x
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
o
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
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)
|
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
Item 1.
|
3
|
|
Item 2.
|
19
|
|
Item 3.
|
26
|
|
Item 4.
|
26
|
|
Part II
|
||
Item 1.
|
27
|
|
Item 1a.
|
27
|
|
Item 2.
|
28
|
|
Item 6.
|
29
|
March 31,
2013
|
December 31,
2012
|
|||||||
(Unaudited)
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 227,432 | $ | 264,544 | ||||
Restricted cash
|
47,374 | 47,149 | ||||||
Marketable securities
|
51,397 | 16,904 | ||||||
Accounts receivable, net:
|
||||||||
Trade
|
2,465 | 6,931 | ||||||
Unbilled
|
196,141 | 181,040 | ||||||
Other
|
2,594 | 2,415 | ||||||
Prepaid insurance
|
16,887 | 15,620 | ||||||
Other current assets
|
13,759 | 9,651 | ||||||
Deferred income taxes
|
3,110 | 7,211 | ||||||
Total current assets
|
561,159 | 551,465 | ||||||
Property and equipment:
|
||||||||
Land
|
4,115 | 4,115 | ||||||
Buildings and improvements
|
69,012 | 68,583 | ||||||
Computer hardware and software
|
82,801 | 81,140 | ||||||
Software development costs
|
36,284 | 35,866 | ||||||
Furniture and fixtures
|
36,712 | 36,717 | ||||||
Aircraft
|
35,879 | 35,879 | ||||||
264,803 | 262,300 | |||||||
Accumulated depreciation and amortization
|
(172,653 | ) | (168,358 | ) | ||||
Total property and equipment, net
|
92,150 | 93,942 | ||||||
Other assets:
|
||||||||
Prepaid health insurance
|
9,000 | 9,000 | ||||||
Deposits – health insurance
|
3,000 | 3,000 | ||||||
Deposits – workers’ compensation
|
67,528 | 64,201 | ||||||
Goodwill and other intangible assets, net
|
23,274 | 23,775 | ||||||
Other assets
|
4,600 | 4,817 | ||||||
Total other assets
|
107,402 | 104,793 | ||||||
Total assets
|
$ | 760,711 | $ | 750,200 |
March 31,
2013
|
December 31,
2012
|
|||||||
(Unaudited)
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 2,202 | $ | 3,660 | ||||
Payroll taxes and other payroll deductions payable
|
183,511 | 178,534 | ||||||
Accrued worksite employee payroll cost
|
168,715 | 150,070 | ||||||
Accrued health insurance costs
|
7,484 | 13,942 | ||||||
Accrued workers’ compensation costs
|
49,902 | 49,484 | ||||||
Accrued corporate payroll and commissions
|
15,523 | 23,537 | ||||||
Other accrued liabilities
|
15,348 | 12,478 | ||||||
Income taxes payable
|
4,774 | 4,054 | ||||||
Total current liabilities
|
447,459 | 435,759 | ||||||
Noncurrent liabilities:
|
||||||||
Accrued workers’ compensation costs
|
65,702 | 64,536 | ||||||
Deferred income taxes
|
8,162 | 9,000 | ||||||
Total noncurrent liabilities
|
73,864 | 73,536 | ||||||
Commitments and contingencies
|
||||||||
Stockholders’ equity:
|
||||||||
Common stock
|
308 | 308 | ||||||
Additional paid-in capital
|
133,898 | 133,207 | ||||||
Treasury stock, at cost
|
(144,998 | ) | (133,950 | ) | ||||
Accumulated other comprehensive income, net of tax
|
32 | 16 | ||||||
Retained earnings
|
250,148 | 241,324 | ||||||
Total stockholders’ equity
|
239,388 | 240,905 | ||||||
Total liabilities and stockholders’ equity
|
$ | 760,711 | $ | 750,200 |
Three Months Ended
March 31,
|
||||||||
2013
|
2012
|
|||||||
Revenues (gross billings of $3.332 billion and $3.231 billion, less worksite employee payroll cost of $2.720 billion and $2.636 billion, respectively)
|
$ | 611,836 | $ | 595,177 | ||||
Direct costs:
|
||||||||
Payroll taxes, benefits and workers’ compensation costs
|
503,718 | 492,173 | ||||||
Gross profit
|
108,118 | 103,004 | ||||||
Operating expenses:
|
||||||||
Salaries, wages and payroll taxes
|
48,211 | 43,323 | ||||||
Stock-based compensation
|
2,310 | 2,155 | ||||||
Commissions
|
3,207 | 3,435 | ||||||
Advertising
|
5,250 | 4,755 | ||||||
General and administrative expenses
|
21,986 | 22,078 | ||||||
Depreciation and amortization
|
5,145 | 4,212 | ||||||
86,109 | 79,958 | |||||||
Operating income
|
22,009 | 23,046 | ||||||
Other income (expense):
|
||||||||
Interest, net
|
69 | 164 | ||||||
Other, net
|
9 | 124 | ||||||
Income before income tax expense
|
22,087 | 23,334 | ||||||
Income tax expense
|
8,914 | 9,450 | ||||||
Net income
|
$ | 13,173 | $ | 13,884 | ||||
Less distributed and undistributed earnings allocated to participating securities
|
(383 | ) | (402 | ) | ||||
Net income allocated to common shares
|
$ | 12,790 | $ | 13,482 | ||||
Basic net income per share of common stock
|
$ | 0.51 | $ | 0.54 | ||||
