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Insperity, Inc.

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FY2012 Annual Report · Insperity, Inc.
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2012 ANNUAL REPORT

A PLATFORM FOR GROWTH

COMPANY PROFILE

Insperity, a trusted advisor to America¹s best businesses for more than 26 years, provides an array of human resources and business 
solutions designed to help improve business performance. InsperityTM Business Performance Advisors offer the most comprehensive 
(cid:87)(cid:89)(cid:77)(cid:88)(cid:73)(cid:3)(cid:83)(cid:74)(cid:3)(cid:84)(cid:86)(cid:83)(cid:72)(cid:89)(cid:71)(cid:88)(cid:87)(cid:3)(cid:69)(cid:82)(cid:72)(cid:3)(cid:87)(cid:73)(cid:86)(cid:90)(cid:77)(cid:71)(cid:73)(cid:87)(cid:3)(cid:69)(cid:90)(cid:69)(cid:77)(cid:80)(cid:69)(cid:70)(cid:80)(cid:73)(cid:3)(cid:77)(cid:82)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)(cid:81)(cid:69)(cid:86)(cid:79)(cid:73)(cid:88)(cid:84)(cid:80)(cid:69)(cid:71)(cid:73)(cid:18)(cid:3)(cid:45)(cid:82)(cid:87)(cid:84)(cid:73)(cid:86)(cid:77)(cid:88)(cid:93)(cid:3)(cid:72)(cid:73)(cid:80)(cid:77)(cid:90)(cid:73)(cid:86)(cid:87)(cid:3)(cid:69)(cid:72)(cid:81)(cid:77)(cid:82)(cid:77)(cid:87)(cid:88)(cid:86)(cid:69)(cid:88)(cid:77)(cid:90)(cid:73)(cid:3)(cid:86)(cid:73)(cid:80)(cid:77)(cid:73)(cid:74)(cid:16)(cid:3)(cid:70)(cid:73)(cid:88)(cid:88)(cid:73)(cid:86)(cid:3)(cid:70)(cid:73)(cid:82)(cid:73)(cid:189)(cid:88)(cid:87)(cid:16)(cid:3)(cid:86)(cid:73)(cid:72)(cid:89)(cid:71)(cid:73)(cid:72)(cid:3)(cid:80)(cid:77)(cid:69)(cid:70)(cid:77)(cid:80)(cid:77)(cid:88)(cid:77)(cid:73)(cid:87)(cid:3)
and a systematic way to improve productivity through its premier Workforce OptimizationTM solution. 

Additional company offerings include Human Capital Management, Payroll Services, Time and Attendance, Performance Management, 
Organizational Planning, Recruiting Services, Employment Screening, Financial Services, Expense Management, Retirement Services 
and  Insurance  Services.  Insperity  business  performance  solutions  support  more  than  100,000  businesses  with  over  2  million 
(cid:73)(cid:81)(cid:84)(cid:80)(cid:83)(cid:93)(cid:73)(cid:73)(cid:87)(cid:18)(cid:3)(cid:59)(cid:77)(cid:88)(cid:76)(cid:3)(cid:22)(cid:20)(cid:21)(cid:22)(cid:3)(cid:86)(cid:73)(cid:90)(cid:73)(cid:82)(cid:89)(cid:73)(cid:87)(cid:3)(cid:83)(cid:74)(cid:3)(cid:8)(cid:22)(cid:18)(cid:22)(cid:3)(cid:70)(cid:77)(cid:80)(cid:80)(cid:77)(cid:83)(cid:82)(cid:16)(cid:3)(cid:45)(cid:82)(cid:87)(cid:84)(cid:73)(cid:86)(cid:77)(cid:88)(cid:93)(cid:3)(cid:83)(cid:84)(cid:73)(cid:86)(cid:69)(cid:88)(cid:73)(cid:87)(cid:3)(cid:77)(cid:82)(cid:3)(cid:25)(cid:27)(cid:3)(cid:83)(cid:74)(cid:189)(cid:71)(cid:73)(cid:87)(cid:3)(cid:88)(cid:76)(cid:86)(cid:83)(cid:89)(cid:75)(cid:76)(cid:83)(cid:89)(cid:88)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)(cid:57)(cid:82)(cid:77)(cid:88)(cid:73)(cid:72)(cid:3)(cid:55)(cid:88)(cid:69)(cid:88)(cid:73)(cid:87)(cid:18)

FINANCIAL HIGHLIGHTS

 Year ended December 31,

2012
2012

2011 

2010 
(in thousands, except per share and statistical data)

2009 

2008

Income Statement Data:
Revenues(1)
(cid:43)(cid:86)(cid:83)(cid:87)(cid:87)(cid:3)(cid:84)(cid:86)(cid:83)(cid:189)(cid:88)
Operating income
Net income
Diluted net income per share

Balance Sheet Data:
Working capital
Total assets
Total debt/capital lease obligations 
Total stockholders’ equity
Cash dividends per share

Statistical Data:
Average number of worksite employees
  paid per month during period 
Revenues per worksite employee
  per month(5)
(cid:43)(cid:86)(cid:83)(cid:87)(cid:87)(cid:3)(cid:84)(cid:86)(cid:83)(cid:189)(cid:88)(cid:3)(cid:84)(cid:73)(cid:86)(cid:3)(cid:91)(cid:83)(cid:86)(cid:79)(cid:87)(cid:77)(cid:88)(cid:73)(cid:3)(cid:73)(cid:81)(cid:84)(cid:80)(cid:83)(cid:93)(cid:73)(cid:73)
  per month
Operating income per worksite
  employee per month

$
$

2,158,824
2,158,824

$ 1,976,219

$

1,719,752

$

1,653,096

$

1,724,434

382,221
382,221 
(2)
(2)

67,494
67,494

40,402
40,402

1.56
1.56

115,706
115,706

750,200
750,200 

—
—

240,905
240,905 
(4)
(4)

1.66
1.66

125,650
125,650 

1,432
1,432

253
253

45
45

$

$

$

$

$

$

$
$

$
$

$
$

$
$

$
$

$
$

351,775 

57,314 
(3)
30,470 

1.16

126,562

712,259 

— 

245,207 

$

$

298,536 

37,060 

22,440 

0.86

144,479

659,845 

— 

240,395 

$

$

287,967 

27,033 

16,574 

0.65

127,627

576,470 

— 

223,160 

$

$

0.60

$

0.52

$

0.52

$

343,739

64,982

45,780

1.76

98,414

616,840

537

208,479

0.48

116,839 

107,014 

108,736 

116,957

1,410

251

41

$

$

$

1,339

232

29

$

$

$

1,267

221

21

$

$

$

1,229

245

46

(1) Gross billings of $12.992 billion, $11.700 billion, $10.169 billion, $9.856 billion and $10.372 billion, less worksite employee payroll cost of $10.833 

billion, $9.724 billion, $8.449 billion, $8.203 billion and $8.648 billion, respectively.

(2) Includes an impairment charge in the fourth quarter of 2012 of $4.2 million.  Please read Note 5 to the Consolidated Financial Statements, “Goodwill 

and Other Intangible Assets,” for additional information.

(3) Includes the impact of a $4.4 million loss related to the exchange of an aircraft, and a $3.1 million loss related to a settlement with the State of 
California. Please read Note 13 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information on the 
settlement with the State of California.

(4) Includes a $1.00 per share special dividend paid in the fourth quarter of 2012.

(5) Gross billings of $8,617, $8,345, $7,919, $7,553 and $7,391 per worksite employee per month, less payroll cost of $7,185, $6,935, $6,580, $6,286 

and $6,162 per worksite employee per month, respectively.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
We had a vision – a rebranded 

company with expanded offerings 

and a world-class force of Business 

Performance Advisors.

The result is nothing less than a 

powerful new platform for growth. 

For our clients. And for Insperity.

(cid:39)(cid:44)(cid:37)(cid:45)(cid:54)(cid:49)(cid:37)(cid:50)(cid:180)(cid:55)(cid:3)(cid:49)(cid:41)(cid:55)(cid:55)(cid:37)(cid:43)(cid:41)

To use Insperity’s new platform for growth 
to provide an increased number of small and 
medium-sized businesses with an expanded 
array  of  impactful  human  resources  and 
business performance solutions.

