86,357 |
| | 80,297 |
| | 267,981 |
| | 253,924 |
|
Operating income | | 14,460 |
| | 17,112 |
| | 34,465 |
| | 49,349 |
|
| | | | | | | | |
Other income (expense): | | |
| | |
| | |
| | |
|
Interest, net | | 9 |
| | 26 |
| | 80 |
| | 155 |
|
Other, net | | 34 |
| | (1 | ) | | 20 |
| | (2,668 | ) |
Income before income tax expense | | 14,503 |
| | 17,137 |
| | 34,565 |
| | 46,836 |
|
Income tax expense | | 6,118 |
| | 7,055 |
| | 14,725 |
| | 20,093 |
|
Net income | | $ | 8,385 |
| | $ | 10,082 |
| | $ | 19,840 |
| | $ | 26,743 |
|
| | | | | | | | |
Less distributed and undistributed earnings allocated to participating securities | | (243 | ) | | (289 | ) | | (576 | ) | | (769 | ) |
| | | | | | | | |
Net income allocated to common shares | | $ | 8,142 |
| | $ | 9,793 |
| | $ | 19,264 |
| | $ | 25,974 |
|
| | | | | | | | |
Basic net income per share of common stock | | $ | 0.33 |
| | $ | 0.39 |
| | $ | 0.78 |
| | $ | 1.05 |
|
| | | | | | | | |
Diluted net income per share of common stock | | $ | 0.33 |
| | $ | 0.39 |
| | $ | 0.78 |
| | $ | 1.04 |
|
See accompanying notes.
INSPERITY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | |
Net income | | $ | 8,385 |
| | $ | 10,082 |
| | $ | 19,840 |
| | $ | 26,743 |
|
| | | | | | | | |
Other comprehensive income: | | |
| | | | |
| | |
|
Unrealized gain (loss) on available-for-sale securities, net of tax | | (17 | ) | | 26 |
| | (5 | ) | | 7 |
|
| | | | | | | | |
Comprehensive income | | $ | 8,368 |
| | $ | 10,108 |
| | $ | 19,835 |
| | $ | 26,750 |
|
See accompanying notes.
INSPERITY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2014
(in thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock Issued | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Other Comprehensive Income | | Retained Earnings | | Total |
| | Shares | | Amount | | | | | |
| | | | | | | | | | | | | | |
Balance at December 31, 2013 | | 30,758 |
| | $ | 308 |
| | $ | 135,653 |
| | $ | (138,688 | ) | | $ | 29 |
| | $ | 255,970 |
| | $ | 253,272 |
|
Purchase of treasury stock, at cost | | — |
| | — |
| | — |
| | (20,769 | ) | | — |
| | — |
| | (20,769 | ) |
Exercise of stock options | | — |
| | — |
| | (177 | ) | | 454 |
| | — |
| | — |
| | 277 |
|
Income tax benefit from stock-based compensation, net | | — |
| | — |
| | 66 |
| | — |
| | — |
| | — |
| | 66 |
|
Stock-based compensation expense | | — |
| | — |
| | 1,233 |
| | 7,113 |
| | — |
| | — |
| | 8,346 |
|
Other | | — |
| | — |
| | 197 |
| | 799 |
| | — |
| | — |
| | 996 |
|
Dividends paid | | — |
| | — |
| | — |
| | — |
| | — |
| | (14,015 | ) | | (14,015 | ) |
Unrealized loss on marketable securities, net of tax | | — |
| | — |
| | — |
| | — |
| | (5 | ) | | — |
| | (5 | ) |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 19,840 |
| | 19,840 |
|
Balance at September 30, 2014 | | 30,758 |
| | $ | 308 |
| | $ | 136,972 |
| | $ | (151,091 | ) | | $ | 24 |
| | $ | 261,795 |
| | $ | 248,008 |
|
See accompanying notes.
INSPERITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2014 | | 2013 |
Cash flows from operating activities: | | | | |
Net income | | $ | 19,840 |
| | $ | 26,743 |
|
Adjustments to reconcile net income to net cash used in operating activities: | | |
| | |
|
Depreciation and amortization | | 15,827 |
| | 15,692 |
|
Impairment charge | | 2,485 |
| | 2,679 |
|
Amortization of marketable securities | | 1,474 |
| | 1,597 |
|
Stock-based compensation | | 8,346 |
| | 8,351 |
|
Deferred income taxes | | 4,299 |
| | 3,150 |
|
Changes in operating assets and liabilities: | | |
| | |
|
Restricted cash | | (5,294 | ) | | (3,168 | ) |
Accounts receivable | | (34,805 | ) | | (28,576 | ) |
Prepaid insurance | | (19,975 | ) | | (1,729 | ) |
Other current assets | | (798 | ) | | (446 | ) |
Other assets | | (11,761 | ) | | (11,406 | ) |
Accounts payable | | 577 |
| | (349 | ) |
Payroll taxes and other payroll deductions payable | | (60,578 | ) | | (76,246 | ) |
Accrued worksite employee payroll expense | | 37,227 |
| | 34,072 |
|
Accrued health insurance costs | | 21,248 |
| | (7,118 | ) |
Accrued workers’ compensation costs | | 10,567 |
| | 2,828 |
|
Accrued corporate payroll, commissions and other accrued liabilities | | 12,911 |
| | 3,850 |
|
Income taxes payable/receivable | | (2,572 | ) | | (4,301 | ) |
Total adjustments | | (20,822 | ) | | (61,120 | ) |
Net cash used in operating activities | | (982 | ) | | (34,377 | ) |
| | | | |
Cash flows from investing activities: | | |
| | |
|
Marketable securities: | | |
| | |
|
Purchases | | (36,468 | ) | | (49,580 | ) |
Proceeds from dispositions | | 10,630 |
| | 8,025 |
|
Proceeds from maturities | | 24,759 |
| | 9,474 |
|
Property and equipment | | (11,032 | ) | | (9,281 | ) |
Net cash used in investing activities | | (12,111 | ) | | (41,362 | ) |
INSPERITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
(Unaudited)
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2014 | | 2013 |
Cash flows from financing activities: | | | | |
Purchase of treasury stock | | $ | (20,769 | ) | | $ | (17,130 | ) |
Dividends paid | | (14,015 | ) | | (13,039 | ) |
Proceeds from the exercise of stock options | | 277 |
| | 1,163 |
|
Income tax benefit from stock-based compensation | | 307 |
| | 1,181 |
|
Other | | 996 |
| | 862 |
|
Net cash used in financing activities | | (33,204 | ) | | (26,963 | ) |
| | | | |
Net decrease in cash and cash equivalents | | (46,297 | ) | | (102,702 | ) |
Cash and cash equivalents at beginning of period | | 225,755 |
| | 264,544 |
|
Cash and cash equivalents at end of period | | $ | 179,458 |
| | $ | 161,842 |
|
See accompanying notes.
INSPERITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(Unaudited)
Insperity, Inc., a Delaware corporation (“Insperity,” “we,” “our,” and “us”), provides an array of human resources (“HR”) and business solutions designed to help improve business performance. Our most comprehensive HR business offering is provided through our professional employer organization (“PEO”) services, known as Workforce Optimization®, which encompasses a broad range of HR functions, including payroll and employment administration, employee benefits, workers’ compensation, government compliance, performance management, and training and development services.
In addition to Workforce Optimization, we offer Human Capital Management, Payroll Services, Time and Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening, Financial Services, Expense Management, Retirement Services and Insurance Services (collectively “Strategic Business Units”, formerly known as Adjacent Businesses), many of which are offered via desktop applications and software as a service (“SaaS”) delivery models. These other products or services are offered separately, in customizable bundles, or along with Workforce Optimization.
The Consolidated Financial Statements include the accounts of Insperity and its subsidiaries, all of which are wholly owned. Intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
The accompanying Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements as of and for the year ended December 31, 2013. Our Consolidated Balance Sheet at December 31, 2013 has been derived from the audited financial statements at that date, but does not include all of the information or footnotes required by GAAP for complete financial statements. Our Consolidated Balance Sheet at September 30, 2014 and our Consolidated Statements of Operations and Comprehensive Income for the three and nine month periods ended September 30, 2014 and 2013, our Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2014 and 2013, and our Consolidated Statement of Stockholders’ Equity for the nine month period ended September 30, 2014 , have been prepared by us without audit. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows, have been made.
The results of operations for the interim periods are not necessarily indicative of the operating results for a full year or of future operations.
Health Insurance Costs
We provide group health insurance coverage to our worksite employees through a national network of carriers, including UnitedHealthcare (“United”), UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield, Unity Health Plan and Tufts, all of which provide fully insured policies or service contracts.
The policy with United provides the majority of our health insurance coverage. As a result of certain contractual terms, we have accounted for this plan since its inception using a partially self-funded insurance accounting model. Accordingly, we record the costs of the United plan, including an estimate of the incurred claims, taxes and administrative fees (collectively the “Plan Costs”) as benefits expense in our Consolidated Statements of Operations. The estimated incurred claims are based upon: (i) the level of claims processed during the quarter; (ii) estimated completion rates based upon recent claim development patterns under the plan; and (iii) the number of participants in the plan, including both active and COBRA enrollees. Each reporting period, changes in the estimated ultimate costs resulting from claim trends, plan design and migration, participant demographics and other factors are incorporated into the Plan Costs.
Additionally, since the plan’s inception, under the terms of the contract, United establishes cash funding rates 90 days in advance of the beginning of a reporting quarter. If the Plan Costs for a reporting quarter are greater than the premiums paid and owed to United, a deficit in the plan would be incurred and a liability for the excess costs would be accrued in our Consolidated Balance Sheets. On the other hand, if the Plan Costs for the reporting quarter are less than the premiums paid and owed to United, a surplus in the plan would be incurred and we would record an asset for the excess premiums in our Consolidated Balance Sheets. The terms of the arrangement require us to maintain an accumulated cash surplus in the plan of $9.0 million, which is reported as long-term prepaid insurance. In addition, United requires a deposit equal to approximately one day of claims funding activity, which was $3.5 million as of September 30, 2014, and is reported as a long-term asset. As of September 30, 2014, Plan Costs were less than the net premiums paid and owed to United by $31.8 million. As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $22.8 million balance is included in prepaid insurance, a current asset, in our Consolidated Balance Sheets. The premiums owed to United at September 30, 2014 were $22.7 million, which is included in accrued health insurance costs, a current liability in our Consolidated Balance Sheets. Our benefits costs incurred in the first nine months of 2014 included costs of $2.4 million for changes in estimated run-off related to 2013.
Workers’ Compensation Costs
Our workers’ compensation coverage has been provided through an arrangement with the ACE Group of Companies (the “ACE Program”) since 2007. The ACE Program is fully insured in that ACE has the responsibility to pay all claims incurred regardless of whether we satisfy our responsibilities. We bear the economic burden for the first $1 million layer of claims per occurrence, as well as a maximum aggregate amount of $5 million per policy year for those claims that exceed $1 million, and the insurance carrier bears responsibility for the claims in excess of such amounts.
Because we bear the economic burden for claims up to the levels noted above, such claims, which are the primary component of our workers’ compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment.
We employ a third party actuary to estimate our loss development rate, which is primarily based upon the nature of worksite employees’ job responsibilities, the location of worksite employees, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers’ compensation claims cost estimates. During the nine months ended September 30, 2014 and 2013, we reduced our workers’ compensation costs by $3.0 million and $8.3 million, respectively, for changes in estimated losses related to prior reporting periods. Workers’ compensation cost estimates are discounted to present value at a rate based upon the U.S. Treasury rates that correspond with the weighted average estimated claim payout period (the average discount rate utilized in the 2014 and 2013 periods were 1.0% and 0.7%, respectively) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Operations.
