10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2011.

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 þ  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 þ 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 þ  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 þ

As of October 25, 2011, 25,809,994 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	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	30
Part II
Item 1.	Legal Proceedings	31
Item 1a.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 6.	Exhibits	33

PART I

ITEM  1. FINANCIAL STATEMENTS

INSPERITY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

ASSETS

	September 30, 2011			December 31, 2010
	(Unaudited)
Current assets:
Cash and cash equivalents	$	169,910		$	234,829
Restricted cash		42,812			41,204
Marketable securities		55,394			43,367
Accounts receivable, net:
Trade		2,069			1,194
Unbilled		154,256			134,187
Other		6,013			6,726
Prepaid insurance		15,182			24,978
Other current assets		10,967			8,528
Income taxes receivable		989			1,808
Deferred income taxes		1,751			1,267
Total current assets		459,343			498,088
Property and equipment:
Land		3,653			3,260
Buildings and improvements		66,673			64,953
Computer hardware and software		76,174			67,714
Software development costs		29,778			27,482
Furniture and fixtures		35,124			35,164
Aircraft		35,806			31,524
		247,208			230,097
Accumulated depreciation and amortization		(158,756	)		(154,070	)
Total property and equipment, net		88,452			76,027
Other assets:
Prepaid health insurance		9,000			9,000
Deposits – health insurance		2,640			2,640
Deposits – workers’ compensation		46,728			51,731
Goodwill and other intangible assets, net		28,867			21,251
Other assets		1,440			1,108
Total other assets		88,675			85,730
Total assets	$	636,470		$	659,845

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INSPERITY, INC.

CONSOLIDATED BALANCE SHEETS (Continued)

(in thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY

	September 30, 2011			December 31, 2010
	(Unaudited)
Current liabilities:
Accounts payable	$	2,659		$	3,309
Payroll taxes and other payroll deductions payable		104,204			145,096
Accrued worksite employee payroll cost		130,788			109,697
Accrued health insurance costs		5,209			15,419
Accrued workers’ compensation costs		45,316			42,081
Accrued corporate payroll and commissions		22,296			23,743
Other accrued liabilities		19,778			14,264
Total current liabilities		330,250			353,609
Noncurrent liabilities:
Accrued workers’ compensation costs		58,508			55,730
Other accrued liabilities		––			1,261
Deferred income taxes		9,260			8,850
Total noncurrent liabilities		67,768			65,841
Commitments and contingencies
Stockholders’ equity:
Common stock		309			309
Additional paid-in capital		136,111			135,607
Treasury stock, at cost		(134,697	)		(124,464	)
Accumulated other comprehensive income, net of tax		52			21
Retained earnings		236,677			228,922
Total stockholders’ equity		238,452			240,395
Total liabilities and stockholders’ equity	$	636,470		$	659,845

See accompanying notes.

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INSPERITY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Revenues (gross billings of $2.835 billion, $2.444 billion, $8.454 billion and $7.274 billion, less worksite employee payroll cost of $2.363 billion, $2.030 billion, $6.973 billion and $5.990 billion, respectively)	$	471,821		$	414,146		$	1,481,105		$	1,284,226
Direct costs:
Payroll taxes, benefits and workers’ compensation costs		384,792			340,460			1,219,276			1,066,498
Gross profit		87,029			73,686			261,829			217,728
Operating expenses:
Salaries, wages and payroll taxes		39,494			34,866			117,558			108,558
Stock-based compensation		2,109			1,970			6,455			6,148
Commissions		3,399			2,889			9,750			8,494
Advertising		5,235			2,605			18,280			11,180
General and administrative expenses		18,912			15,546			57,828			47,674
Depreciation and amortization		3,786			3,732			11,335			11,266
		72,935			61,608			221,206			193,320
Operating income		14,094			12,078			40,623			24,408
Other income (expense):
Interest, net		245			286			829			744
Other, net		(7,501	)		––			(7,497	)		––
Income before income tax expense		6,838			12,364			33,955			25,152
Income tax expense		2,739			5,130			14,329			10,501
Net income	$	4,099		$	7,234		$	19,626		$	14,651
Less net income allocated to participating securities		(120	)	$	(214	)		(582	)		(428	)
Net income allocated to common shares	$	3,979		$	7,020		$	19,044		$	14,223
Basic net income per share of common stock	$	0.16		$	0.28		$	0.75		$	0.56
Diluted net income per share of common stock	$	0.16		$	0.28		$	0.74		$	0.56

See accompanying notes.

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INSPERITY, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2011

(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, 2010		30,839	$	309	$	135,607		$	(124,464	)	$	21	$	228,922		$	240,395
Purchase of treasury stock, at cost		―		―		―			(22,459	)		—		―			(22,459	)
Exercise of stock options		―		―		(1,012	)		4,893			—		―			3,881
Income tax benefit from stock-based compensation, net		―		―		1,709			—			—		―			1,709
Stock-based compensation expense		—		—		(280	)		6,735			—		—			6,455
Other		―		―		87			598			—		―			685
Dividends paid		—		—		—			—			—		(11,871	)		(11,871	)
Change in unrealized gain on marketable securities, net of tax:
Unrealized gain		—		—		—			—			31		—			31
Net income		—		—		—			—			—		19,626			19,626
Comprehensive income		—		—		—			—			—		—			19,657
Balance at September 30, 2011		30,839	$	309	$	136,111		$	(134,697	)	$	52	$	236,677		$	238,452

See accompanying notes.

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INSPERITY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2011			2010
Cash flows from operating activities:
Net income	$	19,626		$	14,651
Adjustments to reconcile net income to net cash provided by  operating activities:
Depreciation and amortization		11,335			11,266
Loss on exchange of assets		4,396			––
Amortization of marketable securities		1,535			1,148
Stock-based compensation		6,455			6,148
Deferred income taxes		(96	)		1,692
Changes in operating assets and liabilities, net of effects from acquisitions:
Restricted cash		(1,608	)		(3,225	)
Accounts receivable		(20,231	)		(28,665	)
Prepaid insurance		9,796			(1,285	)
Other current assets		(2,339	)		(2,227	)
Other assets		4,876			8,350
Accounts payable		(650	)		21
Payroll taxes and other payroll deductions payable		(40,892	)		(48,195	)
Accrued worksite employee payroll expense		21,091			70,315
Accrued health insurance costs		(10,210	)		4,041
Accrued workers’ compensation costs		6,013			6,199
Accrued corporate payroll, commissions and other accrued liabilities		3,656			4,851
Income taxes payable/receivable		479			2,566
Total adjustments		(6,394	)		33,000
Net cash provided by operating activities		13,232			47,651
Cash flows from investing activities:
Marketable securities purchases		(43,607	)		(56,775	)
Marketable securities proceeds from dispositions		3,907			2,748
Marketable securities proceeds from maturities		26,194			15,890
Cash exchanged for acquisitions		(13,125	)		(12,886	)
Property and equipment		(23,404	)		(4,349	)
Net cash used in investing activities		(50,035	)		(55,372	)

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INSPERITY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2011			2010
Cash flows from financing activities:
Purchase of treasury stock	$	(22,459	)	$	(7,852	)
Dividends paid		(11,871	)		(10,148	)
Proceeds from the exercise of stock options		3,881			5,505
Income tax benefit from stock-based compensation		2,049			432
Other		284			629
Net cash used in financing activities		(28,116	)		(11,434	)
Net decrease in cash and cash equivalents		(64,919	)		(19,155	)
Cash and cash equivalents at beginning of period		234,829			227,085
Cash and cash equivalents at end of period	$	169,910		$	207,930

Supplemental Cash Flow Information:

In September 2011, the Company exchanged an existing aircraft with a fair value of $4.0 million and paid an additional $10.0 million to acquire a replacement aircraft, resulting in a non-cash loss of $4.4 million, which is included in other income (expense).

See accompanying notes.

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INSPERITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011

(Unaudited)

1.  Basis of Presentation

Insperity, Inc., a Delaware corporation formerly named Administaff, Inc. (“Insperity” or the “Company”) provides an array of human resources (“HR”) and business solutions designed to help improve business performance. The Company’s name change, which was effective March 3, 2011, reflects the Company’s evolution over the past 25 years from a professional employer organization (“PEO”), an industry it pioneered, to its current position as a comprehensive business performance solutions provider.  The Company’s most comprehensive HR business offering is provided through its PEO services, now known as Workforce OptimizationTM, which encompasses a broad range of human resource functions, including payroll and employment administration, employee benefits, workers’ compensation, government compliance, performance management, and training and development services.  In addition to Workforce Optimization, the Company offers Performance Management, Expense Management, Time and Attendance, Organizational Planning, Employment Screening, Recruiting Services, Retirement Services, Business Insurance and Technology Services solutions, (collectively “Adjacent Businesses”), many of which are offered via desktop applications and software as a service (“SaaS”) delivery models. For the nine months ended September 30, 2011 and 2010, PEO revenues from the Company’s Texas markets represented 27% and 29%, while PEO revenues from the Company’s California markets represented 16% and 15%, of the Company’s total PEO revenues, respectively.

The consolidated financial statements include the accounts of the Company 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 the Company’s audited consolidated financial statements as of and for the year ended December 31, 2010. The Company’s Consolidated Balance Sheets at December 31, 2010 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.  The Company’s Consolidated Balance Sheets at September 30, 2011 and the Consolidated Statements of Operations and Cash Flows for the periods ended September 30, 2011 and 2010, and Stockholders’ Equity for the period ended September 30, 2011, have been prepared by the Company 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.

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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

The Company provides group health insurance coverage to its worksite employees through a national network of carriers including UnitedHealthcare (“United”), PacifiCare, Kaiser Permanente, Blue Shield of California, Hawaii Medical Service Association, Unity Health Plans and Tufts, all of which provide fully insured policies or service contracts.

The policy with United provides the majority of the Company’s health insurance coverage.  As a result of certain contractual terms, the Company has accounted for this plan since its inception using a partially self-funded insurance accounting model.  Accordingly, Insperity records 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 the Company’s 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 the Company would record an asset for the excess premiums in its Consolidated Balance Sheets.  The terms of the arrangement require the Company 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 $2.6 million as of September 30, 2011, and is reported as a long-term asset.  As of September 30, 2011, Plan Costs were less than the net premiums paid and owed to United by $22.7 million.  As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $13.7 million balance is included in prepaid insurance, a current asset, in the Company’s Consolidated Balance Sheets.  The premiums owed to United at September 30, 2011 were $1.9 million, which is included in accrued health insurance costs, a current liability in the Company’s Consolidated Balance Sheets.

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Workers’ Compensation Costs

The Company’s 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 the Company satisfies its responsibilities.  Through September 30, 2010, the Company 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 the Company bearing the economic burden for the first $1 million layer of claims per occurrence, the Company will also bear the economic burden for those claims exceeding $1 million, up to a maximum aggregate amount of $5 million per policy year. 

Because the Company bears the economic burden for claims up to the levels noted above, such claims, which are the primary component of the Company’s 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.   

The Company employs a third party actuary to estimate its 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 the Company’s workers’ compensation claims cost estimates.  During the nine months ended September 30, 2011 and 2010, Insperity reduced accrued workers’ compensation costs by $8.6 million and $5.0 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 2011 and 2010 were 1.2% and 1.5%, respectively) and are accreted over the estimated claim payment period and included as a component of direct costs in the Company’s 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 for the nine months ended September 30, 2011 and 2010:

	2011			2010
	(in thousands)
Beginning balance, January 1,	$	96,934		$	88,450
Accrued claims		26,668			24,985
Present value discount		(1,159	)		(1,350	)
Paid claims		(21,123	)		(18,133	)
Ending balance	$	101,320		$	93,952
Current portion of accrued claims	$	42,812		$	39,661
Long-term portion of accrued claims		58,508			54,291
	$	101,320		$	93,952

The current portion of accrued workers’ compensation costs on the Consolidated Balance Sheets at September 30, 2011 includes $2.5 million of workers’ compensation administrative fees.

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 the Company’s Consolidated Balance Sheets.  In the first nine months of 2011 and 2010, the Company received $10.0 million and $15.6 million, respectively, for the return of excess claim funds related to the ACE Program, which reduced deposits.  As of September 30, 2011, the Company had restricted cash of $42.8 million and deposits of $46.7 million.

The Company’s 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 its estimate of incurred claim costs expected to be paid beyond one year are included in long-term liabilities on the Company’s Consolidated Balance Sheets.

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3.  Cash, Cash Equivalents and Marketable Securities

The following table summarizes the Company’s investments in cash equivalents and marketable securities held by investment managers and overnight investments:

	September 30, 2011			December 31, 2010
	(in thousands)
Overnight Holdings
Money market funds (cash equivalents)	$	18,367		$	157,680
Investment Holdings
Money market funds (cash equivalents)		60,174			72,258
Marketable securities		55,394			43,367
		133,935			273,305
Cash held in demand accounts		105,194			31,295
Outstanding checks		(13,825	)		(26,404	)
Total cash, cash equivalents and marketable securities	$	225,304		$	278,196
Cash and cash equivalents	$	169,910		$	234,829
Marketable securities		55,394			43,367
	$	225,304		$	278,196

The Company’s cash and overnight holdings fluctuate based on the timing of the client’s payroll processing cycle.  Included in the cash balance as of September 30, 2011 and December 31, 2010, are $93.1 million and $128.8 million, respectively, in funds associated with federal and state income tax withholdings, employment taxes and other payroll deductions, as well as $3.9 million and $8.1 million in client prepayments, respectively.

The Company accounts for its 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; and

· Level 3 - significant unobservable inputs.

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The following table summarizes the levels of fair value measurements of the Company’s financial assets:

	Fair Value Measurements
	(in thousands)
	September 30, 2011		Level 1		Level 2		Level 3
Money market funds	$	78,541	$	78,541	$	—	$	—
Municipal bonds		55,394		––		55,394		—
Total	$	133,935	$	78,541	$	55,394	$	—
	Fair Value Measurements
	(in thousands)
		December 31, 2010	Level 1		Level 2		Level 3
Money market funds	$	229,938	$	229,938	$	—	$	—
Municipal bonds		43,367		—		43,367		—
Total	$	273,305	$	229,938	$	43,367	$	—

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. Valuation techniques used by the Company 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 table summarizes the Company’s available-for-sale marketable securities as of September 30, 2011 and December 31, 2010:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
September 30, 2011:
Municipal bonds	$	55,304	$	125	$	(35	)	$	55,394
December 31, 2010:
Municipal bonds	$	43,330	$	63	$	(26	)	$	43,367

The Company utilizes specific identification to account for realized gains and losses recognized on sales of available-for-sale marketable securities.  During the periods ended September 30, 2011 and 2010, the Company had no realized gains or losses recognized on sales of marketable securities.

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As of September 30, 2011, the contractual maturities of the Company’s marketable securities were as follows:

	Amortized Cost		Estimated Fair Value
	(in thousands)
Less than one year	$	31,601	$	31,640
One to five years		23,703		23,754
Total	$	55,304	$	55,394

4.  Acquisitions

The Company accounts for its acquisitions in accordance with ASC 805, Business Combinations, which requires allocation of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on the fair value at the date of purchase.  The purchase price in excess of the identifiable assets and liabilities is recorded to goodwill.  All acquisition related costs are expensed as incurred and recorded in operating expenses.  The Company includes operations associated with acquisitions from the date of acquisition forward.

In January 2011, the Company acquired from HumanConcepts, a provider of workforce decision support solutions, ownership of its OrgPlus desktop software product line for small and medium-sized businesses, and its associated customer base, as well as a source code license for a SaaS-based version. OrgPlus facilitates creation, management and communication of detailed organizational charts. The acquisition reflects Insperity’s continued business strategy to expand its human resource services as well as the solutions available to the Company’s current and target clients.  The Company paid $10.8 million upon the closing of the transaction and expects to pay an additional $1.2 million in the first quarter of 2012 based on the terms of the agreement.

5.   Revolving Credit Facility

On September 15, 2011, the Company entered into a four-year, $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 is available for working capital and general corporate purposes, including acquisitions. The Company’s obligations under the Facility are secured by 65% of the stock of the Company’s captive insurance subsidiary and are guaranteed by all of the Company’s domestic subsidiaries. At September 30, 2011, the Company had not drawn on the Facility.

The Facility matures on September 15, 2015.  Borrowings under the Facility bear interest at an alternate base rate or LIBOR, at the Company’s option, plus an applicable margin.  Depending on the Company’s leverage ratio, the applicable margin varies (i) in the case of LIBOR loans, from 2.00% to 2.75% and (ii) in the case of alternate base rate loans, from 0.00% to 0.75%.  The alternate base rate is the highest of (i) the prime rate most recently published in The Wall Street Journal, (ii) the federal funds rate plus 0.50% and (iii) the 30-day LIBOR rate plus 2.00%.  The Company also pays an unused commitment fee on the average daily unused portion of the Facility at a rate of 0.25%. Interest expense and unused commitment fees are recorded in other income (expense).

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The Facility contains both affirmative and negative covenants, which the Company believes are customary for arrangements of this nature.  Covenants include, but are not limited to, limitations on the Company’s ability to incur additional indebtedness, sell material assets, retire, redeem or otherwise reacquire its capital stock, acquire the capital stock or assets of another business, make investments and pay dividends.  In addition, the Credit Agreement requires the Company to comply with financial covenants limiting the Company’s total funded debt, minimum interest coverage ratio and maximum leverage ratio. The Company was in compliance with all financial covenants under the Credit Agreement at September 30, 2011.

6.  Stockholders’ Equity

The Company’s Board of Directors (the “Board”) has authorized a program to repurchase shares of the Company’s outstanding common stock from time to time in the open market or directly from stockholders at prevailing market prices based on market conditions and other factors.  In September 2011, the Board increased the authorized number of shares to be repurchased under the program by 1,000,000.  During the nine months ended September 30, 2011, 787,304 shares were repurchased under the program and 108,280 shares were withheld to satisfy tax withholding obligations for the vesting of restricted stock awards.  The shares related to withholding obligations are not subject to the repurchase program.  As of September 30, 2011, the Company was authorized to repurchase an additional 1,352,089 shares under the program.