Diluted net income per share of common stock
|
$ | 0.51 | $ | 0.54 |
Three Months Ended
March 31,
|
||||||||
2013
|
2012
|
|||||||
Net income
|
$ | 13,173 | $ | 13,884 | ||||
Other comprehensive income:
|
||||||||
Unrealized gains on available-for-sale securities, net of tax
|
16 | 35 | ||||||
Comprehensive income
|
$ | 13,189 | $ | 13,919 |
Common Stock
Issued
|
Additional
Paid-In
|
Treasury
|
Accumulated
Other
Comprehensive
|
Retained
|
||||||||||||||||||||||||
Shares |
Amount
|
Capital
|
Stock
|
Income
|
Earnings
|
Total
|
||||||||||||||||||||||
Balance at December 31, 2012
|
30,758 | $ | 308 | $ | 133,207 | $ | (133,950 | ) | $ | 16 | $ | 241,324 | $ | 240,905 | ||||||||||||||
Purchase of treasury stock, at cost
|
― | ― | ― | (13,498 | ) | — | ― | (13,498 | ) | |||||||||||||||||||
Exercise of stock options
|
― | ― | (127 | ) | 245 | — | ― | 118 | ||||||||||||||||||||
Income tax benefit from stock-based compensation, net
|
― | ― | 483 | — | — | ― | 483 | |||||||||||||||||||||
Stock-based compensation expense
|
— | — | 318 | 1,992 | — | — | 2,310 | |||||||||||||||||||||
Other
|
― | ― | 17 | 213 | — | ― | 230 | |||||||||||||||||||||
Dividends paid
|
— | — | — | — | — | (4,349 | ) | (4,349 | ) | |||||||||||||||||||
Unrealized gain on marketable securities, net of tax
|
— | — | — | — | 16 | — | 16 | |||||||||||||||||||||
Net income
|
— | — | — | — | — | 13,173 | 13,173 | |||||||||||||||||||||
Balance at March 31, 2013
|
30,758 | $ | 308 | $ | 133,898 | $ | (144,998 | ) | $ | 32 | $ | 250,148 | $ | 239,388 |
Three Months Ended
March 31,
|
||||||||
2013
|
2012
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$ | 13,173 | $ | 13,884 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
5,135 | 4,212 | ||||||
Amortization of marketable securities
|
441 | 657 | ||||||
Stock-based compensation
|
2,310 | 2,155 | ||||||
Deferred income taxes
|
3,252 | 5,341 | ||||||
Changes in operating assets and liabilities:
|
||||||||
Restricted cash
|
(225 | ) | (331 | ) | ||||
Accounts receivable
|
(10,814 | ) | (5,028 | ) | ||||
Prepaid insurance
|
(1,267 | ) | (3,362 | ) | ||||
Other current assets
|
(4,108 | ) | (41 | ) | ||||
Other assets
|
(3,109 | ) | (3,570 | ) | ||||
Accounts payable
|
(1,458 | ) | (1,648 | ) | ||||
Payroll taxes and other payroll deductions payable
|
4,977 | 9,339 | ||||||
Accrued worksite employee payroll expense
|
18,645 | 14,523 | ||||||
Accrued health insurance costs
|
(6,458 | ) | (227 | ) | ||||
Accrued workers’ compensation costs
|
418 | 547 | ||||||
Accrued corporate payroll, commissions and other accrued liabilities
|
(3,978 | ) | (5,362 | ) | ||||
Income taxes payable/receivable
|
538 | 2,167 | ||||||
Total adjustments
|
4,299 | 19,372 | ||||||
Net cash provided by operating activities
|
17,472 | 33,256 | ||||||
Cash flows from investing activities:
|
||||||||
Marketable securities:
|
||||||||
Purchases
|
(40,046 | ) | (1,443 | ) | ||||
Proceeds from dispositions
|
4,138 | — | ||||||
Proceeds from maturities
|
1,001 | 850 | ||||||
Investments and acquisitions
|
— | (1,200 | ) | |||||
Property and equipment
|
(2,843 | ) | (3,435 | ) | ||||
Net cash used in investing activities
|
(37,750 | ) | (5,228 | ) |
Three Months Ended
March 31,
|
||||||||
2013
|
2012
|
|||||||
Cash flows from financing activities:
|
||||||||
Purchase of treasury stock
|
$ | (13,498 | ) | $ | (3,253 | ) | ||
Dividends paid
|
(4,349 | ) | (3,899 | ) | ||||
Proceeds from the exercise of stock options
|
118 | 803 | ||||||
Income tax benefit from stock-based compensation
|
665 | 1,401 | ||||||
Other
|
230 | 260 | ||||||
Net cash used in financing activities
|
(16,834 | ) | (4,688 | ) | ||||
Net increase (decrease) in cash and cash equivalents
|
(37,112 | ) | 23,340 | |||||
Cash and cash equivalents at beginning of period
|
264,544 | 211,208 | ||||||
Cash and cash equivalents at end of period
|
$ | 227,432 | $ | 234,548 |
1.
|
Basis of Presentation
|
2.
|
Accounting Policies
|
Three Months Ended March 31,
|
||||||||
2013
|
2012
|
|||||||
(in thousands)
|
||||||||
Beginning balance, January 1,
|
$ | 111,685 | $ | 104,791 | ||||
Accrued claims
|
9,134 | 9,495 | ||||||
Present value discount
|
(160 | ) | (347 | ) | ||||
Paid claims
|
(7,583 | ) | (6,976 | ) | ||||
Ending balance
|
$ | 113,076 | $ | 106,963 | ||||
Current portion of accrued claims
|
$ | 47,374 | $ | 45,068 | ||||
Long-term portion of accrued claims
|
65,702 | 61,895 | ||||||
$ | 113,076 | $ | 106,963 |
3.
