10-Q

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 June 30, 2013.

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 July 25, 2013, 25,611,985 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

	TABLE OF CONTENTS
	Part I
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25
Item 4.	Controls and Procedures	25
Part II
Item 1.	Legal Proceedings	26
Item 1a.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 6.	Exhibits	28

PART I

ITEM 1.  FINANCIAL STATEMENTS

INSPERITY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

ASSETS

	June 30, 2013			December 31, 2012
	(Unaudited)
Current assets:
Cash and cash equivalents	$	178,493		$	264,544
Restricted cash	47,467			47,149
Marketable securities	52,686			16,904
Accounts receivable, net:
Trade	2,743			6,931
Unbilled	194,985			181,040
Other	2,676			2,415
Prepaid insurance	17,742			15,620
Other current assets	9,384			9,651
Deferred income taxes	4,125			7,211
Total current assets	510,301			551,465
Property and equipment:
Land	4,115			4,115
Buildings and improvements	68,695			68,583
Computer hardware and software	84,102			81,140
Software development costs	37,184			35,866
Furniture and fixtures	36,828			36,717
Aircraft	35,879			35,879
	266,803			262,300
Accumulated depreciation and amortization	(175,593		)	(168,358		)
Total property and equipment, net	91,210			93,942
Other assets:
Prepaid health insurance	9,000			9,000
Deposits – health insurance	3,000			3,000
Deposits – workers’ compensation	69,947			64,201
Goodwill and other intangible assets, net	22,775			23,775
Other assets	2,085			4,817
Total other assets	106,807			104,793
Total assets	$	708,318		$	750,200

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INSPERITY, INC.

CONSOLIDATED BALANCE SHEETS (Continued)

(in thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY

	June 30, 2013			December 31, 2012
	(Unaudited)
Current liabilities:
Accounts payable	$	2,605		$	3,660
Payroll taxes and other payroll deductions payable	129,682			178,534
Accrued worksite employee payroll cost	172,229			150,070
Accrued health insurance costs	5,274			13,942
Accrued workers’ compensation costs	50,281			49,484
Accrued corporate payroll and commissions	17,265			23,537
Other accrued liabilities	14,415			12,478
Income taxes payable	39			4,054
Total current liabilities	391,790			435,759
Noncurrent liabilities:
Accrued workers’ compensation costs	66,868			64,536
Deferred income taxes	8,183			9,000
Total noncurrent liabilities	75,051			73,536
Commitments and contingencies
Stockholders’ equity:
Common stock	308			308
Additional paid-in capital	134,349			133,207
Treasury stock, at cost	(142,468		)	(133,950		)
Accumulated other comprehensive income (loss), net of tax	(3		)	16
Retained earnings	249,291			241,324
Total stockholders’ equity	241,477			240,905
Total liabilities and stockholders’ equity	$	708,318		$	750,200

See accompanying notes.

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INSPERITY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2013			2012			2013			2012
Revenues (gross billings of $3.167 billion, $3.039 billion, $6.499 billion and $6.271 billion, less worksite employee payroll cost of $2.620 billion, $2.520 billion, $5.340 billion and $5.156 billion, respectively)	$	547,274		$	519,256		$	1,159,110		$	1,114,433
Direct costs:
Payroll taxes, benefits and workers’ compensation costs	449,528			431,962			953,246			924,135
Gross profit	97,746			87,294			205,864			190,298
Operating expenses:
Salaries, wages and payroll taxes	45,689			40,047			93,900			83,370
Stock-based compensation	3,292			2,801			5,602			4,956
Commissions	3,533			3,506			6,740			6,941
Advertising	9,720			8,566			14,970			13,321
General and administrative expenses	20,039			18,494			42,025			40,572
Depreciation and amortization	5,245			4,465			10,390			8,677
	87,518			77,879			173,627			157,837
Operating income	10,228			9,415			32,237			32,461
Other income (expense):
Interest, net	60			156			129			320
Other, net	(2,676		)	20			(2,667		)	144
Income before income tax expense	7,612			9,591			29,699			32,925
Income tax expense	4,124			3,970			13,038			13,420
Net income	$	3,488		$	5,621		$	16,661		$	19,505
Less distributed and undistributed earnings allocated to participating securities	(124		)	(162		)	(481		)	(564		)
Net income allocated to common shares	$	3,364		$	5,459		$	16,180		$	18,941
Basic net income per share of common stock	$	0.14		$	0.22		$	0.65		$	0.75
Diluted net income per share of common stock	$	0.14		$	0.22		$	0.65		$	0.75

See accompanying notes.

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INSPERITY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2013			2012			2013			2012
Net income	$	3,488		$	5,621		$	16,661		$	19,505
Other comprehensive income:
Unrealized gain (loss) on available-for-sale securities, net of tax	(35		)	(1		)	(19		)	34
Comprehensive income	$	3,453		$	5,620		$	16,642		$	19,539

See accompanying notes.

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INSPERITY, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2013

(in thousands)

(Unaudited)

	Common Stock Issued			Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	Shares	Amount
Balance at December 31, 2012	30,758	$	308	$	133,207		$	(133,950	)	$	16		$	241,324		$	240,905
Purchase of treasury stock, at cost	—	—		—			(15,122		)	—			—			(15,122		)
Exercise of stock options	—	—		(494		)	1,352			—			—			858
Income tax benefit from stock-based compensation, net	—	—		709			—			—			—			709
Stock-based compensation expense	—	—		877			4,725			—			—			5,602
Other	—	—		50			527			—			—			577
Dividends paid	—	—		—			—			—			(8,694		)	(8,694		)
Unrealized loss on marketable securities, net of tax	—	—		—			—			(19		)	—			(19		)
Net income	—	—		—			—			—			16,661			16,661
Balance at June 30, 2013	30,758	$	308	$	134,349		$	(142,468	)	$	(3	)	$	249,291		$	241,477

See accompanying notes.

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INSPERITY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Six Months Ended   June 30,
	2013			2012
Cash flows from operating activities:
Net income	$	16,661		$	19,505
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	10,377			8,652
Impairment charge	2,679			—
Amortization of marketable securities	1,029			1,279
Stock-based compensation	5,602			4,956
Deferred income taxes	2,281			1,001
Changes in operating assets and liabilities:
Restricted cash	(318		)	157
Accounts receivable	(10,018		)	(5,495		)
Prepaid insurance	(2,122		)	3,148
Other current assets	267			3,355
Other assets	(5,698		)	(4,991		)
Accounts payable	(1,055		)	(2,212		)
Payroll taxes and other payroll deductions payable	(48,852		)	(46,062		)
Accrued worksite employee payroll expense	22,159			14,568
Accrued health insurance costs	(8,668		)	441
Accrued workers’ compensation costs	797			2,382
Accrued corporate payroll, commissions and other accrued liabilities	(2,003		)	(7,515		)
Income taxes payable/receivable	(4,259		)	4,090
Total adjustments	(37,802		)	(22,246		)
Net cash used in operating activities	(21,141		)	(2,741		)
Cash flows from investing activities:
Marketable securities:
Purchases	(45,642		)	(14,818		)
Proceeds from dispositions	4,564			13,401
Proceeds from maturities	4,236			—
Cash exchanged for acquisitions	—			(1,200		)
Property and equipment	(6,640		)	(8,331		)
Net cash used in investing activities	(43,482		)	(10,948		)

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INSPERITY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands)

(Unaudited)

	Six Months Ended   June 30,
	2013			2012
Cash flows from financing activities:
Purchase of treasury stock	$	(15,122	)	$	(11,741	)
Dividends paid	(8,694		)	(8,285		)
Proceeds from the exercise of stock options	858			1,044
Income tax benefit from stock-based compensation	953			1,434
Other	577			619
Net cash used in financing activities	(21,428		)	(16,929		)
Net decrease in cash and cash equivalents	(86,051		)	(30,618		)
Cash and cash equivalents at beginning of period	264,544			211,208
Cash and cash equivalents at end of period	$	178,493		$	180,590

See accompanying notes.

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INSPERITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

1. Basis of Presentation

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 “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, as a bundle, or along with Workforce Optimization.

We provide our Workforce Optimization solution to small and medium-sized businesses in strategically selected markets throughout the United States.  For the six months ended June 30, 2013 and 2012, Workforce Optimization revenues from our Texas markets represented 25% and 26%, respectively, while Workforce Optimization revenues from our California markets represented 18% and 17%, respectively, of our total Workforce Optimization revenues.