The Board declared quarterly dividends of $0.15 and $0.13 per share of common stock in each of the first three quarters of 2011 and 2010, respectively, resulting in a total of $11.9 million and $10.1 million, respectively, in dividend payments made by the Company during the nine months ended September 30 of each year.

7.  Net Income per Share

The Company utilizes 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.  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.

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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 for the three month and nine month periods ended September 30, 2011 and 2010:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(in thousands, except per share amounts)
Net income	$	4,099		$	7,234		$	19,626		$	14,651
Less income allocated to participating securities		(120	)		(214	)		(582	)		(428	)
Net income allocated to common shares	$	3,979		$	7,020		$	19,044		$	14,223
Weighted average common shares outstanding		25,425			25,312			25,546			25,258
Incremental shares from assumed conversions of common stock options		74			111			98			105
Adjusted weighted average common shares outstanding		25,499			25,423			25,644			25,363
Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect		54			339			21			492

8.  Commitments and Contingencies

The Company is 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, except as set forth below, management believes the final outcome of such litigation will not have a material adverse effect on the Company’s financial position or results of operations.

As a result of a 2001 corporate restructuring, the Company filed for a transfer of its state unemployment tax reserve account with the Employment Development Department of the State of California (“EDD”).  The EDD approved the Company’s request for transfer of the reserve account in May 2002 and also notified the Company of its new contribution rates based upon the approved transfer.  In December 2003, the Company received a Notice of Duplicate Accounts and Notification of Assessment (“Notice”) from the EDD.  The Notice stated that the EDD was collapsing the accounts of the Company’s subsidiaries into the account of the entity with the highest unemployment tax rate.  The Notice also retroactively imposed the higher unemployment insurance rate on all of the Company’s California employees for 2003, resulting in an assessment of $5.6 million.  In January 2004, the Company filed petitions with an administrative law judge of the California Unemployment Insurance Appeals Board (“ALJ”) to protest the validity of the Notice, asserting several procedural and substantive defenses.

One procedural defense included in the Company’s appeal asserts that EDD failed to meet the statutory requirement related to serving a proper notice within the stipulated time frame and that all of the statutes of limitations concerning EDD’s ability to reassess or modify unemployment tax rates for the periods addressed in the Notice had expired (“Notification Defense”).  During 2010, a California Circuit Court issued a ruling in favor of EDD regarding a dispute involving a taxpayer who made arguments similar to the Company’s Notification Defense. The Supreme Court of California subsequently denied the taxpayer’s petition for review.  The Company subsequently received a statement of account from the EDD indicating taxes, penalties and interest due of approximately $8.1 million.

While still denying all liability, the Company entered into a written agreement with the EDD in September 2011 to fully and finally settle this dispute (the “Settlement Agreement”).  Pursuant to the terms of the Settlement Agreement, which is subject to the approval of the ALJ, the Company agreed to pay $3.1 million (the “Settlement Amount”) to the EDD.  The Settlement Amount of $3.1 million was recorded in other income (expense) in the third quarter of 2011.

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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, 2010, 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.

In September 2011, Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2011-08, Intangibles-Goodwill and Other (Topic 350) – Testing Goodwill for Impairment was issued.  ASU 2011-08 provides companies with a new option to determine whether or not it is necessary to apply the traditional two-step quantitative goodwill impairment test in ASC 350, Intangibles – Goodwill and Other.  Under ASU 2011-08 companies are no longer required to calculate the fair value of a reporting unit unless it determines, on the basis of qualitative information, that it is more likely than not (i.e., greater than 50%) that the fair value of a reporting unit is less than its carrying amount.  ASU 2011-08 is effective for periods ending after December 15, 2011; however, early adoption is permitted for periods ending after September 15, 2011.  The Company plans to early adopt ASU 2011-08 in the fourth quarter of 2011 when we perform our annual impairment test.  We do not anticipate the adoption to have a material impact on our Consolidated Financial Statements.

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Results of Operations

Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010.

The following table presents certain information related to our results of operations for the three months ended September 30, 2011 and 2010:

	Three Months Ended September 30,
	2011			2010		% Change
	(in thousands, except per share and statistical data)
Revenues (gross billings of $2.835 billion and $2.444 billion, less worksite employee payroll cost of $2.363 billion and $2.030 billion, respectively)	$	471,821		$	414,146		13.9	%
Gross profit		87,029			73,686		18.1	%
Operating expenses		72,935			61,608		18.4	%
Operating income		14,094			12,078		16.7	%
Other income (expense)		(7,256	)		286		––
Net income		4,099			7,234		(43.3	)%
Diluted net income per share of common stock		0.16			0.28		(42.9	)%
Statistical Data:
Average number of worksite employees paid per month		118,226			108,440		9.0	%
Revenues per worksite employee per month(1)	$	1,330		$	1,273		4.5	%
Gross profit per worksite employee per month		245			227		7.9	%
Operating expenses per worksite employee per month		206			189		9.0	%
Operating income per worksite employee per month		40			37		8.1	%
Net income per worksite employee per month		12			22		(45.5	)%

_________________________

(1) Gross billings of $7,992 and $7,513 per worksite employee per month, less payroll cost of $6,662 and $6,240 per worksite employee per month, respectively.

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Revenues

Our revenues for the third quarter of 2011 increased 13.9% over the 2010 period, primarily due to a 9.0% increase in the average number of worksite employees paid per month and a 4.5%, or $57 increase in revenues per worksite employee per month.

By region, our Workforce Optimization revenue change from the third quarter of 2010 and distribution for the quarters ended September 30, 2011 and 2010 were as follows:

	Three Months Ended September 30,							Three Months Ended September 30,
	2011		2010		% Change			2011			2010
	(in thousands)							(% of total revenues)
Northeast	$	120,994	$	99,351		21.8	%		26.1	%		24.3	%
Southeast		46,271		44,728		3.4	%		10.0	%		10.9	%
Central		66,314		59,923		10.7	%		14.3	%		14.6	%
Southwest		134,295		124,504		7.9	%		28.9	%		30.5	%
West		96,122		80,732		19.1	%		20.7	%		19.7	%
		463,996		409,238		13.4	%		100.0	%		100.0	%
Adjacent Businesses and other revenue		7,825		4,908		59.4	%
Total revenue	$	471,821	$	414,146		13.9	%

Our Workforce Optimization growth rate is affected by three primary sources – worksite employees paid from new client sales, client retention and the net change in existing clients through worksite employee new hires and layoffs.  During the third quarter of 2011, the net change in existing clients improved as compared to the third quarter of 2010, while worksite employees paid from new client sales declined and client retention remained consistent with the third quarter of 2010.

Gross Profit

Gross profit for the third quarter of 2011 increased 18.1% over the third quarter of 2010 to $87.0 million.  The average gross profit per worksite employee increased 7.9% to $245 per month in the 2011 period from $227 per month in the 2010 period.  Also included in gross profit in 2011 is a $12 per worksite employee per month contribution from our Adjacent Businesses compared to $7 per worksite employee per month in the 2010 period, primarily due to the OrgPlus acquisition that closed in the first quarter 2011.  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.

While our revenues increased 4.5% per worksite employee per month, our direct costs, which primarily include payroll taxes, benefits and workers’ compensation expenses, increased 3.7% to $1,085 per worksite employee per month in the third quarter of 2011 versus $1,046 in the third quarter of 2010.

· Benefits costs – The cost of group health insurance and related employee benefits increased $25 per worksite employee per month, or 5.2% on a cost per covered employee basis compared to the third quarter of 2010.  These results were favorably impacted by a decrease in the number of COBRA participants.  The number of participants electing COBRA coverage in the United plan declined from 6.4% in the third quarter of 2010 to 3.4% in the third quarter of 2011 due primarily to the August 2011 expiration of the 65% federal premium subsidy provided to COBRA eligible participants under the American Recovery and Reinvestment Act of 2009.  Historically, the net costs of COBRA claims per enrollee are approximately double the cost of claims associated with active enrollees.  The percentage of worksite employees covered under our health insurance plans was 73.0% in the 2011 period compared to 73.7% in the 2010 period.  Please read Note 2 - “Accounting Policies – Health Insurance Costs” on page 10 for a discussion of our accounting for health insurance costs.

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· Workers’ compensation costs – Workers’ compensation costs decreased 15.8%, or $8 per worksite employee per month, compared to the third quarter of 2010.  As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.43% in the 2011 period compared to 0.58% in the 2010 period.  During the 2011 period, we recorded reductions in workers’ compensation costs of $4.9 million, or 0.22% of non-bonus payroll costs, for changes in estimated losses related to prior reporting periods, compared to $2.0 million, or 0.10% of non-bonus payroll costs, in the 2010 period.  Please read Note 2 “Accounting Policies – Workers’ Compensation Costs” on page 11 for a discussion of our accounting for workers’ compensation costs.

· Payroll tax costs – Payroll taxes increased 13.9%, or $18 per worksite employee per month compared to the third quarter of 2010, primarily due to the 16.4% increase in payroll costs.  Payroll taxes as a percentage of payroll cost were 6.4% in the 2011 period compared to 6.5% in the 2010 period.

Operating Expenses

The following table presents certain information related to our operating expenses for the three months ended September 30, 2011 and 2010

	Three Months Ended September 30,							Three Months Ended September 30,
	2011		2010		% Change			2011		2010		% Change
	(in thousands)							(per worksite employee per month)
Salaries, wages and payroll  taxes	$	39,494	$	34,866		13.3	%	$	111	$	107		3.7	%
Stock–based compensation		2,109		1,970		7.1	%		6		6		––
Commissions		3,399		2,889		17.7	%		10		9		11.1	%
Advertising		5,235		2,605		101.0	%		15		8		87.5	%
General and administrative expenses		18,912		15,546		21.7	%		53		48		10.4	%
Depreciation and amortization		3,786		3,732		1.4	%		11		11		––
Total operating expenses	$	72,935	$	61,608	18.4`%			$	206	$	189		9.0	%

Operating expenses increased 18.4% to $72.9 million compared to $61.6 million in the third quarter of 2010, primarily due to $1.8 million in expenses related to our rebranding initiative and $1.0 million in expenses associated with acquisitions completed in late 2010 and early 2011.  Operating expenses per worksite employee per month increased to $206 in the 2011 period from $189 in the 2010 period.  The components of operating expenses changed as follows:

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· Salaries, wages and payroll taxes of corporate and sales staff increased 13.3%, or $4 per worksite employee per month compared to the 2010 period.  This increase was primarily due to a 7.5% rise in headcount, largely related to our adjacent business strategy and the associated acquisitions.

· Stock-based compensation increased 7.1%, but remained flat on a per worksite employee per month basis compared to the 2010 period.  The stock-based compensation expense represents amortization of restricted stock awards granted to employees.

· Commissions expense increased 17.7%, or $1 per worksite employee per month basis compared to the 2010 period.

· Advertising costs increased 101.0%, or $7 per worksite employee per month compared to the 2010 period, primarily due to advertising and business promotions related to our rebranding initiative.

· General and administrative expenses increased 21.7%, or $5 per worksite employee per month compared to the third quarter of 2010, primarily due to increased travel, consulting and office expenses, as well as costs associated with recent acquisitions.

· Depreciation and amortization expense increased 1.4%, but remained flat on a per worksite employee per month basis compared to the 2010 period.

Other Income (Expense)

Other expense increased $7.5 million in the third quarter of 2011 compared to the third quarter of 2010, primarily due to a $4.4 million loss related to the exchange of a corporate aircraft and a $3.1 million loss related to the Employment Development Department of the State of California (“EDD”) settlement. See Note 8, “Commitments and Contingencies” on page 17 for additional information on the EDD settlement.

Income Tax Expense

Our effective income tax rate was 40.1% in the 2011 period compared to 41.5% in the 2010 period.  Our provision for income taxes differed from the U.S. statutory rate of 35% primarily due to state income taxes and non-deductible expenses.

Operating and Net Income

Operating and net income per worksite employee per month was $40 and $12 in the 2011 period, versus $37 and $22 in the 2010 period.

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Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.

The following table presents certain information related to our results of operations for the nine months ended September 30, 2011 and 2010:

	Nine Months Ended September 30,
	2011			2010		% Change
	(in thousands, except per share and statistical data)
Revenues (gross billings of $8.454 billion and $7.274 billion, less worksite employee payroll cost of $6.973 billion and $5.990 billion, respectively)	$	1,481,105		$	1,284,226		15.3	%
Gross profit		261,829			217,728		20.3	%
Operating expenses		221,206			193,320		14.4	%
Operating income		40,623			24,408		66.4	%
Other income (expense)		(6,668	)		744		—
Net income		19,626			14,651		34.0	%
Diluted net income per share of common stock		0.74			0.56		32.1	%
Statistical Data:
Average number of worksite employees paid per month		115,097			105,603		9.0	%
Revenues per worksite employee per month(1)	$	1,430		$	1,351		5.8	%
Gross profit per worksite employee per month		253			229		10.5	%
Operating expenses per worksite employee per month		214			203		5.4	%
Operating income per worksite employee per month		39			26		50.0	%
Net income per worksite employee per month		19			15		26.7	%

_________________________

(1) Gross billings of $8,161 and $7,653 per worksite employee per month, less payroll cost of $6,731 and $6,302 per worksite employee per month, respectively.

Revenues

Our revenues for the nine months ended September 30, 2011, increased 15.3% over the 2010 period, primarily due to a 9.0% increase in the average number of worksite employees paid per month and a 5.8%, or $79 increase in revenues per worksite employee per month.

By region, our Workforce Optimization revenues compared to the first nine months of 2010 and distribution for the nine months ended September 30, 2011 and 2010 were as follows:

	Nine Months Ended September 30,							Nine Months Ended September 30,
	2011		2010		% Change			2011			2010
	(in thousands)							(% of total revenues)
Northeast	$	383,938	$	306,610		25.2	%		26.3	%		24.1	%
Southeast		144,120		138,774		3.9	%		9.8	%		10.9	%
Central		212,910		188,618		12.9	%		14.6	%		14.8	%
Southwest		423,139		391,745		8.0	%		29.0	%		30.8	%
West		295,678		247,275		19.6	%		20.3	%		19.4	%
		1,459,785		1,273,022		14.7	%		100.0	%		100.0	%
Adjacent Businesses and other revenue		21,320		11,204		90.3	%
Total revenue	$	1,481,105	$	1,284,226		15.3	%

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Our Workforce Optimization growth rate is affected by three primary sources – worksite employees paid from new client sales, client retention and the net change in existing clients through worksite employee new hires and layoffs.  During the first nine months of 2011, the net change in existing clients, worksite employees paid from new client sales and client retention all improved as compared to the first nine months of 2010.

Gross Profit

Gross profit for the first nine months of 2011 increased 20.3% over the 2010 period to $261.8 million.  The average gross profit per worksite employee increased 10.5% to $253 per month in the 2011 period from $229 per month in the 2010 period.  Also included in gross profit in 2011 is an $11 per worksite employee per month contribution from our Adjacent Businesses compared to $5 per worksite employee per month in the 2010 period, due to acquisitions that closed during 2010 and 2011.  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.

While our revenues increased 5.8% per worksite employee per month, our direct costs, which primarily include payroll taxes, benefits and workers’ compensation expenses, increased 4.9% to $1,177 per worksite employee per month in the first nine months of 2011 versus $1,122 in the first nine months of 2010.

· Benefits costs – The cost of group health insurance and related employee benefits increased $21 per worksite employee per month, or 4.3% on a cost per covered employee basis compared to the 2010 period.  These results reflect the favorable impact of plan design changes implemented on January 1, 2011, and a decrease in the number of COBRA participants.  The number of participants electing COBRA coverage in the United plan declined from 6.8% in the first nine months of 2010 to 3.9% in the first nine months of 2011 due primarily to the August 2011 expiration of the 65% federal premium subsidy provided to COBRA eligible participants under the American Recovery and Reinvestment Act of 2009.  Historically, the net costs of COBRA claims per enrollee are approximately double the cost of claims associated with active enrollees.  The percentage of worksite employees covered under our health insurance plans was 73.7% in the 2011 period compared to 74.3% in the 2010 period.  Please read Note 2 - “Accounting Policies – Health Insurance Costs” on page 10 for a discussion of our accounting for health insurance costs.

· Workers’ compensation costs – Workers’ compensation costs increased 1.0%, but decreased $3 per worksite employee per month compared to the first nine months of 2010.  As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.54% in the 2011 period compared to 0.61% in the 2010 period.  During the 2011 period, we recorded reductions in workers’ compensation costs of $8.6 million, or 0.14% of non-bonus payroll costs, for changes in estimated losses related to prior reporting periods, compared to $5.0 million, or 0.09% of non-bonus payroll costs, in the 2010 period.  Please read Note 2 “Accounting Policies – Workers’ Compensation Costs” on page 11 for a discussion of our accounting for workers’ compensation costs.

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· Payroll tax costs – Payroll taxes increased 16.6%, or $34 per worksite employee per month compared to the first nine months of 2010 primarily due to the 16.4% increase in payroll costs.  Payroll taxes as a percentage of payroll cost were 7.7% in both the 2011 and 2010 periods.

Operating Expenses

The following table presents certain information related to our operating expenses for the nine months ended September 30, 2011 and 2010:

	Nine Months Ended September 30,							Nine Months Ended September 30,
	2011		2010		% Change			2011		2010		% Change
	(in thousands)							(per worksite employee per month)
Salaries, wages and payroll  taxes	$	117,558	$	108,558		8.3	%	$	113	$	114		(0.9	)%
Stock–based compensation		6,455		6,148		5.0	%		6		6		­­––
Commissions		9,750		8,494		14.8	%		10		9		11.1	%
Advertising		18,280		11,180		63.5	%		18		12		50.0	%
General and administrative expenses		57,828		47,674		21.3	%		56		50		12.0	%
Depreciation and amortization		11,335		11,266		0.6	%		11		12		(8.3	)%
Total operating expenses	$	221,206	$	193,320		14.4	%	$	214	$	203		5.4	%

Operating expenses increased 14.4% to $221.2 million compared to $193.3 million in the first nine months of 2010, primarily due to $9.7 million in expenses related to our rebranding initiative and $6.8 million in expenses associated with acquisitions completed in late 2010 and early 2011.  Operating expenses per worksite employee per month increased to $214 in the 2011 period versus $203 in the 2010 period.  The components of operating expenses changed as follows:

·   Salaries, wages and payroll taxes of corporate and sales staff increased 8.3%, but decreased $1 on a per worksite per month basis compared to the 2010 period.  This increase was primarily due to a 7.0% rise in headcount, largely related to our adjacent business strategy and the associated acquisitions.