|
Cash, Cash Equivalents and Marketable Securities
|
March 31,
|
December 31,
|
|||||||
2013
|
2012
|
|||||||
(in thousands)
|
||||||||
Overnight Holdings
|
||||||||
Money market funds (cash equivalents)
|
$ | 178,040 | $ | 255,000 | ||||
Investment Holdings
|
||||||||
Money market funds (cash equivalents)
|
38,722 | 26,087 | ||||||
Marketable securities
|
51,397 | 16,904 | ||||||
268,159 | 297,991 | |||||||
Cash held in demand accounts
|
22,345 | 21,732 | ||||||
Outstanding checks
|
(11,675 | ) | (38,275 | ) | ||||
Total cash, cash equivalents and marketable securities
|
$ | 278,829 | $ | 281,448 | ||||
Cash and cash equivalents
|
$ | 227,432 | $ | 264,544 | ||||
Marketable securities
|
51,397 | 16,904 | ||||||
$ | 278,829 | $ | 281,448 |
|
·
|
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,
|
||||||||||||||||
2013
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Money market funds
|
$ | 216,762 | $ | 216,762 | $ | — | $ | — | ||||||||
Municipal bonds
|
51,397 | — | 51,397 | — | ||||||||||||
Total
|
$ | 268,159 | $ | 216,762 | $ | 51,397 | $ | — |
Fair Value Measurements
|
||||||||||||||||
(in thousands)
|
||||||||||||||||
December 31,
|
||||||||||||||||
2012 |
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Money market funds
|
$ | 281,087 | $ | 281,087 | $ | — | $ | — | ||||||||
Municipal bonds
|
16,904 | — | 16,904 | — | ||||||||||||
Total
|
$ | 297,991 | $ | 281,087 | $ | 16,904 | $ | — |
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Estimated
|
|||||||||||||
Cost
|
Gains
|
Losses
|
Fair Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
March 31, 2013:
|
||||||||||||||||
Municipal bonds
|
$ | 51,342 | $ | 56 | $ | (1 | ) | $ | 51,397 | |||||||
December 31, 2012:
|
||||||||||||||||
Municipal bonds
|
$ | 16,878 | $ | 29 | $ | (3 | ) | $ | 16,904 |
Amortized
Cost
|
Estimated
Fair Value
|
|||||||
(in thousands)
|
||||||||
Less than one year
|
$ | 23,231 | $ | 23,255 | ||||
One to five years
|
28,111 | 28,142 | ||||||
Total
|
$ | 51,342 | $ | 51,397 |
4.
|
Revolving Credit Facility
|
5.
|
Stockholders’ Equity
|
6.
|
Net Income per Share
|
Three Months Ended March 31,
|
||||||||
2013
|
2012
|
|||||||
(in thousands)
|
||||||||
Net income
|
$ | 13,173 | $ | 13,884 | ||||
Less distributed and undistributed earnings allocated to participating securities
|
(383 | ) | (402 | ) | ||||
Net income allocated to common shares
|
$ | 12,790 | $ | 13,482 | ||||
Weighted average common shares outstanding
|
24,897 | 25,087 | ||||||
Incremental shares from assumed conversions of common stock options
|
30 | 71 | ||||||
Adjusted weighted average common shares outstanding
|
24,927 | 25,158 | ||||||
Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect
|
16 | 16 |
7.
|
Commitments and Contingencies
|
Three Months Ended March 31,
|
||||||||||||
2013
|
2012
|
% Change
|
||||||||||
(in thousands, except per share and statistical data)
|
||||||||||||
Revenues (gross billings of $3.332 billion and $3.231 billion, less worksite employee payroll cost of $2.720 billion and $2.636 billion, respectively)
|
$ | 611,836 | $ | 595,177 | 2.8 | % | ||||||
Gross profit
|
108,118 | 103,004 | 5.0 | % | ||||||||
Operating expenses
|
86,109 | 79,958 | 7.7 | % | ||||||||
Operating income
|
22,009 | 23,046 | (4.5 | )% | ||||||||
Other income (expense)
|
78 | 288 | (72.9 | )% | ||||||||
Net income
|
13,173 | 13,884 | (5.1 | )% | ||||||||
Diluted net income per share of common stock
|
0.51 | 0.54 | (5.6 | )% | ||||||||
Statistical Data:
|
||||||||||||
Average number of worksite employees paid per month
|
123,391 | 121,938 | 1.2 | % | ||||||||
Revenues per worksite employee per month(1)
|
$ | 1,653 | $ | 1,627 | 1.6 | % | ||||||
Gross profit per worksite employee per month
|
292 | 282 | 3.5 | % | ||||||||
Operating expenses per worksite employee per month
|
233 | 219 | 6.4 | % | ||||||||
Operating income per worksite employee per month
|
59 | 63 | (6.3 | )% | ||||||||
Net income per worksite employee per month
|
36 | 38 | (5.3 | )% |
(1)
|
Gross billings of $9,002 and $8,833 per worksite employee per month, less payroll cost of $7,349 and $7,206 per worksite employee per month, respectively.
|
Three Months Ended March 31,
|
Three Months Ended March 31,
|
|||||||||||||||||||
2013
|
2012
|
% Change
|
2013
|
2012
|
||||||||||||||||
(in thousands)
|
(% of total revenues)
|
|||||||||||||||||||
Northeast
|
$ | 162,289 | $ | 158,965 | 2.1 | % | 26.9 | % | 27.0 | % | ||||||||||
Southeast
|
55,685 | 53,348 | 4.4 | % | 9.2 | % | 9.1 | % | ||||||||||||
Central
|
89,749 | 87,294 | 2.8 | % | 14.9 | % | 14.8 | % | ||||||||||||
Southwest
|
164,061 | 163,806 | 0.2 | % | 27.2 | % | 27.9 | % | ||||||||||||
West
|
131,689 | 124,606 | 5.7 | % | 21.8 | % | 21.2 | % | ||||||||||||
603,473 | 588,019 | 2.6 | % | 100.0 | % | 100.0 | % | |||||||||||||
Other revenue
|
8,363 | 7,158 | 16.8 | % | ||||||||||||||||
Total revenue
|
$ | 611,836 | $ | 595,177 | 2.8 | % |
|
·
|
Benefits costs – The cost of group health insurance and related employee benefits increased $19 per worksite employee per month, or 3.6% on a cost per covered employee basis compared to the first quarter of 2012. The percentage of worksite employees covered under our health insurance plans was 72.4% in the 2013 period compared to 72.8% in the 2012 period. Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Health Insurance Costs,” for a discussion of our accounting for health insurance costs.