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, 2012. Our Consolidated Balance Sheet at December 31, 2012 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 June 30, 2013 and our Consolidated Statements of Operations and Comprehensive Income for the three and six month periods ended June 30, 2013 and 2012, our Consolidated Statements of Cash Flows for the six month periods ended June 30, 2013 and 2012, and our Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2013, 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.

2. Accounting Policies

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 the Consolidated Statements of Operations.  The estimated incurred claims are based upon: (i) the level of claims processed during the quarter; (ii) estimated completion rates

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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 benefits 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 $2.8 million as of June 30, 2013, and is reported as a long-term asset.  As of June 30, 2013, Plan Costs were less than the net premiums paid and owed to United by $14.9 million.  As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $5.9 million balance is included in prepaid insurance, a current asset, in our Consolidated Balance Sheets.  The premiums owed to United at June 30, 2013 were $1.9 million, which is included in accrued health insurance costs, a current liability in our Consolidated Balance Sheets.

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.  Through September 30, 2010, we bore the economic burden for the first $1 million layer of claims per occurrence and the insurance carrier was and remains responsible for the economic burden for all claims in excess of such first $1 million layer.

Effective October 1, 2010, in addition to our bearing the economic burden for the first $1 million layer of claims per occurrence, we also bear the economic burden for those claims exceeding $1 million, up to a maximum aggregate amount of $5 million per policy year.

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 six months ended June 30, 2013 and 2012, we reduced our workers’ compensation costs by $6.5 million and $6.7 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 rates utilized in 2013 and 2012 were 0.5% and 0.8%, respectively) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Operations.

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The following table provides the activity and balances related to incurred but not paid workers’ compensation claims:

	Six Months Ended   June 30,
	2013			2012
	(in thousands)
Beginning balance, January 1,	$	111,685		$	104,791
Accrued claims	19,194			19,164
Present value discount	(345		)	(532		)
Paid claims	(16,199		)	(15,179		)
Ending balance	$	114,335		$	108,244
Current portion of accrued claims	$	47,467		$	44,580
Long-term portion of accrued claims	66,868			63,664
	$	114,335		$	108,244

The current portion of accrued workers’ compensation costs on the Consolidated Balance Sheets at June 30, 2013 includes $2.8 million of workers’ compensation administrative fees.

As of June 30, 2013 and 2012, the undiscounted accrued workers’ compensation costs were $125.1 million and $120.9 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.  In the first half of 2012, we received $2.5 million for the return of excess claim funds related to the ACE Program, which reduced deposits. As of June 30, 2013, we had restricted cash of $47.5 million and deposits of $69.9 million.

Our estimate of incurred claim costs expected to be paid within one year are 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 are included in long-term liabilities on our Consolidated Balance Sheets.

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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:

	June 30, 2013			December 31, 2012
	(in thousands)
Overnight Holdings
Money market funds (cash equivalents)	$	135,260		$	255,000
Investment Holdings
Money market funds (cash equivalents)	37,233			26,087
Marketable securities	52,686			16,904
	225,179			297,991
Cash held in demand accounts	18,313			21,732
Outstanding checks	(12,313		)	(38,275		)
Total cash, cash equivalents and marketable securities	$	231,179		$	281,448
Cash and cash equivalents	$	178,493		$	264,544
Marketable securities	52,686			16,904
	$	231,179		$	281,448

Our cash and overnight holdings fluctuate based on the timing of clients' payroll processing cycles.  Included in the cash balance as of June 30, 2013 and December 31, 2012, are $117.3 million and $158.2 million, respectively, in funds associated with federal and state income tax withholdings, employment taxes and other payroll deductions, as well as $14.8 million and $13.5 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)
	June 30, 2013		Level 1		Level 2		Level 3
Money market funds	$	172,493	$	172,493	$	—	$	—
Municipal bonds	52,686		—		52,686		—
Total	$	225,179	$	172,493	$	52,686	$	—

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	Fair Value Measurements
	(in thousands)
	December 31, 2012		Level 1		Level 2		Level 3
Money market funds	$	281,087	$	281,087	$	—	$	—
Municipal bonds	16,904		—		16,904		—
Total	$	297,991	$	281,087	$	16,904	$	—

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)
June 30, 2013
Municipal bonds	$	52,691	$	33	$	(38	)	$	52,686
December 31, 2012
Municipal bonds	$	16,878	$	29	$	(3	)	$	16,904

During the periods ended June 30, 2013 and 2012, we had no realized gains or losses recognized on sales of marketable securities.

As of June 30, 2013, the contractual maturities of our marketable securities were as follows:

	Amortized Cost		Estimated Fair Value
	(in thousands)
Less than one year	$	28,920	$	28,939
One to five years	23,771		23,747
Total	$	52,691	$	52,686

4. Other Assets

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. TRE recently 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.

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5. 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 June 30, 2013, we were in compliance with all financial covenants under the Credit Agreement and had not drawn on the Facility.

6. Stockholders' Equity

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.  In May 2013, the Board increased the authorized number of shares to be repurchased under the program by one million.  During the six months ended June 30, 2013, 415,627 shares were repurchased under the Repurchase Program and 116,747 shares not subject to the Repurchase Program were withheld to satisfy tax withholding obligations for the vesting of restricted stock awards.  As of June 30, 2013, we were authorized to repurchase an additional 1,413,845 shares under the program.

The Board declared quarterly dividends of $0.17 per share of common stock in the first and second quarters of 2013 and quarterly dividends of $0.15 and $0.17 per share of common stock in the first and second quarters of 2012, respectively, resulting in a total of $8.7 million and $8.3 million, respectively, in dividends paid during the first six months of each year.

7. Net Income per Share

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   June 30,						Six Months Ended   June 30,
	2013			2012			2013			2012
	(in thousands)
Net income	$	3,488		$	5,621		$	16,661		$	19,505
Less distributed and undistributed earnings allocated to participating securities	(124		)	(162		)	(481		)	(564		)
Net income allocated to common shares	$	3,364		$	5,459		$	16,180		$	18,941
Weighted average common shares outstanding	24,820			25,095			24,858			25,091
Incremental shares from assumed conversions of common stock options	24			60			27			66
Adjusted weighted average common shares outstanding	24,844			25,155			24,885			25,157
Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect	16			42			16			29

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8. 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.

Lumbermens Mutual Casualty Company

In 2003, facing continued capital constraints and a series of downgrades from various rating agencies, our former workers’ compensation insurance carrier for the two-year period ended September 2003, Lumbermens Mutual Casualty Company, formerly known as Kemper, (“Lumbermens Mutual”) made the decision to substantially cease underwriting operations and voluntarily entered into “run-off."  In July 2012, Lumbermens Mutual announced that an agreed order of rehabilitation had been entered against it in Cook County, Illinois.  Under the order, the Director of the Illinois Department of Insurance was vested with control over Lumbermens Mutual property and decision-making.  In an order effective May 10, 2013, the Circuit Court of Cook County, Illinois, found that Lumbermens was insolvent and ordered its liquidation.

The entry of a liquidation order has triggered the transition of claim handling responsibilities for Lumbermens Mutual's open claims to state guaranty associations around the country. Guaranty associations are non-profit organizations created by statute for the purpose of protecting policyholders from severe financial losses and preventing delays in claim payments due to the insolvency of an insurer.  They do this by assuming responsibility for the payment of claims that would otherwise have been paid by the insurer had it not become insolvent.  Each state has one or more guaranty association(s), with each association handling certain types of insurance.  Insurance companies are required to be members of the state guaranty association as a condition of being licensed to do business in the state.

The guaranty associations in some states, including Texas, may assert that state law allows them to recover the amount of benefits paid by the guaranty association along with associated administration and defense costs from an insured with a net worth exceeding certain specified levels.  If one or more guaranty associations were to seek recovery from us for open claims with Lumbermens Mutual, we may be required to repay those amounts.  While we are not certain whether any state guaranty association will ultimately assert a claim against us, we intend to vigorously assert any and all available defenses to any such claim.  We estimate the outstanding claims that may be subject to such contentions from state guaranty associations to range from $1.1 million to $5.0 million as of June 30, 2013.  In the event state guaranty associations attempt to seek recovery from us and are successful, we would be required to pay such claims, which would reduce net income and could have a material adverse effect on net income in the reported period.