·   Stock-based compensation increased 5.0%, but remained flat on a per worksite employee per month basis compared to the 2010 period.  The stock-based compensation expense represents amortization of restricted stock awards granted to employees.

·   Commissions expense increased 14.8%, or $1 per worksite employee per month basis compared to the 2010 period.

·   Advertising costs increased 63.5%, or $6 per worksite employee per month compared to the 2010 period, primarily due to $6.1 million in advertising and business promotions related to our rebranding initiative.

·   General and administrative expenses increased 21.3%, or $6 per worksite employee per month compared to the first nine months of 2010, primarily due to $3.6 million in expenses associated with the Company’s rebranding initiative and $2.4 million in expenses associated with the acquisitions in 2010 and early 2011.

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·   Depreciation and amortization expense increased 0.6%, but decreased $1 on a per worksite employee per month basis compared to the 2010 period.

Other Income (Expense)

Other expense was $6.7 in the 2011 period, primarily due to a $4.4 million loss related to the exchange of an aircraft and a $3.1 million loss related to the EDD settlement with the State of California in the third quarter of 2011.  See Note 8, “Commitments and Contingencies” on page 17 for additional information on the EDD settlement.

Income Tax Expense

Our effective income tax rate was 42.2% in the 2011 period compared to 41.8% in the 2010 period.  Our provision for income taxes differed from the U.S. statutory rate of 35% primarily due to state income taxes and non-deductible expenses.

Operating and Net Income

Operating and net income per worksite employee per month was $39 and $19 in the 2011 period, versus $26 and $15 in the 2010 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.

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	Three Months Ended September 30,				%			Nine Months Ended September 30,				%
	2011		2010		Change			2011		2010		Change
	(in thousands, except per worksite employee data)
Payroll cost (GAAP)	$	2,362,941	$	2,030,006		16.4	%	$	6,972,806	$	5,989,681		16.4	%
Less: Bonus payroll cost		174,668		105,674		65.3	%		644,129		427,163		50.8	%
Non-bonus payroll cost	$	2,188,273	$	1,924,332		13.7	%	$	6,328,677	$	5,562,518		13.8	%
Payroll cost per worksite employee (GAAP)	$	6,662	$	6,240		6.8	%	$	6,731	$	6,302		6.8	%
Less: Bonus payroll cost per worksite employee		492		325		51.4	%		621		449		38.3	%
Non-bonus payroll cost per worksite employee	$	6,170	$	5,915		4.3	%	$	6,110	$	5,853		4.4	%

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, acquisition plans and other operating cash needs.  To meet short- and long-term liquidity requirements, including payment of direct and operating expenses and repaying debt, we rely primarily on cash from operations.  However, we have in the past sought, and may in the future seek, to raise additional capital or take other steps to increase or manage our liquidity and capital resources.  We had $225.3 million in cash, cash equivalents and marketable securities at September 30, 2011, of which approximately $93.1 million was payable in early October 2011 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $3.9 million of client prepayments that were payable in October 2011.  At September 30, 2011, we had working capital of $129.1 million compared to $144.5 million at December 31, 2010.  We currently believe that our cash on hand and cash flows from operations will be adequate to meet our liquidity requirements for the remainder of 2011.  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.

In September 2011, we completed the financing for a new four-year, $100 million revolving credit facility (“Facility”), with a syndicate of financial institutions.  The Facility is available for working capital and general corporate purposes, including acquisitions, and was undrawn at September 30, 2011.  See Note 5, “Revolving Credit Facility” on page 15 for additional information.

Cash Flows from Operating Activities

Net cash provided by operating activities in 2011 was $13.2 million.  Our primary source of cash from operations is the comprehensive service fee and payroll funding we collect from our clients.  The level of 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:

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· Timing of client payments / payrolls – 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.  In the period ended September 30, 2011, which ended on a Friday, client prepayments were $3.9 million and accrued worksite employee payroll was $130.8 million.  In the period ended December 31, 2010, which also ended on a Friday, client prepayments were $8.1 million and accrued worksite employee payroll was $109.7 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 $27.3 million in the first nine months of 2011 and $28.5 million in the first nine months of 2010. However, our estimate of workers’ compensation loss costs was $25.5 million and $23.6 million in 2011 and 2010, respectively.  During 2011 and 2010, we received $10.0 million and $15.6 million, respectively, 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.  Since inception of the United plan, premiums owed and cash funded to United has exceeded Plan Costs, resulting in a $22.7 million surplus, $13.7 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 at September 30, 2011.  The premiums owed to United at September 30, 2011, 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 increased 34.0% to $19.6 million in the nine months ended September 30, 2011, compared to $14.7 million in the nine months ended September 30, 2010.  Please read Results of Operations – Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010 on page 23.

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Cash Flows from Investing Activities

Net cash flows used in investing activities were $50.0 million for the nine months ended September 30, 2011, due to $23.4 million in capital expenditures primarily related to our technology infrastructure and $10.0 million aircraft purchase.  We also spent $10.8 million for the acquisition of the OrgPlus business from HumanConcepts.  See Note 4, “Acquisitions” on page 15 for additional information.

Cash Flows from Financing Activities

Net cash flows used in financing activities were $28.1 million for the nine months ended September 30, 2011, including $22.5 million in stock repurchases and $11.9 million in dividends paid.

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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.   Our cash equivalent short-term investments consist primarily of overnight investments and money market funds, 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.

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.

ITEM 4.   CONTROLS AND PROCEDURES.

In accordance with the Securities Exchange Act of 1934 Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2011.

There has been no change in our internal controls over financial reporting that occurred during the three months ended September 30, 2011, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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PART II

ITEM 1.  LEGAL PROCEEDINGS.

Please read Note 8 to our financial statements, 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 adjacent business strategy, including acquisitions; and (x) an adverse final judgment or settlement of claims against Insperity.  These factors are discussed in further detail in our 2010 Annual Report on Form 10-K under “Factors That May Affect Future Results and the Market Price of Common Stock” on page 17, and elsewhere in this report.  Any of these factors, or a combination of such factors, could materially affect the results of our operations and whether forward-looking statements we make ultimately prove to be accurate.

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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, 2010.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about purchases by Insperity during the three months ended September 30, 2011, 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)
07/01/2011 – 07/31/2011		4,916	$	29.12		12,484,185		1,015,815
08/01/2011 – 08/31/2011		339,537		25.37		12,823,722		676,278
09/01/2011 – 09/30/2011		325,487		21.75		13,147,911		1,352,089
Total		669,940	$	23.64		13,147,911		1,352,089

_______________

(1)   Our Board of Directors has approved a repurchase program of Insperity common stock, including an additional 1,000,000 shares authorized for repurchase in September 2011. During the three months ended September 30, 2011, 668,067 shares were repurchased under the program and 1,873 shares were withheld to satisfy tax withholding obligations for the vesting of restricted stock awards.  As of September 30, 2011, the Company was authorized to repurchase an additional 1,352,089 shares under the program. Unless terminated earlier by resolution of the board of directors, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the repurchase program.

(2)   These shares include 1,873 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.

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ITEM 6.  EXHIBITS

(a) List of exhibits.

10.1	*	Exchange agreement for corporate aircraft, dated August 30, 2011.
10.2	*	Credit Agreement, dated September 15, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s current Report on Form 8-K filed on September 21, 2011).
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.DEF		XBRL Extension Definition 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 month and nine month periods ended September 30, 2011 and 2010; (ii) the Consolidated Balance Sheets at September 30, 2011 and December 31, 2010; (iii) the Consolidated Statements of Cash Flows for the periods ended September 30, 2011 and 2010 and; (iv) the Consolidated Statement of Stockholders' Equity for the period ended September 30, 2011 (v) Notes to the Consolidated Financial Statements.  Users of this data are advised pursuant to Rule 406T of Regulation S-T this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, additionally the data is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under these sections.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Insperity, Inc.
Date:  November 1, 2011	By:	/s/ Douglas S. Sharp
		Senior Vice President of Finance,
		Chief Financial Officer and Treasurer
		(Principal Financial and Duly Authorized Officer)

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EX-10.1

Exhibit 10.1

EXCHANGE AGREEMENT

THIS EXCHANGE AGREEMENT (this “Agreement”) is made as of the 30th day of August, 2011 by and between BUS AV/DEL, INC.,a Delaware corporation (“Bus Av/Del”) and INSPERITY, INC., a Delaware corporation (“Insperity”).

RECITALS

A.            Bus Av/Del is the owner of that certain Embraer Model EMB-135BJ aircraft, bearing manufacturer’s serial number 14500903 and U.S. registration number N900DP, together with two (2) Rolls Royce AE3007 A1EC engines bearing manufacturer’s serial numbers CAE312746 and CAE312790 together with all avionics, appliances, parts, instruments, accessions, accessories, furnishings or other equipment or property attached thereto and associated therewith respectively and including the airframe and engine log books (which shall be original and complete), maintenance records (which shall be continuous and up-to-date), wiring diagrams (complete from the date of manufacture), engineering and maintenance manuals, engine covers, loose equipment, tool kit(s), spares, and all other accessories associated with the aircraft, which shall accompany the aircraft for the Embraer Pre-Purchase Inspection (as defined below) and at delivery (collectively, the “Embraer Aircraft”).

B.             Insperity is the owner of that certain Israel Aircraft Industries Gulfstream 100 aircraft, bearing manufacturer’s serial number 152 and U.S. registration number N160CT, with two (2) Honeywell TFE731-40R-200G engines bearing manufacturer’s serial numbers P113254 and P113257, together with all avionics, appliances, parts, instruments, accessions, accessories, furnishings or other equipment or property attached thereto and associated therewith respectively and including the airframe and engine log books (which shall be original and complete), maintenance records (which shall be continuous and up-to-date), wiring diagrams (complete from the date of manufacture), engineering and maintenance manuals, engine covers, loose equipment, tool kit(s), spares, and all other accessories associated with the aircraft, which shall accompany the aircraft for the G100 Pre-Purchase Inspection (as defined below) and at delivery (collectively, the “G100 Aircraft”).

C.             Bus Av/Del desires to transfer, and Insperity desires to acquire for the purposes of leasing, the Embraer Aircraft and Insperity desires to transfer, and Bus Av/Del desires to acquire, the G100 Aircraft, each upon the terms and conditions set forth below.

NOW THEREFORE, in consideration of the mutual promises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby conclusively acknowledged, the parties hereto agree as follows:

SECTION I

TRANSFER AND ACQUISITION OF AIRCRAFT

1.01          Transfer and Acquisition of Embraer Aircraft. Bus Av/Del hereby agrees to transfer, grant, convey, and set over to Insperity, and Insperity hereby agrees to acquire from Bus Av/Del at the Closing (as defined in Section 1.07(a) herein), the Embraer Aircraft, in accordance with the terms and conditions of this Agreement.

1.02          Purchase Price. At the Closing, Insperity agrees to pay to Bus Av/Del, and Bus Av/Del agrees to accept from Insperity, a total purchase price (the “Purchase Price”) consisting of the aggregate of: (a) the sum of Ten Million and No/100 United States Dollars (US$10,000,000.00); and (b) the G100 Aircraft, in accordance with the terms and conditions of this Agreement.

1.03          Events Prior to Closing and Pre-Purchase Inspections.

(a)            Events Prior to Closing.

1.              Prior to the Closing, Bus Av/Del shall deposit, or shall cause to be deposited a Warranty Aircraft Bill of Sale in the form attached hereto as Exhibit A (the “Embraer Warranty Bill of Sale”), an FAA Bill of Sale (AC Form 8050-2) in favor of Insperity in respect of the Embraer Aircraft (the “Embraer FAA Bill of Sale”), any necessary releases of Liens (as defined in Section 1.07(e)(ix) below), and Bus Av/Del’s Aircraft Registration Application (AC Form 8050-1) for the G100 Aircraft (the “G100 Registration Application”), in escrow with Insured Aircraft Title Service, Inc. (the “Escrow Agent”), whose address is 4848 SW 36 Street, Oklahoma City, Oklahoma 73179, attention: Joan Roberts.

2.              Prior to the Closing, Insperity shall deposit, or shall cause to be deposited, a Warranty Aircraft Bill of Sale in the form attached hereto as Exhibit B (the “G100 Warranty Bill of Sale”), an FAA Bill of Sale (AC Form 8050-2) in favor of Bus Av/Del in respect of the G100 Aircraft (the “G100 FAA Bill of Sale”), any necessary releases of Liens, and Insperity’s Aircraft Registration Application (AC Form 8050-1) for the Embraer Aircraft (the “Embraer Registration Application”), in escrow with the Escrow Agent.

3.              Upon execution of this Agreement and prior to commencing the pre-purchase inspections set forth in Section 1.03(c) herein, Insperity shall deposit the sum of Two Hundred Fifty Thousand and No/100 United States Dollars (US$250,000.00) in escrow with Escrow Agent as a deposit toward the Purchase Price (the “Deposit”). In the event that either the Embraer Aircraft or the G100 Aircraft is rejected pursuant to Section 1.04 below, the full amount of the Deposit shall be immediately returned to Insperity. In the event that the Embraer Aircraft and the G100 Aircraft are each technically accepted pursuant to Section 1.04 below, then the Deposit shall become non-refundable except as otherwise set forth in this Agreement.

(b)            Embraer Pre-Purchase Inspection.

1.              If the Embraer Aircraft is not already at the Embraer Inspection Facility (as defined below) at the execution of this Agreement, then not later than two (2) business days after execution of this Agreement, Bus Av/Del shall cause the Embraer Aircraft to be ferried to Constant Aviation in Cleveland, OH (the “Embraer Inspection Facility”) by which an aircraft inspection shall commence at Insperity’s sole cost the scope of which is set forth in Exhibit D attached hereto and incorporated herein (“Insperity Embraer Inspection”) including a factory approved test flight of the Embraer Aircraft to verify proper operation of the Embraer Aircraft’s systems and operations and, if desired, an evaluation of the readiness of the Embraer Aircraft to be placed on the operations specifications of an FAR Part 135 operator of Insperity’s choice. In addition, Insperity shall be entitled to observe and have full access to, including any reports or documentation, to the previously scheduled inspection of the Embraer Aircraft detailed in Exhibit C attached hereto and incorporated herein and paid for in its entirety by Bus Av/Del (the “Previously Scheduled Inspection”). The Previously Scheduled Inspection and the Insperity Embraer Inspection shall be collectively referred to herein as “Embraer Pre-Purchase Inspection.” Insperity shall pay any actual out-of-pocket direct operating costs associated with the test flight, not to exceed $3,000 per hour. The Embraer Pre-Purchase Inspection shall be completed as expeditiously as reasonably practicable but in any event the Insperity Embraer Inspection shall be completed no later than ten (10) business days following completion of the Previously Scheduled Inspection (the “Embraer Inspection Period”). Bus Av/Del shall provide a copy of the Previously Scheduled Inspection report to Insperity. The cost of transporting the Embraer Aircraft to the Embraer Inspection Facility and the Embraer Delivery Location (as such term is defined in Section 1.07(a) herein), shall be borne exclusively by Bus Av/Del.

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2.              Bus Av/Del shall pay all costs (in each case as determined by the Embraer Inspection Facility) for the repair of all discrepancies of the Embraer Aircraft from the delivery conditions set forth in Section 1.07(e)(i)-(viii) (the “Embraer Punch List Items”). If the evaluation of Part 135 readiness produces a discrepancy that renders the Embraer Aircraft not airworthy for Part 135 operations but still airworthy for Part 91 operations, then Bus Av/Del is not responsible to correct that discrepancy and Insperity’s sole recourse is to reject the Embraer Aircraft. It is understood and agreed that in no event shall Bus Av/Del be required to pay for the cost of any cosmetic items or for the cost of repairing or replacing any equipment or system that is “within limits” according to the applicable manufacturer’s maintenance manuals.

3.              Subsequent to the completion of the Embraer Pre-Purchase Inspection including the test flight and correction of the Embraer Punch List Items, Bus Av/Del shall relocate the Embraer Aircraft to the Bus Av/Del facility in Aiken, South Carolina where any remaining Bus Av/Del personal property will be removed from the Embraer Aircraft and all of the manuals, records, spare parts, and other items required to be delivered with the Embraer Aircraft will be placed on board the Embraer Aircraft and will remain on board until Closing. As soon as practical, but no later than one (1) week from arrival in Aiken, Bus Av/Del will relocate the Embraer Aircraft to the Embraer Delivery Location (as defined in Section 1.07(a)). Bus Av/Del shall permit a representative of Insperity to accompany the Embraer Aircraft on the relocation flights. Bus Av/Del agrees that while the Embraer Aircraft is located in Aiken, no persons will be allowed on board the Embraer Aircraft except flight crew members and line personnel as required to ready the Embraer Aircraft for delivery. Insperity shall arrange and pay for hangar space for the Embraer Aircraft at the Embraer Delivery Location until Closing. Insperity agrees that the Embraer Aircraft will not be operated for any reason, including ground operations prior to Closing unless Mr. Tony Burgess is present or has approved such operations in writing. Insperity agrees that prior to Closing, no unauthorized persons will be allowed on board the Embraer Aircraft and that the Embraer Aircraft shall remain secured and located inside the hangar.

3

4.              Bus Av/Del agrees that the Embraer Aircraft will not be flown prior to Closing without prior notice to Insperity, except as set forth herein and except in the event of an emergency. In addition, Insperity shall have the right to elect to provide or arrange for alternate private transportation for any such trips for Bus Av/Del on an aircraft reasonably acceptable to Bus Av/Del. Insperity shall be responsible for the cost of such alternate transportation; provided however, that Bus Av/Del agrees to reimburse Insperity or pay the services provider directly, a cost for each such trip not to exceed the direct operating costs for such trip if such trip had been flown on the Embraer Aircraft. Bus Av/Del agrees to use its best efforts to minimize trips on the Embraer Aircraft prior to Closing, but in no event shall such trips exceed 10 hours total duration. Bus Av/Del shall advise Insperity of any events which occur or maintenance items which arise during its use of the Embraer Aircraft which affect the condition of the Embraer Aircraft. Nothing herein shall negate or alter Bus Av/Del’s obligation to deliver the Embraer Aircraft in the condition required under this Agreement.