Paul J. Sarvadi
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TO OUR FELLOW STAKEHOLDERS
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for  our  nation’s  base  of  small  and  medium-sized  companies, 
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prepared  for  growth  acceleration  across  all  of  its  divisions.  These 
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Business  Performance  Advisors  to  more  effectively  analyze 
prospective  clients’  needs  and  recommend  Insperity  solutions  to 
solve business problems and help more businesses succeed.

2012 FINANCIAL PERFORMANCE
Revenues  increased  9.2  percent  to  $2.2  billion  in  2012  and  gross 
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(cid:73)(cid:69)(cid:86)(cid:82)(cid:77)(cid:82)(cid:75)(cid:87)(cid:3) (cid:84)(cid:73)(cid:86)(cid:3) (cid:87)(cid:76)(cid:69)(cid:86)(cid:73)(cid:3) (cid:77)(cid:82)(cid:71)(cid:86)(cid:73)(cid:69)(cid:87)(cid:73)(cid:72)(cid:3) (cid:22)(cid:25)(cid:18)(cid:26)(cid:3) (cid:84)(cid:73)(cid:86)(cid:71)(cid:73)(cid:82)(cid:88)(cid:3) (cid:88)(cid:83)(cid:3) (cid:8)(cid:21)(cid:18)(cid:26)(cid:27)(cid:3) (cid:71)(cid:83)(cid:81)(cid:84)(cid:69)(cid:86)(cid:73)(cid:72)(cid:3)
(cid:88)(cid:83)(cid:3) (cid:8)(cid:21)(cid:18)(cid:23)(cid:23)(cid:3) (cid:77)(cid:82)(cid:3) (cid:22)(cid:20)(cid:21)(cid:21)(cid:18)(cid:3) (cid:37)(cid:72)(cid:78)(cid:89)(cid:87)(cid:88)(cid:73)(cid:72)(cid:3) (cid:86)(cid:73)(cid:87)(cid:89)(cid:80)(cid:88)(cid:87)(cid:3) (cid:73)(cid:92)(cid:71)(cid:80)(cid:89)(cid:72)(cid:73)(cid:3) (cid:69)(cid:82)(cid:3) (cid:69)(cid:74)(cid:88)(cid:73)(cid:86)(cid:17)(cid:88)(cid:69)(cid:92)(cid:16)(cid:3) (cid:82)(cid:83)(cid:82)(cid:17)(cid:71)(cid:69)(cid:87)(cid:76)(cid:3)
impairment charge of $0.10 per share, resulting from a write-down 
of goodwill associated with a 2006 acquisition, and a $0.01 per share 
effect  related  to  the  accounting  treatment  of  a  $1.00  per  share 
special dividend paid in December 2012. Reported net income was 
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to 2011 earnings per share.

(cid:40)(cid:89)(cid:86)(cid:77)(cid:82)(cid:75)(cid:3) (cid:88)(cid:76)(cid:73)(cid:3) (cid:93)(cid:73)(cid:69)(cid:86)(cid:16)(cid:3) (cid:91)(cid:73)(cid:3) (cid:86)(cid:73)(cid:84)(cid:89)(cid:86)(cid:71)(cid:76)(cid:69)(cid:87)(cid:73)(cid:72)(cid:3) (cid:25)(cid:29)(cid:25)(cid:16)(cid:26)(cid:27)(cid:26)(cid:3) (cid:87)(cid:76)(cid:69)(cid:86)(cid:73)(cid:87)(cid:3) (cid:83)(cid:74)(cid:3) (cid:83)(cid:89)(cid:86)(cid:3) (cid:71)(cid:83)(cid:81)(cid:81)(cid:83)(cid:82)(cid:3)
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(cid:77)(cid:82)(cid:3) (cid:22)(cid:20)(cid:21)(cid:22)(cid:16)(cid:3) (cid:77)(cid:82)(cid:71)(cid:80)(cid:89)(cid:72)(cid:77)(cid:82)(cid:75)(cid:3) (cid:8)(cid:22)(cid:25)(cid:18)(cid:27)(cid:3) (cid:81)(cid:77)(cid:80)(cid:80)(cid:77)(cid:83)(cid:82)(cid:3) (cid:74)(cid:86)(cid:83)(cid:81)(cid:3) (cid:88)(cid:76)(cid:73)(cid:3) (cid:87)(cid:84)(cid:73)(cid:71)(cid:77)(cid:69)(cid:80)(cid:3) (cid:71)(cid:69)(cid:87)(cid:76)(cid:3) (cid:72)(cid:77)(cid:90)(cid:77)(cid:72)(cid:73)(cid:82)(cid:72)(cid:3) (cid:83)(cid:74)(cid:3)
$1.00 per share paid in the fourth quarter. In the second quarter of 
(cid:22)(cid:20)(cid:21)(cid:22)(cid:16)(cid:3)(cid:91)(cid:73)(cid:3)(cid:77)(cid:82)(cid:71)(cid:86)(cid:73)(cid:69)(cid:87)(cid:73)(cid:72)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)(cid:85)(cid:89)(cid:69)(cid:86)(cid:88)(cid:73)(cid:86)(cid:80)(cid:93)(cid:3)(cid:72)(cid:77)(cid:90)(cid:77)(cid:72)(cid:73)(cid:82)(cid:72)(cid:3)(cid:21)(cid:23)(cid:18)(cid:23)(cid:3)(cid:84)(cid:73)(cid:86)(cid:71)(cid:73)(cid:82)(cid:88)(cid:3)(cid:74)(cid:86)(cid:83)(cid:81)(cid:3)(cid:8)(cid:20)(cid:18)(cid:21)(cid:25)(cid:3)
(cid:88)(cid:83)(cid:3) (cid:8)(cid:20)(cid:18)(cid:21)(cid:27)(cid:18)(cid:3) (cid:45)(cid:82)(cid:87)(cid:84)(cid:73)(cid:86)(cid:77)(cid:88)(cid:93)(cid:3) (cid:75)(cid:73)(cid:82)(cid:73)(cid:86)(cid:69)(cid:88)(cid:73)(cid:72)(cid:3) (cid:8)(cid:21)(cid:20)(cid:20)(cid:18)(cid:29)(cid:3) (cid:81)(cid:77)(cid:80)(cid:80)(cid:77)(cid:83)(cid:82)(cid:3) (cid:77)(cid:82)(cid:3) (cid:69)(cid:72)(cid:78)(cid:89)(cid:87)(cid:88)(cid:73)(cid:72)(cid:3) (cid:41)(cid:38)(cid:45)(cid:56)(cid:40)(cid:37)(cid:3)
during  the  year,  excluding  the  impairment  charge  of  $4.2  million. 
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million, excluding the $4.2 million impairment charge. At year-end, 
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(cid:56)(cid:76)(cid:73)(cid:87)(cid:73)(cid:3) (cid:189)(cid:82)(cid:69)(cid:82)(cid:71)(cid:77)(cid:69)(cid:80)(cid:3) (cid:86)(cid:73)(cid:87)(cid:89)(cid:80)(cid:88)(cid:87)(cid:3) (cid:86)(cid:73)(cid:190)(cid:73)(cid:71)(cid:88)(cid:3) (cid:88)(cid:76)(cid:73)(cid:3) (cid:87)(cid:89)(cid:71)(cid:71)(cid:73)(cid:87)(cid:87)(cid:74)(cid:89)(cid:80)(cid:3) (cid:71)(cid:83)(cid:81)(cid:84)(cid:80)(cid:73)(cid:88)(cid:77)(cid:83)(cid:82)(cid:3) (cid:83)(cid:74)(cid:3)
Insperity’s  two-year  conversion  from  a  single-service  Workforce 
OptimizationTM  provider  to  a  company  offering  a  broad-based 
platform  of  multi-service  business  solutions.  Using  a  network  of 
trained Insperity Business Performance Advisors, we are now able 
to  diagnose  problems  and  recommend  and  deliver  solutions  that 
address an important cross-section of business issues for America’s 
entrepreneurs. In essence, we reinvented Insperity to provide many 
more companies in America with the powerful business tools they 
need to move ahead. And by making dramatic changes to what we 
sell and how we sell it, Insperity has laid the foundation for faster, 
more consistent and more predictable growth in the years to come.  

