x
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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o
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Delaware
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76-0479645
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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19001 Crescent Springs Drive
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||
Kingwood, Texas
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77339
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
Part I
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||
Item 1.
|
3 | |
Item 2.
|
19 | |
Item 3.
|
26 | |
Item 4.
|
26 | |
Part II
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||
Item 1.
|
27 | |
Item 1a.
|
27 | |
Item 2.
|
28 | |
Item 6.
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29 |
March 31,
2012
|
December 31,
2011
|
|||||||
(Unaudited)
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 234,548 | $ | 211,208 | ||||
Restricted cash
|
45,068 | 44,737 | ||||||
Marketable securities
|
56,981 | 56,987 | ||||||
Accounts receivable, net:
|
||||||||
Trade
|
3,601 | 7,893 | ||||||
Unbilled
|
167,785 | 158,508 | ||||||
Other
|
4,575 | 4,532 | ||||||
Prepaid insurance
|
24,662 | 21,300 | ||||||
Other current assets
|
11,529 | 11,488 | ||||||
Income taxes receivable
|
617 | 2,902 | ||||||
Deferred income taxes
|
— | 3,233 | ||||||
Total current assets
|
549,366 | 522,788 | ||||||
Property and equipment:
|
||||||||
Land
|
3,653 | 3,653 | ||||||
Buildings and improvements
|
68,727 | 67,496 | ||||||
Computer hardware and software
|
77,287 | 76,105 | ||||||
Software development costs
|
33,519 | 32,699 | ||||||
Furniture and fixtures
|
36,207 | 36,133 | ||||||
Aircraft
|
35,866 | 35,866 | ||||||
255,259 | 251,952 | |||||||
Accumulated depreciation and amortization
|
(162,662 | ) | (159,008 | ) | ||||
Total property and equipment, net
|
92,597 | 92,944 | ||||||
Other assets:
|
||||||||
Prepaid health insurance
|
9,000 | 9,000 | ||||||
Deposits – health insurance
|
2,840 | 2,640 | ||||||
Deposits – workers’ compensation
|
55,665 | 52,320 | ||||||
Goodwill and other intangible assets, net
|
27,999 | 28,433 | ||||||
Other assets
|
4,163 | 4,134 | ||||||
Total other assets
|
99,667 | 96,527 | ||||||
Total assets
|
$ | 741,630 | $ | 712,259 |
March 31,
2012
|
December 31,
2011
|
|||||||
(Unaudited)
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 3,437 | $ | 5,085 | ||||
Payroll taxes and other payroll deductions payable
|
177,991 | 168,652 | ||||||
Accrued worksite employee payroll cost
|
144,840 | 130,317 | ||||||
Accrued health insurance costs
|
9,200 | 9,427 | ||||||
Accrued workers’ compensation costs
|
47,094 | 46,548 | ||||||
Accrued corporate payroll and commissions
|
13,703 | 22,383 | ||||||
Other accrued liabilities
|
14,092 | 13,814 | ||||||
Deferred income taxes
|
3,089 | — | ||||||
Total current liabilities
|
413,446 | 396,226 | ||||||
Noncurrent liabilities:
|
||||||||
Accrued workers’ compensation costs
|
61,895 | 60,054 | ||||||
Deferred income taxes
|
9,814 | 10,772 | ||||||
Total noncurrent liabilities
|
71,709 | 70,826 | ||||||
Commitments and contingencies
|
||||||||
Stockholders’ equity:
|
||||||||
Common stock
|
309 | 309 | ||||||
Additional paid-in capital
|
136,670 | 135,871 | ||||||
Treasury stock, at cost
|
(134,198 | ) | (134,647 | ) | ||||
Accumulated other comprehensive income, net of tax
|
59 | 24 | ||||||
Retained earnings
|
253,635 | 243,650 | ||||||
Total stockholders’ equity
|
256,475 | 245,207 | ||||||
Total liabilities and stockholders’ equity
|
$ | 741,630 | $ | 712,259 |
Three Months Ended
March 31,
|
||||||||
2012
|
2011
|
|||||||
Revenues (gross billings of $3.231 billion and $2.888 billion, less worksite employee payroll cost of $2.636 billion and $2.352 billion, respectively)
|
$ | 595,177 | $ | 536,381 | ||||
Direct costs:
|