(c)            G100 Pre-Purchase Inspection.

1.              Not later than two (2) business days after execution of this Agreement, Insperity shall cause the G100 Aircraft to be ferried to Standard Aero in Houston, Texas or another mutually agreeable location within the continental United States (the “G100 Inspection Facility”) by which an aircraft pre-purchase inspection shall commence, the scope of which is set forth in Exhibit E attached hereto and incorporated herein (the “G100 Pre-Purchase Inspection”) including a factory approved test flight of the G100 Aircraft to verify proper operation of the G100 Aircraft’s systems and operations and, if desired, an evaluation of the readiness of the G100 Aircraft to be placed on the operations specifications of an FAR Part 135 operator of Bus Av/Del’s choice. The G100 Pre-Purchase Inspection shall be at Bus Av/Del’s sole cost except as noted on Exhibit E. Bus Av/Del shall pay any actual out-of-pocket direct operating costs associated with the test flight, not to exceed $2,000.00 per hour. The G100 Pre-Purchase Inspection shall be completed as expeditiously as reasonably practicable but in no event later than ten (10) business days after the commencement thereof (the “G100 Inspection Period”). The cost of transporting the G100 Aircraft to the G100 Inspection Facility and the G100 Delivery Location (as such term is defined in Section 1.07(a) herein) shall be borne exclusively by Insperity.

2.              Insperity shall pay all costs (in each case as determined by the G100 Inspection Facility) for the repair of all discrepancies of the G100 Aircraft from the delivery conditions set forth in Section 1.07(e)(i)-(viii) (the “G100 Punch List Items”). If the evaluation of Part 135 readiness produces a discrepancy that renders the G100 Aircraft not airworthy for Part 135 operations but still airworthy for Part 91 operations, then Insperity is not responsible to correct that discrepancy and Bus Av/Del’s sole recourse is to reject the G100 Aircraft. It is understood and agreed that in no event shall Insperity be required to pay for the cost of any cosmetic items or for the cost of repairing or replacing any equipment or system that is “within limits” according to the applicable manufacturer’s maintenance manuals. In addition, Insperity shall pay all costs for the completion of the items set forth in Exhibit F attached hereto and incorporated herein in regard to the G100 Aircraft (such items shall be collectively referred to as the “G100 Improvements”).

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3.              Except as set forth herein and except to return the G100 Aircraft to the Wing Aviation facility if necessary, prior to Closing, Insperity agrees that the G100 Aircraft will not be flown prior to Closing, including but not limited to, for any charter flights. Insperity agrees to secure the G100 Aircraft in an appropriate hangar facility until Closing.

1.04          Acceptance/Rejection.

(a)            Acceptance/Rejection of Embraer Aircraft. Insperity shall notify Bus Av/Del in writing no later than two (2) business days after receipt of the Embraer Pre-Purchase Inspection final report of Insperity’s technical acceptance or rejection of the Embraer Aircraft, pursuant to a Confirmation of Technical Acceptance or Rejection of Embraer Aircraft in the form attached hereto as Exhibit G. Acceptance or rejection of the Embraer Aircraft shall be in Insperity’s sole and absolute discretion. In the event that (i) Insperity accepts the Embraer Aircraft as herein provided and (ii) Bus Av/Del accepts the G100 Aircraft as provided in Section 1.04(b) below, then the parties shall proceed to consummate the transaction as contemplated herein. The failure by Insperity to accept or reject the Embraer Aircraft as contemplated herein no later than two (2) business days after the receipt of the Embraer Pre-Purchase Inspection final report shall be deemed to be an unconditional rejection of the Embraer Aircraft by Insperity in its then current condition. In the event that Insperity rejects the Embraer Aircraft as herein provided, the Escrow Agent shall return the Deposit, the Embraer Registration Application, the G100 Warranty Bill of Sale and the G100 FAA Bill of Sale to Insperity, and shall return the Embraer Warranty Bill of Sale, the Embraer FAA Bill of Sale, and the G100 Registration Application to Bus Av/Del, whereupon the parties shall be relieved of any further responsibility or liability to one another pursuant to this Agreement.

(b)            Acceptance/Rejection of G100 Aircraft. Bus Av/Del shall notify Insperity in writing no later than two (2) business days after receipt of the G100 Pre-Purchase Inspection final report of Bus Av/Del’s technical acceptance or rejection of the G100 Aircraft, pursuant to a Confirmation of Technical Acceptance or Rejection of G100 Aircraft in the form attached hereto as Exhibit H. Acceptance or rejection of the G100 Aircraft shall be in Bus Av/Del’s sole and absolute discretion. In the event that (i) Bus Av/Del accepts the G100 Aircraft as herein provided and (ii) Insperity accepts the Embraer Aircraft as provided in Section 1.04(a) above, then the parties shall proceed to consummate the transaction as contemplated herein. The failure by Bus Av/Del to accept or reject the G100 Aircraft as contemplated herein no later than two (2) business days after the receipt of the G100 Pre-Purchase Inspection final report shall be deemed to be an unconditional rejection of the G100 Aircraft by Bus Av/Del in its then current condition. In the event that Bus Av/Del rejects the G100 Aircraft as herein provided, then the Escrow Agent shall return the Deposit, the Embraer Registration Application, the G100 Warranty Bill of Sale and the G100 FAA Bill of Sale to Insperity and shall return the Embraer Warranty Bill of Sale, the Embraer FAA Bill of Sale and the G100 Registration Application to Bus Av/Del, whereupon the parties shall be relieved of any further responsibility or liability to one another pursuant to this Agreement.

1.05          Exclusion. EXCEPT AS EXPRESSLY SET FORTH IN SECTION 5.04 OF THIS AGREEMENT AND IN THE EMBRAER WARRANTY BILL OF SALE,THE EMBRAER AIRCRAFT IS SOLD AND DELIVERED “AS IS,” “WHERE IS” AND “WITH ALL FAULTS” AND EACH PARTY AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN SECTION 5.04 OF THIS AGREEMENT OR IN THE EMBRAER WARRANTY BILL OF SALE, BUS AV/DEL WILL HAVE NO LIABILITY IN RELATION TO, OR WILL BE DEEMED TO HAVE MADE OR GIVEN ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO THE EMBRAER AIRCRAFT AND EXPRESSLY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, OR EXPRESS OR IMPLIED WARRANTY AS TO THE CONDITION, DESIGN, QUALITY, CAPACITY OR SUITABILITY OF THE EMBRAER AIRCRAFT.

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1.06          Exclusion. EXCEPT AS EXPRESSLY SET FORTH IN SECTION 4.04 OF THIS AGREEMENT AND IN THE G100 WARRANTY BILL OF SALE,THE G100 AIRCRAFT IS SOLD AND DELIVERED “AS IS,” “WHERE IS” AND “WITH ALL FAULTS” AND EACH PARTY AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN SECTION 4.04 OF THIS AGREEMENT OR IN THE G100 WARRANTY BILL OF SALE, INSPERITY WILL HAVE NO LIABILITY IN RELATION TO, NOR WILL BE DEEMED TO HAVE MADE OR GIVEN ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO THE G100 AIRCRAFTAND EXPRESSLY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, OR EXPRESS OR IMPLIED WARRANTY AS TO THE CONDITION, DESIGN, QUALITY, CAPACITY OR SUITABILITY OF THE G100 AIRCRAFT.

1.07          Closing.

(a)            The closing of the transaction contemplated by this Agreement and the delivery of the Embraer Aircraft and the G100 Aircraft (the “Closing”) shall be held within three (3) business days of the latest of the following to occur: completion of the repair of the Embraer Punch List Items, the G100 Punch List Items and the G100 Improvements and return to service of the Embraer Aircraft and the G100 Aircraft (the “Closing Date”). At Closing, the Embraer Aircraft shall be located and delivered in Conroe, Texas or at such other place as is mutually agreed upon by Insperity and Bus Av/Del (“Embraer Delivery Location”). At Closing, the G100 Aircraft shall be located and delivered in Wilmington, Delaware or at such other place as is mutually agreed upon by Insperity and Bus Av/Del (“G100 Delivery Location”). All costs associated with transporting the Embraer Aircraft to the Embraer Delivery Location for the Closing shall be borne by Bus Av/Del. All costs associated with transporting the G100 Aircraft to the G100 Delivery Location shall be borne by Insperity.

(b)            The Embraer Aircraft shall be delivered to Insperity at the Embraer Delivery Location or at such other place as is mutually agreed upon by Insperity and Bus Av/Del. The G100 Aircraft shall be delivered to Bus Av/Del at the G100 Delivery Location or at such other place as is mutually agreed upon by Insperity and Bus Av/Del.

(c)            Acceptance of the Embraer Aircraft by Insperity shall be evidenced by the execution by Insperity of the Embraer Aircraft Delivery Certificate in the form set forth in Exhibit I attached hereto and incorporated by reference herein. Acceptance of the G100 Aircraft by Bus Av/Del shall be evidenced by the execution by Bus Av/Del of the G100 Aircraft Delivery Certificate in the form set forth in Exhibit J attached hereto and incorporated by reference herein.

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(d)            At the Closing, upon receipt of confirmation from Insperity and Bus Av/Del that all conditions precedent have been satisfied, the Escrow Agent shall: (i) forward the funds portion of the Purchase Price as directed by Bus Av/Del, (ii) forward the original G100 Warranty Bill of Sale to Bus Av/Del, (iii) file the original G100 FAA Bill of Sale, along with any necessary releases of Liens and G100 Registration Application, with the FAA, (iv) forward the original Embraer Warranty Bill of Sale to Insperity, (v) file the original Embraer FAA Bill of Sale, along with any necessary releases of Liens (as defined below) and Embraer Registration Application with the FAA on a separate minute from and after the G100 FAA Bill of Sale, (vi) upon receipt of the necessary authorization codes from the FAA, register the transfer of the G100 Aircraft (the airframe and each engine) from Insperity to Bus Av/Del hereunder as a contract of sale on the International Registry, and (vii) upon receipt of the necessary authorization codes from the FAA, register the transfer of the Embraer Aircraft (the airframe and each engine) from Bus Av/Del to Insperity hereunder as a contract of sale on the International Registry.

(e)            Subject to the terms of this Section 1.07(e), at the time of Closing both the Embraer Aircraft and the G100 Aircraft shall be (i) delivered in proper operating order with all systems and components functioning normally and in airworthy and operational condition, and in compliance with manufacturer’s specifications, (ii) current on each of their respective manufacturer’s maintenance programs (as applicable) with all airworthiness directives and mandatory service bulletins with due dates on or prior to the Closing Date complied with, and current on all calendar and time items as of the Closing Date, (iii) delivered with a valid U.S. standard airworthiness certificate from the FAA without exceptions or limitations, (iv) delivered in the same condition as of the completion of the Embraer Pre-Purchase Inspection or G100 Pre-Purchase Inspection, as appropriate, normal wear and tear and correction of the Embraer Punch List Items or G100 Punch List Items, as appropriate, excepted (v) delivered with no Damage History and no material corrosion, (vi) delivered with a complete, continuous, up-to-date and accurate set of original English-language logbooks, maintenance records and manuals, records and evidence of traceability for all work performed and parts installed on the Embraer Aircraft or G100 Aircraft, as appropriate, as required under FAR Part 91 and any other records that the FAA requires to be maintained, (vii) delivered as equipped and with the loose equipment, checklist, and manuals and records, (viii) delivered with all avionics and installed equipment functioning to manufacturer’s specifications, and (ix) with good and marketable title, free and clear of all mortgages, liens, security interests, claims, charges, international interests and encumbrances whatsoever (collectively, “Liens”). “Damage History” shall mean damage to the G100 Aircraft or Embraer Aircraft, as appropriate, that requires a major alteration within the definition of Appendix A or Appendix B of the FARs Part 43 or the completion of an FAA Form 337. In addition, Insperity shall deliver the G100 Aircraft with the G100 Improvements.

(f)             Notwithstanding anything in this Agreement to the contrary, it is the intention of the parties that the transactions contemplated herein are for the exchange of the Embraer Aircraft for the G100 Aircraft (in addition to the cash payment set forth in this Agreement). In the event one of the two aircraft is unavailable for Closing, the Closing shall be postponed for a reasonable amount of time; provided, however, that in the event such time exceeds thirty (30) calendar days, this Agreement may be terminated by the party whose aircraft is available for Closing. In the event of such termination, the Deposit shall be returned to Insperity and neither party shall have any further obligation to the other or liabilities under this Agreement.

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1.08          Escrow Agent Fees. Any fees charged by the Escrow Agent in respect of the transaction contemplated by this Agreement, except for Transacting User Entity registration of any party or as set forth in Section X, shall be borne equally by Insperity and Bus Av/Del.

SECTION II

CONDITIONS PRECEDENT TO INSPERITY’S

OBLIGATION TO CLOSE

The following shall be conditions precedent to Insperity’s obligation to acquire the Embraer Aircraft:

2.01          Bus Av/Del’s Warranties and Representations. All of Bus Av/Del’s warranties, covenants and representations made herein shall be true, accurate and correct on the Closing Date and when made on the date of the execution of this Agreement.

2.02          Embraer Bills of Sale. Bus Av/Del shall have executed and delivered to Escrow Agent the Embraer Warranty Bill of Sale and the Embraer FAA Bill of Sale in a form acceptable for filing and recording with the FAA.

2.03          FAA Airworthiness Certificate. Bus Av/Del shall have delivered a copy of the current FAA Certificate of Airworthiness for the Embraer Aircraft to Insperity.

2.04          Acceptance of Embraer Aircraft. Insperity shall have accepted the Embraer Aircraft in accordance with Section 1.04(a) above.

2.05          International Registry. Bus Av/Del shall have: (i) registered as a Transacting User Entity (as such term is defined in the Cape Town Convention (as defined in Section 10.01)); (ii) appointed the Escrow Agent to act as its administrator or Professional User Entity (as such term is defined in the Cape Town Convention) for the transactions contemplated by this Agreement; and (iii) provided all necessary consents related thereto.

2.06          Embraer Aircraft. Bus Av/Del shall have tendered the Embraer Aircraft to Insperity in the condition required in Section 1.07(e).

2.07          Lien Releases. Bus Av/Del shall have delivered or caused to be delivered to the Escrow Agent to hold in escrow any and all original Lien releases and any other documentation necessary to transfer free and clear title to the Embraer Aircraft to Insperity.

2.08Resolution. Bus Av/Del shall have delivered to the Escrow Agent to hold in escrow a copy of a resolution of the board of directors of Bus Av/Del,certified by the secretary, an assistant secretary or any other officer of the said party, duly adopted and in full force and effect, authorizing Bus Av/Del to enter into this Agreement, to acquire and take delivery of the G100 Aircraft, and to transfer the Embraer Aircraft.

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2.09          Taxes. Bus Av/Del shall have complied with the requirements of Section 6.02(c).

SECTION III

CONDITIONS PRECEDENT TO BUS AV/DEL’S OBLIGATION TO CLOSE

The following shall be conditions precedent to Bus Av/Del’s obligation to sell and deliver the Embraer Aircraft to Insperity:

3.01          Insperity’s Warranties and Representations. All of Insperity’s warranties, covenants and representations made herein shall be true, accurate and correct on the Closing Date and when made on the date of the execution of this Agreement.

3.02          Deposit. Insperity shall have delivered the Deposit to the Escrow Agent.

3.03          Payment of Purchase Price. Insperity shall have delivered the balance of the Purchase Price to the Escrow Agent on or prior to the Closing Date.

3.04          G100 Bills of Sale. Insperity shall have executed and delivered to Escrow Agent the G100 Warranty Bill of Sale and the G100 FAA Bill of Sale in a form acceptable for filing and recording with the FAA.

3.05          FAA Airworthiness Certificate. Insperity shall have delivered a copy of the current FAA Certificate of Airworthiness for the G100 Aircraft to Bus Av/Del.

3.06          Acceptance of G100 Aircraft. Bus Av/Del shall have accepted the G100 Aircraft in accordance with Section 1.04(b) above.

3.07          International Registry. Insperity shall have (i) registered as a Transacting User Entity (as such term is defined in the Cape Town Convention (as defined in Section 10.01)); (ii) appointed Escrow Agent to serve as its administrator or Professional User Entity (as such term is defined in the Cape Town Convention) for the transactions contemplated by this Agreement; and (iii) provided all necessary consents related thereto.

3.08          G100 Aircraft. Insperity shall have tendered the G100 Aircraft to Bus Av/Del in the condition required in Section 1.07(e).

3.09          Lien Releases. Insperity shall have delivered or caused to be delivered to the Escrow Agent to hold in escrow any and all original Lien releases and any other documentation necessary to transfer free and clear title to the G100 Aircraft to Bus Av/Del.

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3.10          Resolution. Insperity shall have delivered to the Escrow Agent to hold in escrow a copy of a resolution of the board of directors of Insperity, certified by the secretary, an assistant secretary or any other officer of the said party, duly adopted and in full force and effect, authorizing Insperity to enter into this Agreement, to acquire and take delivery of the Embraer Aircraft, and to transfer the G100 Aircraft.

3.11          Taxes. Insperity shall have complied with the requirements of Section 6.01(c).

SECTION IV

WARRANTIES AND REPRESENTATIONS OF INSPERITY

As of the date of this Agreement and as of the Closing Date, Insperity hereby warrants, covenants and represents to Bus Av/Del:

4.01          Corporate Standing. Insperity is a Delaware corporation duly organized, validly existing and in good standing under the laws of the United States.

4.02          Corporate Authority. The execution of this Agreement and the consummation by Insperity of the transaction contemplated herein are within Insperity’s corporate powers, have been duly authorized by all necessary corporate action of Insperity, have received all necessary governmental approval (if any shall be required), do not and will not contravene or conflict with any provision of law or of the formation documents or bylaws of Insperity, and Insperity has full right, power and authority to execute this Agreement and to consummate the transaction contemplated herein.

4.03          Binding Obligation. This Agreement, when executed, shall be a valid and binding obligation of Insperity and shall be enforceable against Insperity in accordance with its terms. Neither the execution, delivery nor the performance of this Agreement by Insperity will constitute a default under any covenant or agreement to which Insperity is a party or by which Insperity is bound.