A NEW PLATFORM FOR GROWTH
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has  frequently  produced  double-digit  annual  compound  growth 
rates  in  revenues,  operating  income  and/or  earnings  per  share.  In 
order to build on this record, we implemented a new strategy for 
long-term growth acceleration and phased it in over the last two 
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(cid:72)(cid:73)(cid:90)(cid:73)(cid:80)(cid:83)(cid:84)(cid:81)(cid:73)(cid:82)(cid:88)(cid:3)(cid:69)(cid:82)(cid:72)(cid:3)(cid:71)(cid:83)(cid:81)(cid:81)(cid:89)(cid:82)(cid:77)(cid:71)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)(cid:16)(cid:3)(cid:69)(cid:72)(cid:78)(cid:69)(cid:71)(cid:73)(cid:82)(cid:88)(cid:3)(cid:70)(cid:89)(cid:87)(cid:77)(cid:82)(cid:73)(cid:87)(cid:87)(cid:3)(cid:72)(cid:73)(cid:90)(cid:73)(cid:80)(cid:83)(cid:84)(cid:81)(cid:73)(cid:82)(cid:88)(cid:16)(cid:3)
new brand implementation, and bundled selling, which is our cross 
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combine stand-alone services. 

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(cid:70)(cid:89)(cid:77)(cid:80)(cid:72)(cid:77)(cid:82)(cid:75)(cid:3)(cid:84)(cid:86)(cid:83)(cid:189)(cid:71)(cid:77)(cid:73)(cid:82)(cid:71)(cid:93)(cid:3)(cid:77)(cid:82)(cid:3)(cid:69)(cid:82)(cid:72)(cid:3)(cid:86)(cid:73)(cid:189)(cid:82)(cid:77)(cid:82)(cid:75)(cid:3)(cid:83)(cid:89)(cid:86)(cid:3)(cid:84)(cid:86)(cid:83)(cid:71)(cid:73)(cid:87)(cid:87)(cid:73)(cid:87)(cid:16)(cid:3)(cid:87)(cid:93)(cid:87)(cid:88)(cid:73)(cid:81)(cid:87)(cid:16)(cid:3)(cid:84)(cid:86)(cid:83)(cid:72)(cid:89)(cid:71)(cid:88)(cid:87)(cid:3)
and services. During this phase, we also adapted and launched two 
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for our expanding client base. While meeting client payroll needs has 
always been central to our comprehensive Workforce Optimization 

- 2 -

offering,  InsperityTM  Payroll  Services  was  introduced  to  provide  a 
foundational  service  for  establishing  customer  relationships  with 
thousands of potential Workforce Optimization clients. In addition, 
InsperityTM  Financial  Services  was  announced  in  the  third  quarter 
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information for intelligent business decisions.

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growth  acceleration  was  emphasized  by  simultaneously  making 
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cross  selling  between  those  units,  including  our  core  Workforce 
Optimization offering. While progress within each of the fundamental 
areas  of  our  new  strategy  will  continue,  the  central  focus  is  now             
on  growth  in  all  sectors  of  the  company.  A  combination  of  sales 
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this new platform for growth. 

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Historically,  Insperity  sales  performance  has  been  measured  
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(cid:71)(cid:83)(cid:82)(cid:90)(cid:73)(cid:86)(cid:88)(cid:73)(cid:72)(cid:3) (cid:77)(cid:82)(cid:88)(cid:83)(cid:3) (cid:87)(cid:69)(cid:88)(cid:77)(cid:87)(cid:189)(cid:73)(cid:72)(cid:3) (cid:71)(cid:80)(cid:77)(cid:73)(cid:82)(cid:88)(cid:87)(cid:18)(cid:3) (cid:59)(cid:73)(cid:3) (cid:69)(cid:86)(cid:73)(cid:3) (cid:88)(cid:69)(cid:79)(cid:77)(cid:82)(cid:75)(cid:3) (cid:77)(cid:81)(cid:84)(cid:83)(cid:86)(cid:88)(cid:69)(cid:82)(cid:88)(cid:3) (cid:87)(cid:88)(cid:73)(cid:84)(cid:87)(cid:3)
(cid:88)(cid:83)(cid:3)(cid:77)(cid:82)(cid:71)(cid:86)(cid:73)(cid:69)(cid:87)(cid:73)(cid:3)(cid:83)(cid:89)(cid:86)(cid:3)(cid:87)(cid:69)(cid:80)(cid:73)(cid:87)(cid:3)(cid:73)(cid:74)(cid:189)(cid:71)(cid:77)(cid:73)(cid:82)(cid:71)(cid:93)(cid:3)(cid:69)(cid:87)(cid:3)(cid:91)(cid:73)(cid:3)(cid:87)(cid:73)(cid:86)(cid:90)(cid:73)(cid:3)(cid:69)(cid:82)(cid:3)(cid:73)(cid:92)(cid:84)(cid:69)(cid:82)(cid:72)(cid:77)(cid:82)(cid:75)(cid:3)(cid:71)(cid:80)(cid:77)(cid:73)(cid:82)(cid:88)(cid:3)
base.  First,  Insperity  has  further  developed  its  inside  sales 
efforts  to  fully  support  Business  Performance  Advisors  and 
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(cid:87)(cid:77)(cid:75)(cid:82)(cid:77)(cid:189)(cid:71)(cid:69)(cid:82)(cid:88)(cid:3) (cid:71)(cid:83)(cid:81)(cid:84)(cid:83)(cid:82)(cid:73)(cid:82)(cid:88)(cid:3) (cid:83)(cid:74)(cid:3) (cid:83)(cid:89)(cid:86)(cid:3) (cid:71)(cid:86)(cid:83)(cid:87)(cid:87)(cid:3) (cid:87)(cid:73)(cid:80)(cid:80)(cid:77)(cid:82)(cid:75)(cid:3) (cid:87)(cid:93)(cid:87)(cid:88)(cid:73)(cid:81)(cid:3) (cid:77)(cid:87)(cid:3) (cid:82)(cid:83)(cid:91)(cid:3)
operational.  Second,  we  trained  our  entire  sales  force  on 
successfully  using  the  new  Insperity  Trusted  Advisor  Selling 
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in the Insperity sales process is outlined in a video presentation 
and features valuable manager interaction and support. By closely 
monitoring  performance,  the  company  is  helping  each  advisor 
develop the skills needed to improve sales and client retention. 
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(cid:39)(cid:73)(cid:86)(cid:88)(cid:77)(cid:189)(cid:73)(cid:72)(cid:3)(cid:38)(cid:89)(cid:87)(cid:77)(cid:82)(cid:73)(cid:87)(cid:87)(cid:3)(cid:52)(cid:73)(cid:86)(cid:74)(cid:83)(cid:86)(cid:81)(cid:69)(cid:82)(cid:71)(cid:73)(cid:3)(cid:37)(cid:72)(cid:90)(cid:77)(cid:87)(cid:83)(cid:86)(cid:87)(cid:3)(cid:88)(cid:76)(cid:86)(cid:83)(cid:89)(cid:75)(cid:76)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)(cid:39)(cid:18)(cid:56)(cid:18)(cid:3)(cid:38)(cid:69)(cid:89)(cid:73)(cid:86)(cid:3)
College  of  Business  at  the  University  of  Houston  reinforces 
public  awareness  that  Insperity  advisors  can  provide  a  unique 
level  of  business  support  and  insight  when  interacting  with 
prospects,  clients  and  referral  sources  and  enhances  our 
reputation in the community. 

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Leveraging  our  new  brand  and  expanded  array  of  business 
performance solutions has increased sales leads for all Insperity 
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help meet the growing demand for additional Insperity business 
services, we are in the process of increasing the number of our 

Business  Performance  Advisors  by  more  than  20  percent.  As 
expected, Insperity is committed to providing the procedures and 
personnel in all areas necessary to sell and service a larger number 
of America’s best small and medium-sized businesses. 