||||||||
Payroll taxes, benefits and workers’ compensation costs
|
492,173 | 445,422 | ||||||
Gross profit
|
103,004 | 90,959 | ||||||
Operating expenses:
|
||||||||
Salaries, wages and payroll taxes
|
43,323 | 39,597 | ||||||
Stock-based compensation
|
2,155 | 1,790 | ||||||
General and administrative expenses
|
22,078 | 21,893 | ||||||
Commissions
|
3,435 | 3,096 | ||||||
Advertising
|
4,755 | 5,506 | ||||||
Depreciation and amortization
|
4,212 | 3,948 | ||||||
79,958 | 75,830 | |||||||
Operating income
|
23,046 | 15,129 | ||||||
Other income (expense):
|
||||||||
Interest, net
|
164 | 280 | ||||||
Other, net
|
124 | 4 | ||||||
Income before income tax expense
|
23,334 | 15,413 | ||||||
Income tax expense
|
9,450 | 6,627 | ||||||
Net income
|
$ | 13,884 | $ | 8,786 | ||||
Less net income allocated to participating securities
|
(402 | ) | (264 | ) | ||||
Net income allocated to common shares
|
$ | 13,482 | $ | 8,522 | ||||
Basic net income per share of common stock
|
$ | 0.54 | $ | 0.33 | ||||
Diluted net income per share of common stock
|
$ | 0.54 | $ | 0.33 |
Three Months Ended
March 31,
|
||||||||
2012
|
2011
|
|||||||
Net income
|
$ | 13,884 | $ | 8,786 | ||||
Other comprehensive income:
|
||||||||
Unrealized gains on available-for-sale securities, net of tax
|
35 | 14 | ||||||
Comprehensive income
|
$ | 13,919 | $ | 8,800 |
Common Stock
Issued
|
Additional
Paid-In
|
Treasury
|
Accumulated
Other
Comprehensive
|
Retained
|
|
|||||||||||||||||||||||
Shares | Amount |
Capital
|
Stock | Income (Loss) | Earnings | Total | ||||||||||||||||||||||
Balance at December 31, 2011
|
30,839 | $ | 309 | $ | 135,871 | $ | (134,647 | ) | $ | 24 | $ | 243,650 | $ | 245,207 | ||||||||||||||
Purchase of treasury stock, at cost
|
― | ― | 8 | (3,261 | ) | — | ― | (3,253 | ) | |||||||||||||||||||
Exercise of stock options
|
― | ― | (446 | ) | 1,249 | — | ― | 803 | ||||||||||||||||||||
Income tax benefit from stock-based compensation, net
|
― | ― | 1,283 | — | — | ― | 1,283 | |||||||||||||||||||||
Stock-based compensation expense
|
— | — | (48 | ) | 2,203 | — | — | 2,155 | ||||||||||||||||||||
Other
|
― | ― | 2 | 258 | — | ― | 260 | |||||||||||||||||||||
Dividends paid
|
— | — | — | — | — | (3,899 | ) | (3,899 | ) | |||||||||||||||||||
Unrealized gain on marketable securities, net of tax
|
— | — | — | — | 35 | — | 35 | |||||||||||||||||||||
Net income
|
— | — | — | — | — | 13,884 | 13,884 | |||||||||||||||||||||
Balance at March 31, 2012
|
30,839 | $ | 309 | $ | 136,670 | $ | (134,198 | ) | $ | 59 | $ | 253,635 | $ | 256,475 |
Three Months Ended
March 31,
|
||||||||
2012
|
2011
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$ | 13,884 | $ | 8,786 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
4,212 | 3,948 | ||||||
Amortization of marketable securities
|
657 | 507 | ||||||
Stock-based compensation
|
2,155 | 1,790 | ||||||
Deferred income taxes
|
5,341 | 2,012 | ||||||
Changes in operating assets and liabilities, net of effects from acquisitions:
|
||||||||
Restricted cash
|
(331 | ) | 397 | |||||
Accounts receivable
|
(5,028 | ) | (13,955 | ) | ||||
Prepaid insurance
|
(3,362 | ) | 593 | |||||
Other current assets
|
(41 | ) | (3,415 | ) | ||||
Other assets
|
(3,570 | ) | (1,965 | ) | ||||
Accounts payable
|
(1,648 | ) | (681 | ) | ||||
Payroll taxes and other payroll deductions payable
|
9,339 | 6,467 | ||||||
Accrued worksite employee payroll expense
|
14,523 | 56,563 | ||||||
Accrued health insurance costs
|
(227 | ) | 1,871 | |||||
Accrued workers’ compensation costs
|
547 | 2,329 | ||||||
Accrued corporate payroll, commissions and other accrued liabilities
|
(5,362 | ) | (8,646 | ) | ||||
Income taxes payable/receivable
|
2,167 | 2,487 | ||||||
Total adjustments
|
19,372 | 50,302 | ||||||
Net cash provided by operating activities
|
33,256 | 59,088 | ||||||
Cash flows from investing activities:
|
||||||||
Marketable securities purchases