The following table presents the activity and balances related to incurred but not paid workers’ compensation claims:
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2014 | | 2013 |
| | (in thousands) |
| | | | |
Beginning balance, January 1, | | $ | 120,833 |
| | $ | 111,685 |
|
Accrued claims | | 39,130 |
| | 30,496 |
|
Present value discount | | (1,418 | ) | | (748 | ) |
Paid claims | | (28,314 | ) | | (24,462 | ) |
Ending balance | | $ | 130,231 |
| | $ | 116,971 |
|
| | | | |
Current portion of accrued claims | | $ | 57,222 |
| | $ | 50,317 |
|
Long-term portion of accrued claims | | 73,009 |
| | 66,654 |
|
| | $ | 130,231 |
| | $ | 116,971 |
|
The current portion of accrued workers’ compensation costs on our Consolidated Balance Sheets at September 30, 2014 includes $2.2 million of workers’ compensation administrative fees.
As of September 30, 2014 and 2013, the undiscounted accrued workers’ compensation costs were $140.0 million and $127.5 million, respectively.
At the beginning of each policy period, the insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim funds”). The level of claim funds is primarily based upon anticipated worksite employee payroll levels and expected workers’ compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as restricted cash, a short-term asset, while the remainder of claim funds are included in deposits, a long-term asset in our Consolidated Balance Sheets. During the first nine months of 2014 and 2013, we paid the insurance carrier an additional $7.2 million and $5.0 million, respectively, in claim funds for prior policy years, which increased deposits. As of September 30, 2014, we had restricted cash of $57.2 million and deposits of $93.7 million.
Our estimate of incurred claim costs expected to be paid within one year is recorded as accrued workers’ compensation costs and included in short-term liabilities, while our estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on our Consolidated Balance Sheets.
|
| |
3. | Cash, Cash Equivalents and Marketable Securities |
The following table summarizes our cash and investments in cash equivalents and marketable securities held by investment managers and overnight investments:
|
| | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
| | (in thousands) |
Overnight Holdings | | | | |
Money market funds (cash equivalents) | | $ | 123,800 |
| | $ | 192,040 |
|
Investment Holdings | | |
| | |
|
Money market funds (cash equivalents) | | 43,427 |
| | 42,913 |
|
Marketable securities | | 45,953 |
| | 46,340 |
|
| | 213,180 |
| | 281,293 |
|
Cash held in demand accounts | | 20,778 |
| | 23,054 |
|
Outstanding checks | | (8,547 | ) | | (32,252 | ) |
Total cash, cash equivalents and marketable securities | | $ | 225,411 |
| | $ | 272,095 |
|
| | | | |
Cash and cash equivalents | | $ | 179,458 |
| | $ | 225,755 |
|
Marketable securities | | 45,953 |
| | 46,340 |
|
Total cash, cash equivalents and marketable securities | | $ | 225,411 |
| | $ | 272,095 |
|
Our cash and overnight holdings fluctuate based on the timing of clients’ payroll processing cycles. Included in the cash balance as of September 30, 2014 and December 31, 2013, are $90.8 million and $143.0 million, respectively, in funds associated with federal and state income tax withholdings, employment taxes and other payroll deductions, as well as $18.3 million and $24.5 million in client prepayments, respectively.
We account for our financial assets in accordance with Accounting Standard Codification (“ASC”) 820, Fair Value Measurement. This standard defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value measurement disclosures are grouped into three levels based on valuation factors:
| |
• | Level 1 - quoted prices in active markets using identical assets |
| |
• | Level 2 - significant other observable inputs, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other observable inputs |
| |
• | Level 3 - significant unobservable inputs |
The following table summarizes the levels of fair value measurements of our financial assets:
|
| | | | | | | | | | | | | | | | |
| | Fair Value Measurements |
| | (in thousands) |
| | September 30, 2014 | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | |
Money market funds | | $ | 167,227 |
| | $ | 167,227 |
| | $ | — |
| | $ | — |
|
Municipal bonds | | 45,953 |
| | — |
| | 45,953 |
| | — |
|
Total | | $ | 213,180 |
| | $ | 167,227 |
| | $ | 45,953 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | |
| | Fair Value Measurements |
| | (in thousands) |
| | December 31, 2013 | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | |
Money market funds | | $ | 234,953 |
| | $ | 234,953 |
| | $ | — |
| | $ | — |
|
Municipal bonds | | 46,340 |
| | — |
| | 46,340 |
| | — |
|
Total | | $ | 281,293 |
| | $ | 234,953 |
| | $ | 46,340 |
| | $ | — |
|
The municipal bond securities valued as Level 2 investments are primarily pre-refunded municipal bonds that are secured by escrow funds containing U.S. Government securities. Our valuation techniques used to measure fair value for these securities during the period consisted primarily of third party pricing services that utilized actual market data such as trades of comparable bond issues, broker/dealer quotations for the same or similar investments in active markets and other observable inputs.
The following is a summary of our available-for-sale marketable securities:
|
| | | | | | | | | | | | | | | | |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| | | | (in thousands) | | |
September 30, 2014 | | | | | | | | |
Municipal bonds | | $ | 45,912 |
| | $ | 45 |
| | $ | (4 | ) | | $ | 45,953 |
|
| | | | | | | | |
December 31, 2013 | | |
| | |
| | |
| | |
|
Municipal bonds | | $ | 46,290 |
| | $ | 51 |
| | $ | (1 | ) | | $ | 46,340 |
|
As of September 30, 2014, the contractual maturities of our marketable securities were as follows:
|
| | | | | | | | |
| | Amortized Cost | | Estimated Fair Value |
| | (in thousands) |
| | | | |
Less than one year | | $ | 14,503 |
| | $ | 14,519 |
|
One to five years | | 31,409 |
| | 31,434 |
|
Total | | $ | 45,912 |
| | $ | 45,953 |
|
|
| |
4. | Goodwill and Other Intangible Assets |
During the second quarter of 2014, impairment indicators were identified in our Employment Screening business, which is a discrete reporting unit, due to changes in management, the reporting unit’s financial results and the loss of certain customers. As a result, we performed impairment tests for our Employment Screening business’ long-lived assets and goodwill and concluded that the assets were impaired. The impairments resulted primarily from lower projected revenue growth rates and profitability levels. Accordingly, we recognized intangible asset impairments of $0.7 million and, upon completion of step two of the goodwill impairment test, we recognized a goodwill impairment charge of $1.8 million in the second quarter of 2014. The fair values of the long-lived assets and reporting unit were estimated using discounted cash flow models, which we believe appropriately estimates the fair values of the long-lived assets and reporting unit. The material assumptions used in the models included the weighted average cost of capital and long-term growth rates. We consider these to be Level 3 fair value measures.
The following table presents the gross carrying amount and accumulated amortization for each class of intangible assets and the gross carrying amount and accumulated impairment for goodwill:
|
| | | | | | | | | | | | | | | | |
| | December 31, 2013 | | Nine Months Ended September 30, 2014 | | September 30, 2014 |
| | Balance | | Impairment | | Amortization Expense | | Balance |
| | (in thousands) |
Gross carrying amount: | | | | | | | | |
Trademarks | | $ | 1,230 |
| | $ | (1,010 | ) | | $ | — |
| | $ | 220 |
|
Customer relationships | | 7,784 |
| | (1,392 | ) | | — |
| | 6,392 |
|
Aggregate goodwill acquired: | | | | | | | | |
Goodwill | | 21,156 |
| | — |
| | — |
| | 21,156 |
|
Total | | $ | 30,170 |
| | $ | (2,402 | ) | | $ | — |
| | $ | 27,768 |
|
| | | | | | | | |
Accumulated amortization: | | | | | | | | |
Trademarks | | $ | (680 | ) | | $ | 695 |
| | $ | (67 | ) | | $ | (52 | ) |
Customer relationships | | (4,340 | ) | | 976 |
| | (1,074 | ) | | (4,438 | ) |
Accumulated impairment: | | | | | | | | |
Goodwill | | (6,716 | ) | | (1,754 | ) | | — |
| | (8,470 | ) |
Total | | $ | (11,736 | ) | | $ | (83 | ) | | $ | (1,141 | ) | | $ | (12,960 | ) |
| | | | | | | | |
Net carrying amount: | | | | | | | | |
Trademarks | | $ | 550 |
| | $ | (315 | ) | | $ | (67 | ) | | $ | 168 |
|
Customer relationships | | 3,444 |
| | (416 | ) | | (1,074 | ) | | 1,954 |
|
Goodwill | | 14,440 |
| | (1,754 | ) | | — |
| | 12,686 |
|
Total goodwill and other intangible assets | | $ | 18,434 |
| | $ | (2,485 | ) | | $ | (1,141 | ) | | $ | 14,808 |
|
In 2011, we acquired a minority interest in The Receivables Exchange (“TRE”), an online marketplace for the sale of accounts receivable, for $2.8 million. In the second quarter of 2013, TRE issued similar securities at per share amounts substantially below the per share book value of our investment. Accordingly, we valued the investment based on a similar security market transaction, which is a Level 2 valuation technique. This resulted in a non-cash impairment charge of $2.7 million, which is included in other income (expense) in our Consolidated Statements of Operations, during the second quarter of 2013. Due to federal income tax limitations on capital losses, no tax benefit associated with the impairment was recognized.
|
| |
6. | Revolving Credit Facility |
We have a $100 million revolving credit facility (the “Facility”), which may be increased to $150 million based on the terms and subject to the conditions set forth in the agreement relating to the Facility (the “Credit Agreement”). The Facility matures on September 15, 2015. The Facility contains both affirmative and negative covenants, which we believe are customary for arrangements of this nature. At September 30, 2014, we were in compliance with all financial covenants under the Credit Agreement and had not drawn on the Facility. As of September 30, 2014, we had an outstanding $0.6 million letter of credit issued under the Facility.
Our Board of Directors (the “Board”) has authorized a program to repurchase shares of our outstanding common stock (“Repurchase Program”). The purchases are to be made from time to time in the open market or directly from stockholders at prevailing market prices based on market conditions and other factors. During the nine months ended September 30, 2014, 580,804 shares were repurchased under the Repurchase Program and 112,458 shares not subject to the Repurchase Program were withheld to satisfy tax withholding obligations for the vesting of restricted stock awards. As of September 30, 2014, we were authorized to repurchase an additional 768,765 shares under the program.
The Board declared quarterly dividends as follows:
|
| | | | | | | | |
| | 2014 | | 2013 |
| | (amounts per share) |
| | | | |
First quarter | | $ | 0.17 |
| | $ | 0.17 |
|
Second quarter | | 0.19 |
| | 0.17 |
|
Third quarter | | 0.19 |
| | 0.17 |
|
During the nine months ended September 30, 2014 and 2013, we paid dividends totaling $14.0 million and $13.0 million, respectively.
We utilize the two-class method to compute net income per share. The two-class method allocates a portion of net income to participating securities, which include unvested awards of share-based payments with non-forfeitable rights to receive dividends. Net income allocated to unvested share-based payments is excluded from net income allocated to common shares. Any undistributed losses resulting from dividends exceeding net income are not allocated to participating securities. Basic net income per share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options.
The following table summarizes the net income allocated to common shares and the basic and diluted shares used in the net income per share computations:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2014 | | 2013 | | 2014 | | 2013 |
| | (in thousands) |
| | | | | | | | |
Net income | | $ | 8,385 |
| | $ | 10,082 |
| | $ | 19,840 |
| | $ | 26,743 |
|
Less distributed and undistributed earnings allocated to participating securities | | (243 | ) | | (289 | ) | | (576 | ) | | (769 | ) |
Net income allocated to common shares | | $ | 8,142 |
| | $ | 9,793 |
| | $ | 19,264 |
| | $ | 25,974 |
|
| | | | | | | | |
Weighted average common shares outstanding | | 24,650 |
| | 24,849 |
| | 24,747 |
| | 24,855 |
|
Incremental shares from assumed conversions of common stock options | | 2 |
| | 18 |
| | 5 |
| | 24 |
|
Adjusted weighted average common shares outstanding | | 24,652 |
| | 24,867 |
| | 24,752 |
| | 24,879 |
|
| | | | | | | | |
Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect | | 16 |
| | — |
| | 5 |
| | 10 |
|
|
| |
9. | Commitments and Contingencies |
We are a defendant in various lawsuits and claims arising in the normal course of business. Management believes it has valid defenses in these cases and is defending them vigorously. While the results of litigation cannot be predicted with certainty, management believes the final outcome of such litigation will not have a material adverse effect on our financial position or results of operations.
