CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
(in millions, except share and per share data)
|
|
2019
|
|
2018
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
219
|
|
|
$
|
228
|
|
Investments
|
|
76
|
|
|
54
|
|
Restricted cash, cash equivalents and investments
|
|
672
|
|
|
942
|
|
Accounts receivable, net
|
|
10
|
|
|
11
|
|
Unbilled revenue, net
|
|
341
|
|
|
304
|
|
Prepaid expenses, net
|
|
64
|
|
|
48
|
|
Other current assets
|
|
73
|
|
|
59
|
|
Total current assets
|
|
1,455
|
|
|
1,646
|
|
Restricted cash, cash equivalents and investments, noncurrent
|
|
200
|
|
|
187
|
|
Investments, noncurrent
|
|
117
|
|
|
135
|
|
Property & equipment, net
|
|
89
|
|
|
79
|
|
Operating lease right-of-use asset
|
|
60
|
|
|
—
|
|
Goodwill
|
|
289
|
|
|
289
|
|
Other intangible assets, net
|
|
18
|
|
|
21
|
|
Other assets
|
|
90
|
|
|
78
|
|
Total assets
|
|
$
|
2,318
|
|
|
$
|
2,435
|
|
Liabilities and stockholders' equity
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable and other current liabilities
|
|
$
|
40
|
|
|
$
|
45
|
|
Long-term debt
|
|
22
|
|
|
22
|
|
Client deposits
|
|
67
|
|
|
56
|
|
Accrued wages
|
|
377
|
|
|
352
|
|
Accrued health insurance costs, net
|
|
143
|
|
|
135
|
|
Accrued workers' compensation costs, net
|
|
64
|
|
|
67
|
|
Payroll tax liabilities and other payroll withholdings
|
|
473
|
|
|
729
|
|
Operating lease liabilities
|
|
17
|
|
|
—
|
|
Insurance premiums and other payables
|
|
16
|
|
|
19
|
|
Total current liabilities
|
|
1,219
|
|
|
1,425
|
|
Long-term debt, noncurrent
|
|
380
|
|
|
391
|
|
Accrued workers' compensation costs, noncurrent, net
|
|
148
|
|
|
158
|
|
Deferred taxes
|
|
67
|
|
|
68
|
|
Operating lease liabilities, noncurrent
|
|
55
|
|
|
—
|
|
Other non-current liabilities
|
|
10
|
|
|
18
|
|
Total liabilities
|
|
1,879
|
|
|
2,060
|
|
Commitments and contingencies (see Note 6)
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
Preferred stock
|
|
—
|
|
|
—
|
|
($0.000025 par value per share; 20,000,000 shares authorized; no shares issued or outstanding at June 30, 2019 and December 31, 2018)
|
|
|
|
|
Common stock and additional paid-in capital
|
|
667
|
|
|
641
|
|
($0.000025 par value per share; 750,000,000 shares authorized; 69,991,145 and 70,596,559 shares issued and outstanding at June 30, 2019 and December 31, 2018)
|
|
|
|
|
Accumulated deficit
|
|
(229
|
)
|
|
(266
|
)
|
Accumulated other comprehensive income
|
|
1
|
|
|
—
|
|
Total stockholders' equity
|
|
439
|
|
|
375
|
|
Total liabilities & stockholders' equity
|
|
$
|
2,318
|
|
|
$
|
2,435
|
|
See accompanying notes.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
(in millions, except share and per share data)
|
2019
|
2018
|
2019
|
2018
|
Professional service revenues
|
$
|
127
|
|
$
|
115
|
|
$
|
263
|
|
$
|
244
|
|
Insurance service revenues
|
808
|
|
735
|
|
1,606
|
|
1,467
|
|
Total revenues
|
935
|
|
850
|
|
1,869
|
|
1,711
|
|
Insurance costs
|
704
|
|
630
|
|
1,387
|
|
1,271
|
|
Cost of providing services
|
63
|
|
51
|
|
127
|
|
108
|
|
Sales and marketing
|
52
|
|
41
|
|
98
|
|
80
|
|
General and administrative
|
36
|
|
31
|
|
72
|
|
62
|
|
Systems development and programming
|
13
|
|
11
|
|
25
|
|
24
|
|
Depreciation and amortization of intangible assets
|
12
|
|
10
|
|
23
|
|
19
|
|
Total costs and operating expenses
|
880
|
|
774
|
|
1,732
|
|
1,564
|
|
Operating income
|
55
|
|
76
|
|
137
|
|
147
|
|
Other income (expense):
|
|
|
|
|
Interest expense, bank fees and other
|
(6
|
)
|
(7
|
)
|
(11
|
)
|
(13
|
)
|
Interest income
|
7
|
|
3
|
|
13
|
|
5
|
|
Income before provision for income taxes
|
56
|
|
72
|
|
139
|
|
139
|
|
Income tax expense
|
10
|
|
14
|
|
30
|
|
27
|
|
Net income
|
$
|
46
|
|
$
|
58
|
|
$
|
109
|
|
$
|
112
|
|
Other comprehensive income, net of tax
|
1
|
|
1
|
|
1
|
|
—
|
|
Comprehensive income
|
$
|
47
|
|
$
|
59
|
|
$
|
110
|
|
$
|
112
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
Basic
|
$
|
0.65
|
|
$
|
0.82
|
|
$
|
1.56
|
|
$
|
1.59
|
|
Diluted
|
$
|
0.64
|
|
$
|
0.80
|
|
$
|
1.53
|
|
$
|
1.55
|
|
Weighted average shares:
|
|
|
|
|
Basic
|
69,703,792
|
|
70,448,809
|
|
69,806,319
|
|
70,250,273
|
|
Diluted
|
71,074,751
|
|
72,561,891
|
|
71,151,219
|
|
72,404,539
|
|
See accompanying notes.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
2018
|
2019
|
2018
|
Total Stockholders' Equity, beginning balance
|
$
|
406
|
|
$
|
262
|
|
|
$
|
375
|
|
$
|
206
|
|
Common Stock and Additional Paid-In Capital
|
|
|
|
|
|
Beginning balance
|
651
|
|
595
|
|
|
641
|
|
583
|
|
Issuance of common stock from exercise of stock options
|
1
|
|
3
|
|
|
2
|
|
6
|
|
Issuance of common stock for employee stock purchase plan
|
4
|
|
3
|
|
|
4
|
|
3
|
|
Stock-based compensation expense
|
11
|
|
10
|
|
|
20
|
|
19
|
|
Ending balance
|
667
|
|
611
|
|
|
667
|
|
611
|
|
|
|
|
|
|
|
Accumulated Deficit
|
|
|
|
|
|
Beginning balance
|
(245
|
)
|
(332
|
)
|
|
(266
|
)
|
(377
|
)
|
Net income
|
46
|
|
58