|
(1,443 | ) | (5,154 | ) | ||||
Marketable securities proceeds from dispositions
|
— | 1,365 | ||||||
Marketable securities proceeds from maturities
|
850 | 4,402 | ||||||
Cash exchanged for acquisitions
|
(1,200 | ) | (10,800 | ) | ||||
Property and equipment
|
(3,435 | ) | (3,326 | ) | ||||
Net cash used in investing activities
|
(5,228 | ) | (13,513 | ) |
Three Months Ended
March 31,
|
||||||||
2012
|
2011
|
|||||||
Cash flows from financing activities:
|
||||||||
Purchase of treasury stock
|
$ | (3,253 | ) | $ | (3,089 | ) | ||
Dividends paid
|
(3,899 | ) | (3,971 | ) | ||||
Proceeds from the exercise of stock options
|
803 | 2,534 | ||||||
Income tax benefit from stock-based compensation
|
1,401 | 1,711 | ||||||
Other
|
260 | 216 | ||||||
Net cash used in financing activities
|
(4,688 | ) | (2,599 | ) | ||||
Net increase in cash and cash equivalents
|
23,340 | 42,976 | ||||||
Cash and cash equivalents at beginning of period
|
211,208 | 234,829 | ||||||
Cash and cash equivalents at end of period
|
$ | 234,548 | $ | 277,805 |
1.
|
Basis of Presentation
|
2.
|
Accounting Policies
|
Three Months Ended March 31,
|
||||||||
2012
|
2011
|
|||||||
(in thousands)
|
||||||||
Beginning balance, January 1,
|
$ | 104,791 | $ | 96,934 | ||||
Accrued claims
|
9,495 | 9,790 | ||||||
Present value discount
|
(347 | ) | (530 | ) | ||||
Paid claims
|
(6,976 | ) | (7,533 | ) | ||||
Ending balance
|
$ | 106,963 | $ | 98,661 | ||||
Current portion of accrued claims
|
$ | 45,068 | $ | 40,807 | ||||
Long-term portion of accrued claims
|
61,895 | 57,854 | ||||||
$ | 106,963 | $ | 98,661 |
3.
|
Cash, Cash Equivalents and Marketable Securities
|
March 31,
|
December 31,
|
|||||||
2012
|
2011
|
|||||||
(in thousands)
|
||||||||
Overnight Holdings
|
||||||||
Money market funds (cash equivalents)
|
$ | 87,470 | $ | 71,350 | ||||
Investment Holdings
|
||||||||
Money market funds (cash equivalents)
|
59,372 | 59,587 | ||||||
Marketable securities
|
56,981 | 56,987 | ||||||
203,823 | 187,924 | |||||||
Cash held in demand accounts
|
102,157 | 113,968 | ||||||
Outstanding checks
|
(14,451 | ) | (33,697 | ) | ||||
Total cash, cash equivalents and marketable securities
|
$ | 291,529 | $ | 268,195 | ||||
Cash and cash equivalents
|
$ | 234,548 | $ | 211,208 | ||||
Marketable securities
|
56,981 | 56,987 | ||||||
$ | 291,529 | $ | 268,195 |
|
·
|
Level 1 - quoted prices in active markets using identical assets
|
|
·
|
Level 2 - significant other observable inputs, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other observable inputs
|
|
·
|
Level 3 - significant unobservable inputs
|
Fair Value Measurements
|
||||||||||||||||
(in thousands)
|
||||||||||||||||
March 31,
|
||||||||||||||||
2012
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Money market funds
|
$ | 146,842 | $ | 146,842 | $ | — | $ | — | ||||||||
Municipal bonds
|
56,981 | –– | 56,981 | — | ||||||||||||
Total
|
$ | 203,823 | $ | 146,842 | $ | 56,981 | $ | — |
Fair Value Measurements
|
||||||||||||||||
(in thousands)
|
||||||||||||||||
December 31,
|
||||||||||||||||
2011 |
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Money market funds
|
$ | 130,937 | $ | 130,937 | $ | — | $ | — | ||||||||
Municipal bonds
|
56,987 | — | 56,987 | — | ||||||||||||
Total
|
$ | 187,924 | $ | 130,937 | $ | 56,987 | $ | — |
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Estimated
|
|||||||||||||
Cost
|
Gains
|
Losses
|
Fair Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
March 31, 2012:
|
||||||||||||||||
Municipal bonds
|
$ | 56,882 | $ | 117 | $ | (18 | ) | $ | 56,981 | |||||||
December 31, 2011:
|
||||||||||||||||
Municipal bonds
|
$ | 56,945 | $ | 90 | $ | (48 | ) | $ | 56,987 |
Amortized
Cost
|
Estimated
Fair Value
|
|||||||
(in thousands)
|
||||||||
Less than one year
|
$ | 33,566 | $ | 33,576 | ||||
One to five years
|
23,316 | 23,405 | ||||||
Total
|
$ | 56,882 | $ | 56,981 |
4.