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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, 2012, as well as our Consolidated Financial Statements and notes thereto included in this quarterly report on Form 10-Q.

New Accounting Pronouncements

We believe we have implemented the accounting pronouncements with a material impact on our financial statements.

Results of Operations

Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012.

The following table presents certain information related to our results of operations:

	Three Months Ended   June 30,
	2013			2012		% Change
	(in thousands, except per share and statistical data)
Revenues (gross billings of $3.167 billion and $3.039 billion, less worksite employee payroll cost of $2.620 billion and $2.520 billion, respectively)	$	547,274		$	519,256	5.4	%
Gross profit	97,746			87,294		12.0	%
Operating expenses	87,518			77,879		12.4	%
Operating income	10,228			9,415		8.6	%
Other income (expense)	(2,616		)	176		—
Net income	3,488			5,621		(37.9	)%
Diluted net income per share of common stock	0.14			0.22		(36.4	)%
Statistical Data:
Average number of worksite employees paid per month	126,696			124,219		2.0	%
Revenues per worksite employee per month(1)	$	1,440		$	1,393	3.4	%
Gross profit per worksite employee per month	257			234		9.8	%
Operating expenses per worksite employee per month	230			209		10.0	%
Operating income per worksite employee per month	27			25		8.0	%
Net income per worksite employee per month	9			15		(40.0	)%

 ____________________________________

⁽¹⁾  Gross billings of $8,332 and $8,156 per worksite employee per month, less payroll cost of $6,892 and $6,763 per worksite employee per month, respectively.

Revenues

Our revenues for the second quarter of 2013increased5.4% over the 2012 period, primarily due to a 2.0%increase in the average number of worksite employees paid per month and a 3.4%, or $47increase in revenues per worksite employee per month.

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By region, our Workforce Optimization revenue change from the second quarter of 2012 and distribution for the quarters ended June 30, 2013 and 2012 were as follows:

	Three Months Ended   June 30,						Three Months Ended   June 30,
	2013		2012		% Change		2013		2012
	(in thousands)						(% of total revenue)
Northeast	$	141,054	$	134,571	4.8	%	26.2	%	26.3	%
Southeast	51,435		47,534		8.2	%	9.6	%	9.3	%
Central	78,941		74,295		6.3	%	14.7	%	14.5	%
Southwest	148,042		142,968		3.5	%	27.5	%	28.0	%
West	119,082		111,672		6.6	%	22.0	%	21.9	%
	538,554		511,040		5.4	%	100.0	%	100.0	%
Other revenue(1)	8,720		8,216		6.1	%
Total revenue	$	547,274	$	519,256	5.4	%

_____________________________

⁽¹⁾ Comprised primarily of revenues generated by Adjacent Businesses.

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 second quarter of 2013, the net change in existing clients and worksite employees paid from new client sales was consistent with 2012, while retention improved over the second quarter of 2012.

Gross Profit

Gross profit for the second quarter of 2013increased12.0% over the second quarter of 2012 to $97.7 million.  The average gross profit per worksite employee increased9.8% to $257 per month in the 2013 period from $234 per month in the 2012 period.  Included in gross profit in 2013 is a $14 per worksite employee per month contribution from our Adjacent Businesses compared to $12 per worksite employee per month in the 2012 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 increased3.4% per worksite employee per month and our direct costs, which primarily include payroll taxes, benefits and workers’ compensation expenses, increased2.1% to $1,183 per worksite employee per month in the second quarter of 2013 versus $1,159 in the second quarter of 2012.  The primary direct cost components changed as follows:

• Benefits costs – The cost of group health insurance and related employee benefits increased$5 per worksite employee per month, or 1.0% on a cost per covered employee basis compared to the second quarter of 2012.  Included in 2013 benefits costs is a reduction of $3.4 million, or $9 per worksite employee per month, for lower than expected claim costs and premium taxes related to prior periods. The 2012 benefits costs included $2.4 million, or $6 per worksite employee per month, in claim costs for higher than expected run-off of claims incurred in prior periods. The percentage of worksite employees covered under our health insurance plans was 72.1% in the 2013 period compared to 72.2% in the 2012 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 increased9.3%, or $2 per worksite employee per month compared to the second quarter of 2012.  As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.55% in the 2013 period compared to 0.53% in the 2012 period. During the 2013 period, we recorded reductions in workers’ compensation costs of $3.0 million, or 0.12% of non-bonus payroll costs, for changes in estimated losses related to prior reporting periods, compared to $3.4 million, or 0.15% of non-bonus payroll costs in the 2012 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.

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• Payroll tax costs – Payroll taxes increased 5.6%, or $17 per worksite employee per month compared to the second quarter of 2012 primarily due to the 4.0%increase in payroll costs and a $2.9 million, or $8 per worksite employee per month, credit recognized in 2012 related to a Pennsylvania tax matter. Payroll taxes as a percentage of payroll cost were 7.1% in the 2013 period compared to 7.0% in the 2012 period.

Operating Expenses

The following table presents certain information related to our operating expenses:

	Three Months Ended   June 30,						Three Months Ended   June 30,
	2013		2012		% Change		2013		2012		% Change
	(in thousands)						(per worksite employee per month)
Salaries, wages and payroll taxes	$	45,689	$	40,047	14.1	%	$	120	$	107	12.1	%
Stock-based compensation	3,292		2,801		17.5	%	9		8		12.5	%
Commissions	3,533		3,506		0.8	%	9		9		—
Advertising	9,720		8,566		13.5	%	25		23		8.7	%
General and administrative expenses	20,039		18,494		8.4	%	53		50		6.0	%
Depreciation and amortization	5,245		4,465		17.5	%	14		12		16.7	%
Total operating expenses	$	87,518	$	77,879	12.4	%	$	230	$	209	10.0	%

Operating expenses increased12.4% to $87.5 million compared to $77.9 million in the second quarter of 2012.  Operating expenses per worksite employee per month increased to $230 in the 2013 period from $209 in the 2012 period.  The components of operating expenses changed as follows:

• Salaries, wages and payroll taxes of corporate and sales staff increased14.1% or $13 per worksite employee per month compared to the 2012 period.  This increase was due to a 6.0% rise in headcount and higher incentive compensation accruals resulting from improved operating results.

• Stock-based compensation increased17.5%, or $1 per worksite employee per month compared to the 2012 period, due primarily to an increase in the weighted average market value on the date of grant associated with restricted stock awards.  Stock-based compensation expense represents amortization of restricted stock awards granted to employees.

• Commissions expense increased0.8%, but remained flat on a per worksite employee per month basis compared to the 2012 period.

• Advertising costs increased13.5%, or $2 per worksite employee per month compared to the 2012 period, primarily due to increased spending on health care reform related advertising and business promotions.

• General and administrative expenses increased8.4%, or $3 per worksite employee per month compared to the 2012 period, primarily due to increased travel and training, rent and repairs and maintenance, partially offset by reductions in professional services.

• Depreciation and amortization expense increased17.5%, or $2 per worksite employee per month compared to the 2012 period, primarily due to investments in our technology infrastructure and amortization associated with our Adjacent Business investments.

Other Income (Expense)

Other expense increased $2.8 million in the second quarter of 2013 compared to the second quarter of 2012, primarily due to a non-cash impairment charge related to our minority investment in The Receivables Exchange. Please read Note 4 to the Consolidated Financial Statements, "Other Assets," for additional information.

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Income Tax Expense

Our effective income tax rate was 54.2% in the 2013 period compared to 41.4% in the 2012 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, including the 2013 non-cash impairment charge related to our minority investment in The Receivables Exchange. Due to federal income tax limitations on capital losses, no tax benefit associated with the impairment was recognized. Please read Note 4 to the Consolidated Financial Statements, "Other Assets," for additional information.

Operating and Net Income

Operating and net income per worksite employee per month was $27 and $9 in the 2013 period, versus $25 and $15 in the 2012 period.

Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012.