|
|
|
109
|
|
112
|
|
Cumulative effect of accounting change
|
—
|
|
—
|
|
|
—
|
|
3
|
|
Repurchase of common stock
|
(24
|
)
|
(22
|
)
|
|
(62
|
)
|
(30
|
)
|
Awards effectively repurchased for required employee withholding taxes
|
(6
|
)
|
(6
|
)
|
|
(10
|
)
|
(10
|
)
|
Ending balance
|
(229
|
)
|
(302
|
)
|
|
(229
|
)
|
(302
|
)
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
|
|
|
Beginning balance
|
—
|
|
(1
|
)
|
|
—
|
|
—
|
|
Other comprehensive income
|
1
|
|
1
|
|
|
1
|
|
—
|
|
Ending balance
|
1
|
|
—
|
|
|
1
|
|
—
|
|
Total Stockholders' Equity, ending balance
|
$
|
439
|
|
$
|
309
|
|
|
$
|
439
|
|
$
|
309
|
|
See accompanying notes.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(in millions)
|
2019
|
2018
|
Operating activities
|
|
|
Net income
|
109
|
|
112
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
Depreciation and amortization
|
27
|
|
24
|
|
Noncash lease expense
|
10
|
|
—
|
|
Stock-based compensation
|
20
|
|
19
|
|
Changes in operating assets and liabilities:
|
|
|
Accounts receivable
|
3
|
|
11
|
|
Unbilled revenue
|
(36
|
)
|
35
|
|
Prepaid expenses
|
(18
|
)
|
(9
|
)
|
Other assets
|
(30
|
)
|
(45
|
)
|
Accounts payable and other current liabilities
|
(11
|
)
|
(28
|
)
|
Client deposits
|
10
|
|
(24
|
)
|
Accrued wages
|
25
|
|
(28
|
)
|
Accrued health insurance costs
|
9
|
|
(13
|
)
|
Accrued workers' compensation costs
|
(13
|
)
|
(8
|
)
|
Payroll taxes payable and other payroll withholdings
|
(256
|
)
|
(588
|
)
|
Operating lease liabilities
|
(9
|
)
|
—
|
|
Other liabilities
|
(2
|
)
|
(1
|
)
|
Net cash used in operating activities
|
(162
|
)
|
(543
|
)
|
Investing activities
|
|
|
Purchases of marketable securities
|
(65
|
)
|
(203
|
)
|
Proceeds from sale and maturity of marketable securities
|
65
|
|
63
|
|
Acquisitions of property and equipment
|
(25
|
)
|
(26
|
)
|
Net cash used in investing activities
|
(25
|
)
|
(166
|
)
|
Financing activities
|
|
|
Repurchase of common stock
|
(62
|
)
|
(30
|
)
|
Proceeds from issuance of common stock from employee stock purchase plan
|
4
|
|
3
|
|
Proceeds from issuance of common stock from exercised options
|
2
|
|
5
|
|
Awards effectively repurchased for required employee withholding taxes
|
(10
|
)
|
(10
|
)
|
Proceeds from issuance of notes payable, net
|
—
|
|
210
|
|
Payments for extinguishment of debt
|
—
|
|
(204
|
)
|
Repayment of debt
|
(11
|
)
|
(10
|
)
|
Net cash used in financing activities
|
(77
|
)
|
(36
|
)
|
Net decrease in unrestricted and restricted cash and cash equivalents
|
(264
|
)
|
(745
|
)
|
Cash and cash equivalents, unrestricted and restricted:
|
|
|
Beginning of period
|
1,349
|
|
1,738
|
|
End of period
|
1,085
|
|
993
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
Interest paid
|
9
|
|
8
|
|
Income taxes paid, net
|
33
|
|
24
|
|
Supplemental schedule of noncash investing and financing activities
|
|
|
Payable for purchase of property and equipment
|
8
|
|
2
|
|
See accompanying notes.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
TriNet Group, Inc. (TriNet, or the Company, we, our and us), a professional employer organization, provides comprehensive human resources solutions for small to midsize businesses under a co-employment model. These HR solutions include multi-state payroll processing and tax administration, employee benefits programs, including health insurance and retirement plans, workers' compensation insurance and claims management, employment and benefit law compliance, and other HR-related services. Through the co-employment relationship, we are the employer of record for certain employment-related administrative and regulatory purposes for the worksite employees, including:
|
|
•
|
compensation through wages and salaries,
|
|
|
•
|
employer payroll-related tax payments,
|
|
|
•
|
employee payroll-related tax withholdings and payments,
|
|
|
•
|
employee benefit programs, including health and life insurance, and others, and
|
|
|
•
|
workers' compensation coverage.
|
Our clients are responsible for the day-to-day job responsibilities of the WSEs.
We operate in
one
reportable segment. All of our service revenues are generated from external clients. Less than
1%
of our revenue is generated outside of the U.S.
Basis of Presentation
These unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Rules and Regulations of the Securities and Exchange Commission. Certain information and note disclosures included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, that are normal and recurring in nature, necessary for fair financial statement presentation. The results of operations for the
three and six
months ended
June 30, 2019
are not necessarily indicative of the operating results anticipated for the full year. These Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in Part II, Item 8 Financial Statements and Supplementary Data of our Annual Report on Form 10-K for the year ended
December 31, 2018
(
2018
Form 10-K).