|
|
·
|
Workers’ compensation costs – Workers’ compensation costs decreased 1.1%, or $1 per worksite employee per month compared to the first quarter of 2012. As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.53% in the 2013 period compared to 0.56% in the 2012 period. During the 2013 period, we recorded reductions in workers’ compensation costs of $3.6 million, or 0.15% of non-bonus payroll costs, for changes in estimated losses related to prior reporting periods, compared to $3.5 million, or 0.15% of non-bonus payroll costs in the 2012 period. Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Workers’ Compensation Costs,” for a discussion of our accounting for workers’ compensation costs.
|
|
·
|
Payroll tax costs – Payroll taxes increased 0.7%, but decreased $3 per worksite employee per month compared to the first quarter of 2012. Payroll taxes as a percentage of payroll cost were 9.4% in the 2013 period compared to 9.6% in the 2012 period. Payroll taxes increased due to a 3.2% increase in total payroll cost, partially offset by lower state unemployment tax rates in 2013.
|
Three Months Ended March 31,
|
Three Months Ended March 31,
|
|||||||||||||||||||||||
2013
|
2012
|
% Change
|
2013
|
2012
|
% Change
|
|||||||||||||||||||
(in thousands)
|
(per worksite employee per month)
|
|||||||||||||||||||||||
Salaries, wages and payroll taxes
|
$ | 48,211 | $ | 43,323 | 11.3 | % | $ | 130 | $ | 119 | 9.2 | % | ||||||||||||
Stock–based compensation
|
2,310 | 2,155 | 7.2 | % | 6 | 6 | — | |||||||||||||||||
Commissions
|
3,207 | 3,435 | (6.6 | )% | 9 | 9 | — | |||||||||||||||||
Advertising
|
5,250 | 4,755 | 10.4 | % | 14 | 13 | 7.7 | % | ||||||||||||||||
General and administrative expenses
|
21,986 | 22,078 | (0.4 | )% | 60 | 60 | — | |||||||||||||||||
Depreciation and amortization
|
5,145 | 4,212 | 22.2 | % | 14 | 12 | 16.7 | % | ||||||||||||||||
Total operating expenses
|
$ | 86,109 | $ | 79,958 | 7.7 | % | $ | 233 | $ | 219 | 6.4 | % |
·
|
Salaries, wages and payroll taxes of corporate and sales staff increased 11.3%, or $11 per worksite employee per month compared to the 2012 period. This increase was due to a 4.9% rise in headcount primarily related to an increase in the number of Business Performance Advisors, and higher incentive compensation accruals resulting from improved operating results.
|
·
|
Stock-based compensation increased 7.2%, but remained flat on a per worksite employee per month basis compared to the 2012 period, due primarily to an increase in the weighted average market value on the date of grant associated with restricted stock awards. The stock-based compensation expense represents amortization of restricted stock awards granted to employees.
|
·
|
Commissions expense decreased 6.6%, but remained flat on a per worksite employee per month basis compared to the 2012 period.
|
·
|
Advertising costs increased 10.4%, or $1 per worksite employee per month compared to the 2012 period, primarily due to increased spending on business promotions.
|
·
|
General and administrative expenses decreased 0.4%, but remained flat on a per worksite employee per month basis compared to the 2012 period.
|
·
|
Depreciation and amortization expense increased 22.2%, or $2 per worksite employee per month compared to the 2012 period, primarily due to investments in our technology infrastructure and amortization associated with our acquisitions.
|
Three Months Ended March 31,
|
||||||||||||
2013
|
2012
|
% Change
|
||||||||||
GAAP to non-GAAP reconciliation:
|
(in thousands, except per worksite employee per month data)
|
|||||||||||
Payroll cost (GAAP)
|
$ | 2,720,512 | $ | 2,636,129 | 3.2 | % | ||||||
Less: Bonus payroll cost
|
342,565 | 367,823 | (6.9 | )% | ||||||||
Non-bonus payroll cost
|
$ | 2,377,947 | $ | 2,268,306 | 4.8 | % | ||||||
Payroll cost per worksite employee per month (GAAP)
|
$ | 7,349 | $ | 7,206 | 2.0 | % | ||||||
Less: Bonus payroll cost per worksite employee per month
|
925 | 1,005 | (8.0 | )% | ||||||||
Non-bonus payroll cost per worksite employee per month
|
$ | 6,424 | $ | 6,201 | 3.6 | % |
|
·
|
Timing of client payments / payroll levels – We typically collect our comprehensive service fee, along with the client’s payroll funding, from clients at least one day prior to the payment of worksite employee payrolls and associated payroll taxes. Therefore, the last business day of a reporting period has a substantial impact on our reporting of operating cash flows. For example, many worksite employees are paid on Fridays; therefore, operating cash flows decrease in the reporting periods that end on a Friday. In the period ended March 31, 2013, the last business day of the reporting period was a Friday and client prepayments were $11.9 million and accrued worksite employee payroll was $168.7 million. In the period ended March 31, 2012, the last business day of the reporting period was also a Friday and client prepayments were $10.7 million and accrued worksite employee payroll was $144.8 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 $11.1 million in the first three months of 2013 and $10.6 million in the first three months of 2012. However, our estimate of workers’ compensation loss costs was $9.0 million in 2013 and $9.1 million in 2012, 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, 2013, premiums owed and cash funded to United have exceeded Plan Costs, resulting in a $16.8 million surplus, $7.8 million of which is reflected as a current asset, and $9.0 million of which is reflected as a long-term asset on our Consolidated Balance Sheets. The premiums owed to United at March 31, 2013, were $4.0 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 decreased 5.1% to $13.2 million in the three months ended March 31, 2013, compared to $13.9 million in the three months ended March 31, 2012. Please read “Results of Operations – Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012.”