The following table presents certain information related to our results of operations:

	Six Months Ended   June 30,
	2013			2012		% Change
	(in thousands, except per share and statistical data)
Revenues (gross billings of $6.499 billion and $6.271 billion, less worksite employee payroll cost of $5.340 billion and $5.156 billion, respectively)	$	1,159,110		$	1,114,433	4.0	%
Gross profit	205,864			190,298		8.2	%
Operating expenses	173,627			157,837		10.0	%
Operating income	32,237			32,461		(0.7	)%
Other income (expense)	(2,538		)	464		—
Net income	16,661			19,505		(14.6	)%
Diluted net income per share of common stock	0.65			0.75		(13.3	)%
Statistical Data:
Average number of worksite employees paid per month	125,044			123,079		1.6	%
Revenues per worksite employee per month(1)	$	1,545		$	1,509	2.4	%
Gross profit per worksite employee per month	274			258		6.2	%
Operating expenses per worksite employee per month	231			214		7.9	%
Operating income per worksite employee per month	43			44		(2.3	)%
Net income per worksite employee per month	22			26		(15.4	)%

 ____________________________________

⁽¹⁾ Gross billings of $8,663 and $8,491 per worksite employee per month, less payroll cost of $7,118 and $6,982 per worksite employee per month, respectively.

Revenues

Our revenues for the six months ended June 30, 2013increased4.0% over the 2012 period, primarily due to a 1.6%increase in the average number of worksite employees paid per month and a 2.4%, or $36increased in revenues per worksite employee per month.

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By region, our Workforce Optimization revenue change from the first six months of 2012 and distribution for the six months ended June 30, 2013 and 2012 were as follows:

	Six Months Ended   June 30,						Six Months Ended   June 30,
	2013		2012		% Change		2013		2012
	(in thousands)						(% of total revenue)
Northeast	$	303,344	$	293,536	3.3	%	26.6	%	26.7	%
Southeast	107,121		100,882		6.2	%	9.4	%	9.2	%
Central	168,691		161,589		4.4	%	14.8	%	14.7	%
Southwest	312,102		306,774		1.7	%	27.3	%	27.9	%
West	250,771		236,278		6.1	%	21.9	%	21.5	%
	1,142,029		1,099,059		3.9	%	100.0	%	100.0	%
Other revenue(1)	17,081		15,374		11.1	%
Total revenue	$	1,159,110	$	1,114,433	4.0	%

______________________________

⁽¹⁾ Comprised primarily of revenues generated by Adjacent Businesses.

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 six months of 2013, the net change in existing clients and client retention declined compared to the 2012 period, while worksite employees paid from new client sales improved over the first six months of 2012.

Gross Profit

Gross profit for the first six months of 2013increased8.2% over the first six months of 2012 to $205.9 million.  The average gross profit per worksite employee increased 6.2% to $274 per month in the 2013 period from $258 per month in the 2012 period.  Included in gross profit in 2013 is a $14 per worksite employee per month contribution from our Adjacent Businesses compared to $11 per worksite employee per month in the 2012 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 increased2.4% per worksite employee per month and our direct costs, which primarily include payroll taxes, benefits and workers’ compensation expenses, increased1.6% to $1,271 per worksite employee per month compared to $1,251 in the first six months of 2012.  The primary direct cost components changed as follows:

• Benefits costs – The cost of group health insurance and related employee benefits increased$12 per worksite employee per month, or 2.3% on a cost per covered employee basis compared to the first six months of 2012.  Included in 2013 benefits costs is a reduction of $3.4 million, or $5 per worksite employee per month, for lower than expected claim costs and premium taxes related to prior periods. The 2012 benefits costs included $2.4 million, or $3 per worksite employee per month in claim costs for higher than expected run-off of claims incurred in prior periods. The percentage of worksite employees covered under our health insurance plans was 72.3% in the 2013 period compared to 72.5% in the 2012 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 increased4.0%, or $1 per worksite employee per month compared to the first six months of 2012.  As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.54% in the 2013 period compared to 0.55% in the 2012 period.  During the 2013 period, we recorded reductions in workers’ compensation costs of $6.5 million, or 0.14% of non-bonus payroll costs, for changes in estimated losses related to prior reporting periods, compared to $6.7 million, or 0.15% of non-bonus payroll costs in the 2012 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 increased2.7%, or $6 per worksite employee per month compared to the first six months of 2012, primarily due to the 3.6%increase in payroll costs and a $2.9 million, or $4 per worksite employee per

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month credit recognized in 2012 related to a Pennsylvania tax matter. Payroll taxes as a percentage of payroll cost were 8.3% in both the 2013 and 2012 periods.  

Operating Expenses

The following table presents certain information related to our operating expenses:

	Six Months Ended June 30,						Six Months Ended June 30,
	2013		2012		% Change		2013		2012		% Change
	(in thousands)						(per worksite employee per month)
Salaries, wages and payroll taxes	$	93,900	$	83,370	12.6	%	$	125	$	113	10.6	%
Stock-based compensation	5,602		4,956		13.0	%	7		7		—
Commissions	6,740		6,941		(2.9	)%	9		9		—
Advertising	14,970		13,321		12.4	%	20		18		11.1	%
General and administrative expenses	42,025		40,572		3.6	%	56		55		1.8	%
Depreciation and amortization	10,390		8,677		19.7	%	14		12		16.7	%
Total operating expenses	$	173,627	$	157,837	10.0	%	$	231	$	214	7.9	%

Operating expenses increased10.0% to $173.6 million compared to $157.8 million in the first six months of 2012.  Operating expenses per worksite employee per month increased to $231 in the 2013 period from $214 in the 2012 period.  The components of operating expenses changed as follows:

• Salaries, wages and payroll taxes of corporate and sales staff increased12.6%, or $12 per worksite employee per month compared to the 2012 period.  This increase was due to a 5.5% rise in headcount and higher incentive compensation accruals resulting from improved operating results.

• Stock-based compensation increased13.0%, but remained flat on a per worksite employee per month basis compared to the 2012 period, due primarily to an increase in the weighted average market value on the date of grant associated with restricted stock awards.  Stock-based compensation expense represents amortization of restricted stock awards granted to employees.

• Commissions expense decreased2.9%, but remained flat on a per worksite employee per month basis compared to the 2012 period.

• Advertising costs increased12.4%, or $2 per worksite employee per month compared to the 2012 period, primarily due to increased spending on health care reform related advertising and business promotions.

• General and administrative expenses increased3.6%, or $1 per worksite employee per month compared to the 2012 period, primarily due to increased travel and training and repairs and maintenance, partially offset by reductions in professional services.

• Depreciation and amortization expense increased19.7%, or $2 per worksite employee per month compared to the 2012 period, primarily due to investments in our technology infrastructure and amortization associated with our Adjacent Business investments.

Other Income (Expense)

Other expense increased $3.0 million in the first six months of 2013 compared to the first six months of 2012, primarily due to a non-cash impairment charge related to our minority investment in The Receivables Exchange. Please read Note 4 to the Consolidated Financial Statements, "Other Assets," for additional information.

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Income Tax Expense

Our effective income tax rate was 43.9% in the 2013 period compared to 40.8% in the 2012 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, including the 2013 non-cash impairment charge related to our minority investment in The Receivables Exchange. Please read Note 4 to the Consolidated Financial Statements, "Other Assets ," for additional information.

Operating and Net Income

Operating and net income per worksite employee per month was $43 and $22 in the 2013 period, versus $44 and $26 in the 2012 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   June 30,						Six Months Ended   June 30,
	2013		2012		% Change		2013		2012		% Change
	(in thousands, except per worksite employee per month data)
GAAP to non-GAAP reconciliation:
Payroll cost (GAAP)	$	2,619,690	$	2,520,058	4.0	%	$	5,340,202	$	5,156,187	3.6	%
Less: Bonus payroll cost	171,362		204,042		(16.0	)%	513,927		571,865		(10.1	)%
Non-bonus payroll cost	$	2,448,328	$	2,316,016	5.7	%	$	4,826,275	$	4,584,322	5.3	%
Payroll cost per worksite employee per month (GAAP)	$	6,892	$	6,763	1.9	%	$	7,118	$	6,982	1.9	%
Less: Bonus payroll cost per worksite employee per month	451		548		(17.7	)%	685		774		(11.5	)%
Non-bonus payroll cost per worksite employee per month	$	6,441	$	6,215	3.6	%	$	6,433	$	6,208	3.6	%

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 $231.2 million in cash, cash equivalents and marketable securities at June 30, 2013, of which approximately $117.3 million was payable in early July2013 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $14.8 million were customer prepayments that were payable in July2013.  At June 30, 2013, we had working capital of $118.5 million compared to $115.7 million at December 31, 2012.  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 2013.  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.

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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 June 30, 2013.  Please read Note 5 to the Consolidated Financial Statements, “Revolving Credit Facility,” for additional information.