Reclassifications
Certain prior year amounts have been reclassified to conform to current period presentation. Effects on the cash flow statement due to reclassifications are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
(in millions)
|
As previously reported
|
Reclassified amounts
|
As revised
|
Operating activities
|
|
|
|
Accounts receivable
|
$
|
—
|
|
$
|
11
|
|
$
|
11
|
|
Unbilled revenue
|
—
|
|
35
|
|
35
|
|
Prepaid income taxes
|
2
|
|
(2
|
)
|
—
|
|
Prepaid expenses and other current assets
|
(23
|
)
|
23
|
|
—
|
|
Prepaid expenses
|
—
|
|
(9
|
)
|
(9
|
)
|
Workers' compensation collateral receivable
|
(6
|
)
|
6
|
|
—
|
|
Accounts payable and other current liabilities
|
(14
|
)
|
(14
|
)
|
(28
|
)
|
Client deposits
|
—
|
|
(24
|
)
|
(24
|
)
|
Accrued wages
|
—
|
|
(28
|
)
|
(28
|
)
|
Accrued corporate wages
|
(5
|
)
|
5
|
|
—
|
|
Accrued health insurance costs
|
—
|
|
(13
|
)
|
(13
|
)
|
Accrued workers' compensation costs
|
—
|
|
(8
|
)
|
(8
|
)
|
Workers' compensation loss reserves and other non-current liabilities
|
(4
|
)
|
4
|
|
—
|
|
Payroll taxes payable and other payroll withholdings
|
—
|
|
(588
|
)
|
(588
|
)
|
Worksite employee related assets
|
4
|
|
(4
|
)
|
—
|
|
Worksite employee related liabilities
|
(652
|
)
|
652
|
|
—
|
|
Other assets
|
—
|
|
(45
|
)
|
(45
|
)
|
Other liabilities
|
—
|
|
(1
|
)
|
(1
|
)
|
Effects on the consolidated statements of income and comprehensive income due to reclassifications are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Six months ended
|
|
June 30, 2018
|
June 30, 2018
|
(in millions)
|
As previously reported
|
Reclassified amounts
|
As revised
|
As previously reported
|
Reclassified amounts
|
As revised
|
Depreciation
|
$
|
8
|
|
$
|
(8
|
)
|
$
|
—
|
|
$
|
16
|
|
$
|
(16
|
)
|
$
|
—
|
|
Amortization of intangible assets
|
2
|
|
(2
|
)
|
—
|
|
3
|
|
(3
|
)
|
—
|
|
Depreciation and amortization of intangible assets
|
—
|
|
10
|
|
10
|
|
—
|
|
19
|
|
19
|
|
Interest expense, bank fees and other, net
|
(4
|
)
|
4
|
|
—
|
|
(8
|
)
|
8
|
|
—
|
|
Interest expense, bank fees and other
|
—
|
|
(7
|
)
|
(7
|
)
|
—
|
|
(13
|
)
|
(13
|
)
|
Interest income
|
—
|
|
3
|
|
3
|
|
—
|
|
5
|
|
5
|
|
Other comprehensive income, net of tax
|
—
|
|
1
|
|
1
|
|
—
|
|
—
|
|
—
|
|
Comprehensive income
|
58
|
|
1
|
|
59
|
|
112
|
|
—
|
|
112
|
|
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect certain reported amounts and related disclosures. Significant estimates include:
|
|
•
|
liability for unpaid losses and loss adjustment expenses (accrued workers' compensation costs) related to workers' compensation and workers' compensation collateral receivable,
|
|
|
•
|
accrued health insurance costs,
|
|
|
•
|
liability for insurance premiums payable,
|
|
|
•
|
valuation of the investment portfolio,
|
|
|
•
|
impairments of goodwill and other intangible assets,
|
|
|
•
|
income tax assets and liabilities, and
|
|
|
•
|
liability for legal contingencies.
|
These estimates are based on historical experience and on various other assumptions that we believe to be reasonable from the facts available to us. Some of the assumptions are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our consolidated financial statements could be materially affected.
Accrued Health Insurance Costs
We sponsor and administer a number of fully insured, risk-based employee benefit plans, including group health, dental, and vision as an employer plan sponsor under section 3(5) of the ERISA. In the
six months ended
June 30, 2019
, the majority of our group health insurance costs related to risk-based plans. Our remaining group health insurance costs were for guaranteed-cost policies.
Accrued health insurance costs are established to provide for the estimated unpaid costs of reimbursing the carriers for paying claims within the deductible layer in accordance with risk-based health insurance policies. These accrued costs include estimates for reported losses, plus estimates for claims incurred but not paid. We assess accrued health insurance costs regularly based upon independent actuarial studies that include other relevant factors such as current and historical claims payment patterns, plan enrollment and medical trend rates.
In certain carrier contracts we are required to prepay the expected claims activity for subsequent periods. These prepaid balances by agreement permit net settlement of obligations and offset the accrued health insurance costs. As of
June 30, 2019
and
December 31, 2018
, prepayments included in accrued health insurance costs were
$39 million
and
$33 million
, respectively. When the prepaid is in excess of our recorded liability, the net asset position is included in prepaid expenses. As of
June 30, 2019
and
December 31, 2018
, accrued health insurance costs included in prepaid expenses were
$51 million
and
$50 million
, respectively.
Derivative Instruments
In June 2019, we entered into a interest rate collar derivative transaction with no upfront premium to mitigate the risk of changes in interest rates on our floating rate debt. This derivative, for which we have elected and qualify for cash flow hedge accounting, is recorded on the balance sheet at its fair value. Changes in the derivative’s fair value are recorded each period in other comprehensive income until the underlying monthly interest payment and the corresponding portion of the derivative are settled, at which point changes in fair value are recorded in net income. We evaluate this derivative each quarter to determine that it remains effective by comparing the remaining cash flows of the derivative against the related interest payments of our floating rate debt. We do not enter into any derivatives for trading or other speculative purposes.
Leases
We adopted ASU 2016-02 - Leases (ASC 842) effective January 1, 2019 using the optional transition method, under which we recognized the cumulative effects of initially applying the standard as an adjustment to the opening balance of retained earnings on January 1, 2019 with unchanged comparative periods. As part of this adoption, we elected the following practical expedients:
|
|
•
|
not to reassess 1) whether any contracts that existed prior to adoption have or contain leases, 2) the classification of our existing leases or 3) initial direct costs for existing leases,
|
|
|
•
|
to use the practical expedient of using hindsight to determine the lease terms and evaluate any impairments in right-of-use assets upon transition, and
|
|
|
•
|
not separately record non-lease and lease components for all leases in which we act as a lessee.
|
We determine if a new contractual arrangement is a lease at contract inception. If a contract contains a lease, we evaluate whether it should be classified as an operating or a finance lease. If applicable as a lease, we record our lease liabilities and ROU assets based on the future minimum lease payments over the lease term and only include options to renew a lease in the minimum lease payments if it is reasonably certain that we will exercise that option. For certain leases with original terms of twelve months or less we recognize the lease expense as incurred and we do not recognize lease liabilities and ROU assets.