HEALTH CARE REFORM PREPAREDNESS
The  passage  in  2010  of  The  Patient  Protection  and  Affordable       
Care  Act  (PPACA)  caused  Insperity  to  analyze  and  implement 
periodic  legislative  requirements,  while  equipping  clients  with  the 
business  performance  solutions  needed  to  manage  provisions  as 
they are enacted each year. We view this sweeping governmental 
approach  to  health  care  reform  as  a  key  opportunity  to  help 
entrepreneurs and affected families respond to these challenges as 
effectively as possible.

CONCLUSION
During  2012,  we  transformed  Insperity  from  a  single-service 
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service  platform  delivered  by  advisors  who  diagnose  problems 
and recommend solutions for a broader cross-section of business 
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products  and  processes  while  fully  leveraging  this  powerful  new 
platform for growth. 

I sincerely appreciate the dedication and hard work of our corporate 
staff in creating and providing a broad array of business performance 
solutions  to  our  nation’s  best  small  and  medium-sized  companies. 
Also, I thank our Board of Directors for its continued counsel and 
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new platform for growth. As a result, Insperity has a stronger and 
expanded  ability  to  help  clients  improve  business  performance  in 
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Sincerely,

Paul J. Sarvadi
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(cid:38)(cid:51)(cid:37)(cid:54)(cid:40)(cid:3)(cid:51)(cid:42)(cid:3)(cid:40)(cid:45)(cid:54)(cid:41)(cid:39)(cid:56)(cid:51)(cid:54)(cid:55)

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Mr. Lattanzio, age 49, has been a Class III director of the Company since 1995. He is a member 
of  the  Company’s  Finance,  Risk  Management  and  Audit  Committee  and  the  Nominating  and 
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LLC since May 2010. Prior to that, he most recently served as a Senior Managing Director and 
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served as a Managing Director for TD Capital Communications Partners (f/k/a Toronto Dominion 
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March 1999, he was a co-founder and Senior Managing Director of NMS Capital Management, 
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Capital Partners, Inc. Mr. Lattanzio has experience in a variety of investment banking disciplines, 
including mergers and acquisitions, private placements and restructuring. Mr. Lattanzio received 
his Bachelor of Science in economics with honors from the University of Pennsylvania’s Wharton 
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Compensation  Committee.  Mr.  Petsch  retired  from  Compaq  Computer  Corporation  in  1999 
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for  10  years  for  Texas  Instruments.  Mr.  Petsch  serves  or  has  served  as  a  director,  trustee  or 
advisor of several private businesses, civic or charitable organizations. In 1992, Mr. Petsch was 
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Foundation,  Inc.  He  earned  a  Bachelor  of  Business  Technology  degree  from  the  University  of 
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Mr. Rawson, age 64, President of the Company and its subsidiaries, is a Class III director and has 
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Controller for several companies in the manufacturing and seismic data processing industries. Mr. 
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from the University of Houston and currently serves as Chairman of the Dean’s Advisory Board 
for C.T. Bauer College of Business.

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Company and its subsidiaries, is a Class II director and has been a director since the Company’s 
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attended Rice University and the University of Houston prior to starting and operating several 
small companies. Mr. Sarvadi has served as President of the National Association of Professional 
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Texas Business Hall of Fame.

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Company’s Finance, Risk Management and Audit Committee and a member of the Nominating 
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and  Amerisafe,  Inc.  He  is  a  member  of  the  Houston  and  State  Chapters  of  the  Texas  Society        
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accounting degree from the University of Texas.

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(back row, left to right) (cid:52)(cid:69)(cid:89)(cid:80)(cid:3)(cid:55)(cid:18)(cid:3)(cid:48)(cid:69)(cid:88)(cid:88)(cid:69)(cid:82)(cid:94)(cid:77)(cid:83)(cid:16)(cid:3)(cid:40)(cid:86)(cid:18)(cid:3)(cid:41)(cid:80)(cid:77)(cid:3)(cid:46)(cid:83)(cid:82)(cid:73)(cid:87)(cid:16)(cid:3)(cid:49)(cid:77)(cid:71)(cid:76)(cid:69)(cid:73)(cid:80)(cid:3)(cid:59)(cid:18)(cid:3)(cid:38)(cid:86)(cid:83)(cid:91)(cid:82)(cid:3)(cid:69)(cid:82)(cid:72)(cid:3)(cid:46)(cid:69)(cid:71)(cid:79)(cid:3)(cid:49)(cid:18)(cid:3)(cid:42)(cid:77)(cid:73)(cid:80)(cid:72)(cid:87)(cid:16)(cid:3)(cid:46)(cid:86)(cid:18)(cid:3)