|
Acquisitions
|
5.
|
Revolving Credit Facility
|
6.
|
Stockholders’ Equity
|
7.
|
Net Income per Share
|
Three Months Ended March 31,
|
||||||||
2012
|
2011
|
|||||||
(in thousands)
|
||||||||
Net income
|
$ | 13,884 | $ | 8,786 | ||||
Less income allocated to participating securities
|
(402 | ) | (264 | ) | ||||
Net income allocated to common shares
|
$ | 13,482 | $ | 8,522 | ||||
Weighted average common shares outstanding
|
25,087 | 25,488 | ||||||
Incremental shares from assumed conversions of common stock options
|
71 | 119 | ||||||
Adjusted weighted average common shares outstanding
|
25,158 | 25,607 | ||||||
Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect
|
16 | — |
Three Months Ended March 31,
|
||||||||||||
2012
|
2011
|
% Change
|
||||||||||
(in thousands, except per share and statistical data)
|
||||||||||||
Revenues (gross billings of $3.231 billion and $2.888 billion, less worksite employee payroll cost of $2.636 billion and $2.352 billion, respectively)
|
$ | 595,177 | $ | 536,381 | 11.0 | % | ||||||
Gross profit
|
103,004 | 90,959 | 13.2 | % | ||||||||
Operating expenses
|
79,958 | 75,830 | 5.4 | % | ||||||||
Operating income
|
23,046 | 15,129 | 52.3 | % | ||||||||
Other income (expense)
|
288 | 284 | 1.4 | % | ||||||||
Net income
|
13,884 | 8,786 | 58.0 | % | ||||||||
Diluted net income per share of common stock
|
0.54 | 0.33 | 63.6 | % | ||||||||
Statistical Data:
|
||||||||||||
Average number of worksite employees paid per month
|
121,938 | 112,409 | 8.5 | % | ||||||||
Revenues per worksite employee per month(1)
|
$ | 1,627 | $ | 1,591 | 2.3 | % | ||||||
Gross profit per worksite employee per month
|
282 | 270 | 4.4 | % | ||||||||
Operating expenses per worksite employee per month
|
219 | 225 | (2.7 | )% | ||||||||
Operating income per worksite employee per month
|
63 | 45 | 40.0 | % | ||||||||
Net income per worksite employee per month
|
38 | 26 | 46.2 | % |
(1)
|
Gross billings of $8,833 and $8,566 per worksite employee per month, less payroll cost of $7,206 and $6,975 per worksite employee per month, respectively.