We measure our lease liabilities based on the future minimum lease payments discounted over the lease term. We determine our discount rate at lease inception using our incremental borrowing rate, which is based on our outstanding term debts that are collateralized by certain corporate assets.
As of
June 30, 2019
, the weighted-average rate used in discounting the lease liability was
4.6%
.
We measure our ROU assets based on the associated lease liabilities adjusted for any lease incentives such as tenant improvement allowances and classify operating ROU assets in other assets in our condensed consolidated balance sheet. For operating leases, we recognize expense for lease payments on a straight-line basis over the lease term.
Recent Accounting Pronouncements
Recently adopted accounting guidance
Leases -
In February of 2016, the FASB issued ASC 842, which replaced existing lease guidance under GAAP. Under this guidance, we recognize on our condensed balance sheet lease liabilities representing the present value of future lease payments and an associated right-of-use asset representing our right to use or control the use of specified assets for the lease term for any operating lease with a term greater than one year.
The impact of our adoption of ASC 842 did not have a material impact on our income statement or cash flow statement. The impact on our condensed balance sheets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
(in millions)
|
|
As reported
|
|
Balance Using Previous Standard
|
|
Increase (Decrease)
|
Balance sheet
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
60
|
|
|
$
|
—
|
|
|
$
|
60
|
|
Liabilities
|
|
|
|
|
|
|
Operating lease liabilities
|
|
17
|
|
|
—
|
|
|
17
|
|
Operating lease liabilities, noncurrent
|
|
55
|
|
|
11
|
|
|
44
|
|
Equity
|
|
|
|
|
|
|
Accumulated deficit
|
|
(229
|
)
|
|
—
|
|
|
(229
|
)
|
Recently issued accounting pronouncements
Credit Losses -
In June 2016, the FASB issued ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326), which requires financial assets to be presented at the net amount expected to be collected. We will be required to use forward-looking information when evaluating an allowance for our accounts receivable, unbilled revenue and other financial assets measured at amortized cost. Topic 326 also modifies the impairment guidance for available-for-sale debt securities to require an allowance for credit losses. We will adopt Topic 326 effective January 1, 2020 using a modified retrospective approach through a cumulative-effect adjustment to retained earnings. We are currently evaluating the impact of this standard on our consolidated financial statements, including accounting policies, processes and systems.
NOTE 2. CASH, CASH EQUIVALENTS AND INVESTMENTS
Under the terms of the agreements with certain of our workers' compensation and health benefit insurance carriers, we are required to maintain collateral in trust accounts for the benefit of specified insurance carriers and to reimburse the carriers’ claim payments within our deductible layer. We invest a portion of the collateral amounts in marketable securities. We report the current and noncurrent portions of these trust accounts as restricted cash, cash equivalents and investments on the consolidated balance sheets.
We require our clients to prefund their payroll and related taxes and other withholding liabilities before payroll is processed or due for payment. This prefund is included in restricted cash, cash equivalents and investments as payroll funds collected, which is designated to pay pending payrolls, payroll tax liabilities and other payroll withholdings.
We also invest available corporate funds, primarily in fixed income securities which meet the requirements of our corporate investment policy and are classified as available for sale (AFS).
Our total cash, cash equivalents and investments are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
December 31, 2018
|
(in millions)
|
Cash and cash equivalents
|
Available-for-sale marketable securities
|
Total
|
Cash and cash equivalents
|
Available-for-sale marketable securities
|
Certificate
of
deposits
|
Total
|
Cash and cash equivalents
|
$
|
219
|
|
$
|
—
|
|
$
|
219
|
|
$
|
228
|
|
$
|
—
|
|
$
|
—
|
|
$
|
228
|
|
Investments
|
—
|
|
76
|
|
76
|
|
—
|
|
54
|
|
—
|
|
54
|
|
Restricted cash, cash equivalents and investments
|
|
|
|
|
|
|
|
|
|
Insurance carriers' security deposits
|
14
|
|
—
|
|
14
|
|
15
|
|
—
|
|
—
|
|
15
|
|
Payroll funds collected
|
519
|
|
—
|
|
519
|
|
783
|
|
—
|
|
—
|
|
783
|
|
Collateral for health benefits claims
|
75
|
|
—
|
|
75
|
|
75
|
|
—
|
|
—
|
|
75
|
|
Collateral for workers' compensation claims
|
63
|
|
1
|
|
64
|
|
66
|
|
1
|
|
—
|
|
67
|
|
Collateral to secure standby letter of credit
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2
|
|
2
|
|
Total restricted cash, cash equivalents and investments
|
671
|
|
1
|
|
672
|
|
939
|
|
1
|
|
2
|
|
942
|
|
Investments, noncurrent
|
—
|
|
117
|
|
117
|
|
—
|
|
135
|
|
—
|
|
135
|
|
Restricted cash, cash equivalents and investments, noncurrent
|
|
|
|
|
|
|
|
|
|
Collateral for workers' compensation claims
|
195
|
|
5
|
|
200
|
|
182
|
|
5
|
|
—
|
|
187
|
|
Total
|
$
|
1,085
|
|
$
|
199
|
|
$
|
1,284
|
|
$
|
1,349
|
|
$
|
195
|
|
$
|
2
|
|
$
|
1,546
|
|
NOTE 3. INVESTMENTS
All of our investment securities that have a contractual maturity date greater than three months are classified as AFS. The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of our investments as of
June 30, 2019
and
December 31, 2018
are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
December 31, 2018
|
(in millions)
|
Amortized Cost
|
Gross Unrealized Gains
|
Gross Unrealized Losses
|
Fair Value
|
Amortized Cost
|
Gross Unrealized Gains
|
Gross Unrealized Losses
|
Fair Value
|
Asset-backed securities
|
$
|
35
|
|
$
|
—
|
|
$
|
—
|
|
$
|
35
|
|
$
|
33
|
|
$
|
—
|
|
$
|
—
|
|
$
|
33
|
|
Corporate bonds
|
94
|
|
1
|
|
—
|
|
95
|
|
99
|
|
—
|
|
—
|
|
99
|
|
U.S. government agencies and government-
sponsored agencies
|
5
|
|
—
|
|
—
|
|
5
|
|
7
|
|
—
|
|
—
|
|
7
|
|
U.S. treasuries
|
58
|
|
1
|
|
—
|
|
59
|
|
46
|
|
—
|
|
—
|
|
46
|
|
Exchange traded fund
|
1
|
|
—
|
|
—
|
|
1
|
|
1
|
|
—
|
|
—
|
|
1
|
|
Other debt securities
|
4
|
|
—
|
|
—
|
|
4
|
|
9
|
|
—
|
|
—
|
|
9
|
|
Total
|
$
|
197
|
|
$
|
2
|
|
$
|
—
|
|
$
|
199
|
|
$
|
195
|
|
$
|
—
|
|
$
|
—
|
|
$
|
195
|
|
Gross unrealized losses as of
June 30, 2019
and
December 31, 2018
were not material.