4.04          Title. Insperity is the only registered owner of the G100 Aircraft and has full right, power and lawful authority to transfer title of the G100 Aircraft to Bus Av/Del. Insperity shall transfer good and marketable title to the G100 Aircraft free and clear of any and all Liens, and Insperity agrees to warrant and defend such title forever against all claims and demands whatsoever.

SECTION V

WARRANTIES AND REPRESENTATIONS OF BUS AV/DEL

As of the date of this Agreement and as of the Closing Date, Bus Av/Del hereby covenants, warrants and represents to Insperity that:

5.01          Corporate Standing. Bus Av/Del is a Delaware corporation duly organized, validly existing and in good standing under the laws of the United States.

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5.02          Corporate Authority. The execution of this Agreement and the consummation by Bus Av/Del of the transaction contemplated herein are within Bus Av/Del’s corporate powers, have been duly authorized by all necessary action of Bus Av/Del, have received all necessary governmental approval (if any shall be required), do not and will not contravene or conflict with any provision of law or of the formation documents or bylaws of Bus Av/Del, and Bus Av/Del has full right, power and authority to execute this Agreement and to consummate the transaction contemplated herein.

5.03          Binding Obligation. This Agreement, when executed, shall be a valid and binding obligation of Bus Av/Del and shall be enforceable against Bus Av/Dev in accordance with its terms. Neither the execution, delivery nor the performance of this Agreement by Bus Av/Dev will constitute a default under any covenant or agreement to which Bus Av/Dev is a party or by which Bus Av/Dev is bound.

5.04          Title. Bus Av/Del is the only registered owner of the Embraer Aircraft and has full right, power and lawful authority to transfer title of the Embraer Aircraft to Insperity. Bus Av/Del shall transfer good and marketable title to the Embraer Aircraft free and clear of any and all Liens, and Bus Av/Del agrees to warrant and defend such title forever against all claims and demands whatsoever.

SECTION VI

TAXES AND OTHER CHARGES

6.01          Embraer Aircraft.

(a)            Insperity shall be responsible for, and agrees to indemnify Bus Av/Del against, the payment of any and all taxes, fees, or duties as well as any penalties, interest and attorneys fees relating thereto, imposed by any jurisdiction as a result of: (i) Insperity’s ownership or usage of the Embraer Aircraft after Closing or (ii) this sale or the delivery or registration (post-Closing) of the Embraer Aircraft, except to the extent that such taxes, fees, duties, penalties, interest and attorneys fees relate to any income Bus Av/Del may realize on the sale of the Embraer Aircraft to Insperity.

(b)            Bus Av/Del shall be responsible for, and agrees to indemnify Insperity against any payment or imposition of taxes, fees or duties as well as any penalties, interest and attorneys fees, imposed by any jurisdiction on any income Bus Av/Del may realize on the sale of the Embraer Aircraft or as a result of the ownership, possession or usage of the Embraer Aircraft prior to the Closing.

(c)            With respect to sales tax on the Embraer Aircraft, Insperity shall either: (i) pay sales tax directly to Bus Av/Del or to the Escrow Agent to be released to Bus Av/Del at Closing for remittance to the appropriate state; or (ii) provide Bus Av/Del prior to Closing with documentation and/or evidence, including but not limited to a certificate of exemption, sufficient to evidence Insperity’s qualification for an exemption from sales tax. If a certificate of exemption is necessary for the Embraer Aircraft, Insperity shall position an original of the same with the Escrow Agent to be released to Bus Av/Del at Closing.

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6.02          G100 Aircraft.

(a)            Bus Av/Del shall be responsible for, and agrees to indemnify Insperity against, the payment of any and all taxes, fees, or duties as well as any penalties, interest and attorneys fees relating thereto, imposed by any jurisdiction as a result of: (i) Bus Av/Del's ownership or usage of the G100 Aircraft after Closing or (ii) this sale or the delivery or registration (post-Closing) of the G100 Aircraft, except to the extent that such taxes, fees, duties, penalties, interest and attorneys fees relate to any income Insperity may realize on the sale of the G100 Aircraft to Bus Av/Del.

(b)            Insperity shall be responsible for, and agrees to indemnify Bus Av/Del against any payment or imposition of taxes, fees or duties as well as any penalties, interest and attorneys fees, imposed by any jurisdiction on any income Insperity may realize on the sale of the G100 Aircraft or as a result of the ownership, possession or usage of the G100 Aircraft prior to the Closing.

(c)            With respect to sales tax on the G100 Aircraft, Bus Av/Del shall either: (i) pay sales tax directly to Insperity or to the Escrow Agent to be released to Insperity at Closing for remittance to the appropriate state; or (ii) provide Insperity prior to Closing with documentation and/or evidence, including but not limited to a certificate of exemption, sufficient to evidence Bus Av/Del’s qualification for an exemption from sales tax. If a certificate of exemption is necessary for the G100 Aircraft, Bus Av/Del shall position an original of the same with the Escrow Agent to be released to Insperity at Closing.

6.03          Notwithstanding the foregoing, nothing herein contained shall constitute an acknowledgment that any taxes are due as a result of this transaction.

SECTION VII

EVENTS OF DEFAULT/TERMINATION

7.01          In the event Insperity fails to accept delivery of the Embraer Aircraft and pay the Purchase Price to Bus Av/Del pursuant to the terms of this Agreement or in the event Insperity otherwise breaches the terms of this Agreement (for reasons other than those set forth in Sections 7.03 or 7.04 below) and the transactions contemplated hereby are not consummated, provided Bus Av/Del is not in breach or default of this Agreement, Bus Av/Del’s sole remedy shall be to terminate this Agreement by written notice to Insperity and the Escrow Agent and to receive the Deposit. Upon notification to Insperity and the Escrow Agent of termination of this Agreement by Bus Av/Del pursuant to this Section 7.01, the Escrow Agent shall immediately pay the Deposit to Bus Av/Del as liquidated damages and Insperity shall remain responsible for its payment obligations hereunder (other than to pay the Purchase Price). Bus Av/Del and Insperity acknowledge and represent that the liquidated damages amount provided for in this Section 7.01 is a reasonable estimate of the damages that would be incurred by Bus Av/Del in the event Insperity defaults on Insperity’s obligations under this Agreement. Bus Av/Del acknowledges and represents that Bus Av/Del’s receipt of the Deposit shall be the sole remedy available to Bus Av/Del in the event that Insperity defaults on Insperity’s obligations under this Agreement and Bus Av/Del waives any other remedies that may be available to Bus Av/Del at law or in equity. Upon notification of termination of this Agreement pursuant to this Section 7.01, this Agreement shall be of no further force or effect and none of the parties shall have any further obligations or liabilities under this Agreement except as set forth in this Section 7.01.

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7.02          In the event Bus Av/Del fails to deliver the Embraer Aircraft pursuant to the terms of this Agreement or otherwise breaches the terms of this Agreement (for reasons other than those set forth in Sections 7.03 and 7.04 below) and the transactions contemplated hereby are not consummated, provided Insperity is not in breach or default of this Agreement, Insperity’s sole remedy shall be to terminate this Agreement by written notice to Bus Av/Del and the Escrow Agent, receive the Deposit, and receive the Reimbursed Costs (as defined in this Section 7.02 below) from Bus Av/Del. Upon notification to Bus Av/Del and the Escrow Agent of termination of this Agreement by Insperity pursuant to this Section 7.02, the Escrow Agent shall immediately refund the Deposit to Insperity, and Bus Av/Del shall, as liquidated damages, reimburse Insperity for Insperity’s costs incurred during the Embraer Pre-Purchase Inspection and the test flight of the Embraer Aircraft to the extent already paid by Insperity (the “Reimbursed Costs”). Bus Av/Del and Insperity acknowledge and represent that the liquidated damages amount provided for in this Section 7.02 is a reasonable estimate of the damages that would be incurred by Insperity in the event Bus Av/Del defaults on Bus Av/Del’s obligations under this Agreement. Insperity acknowledges and represents that Insperity’s receipt of the Deposit and receipt of the Reimbursement Costs by Bus Av/Del shall be the sole remedy available to Insperity in the event that Bus Av/Del defaults on Bus Av/Del’s obligations under this Agreement and Insperity waives any other remedies that may be available to Insperity at law or in equity. Upon notification of termination of this Agreement pursuant to this Section 7.02, this Agreement shall be of no further force or effect and none of the parties shall have any further obligations or liabilities under this Agreement except as set forth in this Section 7.02.

7.03          This Agreement may be terminated by either party, if prior to Closing, the Embraer Aircraft or the G100 Aircraft is lost, destroyed or damaged beyond economic repair or the Embraer Aircraft or the G100 Aircraft suffers damage that results in the aircraft being unable to meet the delivery conditions. In the event of such termination, the Escrow Agent shall return the Deposit to Insperity. Upon notification of termination of this Agreement pursuant to this Section 7.03, this Agreement shall be of no further force or effect and none of the parties shall have any further obligations or liabilities under this Agreement except as set forth in this Section 7.03.

7.04          If either Bus Av/Del or Insperity fails to perform its obligations because of the occurrence of (i) acts of God or the public enemy, terrorism, civil war, insurrection or riots; (ii) fires, explosions or serious accidents; (iii) governmental priorities or allocations, strikes or labor disputes, receipt of equipment or parts from vendors; or (iv) any other cause beyond that party’s reasonable control; then that party’s performance shall be excused for a period equal to the period of such cause for failure to perform; provided that, the excused party shall give the other parties prompt notice of such cause for failure to perform; and provided further that if such failure to perform continues for sixty (60) days, then any party shall have the option to terminate this Agreement by notice in writing, in which event the Deposit shall be returned to Insperity. Upon notification of termination of this Agreement pursuant to this Section 7.04, this Agreement shall be of no further force or effect and none of the parties shall have any further obligations or liabilities under this Agreement except as set forth in this Section 7.04. This Section 7.04 shall not apply to the inability of a party to make payments required under this Agreement unless such inability is caused by a system-wide failure of the banking industry.

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SECTION VIII

SURVIVAL OF WARRANTIES, REPRESENTATIONS AND INDEMNIFICATIONS

8.01          Survival. All of the warranties, representations and indemnifications of the parties hereto made herein shall survive the Closing of this transaction.

SECTION IX

MANUFACTURER'S AND SERVICE WARRANTIES

9.01          Embraer Aircraft Manufacturer’s and Service Warranties. To the extent that they are assignable, effective upon Closing, Bus Av/Del agrees to assign, transfer, and set over unto Insperity, any and all manufacturer and/or repair warranties pertaining to the Embraer Aircraft, or any equipment or components thereofincluding but not limited to all airframe, engine, auxiliary power unit and major installed avionics. To the extent that they are assignable, effective upon Closing, Bus Av/Del agrees to assign, transfer, and set over unto Insperity, all current service plans pertaining to the Embraer Aircraft, or its engines or APU, including without limitationFlight Docs and Rolls Royce CorporateCare Program including any funds related thereto. Bus Av/Del agrees that such service plans shall be in good standing and paid up to date at Closing and shall provide such consent or documentation to enable the other party to verify such status prior to Closing. Insperity shall be responsible for any fees associated with such assignments or transfers.

9.02          G100 Aircraft Manufacturer’s and Service Warranties. To the extent that they are assignable, effective upon Closing, Insperity agrees to assign, transfer, and set over unto Bus Av/Del, any and all manufacturer and/or repair warranties pertaining to the G100 Aircraft, or any equipment or components thereof including but not limited to all airframe, engine, auxiliary power unit and major installed avionics. To the extent that they are assignable, effective upon Closing, Insperity agrees to assign, transfer, and set over unto Bus Av/Del, all current service plans pertaining to the G100 Aircraft, or its engines or APU, including without limitation Honeywell Engine Maintenance Service Program and the Auxiliary Power Unit Maintenance Service Plan, both with Honeywell including any funds related thereto. Insperity agrees that such service plans shall be in good standing and paid up to date at Closing and shall provide such consent or documentation to enable the other party to verify such status prior to Closing. Bus Av/Del shall be responsible for any fees associated with such assignments or transfers.

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SECTION X

CAPE TOWN CONVENTION

10.01        Insperity shall have no right to, and hereby agrees that it shall not, register, consent to or allow any third party to register any international interest or prospective international interest (as such terms are defined in the Cape Town Convention (as defined below)) under the Cape Town Convention with respect to the Embraer Aircraft or its engines until such time as the Embraer Aircraft has been transferred from Bus Av/Del to Insperity in accordance with the terms of this Agreement. Bus Av/Del shall have no right to, and hereby agrees that it shall not, register, consent to or allow any third party to register any international interest or prospective international interest (as such terms are defined in the Cape Town Convention) under the Cape Town Convention with respect to the G100 Aircraft or its engines until such time as the G100 Aircraft has been transferred from Insperity to Bus Av/Del in accordance with the terms of this Agreement. As used herein, the term “Cape Town Convention” means, collectively, the Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment which were adopted on November 16, 2001 at a diplomatic conference held in Cape Town, South Africa.

10.02        Notwithstanding anything in this Agreement to the contrary, Insperity, Bus Av/Del and the Escrow Agent hereby agree that in the event of termination of this Agreement for any reason whatsoever (which termination shall in no event be effective until the requirements of this Section 10.02 have been satisfied), the Escrow Agent shall not return the Deposit to Insperity, unless and until the Escrow Agent has searched the International Registry and determined that no interest has been registered against any portion or all of the Embraer Aircraft or its engines by Insperity or any person claiming by, through, under or in connection with Insperity, and that no interest has been registered against any portion or all of the G100 Aircraft or its engines by Bus Av/Del or any person claiming by, through, under or in connection with Bus Av/Del. Bus Av/Del shall pay all costs and expenses to search the International Registry database pursuant to this Section 10.02 with regard to the Embraer Aircraft unless such search reveals that any interest has been filed or registered against the Embraer Aircraft or its engines in violation of Section 10.01 above, in which event Insperity shall pay all such costs and expenses. Insperity shall pay all costs and expenses to search the International Registry database pursuant to this Section 10.02 with regard to the G100 Aircraft unless such search reveals that any interest has been filed or registered against the G100 Aircraft or its engines in violation of Section 10.01 above, in which event Bus Av/Del shall pay all such costs and expenses.

10.03        In the event that any interest has been registered against the Embraer Aircraft or any part thereof by Insperity or any person claiming by, through, under or in connection with Insperity in violation of Section 10.01 above, Insperity shall discharge or cause the discharge of any such filing or registration not later than two (2) business days after written notice from Bus Av/Del or Escrow Agent to Insperity. In the event that any interest has been registered against the G100 Aircraft or any part thereof by Bus Av/Del or any person claiming by, through, under or in connection with Bus Av/Del in violation of Section 10.01 above, Bus Av/Del shall discharge or cause the discharge of any such filing or registration not later than two (2) business days after written notice from Insperity or Escrow Agent to Bus Av/Del. Insperity agrees that Bus Av/Del shall have all of the rights available to it under law or in equity, including the right of specific performance, to enforce Insperity’s performance of its obligations hereunder. Bus Av/Del agrees that Insperity shall have all of the rights available to it under law or in equity, including the right of specific performance, to enforce Bus Av/Del’s performance of its obligations hereunder. Notwithstanding anything in this Agreement to the contrary, Insperity agrees to be responsible for and upon demand to indemnify Bus Av/Del from and to hold Bus Av/Del harmless from and against any and all claims, demands, liabilities, damages, losses and judgments (including legal fees and all expenses) arising out of any breach by Insperity of any of its obligations under this Section X. Further notwithstanding anything in this Agreement to the contrary, Bus Av/Del agrees to be responsible for and upon demand to indemnify Insperity from and to hold Insperity harmless from and against any and all claims, demands, liabilities, damages, losses and judgments (including legal fees and all expenses) arising out of any breach by Bus Av/Del of any of its obligations under this Section X. These indemnity obligations shall survive the termination of this Agreement for any reason.

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SECTION XI

MISCELLANEOUS

11.01        Notices. All notices, requests, demands and other communications permitted or required hereunder shall be in writing and shall be deemed to have been duly given if personally delivered with signed receipt, sent by certified mail return receipt requested, by overnight courier or by confirmed facsimile transmission, as follows:

If to Insperity: Insperity, Inc.

Attention: Dan Herink

Sr. VP of Legal & General Counsel

19001 Crescent Springs Dr.

Kingwood, TX 77339

Telephone: 281-312-3364

Facsimile: 281-348-2859

With a copy to: Insperity, Inc.

Attention: Richard Rawson

President

19001 Crescent Springs Dr.

Kingwood, TX 77339

Telephone: 281-348-3225

Facsimile: 281-348-3718

With a copy to: Barbera & Watkins, LLC

Attention: Joanne Barbera

6701 West 64th Street, Suite 315

Overland Park, KS 66202

Telephone: (913) 677-3800

Facsimile: (913) 677-3801

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If to Bus Av/Del: Bus Av/Del, Inc.

Attention: David Mosier, Jr.

1105 North Market St., Suite 1300

Wilmington, DE 19801-1241

Telephone: 803-643-4301

Facsimile: 803-643-4326

With a copy to: Bus Av/Del, Inc.

Attention: Mr. Russell Dale Phelon

1105 North Market St., Suite 1300

Wilmington, DE 19801-1241

Telephone: 803-643-4301

Facsimile: 803-643-4326

Escrow Agent: Insured Aircraft Title Service, Inc.

4848 S.W. 36th Street

Oklahoma City, OK 73179

Attn: Joan Roberts

Phone: 800-654-4882

Facsimile: 405-684-5074

Email: jroberts@insuredaircraft.com

or to such other parties or addresses as the parties from time to time designate in writing. Such notices, requests, demand and other communications shall be deemed to have been duly given and received on the date of delivery when personally delivered, or on the date received if sent by overnight courier or confirmed facsimile transmission.

11.02        Title and Risk of Loss. Title and risk of loss in respect of the Embraer Aircraft shall remain in Bus Av/Del until filing of the Embraer FAA Bill of Sale with the FAA registry, at which time and place title and risk of loss shall pass to Insperity as appropriate. Title and risk of loss in respect of the G100 Aircraft shall remain in Insperity until filing of the G100 FAA Bill of Sale with the FAA registry, at which time and place title and risk of loss shall pass to Bus Av/Del as appropriate.