Cash Flows from Operating Activities

Net cash used in operating activities in 2013 was $21.1 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 June 30, 2013, the last business day of the reporting period was a Friday, client prepayments were $14.8 million and accrued worksite employee payroll was $172.2 million.  In the year ended December 31, 2012, the last business day of the reporting period was a Monday, client prepayments were $13.5 million and accrued worksite employee payroll was $150.1 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 $22.2 million in the first six months of 2013 and $21.5 million in the first six months of 2012.  However, our estimate of workers’ compensation loss costs was $18.8 million in 2013 and $18.6 million in 2012, respectively. During the first half of 2012, we received $2.5 million for the return of excess claim funds related to the workers' compensation program, which resulted in an increase to working capital.

• 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 June 30, 2013, premiums owed and cash funded to United have exceeded Plan Costs, resulting in a $14.9 million surplus, $5.9 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 June 30, 2013, were $1.9 million, which is included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets.

• Operating results – Our net income has a significant impact on our operating cash flows.  Our net income decreased14.6% to $16.7 million in the six months ended June 30, 2013, compared to $19.5 million in the six months ended June 30, 2012, due in part to a $2.7 million non-cash impairment charge on a minority investment.  Please read “Results of Operations – Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012.”

Cash Flows from Investing Activities

Net cash flows used in investing activities were $43.5 million for the six months ended June 30, 2013, primarily due to marketable securities purchases, net of maturities and dispositions, of $36.8 million.

Cash Flows from Financing Activities

Net cash flows used in financing activities were $21.4 million for the six months ended June 30, 2013, including $15.1 million in stock repurchases and $8.7 million in dividends paid.

- 24 -

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 June 30, 2013, we had not drawn on the Facility.  Please read Note 5 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 prefunded 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 June 30, 2013.

There has been no change in our internal controls over financial reporting that occurred during the three months ended June 30, 2013, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

- 25 -

PART II

ITEM 1.  LEGAL PROCEEDINGS.

Please read Note 8 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) continued effects of the economic recession and general 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 and other insurers, state 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; and (x) an adverse final judgment or settlement of claims against Insperity.  These factors are discussed in further detail in our 2012 Annual Report on Form 10-K under “Factors That May Affect Future Results and the Market Price of Common Stock” on page 19, 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.

There have been no material changes in the risk factors disclosed pursuant to Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012.

- 26 -

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 June 30, 2013, 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 Publicly Announced Program(1)	Maximum Number of Shares that may yet be Purchased under the Program(1)
04/01/2013 – 04/30/2013	58,104	$	26.95	57,516	415,303
05/01/2013 – 05/31/2013	1,458	27.01		1,458	1,413,845
06/01/2013 – 06/30/2013	601	31.00		—	1,413,845
Total	60,163	$	26.99	58,974	1,413,845

 ____________________________________

⁽¹⁾  Our Board has approved a program to repurchase up to 15,500,000 shares of our outstanding common stock, including an additional one million shares authorized for repurchase in May 2013.  During the three months ended June 30, 2013, 58,974 shares were repurchased under the program and 1,189 shares were withheld to satisfy tax withholding obligations for the vesting of restricted stock awards.  As of June 30, 2013, we were authorized to repurchase an additional 1,413,845 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.

- 27 -

ITEM 6.  EXHIBITS

(a) List of Exhibits

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.

____________________________________
*	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 six month periods ended June 30, 2013 and 2012; (ii) the Consolidated Statements of Comprehensive Income for the three and six month periods ended June 30, 2013 and 2012; (iii) the Consolidated Balance Sheets at June 30, 2013 and December 31, 2012; (iv) the Consolidated Statement of Stockholders’ Equity for the six month period ended June 30, 2013; (v) the Consolidated Statements of Cash Flows for the six month periods ended June 30, 2013 and 2012; and (vi) Notes to the Consolidated Financial Statements.

- 28 -

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: August 1, 2013	By:	/s/ Douglas S. Sharp
		Douglas S. Sharp
		Senior Vice President of Finance,
		Chief Financial Officer and Treasurer
		(Principal Financial and Duly Authorized Officer)

- 29 -

EX-31.1

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: August 1, 2013
	/s/ Paul J. Sarvadi
	Paul J. Sarvadi
	Chairman of the Board and Chief Executive Officer

EX-31.2

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: August 1, 2013
	/s/ Douglas S. Sharp
	Douglas S. Sharp
	Senior Vice President of Finance, Chief Financial Officer and Treasurer

EX-32.1

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 June 30, 2013, (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

August 1, 2013

EX-32.2

 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 June 30, 2013, (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

August 1, 2013

XML

Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Activity and balances related to incurred but not paid workers' compensation claims

The following table provides the activity and balances related to incurred but not paid workers’ compensation claims:

	Six Months Ended   June 30,
	2013			2012
	(in thousands)
Beginning balance, January 1,	$	111,685		$	104,791
Accrued claims	19,194			19,164
Present value discount	(345		)	(532		)
Paid claims	(16,199		)	(15,179		)
Ending balance	$	114,335		$	108,244
Current portion of accrued claims	$	47,467		$	44,580
Long-term portion of accrued claims	66,868			63,664
	$	114,335		$	108,244

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Parenthetical) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Income Statement [Abstract]
Gross billings	$ 3,167	$ 3,039	$ 6,499	$ 6,271
Worksite employee payroll cost	$ 2,620	$ 2,520	$ 5,340	$ 5,156

XML

Cash, Cash Equivalents and Marketable Securities

6 Months Ended

Jun. 30, 2013

Cash, Cash Equivalents and Marketable Securities [Abstract]

Cash, Cash Equivalents and Marketable Securities

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:

	June 30, 2013			December 31, 2012
	(in thousands)
Overnight Holdings
Money market funds (cash equivalents)	$	135,260		$	255,000
Investment Holdings
Money market funds (cash equivalents)	37,233			26,087
Marketable securities	52,686			16,904
	225,179			297,991
Cash held in demand accounts	18,313			21,732
Outstanding checks	(12,313		)	(38,275		)
Total cash, cash equivalents and marketable securities	$	231,179		$	281,448
Cash and cash equivalents	$	178,493		$	264,544
Marketable securities	52,686			16,904
	$	231,179		$	281,448

Our cash and overnight holdings fluctuate based on the timing of clients' payroll processing cycles.  Included in the cash balance as of June 30, 2013 and December 31, 2012, are $117.3 million and $158.2 million, respectively, in funds associated with federal and state income tax withholdings, employment taxes and other payroll deductions, as well as $14.8 million and $13.5 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)
	June 30, 2013		Level 1		Level 2		Level 3
Money market funds	$	172,493	$	172,493	$	—	$	—
Municipal bonds	52,686		—		52,686		—
Total	$	225,179	$	172,493	$	52,686	$	—

	Fair Value Measurements
	(in thousands)
	December 31, 2012		Level 1		Level 2		Level 3
Money market funds	$	281,087	$	281,087	$	—	$	—
Municipal bonds	16,904		—		16,904		—
Total	$	297,991	$	281,087	$	16,904	$	—

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)
June 30, 2013
Municipal bonds	$	52,691	$	33	$	(38	)	$	52,686
December 31, 2012
Municipal bonds	$	16,878	$	29	$	(3	)	$	16,904

During the periods ended June 30, 2013 and 2012, we had no realized gains or losses recognized on sales of marketable securities.