Unrealized losses on fixed income securities are principally caused by changes in interest rates and the financial condition of the issuer. In analyzing an issuer's financial condition, we consider whether the securities are issued by the federal government or its agencies, whether downgrades by credit rating agencies have occurred, and industry analysts' reports. As we have the ability to hold these investments until maturity, or for the foreseeable future, no decline was deemed to be other-than-temporary. Actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.
The fair value of debt investments by contractual maturity are shown below:
|
|
|
|
|
|
|
(in millions)
|
|
June 30, 2019
|
|
One year or less
|
|
$
|
81
|
|
|
Over one year through five years
|
|
103
|
|
|
Over five years through ten years
|
|
7
|
|
|
Over ten years
|
|
7
|
|
|
Total fair value
|
|
$
|
198
|
|
|
The gross proceeds from sales and maturities of AFS securities for the
three and six
months ended
June 30, 2019
and
June 30, 2018
are presented below. We had immaterial realized gains and losses from sales of investments for the
three and six
months ended
June 30, 2019
and
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
(in millions)
|
2019
|
2018
|
2019
|
2018
|
Gross proceeds from sales
|
$
|
14
|
|
$
|
—
|
|
$
|
28
|
|
$
|
39
|
|
Gross proceeds from maturities
|
19
|
|
10
|
|
36
|
|
24
|
|
NOTE 4. LEASES
Our leasing activities predominantly consist of leasing office space that we occupy, which we have classified as operating leases. Our leases are comprised of fixed payments with remaining lease terms of
1
to
9.3 years
, some of which include options to extend for up to
15 years
. As of
June 30, 2019
, we have not included any options to extend or cancel in the calculation of our lease liability or ROU asset. We do not have any significant residual value guarantees or restrictive covenants in our leases.
During the
second
quarter of 2019, we recognized operating lease expense of
$5 million
and we recognized
$10 million
during the
first half of
2019
.
During the
second
quarter of 2019, we paid
$4 million
to reduce operating lease liabilities and
$8 million
during the
first half of
2019
. During the
second
quarter of 2019, we recognized
$5 million
in new operating lease liabilities in exchange for ROU assets and we recognized
$17 million
during the
first half of
2019
.
As of
June 30, 2019
, the weighted average remaining lease term on our operating leases was
6.2 years
. Future minimum lease payments as of
June 30, 2019
and
December 31, 2018
were as follows:
|
|
|
|
|
|
|
|
(in millions)
|
June 30, 2019
(2)
|
December 31, 2018
(3)
|
2019
(1)
|
$
|
10
|
|
$
|
18
|
|
2020
|
18
|
|
17
|
|
2021
|
11
|
|
11
|
|
2022
|
10
|
|
9
|
|
2023
|
9
|
|
8
|
|
2024
|
6
|
|
5
|
|
2025 and thereafter
|
19
|
|
20
|
|
Total future minimum lease payments
|
$
|
83
|
|
$
|
88
|
|
Less: imputed interest
|
(11
|
)
|
N/A
(4)
|
|
Total operating lease liabilities
|
72
|
|
N/A
(4)
|
|
Current portion
|
17
|
|
N/A
(4)
|
|
Non-current portion
|
55
|
|
N/A
(4)
|
|
(1) The remaining payments as of
June 30, 2019
exclude those made during the
six months ended June 30, 2019
.
|
|
(2)
|
Presented in accordance with ASC 842, which excludes base payments of
$4 million
for leases that do not yet have a commencement date.
|
(3) Presented in accordance with ASC 840.
(4) N/A - Not Applicable under ASC 840.
As of
June 30, 2019
, we have entered into
two
leases that have not commenced for terms up to
5 years
. Those leases will require minimum lease payments over their terms of
$4 million
.
NOTE 5. ACCRUED WORKERS' COMPENSATION COSTS
The following table summarizes the accrued workers’ compensation cost activity for the
three and six
months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
(in millions)
|
2019
|
2018
|
2019
|
2018
|
Total accrued costs, beginning of period
|
$
|
236
|
|
$
|
250
|
|
$
|
238
|
|
$
|
255
|
|
Incurred
|
|
|
|
|
Current year
|
16
|
|
19
|
|
35
|
|
39
|
|
Prior years
|
(11
|
)
|
(6
|
)
|
(16
|
)
|
(13
|
)
|
Total incurred
|
5
|
|
13
|
|
19
|
|
26
|
|
Paid
|
|
|
|
|
Current year
|
(2
|
)
|
(2
|
)
|
(3
|
)
|
(2
|
)
|
Prior years
|
(15
|
)
|
(17
|
)
|
(30
|
)
|
(35
|
)
|
Total paid
|
(17
|
)
|
(19
|
)
|
(33
|
)
|
(37
|
)
|
Total accrued costs, end of period
|
$
|
224
|
|
$
|
244
|
|
$
|
224
|
|
$
|
244
|
|
The following summarizes workers' compensation liabilities on the condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
(in millions)
|
June 30, 2019
|
December 31, 2018
|
Total accrued costs, end of period
|
$
|
224
|
|
$
|
238
|
|
Collateral paid to carriers and offset against accrued costs
|
(12
|
)
|
(13
|
)
|
Total accrued costs, net of carrier collateral offset
|
$
|
212
|
|
$
|
225
|
|
|
|
|
Payable in less than 1 year
(net of collateral paid to carriers of $3 at June 30, 2019 and December 31, 2018)
|
$
|
64
|
|
$
|
67
|
|
Payable in more than 1 year
(net of collateral paid to carriers of $9 and $10 at June 30, 2019 and December 31, 2018, respectively)
|
148
|
|
158
|
|
Total accrued costs, net of carrier collateral offset
|
$
|
212
|
|
$
|
225
|
|
Incurred claims related to prior years represent changes in estimates for ultimate losses on workers' compensation claims. For the
three and six
months ended
June 30, 2019
, the change was primarily due to a decrease in estimate of ultimate losses related to older plan years and the recognition of current year development of ultimate losses.