|
Three Months Ended March 31,
|
Three Months Ended March 31,
|
|||||||||||||||||||
2012
|
2011
|
% Change
|
2012
|
2011
|
||||||||||||||||
(in thousands)
|
(% of total revenues)
|
|||||||||||||||||||
Northeast
|
$ | 158,965 | $ | 140,745 | 12.9 | % | 27.0 | % | 26.6 | % | ||||||||||
Southeast
|
53,348 | 51,375 | 3.8 | % | 9.1 | % | 9.7 | % | ||||||||||||
Central
|
87,294 | 78,599 | 11.1 | % | 14.8 | % | 14.8 | % | ||||||||||||
Southwest
|
163,806 | 153,750 | 6.5 | % | 27.9 | % | 29.0 | % | ||||||||||||
West
|
124,606 | 105,092 | 18.6 | % | 21.2 | % | 19.9 | % | ||||||||||||
588,019 | 529,651 | 11.0 | % | 100.0 | % | 100.0 | % | |||||||||||||
Other revenue
|
7,158 | 6,820 | 5.0 | % | ||||||||||||||||
Total revenue
|
$ | 595,177 | $ | 536,381 | 11.0 | % |
|
·
|
Benefits costs – The cost of group health insurance and related employee benefits increased $7 per worksite employee per month, or 3.6% on a cost per covered employee basis compared to the first quarter of 2011. These results reflect typical annual cost increases and were favorably impacted by plan design changes implemented on January 1, 2012, and a decrease in the number of COBRA participants. The number of participants electing COBRA coverage in the United plan declined from 4.5% in the first quarter of 2011 to 3.1% in the first quarter of 2012 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 72.8% in the 2012 period compared to 74.5% in the 2011 period. Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Health Insurance Costs,” for a discussion of our accounting for health insurance costs.
|
|
·
|
Workers’ compensation costs – Workers’ compensation costs increased 1.7%, but decreased $2 per worksite employee per month, compared to the first quarter of 2011. As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.56% in the 2012 period compared to 0.61% in the 2011 period. During the 2012 period, we recorded reductions in workers’ compensation costs of $3.5 million, or 0.15% of non-bonus payroll costs, for changes in estimated losses related to prior reporting periods, compared to $1.9 million, or 0.09% of non-bonus payroll costs, in the 2011 period. Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Workers’ Compensation Costs,” for a discussion of our accounting for workers’ compensation costs.
|
|
·
|
Payroll tax costs – Payroll taxes increased 11.5%, or $19 per worksite employee per month compared to the first quarter of 2011, primarily due to the 12.1% increase in payroll costs. Payroll taxes as a percentage of payroll cost were 9.6% in both the 2012 and 2011 periods.
|
Three Months Ended March 31,
|
Three Months Ended March 31, | |||||||||||||||||||||||
2012 | 2011 | % Change | 2012 | 2011 | % Change | |||||||||||||||||||
(in thousands) | (per worksite employee per month) | |||||||||||||||||||||||
Salaries, wages and payroll taxes
|
$ | 43,323 | $ | 39,597 | 9.4 | % | $ | 119 | $ | 118 | 0.8 | % | ||||||||||||
Stock–based compensation
|
2,155 | 1,790 | 20.4 | % | 6 | 5 | 20.0 | % | ||||||||||||||||
Commissions
|
3,435 | 3,096 | 10.9 | % | 9 | 9 | — | |||||||||||||||||
Advertising
|
4,755 | 5,506 | (13.6 | )% | 13 | 16 | (18.8 | )% | ||||||||||||||||
General and administrative expenses
|
22,078 | 21,893 | 0.8 | % | 60 | 65 | (7.7 | )% | ||||||||||||||||
Depreciation and amortization
|
4,212 | 3,948 | 6.7 | % | 12 | 12 | — | |||||||||||||||||
Total operating expenses
|
$ | 79,958 | $ | 75,830 | 5.4 | % | $ | 219 | $ | 225 | (2.7 | )% |
·
|
Salaries, wages and payroll taxes of corporate and sales staff increased 9.4%, or $1 per worksite employee per month compared to the 2011 period. This increase was primarily due to a 9.4% rise in headcount, due in part to our adjacent business strategy.
|
·
|
Stock-based compensation increased 20.4%, or $1 per worksite employee per month compared to the 2011 period, due primarily to an increase in the weighted average market value on the date of grant associated with restricted awards. The stock-based compensation expense represents amortization of restricted stock awards granted to employees.
|
·
|
Commissions expense increased 10.9%, due primarily to an 8.5% increase in the average number of worksite employees paid per month. Commissions expense remained flat on a per worksite employee per month basis compared to the 2011 period.
|
·
|
Advertising costs decreased 13.6%, or $3 per worksite employee per month compared to the 2011 period, primarily due to the non-recurrence of expenses in 2012 related to our rebranding initiative.
|
·
|
General and administrative expenses increased 0.8%, but decreased $5 per worksite employee per month compared to the first quarter of 2011, primarily due to increased professional services, office and repairs and maintenance, offset by the non-recurrence of expenses in 2012 related to our rebranding initiative.