11.03        Brokerage Fee. Each party hereto shall be responsible for its own brokerage fees in connection with the sale and purchase of the Embraer Aircraft and/or the G100 Aircraft pursuant to this Agreement. Except as provided below, each party represents to the other that they have not employed the services of a broker or any other party entitled to a commission or finder’s fee with respect to the subject transaction, and shall indemnify and hold the other party harmless from and against any third party claims to brokerage fees or commissions arising from the conduct of the party upon which any such claims may be based. Bus Av/Del has not retained the services of a broker and shall be solely responsible for all fees of any person claiming to be its broker or representative. Insperity has retained the services of Wing Aviation, LLC and shall be solely responsible for its fees.

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11.04        GOVERNING LAW/JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF TEXAS, WITHOUT REGARD TO ITS CHOICE OF LAW PROVISIONS. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR THE AIRCRAFT SHALL BE BROUGHT IN STATE OR FEDERAL COURT SITTING IN TEXAS, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES CONSENTS TO THE JURISDICTION OR SUCH COURT AND WAIVES ANY DEFENSE OR LACK OR JURISDICTION OR INCONVENIENT FORUM.

11.05        Entire Agreement. All of the Exhibits to this Agreement are hereby incorporated by reference and this Agreement, the Exhibits annexed hereto and that certain Confidentiality Agreement dated July 13, 2011 between the parties constitute the entire agreement of the parties with respect to the subject matter hereof and supersede any prior understandings, arrangements, commitments or undertakings of the parties, whether written or oral, express or implied.

11.06        Assignment. This Agreement may not be assigned by either party without the prior written consent of the other parties; provided, however, that (a) for the purpose of financing or registering the Embraer Aircraft, Insperity may assign its rights and obligations under this Agreement to a lender or owner trustee, without the consent of (but with written notice to) Bus Av/Del so long as such assignment includes an assignment of the Deposit and (b) for the purpose of financing the G100 Aircraft, Bus Av/Del may assign its rights and obligations under this Agreement to a lender, without the consent of (but with written notice to) Insperity.

11.07        Severability. If any one or more provisions of this Agreement shall be found to be illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and any such provisions shall be enforced as near as may be permitted by law.

11.08        Amendment. This Agreement may not be amended, nor shall any waiver, change, modification, consent or discharge be effected, except by an instrument in writing executed by the party against whom enforcement of any such amendment, waiver, change, modification, consent or discharge is sought.

11.09        Additional Actions. The parties hereto will take any and all further actions and execute any and all additional documents which may be reasonably necessary or desirable to carry out the terms of this Agreement.

11.10        Section and Paragraph Headings. The headings contained in this Agreement are for reference only and shall have no effect upon the meaning or interpretation of the Agreement.

11.11        Counterparts and Facsimile Signatures. This Agreement may be executed in counterparts, each of which shall be considered an original, but all of which together shall constitute the same instrument. A confirmed facsimile transmission of an executed signature page shall be effective as an original.

18

11.12        Waiver. The waiver by any party of any instance of the other party’s non-compliance with any obligation and responsibility herein, shall not be deemed a waiver of the waiving party’s remedies for such non-compliance in the future or for other obligations or responsibilities under this Agreement.

11.13        Expenses. Each of the parties shall bear all expenses incurred by them in connection with this Agreement and in the consummation of the transactions contemplated hereby and in preparation thereof, except as expressly provided herein.

11.14        Attorneys’ Fees. In the event of a dispute between the parties arising out of or in connection with this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees, including appellate fees.

11.15        Independent Advice from Counsel. Each of the parties has received or has had to opportunity to receive independent legal advice from legal counsel of its choice with respect to the advisability of entering into this Agreement and its terms or has knowingly and voluntarily waived its right to do so. The terms of this Agreement are the result of mutual negotiations between the parties, and the provisions of this Agreement shall be interpreted and construed in accordance with their fair meanings, and not strictly for or against either party, regardless of which party may have drafted this Agreement or any specific provision.

11.16        Escrow Agent. The parties acknowledge that the Escrow Agent is serving as an escrow agent, at their request and for their convenience, and that the Escrow Agent shall not be deemed to be the agent or trustee for either of the parties.

11.17        Tax Deferred Exchange. Insperity intends to structure the transactions herein contemplated as the transfer of relinquished property and the acquisition of replacement property pursuant to a tax deferred like-kind exchange under the provisions of Section 1031 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder without being considered a “deferred exchange” as defined under Treasury Regulation section 1.1031(k). Additionally, Bus Av/Del intends to structure the transactions herein contemplated as the transfer of relinquished property and the acquisition of replacement property pursuant to a tax deferred like-kind exchange under the provisions of Section 1031 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder without being considered a “deferred exchange” as defined under Treasury Regulation section 1.1031(k).

11.18        RETENTION OF REGISTRATION NUMBER. Insperity acknowledges and agrees that Bus Av/Del wishes to retain the current registration number of the Embraer Aircraft of N900DP. Insperity agrees to apply for a new registration number for the Embraer Aircraft at Closing, and to use its best efforts to cooperate with Bus Av/Del and to assist Bus Av/Del in retaining and obtaining such registration number for Bus Av/Del's own use. Notwithstanding any provision in this Agreement or any other agreement or instrument to the contrary, the provisions of this Section 11.18 shall survive the consummation of the Closing.

19

11.19        Exclusive Right to Purchase. The G100 Aircraft shall be subject to Bus Av/Del’s exclusive right to purchase and Insperity shall remove the G100 Aircraft from the market, shall not offer to sell the G100 Aircraft to any party other than Bus Av/Del, shall cancel any existing back-up offers to purchase the G100 Aircraft, and shall reject any offers to purchase the G100 Aircraft that Insperity may subsequently receive from any third-party. The Embraer Aircraft shall be subject to Insperity’s exclusive right to purchase and Bus Av/Del shall remove the Embraer Aircraft from the market, shall not offer to sell the Embraer Aircraft to any party other than Insperity, shall cancel any existing back-up offers to purchase the Embraer Aircraft and shall reject any offers to purchase the Embraer Aircraft that Bus Av/Del may subsequently receive from any third-party.

[Signature Pages to Follow.]

20

INTENDING TO BE LEGALLY BOUND, the parties have executed this Agreement effective as of the day and year first above written.

BUS AV/DEL:	INSPERITY:
Bus Av/Del, Inc.	Insperity, Inc.
By:	By:
Name:	Name:
Title:	Title:

ESCROW AGENT:

Insured Aircraft Title Service, Inc. hereby acknowledges receipt of a copy of this Agreement, agrees to and accepts the terms and conditions of this Agreement, and agrees to perform and discharge all of the duties and obligations of the Escrow Agent hereunder strictly in accordance with the terms hereof:

INSURED AIRCRAFT TITLE SERVICE, INC.

By:

Name:

Title:

21

EXHIBIT “A”

WARRANTY BILL OF SALE

KNOW ALL MEN BY THESE PRESENTS:

THAT BUS AV/DEL, INC. (“Bus Av/Del”) is the owner of the full legal and beneficial title to that certain Embraer Model EMB-135BJ aircraft bearing manufacturer’s serial number 14500903 and FAA registration number N900DP, together with those two (2) Rolls Royce model AE3007 A1EC engines bearing manufacturer’s serial numbers CAE312746 and CAE312790, respectively, as further described in the Exchange Agreement dated August 30, 2011, between Bus Av/Del and Insperity, Inc. (“Insperity”) (the “Exchange Agreement”), together also with all of the equipment, including avionics, loose equipment, associated covers, spare parts, checklist, and manuals and records, all as more particularly described in the Exchange Agreement and incorporated herein, and to the extent the same are available, all additional manuals, log books, system and component manuals, flight and operation manuals, checklists, wiring diagrams and other records and documents pertaining to the operation and maintenance of such aircraft in the possession of Bus Av/Del, including, without limitation, any FAA certificates (including the certificate of airworthiness) (collectively, the “Aircraft”).

THAT for and in consideration of the sum of $10.00 and other valuable consideration, Bus Av/Del does on the date hereof grant, convey, transfer, bargain, sell, deliver and set over, all of its right, title and interest in and to the Aircraft unto Insperity.

THAT Bus Av/Del hereby warrants to Insperity, its successors and assigns, that there is hereby conveyed to Insperity good and marketable title to the Aircraft free and clear of all Liens (as such term is defined in the Exchange Agreement), and that it will warrant and defend such title forever against all claims and demands whatsoever, and that this Warranty Bill of Sale is made and delivered pursuant to the provisions of the Exchange Agreement.

WHEREFORE, Bus Av/Del has executed hereto for the purposes hereinabove shown by its duly authorized officer effective as of this ___ day of ______________, 2011.

BUS AV/DEL, INC.

By:

Name:

Title:

22

EXHIBIT “B”

WARRANTY BILL OF SALE

KNOW ALL MEN BY THESE PRESENTS:

THAT INSPERITY (“Insperity”) is the owner of the full legal and beneficial title to that certain Israel Aircraft Industries Model Gulfstream 100 aircraft bearing manufacturer’s serial number 152 and FAA registration number N160CT, together with those two (2) Honeywell TFE731-40R-200G engines bearing manufacturer’s serial numbers P113254 and P113257, respectively, as further described in the Exchange Agreement dated August 30, 2011, between Bus Av/Del and Insperity, Inc. (“Insperity”) (the “Exchange Agreement”), together also with all of the equipment, including avionics, loose equipment, associated covers, spare parts, checklist, and manuals and records, all as more particularly described in the Exchange Agreement and incorporated herein, and to the extent the same are available, all additional manuals, log books, system and component manuals, flight and operation manuals, checklists, wiring diagrams and other records and documents pertaining to the operation and maintenance of such aircraft in the possession of Insperity, including, without limitation, any FAA certificates (including the certificate of airworthiness) (collectively, the “Aircraft”).

THAT for and in consideration of the sum of $10.00 and other valuable consideration, Insperity does on the date hereof grant, convey, transfer, bargain, sell, deliver and set over, all of its right, title and interest in and to the Aircraft unto Bus Av/Del.

THAT Insperity hereby warrants to Bus Av/Del, its successors and assigns, that there is hereby conveyed to Bus Av/Del good and marketable title to the Aircraft free and clear of all Liens (as such term is defined in the Exchange Agreement), and that it will warrant and defend such title forever against all claims and demands whatsoever, and that this Warranty Bill of Sale is made and delivered pursuant to the provisions of the Exchange Agreement.

WHEREFORE, Insperity has executed hereto for the purposes hereinabove shown by its duly authorized officer effective as of this ___ day of ______________, 2011.

INSPERITY, INC.

By:

Name:

Title:

23

EXHIBIT “C”

PREVIOUSLY SCHEDULED INSPECTION

1. L1 inspection

2. L2 inspection

3. L4 inspection

4. L12 inspection

5. Comply with all due list items as shown on maintenance tracking, looking out 200 hours and six months

6. Repairs to satellite phone/ internet system

7. Replace main tires (complied with by Standard Aero Augusta)

8. APU starter/generator overhaul

9. Implementation of Embraer maintenance program revision 7

For the avoidance of doubt, Bus Av/Del is responsible for the entire cost of items 1-9.

24

EXHIBIT “D”

INSPERITY EMBRAER INSPECTION

1. Comply with Under Floor Inspection.

Comply with the above inspection in for the Galley and the Lavatory to inspect for leaks and corrosion in accordance with the manufacturers maintenance manual and approved data. All work will be signed off on our Repair Station Certificate (WC7$346J) or by an appropriately rated technician.

2. Comply with Engine Video Boroscope Inspection

Comply with the above inspection in accordance with the manufacturers maintenance manual and approved data. All work will be signed off on our Repair Station Certificate (WC7R346J) or by an appropriately rated technician if required.

3. Comply with APU Video Boroscope Inspection

Comply with the above inspection in accordance with the manufacturers maintenance manual and approved data. All work will be signed off on our Repair Station Certificate (WC7R346J) or by an appropriately rated technician if required.

4. Comply with Landing Gear Corrosion Inspection

Comply with the above inspection on the Main and nose landing gear in accordance with the manufacturers maintenance manual and approved data. All work will be signed off on our Repair Station Certificate (WC7R346J) or by an appropriately rated technician if required.

5. Comply with Detailed Aircraft Log Book Research and Flight Docs Audit

Comply with the above research and audit FlightDocs computerized tracking System to the Embraer MSG3 maintenance program. Includes Airworthiness Directive research and Airframe and Powerplant SB research. Wing Aviation will be notified of any discrepancies and scheduled items needing compliance.

6. Comply with EMB SNL 145-25 Interior Inspection

Comply with the above inspection in accordance with service news letter, the manufacturer’s maintenance manual, and approved data. All work will be signed off on our Repair Stations Certificate (WC7R346J) or by an appropriately rated technician.

25

7. Comply with EMB Prior to Winter recommended

Comply with the above inspection in accordance with service news letter, the manufacturer’s maintenance manual, and approved data. All work will be signed off on our Repair Station Certificate (WC7R346J) or by an appropriately rated technician.

8. Comply with Avionics Inspection

Comply with the above inspection in accordance with the Wing Aviation Avionics yearly checklist and the manufacturer’s maintenance manual and approved data. All work will be signed off on our Repair Station Certificate (WC7R346J) or by an appropriately rated technician.

9. Perform research (including records research) to determine Part 135 conformity

For the avoidance of doubt, Insperity is responsible for the entire cost of items 1-9.

26

EXHIBIT “E”

PRE-PURCHASE INSPECTION SCOPE OF G100 AIRCRAFT

1. Operational check of all cabin equipment: seat mechanisms, entertainment system, oven, power outlets, drawer and cabinet latches, coffee service, drains, and all other cabin components and equipment.

2. Inspect under lavatory, potable water reservoir, and cabinet drains for leaks and corrosion

3. Windshield heat operational and resistance checks, delamination inspection

4. Complete avionics checks including radar and autopilot

5. Check for latest EGPWS and Terrain data base and upgrade if required

6. Log book and records research regarding Airworthiness Directives, Service Bulletins on the Airframe, Engines, APU and all installed components including determination of FAR 135 conformity

7. Inspect and operationally check oxygen system, regulators and masks in cockpit and cabin

8. Inspect aircraft for all applicable placards

9. Inspect all cockpit and cabin side windows

10. Satellite phone operational check (to be considered an airworthy item if repair needed)

11. Flap/slat rigging check

12. Video borescope both engines and APU

13. Fuel leak check, mapping and classification

14. Performance run on both engines

15. Vibe survey on both engines

16. Gear box pressure checks on both engines

17. SOAP sample both engines and APU

18. "A" check*

All items listed above and in all applicable attachments for the G100 will be signed off in a log book entry by the Repair Station.

*Bus Av/Del is responsible for only one half the flat rate inspection cost and Insperity is responsible for the remaining one half of this item 18 only.

For the avoidance of doubt, Bus Av/Del is responsible for the entire cost of items 1-17.

27

EXHIBIT “F”

G100 IMPROVEMENTS

1. Refurbishment of all leather components of the seats in the cockpit, cabin and lavatory and replacement of table leather inserts and outside/sidewall trim, cockpit seats with sheepskin inserts. All fire blocked with certificates. Refurbishment of seats to include DAX multiple density foam padding and seatbelt webbing. See forwarded (to Wing Aviation) Stevens Aviation Interior quote to use as work scope specifications for interior refurbishment.

2. Touch up exterior paint

3. Replace baggage compartment placards

4. Replace patched de ice boot, left wing

5. Clean and touch up all remaining de ice boots

6. APU inspections

7. Overhaul starter/generator on both engines and on the APU

8. Replace all main tires

9. Replace both wing landing light lens covers and seals

10. Replace winglet abrasion tape

11. Clean cabin temp sensor and fan

12. Paint interior low level vent covers

13. Battery(s) capacitance checks and deep cycle if required

14. Comply with all due list items as shown on maintenance tracking, looking out 200 hours and six months

15. Replace both FMS batteries

16. Confirm that oxygen bottle regulator valves have the latest upgrade

For the avoidance of doubt, Insperity is responsible for the entire cost of items 1-16.

28

EXHIBIT “G”

CONFIRMATION OF TECHNICAL ACCEPTANCE/REJECTION OF EMBRAER AIRCRAFT

__________________, 2011

Bus Av/Del Inc.

Attention: _______________

_______________________

_______________________

Re: Embraer Model EMB-135BJ aircraft bearing manufacturer's serial no. 14500903 and U.S. registration number N900DP (the “Embraer Aircraft”)

Dear Mr. _____________:

Pursuant to that certain Exchange Agreement dated as of August 30, 2011 (the “Agreement,” capitalized terms used but not otherwise defined herein having the meanings ascribed to them in the Agreement), by and between Bus Av/Del, Inc. and Insperity, Inc., this is to confirm that Insperity has completed its inspection of the Embraer Aircraft. We hereby advise Bus Av/Del that (check applicable box):

o The Embraer Aircraft is rejected; or

o Subject to Bus Av/Del’s payment of the cost to correct and correction of the Embraer Punch List Items including the attached list under the terms of the Agreement, the Embraer Aircraft is hereby technically accepted in accordance with the terms of the Agreement.

Sincerely,

Insperity, Inc.

By:

Name:

Title:

29

EXHIBIT “H”

CONFIRMATION OF TECHNICAL ACCEPTANCE/REJECTION OF G100 AIRCRAFT

__________________, 2011

Insperity, Inc.

Attention: _____________________

19001 Crescent Springs, Dr.

Kingwood, TX 77339

Re: Israel Aircraft Industries Model Gulfstream 100 aircraft bearing manufacturer's serial no. 152 and U.S. registration number N160CT (the “G100 Aircraft”)

Dear Mr. ________________:

Pursuant to that certain Exchange Agreement dated as of August 30, 2011 (the “Agreement,” capitalized terms used but not otherwise defined herein having the meanings ascribed to them in the Agreement), by and between Bus Av/Del, Inc. and Insperity, Inc., this is to confirm that Bus Av/Del has completed its inspection of the G100 Aircraft. We hereby advise Insperity that (check applicable box):

o The G100 Aircraft is rejected; or

o Subject to Insperity’s payment of the cost to correct and correction of the G100 Punch List Items including the attached list under the terms of the Agreement, the G100 Aircraft is hereby technically accepted in accordance with the terms of the Agreement.