Federal Unemployment Taxes
Employers in certain states are experiencing higher Federal Unemployment Tax Act (“FUTA”) tax rates as a result of certain states not repaying their unemployment loans from the federal government in a timely manner. The Benefit Cost Ratio Add-On (“BCR”) is an additional tax on the FUTA wage base for employers in states that continue to have outstanding federal unemployment insurance loans beginning with the fifth year in which there is a balance due on the loan. States had the option to apply for a waiver before July 1st of the year in which the BCR is applicable. During the second quarter of 2014, Georgia, Missouri and Wisconsin repaid their unemployment loans. There are currently 11 states with outstanding unemployment loans and of those, all but one, Connecticut, have filed for a BCR waiver. Eleven states, including California, are at risk for assessment of the BCR in 2014. We expect most states will be notified by the federal government in the fourth quarter of 2014 if a waiver has been granted in response to the state’s application. The potential additional FUTA tax associated with worksite employees in these 11 states was approximately $4.3 million as of September 30, 2014.
Generally, our contractual agreements allow us to incorporate such increases into our service fees upon the effective date of the rate change. However, our ability to fully adjust service fees in our billing systems and collect such increases over the remaining term of the customers’ contracts could be limited, resulting in a potential tax increase not being fully recovered. As a result, if these FUTA tax increases are instituted and not collected from our clients, such increases could have a material adverse effect on our financial condition or results of operations.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013, as well as our Consolidated Financial Statements and notes thereto included in this quarterly report on Form 10-Q.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 outlines a single comprehensive revenue recognition model for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Under ASU No. 2014-09, an entity recognizes revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 is effective for annual reporting periods ending after December 15, 2016, and early adoption is not permitted. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU No. 2014-09. We are currently evaluating the guidance and have not determined the impact this standard may have on our Consolidated Financial Statements.
Results of Operations
Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013.
The following table presents certain information related to our results of operations:
|
| | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2014 | | 2013 | | % Change |
| | (in thousands, except per share and statistical data) |
| | | | | | |
Revenues (gross billings of $3.362 billion and $3.236 billion, less worksite employee payroll cost of $2.802 billion and $2.696 billion, respectively) | | $ | 560,303 |
| | $ | 539,869 |
| | 3.8 | % |
Gross profit | | 100,817 |
| | 97,409 |
| | 3.5 | % |
Operating expenses | | 86,357 |
| | 80,297 |
| | 7.5 | % |
Operating income | | 14,460 |
| | 17,112 |
| | (15.5 | )% |
Other income | | 43 |
| | 25 |
| | 72.0 | % |
Net income | | 8,385 |
| | 10,082 |
| | (16.8 | )% |
Diluted net income per share of common stock | | 0.33 |
| | 0.39 |
| | (15.4 | )% |
| | | | | | |
Statistical Data: | | |
| | |
| | |
|
Average number of worksite employees paid per month | | 131,545 |
| | 129,248 |
| | 1.8 | % |
Revenues per worksite employee per month(1) | | $ | 1,420 |
| | $ | 1,392 |
| | 2.0 | % |
Gross profit per worksite employee per month | | 255 |
| | 251 |
| | 1.6 | % |
Operating expenses per worksite employee per month | | 218 |
| | 207 |
| | 5.3 | % |
Operating income per worksite employee per month | | 37 |
| | 44 |
| | (15.9 | )% |
Net income per worksite employee per month | | 21 |
| | 26 |
| | (19.2 | )% |
____________________________________
| |
(1) | Gross billings of $8,519 and $8,346 per worksite employee per month, less payroll cost of $7,099 and $6,954 per worksite employee per month, respectively. |
Revenues
Our revenues for the third quarter of 2014 increased 3.8% over the 2013 period, primarily due to a 1.8% increase in the average number of worksite employees paid per month and a 2.0%, or $28, increase in revenues per worksite employee per month.
We provide our Workforce Optimization solution to small and medium-sized businesses in strategically selected markets throughout the United States. By region, our Workforce Optimization revenue change from the third quarter of 2013 and distribution for the quarters ended September 30, 2014 and 2013 were as follows:
|
| | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Three Months Ended September 30, |
| | 2014 | | 2013 | | % Change | | 2014 | | 2013 |
| | (in thousands) | | (% of total revenue) |
| | | | | | | | | | |
Northeast | | $ | 142,376 |
| | $ | 136,334 |
| | 4.4 | % | | 25.9 | % | | 25.7 | % |
Southeast | | 53,615 |
| | 51,813 |
| | 3.5 | % | | 9.8 | % | | 9.8 | % |
Central | | 79,448 |
| | 78,322 |
| | 1.4 | % | | 14.5 | % | | 14.8 | % |
Southwest | | 150,404 |
| | 147,518 |
| | 2.0 | % | | 27.4 | % | | 27.8 | % |
West | | 123,531 |
| | 116,959 |
| | 5.6 | % | | 22.4 | % | | 21.9 | % |
| | 549,374 |
| | 530,946 |
| | 3.5 | % | | 100.0 | % | | 100.0 | % |
Other revenue(1) | | 10,929 |
| | 8,923 |
| | 22.5 | % | | | | |
Total revenue | | $ | 560,303 |
| | $ | 539,869 |
| | 3.8 | % | | | | |
_____________________________
(1) Comprised primarily of revenues generated by Strategic Business Units.
The percentage of total Workforce Optimization revenues in our significant markets include the following:
|
| | | | | | |
| | Three Months Ended September 30, |
| | 2014 | | 2013 |
| | | | |
Texas | | 25.3 | % | | 25.8 | % |
California | | 17.8 | % | | 17.5 | % |
New York | | 9.6 | % | | 9.4 | % |
Other | | 47.3 | % | | 47.3 | % |
Total | | 100.0 | % | | 100.0 | % |
Our Workforce Optimization growth rate is affected by three primary sources – worksite employees paid from new client sales, client retention and the net change in existing clients through worksite employee new hires and layoffs. During the third quarter of 2014, we saw improvement in the net change in existing clients and worksite employees paid from new client sales as compared to the third quarter 2013, while client retention remained consistent with the third quarter of 2013.
Gross Profit
Gross profit for the third quarter of 2014 increased 3.5% over the third quarter of 2013 to $100.8 million. The average gross profit per worksite employee increased 1.6% to $255 per month in the 2014 period from $251 per month in the 2013 period. Included in gross profit in 2014 is an $18 per worksite employee per month contribution from our Strategic Businesses compared to $15 per worksite employee per month in the 2013 period.
Our pricing objectives attempt to maintain or improve the gross profit per worksite employee by increasing revenue per worksite employee to match or exceed changes in primary direct costs and operating expenses. Our revenues during the third quarter of 2014 increased 2.0% per worksite employee per month over the third quarter of 2013. Our direct costs, which primarily include payroll taxes, benefits and workers’ compensation expenses, increased 2.1% to $1,165 per worksite employee
per month in the third quarter of 2014 versus $1,141 in the third quarter of 2013. The primary direct cost components changed as follows:
| |
• | Benefits costs – The cost of group health insurance and related employee benefits increased $3 per worksite employee per month, or 1.3% on a cost per covered employee basis, compared to the third quarter of 2013. Our benefits costs incurred in the third quarter of 2014 reflect favorable claim trends due to a reduction in both large claims and COBRA participation levels, partially offset by $3.1 million, or $8 per worksite employee per month, of additional taxes primarily due to new health care reform requirements. Our estimate of incurred but not paid claims increased during the third quarter of 2014. Partially offsetting this increase were benefit cost reductions for changes in estimated claim run-off related to prior periods of $6.4 million, or $16 per worksite employee per month, in the third quarter of 2014. The percentage of worksite employees covered under our health insurance plans was 71.2% in the 2014 period compared to 71.8% in the 2013 period. Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Health Insurance Costs,” for a discussion of our accounting for health insurance costs. |
| |
• | Workers’ compensation costs – Workers’ compensation costs increased $10 per worksite employee per month, or 29.4% compared to the third quarter of 2013, primarily due to higher incurred claim levels. As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.68% in the 2014 period compared to 0.55% in the 2013 period. During the 2014 period, we recorded reductions in workers’ compensation costs of $0.4 million, or 0.02% of non-bonus payroll costs, for changes in estimated losses related to prior reporting periods, compared to $1.9 million, or 0.08% of non-bonus payroll costs in the 2013 period. Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Workers’ Compensation Costs,” for a discussion of our accounting for workers’ compensation costs. |
| |
• | Payroll tax costs – Payroll taxes increased 4.0%, or $10 per worksite employee per month, compared to the third quarter of 2013, primarily due to the 3.9% increase in payroll costs. Payroll taxes as a percentage of payroll cost were 6.3% in both the 2014 and the 2013 periods. |
Operating Expenses
The following table presents certain information related to our operating expenses:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Three Months Ended September 30, |
| | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change |
| | (in thousands) | | (per worksite employee per month) |
| | | | | | | | | | | | |
Salaries, wages and payroll taxes | | $ | 49,384 |
| | $ | 43,797 |
| | 12.8 | % | | $ | 125 |
| | $ | 113 |
| | 10.6 | % |
Stock-based compensation | | 2,701 |
| | 2,749 |
| | (1.7 | )% | | 7 |
| | 7 |
| | — |
|
Commissions | | 3,790 |
| | 3,609 |
| | 5.0 | % | | 10 |
| | 9 |
| | 11.1 | % |
Advertising | | 4,885 |
| | 4,273 |
| | 14.3 | % | | 12 |
| | 11 |
| | 9.1 | % |
General and administrative expenses | | 20,295 |
| | 20,567 |
| | (1.3 | )% | | 51 |
| | 53 |
| | (3.8 | )% |
Depreciation and amortization | | 5,302 |
| | 5,302 |
| | — |
| | 13 |
| | 14 |
| | (7.1 | )% |
Total operating expenses | | $ | 86,357 |
| | $ | 80,297 |
| | 7.5 | % | | $ | 218 |
| | $ | 207 |
| | 5.3 | % |
Operating expenses increased 7.5% to $86.4 million compared to $80.3 million in the third quarter of 2013. Operating expenses per worksite employee per month increased to $218 in the 2014 period from $207 in the 2013 period. The components of operating expenses changed as follows:
| |
• | Salaries, wages and payroll taxes of corporate and sales staff increased 12.8%, or $12 per worksite employee per month, compared to the 2013 period. This increase was primarily due to higher incentive compensation accruals and a 1.3% rise in headcount. |
| |
• | Stock-based compensation decreased 1.7%, but remained flat on a per worksite employee per month basis compared to the 2013 period. Stock-based compensation expense represents amortization of restricted stock awards granted to employees. |
| |
• | Commissions expense increased 5.0%, or $1 per worksite employee per month, compared to the 2013 period, primarily due to commissions associated with our Strategic Businesses. |
| |
• | Advertising costs increased 14.3%, or $1 per worksite employee per month, compared to the 2013 period, primarily due to changes in the timing of television advertising spend. |
| |
• | General and administrative expenses decreased 1.3%, or $2 per worksite employee per month, compared to the 2013 period. |
Income Tax Expense
Our effective income tax rate was 42.2% in the 2014 period compared to 41.2% in the 2013 period. Our provision for income taxes differed from the U.S. statutory rate of 35% primarily due to state income taxes and non-deductible expenses.