As of
June 30, 2019
and
December 31, 2018
, we had
$55 million
and
$57 million
, respectively, of collateral held by insurance carriers of which
$12 million
and
$13 million
, respectively, was offset against accrued workers' compensation costs as the agreements permit and are net settled against collateral held.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Contingencies
In August 2015, Howard Welgus, a purported stockholder, filed a putative securities class action lawsuit, Welgus v. TriNet Group, Inc., et. al., under the Securities Exchange Act of 1934 in the U.S. District Court for the Northern District of California. On December 18, 2017, the district court granted TriNet’s motion to dismiss the complaint, which had been amended in April 2016 and again in March 2017, in its entirety, without leave to amend. Plaintiff filed a notice of appeal of the district court’s order on January 17, 2018 and oral arguments were held before the Ninth Circuit Court of Appeals on March 14, 2019. On March 26, 2019, the Ninth Circuit Court of Appeals affirmed the district court’s dismissal of the amended complaint in its entirety. The deadline for Plaintiff-Appellant to petition the U.S. Supreme Court to review the decision by the Court of Appeals expired on June 24, 2019 and the litigation is therefore terminated.
We are and, from time to time, have been and may in the future become involved in various litigation matters, legal proceedings, and claims arising in the ordinary course of our business, including disputes with our clients or various class action, collective action, representative action, and other proceedings arising from the nature of our co-employment relationship with our clients and WSEs in which we are named as a defendant. In addition, due to the nature of our co-employment relationship with our clients and WSEs, we could be subject to liability for federal and state law violations, even if we do not participate in such violations. While our agreements with our clients contain indemnification provisions related to the conduct of our clients, we may not be able to avail ourselves of such provisions in every instance. We have accrued our current best estimates of probable losses with respect to these matters, which are individually and in aggregate immaterial to our consolidated financial statements.
While the outcome of the matters described above cannot be predicted with certainty, management currently does not believe that any such claims or proceedings will have a materially adverse effect on our consolidated financial position, results of operations, or cash flows. However, the unfavorable resolution of any particular matter or our reassessment of our exposure for any of the above matters based on additional information obtained in the future could have a material impact on our consolidated financial position, results of operations, or cash flows.
NOTE 7. STOCKHOLDERS’ EQUITY
Common Stock
The following table presents a rollforward of our common stock for the
three and six
months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
2018
|
2019
|
2018
|
Shares issued and outstanding, beginning balance
|
70,079,747
|
|
70,363,251
|
|
|
70,596,559
|
|
69,818,392
|
|
Issuance of common stock from vested restricted stock units
|
213,991
|
|
389,875
|
|
|
500,710
|
|
1,000,141
|
|
Issuance of common stock from exercise of stock options
|
58,491
|
|
263,464
|
|
|
139,773
|
|
469,894
|
|
Issuance of common stock for employee stock purchase plan
|
112,623
|
|
84,525
|
|
|
112,623
|
|
84,525
|
|
Repurchase of common stock
|
(392,700
|
)
|
(434,766
|
)
|
|
(1,175,609
|
)
|
(594,799
|
)
|
Awards effectively repurchased for required employee withholding taxes
|
(81,007
|
)
|
(92,462
|
)
|
|
(182,911
|
)
|
(204,266
|
)
|
Shares issued and outstanding, ending balance
|
69,991,145
|
|
70,573,887
|
|
|
69,991,145
|
|
70,573,887
|
|
Equity-Based Incentive Plans
Our 2019 Equity Incentive Plan (the 2019 Plan), approved in May 2019, replaced our 2009 Equity Incentive Plan and provides for the grants of options (both non-qualified and incentive stock options), stock appreciation rights, restricted stock, RSUs, performance awards (each as defined in the 2019 Plan) and other cash- and stock-based awards. Shares available for grant as of
June 30, 2019
were approximately
2,839,430
.
Restricted Stock Units (RSUs) and Restricted Stock Awards (RSAs)
Time-based RSUs and RSAs generally vest over a
four
-year term. Performance-based RSUs and RSAs are subject to vesting requirements based on certain financial performance metrics as defined in the grant notice. Actual number of shares earned may range from
0%
to
200%
of the target award. Awards granted in 2019 and 2018 are based on a single-year performance period subject to subsequent multi-year vesting with
50%
of the shares earned vesting in
one
year after the performance period and the remaining shares in the year after.
The following table summarizes RSU and RSA activity under our equity-based plans for the
six months ended June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
|
RSAs
|
|
Number of Units
|
Weighted-Average
Grant Date
Fair Value
|
Number of Units
|
Weighted-Average
Grant Date
Fair Value
|
Nonvested at December 31, 2018
|
1,737,554
|
|
$
|
32.83
|
|
346,792
|
|
$
|
49.13
|
|
Granted
|
724,172
|
|
60.58
|
|
—
|
|
—
|
|
Vested
|
(511,813
|
)
|
30.34
|
|
(31,248
|
)
|
50.61
|
|
Forfeited
|
(106,737
|
)
|
36.52
|
|
(11,103
|
)
|
49.35
|
|
Nonvested at June 30, 2019
|
1,843,176
|
|
$
|
44.18
|
|
304,441
|
|
$
|
49.11
|
|
Equity-Based Compensation
Stock-based compensation expense is measured based on the fair value of the stock award on the grant date and recognized over the requisite service period for each separately vesting portion of the stock award. Stock-based compensation expense and other disclosures for stock-based awards made to our employees pursuant to the equity plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in millions)
|
2019
|
2018
|
|
2019
|
2018
|
Cost of providing services
|
$
|
2
|
|
$
|
2
|
|
|
$
|
4
|
|
$
|
4
|
|
Sales and marketing
|
1
|
|
2
|
|
|
1
|
|
4
|
|
General and administrative
|
7
|
|
5
|
|
|
13
|
|
9
|
|
Systems development and programming costs
|
1
|
|
1
|
|
|
2
|
|
2
|
|
Total stock-based compensation expense
|
$
|
11
|
|
$
|
10
|
|
|
$
|
20
|
|
$
|
19
|
|
Stock Repurchases
In February 2019, our board of directors authorized a
$300 million
incremental increase to our ongoing stock repurchase program initiated in May 2014. During the
six months ended June 30, 2019
, we repurchased
1,175,609
shares of common stock for approximately
$62 million
. As of
June 30, 2019
, approximately
$313 million
remained available for further repurchases of our common stock under all authorizations from our board of directors under this program.