Sincerely,

Bus Av/Del, Inc.

By:

Name:

Title:

30

EXHIBIT “I”

EMBRAER AIRCRAFT DELIVERY CERTIFICATE

Insperity, Inc. (“Insperity”) hereby accepts and acknowledges receipt from Bus Av/Del, Inc. (“Bus Av/Del”), in accordance with the terms and conditions of the Exchange Agreement dated August 30, 2011 between Insperity and Bus Av/Del (the “Agreement”), the following Embraer Aircraft as defined and more fully described in the Agreement:

MAKE AND MODEL: Embraer Model EMB-135BJ

SERIAL NUMBER: 14500903

REGISTRATION NUMBER: N900DP

MAKE AND MODEL OF ENGINES: Rolls Royce AE3007 A1EC

ENGINE SERIAL NUMBERS: CAE312746 and CAE312790

The Embraer Aircraft and other items referred to above were received by us on the date and at the location set forth below.

IN WITNESS WHEREOF, this instrument has been duly signed by the undersigned authorized party(s) and the Embraer Aircraft has been accepted in _______________, _______________on _______________, 2011, at _______________ a.m./p.m. local time.

TOTAL TIME AIRFRAME: ___________ hours

TOTAL TIME ENGINES: L. eng. _____ hours

R. eng. _____ hours

INSPERITY:	BUS AV/DEL:
Insperity, Inc.	Bus Av/Del, Inc.
By:	By:
Name:	Name:
Title:	Title:

31

EXHIBIT “J”

G100 AIRCRAFT DELIVERY CERTIFICATE

Bus Av/Del, Inc. (“Bus Av/Del”) hereby accepts and acknowledges receipt from Insperity, Inc. (“Insperity”), in accordance with the terms and conditions of the Exchange Agreement dated August 30, 2011 between Insperity and Bus Av/Del (the “Agreement”), the following G100 Aircraft as defined and more fully described in the Agreement:

MAKE AND MODEL: Israel Aircraft Industries Model Gulfstream 100

SERIAL NUMBER: 152

REGISTRATION NUMBER: N160CT

MAKE AND MODEL OF ENGINES: Honeywell TFE731-40R-200G

ENGINE SERIAL NUMBERS: P113254 and P113257

The G100 Aircraft and other items referred to above were received by us on the date and at the location set forth below.

IN WITNESS WHEREOF, this instrument has been duly signed by the undersigned authorized party(s) and the G100 Aircraft has been accepted in _______________, _______________ on _______________, 2011, at _______________ a.m./p.m. local time.

TOTAL TIME AIRFRAME: ___________ hours

TOTAL TIME ENGINES: L. eng. _____ hours

R. eng. _____ hours

BUS AV/DEL:	INSPERITY:
Bus Av/Del, Inc.	Insperity, Inc.
By:	By:
Name:	Name:
Title:	Title:

32

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:           November 1, 2011

/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:           November 1, 2011

/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 September 30, 2011, (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Paul J. Sarvadi, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

1.           The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Paul J. Sarvadi

Paul J. Sarvadi

Chairman of the Board and Chief Executive Officer

November 1, 2011

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 September 30, 2011, (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Douglas S. Sharp, Senior Vice President of Finance, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

1.            The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.            The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Douglas S. Sharp

Douglas S. Sharp

Senior Vice President of Finance,

Chief Financial Officer and Treasurer

November 1, 2011

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) [Abstract]
Revenues (gross billings of $2.835 billion, $2.444 billion, $8.454 billion and $7.274 billion, less worksite employee payroll cost of $2.363 billion, $2.030 billion, $6.973 billion and $5.990 billion, respectively)	$ 471,821	$ 414,146	$ 1,481,105	$ 1,284,226
Direct costs:
Payroll taxes, benefits and workers' compensation costs	384,792	340,460	1,219,276	1,066,498
Gross profit	87,029	73,686	261,829	217,728
Operating expenses:
Salaries, wages and payroll taxes	39,494	34,866	117,558	108,558
Stock-based compensation	2,109	1,970	6,455	6,148
Commissions	3,399	2,889	9,750	8,494
Advertising	5,235	2,605	18,280	11,180
General and administrative expenses	18,912	15,546	57,828	47,674
Depreciation and amortization	3,786	3,732	11,335	11,266
Total Operating Expenses	72,935	61,608	221,206	193,320
Operating income	14,094	12,078	40,623	24,408
Other income (expense):
Interest, net	245	286	829	744
Other, net	(7,501)	0	(7,497)	0
Income before income tax expense	6,838	12,364	33,955	25,152
Income tax expense	2,739	5,130	14,329	10,501
Net income	4,099	7,234	19,626	14,651
Less net income allocated to participating securities	(120)	(214)	(582)	(428)
Net income allocated to common shares	$ 3,979	$ 7,020	$ 19,044	$ 14,223
Basic net income per share of common stock (in dollars per share)	$ 0.16	$ 0.28	$ 0.75	$ 0.56
Diluted net income per share of common stock (in dollars per share)	$ 0.16	$ 0.28	$ 0.74	$ 0.56

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CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Parenthetical) (USD $) In Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) [Abstract]
Gross billings	$ 2,835	$ 2,444	$ 8,454	$ 7,274
Worksite employee payroll cost	$ 2,363	$ 2,030	$ 6,973	$ 5,990

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Stockholders' Equity (Details) (USD $) In Thousands, except Share data	3 Months Ended						9 Months Ended
	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Sep. 30, 2010	Jun. 30, 2010	Mar. 31, 2010	Sep. 30, 2011	Sep. 30, 2010
Stockholders' Equity [Abstract]
Authorized number of shares to be repurchased (in shares)							1,000,000
Shares were repurchased under the program (in shares)							787,304
Shares withheld for tax withholding obligations for the vesting of restricted stock awards (in shares)							108,280
Authorized to repurchased additional Shares under repurchase program (in shares)	1,352,089						1,352,089
Dividends declared per share of common stock (in dollars per share)	$ 0.15	$ 0.15	$ 0.15	$ 0.13	$ 0.13	$ 0.13
Dividend paid							$ 11,871	$ 10,100

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Document And Entity Information (USD $) In Millions, except Share data	9 Months Ended
	Sep. 30, 2011	Oct. 25, 2011	Jun. 30, 2010
Entity Registrant Name	INSPERITY, INC.
Entity Central Index Key	0001000753
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$ 547
Entity Common Stock, Shares Outstanding		25,809,994
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2011

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Stockholders' Equity

9 Months Ended

Sep. 30, 2011

Stockholders' Equity [Abstract]

Stockholders' Equity

6.  Stockholders' Equity

The Company's Board of Directors (the “Board”) has authorized a program to repurchase shares of the Company's outstanding common stock from time to time in the open market or directly from stockholders at prevailing market prices based on market conditions and other factors.  In September 2011, the Board increased the authorized number of shares to be repurchased under the program by 1,000,000.  During the nine months ended September 30, 2011, 787,304 shares were repurchased under the program and 108,280 shares were withheld to satisfy tax withholding obligations for the vesting of restricted stock awards.  The shares related to withholding obligations are not subject to the repurchase program.  As of September 30, 2011, the Company was authorized to repurchase an additional 1,352,089 shares under the program.

The Board declared quarterly dividends of $0.15 and $0.13 per share of common stock in each of the first three quarters of 2011 and 2010, respectively, resulting in a total of $11.9 million and $10.1 million, respectively, in dividend payments made by the Company during the nine months ended September 30 of each year.

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Commitments and Contingencies (Details) (USD $) In Millions	9 Months Ended
	Sep. 30, 2011	Dec. 31, 2003
Commitments and Contingencies [Abstract]
Unemployment tax reserve account assessment relating to California employees, including penalties and interest	$ 8.1	$ 5.6
Settlement Amount	$ 3.1

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Net Income Per Share (Tables)

9 Months Ended

Sep. 30, 2011

Net Income (Loss) Attributable to Parent [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 for the three month and nine month periods ended September 30, 2011 and 2010:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(in thousands, except per share amounts)
Net income	$	4,099		$	7,234		$	19,626		$	14,651
Less income allocated to participating securities		(120	)		(214	)		(582	)		(428	)
Net income allocated to common shares	$	3,979		$	7,020		$	19,044		$	14,223
Weighted average common shares outstanding		25,425			25,312			25,546			25,258
Incremental shares from assumed conversions of common stock options		74			111			98			105
Adjusted weighted average common shares outstanding		25,499			25,423			25,644			25,363
Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect		54			339			21			492

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Accounting Policies

9 Months Ended

Sep. 30, 2011

Accounting Policies [Abstract]

Accounting Policies

2.  Accounting Policies

Health Insurance Costs

The Company provides group health insurance coverage to its worksite employees through a national network of carriers including UnitedHealthcare (“United”), PacifiCare, Kaiser Permanente, Blue Shield of California, Hawaii Medical Service Association, Unity Health Plans and Tufts, all of which provide fully insured policies or service contracts.

The policy with United provides the majority of the Company's health insurance coverage.  As a result of certain contractual terms, the Company has accounted for this plan since its inception using a partially self-funded insurance accounting model.  Accordingly, Insperity records 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 the Company's 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 the Company would record an asset for the excess premiums in its Consolidated Balance Sheets.  The terms of the arrangement require the Company 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 $2.6 million as of September 30, 2011, and is reported as a long-term asset.  As of September 30, 2011, Plan Costs were less than the net premiums paid and owed to United by $22.7 million.  As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $13.7 million balance is included in prepaid insurance, a current asset, in the Company's Consolidated Balance Sheets.  The premiums owed to United at September 30, 2011 were $1.9 million, which is included in accrued health insurance costs, a current liability in the Company's Consolidated Balance Sheets.

Workers' Compensation Costs

The Company's 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 the Company satisfies its responsibilities.  Through September 30, 2010, the Company 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 the Company bearing the economic burden for the first $1 million layer of claims per occurrence, the Company will also bear the economic burden for those claims exceeding $1 million, up to a maximum aggregate amount of $5 million per policy year. 

Because the Company bears the economic burden for claims up to the levels noted above, such claims, which are the primary component of the Company's 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.   

The Company employs a third party actuary to estimate its 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 the Company's workers' compensation claims cost estimates.  During the nine months ended September 30, 2011 and 2010, Insperity reduced accrued workers' compensation costs by $8.6 million and $5.0 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 2011 and 2010 were 1.2% and 1.5%, respectively) and are accreted over the estimated claim payment period and included as a component of direct costs in the Company's Consolidated Statements of Operations.

The following table provides the activity and balances related to incurred but not paid workers' compensation claims for the nine months ended September 30, 2011 and 2010:

	2011			2010
	(in thousands)
Beginning balance, January 1,	$	96,934		$	88,450
Accrued claims		26,668			24,985
Present value discount		(1,159	)		(1,350	)
Paid claims		(21,123	)		(18,133	)
Ending balance	$	101,320		$	93,952
Current portion of accrued claims	$	42,812		$	39,661
Long-term portion of accrued claims		58,508			54,291
	$	101,320		$	93,952

The current portion of accrued workers' compensation costs on the Consolidated Balance Sheets at September 30, 2011 includes $2.5 million of workers' compensation administrative fees.

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 the Company's Consolidated Balance Sheets.  In the first nine months of 2011 and 2010, the Company received $10.0 million and $15.6 million, respectively, for the return of excess claim funds related to the ACE Program, which reduced deposits.  As of September 30, 2011, the Company had restricted cash of $42.8 million and deposits of $46.7 million.

The Company's 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 its estimate of incurred claim costs expected to be paid beyond one year are included in long-term liabilities on the Company's Consolidated Balance Sheets.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

8.  Commitments and Contingencies

The Company is 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, except as set forth below, management believes the final outcome of such litigation will not have a material adverse effect on the Company's financial position or results of operations.

As a result of a 2001 corporate restructuring, the Company filed for a transfer of its state unemployment tax reserve account with the Employment Development Department of the State of California (“EDD”).  The EDD approved the Company's request for transfer of the reserve account in May 2002 and also notified the Company of its new contribution rates based upon the approved transfer.  In December 2003, the Company received a Notice of Duplicate Accounts and Notification of Assessment (“Notice”) from the EDD.  The Notice stated that the EDD was collapsing the accounts of the Company's subsidiaries into the account of the entity with the highest unemployment tax rate.  The Notice also retroactively imposed the higher unemployment insurance rate on all of the Company's California employees for 2003, resulting in an assessment of $5.6 million.  In January 2004, the Company filed petitions with an administrative law judge of the California Unemployment Insurance Appeals Board (“ALJ”) to protest the validity of the Notice, asserting several procedural and substantive defenses.

One procedural defense included in the Company's appeal asserts that EDD failed to meet the statutory requirement related to serving a proper notice within the stipulated time frame and that all of the statutes of limitations concerning EDD's ability to reassess or modify unemployment tax rates for the periods addressed in the Notice had expired (“Notification Defense”).  During 2010, a California Circuit Court issued a ruling in favor of EDD regarding a dispute involving a taxpayer who made arguments similar to the Company's Notification Defense. The Supreme Court of California subsequently denied the taxpayer's petition for review.  The Company subsequently received a statement of account from the EDD indicating taxes, penalties and interest due of approximately $8.1 million.

While still denying all liability, the Company entered into a written agreement with the EDD in September 2011 to fully and finally settle this dispute (the “Settlement Agreement”).  Pursuant to the terms of the Settlement Agreement, which is subject to the approval of the ALJ, the Company agreed to pay $3.1 million (the “Settlement Amount”) to the EDD.  The Settlement Amount of $3.1 million was recorded in other income (expense) in the third quarter of 2011.

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Accounting Policies (Details) (USD $)	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Dec. 31, 2010
Health Insurance Costs [Abstract]
Number of days in advance of the beginning of a reporting quarter United establishes cash funding rates (in days)	90
Required accumulated cash surplus	$ 9,000,000
Required deposit equal to approximately one day of claims funding activity	2,640,000		2,640,000
Amount which Plan Costs were less than the net premiums paid and owed	22,700,000
Prepaid health insurance, current	13,700,000
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
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	8,600,000	5,000,000
U.S. Treasury rates that correspond with the weighted average estimated claim payout period (in hundredths)	1.20%	1.50%
Incurred but not paid workers' compensation liabilities [Abstract]
Beginning balance	96,934,000	88,450,000
Accrued claims	26,668,000	24,985,000
Present value discount	(1,159,000)	(1,350,000)
Paid claims	(21,123,000)	(18,133,000)
Ending balance	101,320,000	93,952,000
Current portion of accrued claims	42,812,000	39,661,000
Long-term portion of accrued claims	58,508,000	54,291,000	55,730,000
Ending balance	101,320,000	93,952,000
Workers' compensation administrative fees accrued	2,500,000
Excess claim funds related to the ACE Program	10,000,000	15,600,000
Restricted cash - workers' compensation	42,812,000		41,204,000
Deposits - workers' compensation	$ 46,728,000		$ 51,731,000

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Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2011

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 for the nine months ended September 30, 2011 and 2010:

	2011			2010
	(in thousands)
Beginning balance, January 1,	$	96,934		$	88,450
Accrued claims		26,668			24,985
Present value discount		(1,159	)		(1,350	)
Paid claims		(21,123	)		(18,133	)
Ending balance	$	101,320		$	93,952
Current portion of accrued claims	$	42,812		$	39,661
Long-term portion of accrued claims		58,508			54,291
	$	101,320		$	93,952

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Net Income Per Share

9 Months Ended

Sep. 30, 2011

Net Income Per Share [Abstract]

Net Income Per Share

7.  Net Income per Share

The Company utilizes 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.  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 for the three month and nine month periods ended September 30, 2011 and 2010:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(in thousands, except per share amounts)
Net income	$	4,099		$	7,234		$	19,626		$	14,651
Less income allocated to participating securities		(120	)		(214	)		(582	)		(428	)
Net income allocated to common shares	$	3,979		$	7,020		$	19,044		$	14,223
Weighted average common shares outstanding		25,425			25,312			25,546			25,258
Incremental shares from assumed conversions of common stock options		74			111			98			105
Adjusted weighted average common shares outstanding		25,499			25,423			25,644			25,363
Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect		54			339			21			492

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities:
Net income	$ 19,626,000	$ 14,651,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	11,335,000	11,266,000
Loss on exchange of assets	4,396,000	0
Amortization of marketable securities	1,535,000	1,148,000
Stock-based compensation	6,455,000	6,148,000
Deferred income taxes	(96,000)	1,692,000
Changes in operating assets and liabilities, net of effects from acquisitions:
Restricted cash	(1,608,000)	(3,225,000)
Accounts receivable	(20,231,000)	(28,665,000)
Prepaid insurance	9,796,000	(1,285,000)
Other current assets	(2,339,000)	(2,227,000)
Other assets	4,876,000	8,350,000
Accounts payable	(650,000)	21,000
Payroll taxes and other payroll deductions payable	(40,892,000)	(48,195,000)
Accrued worksite employee payroll expense	21,091,000	70,315,000
Accrued health insurance costs	(10,210,000)	4,041,000
Accrued workers' compensation costs	6,013,000	6,199,000
Accrued corporate payroll, commissions and other accrued liabilities	3,656,000	4,851,000
Income taxes payable/receivable	479,000	2,566,000
Total adjustments	(6,394,000)	33,000,000
Net cash provided by operating activities	13,232,000	47,651,000
Cash flows from investing activities:
Marketable securities purchases	(43,607,000)	(56,775,000)
Marketable securities proceeds from dispositions	3,907,000	2,748,000
Marketable securities proceeds from maturities	26,194,000	15,890,000
Cash exchanged for acquisitions	(13,125,000)	(12,886,000)
Property and equipment	(23,404,000)	(4,349,000)
Net cash used in investing activities	(50,035,000)	(55,372,000)
Cash flows from financing activities:
Purchase of treasury stock	(22,459,000)	(7,852,000)
Dividends paid	(11,871,000)	(10,148,000)
Proceeds from the exercise of stock options	3,881,000	5,505,000
Income tax benefit from stock-based compensation	2,049,000	432,000
Other	284,000	629,000
Net cash used in financing activities	(28,116,000)	(11,434,000)
Net decrease in cash and cash equivalents	(64,919,000)	(19,155,000)
Cash and cash equivalents at beginning of period	234,829,000	227,085,000
Cash and cash equivalents at end of period	169,910,000	207,930,000
Supplemental Cash Flow Information:
Fair value of traded-in aircraft	4,000,000
Additional cash paid to acquire replacement aircraft	10,000,000
Non-cash loss included in other income (expense)	$ (4,400,000)

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Cash, Cash Equivalents and Marketable Securities

9 Months Ended

Sep. 30, 2011

Cash, Cash Equivalents and Marketable Securities [Abstract]

Cash, Cash Equivalents and Marketable Securities

3.  Cash, Cash Equivalents and Marketable Securities

The following table summarizes the Company's investments in cash equivalents and marketable securities held by investment managers and overnight investments:

	September 30, 2011			December 31, 2010
	(in thousands)
Overnight Holdings
Money market funds (cash equivalents)	$	18,367		$	157,680
Investment Holdings
Money market funds (cash equivalents)		60,174			72,258
Marketable securities		55,394			43,367
		133,935			273,305
Cash held in demand accounts		105,194			31,295
Outstanding checks		(13,825	)		(26,404	)
Total cash, cash equivalents and marketable securities	$	225,304		$	278,196
Cash and cash equivalents	$	169,910		$	234,829
Marketable securities		55,394			43,367
	$	225,304		$	278,196

The Company's cash and overnight holdings fluctuate based on the timing of the client's payroll processing cycle.  Included in the cash balance as of September 30, 2011 and December 31, 2010, are $93.1 million and $128.8 million, respectively, in funds associated with federal and state income tax withholdings, employment taxes and other payroll deductions, as well as $3.9 million and $8.1 million in client prepayments, respectively.