Operating and Net Income
Operating and net income per worksite employee per month was $37 and $21 in the 2014 period, versus $44 and $26 in the 2013 period.
Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013.
The following table presents certain information related to our results of operations:
|
| | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2014 | | 2013 | | % Change |
| | (in thousands, except per share and statistical data) |
| | | | | | |
Revenues (gross billings of $10.231 billion and $9.736 billion, less worksite employee payroll cost of $8.469 billion and $8.037 billion, respectively) | | $ | 1,761,923 |
| | $ | 1,698,979 |
| | 3.7 | % |
Gross profit | | 302,446 |
| | 303,273 |
| | (0.3 | )% |
Operating expenses | | 267,981 |
| (1) | 253,924 |
| | 5.5 | % |
Operating income | | 34,465 |
| | 49,349 |
| | (30.2 | )% |
Other income (expense) | | 100 |
| | (2,513 | ) | (2) | (104.0 | )% |
Net income | | 19,840 |
| | 26,743 |
| | (25.8 | )% |
Diluted net income per share of common stock | | 0.78 |
| | 1.04 |
| | (25.0 | )% |
| | | | | | |
Statistical Data: | | |
| | |
| | |
|
Average number of worksite employees paid per month | | 128,703 |
| | 126,445 |
| | 1.8 | % |
Revenues per worksite employee per month(3) | | $ | 1,521 |
| | $ | 1,493 |
| | 1.9 | % |
Gross profit per worksite employee per month | | 261 |
| | 266 |
| | (1.9 | )% |
Operating expenses per worksite employee per month | | 231 |
| | 223 |
| | 3.6 | % |
Operating income per worksite employee per month | | 30 |
| | 43 |
| | (30.2 | )% |
Net income per worksite employee per month | | 17 |
| | 23 |
| | (26.1 | )% |
____________________________________
| |
(1) | Includes a non-cash impairment charge of $2.5 million, or $0.06 per share in the second quarter of 2014. Please read Note 4 to the Consolidated Financial Statements, “Goodwill and Other Intangible Assets,” for additional information. |
| |
(2) | Includes the impact of a $2.7 million, or $0.10 per share, non-cash impairment charge in the second quarter of 2013. Please read Note 5 to the Consolidated Financial Statements, “Other Assets,” for additional information. |
| |
(3) | Gross billings of $8,832 and $8,555 per worksite employee per month, less payroll cost of $7,311 and $7,062 per worksite employee per month, respectively. |
Revenues
Our revenues for the nine months ended September 30, 2014 increased 3.7% over the 2013 period, primarily due to a 1.8% increase in the average number of worksite employees paid per month and a 1.9%, or $28, increase in revenues per worksite employee per month.
We provide our Workforce Optimization solution to small and medium-sized businesses in strategically selected markets throughout the United States. By region, our Workforce Optimization revenue change from the first nine months of 2013 and distribution for the nine months ended September 30, 2014 and 2013 were as follows:
|
| | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2014 | | 2013 | | % Change | | 2014 | | 2013 |
| | (in thousands) | | (% of total revenue) |
| | | | | | | | | | |
Northeast | | $ | 451,505 |
| | $ | 439,351 |
| | 2.8 | % | | 26.1 | % | | 26.3 | % |
Southeast | | 169,472 |
| | 158,976 |
| | 6.6 | % | | 9.8 | % | | 9.5 | % |
Central | | 249,497 |
| | 247,078 |
| | 1.0 | % | | 14.4 | % | | 14.8 | % |
Southwest | | 471,218 |
| | 459,740 |
| | 2.5 | % | | 27.2 | % | | 27.5 | % |
West | | 389,642 |
| | 367,829 |
| | 5.9 | % | | 22.5 | % | | 21.9 | % |
| | 1,731,334 |
| | 1,672,974 |
| | 3.5 | % | | 100.0 | % | | 100.0 | % |
Other revenue(1) | | 30,589 |
| | 26,005 |
| | 17.6 | % | | | | |
Total revenue | | $ | 1,761,923 |
| | $ | 1,698,979 |
| | 3.7 | % | | | | |
______________________________
(1) Comprised primarily of revenues generated by Strategic Business Units.
The percentage of total Workforce Optimization revenues in our significant markets include the following:
|
| | | | | | |
| | Nine Months Ended September 30, |
| | 2014 | | 2013 |
| | | | |
Texas | | 25.2 | % | | 25.5 | % |
California | | 17.8 | % | | 17.5 | % |
New York | | 9.8 | % | | 9.6 | % |
Other | | 47.2 | % | | 47.4 | % |
Total | | 100.0 | % | | 100.0 | % |
Our Workforce Optimization growth rate is affected by three primary sources – worksite employees paid from new client sales, client retention and the net change in existing clients through worksite employee new hires and layoffs. During the first nine months of 2014, we saw improvement in worksite employees paid from new client sales, while the net change in existing clients and client retention remained consistent with the first nine months of 2013.
Gross Profit
Gross profit for the first nine months of 2014 decreased 0.3% compared to the first nine months of 2013 to $302.4 million. The average gross profit per worksite employee decreased 1.9% to $261 per month in the 2014 period from $266 per month in the 2013 period. Included in gross profit in 2014 is a $16 per worksite employee per month contribution from our Strategic Businesses compared to $14 per worksite employee per month in the 2013 period.
Our pricing objectives attempt to maintain or improve the gross profit per worksite employee by increasing revenue per worksite employee to match or exceed changes in primary direct costs and operating expenses. Our revenues during the first nine months of 2014 increased 1.9% per worksite employee per month as compared to the first nine months of 2013. However, our direct costs, which primarily include payroll taxes, benefits and workers’ compensation expenses, increased 2.7% to $1,260 per worksite employee per month compared to $1,227 in the first nine months of 2013. The primary direct cost components changed as follows:
| |
• | Benefits costs – The cost of group health insurance and related employee benefits increased $21 per worksite employee per month, or 3.8% on a cost per covered employee basis, compared to the first nine months of 2013. Our benefits costs incurred in the first nine months of 2014 included costs of $2.4 million, or $2 per worksite employee per month, for changes in estimated run-off related to 2013. Included in 2013 benefits costs is a reduction of $3.4 million, or $3 per |
worksite employee per month, for lower than expected claim costs and premium taxes related to prior periods. In addition, $8.5 million, or $7 per worksite employee per month, of additional taxes were included in the 2014 period, primarily due to new health care reform requirements. The percentage of worksite employees covered under our health insurance plans was 71.7% in the 2014 period compared to 72.1% in the 2013 period. Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Health Insurance Costs,” for a discussion of our accounting for health insurance costs.
| |
• | Workers’ compensation costs – Workers’ compensation costs increased $7 per worksite employee per month, or 22.6%, compared to the first nine months of 2013. As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.65% in the 2014 period compared to 0.54% in the 2013 period. During the 2014 period, we recorded reductions in workers’ compensation costs of $3.0 million, or 0.04% of non-bonus payroll costs, for changes in estimated losses related to prior reporting periods, compared to $8.3 million, or 0.11% of non-bonus payroll costs, in the 2013 period. Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Workers’ Compensation Costs,” for a discussion of our accounting for workers’ compensation costs. |
| |
• | Payroll tax costs – Payroll taxes increased 2.7%, or $5 per worksite employee per month, compared to the first nine months of 2013, primarily due to the 5.4% increase in payroll costs offset by lower state unemployment tax rates. Payroll taxes as a percentage of payroll cost were 7.4% in the 2014 period and 7.6% in the 2013 period. |
Operating Expenses
The following table presents certain information related to our operating expenses:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change |
| | (in thousands) | | (per worksite employee per month) |
| | | | | | | | | | | | |
Salaries, wages and payroll taxes | | $ | 148,245 |
| | $ | 137,697 |
| | 7.7 | % | | $ | 128 |
| | $ | 121 |
| | 5.8 | % |
Stock-based compensation | | 8,346 |
| | 8,351 |
| | (0.1 | )% | | 7 |
| | 7 |
| | — |
|
Commissions | | 10,753 |
| | 10,349 |
| | 3.9 | % | | 9 |
| | 9 |
| | — |
|
Advertising | | 18,182 |
| | 19,243 |
| | (5.5 | )% | | 16 |
| | 17 |
| | (5.9 | )% |
General and administrative expenses | | 64,143 |
| | 62,592 |
| | 2.5 | % | | 55 |
| | 55 |
| | — |
|
Impairment charge | | 2,485 |
| | — |
| | 100.0 | % | | 2 |
| | — |
| | 100.0 | % |
Depreciation and amortization | | 15,827 |
| | 15,692 |
| | 0.9 | % | | 14 |
| | 14 |
| | — |
|
Total operating expenses | | $ | 267,981 |
| | $ | 253,924 |
| | 5.5 | % | | $ | 231 |
| | $ | 223 |
| | 3.6 | % |
Operating expenses increased 5.5% to $268.0 million compared to $253.9 million in the first nine months of 2013. We recorded impairment charges of $2.5 million in our Employment Screening reporting unit in the first nine months of 2014. Please read Note 4 to the Consolidated Financial Statements, “Goodwill and Other Intangible Assets,” for additional information. Operating expenses per worksite employee per month increased to $231 in the 2014 period from $223 in the 2013 period. The components of operating expenses changed as follows:
| |
• | Salaries, wages and payroll taxes of corporate and sales staff increased 7.7%, or $7 per worksite employee per month, compared to the 2013 period. This increase was primarily due to higher incentive compensation accruals and a 3.1% rise in headcount. |
| |
• | Stock-based compensation decreased 0.1%, but remained flat on a per worksite employee per month basis compared to the 2013 period. Stock-based compensation expense represents amortization of restricted stock awards granted to employees. |
| |
• | Commissions expense increased 3.9%, but remained flat on a per worksite employee per month basis compared to the 2013 period, primarily due to commissions associated with our Strategic Businesses. |
| |
• | Advertising costs decreased 5.5%, or $1 per worksite employee per month compared to the 2013 period, primarily due to reduced spending on radio and television advertising. |
| |
• | General and administrative expenses increased 2.5%, but remained flat on a per worksite employee per month basis compared to the 2013 period. |
| |
• | Depreciation and amortization expense increased 0.9%, but remained flat on a per worksite employee per month basis compared to the 2013 period. |
Other Income (Expense)
Other expense decreased $2.6 million in the first nine months of 2014 compared to the first nine months of 2013, primarily due to the non-cash impairment charge related to our minority investment in The Receivables Exchange in 2013. Please read Note 5 to the Consolidated Financial Statements, “Other Assets,” for additional information.
Income Tax Expense
Our effective income tax rate was 42.6% in the 2014 period compared to 42.9% in the 2013 period. Our provision for income taxes differed from the U.S. statutory rate of 35% primarily due to state income taxes, non-deductible expenses, and the effects of the impairment charges recorded during the period. The effect of the non-cash impairment charges on the income tax rates was 0.3% in the 2014 period and 2.3% in the 2013 period.
Operating and Net Income
Operating and net income per worksite employee per month was $30 and $17 in the 2014 period, versus $43 and $23 in the 2013 period.