|
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)
|
||||||||||||
01/01/2013 – 01/31/2013
|
— | $ | — | — | 829,472 | |||||||||||
02/01/2013 – 02/28/2013
|
452,211 | (2) | 28.60 | 336,653 | 492,819 | |||||||||||
03/01/2013 – 03/31/2013
|
20,000 | 28.35 | 20,000 | 472,819 | ||||||||||||
Total
|
472,211 | $ | 28.58 | 356,653 | 472,819 |
(1)
|
Our Board has approved a program to repurchase up to 14,500,000 shares of our outstanding common stock. During the three months ended March 31, 2013, 356,653 shares were repurchased under the program and 115,558 shares were withheld to satisfy tax withholding obligations for the vesting of restricted stock awards. As of March 31, 2013, we were authorized to repurchase an additional 472,819 shares under the program. Unless terminated earlier by resolution of the Board, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the repurchase program.
|
(2)
|
These shares include shares of restricted stock that were withheld to satisfy tax-withholding obligations arising in conjunction with the vesting of restricted stock. The required withholding is calculated using the closing sales price reported by the New York Stock Exchange on the date prior to the applicable vesting date. These shares are not subject to the repurchase program described above.
|
|
(a)
|
List of exhibits.
|
(+)*
|
Amendment to Minimum Premium Financial Agreement, as amended effective January 1, 2009, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.) and United Healthcare Insurance Company.
|
||
(+)*
|
Amendment to Minimum Premium Administrative Services Agreement, as amended effective January 1, 2008, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.) and United Healthcare Insurance Company.
|
||
*
|
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.CAL
|
*
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101.DEF
|
*
|
XBRL Extension Definition Linkbase Document.
|
|
101.LAB
|
*
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
101.PRE
|
*
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
(+)
|
Confidential treatment has been requested for this exhibit and confidential portions have been filed with the Securities and Exchange Commission.
|
|
(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, 2013 and 2012; (ii) the Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 2013 and 2012; (iii) the Consolidated Balance Sheets at March 31, 2013 and December 31, 2012; (iv) the Consolidated Statement of Stockholders’ Equity for the three month period ended March 31, 2013; (v) the Consolidated Statements of Cash Flows for the three month periods ended March 31, 2013 and 2012; and (vi) Notes to the Consolidated Financial Statements.
|
Insperity, Inc.
|
||
Date: April 29, 2013
|
By:
|
/s/ Douglas S. Sharp |
Douglas S. Sharp
|
||
Senior Vice President of Finance,
|
||
Chief Financial Officer and Treasurer
|
||
(Principal Financial and Duly Authorized Officer)
|
|
8.
|
Notices
|
|
(a)
|
Any notice required to be given under the Agreement shall be given in writing by sending or delivering such notice to the receiving party (i) by prepaid registered or certified first class U.S. mail, return receipt requested, (ii) by overnight express courier with recipient's signature required, (iii) by hand delivery with recipient's signature required, (iv) by facsimile, provided that the other party has specifically requested that a specifically designated notice be made by facsimile, or (v) by any other method by which the date of receipt by the party entitled to such notice may be determined. Notice shall be effective when sent.
|
|
(b)
|
Notices to a party shall be sent or delivered:
|
|
I.
|
The definition of “Policy” for purposes of Section 1(s) of the Agreement shall be as follows:
|
|
·
|
Effective January 1, 2011: No. *** (Medical ***) (“Policy”)
|
|
II.
|
Effective January 1, 2011, the “Maximum Monthly Employer Benefit Obligation” (“MMEBO”) is the percentage of the Quoted Premium for each Policy as set forth at the table in Exhibit D(V).
|
|
III.
|
Effective January 1, 2011, the “MP Premium” is the percentage of Quoted Premium for each Policy as set forth at the table in Exhibit D(V).
|
|
IV.
|
Effective January 1, 2011, the “Expense Percentage” is the percentage of Quoted Premium for each Policy as set forth at the table in Exhibit D(V).
|
|
V.
|
Table
|
***
|
***
|
***
|
***
|
***
|
***
|
***
|
***
|
|
|
|
|
|
|
|
|
Expense (%)
|
***
|
***
|
***
|
***
|
***
|
***
|
***
|
|
|
|
|
|
|
|
|
MP Premium
|
***
|
***
|
***
|
***
|
***
|
***
|
***
|
|
|
|
|
|
|
|
|
MMEBO
|
***
|
***
|
***
|
***
|
***
|
***
|
***
|
|
·
|
For purposes of the aforementioned table, *** shall be determined *** based upon the following parameters:
|
|
o
|
*** is defined to include *** for coverage in the Policy and *** for coverage under *** numbers, effective January 1, 2011, *** which *** are amended from time to time in the normal course of business, including all *** and/or *** COBRA or state continuation coverage.
|
|
o
|
*** shall be measured each January 1st, April 1st, July 1st and October 1st, based upon the *** in effect on the 15th day of the preceding month. The *** as of the 15th of month preceding each of January 1st, April 1st, July 1st and October 1st, shall be the *** that is used to determine the expense percentage, MP Premium and MMEBO for the quarter beginning that immediately following January 1st, April 1st, July 1st, and October 1st. For example, to determine the expense percentage, MP Premium and MMEBO for the quarter beginning January 1, 2012 and ending March 31, 2012, the *** as of December 15, 2011 shall be used to determine the ***.
|
|
VI.
|
The percentages contained in this Exhibit D assume an estimated premium tax expense and assessments of ***. In order to maintain the profit/risk charge and administrative fees as described in the table at Exhibit D(V) if the actual incurred premium tax expense and assessments total more or less than ***, such percentages may require future modification consistent with the changes to the actual incurred premium tax expense.
|
Section 1.5
|
Name Change. Effective March 3, 2011, the MP Financial Agreement is revised to remove all references to the name “Administaff of Texas, Inc.” and replace it with “Insperity Holdings, Inc.”