As of June 30, 2013, the contractual maturities of our marketable securities were as follows:

	Amortized Cost		Estimated Fair Value
	(in thousands)
Less than one year	$	28,920	$	28,939
One to five years	23,771		23,747
Total	$	52,691	$	52,686

XML

Revolving Credit Facility (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013
Debt Disclosure [Abstract]
Current borrowing capacity	$ 100
Maximum borrowing capacity	$ 150

XML

Cash, Cash Equivalents and Marketable Securities (Tables)

6 Months Ended

Jun. 30, 2013

Cash, Cash Equivalents and Marketable Securities [Abstract]

Summary of investments in 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:

	June 30, 2013			December 31, 2012
	(in thousands)
Overnight Holdings
Money market funds (cash equivalents)	$	135,260		$	255,000
Investment Holdings
Money market funds (cash equivalents)	37,233			26,087
Marketable securities	52,686			16,904
	225,179			297,991
Cash held in demand accounts	18,313			21,732
Outstanding checks	(12,313		)	(38,275		)
Total cash, cash equivalents and marketable securities	$	231,179		$	281,448
Cash and cash equivalents	$	178,493		$	264,544
Marketable securities	52,686			16,904
	$	231,179		$	281,448

Summary of fair value measurements of financial assets

The following table summarizes the levels of fair value measurements of our financial assets:

	Fair Value Measurements
	(in thousands)
	June 30, 2013		Level 1		Level 2		Level 3
Money market funds	$	172,493	$	172,493	$	—	$	—
Municipal bonds	52,686		—		52,686		—
Total	$	225,179	$	172,493	$	52,686	$	—

	Fair Value Measurements
	(in thousands)
	December 31, 2012		Level 1		Level 2		Level 3
Money market funds	$	281,087	$	281,087	$	—	$	—
Municipal bonds	16,904		—		16,904		—
Total	$	297,991	$	281,087	$	16,904	$	—

Summary of available-for-sale securities

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)
June 30, 2013
Municipal bonds	$	52,691	$	33	$	(38	)	$	52,686
December 31, 2012
Municipal bonds	$	16,878	$	29	$	(3	)	$	16,904

Contractual maturities of marketable securities

As of June 30, 2013, the contractual maturities of our marketable securities were as follows:

	Amortized Cost		Estimated Fair Value
	(in thousands)
Less than one year	$	28,920	$	28,939
One to five years	23,771		23,747
Total	$	52,691	$	52,686

XML

Commitments and Contingencies (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013
Lumbermens Mutual Casualty Company [Abstract]
Outstanding claims minimum	$ 1.1
Outstanding claims maximum	$ 5.0

XML

Net Income per Share (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Earnings Per Share [Abstract]
Net income	$ 3,488	$ 5,621	$ 16,661	$ 19,505
Less distributed and undistributed earnings allocated to participating securities	(124)	(162)	(481)	(564)
Net income allocated to common shareholders	$ 3,364	$ 5,459	$ 16,180	$ 18,941
Weighted average common shares outstanding (in shares)	24,820	25,095	24,858	25,091
Incremental shares from assumed conversions of common stock options (in shares)	24	60	27	66
Adjusted weighted average common shares outstanding (in shares)	24,844	25,155	24,885	25,157
Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect (in shares)	16	42	16	29

XML

Stockholders' Equity (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2013	Mar. 31, 2013	Jun. 30, 2012	Mar. 31, 2012	Jun. 30, 2013
Stockholders' Equity Note [Abstract]
Shares repurchased under the program (in shares)					415,627
Shares withheld for tax withholding obligations for the vesting of restricted stock awards (in shares)					116,747
Authorized to repurchased additional shares under repurchase program (in shares)	1,413,845				1,413,845
Dividends declared per share of common stock (in dollars per share)	$ 0.17	$ 0.17	$ 0.17	$ 0.15
Dividends paid					$ 8,694

XML

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) (USD $) In Thousands	Total	Common Stock [Member]	Additional Paid-In Capital [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income [Member]	Retained Earnings [Member]
Balance at Dec. 31, 2012	$ 240,905	$ 308	$ 133,207	$ (133,950)	$ 16	$ 241,324
Balance (shares) at Dec. 31, 2012		30,758
Purchase of treasury stock, at cost	(15,122)	0	0	(15,122)	0	0
Exercise of stock options	858	0	(494)	1,352	0	0
Income tax benefit from stock-based compensation, net	709	0	709	0	0	0
Stock-based compensation expense	5,602	0	877	4,725	0	0
Other	(577)	0	(50)	(527)	0	0
Dividends paid	(8,694)	0	0	0	0	(8,694)
Unrealized loss on marketable securities, net of tax	(19)	0	0	0	(19)	0
Net income	16,661	0	0	0	0	16,661
Balance at Jun. 30, 2013	$ 241,477	$ 308	$ 134,349	$ (142,468)	$ (3)	$ 249,291
Balance (shares) at Jun. 30, 2013		30,758

XML

Basis of Presentation

6 Months Ended

Jun. 30, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

1. Basis of Presentation

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 “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, as a bundle, or along with Workforce Optimization.

We provide our Workforce Optimization solution to small and medium-sized businesses in strategically selected markets throughout the United States.  For the six months ended June 30, 2013 and 2012, Workforce Optimization revenues from our Texas markets represented 25% and 26%, respectively, while Workforce Optimization revenues from our California markets represented 18% and 17%, respectively, of our total Workforce Optimization revenues.

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, 2012. Our Consolidated Balance Sheet at December 31, 2012 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 June 30, 2013 and our Consolidated Statements of Operations and Comprehensive Income for the three and six month periods ended June 30, 2013 and 2012, our Consolidated Statements of Cash Flows for the six month periods ended June 30, 2013 and 2012, and our Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2013, 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.

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Other Assets

6 Months Ended

Jun. 30, 2013

Other Assets [Abstract]

Cost-method Investments, Description [Text Block]

4. Other Assets

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. TRE recently 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.

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Accounting Policies

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Accounting Policies

2. Accounting Policies

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 the 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 benefits 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 $2.8 million as of June 30, 2013, and is reported as a long-term asset.  As of June 30, 2013, Plan Costs were less than the net premiums paid and owed to United by $14.9 million.  As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $5.9 million balance is included in prepaid insurance, a current asset, in our Consolidated Balance Sheets.  The premiums owed to United at June 30, 2013 were $1.9 million, which is included in accrued health insurance costs, a current liability in our Consolidated Balance Sheets.

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.  Through September 30, 2010, we bore the economic burden for the first $1 million layer of claims per occurrence and the insurance carrier was and remains responsible for the economic burden for all claims in excess of such first $1 million layer.

Effective October 1, 2010, in addition to our bearing the economic burden for the first $1 million layer of claims per occurrence, we also bear the economic burden for those claims exceeding $1 million, up to a maximum aggregate amount of $5 million per policy year.

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 six months ended June 30, 2013 and 2012, we reduced our workers’ compensation costs by $6.5 million and $6.7 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 rates utilized in 2013 and 2012 were 0.5% and 0.8%, 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 provides the activity and balances related to incurred but not paid workers’ compensation claims:

	Six Months Ended   June 30,
	2013			2012
	(in thousands)
Beginning balance, January 1,	$	111,685		$	104,791
Accrued claims	19,194			19,164
Present value discount	(345		)	(532		)
Paid claims	(16,199		)	(15,179		)
Ending balance	$	114,335		$	108,244
Current portion of accrued claims	$	47,467		$	44,580
Long-term portion of accrued claims	66,868			63,664
	$	114,335		$	108,244

The current portion of accrued workers’ compensation costs on the Consolidated Balance Sheets at June 30, 2013 includes $2.8 million of workers’ compensation administrative fees.

As of June 30, 2013 and 2012, the undiscounted accrued workers’ compensation costs were $125.1 million and $120.9 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.  In the first half of 2012, we received $2.5 million for the return of excess claim funds related to the ACE Program, which reduced deposits. As of June 30, 2013, we had restricted cash of $47.5 million and deposits of $69.9 million.

Our estimate of incurred claim costs expected to be paid within one year are 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 are included in long-term liabilities on our Consolidated Balance Sheets.

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CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Income Statement [Abstract]
Revenues (gross billings of $3.167 billion, $3.039 billion, $6.499 billion and $6.271 billion, less worksite employee payroll cost of $2.620 billion, $2.520 billion, $5.340 billion and $5.156 billion, respectively)	$ 547,274	$ 519,256	$ 1,159,110	$ 1,114,433
Direct costs:
Payroll taxes, benefits and workers' compensation costs	449,528	431,962	953,246	924,135
Gross profit	97,746	87,294	205,864	190,298
Operating expenses:
Salaries, wages and payroll taxes	45,689	40,047	93,900	83,370
Stock-based compensation	3,292	2,801	5,602	4,956
Commissions	3,533	3,506	6,740	6,941
Advertising	9,720	8,566	14,970	13,321
General and administrative expenses	20,039	18,494	42,025	40,572
Depreciation and amortization	5,245	4,465	10,390	8,677
Total operating expenses	87,518	77,879	173,627	157,837
Operating income	10,228	9,415	32,237	32,461
Other income (expense):
Interest, net	60	156	129	320
Other, net	(2,676)	20	(2,667)	144
Income before income tax expense	7,612	9,591	29,699	32,925
Income tax expense	4,124	3,970	13,038	13,420
Net income	3,488	5,621	16,661	19,505
Less distributed and undistributed earnings allocated to participating securities	(124)	(162)	(481)	(564)
Net income allocated to common shares	$ 3,364	$ 5,459	$ 16,180	$ 18,941
Basic net income per share of common stock (in dollars per share)	$ 0.14	$ 0.22	$ 0.65	$ 0.75
Diluted net income per share of common stock (in dollars per share)	$ 0.14	$ 0.22	$ 0.65	$ 0.75