The Company accounts for its 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; and

· Level 3 - significant unobservable inputs.

The following table summarizes the levels of fair value measurements of the Company's financial assets:

	Fair Value Measurements
	(in thousands)
	September 30, 2011		Level 1		Level 2		Level 3
Money market funds	$	78,541	$	78,541	$	-	$	-
Municipal bonds		55,394		––		55,394		-
Total	$	133,935	$	78,541	$	55,394	$	-
	Fair Value Measurements
	(in thousands)
		December 31, 2010	Level 1		Level 2		Level 3
Money market funds	$	229,938	$	229,938	$	-	$	-
Municipal bonds		43,367		-		43,367		-
Total	$	273,305	$	229,938	$	43,367	$	-

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. Valuation techniques used by the Company 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 table summarizes the Company's available-for-sale marketable securities as of September 30, 2011 and December 31, 2010:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
September 30, 2011:
Municipal bonds	$	55,304	$	125	$	(35	)	$	55,394
December 31, 2010:
Municipal bonds	$	43,330	$	63	$	(26	)	$	43,367

The Company utilizes specific identification to account for realized gains and losses recognized on sales of available-for-sale marketable securities.  During the periods ended September 30, 2011 and 2010, the Company had no realized gains or losses recognized on sales of marketable securities.

As of September 30, 2011, the contractual maturities of the Company's marketable securities were as follows:

	Amortized Cost		Estimated Fair Value
	(in thousands)
Less than one year	$	31,601	$	31,640
One to five years		23,703		23,754
Total	$	55,304	$	55,394

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Acquisitions

9 Months Ended

Sep. 30, 2011

Acquisitions [Abstract]

Acquisitions

4.  Acquisitions

The Company accounts for its acquisitions in accordance with ASC 805, Business Combinations, which requires allocation of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on the fair value at the date of purchase.  The purchase price in excess of the identifiable assets and liabilities is recorded to goodwill.  All acquisition related costs are expensed as incurred and recorded in operating expenses.  The Company includes operations associated with acquisitions from the date of acquisition forward.

In January 2011, the Company acquired from HumanConcepts, a provider of workforce decision support solutions, ownership of its OrgPlus desktop software product line for small and medium-sized businesses, and its associated customer base, as well as a source code license for a SaaS-based version. OrgPlus facilitates creation, management and communication of detailed organizational charts. The acquisition reflects Insperity's continued business strategy to expand its human resource services as well as the solutions available to the Company's current and target clients.  The Company paid $10.8 million upon the closing of the transaction and expects to pay an additional $1.2 million in the first quarter of 2012 based on the terms of the agreement.

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Basis of Presentation (Details)	Sep. 30, 2011	Sep. 30, 2010
Basis of Presentation [Abstract]
Years of evolution from a professional employer organization to a comprehensive business performance solutions provider (in years)	25
Percentage of PEO revenues from the Company's Texas markets (in hundredths)	27.00%	29.00%
Percentage of PEO revenues from the Company's California markets (in hundredths)	16.00%	15.00%

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Revolving Credit Facility

9 Months Ended

Sep. 30, 2011

Revolving Credit Facility [Abstract]

Long-term Debt

5.   Revolving Credit Facility

On September 15, 2011, the Company entered into a four-year, $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 is available for working capital and general corporate purposes, including acquisitions. The Company's obligations under the Facility are secured by 65% of the stock of the Company's captive insurance subsidiary and are guaranteed by all of the Company's domestic subsidiaries. At September 30, 2011, the Company had not drawn on the Facility.

The Facility matures on September 15, 2015.  Borrowings under the Facility bear interest at an alternate base rate or LIBOR, at the Company's option, plus an applicable margin.  Depending on the Company's leverage ratio, the applicable margin varies (i) in the case of LIBOR loans, from 2.00% to 2.75% and (ii) in the case of alternate base rate loans, from 0.00% to 0.75%.  The alternate base rate is the highest of (i) the prime rate most recently published in The Wall Street Journal, (ii) the federal funds rate plus 0.50% and (iii) the 30-day LIBOR rate plus 2.00%.  The Company also pays an unused commitment fee on the average daily unused portion of the Facility at a rate of 0.25%. Interest expense and unused commitment fees are recorded in other income (expense).

The Facility contains both affirmative and negative covenants, which the Company believes are customary for arrangements of this nature.  Covenants include, but are not limited to, limitations on the Company's ability to incur additional indebtedness, sell material assets, retire, redeem or otherwise reacquire its capital stock, acquire the capital stock or assets of another business, make investments and pay dividends.  In addition, the Credit Agreement requires the Company to comply with financial covenants limiting the Company's total funded debt, minimum interest coverage ratio and maximum leverage ratio. The Company was in compliance with all financial covenants under the Credit Agreement at September 30, 2011.

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Acquisitions (Details) (USD $) In Millions	9 Months Ended
	Sep. 30, 2011
Acquisitions [Abstract]
Acquisition date of OrgPlus desktop software product line	January 2011
Amount paid upon closing for the acquisition of OrgPlus software product line	$ 10.8
Expected future payments of acquisition of OrgPlus software product line	$ 1.2

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CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (Unaudited) (USD $) In Thousands	Common Stock Issued [Member]	Additional Paid-In Capital [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Retained Earnings [Member]	Total
Balance at Dec. 31, 2010	$ 309	$ 135,607	$ (124,464)	$ 21	$ 228,922	$ 240,395
Balance (in shares) at Dec. 31, 2010	30,839
Purchase of treasury stock, at cost	0	0	(22,459)	0	0	(22,459)
Exercise of stock options	0	(1,012)	4,893	0	0	3,881
Income tax benefit from stock-based compensation, net	0	1,709	0	0	0	1,709
Stock-based compensation expense	0	(280)	6,735	0	0	6,455
Other	0	87	598	0	0	685
Dividends paid	0	0	0	0	(11,871)	(11,871)
Change in unrealized gain on marketable securities, net of tax:
Unrealized gain	0	0	0	31	0	31
Net income	0	0	0	0	19,626	19,626
Comprehensive income	0	0	0	0	0	19,657
Balance at Sep. 30, 2011	$ 309	$ 136,111	$ (134,697)	$ 52	$ 236,677	$ 238,452
Balance (in shares) at Sep. 30, 2011	30,839

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Revolving Credit Facility (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2011
Revolving Credit Facility [Abstract]
Term of revolving credit facility (in years)	4Y
Current borrowing capacity	$ 100
Maximum borrowing capacity	$ 150
Percentage of subsidiary stock securing debt (in hundredths)	65.00%
Basis of interest rate calculation on credit facility	Depending on the Company's leverage ratio, the applicable margin varies i in the case of LIBOR loans, from 2.00 to 2.75 and ii in the case of alternate base rate loans, from 0.00 to 0.75. The alternate base rate is the highest of i the prime rate most recently published in The Wall Street Journal, ii the federal funds rate plus 0.50 and iii the 30-day LIBOR rate plus 2.00.
Unused commitment fee on the average daily unused portion (in hundredths)	0.25%

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Net Income Per Share (Details) (USD $) In Thousands, except Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Earnings Per Share [Abstract]
Net income	$ 4,099	$ 7,234	$ 19,626	$ 14,651
Less income allocated to participating securities	(120)	(214)	(582)	(428)
Net income allocated to common shares	$ 3,979	$ 7,020	$ 19,044	$ 14,223
Weighted average common shares outstanding	25,425	25,312	25,546	25,258
Incremental shares from assumed conversions of common stock options (in shares)	74	111	98	105
Adjusted weighted average common shares outstanding (in shares)	25,499	25,423	25,644	25,363
Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect (in shares)	54	339	21	492

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Basis of Presentation

9 Months Ended

Sep. 30, 2011

Basis of Presentation [Abstract]

Basis of Presentation

1.  Basis of Presentation

Insperity, Inc., a Delaware corporation formerly named Administaff, Inc. (“Insperity” or the “Company”) provides an array of human resources (“HR”) and business solutions designed to help improve business performance. The Company's name change, which was effective March 3, 2011, reflects the Company's evolution over the past 25 years from a professional employer organization (“PEO”), an industry it pioneered, to its current position as a comprehensive business performance solutions provider.  The Company's most comprehensive HR business offering is provided through its PEO services, now known as Workforce OptimizationTM, which encompasses a broad range of human resource functions, including payroll and employment administration, employee benefits, workers' compensation, government compliance, performance management, and training and development services.  In addition to Workforce Optimization, the Company offers Performance Management, Expense Management, Time and Attendance, Organizational Planning, Employment Screening, Recruiting Services, Retirement Services, Business Insurance and Technology Services solutions, (collectively “Adjacent Businesses”), many of which are offered via desktop applications and software as a service (“SaaS”) delivery models. For the nine months ended September 30, 2011 and 2010, PEO revenues from the Company's Texas markets represented 27% and 29%, while PEO revenues from the Company's California markets represented 16% and 15%, of the Company's total PEO revenues, respectively.

The consolidated financial statements include the accounts of the Company 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 the Company's audited consolidated financial statements as of and for the year ended December 31, 2010. The Company's Consolidated Balance Sheets at December 31, 2010 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.  The Company's Consolidated Balance Sheets at September 30, 2011 and the Consolidated Statements of Operations and Cash Flows for the periods ended September 30, 2011 and 2010, and Stockholders' Equity for the period ended September 30, 2011, have been prepared by the Company 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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Cash, Cash Equivalents and Marketable Securities (Tables)

9 Months Ended

Sep. 30, 2011

Cash, Cash Equivalents and Marketable Securities [Abstract]

Summary of investments in cash, cash equivalents and marketable securities

The following table summarizes the Company's investments in cash equivalents and marketable securities held by investment managers and overnight investments:

	September 30, 2011			December 31, 2010
	(in thousands)
Overnight Holdings
Money market funds (cash equivalents)	$	18,367		$	157,680
Investment Holdings
Money market funds (cash equivalents)		60,174			72,258
Marketable securities		55,394			43,367
		133,935			273,305
Cash held in demand accounts		105,194			31,295
Outstanding checks		(13,825	)		(26,404	)
Total cash, cash equivalents and marketable securities	$	225,304		$	278,196
Cash and cash equivalents	$	169,910		$	234,829
Marketable securities		55,394			43,367
	$	225,304		$	278,196

Summary of fair value measurements of financial assets

The following table summarizes the levels of fair value measurements of the Company's financial assets:

	Fair Value Measurements
	(in thousands)
	September 30, 2011		Level 1		Level 2		Level 3
Money market funds	$	78,541	$	78,541	$	-	$	-
Municipal bonds		55,394		––		55,394		-
Total	$	133,935	$	78,541	$	55,394	$	-
	Fair Value Measurements
	(in thousands)
		December 31, 2010	Level 1		Level 2		Level 3
Money market funds	$	229,938	$	229,938	$	-	$	-
Municipal bonds		43,367		-		43,367		-
Total	$	273,305	$	229,938	$	43,367	$	-

Summary of available-for-sale securities

The following table summarizes the Company's available-for-sale marketable securities as of September 30, 2011 and December 31, 2010:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
September 30, 2011:
Municipal bonds	$	55,304	$	125	$	(35	)	$	55,394
December 31, 2010:
Municipal bonds	$	43,330	$	63	$	(26	)	$	43,367

Contractual maturities of marketable secuities

As of September 30, 2011, the contractual maturities of the Company's marketable securities were as follows:

	Amortized Cost		Estimated Fair Value
	(in thousands)
Less than one year	$	31,601	$	31,640
One to five years		23,703		23,754
Total	$	55,304	$	55,394

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Cash, Cash Equivalents and Marketable Securities (Details) (USD $)	Sep. 30, 2011	Dec. 31, 2010	Sep. 30, 2010	Dec. 31, 2009
Overnight Holdings [Abstract]
Money market funds (cash equivalents)	$ 18,367,000	$ 157,680,000
Investment Holdings [Abstract]
Money market funds (cash equivalents)	60,174,000	72,258,000
Marketable securities	55,394,000	43,367,000
Total cash equivalents and marketable securities	133,935,000	273,305,000
Cash held in demand accounts	105,194,000	31,295,000
Outstanding checks	(13,825,000)	(26,404,000)
Total cash, cash equivalents and marketable securities	225,304,000	278,196,000
Cash and cash equivalents	169,910,000	234,829,000	207,930,000	227,085,000
Withholding associated with federal and state income taxes, employment taxes and other payroll deductions included in cash balance	93,100,000	128,800,000
Client prepayments included in cash balance	3,900,000	8,100,000
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Municipal bonds	55,394,000
Schedule of Available-for-sale Securities [Line Items]
Municipal bonds	55,394,000
Contractual maturities amortized cost [Abstract]
Less than one year	31,601,000
One to five years	23,703,000
Total	55,304,000
Contractual maturities estimated fair value [Abstract]
Less than one year	31,640,000
One to five years	23,754,000
Total	55,394,000
Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market funds	78,541,000	229,938,000
Municipal bonds	55,394,000	43,367,000
Total	133,935,000	273,305,000
Schedule of Available-for-sale Securities [Line Items]
Municipal bonds	55,394,000	43,367,000
Contractual maturities estimated fair value [Abstract]
Total	55,394,000	43,367,000
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market funds	78,541,000	229,938,000
Municipal bonds	0	0
Total	78,541,000	229,938,000
Schedule of Available-for-sale Securities [Line Items]
Municipal bonds	0	0
Contractual maturities estimated fair value [Abstract]
Total	0	0
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market funds	0	0
Municipal bonds	55,394,000	43,367,000
Total	55,394,000	43,367,000
Schedule of Available-for-sale Securities [Line Items]
Municipal bonds	55,394,000	43,367,000
Contractual maturities estimated fair value [Abstract]
Total	55,394,000	43,367,000
Fair Value, Inputs, 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
Schedule of Available-for-sale Securities [Line Items]
Municipal bonds	0	0
Contractual maturities estimated fair value [Abstract]
Total	0	0
US States and Political Subdivisions Debt Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Municipal bonds	55,394,000	43,367,000
Schedule of Available-for-sale Securities [Line Items]
Municipal bonds	55,394,000	43,367,000
Amortized cost	55,304,000	43,330,000
Gross unrealized gains	125,000	63,000
Gross unrealized losses	(35,000)	(26,000)
Contractual maturities estimated fair value [Abstract]
Total	$ 55,394,000	$ 43,367,000

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CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 169,910	$ 234,829
Restricted cash	42,812	41,204
Marketable securities	55,394	43,367
Accounts receivable, net:
Trade	2,069	1,194
Unbilled	154,256	134,187
Other	6,013	6,726
Prepaid insurance	15,182	24,978
Other current assets	10,967	8,528
Income taxes receivable	989	1,808
Deferred income taxes	1,751	1,267
Total current assets	459,343	498,088
Property and equipment:
Land	3,653	3,260
Buildings and improvements	66,673	64,953
Computer hardware and software	76,174	67,714
Software development costs	29,778	27,482
Furniture and fixtures	35,124	35,164
Aircraft	35,806	31,524
Total property and equipment, gross	247,208	230,097
Accumulated depreciation and amortization	(158,756)	(154,070)
Total property and equipment, net	88,452	76,027
Other assets:
Prepaid health insurance	9,000	9,000
Deposits - health insurance	2,640	2,640
Deposits - workers' compensation	46,728	51,731
Goodwill and other intangible assets, net	28,867	21,251
Other assets	1,440	1,108
Total other assets	88,675	85,730
Total assets	636,470	659,845
Current liabilities:
Accounts payable	2,659	3,309
Payroll taxes and other payroll deductions payable	104,204	145,096
Accrued worksite employee payroll cost	130,788	109,697
Accrued health insurance costs	5,209	15,419
Accrued workers' compensation costs	45,316	42,081
Accrued corporate payroll and commissions	22,296	23,743
Other accrued liabilities	19,778	14,264
Total current liabilities	330,250	353,609
Noncurrent liabilities:
Accrued workers' compensation costs	58,508	55,730
Other accrued liabilities	0	1,261
Deferred income taxes	9,260	8,850
Total noncurrent liabilities	67,768	65,841
Commitments and contingencies
Stockholders' equity:
Common stock	309	309
Additional paid-in capital	136,111	135,607
Treasury stock, at cost	(134,697)	(124,464)
Accumulated other comprehensive income, net of tax	52	21
Retained earnings	236,677	228,922
Total stockholders' equity	238,452	240,395
Total liabilities and stockholders' equity	$ 636,470	$ 659,845