NOTE 8. INCOME TAXES
Our effective income tax rate was
17%
and
19%
for the second quarter of 2019 and
2018
, respectively, and
21%
and
19%
for the
six months ended June 30, 2019
and
2018
, respectively. The decrease when comparing the second quarter of 2019 with the same period in 2018, is primarily due to a one-time benefit associated with prior year tax expense. The increase in the year to date rates for 2019 when compared to the same period in 2018, consisted primarily from a decrease in tax benefits recognized from excess tax benefits related to stock-based compensation.
During the
six months ended June 30, 2019
, there was an increase of
$1 million
in our unrecognized tax benefits. The total amount of gross interest and penalties accrued was immaterial. It is reasonably possible the amount of the unrecognized benefit could increase or decrease within the next twelve months, which would have an impact on net income.
We are subject to tax in U.S. federal and various state and local jurisdictions, as well as Canada. We are not subject to any material income tax examinations in federal or state jurisdictions for tax years prior to January 1, 2012. We previously paid Notices of Proposed Assessments disallowing employment tax credits totaling
$11 million
, plus interest of
$4 million
in connection with the IRS examination of Gevity HR, Inc. and its subsidiaries, which was acquired by TriNet in June 2009. TriNet filed
suit in June 2016 to recover the disallowed credits, and the issue is being resolved through the litigation process.
TriNet and the U.S. filed cross motions for summary judgment in federal district court. On September 17, 2018, the federal district court granted TriNet's motion for summary judgment and denied the U.S.'s motion. On January 18, 2019, the federal district court entered judgment in favor of TriNet in the amount of
$15 million
, plus interest. The U.S. filed a notice of appeal of the federal district court's decision on March 18, 2019. The U.S. filed its opening brief in the court of appeals on June 10, 2019 and we filed our answering brief on July 24, 2019. We will continue to vigorously defend our position through the litigation process.
NOTE 9. EARNINGS PER SHAR
E (EPS)
The following table presents the computation of our basic and diluted EPS attributable to our common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
(in millions, except per share data)
|
2019
|
2018
|
2019
|
2018
|
Net income
|
$
|
46
|
|
$
|
58
|
|
$
|
109
|
|
$
|
112
|
|
Weighted average shares of common stock outstanding
|
70
|
|
70
|
|
70
|
|
70
|
|
Basic EPS
|
$
|
0.65
|
|
$
|
0.82
|
|
$
|
1.56
|
|
$
|
1.59
|
|
Net income
|
$
|
46
|
|
$
|
58
|
|
$
|
109
|
|
$
|
112
|
|
Weighted average shares of common stock outstanding
|
70
|
|
70
|
|
70
|
|
70
|
|
Dilutive effect of stock options and restricted stock units
|
1
|
|
3
|
|
1
|
|
2
|
|
Weighted average shares of common stock outstanding
|
71
|
|
73
|
|
71
|
|
72
|
|
Diluted EPS
|
$
|
0.64
|
|
$
|
0.80
|
|
$
|
1.53
|
|
$
|
1.55
|
|
|
|
|
|
|
Common stock equivalents excluded from income per diluted share because of their anti-dilutive effect
|
—
|
|
—
|
|
1
|
|
1
|
|
NOTE 10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Fair Value of Financial Instruments
We use an independent pricing source to determine the fair value of our AFS. The independent pricing source utilizes various pricing models for each asset class; including the market approach. The inputs and assumptions for the pricing models are market observable inputs including trades of comparable securities, dealer quotes, credit spreads, yield curves and other market-related data.
We have not adjusted the prices obtained from the independent pricing service and we believe the prices received from the independent pricing service are representative of the prices that would be received to sell the assets at the measurement date (exit price).
The carrying value of the Company's cash equivalents and restricted cash equivalents approximate their fair values due to their short-term maturities. The Company's restricted investments are valued using quoted market prices and multiple dealer quotes.
We did not have any Level 3 financial instruments recognized in our balance sheet as of
June 30, 2019
and
December 31, 2018
. There were no transfers between levels as of
June 30, 2019
and
December 31, 2018
.