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Net Income Per Share

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Net Income per Share

7. Net Income per Share

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   June 30,						Six Months Ended   June 30,
	2013			2012			2013			2012
	(in thousands)
Net income	$	3,488		$	5,621		$	16,661		$	19,505
Less distributed and undistributed earnings allocated to participating securities	(124		)	(162		)	(481		)	(564		)
Net income allocated to common shares	$	3,364		$	5,459		$	16,180		$	18,941
Weighted average common shares outstanding	24,820			25,095			24,858			25,091
Incremental shares from assumed conversions of common stock options	24			60			27			66
Adjusted weighted average common shares outstanding	24,844			25,155			24,885			25,157
Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect	16			42			16			29

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Statement of Other Comprehensive Income [Abstract]
Net income	$ 3,488	$ 5,621	$ 16,661	$ 19,505
Other comprehensive income:
Unrealized gain (loss) on available-for-sale securities, net of tax	(35)	(1)	(19)	34
Comprehensive income	$ 3,453	$ 5,620	$ 16,642	$ 19,539

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CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 178,493	$ 264,544
Restricted cash	47,467	47,149
Marketable securities	52,686	16,904
Accounts receivable, net:
Trade	2,743	6,931
Unbilled	194,985	181,040
Other	2,676	2,415
Prepaid insurance	17,742	15,620
Other current assets	9,384	9,651
Deferred income taxes	4,125	7,211
Total current assets	510,301	551,465
Property and equipment:
Land	4,115	4,115
Buildings and improvements	68,695	68,583
Computer hardware and software	84,102	81,140
Software development costs	37,184	35,866
Furniture and fixtures	36,828	36,717
Aircraft	35,879	35,879
Total property and equipment, gross	266,803	262,300
Accumulated depreciation and amortization	(175,593)	(168,358)
Total property and equipment, net	91,210	93,942
Other assets:
Prepaid health insurance	9,000	9,000
Deposits - health insurance	3,000	3,000
Deposits - workers' compensation	69,947	64,201
Goodwill and other intangible assets, net	22,775	23,775
Other assets	2,085	4,817
Total other assets	106,807	104,793
Total assets	708,318	750,200
Current liabilities:
Accounts payable	2,605	3,660
Payroll taxes and other payroll deductions payable	129,682	178,534
Accrued worksite employee payroll cost	172,229	150,070
Accrued health insurance costs	5,274	13,942
Accrued workers' compensation costs	50,281	49,484
Accrued corporate payroll and commissions	17,265	23,537
Other accrued liabilities	14,415	12,478
Income tax payable	39	4,054
Total current liabilities	391,790	435,759
Noncurrent liabilities:
Accrued workers' compensation costs	66,868	64,536
Deferred income taxes	8,183	9,000
Total noncurrent liabilities	75,051	73,536
Commitments and contingencies
Stockholders' equity:
Common stock	308	308
Additional paid-in capital	134,349	133,207
Treasury stock, at cost	(142,468)	(133,950)
Accumulated other comprehensive income (loss), net of tax	(3)	16
Retained earnings	249,291	241,324
Total stockholders' equity	241,477	240,905
Total liabilities and stockholders’ equity	$ 708,318	$ 750,200

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Other Assets (Details) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Sep. 30, 2011
Other Assets [Abstract]
Impairment charge	$ 2,679,000	$ 0
Cost method investments			$ 2,800,000

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Stockholders' Equity

6 Months Ended

Jun. 30, 2013

Stockholders' Equity Note [Abstract]

Stockholders Equity

6. Stockholders' Equity

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.  In May 2013, the Board increased the authorized number of shares to be repurchased under the program by one million.  During the six months ended June 30, 2013, 415,627 shares were repurchased under the Repurchase Program and 116,747 shares not subject to the Repurchase Program were withheld to satisfy tax withholding obligations for the vesting of restricted stock awards.  As of June 30, 2013, we were authorized to repurchase an additional 1,413,845 shares under the program.

The Board declared quarterly dividends of $0.17 per share of common stock in the first and second quarters of 2013 and quarterly dividends of $0.15 and $0.17 per share of common stock in the first and second quarters of 2012, respectively, resulting in a total of $8.7 million and $8.3 million, respectively, in dividends paid during the first six months of each year.

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Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Health Insurance Costs

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 the 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 benefits 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 $2.8 million as of June 30, 2013, and is reported as a long-term asset.  As of June 30, 2013, Plan Costs were less than the net premiums paid and owed to United by $14.9 million.  As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $5.9 million balance is included in prepaid insurance, a current asset, in our Consolidated Balance Sheets.  The premiums owed to United at June 30, 2013 were $1.9 million, which is included in accrued health insurance costs, a current liability in our Consolidated Balance Sheets.

Workers' Compensation Costs

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.  Through September 30, 2010, we bore the economic burden for the first $1 million layer of claims per occurrence and the insurance carrier was and remains responsible for the economic burden for all claims in excess of such first $1 million layer.

Effective October 1, 2010, in addition to our bearing the economic burden for the first $1 million layer of claims per occurrence, we also bear the economic burden for those claims exceeding $1 million, up to a maximum aggregate amount of $5 million per policy year.

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 six months ended June 30, 2013 and 2012, we reduced our workers’ compensation costs by $6.5 million and $6.7 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 rates utilized in 2013 and 2012 were 0.5% and 0.8%, 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 provides the activity and balances related to incurred but not paid workers’ compensation claims:

	Six Months Ended   June 30,
	2013			2012
	(in thousands)
Beginning balance, January 1,	$	111,685		$	104,791
Accrued claims	19,194			19,164
Present value discount	(345		)	(532		)
Paid claims	(16,199		)	(15,179		)
Ending balance	$	114,335		$	108,244
Current portion of accrued claims	$	47,467		$	44,580
Long-term portion of accrued claims	66,868			63,664
	$	114,335		$	108,244

The current portion of accrued workers’ compensation costs on the Consolidated Balance Sheets at June 30, 2013 includes $2.8 million of workers’ compensation administrative fees.

As of June 30, 2013 and 2012, the undiscounted accrued workers’ compensation costs were $125.1 million and $120.9 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.  In the first half of 2012, we received $2.5 million for the return of excess claim funds related to the ACE Program, which reduced deposits. As of June 30, 2013, we had restricted cash of $47.5 million and deposits of $69.9 million.

Our estimate of incurred claim costs expected to be paid within one year are 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 are included in long-term liabilities on our Consolidated Balance Sheets.

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Revolving Credit Facility

6 Months Ended

Jun. 30, 2013

Debt Disclosure [Abstract]

Revolving Credit Facility

5. 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 June 30, 2013, we were in compliance with all financial covenants under the Credit Agreement and had not drawn on the Facility.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities:
Net income	$ 16,661	$ 19,505
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	10,377	8,652
Impairment charge	2,679	0
Amortization of marketable securities	1,029	1,279
Stock-based compensation	5,602	4,956
Deferred income taxes	2,281	1,001
Changes in operating assets and liabilities:
Restricted cash	(318)	157
Accounts receivable	(10,018)	(5,495)
Prepaid insurance	(2,122)	3,148
Other current assets	267	3,355
Other assets	(5,698)	(4,991)
Accounts payable	(1,055)	(2,212)
Payroll taxes and other payroll deductions payable	(48,852)	(46,062)
Accrued worksite employee payroll expense	22,159	14,568
Accrued health insurance costs	(8,668)	441
Accrued workers' compensation costs	797	2,382
Accrued corporate payroll, commissions and other accrued liabilities	(2,003)	(7,515)
Income taxes payable/receivable	(4,259)	4,090
Total adjustments	(37,802)	(22,246)
Net cash used in operating activities	(21,141)	(2,741)
Marketable securities:
Purchases	(45,642)	(14,818)
Proceeds from dispositions	4,564	13,401
Proceeds from maturities	4,236	0
Cash exchanged for acquisitions	0	(1,200)
Property and equipment	(6,640)	(8,331)
Net cash used in investing activities	(43,482)	(10,948)
Cash flows from financing activities:
Purchase of treasury stock	(15,122)	(11,741)
Dividends paid	(8,694)	(8,285)
Proceeds from the exercise of stock options	858	1,044
Income tax benefit from stock-based compensation	953	1,434
Other	577	619
Net cash used in financing activities	(21,428)	(16,929)
Net decrease in cash and cash equivalents	(86,051)	(30,618)
Cash and cash equivalents at beginning of period	264,544	211,208
Cash and cash equivalents at end of period	$ 178,493	$ 180,590