|
·
|
Depreciation and amortization expense increased 6.7%, but remained flat on a per worksite employee per month basis compared to the 2011 period.
|
Three Months Ended March 31,
|
||||||||||||
2012
|
2011
|
% Change
|
||||||||||
(in thousands, except per worksite employee per month data)
|
||||||||||||
Payroll cost (GAAP)
|
$ | 2,636,129 | $ | 2,352,263 | 12.1 | % | ||||||
Less: Bonus payroll cost
|
(367,823 | ) | (304,849 | ) | 20.7 | % | ||||||
Non-bonus payroll cost
|
$ | 2,268,306 | $ | 2,047,414 | 10.8 | % | ||||||
Payroll cost per worksite employee per month (GAAP)
|
$ | 7,206 | $ | 6,975 | 3.3 | % | ||||||
Less: Bonus payroll cost per worksite employee per month
|
(1,005 | ) | (904 | ) | 11.2 | % | ||||||
Non-bonus payroll cost per worksite employee per month
|
$ | 6,201 | $ | 6,071 | 2.1 | % |
·
|
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 March 31, 2012, the last business day of the reporting period was a Friday and client prepayments were $10.7 million and accrued worksite employee payroll was $144.8 million. In the period ended March 31, 2011, the last business day of the reporting period was a Thursday and client prepayments were $57.7 million and accrued worksite employee payroll was $166.3 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 $10.6 million in the first three months of 2012 and $9.1 million in the first three months of 2011. However, our estimate of workers’ compensation loss costs was $9.1 million and $9.3 million in 2012 and 2011, respectively.
|
·
|
Medical plan funding – Our health care contract with United establishes participant cash funding rates 90 days in advance of the beginning of a reporting quarter. Therefore, changes in the participation level of the United plan have a direct impact on our operating cash flows. In addition, changes to the funding rates, which are solely determined by United based primarily upon recent claim history and anticipated cost trends, also have a significant impact on our operating cash flows. At March 31, 2012, premiums owed and cash funded to United have exceeded Plan Costs, resulting in a $28.9 million surplus, $19.9 million of which is reflected as a current asset, and $9.0 million of which is reflected as a long-term asset on our Consolidated Balance Sheets. The premiums owed to United at March 31, 2012, were $5.8 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 58.0% to $13.9 million in the three months ended March 31, 2012, compared to $8.8 million in the three months ended March 31, 2011. Please read “Results of Operations – Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011.”
|
Period
|
Total Number
of Shares
Purchased
|
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)
|
||||||||||||
01/01/2012 –01/31/2012
|
307 | (2) | $ | 25.35 | 13,263,128 | 1,236,872 | ||||||||||
02/01/2012 –02/29/2012
|
105,616 | (2) | 30.81 | 13,263,128 | 1,236,872 | |||||||||||
03/01/2012 – 03/31/2012
|
— | — | 13,263,128 | 1,236,872 | ||||||||||||
Total
|
105,923 | (2) | $ | 30.79 | 13,263,128 | 1,236,872 |
(1)
|
The Board has approved a repurchase program of Insperity common stock. During the three months ended March 31, 2012, no shares were repurchased under the program and 105,923 shares were withheld to satisfy tax withholding obligations for the vesting of restricted stock awards. As of March 31, 2012, we were authorized to repurchase an additional 1,236,872 shares under the program. Unless terminated earlier by resolution of the Board, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the repurchase program.
|
(2)
|
These shares were 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.
|
(a)
|
List of exhibits.
|
* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
** Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
** 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 periods ended March 31, 2012 and 2011; (ii) the Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 2012 and 2011; (iii) the Consolidated Balance Sheets at March 31, 2012 and December 31, 2011; (iv) the Consolidated Statement of Stockholders’ Equity; (v) the Consolidated Statements of Cash Flows for the periods ended March 31, 2012 and 2011; and (vi) 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.