|
INSPERITY HOLDINGS, INC.
|
UNITED HEALTHCARE INSURANCE COMPANY
|
|||
By:
|
/s/ Richard G. Rawson
|
By:
|
/s/ Thomas Choate
|
|
Authorized Signature
|
Authorized Signature
|
|||
Name
|
Richard G. Rawson
|
Name
|
Thomas Choate
|
|
Title
|
President
|
Title
|
Chief Growth Officer
|
|
Date
|
10/26/2012
|
Date
|
2/25/13
|
|
During a transition period from January 1, 2011, through *** may collect and remit in full all premiums due with respect to the Non-MP Policies on *** of the *** that are Non-MP Policy ***, as permitted by law, and shall on each Non-MP Policy *** behalf:
|
|
(i)
|
Collect the premium *** the non-MP Policy ***, reconcile such deductions against a *** from Company, and remit in full the billed premium (“Billed Premium”) to Company on or before the due date of the non-MP Policies.
|
|
(ii)
|
Maintain a surety bond covering the Billed Premium, as required by applicable state law.
|
|
(iii)
|
Obtain an executed document from each and every Non-MP Policy ***that *** payment of premium obligations and maintenance of enrollment data to Employer on ***of the Non-MP Policy ***, and forward a copy of the executed document to the Company upon request.
|
|
(i)
|
The Employer or the independent entity on its behalf shall advise the Company at least sixty (60) calendar days in advance of its intent to audit. The place, time, type, duration, and frequency of all audits must be reasonable and agreed to by the Company, which consent shall not be unreasonably withheld, but in no event shall an audit be conducted under this provision more than once every *** years. All audits shall be limited to information relating to the calendar year in which the audit is conducted and/or the immediately preceding 2 calendar years. With respect to the Company's transaction processing services, the audit scope and methodology shall be consistent with generally acceptable auditing standards, including a statistically valid random sample or other acceptable audit technique as reasonably approved by the Company (for purposes of this subsection (b), "Scope").
|
|
(ii)
|
The Employer will pay any expenses that the Employer incurs, and will be charged a reasonable additional fee, determined by the Company, for any on-site audit visit that is not completed within five (5) business days, for sample sizes exceeding the Scope set forth above, or for any non-standard audit. The Employer will incur a reasonable per claim charge for samples in excess of the Scope, and a $1000 charge for each day an audit exceeds the five (5) day on-site review limit per audit. The additional fees cover the additional resources, facility fees, and other incremental costs associated with an audit that exceeds the Scope. The Employer will also pay any unanticipated reasonable expenses the Company incurs and all expenses incurred by the Company on any audit initiated after a termination notice is provided but before the effective date of the termination of the Agreement.
|
|
(iii)
|
The Employer will provide the Company with a copy of any final audit report.
|
|
16.
|
Notices
|
|
(b)
|
Notices to a party shall be sent or delivered:
|
4.
|
Claim Operations Performance Standards
|
|
a.
|
Time to Pay
|
|
b.
|
Financial Accuracy
|
|
c.
|
Procedural Accuracy
|
|
d.
|
Items Excluded From Claim Operations Performance Measurements
|
e.
|
Independent Claims Audit
|
|
5.
|
Member Phone Service Performance Standards
|
|
a.
|
Average Speed to Answer
|
|
b.
|
Abandonment Rate
|
|
6.
|
Overall Member Satisfaction Performance Standard
|
|
7.
|
Policies and Certificates of Coverage Standard
|
A.
|
Except as otherwise set forth in this Exhibit F, the Company shall have the right to be the exclusive provider of medical and dental coverage for Employees; provided, however, that execution of an agreement between the Company and the Employer with respect to the Company’s right to be the exclusive provider of dental coverage for Employees with respect to certain geographical coverage areas (“Dental Agreement”) shall cause this Agreement and the MP Financial Agreement (including any exhibits or appendices to either) to be modified effective as of the effective date of the Dental Agreement to delete any effect on or reference to dental benefits, coverage, policies, or exclusivity rights as to the provision of dental coverage to employees of the Employer, and shall be interpreted in a manner consistent therewith. For purposes of this Exhibit F, "Employees" shall include employees of the Employer covered under Non-MP Policies as well as the Policies.
|
B.
|
Exceptions to the Company's Right to be Exclusive Provider
|
|
1.
|
Effective January 1, 2011, if there is a *** to the Company *** network in a Market or if no group health insurance or similar product offered by the Company is Competitive in that Market, the Employer may offer, subject to this section B of this Exhibit F, the health insurance or similar products of a Competing Vendor in such market.
|
|
a.
|
The health insurance or similar products of a Competing Vendor may not be offered to Existing Company membership until after December 31, 2012.
|
|
b.
|
If Employer introduces a Competing Vendor, the following provisions shall apply as long as the Company continues to write new group policies in that market:
|
|
(i)
|
Employer agrees to *** to the Competing Vendor;
|
|
(ii)
|
Existing Clients will be offered a choice at the time of the Client’s contract renewal between the Company and Competing Vendor coverage options; and
|
|
(iii)
|
The choice between the Company and the Competing Vendor’s coverage options shall only be *** at the *** and in no event *** to the ***.
|
|
c.
|
Only *** Competing Vendor will be introduced into a limited number of Markets, not to exceed *** Markets, through December 31, 2013;
|
|
d.
|
Company will be notified at least 90 days prior to the introduction of a Competing Vendor into a Market;
|
|
e.
|
In no event will a Competing Vendor be introduced in the *** which market includes *** and *** markets. These markets will remain exclusive markets to the Company.
|
|
f.
|
A Competing Vendor for *** coverage will not be offered in the *** market.
|
|
g.
|
Notwithstanding any provision of Exhibit F to the contrary, the exclusivity provisions shall not apply to *** due to the absence of a ***, or any other county where *** following a *** where there is no ***.