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of  the  Company’s  Finance,  Risk  Management  and  Audit  Committee  and  the  Nominating  and 
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Board of Directors and a past governor of the National Association of Securities Dealers. Mr. 
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director,  trustee  or  advisor  of  several  private  businesses,  civic  or  charitable  organizations.  Mr. 
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retirement  from  the  United  States  House  of  Representatives,  where  he  served  for  16  years. 
Mr.  Fields  is  a  member  of  the  Company’s  Compensation  Committee  and  the  Nominating  and 
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Mutual Funds), and also serves or has served as a director, trustee or advisor of several private 
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the  Company’s  Compensation  Committee  and  a  member  of  the  Nominating  and  Corporate 
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University of Arkansas and holder of the Sam M. Walton Leadership Chair in Business.  Prior 
(cid:88)(cid:83)(cid:3)(cid:78)(cid:83)(cid:77)(cid:82)(cid:77)(cid:82)(cid:75)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)(cid:74)(cid:69)(cid:71)(cid:89)(cid:80)(cid:88)(cid:93)(cid:3)(cid:69)(cid:88)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)(cid:57)(cid:82)(cid:77)(cid:90)(cid:73)(cid:86)(cid:87)(cid:77)(cid:88)(cid:93)(cid:3)(cid:83)(cid:74)(cid:3)(cid:37)(cid:86)(cid:79)(cid:69)(cid:82)(cid:87)(cid:69)(cid:87)(cid:16)(cid:3)(cid:76)(cid:73)(cid:3)(cid:91)(cid:69)(cid:87)(cid:3)(cid:40)(cid:73)(cid:69)(cid:82)(cid:3)(cid:83)(cid:74)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)(cid:41)(cid:18)(cid:3)(cid:46)(cid:18)(cid:3)(cid:51)(cid:89)(cid:86)(cid:87)(cid:83)(cid:3)(cid:39)(cid:83)(cid:80)(cid:80)(cid:73)(cid:75)(cid:73)(cid:3)(cid:83)(cid:74)(cid:3)
(cid:38)(cid:89)(cid:87)(cid:77)(cid:82)(cid:73)(cid:87)(cid:87)(cid:3)(cid:69)(cid:82)(cid:72)(cid:3)(cid:51)(cid:89)(cid:86)(cid:87)(cid:83)(cid:3)(cid:40)(cid:77)(cid:87)(cid:88)(cid:77)(cid:82)(cid:75)(cid:89)(cid:77)(cid:87)(cid:76)(cid:73)(cid:72)(cid:3)(cid:52)(cid:86)(cid:83)(cid:74)(cid:73)(cid:87)(cid:87)(cid:83)(cid:86)(cid:3)(cid:83)(cid:74)(cid:3)(cid:38)(cid:89)(cid:87)(cid:77)(cid:82)(cid:73)(cid:87)(cid:87)(cid:3)(cid:69)(cid:88)(cid:3)(cid:48)(cid:83)(cid:89)(cid:77)(cid:87)(cid:77)(cid:69)(cid:82)(cid:69)(cid:3)(cid:55)(cid:88)(cid:69)(cid:88)(cid:73)(cid:3)(cid:57)(cid:82)(cid:77)(cid:90)(cid:73)(cid:86)(cid:87)(cid:77)(cid:88)(cid:93)(cid:3)(cid:74)(cid:86)(cid:83)(cid:81)(cid:3)(cid:22)(cid:20)(cid:20)(cid:28)(cid:3)
to 2012; Professor of Marketing and Associate Dean at the C.T. Bauer College of Business at the 
(cid:57)(cid:82)(cid:77)(cid:90)(cid:73)(cid:86)(cid:87)(cid:77)(cid:88)(cid:93)(cid:3)(cid:83)(cid:74)(cid:3)(cid:44)(cid:83)(cid:89)(cid:87)(cid:88)(cid:83)(cid:82)(cid:3)(cid:74)(cid:86)(cid:83)(cid:81)(cid:3)(cid:22)(cid:20)(cid:20)(cid:27)(cid:3)(cid:88)(cid:83)(cid:3)(cid:22)(cid:20)(cid:20)(cid:28)(cid:31)(cid:3)(cid:69)(cid:82)(cid:3)(cid:37)(cid:87)(cid:87)(cid:83)(cid:71)(cid:77)(cid:69)(cid:88)(cid:73)(cid:3)(cid:52)(cid:86)(cid:83)(cid:74)(cid:73)(cid:87)(cid:87)(cid:83)(cid:86)(cid:3)(cid:83)(cid:74)(cid:3)(cid:49)(cid:69)(cid:86)(cid:79)(cid:73)(cid:88)(cid:77)(cid:82)(cid:75)(cid:3)(cid:74)(cid:86)(cid:83)(cid:81)(cid:3)(cid:22)(cid:20)(cid:20)(cid:22)(cid:3)(cid:88)(cid:83)(cid:3)
(cid:22)(cid:20)(cid:20)(cid:27)(cid:31)(cid:3)(cid:69)(cid:82)(cid:72)(cid:3)(cid:69)(cid:82)(cid:3)(cid:37)(cid:87)(cid:87)(cid:77)(cid:87)(cid:88)(cid:69)(cid:82)(cid:88)(cid:3)(cid:52)(cid:86)(cid:83)(cid:74)(cid:73)(cid:87)(cid:87)(cid:83)(cid:86)(cid:3)(cid:74)(cid:86)(cid:83)(cid:81)(cid:3)(cid:21)(cid:29)(cid:29)(cid:27)(cid:3)(cid:89)(cid:82)(cid:88)(cid:77)(cid:80)(cid:3)(cid:22)(cid:20)(cid:20)(cid:22)(cid:18)(cid:3)(cid:3)(cid:44)(cid:73)(cid:3)(cid:88)(cid:69)(cid:89)(cid:75)(cid:76)(cid:88)(cid:3)(cid:69)(cid:88)(cid:3)(cid:56)(cid:73)(cid:92)(cid:69)(cid:87)(cid:3)(cid:37)(cid:10)(cid:49)(cid:3)(cid:57)(cid:82)(cid:77)(cid:90)(cid:73)(cid:86)(cid:87)(cid:77)(cid:88)(cid:93)(cid:3)(cid:74)(cid:83)(cid:86)(cid:3)
(cid:87)(cid:73)(cid:90)(cid:73)(cid:86)(cid:69)(cid:80)(cid:3)(cid:93)(cid:73)(cid:69)(cid:86)(cid:87)(cid:3)(cid:70)(cid:73)(cid:74)(cid:83)(cid:86)(cid:73)(cid:3)(cid:78)(cid:83)(cid:77)(cid:82)(cid:77)(cid:82)(cid:75)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)(cid:74)(cid:69)(cid:71)(cid:89)(cid:80)(cid:88)(cid:93)(cid:3)(cid:83)(cid:74)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)(cid:57)(cid:82)(cid:77)(cid:90)(cid:73)(cid:86)(cid:87)(cid:77)(cid:88)(cid:93)(cid:3)(cid:83)(cid:74)(cid:3)(cid:44)(cid:83)(cid:89)(cid:87)(cid:88)(cid:83)(cid:82)(cid:18)(cid:3)(cid:3)(cid:40)(cid:86)(cid:18)(cid:3)(cid:46)(cid:83)(cid:82)(cid:73)(cid:87)(cid:3)(cid:87)(cid:73)(cid:86)(cid:90)(cid:73)(cid:72)(cid:3)(cid:69)(cid:87)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)
(cid:41)(cid:92)(cid:73)(cid:71)(cid:89)(cid:88)(cid:77)(cid:90)(cid:73)(cid:3)(cid:40)(cid:77)(cid:86)(cid:73)(cid:71)(cid:88)(cid:83)(cid:86)(cid:3)(cid:83)(cid:74)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)(cid:52)(cid:86)(cid:83)(cid:75)(cid:86)(cid:69)(cid:81)(cid:3)(cid:74)(cid:83)(cid:86)(cid:3)(cid:41)(cid:92)(cid:71)(cid:73)(cid:80)(cid:80)(cid:73)(cid:82)(cid:71)(cid:73)(cid:3)(cid:77)(cid:82)(cid:3)(cid:55)(cid:73)(cid:80)(cid:80)(cid:77)(cid:82)(cid:75)(cid:3)(cid:69)(cid:82)(cid:72)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)(cid:55)(cid:69)(cid:80)(cid:73)(cid:87)(cid:3)(cid:41)(cid:92)(cid:71)(cid:73)(cid:80)(cid:80)(cid:73)(cid:82)(cid:71)(cid:73)(cid:3)(cid:45)(cid:82)(cid:87)(cid:88)(cid:77)(cid:88)(cid:89)(cid:88)(cid:73)(cid:3)
(cid:69)(cid:88)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)(cid:57)(cid:82)(cid:77)(cid:90)(cid:73)(cid:86)(cid:87)(cid:77)(cid:88)(cid:93)(cid:3)(cid:83)(cid:74)(cid:3)(cid:44)(cid:83)(cid:89)(cid:87)(cid:88)(cid:83)(cid:82)(cid:3)(cid:74)(cid:86)(cid:83)(cid:81)(cid:3)(cid:21)(cid:29)(cid:29)(cid:27)(cid:3)(cid:88)(cid:83)(cid:3)(cid:22)(cid:20)(cid:20)(cid:27)(cid:18)(cid:3)(cid:3)(cid:38)(cid:73)(cid:74)(cid:83)(cid:86)(cid:73)(cid:3)(cid:70)(cid:73)(cid:71)(cid:83)(cid:81)(cid:77)(cid:82)(cid:75)(cid:3)(cid:69)(cid:3)(cid:84)(cid:86)(cid:83)(cid:74)(cid:73)(cid:87)(cid:87)(cid:83)(cid:86)(cid:16)(cid:3)(cid:76)(cid:73)(cid:3)(cid:91)(cid:83)(cid:86)(cid:79)(cid:73)(cid:72)(cid:3)(cid:77)(cid:82)(cid:3)
sales and sales management for three Fortune 100 companies: Quaker Oats, Nabisco, and Frito-
Lay.  Dr. Jones is also a director of Arvest Bank.  He received his Bachelor of Science degree in 
(cid:78)(cid:83)(cid:89)(cid:86)(cid:82)(cid:69)(cid:80)(cid:77)(cid:87)(cid:81)(cid:3)(cid:77)(cid:82)(cid:3)(cid:21)(cid:29)(cid:28)(cid:22)(cid:16)(cid:3)(cid:76)(cid:77)(cid:87)(cid:3)(cid:49)(cid:38)(cid:37)(cid:3)(cid:77)(cid:82)(cid:3)(cid:21)(cid:29)(cid:28)(cid:26)(cid:3)(cid:69)(cid:82)(cid:72)(cid:3)(cid:76)(cid:77)(cid:87)(cid:3)(cid:52)(cid:76)(cid:18)(cid:40)(cid:18)(cid:3)(cid:77)(cid:82)(cid:3)(cid:21)(cid:29)(cid:29)(cid:27)(cid:16)(cid:3)(cid:69)(cid:80)(cid:80)(cid:3)(cid:74)(cid:86)(cid:83)(cid:81)(cid:3)(cid:56)(cid:73)(cid:92)(cid:69)(cid:87)(cid:3)(cid:37)(cid:10)(cid:49)(cid:3)(cid:57)(cid:82)(cid:77)(cid:90)(cid:73)(cid:86)(cid:87)(cid:77)(cid:88)(cid:93)(cid:18)(cid:3)

- 4 -

UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C.  20549 

FORM 10-K 

(Mark One) 

(cid:95)  Annual Report Pursuant to Section 13 or 15(d) of the Securities  

  Exchange Act of 1934  

For the fiscal year ended December 31, 2012. 
or 

(cid:134)(cid:3) Transition Report Pursuant to Section 13 or 15(d) of the Securities  

Exchange Act of 1934  

For the transition period from                         to                        

Commission File No. 1-13998 
Insperity, Inc. 