Non-GAAP Financial Measures
Non-bonus payroll cost is a non-GAAP financial measure that excludes the impact of bonus payrolls paid to our worksite employees. Bonus payroll cost varies from period to period, but has no direct impact to our ultimate workers’ compensation costs under the current program. As a result, our management refers to non-bonus payroll cost in analyzing, reporting and forecasting our workers’ compensation costs. Non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. We include these non-GAAP financial measures because we believe they are useful to investors in allowing for greater transparency related to the costs incurred under our current workers’ compensation program. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used to their most directly comparable GAAP financial measures as provided in the table below.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change |
| | (in thousands, except per worksite employee per month data) |
GAAP to non-GAAP reconciliation: | | | | | | | | | | | | |
Payroll cost (GAAP) | | $ | 2,801,722 |
| | $ | 2,696,330 |
| | 3.9 | % | | $ | 8,468,804 |
| | $ | 8,036,532 |
| | 5.4 | % |
Less: Bonus payroll cost | | 204,405 |
| | 192,868 |
| | 6.0 | % | | 947,751 |
| | 706,795 |
| | 34.1 | % |
Non-bonus payroll cost | | $ | 2,597,317 |
| | $ | 2,503,462 |
| | 3.7 | % | | $ | 7,521,053 |
| | $ | 7,329,737 |
| | 2.6 | % |
| | | | | | | | | | | | |
Payroll cost per worksite employee per month (GAAP) | | $ | 7,099 |
| | $ | 6,954 |
| | 2.1 | % | | $ | 7,311 |
| | $ | 7,062 |
| | 3.5 | % |
Less: Bonus payroll cost per worksite employee per month | | 518 |
| | 498 |
| | 4.0 | % | | 818 |
| | 621 |
| | 31.7 | % |
Non-bonus payroll cost per worksite employee per month | | $ | 6,581 |
| | $ | 6,456 |
| | 1.9 | % | | $ | 6,493 |
| | $ | 6,441 |
| | 0.8 | % |
Liquidity and Capital Resources
We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of, among other things, our expansion plans, potential acquisitions and other operating cash needs. To meet short-term liquidity requirements, which are primarily the payment of direct and operating expenses, we rely primarily on cash from operations. Longer-term projects or significant acquisitions may be financed with debt or equity. We have in the past sought, and may in the future seek, to raise additional capital or take other steps to increase or manage our liquidity and capital resources. We had $225.4 million in cash, cash equivalents and marketable securities at September 30, 2014, of which approximately $90.8 million was payable in early October 2014 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $18.3 million were customer prepayments that were payable in October 2014. At September 30, 2014, we had working capital of $119.1 million compared to $128.6 million at December 31, 2013. We currently believe that our cash on hand, marketable securities, cash flows from operations and availability under our credit facility will be adequate to meet our liquidity requirements for the remainder of 2014. We will rely on these same sources, as well as public and private debt or equity financing, to meet our longer-term liquidity and capital needs.
We have a $100 million revolving credit facility (“Facility”) with a syndicate of financial institutions. The Facility is available for working capital and general corporate purposes, including acquisitions, and was undrawn at September 30, 2014. Please read Note 6 to the Consolidated Financial Statements, “Revolving Credit Facility,” for additional information.
Cash Flows from Operating Activities
Net cash used in operating activities in 2014 was $1.0 million. Our primary source of cash from operations is the comprehensive service fee and payroll funding we collect from our clients. Our cash and cash equivalents, and thus our reported cash flows from operating activities are significantly impacted by various external and internal factors, which are reflected in part by the changes in our balance sheet accounts. These include the following:
| |
• | Timing of client payments / payroll levels – We typically collect our comprehensive service fee, along with the client’s payroll funding, from clients at least one day prior to the payment of worksite employee payrolls and associated payroll taxes. Therefore, the last business day of a reporting period has a substantial impact on our reporting of operating cash flows. For example, many worksite employees are paid on Fridays; therefore, operating cash flows decrease in the reporting periods that end on a Friday or a Monday. In the period ended September 30, 2014, the last business day of the reporting period was a Tuesday, client prepayments were $18.3 million and accrued worksite employee payroll was $211.0 million. In the period ended September 30, 2013, the last business day of the reporting period was a Monday, client prepayments were $9.0 million and accrued worksite employee payroll was $184.1 million. |
| |
• | Workers’ compensation plan funding – Under our workers’ compensation insurance arrangements, we make monthly payments to the carriers comprised of premium costs and funds to be set aside for payment of future claims (“claim funds”). These pre-determined amounts are stipulated in our agreements with the carriers, and are based primarily on anticipated worksite employee payroll levels and workers’ compensation loss rates during the policy year. Changes in payroll levels from those that were anticipated in the arrangements can result in changes in the amount of cash payments, which will impact our reporting of operating cash flows. Our claim funds paid, based upon anticipated worksite employee payroll levels and workers’ compensation loss rates, were $40.9 million in the first nine months of 2014 and $33.5 million in the first nine months of 2013. However, our estimate of workers’ compensation loss costs was $37.7 million in the 2014 period and $29.7 million in the 2013 period, respectively. During the first nine months of 2014 and 2013, we paid the insurance carrier an additional $7.2 million and $5.0 million, respectively, in claim funds for prior policy years. |
| |
• | Medical plan funding – Our health care contract with United establishes participant cash funding rates 90 days in advance of the beginning of a reporting quarter. Therefore, changes in the participation level of the United plan have a direct impact on our operating cash flows. In addition, changes to the funding rates, which are solely determined by United based primarily upon recent claim history and anticipated cost trends, also have a significant impact on our operating cash flows. At September 30, 2014, premiums owed and cash funded to United have exceeded Plan Costs, resulting in a $31.8 million surplus, $22.8 million of which is reflected as a current asset, and $9.0 million of which is reflected as a long-term asset on our Consolidated Balance Sheets. The premiums owed to United at September 30, 2014, were $22.7 million, which is included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets. Higher funding rates, as determined by United, resulted in a higher additional quarterly premium of $20.1 million at September 30, 2014 as compared to no additional quarterly premium at September 30, 2013. |
| |
• | Operating results – Our net income has a significant impact on our operating cash flows. Our net income decreased 25.8% to $19.8 million in the nine months ended September 30, 2014, compared to $26.7 million in the nine months ended September 30, 2013, due to higher operating expenses. Please read “Results of Operations – Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013.” |
Cash Flows from Investing Activities
Net cash flows used in investing activities were $12.1 million for the nine months ended September 30, 2014, primarily due to property and equipment purchases of $11.0 million.
Cash Flows from Financing Activities
Net cash flows used in financing activities were $33.2 million for the nine months ended September 30, 2014, including $20.8 million in stock repurchases and $14.0 million in dividends paid.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are primarily exposed to market risks from fluctuations in interest rates and the effects of those fluctuations on the market values of our cash equivalent short-term investments and our available-for-sale marketable securities. In addition, borrowings under our Facility bear interest at a variable market rate. As of September 30, 2014, we had not drawn on the Facility. Please read Note 6 to the Consolidated Financial Statements, “Revolving Credit Facility,” for additional information. The cash equivalent short-term investments consist primarily of overnight investments, which are not significantly exposed to interest rate risk, except to the extent that changes in interest rates will ultimately affect the amount of interest income earned on these investments. The available-for-sale marketable securities are subject to interest rate risk because these securities generally include a fixed interest rate. As a result, the market values of these securities are affected by changes in prevailing interest rates.
We attempt to limit our exposure to interest rate risk primarily through diversification and low investment turnover. Our investment policy is designed to maximize after-tax interest income while preserving our principal investment. As a result, our marketable securities consist of tax-exempt short and intermediate-term debt securities, which are primarily pre-refunded municipal bonds that are secured by escrow funds containing U.S. Government securities.
ITEM 4. CONTROLS AND PROCEDURES.
In accordance with the Securities Exchange Act of 1934 Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2014.
There has been no change in our internal controls over financial reporting that occurred during the three months ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
PART II
ITEM 1. LEGAL PROCEEDINGS.
Please read Note 9 to the Consolidated Financial Statements, “Commitments and Contingencies,” which is incorporated herein by reference.
ITEM 1A. RISK FACTORS.
Forward-Looking Statements
The statements contained herein that are not historical facts are forward-looking statements within the meaning of the federal securities laws (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). You can identify such forward-looking statements by the words “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “likely,” “possibly,” “probably,” “goal,” “opportunity,” “objective,” “target,” “assume,” “outlook,” “guidance,” “predicts,” “appears,” “indicator” and similar expressions. Forward-looking statements involve a number of risks and uncertainties. In the normal course of business, Insperity, Inc., in an effort to help keep our stockholders and the public informed about our operations, may from time to time issue such forward-looking statements, either orally or in writing. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies, or projections involving anticipated revenues, earnings, unit growth, profit per worksite employee, pricing, operating expenses or other aspects of operating results. We base the forward-looking statements on our expectations, estimates and projections at the time such statements are made. These statements are not guarantees of future performance and involve risks and uncertainties that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Therefore, the actual results of the future events described in such forward-looking statements could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are: (i) adverse economic conditions; (ii) regulatory and tax developments and possible adverse application of various federal, state and local regulations; (iii) the ability to secure competitive replacement contracts for health insurance and workers’ compensation contracts at expiration of current contracts; (iv) increases in health insurance costs and workers’ compensation rates and underlying claims trends, health care reform, financial solvency of workers’ compensation carriers, other insurers or financial institutions, state and federal unemployment tax rates, liabilities for employee and client actions or payroll-related claims; (v) failure to manage growth of our operations and the effectiveness of our sales and marketing efforts; (vi) changes in the competitive environment in the PEO industry, including the entrance of new competitors and our ability to renew or replace client companies; (vii) our liability for worksite employee payroll, payroll taxes and benefits costs; (viii) our liability for disclosure of sensitive or private information; (ix) our ability to integrate or realize expected return on our acquisitions; (x) failure of our information technology systems; and (xi) an adverse final judgment or settlement of claims against Insperity. These factors are discussed in further detail in our 2013 Annual Report on Form 10-K under “Factors That May Affect Future Results and the Market Price of Common Stock” on page 17, and elsewhere in this report. Any of these factors, or a combination of such factors, could materially affect the results of our operations and whether forward-looking statements we make ultimately prove to be accurate.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The following table provides information about purchases by Insperity during the three months ended September 30, 2014, of equity securities that are registered by Insperity pursuant to Section 12 of the Exchange Act:
|
| | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased(1)(2) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Announced Program(1) | | Maximum Number of Shares Available for Purchase under Announced Program(1) |
| | | | | | | | |
07/01/2014 – 07/31/2014 | | 36,916 |
| | $ | 31.98 |
| | 36,786 |
| | 928,885 |
|
08/01/2014 – 08/31/2014 | | 160,120 |
|
| 30.28 |
| | 160,120 |
| | 768,765 |
|
09/01/2014 – 09/30/2014 | | — |
| | — |
| | — |
| | 768,765 |
|
Total | | 197,036 |
| | $ | 30.60 |
| | 196,906 |
| | 768,765 |
|
____________________________________
| |
(1) | Our Board has approved a program to repurchase shares of our outstanding common stock. During the three months ended September 30, 2014, 196,906 shares were repurchased under the program and 130 shares were withheld to satisfy tax withholding obligations for the vesting of restricted stock awards. As of September 30, 2014, we were authorized to repurchase an additional 768,765 shares under the program. Unless terminated earlier by resolution of the Board, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the repurchase program. |
| |
(2) | These shares include shares of restricted stock that were withheld to satisfy tax-withholding obligations arising in conjunction with the vesting of restricted stock. The required withholding is calculated using the closing sales price reported by the New York Stock Exchange on the date prior to the applicable vesting date. These shares are not subject to the repurchase program described above. |
ITEM 6. EXHIBITS.
|
| | |
10.1(+) | * | Letter Agreement, dated September 2, 2014, by and between Insperity Holdings, Inc. and UnitedHealthcare Insurance Company. |
10.2(+) | * | Amendment to Minimum Premium Financial Agreement, as amended effective January 1, 2011, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.) and UnitedHealthcare Insurance Company, effective as of January 1, 2013. |
10.3(+) | * | Amendment to Minimum Premium Administrative Services Agreement, as amended effective January 1, 2011, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.) and UnitedHealthcare Insurance Company, effective as of January 1, 2013. |
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.(1) |
101.SCH | * | XBRL Taxonomy Extension Schema Document. |
101.CAL | * | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | * | XBRL Extension Definition Linkbase Document. |
101.LAB | * | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | * | XBRL Taxonomy Extension Presentation Linkbase Document. |
|
| | | |
| ____________________________________ | |
| | | |
| (+) | Confidential treatment has been requested for this exhibit and confidential portions have been filed with the Securities and Exchange Commission. |
| | | |
| * | Filed with this report. |
| | | |
| ** | Furnished with this report. |
| |
(1) | Attached as exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations for the three and nine month periods ended September 30, 2014 and 2013; (ii) the Consolidated Statements of Comprehensive Income for the three and nine month periods ended September 30, 2014 and 2013; (iii) the Consolidated Balance Sheets at September 30, 2014 and December 31, 2013; (iv) the Consolidated Statement of Stockholders’ Equity for the nine month period ended September 30, 2014; (v) the Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2014 and 2013; and (vi) Notes to the Consolidated Financial Statements. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | |
| Insperity, Inc. |
| | |
Date: November 3, 2014 | By: | /s/ Douglas S. Sharp |
| | Douglas S. Sharp |
| | Senior Vice President of Finance, |
| | Chief Financial Officer and Treasurer |
| | (Principal Financial Officer) |
*** indicates material has been omitted pursuant to a Confidential Treatment Request filed with the Securities and Exchange Commission. A complete copy of this agreement has been filed separately with the Securities and Exchange Commission.