|
Insperity, Inc. | ||
Date: April 30, 2012
|
By: |
/s/ Douglas S. Sharp
|
Douglas S. Sharp
|
||
Senior Vice President of Finance,
|
||
Chief Financial Officer and Treasurer
|
||
(Principal Financial and Duly Authorized Officer)
|
|
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: April 30, 2012
|
|
/s/ Paul J. Sarvadi
|
|
Paul J. Sarvadi
|
|
Chairman of the Board and Chief Executive Officer
|
|
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: April 30, 2012
|
|
/s/ Douglas S. Sharp
|
|
Douglas S. Sharp
|
|
Senior Vice President of Finance,
|
|
Chief Financial Officer and Treasurer
|
/s/Paul J. Sarvadi
|
|
Paul J. Sarvadi
|
|
Chairman of the Board and Chief Executive Officer
|
|
April 30, 2012
|
/s/ Douglas S. Sharp
|
|
Douglas S. Sharp
|
|
Senior Vice President of Finance,
|
|
Chief Financial Officer and Treasurer
|
|
April 30, 2012
|
Stockholders Equity (Details) (USD $)
In Thousands, except Share data, unless otherwise specified |
3 Months Ended | |
---|---|---|
Mar. 31, 2012
|
Mar. 31, 2011
|
|
Stockholders Equity [Abstract] | ||
Shares withheld for tax withholding obligations for the vesting of restricted stock awards (in shares) | 105,923 | |
Authorized to repurchased additional Shares under repurchase program (in shares) | 1,236,872 | |
Dividends declared per share of common stock (in dollars per share) | $ 0.15 | $ 0.15 |
Dividend paid | $ 3,899 | $ 3,971 |
Shares repurchased under the program (in shares) | 0 | 0 |
Accounting Policies
|
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2012
|
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies |
Health Insurance Costs We provide group health insurance coverage to our worksite employees through a national network of carriers, including UnitedHealthcare (“United”), Kaiser Permanente, Blue Shield of California, HMS BlueCross BlueShield, Unity Health Plan and Tufts, all of which provide fully insured policies or service contracts. The policy with United provides the majority of our health insurance coverage. As a result of certain contractual terms, Insperity 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 our Consolidated Balance Sheets. On the other hand, if the Plan Costs for the reporting quarter are less than the premiums paid and owed to United, a surplus in the plan would be incurred and we would record an asset for the excess premiums in our Consolidated Balance Sheets. The terms of the arrangement require Insperity to maintain an accumulated cash surplus in the plan of $9.0 million, which is reported as long-term prepaid insurance. In addition, United requires a deposit equal to approximately one day of claims funding activity, which was $2.8 million as of March 31, 2012, and is reported as a long-term asset. As of March 31, 2012, Plan Costs were less than the net premiums paid and owed to United by $28.9 million. As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $19.9 million balance is included in prepaid insurance, a current asset, in our Consolidated Balance Sheets. The premiums owed to United at March 31, 2012 were $5.8 million, which is included in accrued health insurance costs, a current liability in our Consolidated Balance Sheets. Workers' Compensation Costs Insperity'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 Insperity satisfies its responsibilities. Through September 30, 2010, Insperity bore the economic burden for the first $1 million layer of claims per occurrence and the insurance carrier was and remains responsible for the economic burden for all claims in excess of such first $1 million layer. Effective October 1, 2010, in addition to our bearing the economic burden for the first $1 million layer of claims per occurrence, we also bear the economic burden for those claims exceeding $1 million, up to a maximum aggregate amount of $5 million per policy year. Because we bear the economic burden for claims up to the levels noted above, such claims, which are the primary component of our workers' compensation costs, are recorded in the period incurred. Workers' compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment. Insperity 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 our workers' compensation claims cost estimates. During the three months ended March 31, 2012 and 2011, Insperity reduced accrued workers' compensation costs by $3.5 million and $1.9 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 2012 and 2011 were 1.0% and 1.5%, respectively) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Operations. The following table provides the activity and balances related to incurred but not paid workers' compensation claims:
The current portion of accrued workers' compensation costs on the Consolidated Balance Sheets at March 31, 2012 includes $2.0 million of workers' compensation administrative fees. As of March 31, 2012 and 2011, the undiscounted accrued workers' compensation costs were $120.1 million and $113.1 million, respectively. At the beginning of each policy period, the insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim funds”). The level of claim funds is primarily based upon anticipated worksite employee payroll levels and expected workers' compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as restricted cash, a short-term asset, while the remainder of claim funds are included in deposits, a long-term asset in our Consolidated Balance Sheets. As of March 31, 2012, we had restricted cash of $45.1 million and deposits of $55.7 million. Insperity'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 our Consolidated Balance Sheets. |