(Exact name of registrant as specified in its charter) 

Delaware 
(State or other jurisdiction of 
incorporation or organization) 

19001 Crescent Springs Drive 

Kingwood, Texas 
(Address of principal executive offices) 

76-0479645 
(I.R.S. Employer 
Identification No.) 

77339 
(Zip Code) 

Registrant's Telephone Number, Including Area Code:  (281) 358-8986 

Securities Registered Pursuant to Section 12(b) of the Act: 

Common Stock, par value $0.01 per share 
Rights to Purchase Series A Junior Participating Preferred Stock 

New York Stock Exchange 
New York Stock Exchange 

(Title of class) 

(Name of Exchange on Which Registered) 

Securities Registered Pursuant to Section 12(g) of the Act: NONE 

Indicate  by  check  mark  if  the  registrant  is  a  well-known  seasoned  issuer,  as  defined  in  Rule  405  of  the 

Securities Act.  Yes (cid:95)   No (cid:134) 

Indicate  by  check  mark  if  the  registrant  is  not  required  to  file  reports  pursuant  to  Section  13  or  Section 

15(d) of the Act.   Yes (cid:134)   No (cid:95) 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  
Yes (cid:95)   No (cid:134) 

Indicate  by  check  mark  whether  the  registrant  has  submitted  electronically  and  posted  on  its  corporate 
website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation 
S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 
such files).  Yes (cid:95)   No (cid:134) 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indicate  by  check  mark  if  disclosure  of  delinquent  filers  pursuant  to  Item  405  of  Regulation  S-K  is  not 
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information 
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:134) 

Indicate  by  check  mark  whether  the  registrant  is  a  large  accelerated  filer,  an  accelerated  filer,  a  non-
accelerated filer, or a smaller reporting company.  See the definition of (cid:179)large accelerated filer(cid:15)(cid:180)(cid:3)(cid:179)accelerated filer,(cid:180)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:86)(cid:80)(cid:68)(cid:79)(cid:79)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:180)(cid:3)in Rule 12b-2 of the Exchange Act.    

Large accelerated filer  (cid:95)    
Non-accelerated filer  (cid:134) (Do not check if a smaller reporting company) 

Accelerated filer  (cid:134) 
Smaller reporting company  (cid:134)(cid:3)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange 

Act).   Yes (cid:134)   No (cid:95) 

As  of  February  4,  2013,  25,679,598  (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15)(cid:3) (cid:83)(cid:68)(cid:85)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3) (cid:7)(cid:19)(cid:17)(cid:19)(cid:20)(cid:3) (cid:83)(cid:72)(cid:85)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:15)(cid:3)
were  outstanding.    As  of  the  last  business  day  (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:80)(cid:82)(cid:86)(cid:87)(cid:3) (cid:85)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:71)(cid:3) (cid:86)(cid:72)(cid:70)(cid:82)(cid:81)(cid:71)(cid:3) (cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
aggregate market value of the common stock held by non-affiliates (based upon the June 30, 2012, closing price of 
the common stock as reported by the New York Stock Exchange) was approximately $619 million.  

DOCUMENTS INCORPORATED BY REFERENCE 

Part III information is incorporated by reference from the proxy statement for the annual meeting of 

stockholders to be held May 14, 2013, which the registrant intends to file within 120 days of the end of the fiscal 
year.

 
  
 
 
 
 
 
 
 
 
 
 
TABLE OF CONTENTS 

Part I 

Item 1. 

Item 1A. 

Item 1B. 

Item 2. 

Item 3. 

Business .........................................................................................................................   2 

Risk Factors ...................................................................................................................   19   

Unresolved Staff Comments ..........................................................................................   24 

Properties .......................................................................................................................   24 

Legal Proceedings ..........................................................................................................   24 

Item S-K 401(b). 

Executive Officers of the Registrant ..............................................................................   25 

Part II 

Item 5. 

Item 6. 

Item 7. 

(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:15) 

Related Stockholder Matters and Issuer Purchases of Equity Securities ....................   27 

Selected Financial Data .................................................................................................   29   

(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81) 

and Results of Operations ..........................................................................................   30   

Item 7A. 

Quantitative and Qualitative Disclosures about Market Risk ........................................   45 

Item 8. 

Item 9. 

Item 9A. 

Item 9B. 

Item 10. 

Item 11. 

Item 12. 

Item 13. 

Item 14. 

Financial Statements and Supplementary Data ..............................................................   46   

Changes in and Disagreements with Accountants on Accounting 

and Financial Disclosure ............................................................................................   46 

Controls and Procedures ................................................................................................   46 

Other Information ..........................................................................................................   46 

Part III 

Directors, Executive Officers and Corporate Governance .............................................   47   

Executive Compensation ...............................................................................................   47 

Security Ownership of Certain Beneficial Owners and Management 

and Related Stockholder Matters ...............................................................................   47 

Certain Relationships and Related Transactions and Director Independence  ...............   47 

Principal Accounting Fees and Services ........................................................................   47   

Part IV 

Item 15. 

Exhibits, Financial Statement Schedules .......................................................................   48

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART I 

(cid:56)(cid:81)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:90)(cid:76)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71)(cid:15)(cid:3)(cid:179)Insperity(cid:15)(cid:180) (cid:179)(cid:90)(cid:72)(cid:15)(cid:180)(cid:3)(cid:179)(cid:82)(cid:88)(cid:85)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:88)(cid:86)(cid:180)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:3)to 

Insperity, Inc. and its consolidated subsidiaries.  This annual report contains forward-looking statements within the 
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  You 
can identify such forward-(cid:79)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:71)(cid:86)(cid:3)(cid:179)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3)(cid:179)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:71)(cid:86)(cid:15)(cid:180)(cid:3)(cid:179)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:15)(cid:180)(cid:3)(cid:179)(cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3)(cid:179)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:86)(cid:15)(cid:180)(cid:3)
(cid:179)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:180)(cid:3)(cid:179)(cid:79)(cid:76)(cid:78)(cid:72)(cid:79)(cid:92)(cid:15)(cid:180)(cid:3)(cid:179)(cid:83)(cid:82)(cid:86)(cid:86)(cid:76)(cid:69)(cid:79)(cid:92)(cid:15)(cid:180)(cid:3)(cid:179)(cid:83)(cid:85)(cid:82)(cid:69)(cid:68)(cid:69)(cid:79)(cid:92)(cid:15)(cid:180)(cid:3)(cid:179)(cid:74)(cid:82)(cid:68)(cid:79)(cid:15)(cid:180)(cid:3)(cid:179)(cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:92)(cid:15)(cid:180)(cid:3)(cid:179)(cid:82)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:15)(cid:180)(cid:3)(cid:179)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:15)(cid:180)(cid:3)(cid:179)(cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:72)(cid:15)(cid:180) (cid:179)(cid:82)(cid:88)(cid:87)(cid:79)(cid:82)(cid:82)(cid:78)(cid:15)(cid:180)(cid:3)
(cid:179)(cid:74)(cid:88)(cid:76)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:15)(cid:180)(cid:3)(cid:179)(cid:83)(cid:85)(cid:72)(cid:71)(cid:76)(cid:70)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3)(cid:179)(cid:68)(cid:83)(cid:83)(cid:72)(cid:68)(cid:85)(cid:86)(cid:15)(cid:180)(cid:3)(cid:179)(cid:76)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:82)(cid:85)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:3)(cid:44)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:82)(cid:85)(cid:80)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:88)(cid:85)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:73)(cid:73)(cid:82)(cid:85)(cid:87)(cid:3)
to help keep our stockholders and the public informed about our operations we may, from time to time, issue such 
forward-looking statements, either orally or in writing.  Generally, these statements relate to business plans or 
strategies, projected or anticipated benefits or other consequences of such plans or strategies, or projections 
involving anticipated revenues, earnings or other operating results.  We base the forward-looking statements on our 
current expectations, estimates and projections.  We caution you that these statements are not guarantees of future 
performance and involve risks, uncertainties and assumptions that we cannot predict.  In addition, we have based 
many of these forward-looking statements on assumptions about future events that may prove to be inaccurate.  
Therefore, the actual results of the future events described in such forward-looking statements in this annual report, 
or elsewhere, could differ materially from those stated in such forward-looking statements.  Among the factors that 
could cause actual results to differ materially are the risks and uncertainties discussed in this annual report, 
includ(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:44)(cid:87)(cid:72)(cid:80)(cid:3)(cid:20)(cid:15)(cid:3)(cid:179)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86),(cid:180)(cid:3)(cid:44)(cid:87)(cid:72)(cid:80)(cid:3)(cid:20)(cid:36)(cid:15)(cid:3)(cid:179)(cid:53)(cid:76)(cid:86)(cid:78)(cid:3)(cid:41)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:15)(cid:180)(cid:3)and Item 7, 
(cid:179)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86).(cid:180)(cid:3) 

ITEM 1.   BUSINESS. 