Exhibit 10.1
September 2, 2014
Mr. Richard Rawson
President, Insperity
19001 Crescent Springs Drive
Kingwood, Texas 77339-3802
Re: Insperity and UnitedHealthcare Agreement Extension
Dear Richard:
I am providing this revised Letter of Agreement to propose the relevant terms and conditions of the modifications to the existing contracts between United HealthCare Insurance Company (“UnitedHealthcare”) and Insperity Holdings, Inc. (“Insperity”) that we trust you will find agreeable. Upon execution, this letter and the attached Terms of Agreement (Exhibit A) will constitute a legally binding agreement as to the principal terms of amendments to the Minimum Premium Financial Agreement and the Minimum Premium Administrative Services Agreement, each by and between Insperity and UnitedHealthcare, as amended and restated from time to time (collectively, the “Medical Definitive Agreements”), and the Agreement Regarding Dental Insurance by and between Insperity and UnitedHealthcare, as entered into effective January 1, 2004 (the “Dental Definitive Agreement”), to be prepared and executed by the parties. The parties anticipate that such amendments shall be completed as soon as possible. Except as otherwise set forth herein, the terms and conditions of any eventual modifications to the Medical Definitive Agreements and the Dental Definitive Agreement will be only as set forth in any subsequent amendment(s) signed by the parties. The parties also anticipate that additional review of the impact of PPACA and recent state issues may require further negotiations concerning the items addressed herein and the corresponding modifications required to the Medical Definitive Agreements.
Insperity and UnitedHealthcare acknowledge and agree that the terms and conditions of this letter and the attached Exhibit A relating to the Medical Definitive Agreements, including the existence hereof, are subject to the provisions of Section 5(e) of the Minimum Premium Administrative Services Agreement (relating to publicity of the arrangement). The parties also agree that the terms and conditions of this letter and the attached Exhibit A relating to the Dental Definitive Agreement, including the existence hereof, are subject to the same confidentiality terms described herein. As such, Insperity and UnitedHealthcare each agree not to make any unauthorized disclosure or public announcement concerning the subject matter hereof without the written consent of the other.
Thank you again for supporting the extension of our existing relationship through 2017 and the truly outstanding relationship that has been formed over the last 13 years. We look forward to continued mutual success and the expansion of our relationship.
If this letter and the terms set forth in Exhibit A are in accordance with your understanding of the proposed modifications to our existing contracts, please sign below and return an executed copy to me via email to anthony_r_carr@uhc.com or facsimile at (954) 378-0771. Should you have any questions, please call me at (954) 378-0596.
Best Regards,
/s/ Anthony R. Carr
Anthony R. Carr
National Vice President, PEO, Private Equity & Trust Division
UnitedHealthcare
AGREED TO AND ACCEPTED BY:
Insperity Holdings, Inc.
/s/ Richard G. Rawson
By: Richard G. Rawson
Its: President
Date: _September 5, 2014
cc: Kim Bacon, Managing Director, Health and Welfare Services
Exhibit A
UnitedHealthcare/Insperity
Terms of Agreement
September 2, 2014
For consistency, clarity and ease of communication, this Terms of Agreement uses defined terms from both of the Medical Definitive Agreements between Insperity and UnitedHealthcare
UnitedHealthcare (UHC) is pleased to continue our exceptional partnership for an additional two years including annual *** on both the *** and *** and dental insurance premium, while also implementing the following provisions to extend the existing agreement by two years (2016 and 2017):
| |
1) | In keeping with previous agreements, UHC’s suggested language is as follows: "Competitive" means that either (i) the Company and the Employer agree or (ii) an independent consultant chosen by mutual agreement of the parties has determined, that such product ranks either *** or *** as compared to competing products of other vendors in the designated market. In making any determination of the rank of a product in a market, such consultant shall apply such criteria relating to ***, *** and *** as it shall determine appropriate. All fees and expenses of any such consultant shall be paid by the Employer. |
| |
a. | The exclusivity provisions shall not apply to any Client of Insperity where a state or municipality requires issuance of small business policies directly to Clients and/or Employees, nor shall it apply to Clients and/or Employees who elect coverage under a federal, state or private exchange. Insperity and UnitedHealthcare will work together to find mutually agreeable parameters for any Insperity ***. |
| |
b. | Barring *** or ***, existing UHC membership is grandfathered for the remainder of the contractual period from the time a competing carrier is introduced into a market. |
| |
c. | When a new carrier is added to a UHC market, the *** is made at the *** and not the ***. |
| |
d. | If there is a *** to the Company *** network in a Market, if no group health insurance or similar product is offered by the Company in the Market, or if no group health insurance or similar product offered by the Company is Competitive in that Market, the Employer may offer, subject to the existing terms of our agreement, the health insurance or similar products of a Competing Vendor in such market. Only *** will be introduced into a limited number of Markets, not to exceed *** Markets, through December 31, 2017. The *** market cap does not apply if changes are *** by *** or ***. |
| |
e. | *** and *** will remain exclusive markets. If agreed to by both parties, the exclusivity requirement will be modified if changes are *** by *** or *** (to the extent not previously addressed in subparagraph a to this section 1). |
| |
f. | UnitedHealthcare will be the exclusive Vendor for *** coverage offered in the *** markets. If agreed to by both parties, the exclusivity requirement will be modified if changes are mandated by *** or *** (to the extent not previously addressed in subparagraph a to this section 1). |
| |
g. | UHC will be notified at least 90 days prior to the introduction of a competing carrier into a market. |
| |
2) | In the event that either party reasonably believes that any state or other jurisdiction may impose a *** on it for proceeding with its performance under the Agreement, or that a state or jurisdiction will enforce a regulation, statute or exchange provision that will result in either a material reduction in Insperity's ability to market its full suite of services to its existing and potential clients or UnitedHealthcare's ability to market its insurance products in the state or jurisdiction, such party will promptly advise the other party of such belief and the basis therefore. In such event, the parties agree to cooperate in good faith to resolve such matter to the satisfaction of both parties. After a good faith effort by the parties to eliminate the risk of *** or the material reduction of Insperity's ability to market its full suite of services to its existing and potential clients or UnitedHealthcare's ability to market its insurance products in the state or jurisdiction, if the matter is not resolved to the satisfaction of both parties, (a) the party upon which such *** may be imposed may immediately discontinue the Agreement's application in such state or jurisdiction by providing notice to that effect to the other party, except that the effective date of the termination may be extended to the latest date the Agreement can remain in effect before triggering the ***, or later if adequate indemnification is provided by the other party, or, (b) in the case of a material reduction of Insperity's ability to market its full suite of services to its existing and potential clients, or UnitedHealthcare's ability to market its insurance products in the state or jurisdiction, the Agreement's application in such state or jurisdiction will be effective *** following notice to the other party. In the event of termination, the Agreement will continue to apply in all other states or jurisdictions, except that if it is a Federal law at issue the Agreement will discontinue in its entirety. Furthermore, in the event of termination of this Agreement, Insperity agrees that it will deliver written notice to UnitedHealthcare of termination of the Policy issued to Insperity as of the effective date of the termination of this Agreement. |
| |
3) | In the event of *** in the use of *** by businesses within Insperity’s target customer base, which threatens Insperity’s ability to *** or ***, the parties agree to: |
| |
a. | Cooperate in good faith to ease the exclusivity provisions of the Agreement to accommodate a *** competitive with the ***, however, such easing shall be to the extent *** to achieve a competitive offering; |
| |
b. | Restrict any *** to presentation at the ***; |
| |
c. | Maintain the existing Agreement for the remainder of the term of the Agreement; |
| |
4) | Renew UHC Dental coverage with *** renewal *** in 2016 and *** in 2017. |
| |
5) | Renew OptumHealth (OH) Care24 w/ Worklife Solutions at *** through 2017. |
| |
6) | If *** exceeds *** on ***, *** previously agreed to will be *** and *** will apply to 2015. |
| |
7) | ***, as measured on *** each contract year, will set the level of combined *** and the *** for the current year. *** includes all *** for coverage in *** or *** as per current agreement. |
| |
a. | 2016 CY *** – based on *** by *** if *** exceeds ***, *** by *** if *** exceeds *** or *** by *** if *** is less than ***. |
| |
b. | 2017 CY *** – based on *** by *** if *** exceeds ***, *** by *** if *** exceeds *** or *** by *** if *** is less than ***. |
| |
8) | *** and *** will continue to be a pass through of actual expenses. |
| |
9) | If *** below the following thresholds, the *** by the percentage in the table. *** includes *** for *** in *** or *** as per current agreement. The total *** measurements process remains the same as current agreement. |
| |
i. | *** below *** *** *** *** |
*** *** *** *** ***
Cumulative *** *** *** ***
*** indicates material has been omitted pursuant to a Confidential Treatment Request filed with the Securities and Exchange Commission. A complete copy of this agreement has been filed separately with the Securities and Exchange Commission.
Exhibit 10.2
AMENDMENT TO THE MINIMUM PREMIUM
FINANCIAL AGREEMENT,
AS AMENDED EFFECTIVE JANUARY 1, 2011,
BY AND BETWEEN
INSPERITY HOLDINGS, INC. (fka ADMINISTAFF OF TEXAS, INC.)
AND
UNITED HEALTHCARE INSURANCE COMPANY
THIS AMENDMENT TO THE MINIMUM PREMIUM FINANCIAL AGREEMENT, as amended effective January 1, 2011, (the “MP Financial Agreement”) is entered into as of January 1, 2013, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.), a Texas corporation, and United Healthcare Insurance Company (the “Company”), a Connecticut corporation (this “Amendment”).
RECITALS
WHEREAS, on or about June 25, 2002, the Employer and the Company executed the Minimum Premium Financial Agreement effective January 1, 2002 (“Original Agreement”); and
WHEREAS, effective January 1, 2005, the Employer and the Company executed the MP Financial Agreement to amend and restate the Original Agreement (terms capitalized in this Amendment not for grammatical reasons and not otherwise defined in this Amendment shall have the meanings ascribed to them in the MP Financial Agreement); and
WHEREAS, effective January 1, 2008, the Employer and the Company amended the MP Financial Agreement; and
WHEREAS, effective January 1, 2009, the Employer and the Company amended the MP Financial Agreement; and
WHEREAS, effective January 1, 2011, the Employer and the Company amended the MP Financial Agreement; and
WHEREAS, the Employer and the Company now wish to further amend the MP Financial Agreement pursuant to the terms of this Amendment effective January 1, 2013, unless otherwise stated herein.