|
|
h.
|
Notwithstanding any provision of Exhibit F to the contrary, the exclusivity provisions shall not apply to any *** business policies (*** business policies are those issued to *** with *** eligible employees).
|
|
i.
|
Notwithstanding any provision of Exhibit F to the contrary, the exclusivity provisions shall not apply to prevent Employer from offering *** or another Competing Vendor in ***.
|
|
j.
|
Notwithstanding any provision of Exhibit F to the contrary, the exclusivity provisions shall not apply to prevent Employer from offering *** or another Competing Vendor in ***.
|
|
k.
|
Notwithstanding any provision of Exhibit F to the contrary, the exclusivity provisions shall not apply to prevent Employer from offering alternative *** coverage (but not *** coverage) through *** or *** in ***.
|
|
2.
|
Removal or Addition of the Company’s HMOs and Other Products
|
|
a.
|
If at any time the HMO Substitute offered by the Employer through the Company ceases to be Competitive, the Employer may in its sole discretion cease offering such product. In any such case, the Employer shall notify the Company of its opinion concerning the Competitive status of such product at least *** before it ceases offering the product and shall have the burden of undertaking the steps required to confirm the same in accordance with section B of this Exhibit F. If the Company’s HMO Substitute becomes Competitive within *** after its receipt of the Employer’s notice, the Employer may not replace it unless and until it is again not Competitive, in which case a new notice shall be required and a new *** corrective period will begin. Such offering is subject to the following provisions if Company continues to write new group policies in that certain Market:
|
|
(i)
|
Employer agrees to *** to the Competing Vendor;
|
|
(ii)
|
Existing Clients will be offered a choice at the time of the Client’s contract renewal between the Company and Competing Vendor coverage options; and
|
|
(iii)
|
The choice between the Company and the Competing Vendor’s coverage options shall only be *** at the *** and in no event *** to the ***.
|
|
b.
|
If, at the time the Company begins to offer an HMO Substitute which is Competitive in a certain market, the Employer is offering an HMO through a Competing Vendor consistent with the provisions of this Exhibit F in that market, the Employer shall offer each Client in such market coverage options for Employees in such market not later than the renewal date of such Client’s service agreement consisting of either (i) subject to Section C of this Exhibit F, the *** and *** options or (ii) such Competing Vendor’s *** and, at the Competing Vendor’s ***, its ***.
|
|
3.
|
Acquisition by Employer of another Professional Employer Organization
|
C.
|
Conversion to Alternative Products
|
D.
|
Definitions
|
|
a.
|
"Competing Vendor" means a vendor of medical coverage products in a particular geographic market other than the Company.
|
|
b.
|
"Competitive" means that either (i) the Company and the Employer agree or (ii) an independent consultant chosen by mutual agreement of the parties has determined, that such product ranks either *** as compared to competing products of other vendors in the designated market. In making any determination of the rank of a product in a market, such consultant shall apply such criteria relating to *** as it shall determine appropriate. All fees and expenses of any such consultant shall be paid by the Employer.
|
|
c.
|
“Existing Client” means a Client which is covered under a Company *** or *** as of the date that is determined under Section B of this Exhibit F.
|
|
d.
|
"HMO" means a product issued by a licensed "health maintenance organization" and offered as a network only or lock in product. Any references in this Exhibit F to the Company's "HMOs" shall include any HMO issued by the Company (or another member of the Company’s controlled group).
|
|
e.
|
Each of the following geographic areas are defined as a “Market” under this Agreement:
|
|
i.
|
***
|
|
ii.
|
***
|
|
iii.
|
***
|
|
iv.
|
***
|
|
v.
|
*** (this includes membership in *** metros)
|
|
vi.
|
*** includes ***)
|
|
vii.
|
***
|
|
viii.
|
***
|
|
ix.
|
***
|
|
x.
|
***
|
|
xi.
|
***
|
|
xii.
|
***
|
|
xiii.
|
***
|
|
xiv.
|
***
|
|
xv.
|
***
|
|
xvi.
|
***
|
|
xvii.
|
***
|
|
xviii.
|
***
|
|
xix.
|
***
|
|
xx.
|
***
|
|
xxi.
|
***
|
|
xxii.
|
***
|
|
xxiii.
|
***
|
|
xxiv.
|
***
|
|
xxv.
|
***
|
|
xxvi.
|
***
|
|
xxvii.
|
***
|
|
xxviii.
|
***
|
|
xxix.
|
***
|
|
xxx.
|
***
|
|
xxxi.
|
***
|
|
xxxii.
|
***
|
|
xxxiii.
|
***
|
|
xxxiv.
|
***
|
|
xxxv.
|
***
|
|
xxxvi.
|
***
|
|
xxxvii.
|
***
|
|
xxxviii.
|
***
|
|
xxxix.
|
***
|
|
xl.
|
***
|
|
xli.
|
***
|
|
xlii.
|
***
|
|
xliii.
|
***
|
|
xliv.
|
***
|
|
xlv.
|
***
|
|
xlvi.
|
***
|
|
xlvii.
|
***
|
|
xlviii.
|
***
|
|
xlix.
|
***
|
|
l.
|
***
|
li.
|
***
|
lii.
|
***
|
|
f.
|
"PPO" means any product for network coverage that is not an HMO, the HMO Substitute or an EPO.
|
|
g.
|
"EPO" means a product issued by a licensed "insurance company" and offered as a network only or lock in product.
|
|
h.
|
"HMO Substitute" means the Choice Plus benefit plan (which includes both in-network and out-of- network benefits) developed and offered to the Employer by the Company as a substitute for Company's HMO products in connection with Section B of this Exhibit F.
|
|
i.
|
“***” means that either (i) the Company and the Employer agree or (ii) an independent consultant chosen by mutual agreement of the parties has determined, that Company’s network in a Market has been ***. In order to determine if there is a ***, the consultant shall apply reasonable criteria to determine that both (a) the *** imposes a *** to the Employer's ability to add new clients in the market; and (b) the addition of a new vendor *** the Employer's *** in adding new clients in the market. All fees and expenses of any such consultant shall be paid by the Employer.
|
INSPERITY HOLDINGS, INC. |
UNITED HEALTHCARE INSURANCE COMPANY
|
|||
By: |
/s/ Richard G. Rawson
|
By: |
/s/ Thomas Choate
|
|
Authorized Signature
|
Authorized Signature
|
|||
Name |
Richard G. Rawson
|
Name |
Thomas Choate
|
|
Title |
President
|
Title |
Chief Growth Officer
|
|
Date |
10/26/2012
|
Date |
2/25/13
|
|
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 29, 2013
|
|
/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;
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3.