General 

Insperity, Inc., formerly named Administaff, In(cid:70)(cid:17)(cid:3)(cid:11)(cid:179)(cid:44)(cid:81)(cid:86)(cid:83)(cid:72)(cid:85)(cid:76)(cid:87)(cid:92)(cid:180)) provides an array of human resources 
(cid:11)(cid:179)(cid:43)(cid:53)(cid:180)(cid:12)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:86)(cid:82)(cid:79)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:75)(cid:72)(cid:79)(cid:83)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:17)(cid:3)(cid:3)Our name change, which was 
effective March 3, 2011, reflects our evolution over 25 years from a professional (cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:3)(cid:82)(cid:85)(cid:74)(cid:68)(cid:81)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:51)(cid:40)(cid:50)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:81)(cid:3)
industry we pioneered, to our current position as a comprehensive business performance solutions provider.  We 
were organized as a corporation in 1986 and have provided PEO services since inception.   

Our long-term strategy continues to be providing the best small and medium-sized businesses in the United 

States with the opportunity to participate in our unique human resources service offering, thereby leveraging our 
buying power and expertise to provide additional valuable services to clients.  Our most comprehensive HR business 
offering is provided through our PEO services, now known as our Workforce OptimizationTM solution, which 
encompasses a broad range of human resources functions, including payroll and employment administration, 
(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:15)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)mpliance, performance management and training and 
development services.   

In addition to our Workforce Optimization solution, we offer Human Capital Management, Payroll 

Services, Time and Attendance, Performance Management, Organizational Planning, Recruiting Services,  
Employment Screening, Financial Services, Expense Management, Retirement Services and Insurance Services, 
(colle(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:179)(cid:36)(cid:71)(cid:77)(cid:68)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:180)(cid:12)(cid:15) many of which are offered via desktop applications and software as a service 
(cid:11)(cid:179)(cid:54)(cid:68)(cid:68)(cid:54)(cid:180)(cid:12)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:80)(cid:82)(cid:71)(cid:72)(cid:79)(cid:86)(cid:17)  These other products or services are offered separately, as a bundle, or along with 
Workforce Optimization. 

Our principal executive offices are located at 19001 Crescent Springs Drive, Kingwood, Texas 77339.  Our 
telephone number at that address is (281) 358-8986 and our website address is insperity.com.  Our stock is traded on 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:49)(cid:72)(cid:90)(cid:3)(cid:60)(cid:82)(cid:85)(cid:78)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:92)(cid:80)(cid:69)(cid:82)(cid:79)(cid:3)(cid:179)NSP(cid:17)(cid:180)(cid:3)(cid:3)(cid:51)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:76)(cid:70)(cid:3)(cid:54)ecurities and Exchange Commission (cid:11)(cid:179)(cid:54)(cid:40)(cid:38)(cid:180)(cid:12)(cid:3)
filings, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, 
and if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities 
Exchange Act of 1934 are available through our website free of charge as soon as reasonably practicable after such 
material is electronically filed with, or furnished to, the SEC. 

Our Workforce Optimization solution is designed to improve the productivity and profitability of small and 
medium-sized businesses.   It relieves business owners and key executives of many employer-related administrative 

- 2 - 

 
 
 
 
 
 
 
 
 
 
and regulatory burdens, which enables them to focus on the core competencies of their businesses.  It also promotes 
employee performance through human resources management techniques designed to improve employee 
satisfaction.  We provide our Workforce Optimization solution by entering into a Client Service Agreement 
(cid:11)(cid:179)(cid:38)(cid:54)(cid:36)(cid:180)(cid:12)(cid:15) which establishes a three-party relationship whereby we and our client act as co-employers of the 
(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3)(cid:90)(cid:75)(cid:82)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:90)(cid:82)(cid:85)(cid:78)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:56)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:54)(cid:36)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)
personnel administration and compliance with most employment-related governmental regulations, while the client 
(cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:182)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:83)(cid:88)(cid:85)(cid:83)(cid:82)(cid:86)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)We charge a 
(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:73)(cid:72)(cid:72)(cid:3)(cid:11)(cid:179)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:73)(cid:72)(cid:72)(cid:180)(cid:3)(cid:82)(cid:85)(cid:3)(cid:179)(cid:74)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:180)(cid:12), which is invoiced concurrently with the 
processing of payroll for the worksite employees of the client.  The comprehensive service fee consists of the payroll 
of our worksite employees and a markup computed as a percentage of the payroll cost of the worksite employees. 

We accomplish the objectives of our Workforce Optimization solution through a (cid:179)high-touch/high-tech(cid:180) 

approach to service delivery.   In advisory areas, such as recruiting, employee performance management and 
employee training, we employ a high-touch approach designed to ensure that our clients receive the personal 
attention and expertise needed to create a customized human resources solution.  For transactional processing, we 
employ a high-tech approach that provides secure, convenient information exchange among Insperity, our clients 
and our worksite employees, creating efficiencies for all parties.  The primary component of the high-tech portion of 
our strategy is the Employee Service CenterSM (cid:11)(cid:179)(cid:40)(cid:54)(cid:38)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:40)(cid:54)(cid:38)(cid:3)(cid:76)(cid:86)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:90)eb-based interactive Workforce 
Optimization solution delivery platform, which is designed to provide automated, personalized Workforce 
Optimization solutions to our clients and worksite employees.  

As of December 31, 2012, we had 48 Workforce Optimization sales offices in 25 markets.  In addition, we 

had four regional service centers along with human resources and client service personnel located in a majority of 
our 25 sales markets, which serviced an average of 129,345 worksite employees per month in the fourth quarter of 
2012.  Our service centers coordinate Workforce Optimization solutions for clients on a regional basis and localized 
face-to-face human resources services. 

PEO Industry 

The PEO industry began to evolve in the early 1980s largely in response to the burdens placed on small and 

medium-sized employers by an increasingly complex legal and regulatory environment.  While various service 
providers were available to assist these businesses with specific tasks, PEOs emerged as providers of a more 
comprehensive range of services relating to the employer/employee relationship.  In a PEO arrangement, the PEO 
assumes certain aspects of the employer/employee relationship as defined in the contract between the PEO and its 
client.  Because PEOs provide employer-related services to a large number of employees, they can achieve 
economies of scale that allow them to perform employment-related functions more efficiently, provide a greater 
variety of employee benefits, and devote more attention to human resources management than a client can 
individually. 

We believe the key factors driving demand for PEO services include: 

(cid:120) 

(cid:120) 
(cid:120) 

the focus on growth and productivity of the small and medium-sized business community in the United 
States, utilizing outsourcing to concentrate on core competencies  
the need to provide competitive health care and related benefits to attract and retain employees 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:15)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:3)
safety programs, employee-related complaints and litigation 

(cid:120)  complex regulation of employment issues and the related costs of compliance, including the allocation of 

time and effort to such functions by owners and key executives 

A significant factor in the development of the PEO industry has been increasing recognition and acceptance 

of PEOs and the co-employer relationship by federal and state governmental authorities.  Insperity and other 
(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:49)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:36)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:51)(cid:85)(cid:82)(cid:73)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:40)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:3)(cid:50)(cid:85)(cid:74)(cid:68)(cid:81)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:11)(cid:179)(cid:49)(cid:36)(cid:51)(cid:40)(cid:50)(cid:180)(cid:12)(cid:15)(cid:3)
have worked with the relevant governmental entities for the establishment of a regulatory framework that protects 
clients and employees, discourages unscrupulous and financially unsound companies, and promotes further 
development of the industry.  Currently, 41 states have enacted legislation either recognizing PEOs or requiring 
licensing, registration, or certification, and several others are considering such regulation.  Such laws vary from state 

- 3 - 

 
 
 
 
 
 
 
 
 
to state but generally provide for monitoring the fiscal responsibility of PEOs.  State regulation assists in screening 
insufficiently capitalized PEO operations and helps to resolve interpretive issues concerning employee status for 
specific purposes under applicable state law.  We have actively supported such regulatory efforts and are currently 
recognized, licensed, registered, certified or pursuing registration in all 41 of these states.  The cost of compliance 
with these regulations is not material to our financial position or results of operations.  