NOW, THEREFORE, in consideration of the following mutual covenants and promises, the parties agree as follows:
ARTICLE I
Section 1.1. Changes in Maximum Monthly Employer Benefit Obligation and Premium. Section 5(b)(ii) of the MP Financial Agreement is hereby amended and restated in its entirety to read, effective January 1, 2013
(ii). the *** used to calculate the ***, as described in section 3(a) of the Agreement,
Section 1.2. Definitions. Exhibit A, subsections (8)(g), (h) and (n) are hereby amended and restated in their entirety to read, and new subsections (8)(p), (q) and (r) are hereby added, effective January 1, 2013
| |
g. | “Deficit” means, with respect to an Arrangement Period, the excess of (i) *** for the Arrangement Period *** (I) the *** the Arrangement Period ***, *** (II) the *** over (ii) the *** for the Arrangement Period. The “Arrangement Period ***” is defined to be the sum of the *** number of Employees covered under the MP Policy in each *** within the Arrangement Period. If the Arrangement Period includes more than one ***, and if the *** is different for one or more of the *** included in the calculation, then the calculation of the Deficit shall be done for each *** or *** included in the Arrangement Period (each the “***”), and then the *** shall be summed to calculate the Deficit. |
To illustrate, the Deficit will be calculated according to the following formula:
Deficit = [*** (*** Arrangement Period ***) ***] ***
| |
h. | "***” means the amount for the Policies set forth in Exhibit D to the Agreement, and is the total of the *** and the ***. The Company shall adjust the *** for any *** for which the *** used to calculate the MP Premium has been changed pursuant to section V and VI of Exhibit D. The Company shall notify the Employer of an adjustment to the *** at the same time that it provides the notice required under section 5 of the Agreement. |
| |
n. | “Surplus” means, with respect to an Arrangement Period, the excess of (i) *** for the Arrangement Period *** the *** of the (ii) *** for the Arrangement Period *** (I) the *** the Arrangement Period ***, *** (II) *** with respect to the Policies for the Arrangement Period. If the Arrangement Period includes more than one ***, and if the *** is different for one or more of the *** included in the calculation, then the calculation of the Surplus shall be done for each *** or *** included in the Arrangement Period (each the “***”), and then the *** shall be summed to calculate the Surplus. |
To illustrate, the Surplus will be calculated according to the following formula:
Surplus = *** [*** (*** Arrangement Period ***) ***]
| |
p. | “***” means the amount separately identified and provided by Company to Employer in the normal course for an Arrangement Period, which collectively with the *** equals the ***. |
| |
q. | “***” means the amount separately identified and provided by Company to Employer in the normal course for an Arrangement Period, which collectively with the *** equals the ***. |
| |
r. | “***” means the actual incurred *** and *** plus the sum of the applicable year’s *** and ***. |
Section 1.3. Policies, Rates and Factors. Exhibit D to the MP Financial Agreement is hereby amended and restated in its entirety to read, effective January 1, 2013:
Exhibit D – Policies, Rates and Factors
| |
I. | The definition of “Policy” for purposes of Section 1(s) of the Agreement shall be as follows: |
| |
• | Effective January 1, 2013: No. *** (Medical ***) (“Policy”) |
| |
II. | The “Maximum Monthly Employer Benefit Obligation” (the “MMEBO”) shall be the following: |
| |
• | Effective January 1, 2013: |
| |
◦ | The Quoted Premium effective January 1, 2013 for each Policy minus the *** effective January 1, 2013 |
| |
• | Effective January 1, 2014: |
| |
◦ | The Quoted Premium effective January 1, 2014 for each Policy minus the *** effective January 1, 2014 |
| |
• | Effective January 1, 2015: |
| |
◦ | The Quoted Premium effective January 1, 2015 for each Policy minus the *** effective January 1, 2015 |
| |
III. | The “MP Premium” shall be the following: |
| |
• | Effective January 1, 2013: |
| |
◦ | The total of the estimated *** and ***, calculated as a fixed dollar amount during the Arrangement Period and trued up in normal course, for each Policy plus the 2013 *** (the “2013 ***”) |
| |
• | Effective January 1, 2014: |
| |
◦ | The total of the estimated *** and *** and ***, calculated as a fixed dollar amount during the Arrangement Period and trued up in normal course, for each Policy plus the sum of the 2014 *** and *** (the “2014 ***”) |
| |
• | Effective January 1, 2015: |
| |
◦ | The total of the *** and *** and ***, calculated as a fixed dollar amount during the Arrangement Period and trued up in normal course, for each Policy plus the sum of the 2015 *** and *** (the “2015 ***”) |
| |
IV. | The “***” shall be the following: |
| |
• | Effective January 1, 2013: |
| |
◦ | Calculated based on calendar year 2012 ***, paid through February 28, 2013, increased by *** for each Policy (the “2013 ***”). |
| |
• | Effective January 1, 2014: |
| |
◦ | The 2013 *** increased by *** for each Policy (the “2014 ***”). |
| |
• | Effective January 1, 2015: |
| |
◦ | The 2014 *** increased by *** for each Policy (the “2015 ***”). |
| |
V. | If *** below the thresholds set forth below, the *** increases by the percentage in the table. Calculation of the “***” is defined in Section (VII) of this Exhibit D.
|
|
| | | | |
*** in the *** below | *** | *** | *** | *** |
*** Increase | *** | *** | *** | *** |
*** Increase | | *** | *** | *** |
| |
VI. | If *** above the thresholds set forth below, the *** decreases by the percentage in the table. Calculation of the “***” is defined in Section (VII) of this Exhibit D. |
|
| | | | |
*** in the *** above | *** | *** | *** | *** |
*** Decrease | *** | *** | *** | *** |
*** Decrease | | *** | *** | *** |
| |
VII. | For purposes of the aforementioned tables in (V) and (VI) of this Exhibit D, *** shall be determined each *** based upon the following parameters: |
| |
• | *** is defined to include *** for coverage in the Policy and *** for coverage under *** (f/k/a ***) ***, effective January 1, 2011, ***, which *** are amended from time to time in the normal course of business, including all ***, *** and/or *** in COBRA or state continuation coverage. |
| |
• | *** shall be measured each January 1st, April 1st, July 1st and October 1st, based upon the *** in effect on the 15th day of the preceding month. The Membership as of the 15th of the month preceding each of January 1st, April 1st, July 1st and October 1st, shall be the *** that is used to determine the ***, *** and *** for the quarter beginning that immediately following January 1st, April 1st, July 1st, and October 1st. For example, to determine the *** and *** for the quarter beginning January 1, 2013 and ending March 31, 2013, the *** as of December 15, 2012 shall be used. |
| |
VIII. | The applicable year’s *** Fee shall be billed separately to Employer.
|
ARTICLE II
Section 2.1: The following section (h) is amended and restated to Section 4 Term and Termination of the Agreement
| |
h. | In the event that either party reasonably believes that any State or other jurisdiction may impose a *** on it for proceeding with its performance under the Agreement, or that a State or jurisdiction will enforce a regulation or statute that will result in either a material reduction in Employer’s ability to market its full suite of services to its existing and potential clients or Company’s ability to market its insurance products in the State or jurisdiction, such party will promptly advise the other party of such belief and the basis therefore. In such event, the parties agree to cooperate in good faith to resolve such matter to the satisfaction of both parties. After a good faith effort by the parties to eliminate the risk of *** or the material reduction of Employer’s ability to market its full suite of services to its existing and potential clients or Company’s ability to market its insurance products in the State or jurisdiction, if the matter is not resolved to the satisfaction of both parties, (a) the party upon which such *** may be imposed may immediately discontinue the Agreement's application in such State or jurisdiction by providing notice to that effect to the other party, except that the effective date of the termination may be extended to the latest date the Agreement can remain in effect before triggering the ***, or later if adequate indemnification is provided by the other party, or, (b) in the case of a material reduction of Employer’s ability to market its full suite of services to its existing and potential clients, or Company’s ability to market its insurance products in the State or jurisdiction, the Agreement's application in such State or jurisdiction will be effective *** following notice to the other party. In the event of termination, the Agreement will continue to apply in all other States or jurisdictions, except that if it is a Federal law at issue the Agreement will discontinue in its entirety. Furthermore, in the event of termination of this Agreement, Employer agrees that it will deliver written notice to Company of termination of the Policy issued to Employer as of the effective date of the termination of this Agreement. |
ARTICLE III
COOPERATION
Section 3.1 Cooperation. The Parties agree to execute such further documents and to take such further actions as may be necessary to implement and carry out the terms and conditions of this Amendment.
Article IV
EFFECTIVE DATE OF AMENDMENT AND EXTENSION OF AGREEMENT
Section 4.1 Effective Date. This Amendment shall be effective as of January 1, 2013, unless otherwise stated herein and the Employer and Company agree to extend the existing MP Financial Agreement for an additional two years (2014 and 2015).
[The balance of this page intentionally is left blank. The signature page follows.]
IN WITNESS WHEREOF, the parties have caused this Amendment to the MP Financial Agreement to be executed as of the date set forth in the preamble.
INSPERITY HOLDINGS, INC. UNITED HEALTHCARE INSURANCE COMPANY
By: /s/ Richard G. Rawson By: /s/ Anthony R. Carr
Authorized Signature Authorized Signature
Name Richard G. Rawson Name Anthony R. Carr
Title President Title National Vice President
Date August 18, 2014 Date August 28, 2014
*** indicates material has been omitted pursuant to a Confidential Treatment Request filed with the Securities and Exchange Commission. A complete copy of this agreement has been filed separately with the Securities and Exchange Commission.
Exhibit 10.3
AMENDMENT TO THE MINIMUM PREMIUM ADMINISTRATIVE SERVICES AGREEMENT,
AS AMENDED EFFECTIVE JANUARY 1, 2011,
BY AND BETWEEN
INSPERITY HOLDINGS, INC. (fka ADMINISTAFF OF TEXAS, INC.)
AND
UNITED HEALTHCARE INSURANCE COMPANY
THIS AMENDMENT TO THE MINIMUM PREMIUM ADMINISTRATIVE SERVICES AGREEMENT, as amended effective January 1, 2011, (the “Administrative Services Agreement”) is entered into as of January 1, 2013, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.), a Texas corporation, and United Healthcare Insurance Company, a Connecticut corporation (this “Amendment”).
RECITALS
WHEREAS, on or about June 25, 2002, the Employer and the Company executed the Minimum Premium Administrative Services Agreement effective January 1, 2002 (“Original Agreement”); and
WHEREAS, effective January 1, 2005, the Employer and the Company executed the Minimum Premium Administrative Services Agreement to amend and restate the Original Agreement ; and
WHEREAS, effective January 1, 2008 and January 1, 2011, the Employer and the Company amended the Administrative Services Agreement; and
WHEREAS, the Employer and the Company now wish to further amend the Administrative Services Agreement pursuant to the terms of this Amendment effective January 1, 2013, unless otherwise stated herein.