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Net Income per Share (Tables)

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Summary of the net income allocated to common shares and the basic and diluted shares used in the net income per share computations

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   June 30,						Six Months Ended   June 30,
	2013			2012			2013			2012
	(in thousands)
Net income	$	3,488		$	5,621		$	16,661		$	19,505
Less distributed and undistributed earnings allocated to participating securities	(124		)	(162		)	(481		)	(564		)
Net income allocated to common shares	$	3,364		$	5,459		$	16,180		$	18,941
Weighted average common shares outstanding	24,820			25,095			24,858			25,091
Incremental shares from assumed conversions of common stock options	24			60			27			66
Adjusted weighted average common shares outstanding	24,844			25,155			24,885			25,157
Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect	16			42			16			29

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

8. 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.

Lumbermens Mutual Casualty Company

In 2003, facing continued capital constraints and a series of downgrades from various rating agencies, our former workers’ compensation insurance carrier for the two-year period ended September 2003, Lumbermens Mutual Casualty Company, formerly known as Kemper, (“Lumbermens Mutual”) made the decision to substantially cease underwriting operations and voluntarily entered into “run-off."  In July 2012, Lumbermens Mutual announced that an agreed order of rehabilitation had been entered against it in Cook County, Illinois.  Under the order, the Director of the Illinois Department of Insurance was vested with control over Lumbermens Mutual property and decision-making.  In an order effective May 10, 2013, the Circuit Court of Cook County, Illinois, found that Lumbermens was insolvent and ordered its liquidation.

The entry of a liquidation order has triggered the transition of claim handling responsibilities for Lumbermens Mutual's open claims to state guaranty associations around the country. Guaranty associations are non-profit organizations created by statute for the purpose of protecting policyholders from severe financial losses and preventing delays in claim payments due to the insolvency of an insurer.  They do this by assuming responsibility for the payment of claims that would otherwise have been paid by the insurer had it not become insolvent.  Each state has one or more guaranty association(s), with each association handling certain types of insurance.  Insurance companies are required to be members of the state guaranty association as a condition of being licensed to do business in the state.

The guaranty associations in some states, including Texas, may assert that state law allows them to recover the amount of benefits paid by the guaranty association along with associated administration and defense costs from an insured with a net worth exceeding certain specified levels.  If one or more guaranty associations were to seek recovery from us for open claims with Lumbermens Mutual, we may be required to repay those amounts.  While we are not certain whether any state guaranty association will ultimately assert a claim against us, we intend to vigorously assert any and all available defenses to any such claim.  We estimate the outstanding claims that may be subject to such contentions from state guaranty associations to range from $1.1 million to $5.0 million as of June 30, 2013.  In the event state guaranty associations attempt to seek recovery from us and are successful, we would be required to pay such claims, which would reduce net income and could have a material adverse effect on net income in the reported period.

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Cash, Cash Equivalents and Marketable Securities (Details) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Dec. 31, 2011
Overnight Holdings [Abstract]
Money market funds (cash equivalents)	$ 135,260,000		$ 255,000,000
Investment Holdings [Abstract]
Money market funds (cash equivalents)	37,233,000		26,087,000
Marketable securities	52,686,000		16,904,000
Total cash equivalents and marketable securities	225,179,000		297,991,000
Cash held in demand accounts	18,313,000		21,732,000
Outstanding checks	(12,313,000)		(38,275,000)
Total cash, cash equivalents and marketable securities	231,179,000		281,448,000
Cash and cash equivalents	178,493,000	180,590,000	264,544,000	211,208,000
Marketable securities	52,686,000		16,904,000
Withholding associated with federal and state income taxes, employment taxes and other payroll deductions included in cash balance	117,300,000		158,200,000
Client prepayments included in cash balance	14,800,000		13,500,000
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Gain on sales of available-for-sale marketable securities	0	0
Municipal bonds	52,686,000		16,904,000
Available-for-sale marketable securities [Abstract]
Amortized Cost	52,691,000		16,878,000
Gross Unrealized Gains	33,000		29,000
Gross Unrealized Losses	(38,000)		(3,000)
Municipal bonds	52,686,000		16,904,000
Contractual maturities amortized cost [Abstract]
Less than one year	28,920,000
One to five years	23,771,000
Amortized Cost	52,691,000
Contractual maturities estimated fair value [Abstract]
Less than one year	28,939,000
One to five years	23,747,000
Municipal bonds	52,686,000		16,904,000
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market funds	172,493,000		281,087,000
Municipal bonds	0		0
Total	172,493,000		281,087,000
Available-for-sale marketable securities [Abstract]
Municipal bonds	0		0
Contractual maturities estimated fair value [Abstract]
Municipal bonds	0		0
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market funds	0		0
Municipal bonds	52,686,000		16,904,000
Total	52,686,000		16,904,000
Available-for-sale marketable securities [Abstract]
Municipal bonds	52,686,000		16,904,000
Contractual maturities estimated fair value [Abstract]
Municipal bonds	52,686,000		16,904,000
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market funds	0		0
Municipal bonds	0		0
Total	0		0
Available-for-sale marketable securities [Abstract]
Municipal bonds	0		0
Contractual maturities estimated fair value [Abstract]
Municipal bonds	0		0
Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market funds	172,493,000		281,087,000
Municipal bonds	52,686,000		16,904,000
Total	225,179,000		297,991,000
Available-for-sale marketable securities [Abstract]
Municipal bonds	52,686,000		16,904,000
Contractual maturities estimated fair value [Abstract]
Municipal bonds	$ 52,686,000		$ 16,904,000

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Basis of Presentation (Details)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Percentage of PEO revenues from the Company's Texas markets (in hundredths)	25.00%	26.00%
Percentage of PEO revenues from the Company's California markets (in hundredths)	18.00%	17.00%

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Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Jul. 25, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	INSPERITY, INC.
Entity Central Index Key	0001000753
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		25,611,985
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2013

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Accounting Policies (Details) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Oct. 01, 2010	Sep. 30, 2010
Health Insurance Costs [Abstract]
Number of days in advance of the beginning of a reporting quarter United establishes cash funding rates	90 days
Required accumulated cash surplus	$ 9,000,000		$ 9,000,000
Required deposit equal to approximately one day of claims funding activity	2,800,000
Amount which plan costs were less than the net premiums paid and owed	14,900,000
Prepaid health insurance, current	5,900,000
Premiums owed to United	1,900,000
Workers' Compensation Costs [Abstract]
Company's maximum economic burden for the first layer of claims per occurrence				1,000,000	1,000,000
Company's maximum aggregate economic burden for claims in excess of 1 million per policy year				5,000,000
Reduction in accrued workers' compensation costs for changes in estimated losses	6,500,000	6,700,000
U.S. Treasury rates that correspond with the weighted average estimated claim payout period (in hundredths)	0.50%	0.80%
Incurred but not paid workers compensation liabilities [Abstract]
Beginning balance, January 1,	111,685,000	104,791,000
Accrued claims	19,194,000	19,164,000
Present value discount	(345,000)	(532,000)
Paid claims	(16,199,000)	(15,179,000)
Ending balance	114,335,000	108,244,000
Current portion of accrued claims	47,467,000	44,580,000
Long-term portion of accrued claims	66,868,000	63,664,000	64,536,000
Ending balance	114,335,000	108,244,000
Workers compensation administrative fees accrued	2,800,000
Undiscounted accrued workers' compensation costs	125,100,000	120,900,000
Time period incurred claims expected to be paid recorded as restricted cash	1 year
Time period incurred claims expected to be paid included in deposits	Greater than 1 year
Return of excess claim funds	0	2,500,000
Restricted cash - worker's compensation	47,467,000		47,149,000
Deposits workers compensation	$ 69,947,000		$ 64,201,000
Time period estimate of incurred claim costs to be paid included in short-term liabilities	1 year
Time period incurred claims expected to be paid, included in long-term liabilities	Greater than 1 year