Fair Value Measurements on a Recurring Basis
The following table summarizes our financial instruments by significant categories and fair value measurement on a recurring basis as of
June 30, 2019
and
December 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Level 1
|
Level 2
|
Total
|
June 30, 2019
|
|
|
|
Cash equivalents:
|
|
|
|
Money market mutual funds
|
$
|
89
|
|
$
|
—
|
|
89
|
|
Total cash equivalents
|
89
|
|
—
|
|
89
|
|
Investments:
|
|
|
|
Asset-backed securities
|
—
|
|
35
|
|
35
|
|
Corporate bonds
|
—
|
|
95
|
|
95
|
|
U.S. government agencies and government-sponsored agencies
|
—
|
|
5
|
|
5
|
|
U.S. treasuries
|
—
|
|
54
|
|
54
|
|
Other debt securities
|
—
|
|
4
|
|
4
|
|
Total investments
|
—
|
|
193
|
|
193
|
|
Restricted cash equivalents:
|
|
|
|
Money market mutual funds
|
43
|
|
—
|
|
43
|
|
Commercial paper
|
18
|
|
—
|
|
18
|
|
Total restricted cash equivalents
|
61
|
|
—
|
|
61
|
|
Restricted investments:
|
|
|
|
U.S. treasuries
|
—
|
|
5
|
|
5
|
|
Exchange traded fund
|
1
|
|
—
|
|
1
|
|
Certificate of deposit
|
—
|
|
—
|
|
—
|
|
Total restricted investments
|
1
|
|
5
|
|
6
|
|
Total unrestricted and restricted cash equivalents and investments
|
$
|
151
|
|
$
|
198
|
|
$
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Level 1
|
Level 2
|
Total
|
December 31, 2018
|
|
|
|
Cash equivalents
|
|
|
|
Money market mutual funds
|
$
|
4
|
|
$
|
—
|
|
$
|
4
|
|
U.S. treasuries
|
—
|
|
1
|
|
1
|
|
Total cash equivalents
|
4
|
|
1
|
|
5
|
|
Investments
|
|
|
|
Asset-backed securities
|
—
|
|
33
|
|
33
|
|
Corporate bonds
|
—
|
|
99
|
|
99
|
|
U.S. government agencies and government-sponsored agencies
|
—
|
|
7
|
|
7
|
|
U.S. treasuries
|
—
|
|
41
|
|
41
|
|
Other debt securities
|
—
|
|
9
|
|
9
|
|
Total investments
|
—
|
|
189
|
|
189
|
|
Restricted cash equivalents:
|
|
|
|
Money market mutual funds
|
48
|
|
—
|
|
48
|
|
Commercial paper
|
20
|
|
—
|
|
20
|
|
Total restricted cash equivalents
|
68
|
|
—
|
|
68
|
|
Restricted investments:
|
|
|
|
U.S. treasuries
|
—
|
|
5
|
|
5
|
|
Exchange traded fund
|
1
|
|
—
|
|
1
|
|
Certificate of deposit
|
—
|
|
2
|
|
2
|
|
Total restricted investments
|
1
|
|
7
|
|
8
|
|
Total unrestricted and restricted cash equivalents and investments
|
$
|
73
|
|
$
|
197
|
|
$
|
270
|
|
Fair Value of Financial Instruments Disclosure
Long-Term Debt
Our long-term debt is a floating rate debt and the fair value of our floating rate debt approximates its carrying value (exclusive of issuance costs) at
June 30, 2019
. The fair value of our floating rate debt is estimated based on a discounted cash flow, which incorporates credit spreads and market interest rates to estimate the fair value and is considered Level 3 in the hierarchy for fair value measurement.
Derivative Instruments
In June 2019, we entered into an interest rate collar derivative transaction with no upfront premium to mitigate the risk of changes in interest rates on the interest payments on a portion of our floating rate debt. If short-term interest rates increase, we will incur higher interest expense on any future outstanding balances of floating rate debt. We use this derivative as part of our interest rate risk management strategy and designated it as a cash flow hedge. If interest rates rise above the cap strike rate on the contract, we will receive variable-rate amounts and if interest rates fall below the floor strike rate on the contract, we will pay variable-rate amounts.
The following table summarizes the fair value of our derivative instruments at
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
Fair Market Value
|
(in millions)
|
Hedge type
|
Final settlement date
|
Notional amount
|
Other current assets
|
Accounts payable and other current liabilities
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
Collar - LIBOR
|
Cash flow
|
May 2022
|
$
|
213
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
The pre-tax effect of derivative instruments for the three and
six months ended June 30, 2019
is insignificant and we estimate that an insignificant amount of net derivative gains or losses included in other comprehensive income will be reclassified into earnings within the following 12 months. There were no cash flows associated with the derivative for the three months and six months ended
June 30, 2019
.
As of
June 30, 2019
, we do not hold, nor have we posted, any collateral related to the above derivative instrument.
The interest rate collar derivative is classified as Level 2 in the fair value hierarchy as its value is determined using observable inputs such as forward LIBOR curves.
Legal Proceedings
For the information required in this section, refer to Note 6 in the condensed consolidated financial statements and related notes included in this Form 10-Q.
Risk Factors
There have been no material changes in our risk factors disclosed in Part 1, Item 1A, of our
2018
Form 10-K.
Unregistered Sales of Equity Securities and Use of Proceeds
(a) Sales of Unregistered Securities
Not applicable.
(b) Use of Proceeds from Sales of Unregistered Securities
Not applicable.
(c) Issuer Purchases of Equity Securities
The following table provides information about our purchases of TriNet common stock during the quarter ended
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
Total Number of
Shares
Purchased
(1)
|
|
Weighted Average Price
Paid Per Share
|
|
Total Number of
Shares
Purchased as Part of Publicly
Announced Plans
(2)
|
|
Approximate Dollar Value ($ millions)
of Shares that May Yet be Purchased
Under the Plans
(2)
|
April 1- April 30, 2019
|
146,761
|
|
|
$
|
60.91
|
|
|
144,500
|
|
|
$
|
329
|
|
May 1 - May 31, 2019
|
238,763
|
|
|
$
|
62.08
|
|
|
161,200
|
|
|
$
|
319
|
|
June 1 - June 30, 2019
|
88,183
|
|
|
$
|
65.91
|
|
|
87,000
|
|
|
$
|
313
|
|
Total
|
473,707
|
|
|
|
|
|
392,700
|
|
|
|
(1) Includes shares surrendered by employees to us to satisfy tax withholding obligations that arose upon vesting of RSUs granted pursuant to approved plans.
(2) We repurchased a total of approximately
$25
million of our outstanding common stock during the period ended
June 30, 2019
.
As of
June 30, 2019
, we had approximately
$313 million
remaining for repurchases under our stock repurchase program. Stock repurchases under the program are primarily intended to offset the dilutive effect of share-based employee incentive compensation. The purchases were funded from existing cash and cash equivalents balances.
Our stock repurchases are subject to certain restrictions under the terms of our 2018 credit facility. For more information about our 2018 credit facility and our stock repurchases, refer to Notes 7 and 9 in Part II, Item 8. Financial Statements and Supplementary Data of our 2018 Form 10-K.
Defaults Upon Senior Securities
Not applicable.
Mine Safety Disclosures
Not applicable.
Other Information
Not applicable.
Exhibits
Incorporated herein by reference is a list of the exhibits contained in the Exhibit Index below.