NOW, THEREFORE, in consideration of the following mutual covenants and promises, the parties agree as follows:
ARTICLE I
Section 1.1: Exhibit F of the Administrative Services Agreement is hereby amended and is restated in its entirety to read as follows:
Exhibit F – Alternate Vendors
| |
A. | Except as otherwise set forth in this Exhibit F, the Company shall have the right to be the exclusive provider of medical and dental coverage for Employees; provided, however, that execution of an agreement between the Company and the Employer with respect to the Company’s right to be the exclusive provider of dental coverage for Employees with respect to certain geographical coverage areas (“Dental Agreement”) shall cause this Agreement and the MP Financial Agreement (including any exhibits or appendices to either) to be modified effective as of the effective date of the Dental Agreement to delete any effect on or reference to dental benefits, coverage, policies, or exclusivity rights as to the provision of dental coverage to employees of the Employer, and shall be interpreted in a manner consistent therewith. |
| |
B. | Exceptions to the Company's Right to be Exclusive Provider |
| |
1. | If there is a *** to the Company *** network in a Market, or if no group health insurance or similar product offered by the Company is Competitive in that Market, the Employer may offer, subject to this section B of this Exhibit F, the health insurance or similar products of a Competing Vendor in such market. |
| |
a. | The health insurance or similar products of a Competing Vendor may not be offered to Existing Company membership until after December 31, 2015, unless there is *** or required by Federal or State law. |
| |
b. | If Employer introduces a Competing Vendor, the following provisions shall apply as long as the Company continues to write new group policies in that market: |
| |
(i.) | Employer agrees to *** to the Competing Vendor; |
| |
(ii.) | Existing Clients will be offered a choice at the time of the Client’s contract renewal between the Company and Competing Vendor coverage options; and |
| |
(iii.) | The choice between the Company and the Competing Vendor’s coverage options shall only be *** at the *** and in no event *** to the ***. |
| |
c. | Only *** Competing Vendor will be introduced into a limited number of Markets, not to exceed *** Markets, through December 31, 2015. This Market limitation may be increased if both parties determine that Federal or State law requires more Competing Vendors to be offered in a Market; |
| |
d. | Company will be notified at least 90 days prior to the introduction of a Competing Vendor into a Market; |
| |
e. | In no event will a Competing Vendor be introduced in the ***, which market includes *** and *** markets. These markets will remain exclusive markets to |
the Company. If agreed to by both parties, the exclusivity requirement will be modified if changes are mandated by Federal or State law (to the extent not previously addressed in subparagraph (a) to this Section 1).
| |
f. | Notwithstanding any provision of Exhibit F to the contrary, the exclusivity provisions shall not apply to *** due to the absence of a ***, or any other county where *** following a *** where there is no ***. |
| |
g. | Notwithstanding any provision of Exhibit F to the contrary, the exclusivity provisions shall not apply to any *** business policies (*** business policies are those issued to *** with *** eligible employees). |
| |
h. | Notwithstanding any provision of Exhibit F to the contrary, the exclusivity provisions shall not apply to prevent Employer from offering *** or another Competing Vendor in ***. |
| |
i. | Notwithstanding any provision of Exhibit F to the contrary, the exclusivity provisions shall not apply to prevent Employer from offering *** or another Competing Vendor in ***. |
| |
j. | Notwithstanding any provision of Exhibit F to the contrary, the exclusivity provisions shall not apply to prevent Employer from offering alternative *** coverage (but not *** coverage) through *** or *** in ***. |
| |
k. | Company will be the exclusive Vendor for *** coverage offered in the *** markets. If agreed to by both parties, the exclusivity requirement will be modified if changes are mandated by Federal or State law. |
| |
l. | Where a State or municipality requires issuance of small business policies directly to Clients and/or Employees, Employer will not be subject to this exclusivity provision for those Clients and/or Employees. This section does not prohibit a Client or Employee from selecting coverage in a Federal, State or private exchange, provided that *** the Client or Employee from selecting coverage in an exchange. |
| |
m. | Employer and Company will work together to find mutually agreeable parameters for any *** (“***”) *** by Employer. |
| |
2. | Removal or Addition of the Company’s HMOs and Other Products |
| |
a. | If at any time the HMO Substitute offered by the Employer through the Company ceases to be Competitive, the Employer may in its sole discretion cease offering such product. In any such case, the Employer shall notify the Company of its opinion concerning the Competitive status of such product at least *** before it |
ceases offering the product and shall have the burden of undertaking the steps required to confirm the same in accordance with section B of this Exhibit F. If the Company’s HMO Substitute becomes Competitive within *** after its receipt of the Employer’s notice, the Employer may not replace it unless and until it is again not Competitive, in which case a new notice shall be required and a new *** corrective period will begin. Such offering is subject to the following provisions if Company continues to write new group policies in that certain Market:
| |
(i.) | Employer agrees to *** to the Competing Vendor; |
| |
(ii.) | Existing Clients will be offered a choice at the time of the Client’s contract renewal between the Company and Competing Vendor coverage options; and |
| |
(iii.) | The choice between the Company and the Competing Vendor’s coverage options shall only be *** at the *** and in no event *** to the ***. |
| |
b. | If, at the time the Company begins to offer an HMO Substitute which is Competitive in a certain market, the Employer is offering an HMO through a Competing Vendor consistent with the provisions of this Exhibit F in that market, the Employer shall offer each Client in such market coverage options for Employees in such market not later than the renewal date of such Client’s service agreement consisting of either (i) subject to Section C of this Exhibit F, the *** and *** options or (ii) such Competing Vendor’s *** and, at the Competing Vendor’s ***, its ***. |
| |
3. | Acquisition by Employer of another Professional Employer Organization |
The Employer's use of Competing Vendors to provide coverage to New PEO Clients will not violate the provisions of section 6(b)(iv) of the Agreement or this Exhibit F if such coverage complies with the provisions of section 6(f) of the Agreement.
| |
C. | Continuation of Company HMO in *** |
The parties agree to renew existing *** HMO coverage to the end of calendar year 2015 in the *** market.
As used in this Exhibit F, capitalized terms shall have the meanings assigned to them in the Minimum Premium Administrative Services Agreement to which this Exhibit F is attached or, if no meaning is so assigned, the meaning set forth in this section D of Exhibit F.
| |
a. | "Competing Vendor" means a vendor of medical coverage products in a particular geographic market other than the Company. |
| |
b. | "Competitive" means that either (i) the Company and the Employer agree or (ii) an independent consultant chosen by mutual agreement of the parties has determined, that such product ranks either *** as compared to competing products of other vendors in the designated market. In making any determination of the rank of a product in a market, such consultant shall apply such criteria relating to *** and *** as it shall determine appropriate. All fees and expenses of any such consultant shall be paid by the Employer. |
| |
c. | “Existing Client” means a Client which is covered under a Company *** or *** as of the date such determination is made under Section B of this Exhibit F. |
| |
d. | "HMO" means a product issued by a licensed "health maintenance organization" and offered as a network only or lock in product. Any references in this Exhibit F to the Company's "HMOs" shall include any HMO issued by the Company (or another member of the Company’s controlled group). |
| |
e. | Each of the following geographic areas are defined as a “Market” under this Agreement: |
| |
V. | *** (this includes membership in *** and *** metros) |
| |
VI. | *** (*** includes ***) |
| |
f. | "PPO" means any product for network coverage that is not an HMO, the HMO Substitute or an EPO. |
| |
g. | "EPO" means a product issued by a licensed "insurance company" and offered as a network only or lock in product. |
| |
h. | "HMO Substitute" means the *** benefit plan (which includes both in-network and out-of- network benefits) developed and offered to the Employer by the Company as a substitute for Company's HMO products in connection with Section B of this Exhibit F. |
| |
i. | “***” means that either (i) the Company and the Employer agree or (ii) an independent consultant chosen by mutual agreement of the parties has determined, that Company’s network in a Market has been ***. In order to determine if there is a ***, the consultant shall apply reasonable criteria to determine that both (a) the *** imposes a *** to the Employer's ability to add new clients in the market; and (b) the |
addition of a new vendor *** the Employer's *** in adding new clients in the market. All fees and expenses of any such consultant shall be paid by the Employer.
ARTICLE II
Section 2.1: Section 11 - Termination of Agreement is amended by amending and restating Section (b) as follows: (b) In the event that either party reasonably believes that any State or other jurisdiction may impose a *** on it for proceeding with its performance under the Agreement, or that a State or jurisdiction will enforce a regulation or statute that will result in either a material reduction in Employer’s ability to market its full suite of services to its existing and potential clients or Company’s ability to market its insurance products in the State or jurisdiction, such party will promptly advise the other party of such belief and the basis therefore. In such event, the parties agree to cooperate in good faith to resolve such matter to the satisfaction of both parties. After a good faith effort by the parties to eliminate the risk of *** or the material reduction of Employer’s ability to market its full suite of services to its existing and potential clients or Company’s ability to market its insurance products in the State or jurisdiction, if the matter is not resolved to the satisfaction of both parties, (a) the party upon which such *** may be imposed may immediately discontinue the Agreement's application in such State or jurisdiction by providing notice to that effect to the other party, except that the effective date of the termination may be extended to the latest date the Agreement can remain in effect before triggering the ***, or later if adequate indemnification is provided by the other party, or, (b) in the case of a material reduction of Employer’s ability to market its full suite of services to its existing and potential clients, or Company’s ability to market its insurance products in the State or jurisdiction, the Agreement's application in such State or jurisdiction will be effective *** following notice to the other party. In the event of termination, the Agreement will continue to apply in all other States or jurisdictions, except that if it is a Federal law at issue the Agreement will discontinue in its entirety. Furthermore, in the event of termination of this Agreement, Employer agrees that it will deliver written notice to Company of termination of the Policy issued to Employer as of the effective date of the termination of this Agreement.
ARTICLE III
COOPERATION
Section 3.1 Cooperation. The Parties agree to execute such further documents and to take such further actions as may be necessary to implement and carry out the terms and conditions of this Amendment.
Section 3.2 Publicity. The parties acknowledge and agree that the terms and conditions of this Amendment, and the Letter of Agreement dated October 22, 2012, including the existence thereof, are subject to the provisions of section 5(e) of the Agreement.
Article IV
EFFECTIVE DATE OF AMENDMENT AND EXTENSION OF AGREEMENT
Section 4.1 Effective Date. This Amendment shall be effective as of January 1, 2013, unless otherwise stated herein and the Employer and Company agree to extend the existing Administrative Services Agreement for an additional two years (2014 and 2015).
The balance of this page intentionally is left blank. The signature page follows.]
IN WITNESS WHEREOF, the parties have caused this Amendment to the Administrative Services Agreement to be executed as of the date set forth in the preamble.
INSPERITY HOLDINGS, INC. UNITED HEALTHCARE INSURANCE COMPANY
By: /s/ Richard G. Rawson By: /s/ Anthony R. Carr
Authorized Signature Authorized Signature
Name Richard G. Rawson Name Anthony R. Carr
Title President Title National Vice President
Date August 18, 2014 Date August 28, 2014
Exhibit 31.1
CERTIFICATION
I, Paul J. Sarvadi, certify that:
|
| | |
| 1. | I have reviewed this quarterly report on Form 10-Q of Insperity, Inc.; |
|
| | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
| | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
| | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
| | |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
| | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
|
| | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
| | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
| | |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
| | |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
| | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
| |
Date: November 3, 2014 | |
| |
| /s/ Paul J. Sarvadi |
| Paul J. Sarvadi |
| Chairman of the Board and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Douglas S. Sharp, certify that:
|
| | |
| 1. | I have reviewed this quarterly report on Form 10-Q of Insperity, Inc.; |
|
| | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
| | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
| | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
| | |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
| | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
|
| | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
| | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
| | |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
| | |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
| | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
| |
Date: November 3, 2014 | |
| |
| /s/ Douglas S. Sharp |
| Douglas S. Sharp |
| Senior Vice President of Finance, Chief Financial Officer and Treasurer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Insperity, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2014, (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Paul J. Sarvadi, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
|
| | |
| 1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
| | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
| |
/s/ Paul J. Sarvadi | |
Paul J. Sarvadi |
Chairman of the Board and Chief Executive Officer |
November 3, 2014 |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Insperity, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2014, (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Douglas S. Sharp, Senior Vice President of Finance, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
|
| | |
| 1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
| | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
| |
/s/ Douglas S. Sharp | |
Douglas S. Sharp |
Senior Vice President of Finance, |
Chief Financial Officer and Treasurer |
November 3, 2014 |
Insperity (NYSE:NSP)
Historical Stock Chart
From Mar 2024 to Apr 2024
Insperity (NYSE:NSP)
Historical Stock Chart
From Apr 2023 to Apr 2024