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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;
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4.
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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:
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(a)
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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;
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(b)
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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;
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(c)
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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
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(d)
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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
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5.
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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):
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(a)
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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
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(b)
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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.
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Date: April 29, 2013
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/s/ Douglas S. Sharp
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Douglas S. Sharp
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Senior Vice President of Finance, Chief Financial Officer and Treasurer
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/s/ Paul J. Sarvadi
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Paul J. Sarvadi
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Chairman of the Board and Chief Executive Officer
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April 29, 2013
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/s/ Douglas S. Sharp
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Douglas S. Sharp
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Senior Vice President of Finance,
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Chief Financial Officer and Treasurer
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April 29, 2013
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Commitments and Contingencies (Details) (USD $)
In Millions, unless otherwise specified |
Mar. 31, 2013
|
---|---|
Lumbermens Mutual Casualty Company [Abstract] | |
Outstanding claims minimum | $ 2.9 |
Outstanding claims maximum | $ 5.0 |
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Accounting Policies
|
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2013
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies | 2. Accounting Policies Health Insurance Costs We provide group health insurance coverage to our worksite employees through a national network of carriers, including UnitedHealthcare ("United"), UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield, Unity Health Plan and Tufts, all of which provide fully insured policies or service contracts. The policy with United provides the majority of our health insurance coverage. As a result of certain contractual terms, we have accounted for this plan since its inception using a partially self-funded insurance accounting model. Accordingly, we record the costs of the United plan, including an estimate of the incurred claims, taxes and administrative fees (collectively the "Plan Costs") as benefits expense in the Consolidated Statements of Operations. The estimated incurred claims are based upon: (i) the level of claims processed during the quarter; (ii) estimated completion rates based upon recent claim development patterns under the plan; and (iii) the number of participants in the plan, including both active and COBRA enrollees. Each reporting period, changes in the estimated ultimate costs resulting from claim trends, plan design and migration, participant demographics and other factors are incorporated into the benefits costs. Additionally, since the plan's inception, under the terms of the contract, United establishes cash funding rates 90 days in advance of the beginning of a reporting quarter. If the Plan Costs for a reporting quarter are greater than the premiums paid and owed to United, a deficit in the plan would be incurred and a liability for the excess costs would be accrued in our Consolidated Balance Sheets. On the other hand, if the Plan Costs for the reporting quarter are less than the premiums paid and owed to United, a surplus in the plan would be incurred and we would record an asset for the excess premiums in our Consolidated Balance Sheets. The terms of the arrangement require us to maintain an accumulated cash surplus in the plan of $9.0 million, which is reported as long-term prepaid insurance. In addition, United requires a deposit equal to approximately one day of claims funding activity, which was $2.8 million as of March 31, 2013, and is reported as a long-term asset. As of March 31, 2013, Plan Costs were less than the net premiums paid and owed to United by $16.8 million. As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $7.8 million balance is included in prepaid insurance, a current asset, in our Consolidated Balance Sheets. The premiums owed to United at March 31, 2013 were $4.0 million, which is included in accrued health insurance costs, a current liability in our Consolidated Balance Sheets. Workers' Compensation Costs Our workers' compensation coverage has been provided through an arrangement with the ACE Group of Companies ("the ACE Program") since 2007. The ACE Program is fully insured in that ACE has the responsibility to pay all claims incurred regardless of whether we satisfy our responsibilities. Through September 30, 2010, we bore the economic burden for the first $1 million layer of claims per occurrence and the insurance carrier was and remains responsible for the economic burden for all claims in excess of such first $1 million layer. Effective October 1, 2010, in addition to our bearing the economic burden for the first $1 million layer of claims per occurrence, we also bear the economic burden for those claims exceeding $1 million, up to a maximum aggregate amount of $5 million per policy year. Because we bear the economic burden for claims up to the levels noted above, such claims, which are the primary component of our workers' compensation costs, are recorded in the period incurred. Workers' compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment. We employ a third party actuary to estimate our loss development rate, which is primarily based upon the nature of worksite employees' job responsibilities, the location of worksite employees, the historical frequency and severity of workers' compensation claims, and an estimate of future cost trends. Each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers' compensation claims cost estimates. During the three months ended March 31, 2013 and March 31, 2012, we reduced our workers' compensation costs by $3.6 million and $3.5 million, respectively, for changes in estimated losses related to prior reporting periods. Workers' compensation cost estimates are discounted to present value at a rate based upon the U.S. Treasury rates that correspond with the weighted average estimated claim payout period (the average discount rates utilized in 2013 and 2012 were 0.5% and 1.0%, 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, 2013 includes $2.5 million of workers' compensation administrative fees. As of March 31, 2013 and 2012, the undiscounted accrued workers' compensation costs were $124.3 million and $120.1 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, 2013, we had restricted cash of $47.4 million and deposits of $67.5 million. Our estimate of incurred claim costs expected to be paid within one year are recorded as accrued workers' compensation costs and included in short-term liabilities, while our estimate of incurred claim costs expected to be paid beyond one year are included in long-term liabilities on our Consolidated Balance Sheets. |
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