Service Offerings 

Workforce OptimizationTM Solution 

We serve small and medium-sized businesses by providing our Workforce Optimization solution, which 

encompasses a broad range of services, including the following as of December 31, 2012:  

(cid:120)  benefits and payroll administration 
(cid:120)  (cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)on insurance programs 
(cid:120)  personnel records management 
(cid:120)  employer liability management 
(cid:120)  employee recruiting and selection 
(cid:120)  employee performance management 
(cid:120) 
training and development services 

Our Workforce Optimization solution is designed to attract and retain high-quality employees, while 
relieving client owners and key executives of many employer-related administrative and regulatory burdens.  
Among the employment-related laws and regulations that may affect a client are the following: 

(cid:120) 
(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:38)(cid:82)(cid:71)(cid:72)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:82)(cid:71)(cid:72)(cid:180)(cid:12) 
(cid:120)  Federal Income Contribution Act (FICA) 
(cid:120)  Federal Unemployment Tax Act (FUTA) 
(cid:120)  Fair Labor Standards Act (FLSA)* 
(cid:120)  Employee Retirement Income Security Act, 

as amended (ERISA) 

(cid:120)  Consolidated Omnibus Budget Reconcilia- 

(cid:120) 

tion Act of 1985 (COBRA)* 
Immigration Reform and Control Act 
(IRCA) 

(cid:120)  Title VII (Civil Rights Act of 1964)* 
(cid:120)  Americans with Disabilities Act (ADA)* 
(cid:120)  Age Discrimination in Employment Act 

(ADEA)* 

(cid:120)  Patient Protection and Affordable Care Act (PPACA) 
(cid:120)  Genetic Information Nondiscrimination Act of 2008 

* And similar state laws 

(cid:120)  The Family and Medical Leave Act (FMLA)* 
(cid:120)  Health Insurance Portability and 
  Accountability Act (HIPAA) 
(cid:120)  Drug-Free Workplace Act* 
(cid:120)  Occupational Safety and Health Act 

(OSHA)* 

(cid:120)  Worker Adjustment and Retraining 
  Notification Act (WARN)* 
(cid:120)  Uniformed Services Employment and 
  Reemployment Rights Act (USERRA) 
(cid:120)  State unemployment and employment 

security laws 

(cid:120)  S(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86) 
(cid:120)  Health Care and Education Reconciliation 
  Act of 2010 (cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:53)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:36)(cid:70)(cid:87)(cid:180)(cid:12) 

While these regulations are complex, and in some instances overlapping, we assist our clients in achieving 

compliance with these regulations by providing services in four primary categories:  

(cid:120)  administrative functions 
(cid:120)  benefit plans administration 
(cid:120)  personnel management  
(cid:120)  employer liability management 

All of the following services are included in our Workforce Optimization solution and are available to all 

clients: 

- 4 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Administrative Functions.  Administrative functions encompass a wide variety of processing and 

recordkeeping tasks, mostly related to payroll administration and government compliance.  Specific examples 
include:  

(cid:120)  payroll processing 
(cid:120)  payroll tax deposits 
(cid:120)  quarterly payroll tax reporting 
(cid:120)  employee file maintenance 
(cid:120)  unemployment claims processing 
(cid:120)  (cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74) 

Benefit Plans Administration.  We maintain several benefit plans including the following:  

(cid:120)  a group health plan 
(cid:120)  a health savings account program 
(cid:120)  a health care flexible spending account plan 
(cid:120)  an educational assistance plan 
(cid:120)  an adoption assistance plan 
(cid:120)  group term life insurance 
(cid:120)  group universal life insurance 
(cid:120)  accidental death and dismemberment insurance 
(cid:120)  short-term and long-term disability insurance 
(cid:120)  a 401(k) retirement plan 
(cid:120)  cafeteria plans for group health and health savings account contributions 

The group health plan includes medical, dental, vision and prescription drug coverage, as well as a worklife 

program. All benefit plans are provided to eligible employees based on the specific eligibility provisions of each 
plan.  We are the policyholder responsible for the costs and premiums associated with any group insurance policies 
that provide benefits under these plans, and we act as plan sponsor and administrator of the plans.  We negotiate the 
terms and costs of the plans, maintain the plans in accordance with applicable federal and state regulations and serve 
as liaison for the delivery of such benefits to worksite employees.  COBRA coverage is extended to eligible 
terminated worksite and corporate employees and other eligible individuals, in accordance with applicable law. We 
believe that the variety and comprehensive nature of our benefit plan offerings are generally not available to 
employees in our small and medium-sized business target market and are usually offered only by larger companies 
that can spread program costs over a much larger group of employees.  As a result, we believe the availability of 
these benefit plans provides our clients with a competitive advantage that small and medium-sized businesses are 
typically unable to attain on their own. 

Personnel Management.  We provide a wide variety of personnel management services that give our clients 

access to resources normally found only in the human resources departments of large companies. All clients have 
access to our comprehensive personnel guide, which sets forth a systematic approach to administering personnel 
policies and practices, including recruiting, discipline and termination procedures.  Other human resources services 
we provide include:  

(cid:120)  drafting and reviewing personnel policies and employee handbooks 
(cid:120)  designing job descriptions 
(cid:120)  performing prospective employee screening and background investigations 
(cid:120)  designing performance appraisal processes and forms 
(cid:120)  professional development and issues-oriented training 
(cid:120)  employee counseling 
(cid:120)  substance abuse awareness training 
(cid:120)  outplacement services 
(cid:120)  compensation guidance 

- 5 - 

 
 
 
 
 
 
 
 
 
Employer Liability Management.  Under the CSA, we assume many of the employment-related 

responsibilities associated with the administrative functions, benefit plans administration and personnel management 
services we provide.  For many of those employment-related responsibilities that are the responsibility of the client 
or that we share with our clients, we may assist our clients in managing and limiting exposure.  This includes first-
time and ongoing safety-related risk management reviews, as well as the implementation of safety programs 
designed to reduce workplace accidents and consequently, (cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:17)(cid:3)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)
guidance to clients for avoiding discrimination, sexual harassment and civil rights violations, and participate in 
termination decisions to attempt to minimize liability on those grounds.  While we do not provide legal services to 
our clients, we employ in-house and external counsel, specializing in several areas of employment law, who have 
broad experience in disputes concerning the employer/employee relationship and who provide support to our human 
resources service specialists.  As part of our comprehensive service, we also maintain employment practice liability 
insurance coverage for ourselves and our clients, monitor changing government regulations and notify clients of the 
potential effect of such changes on employer liability. 

Employee Service CenterSM.  The ESC is our web-based interactive Workforce Optimization solution 
delivery platform, which is designed to provide automated, personalized Workforce Optimization content and 
services to our clients and worksite employees.  The ESC provides a wide range of functionality, including: 

(cid:120)  WebPayrollSM for the submission, approval and reporting of payroll data 
(cid:120) 
(cid:120) 
(cid:120) 

client-specific payroll information and reports 
employee information, including online check stubs and pay history reports 
employee on-boarding including payroll enrollment, policy acknowledgements and employment 
verification 
employee benefits enrollment and changes 
employee-specific benefits content, including summary plan descriptions and enrollment status 
access to 401(k) plan information through the Retirement Service CenterSM powered by InsperityTM 
self-service and customizable access to data and reports through an interactive reporting environment 
online human resources forms 
best practices human resources management process maps and process overviews 
online personnel guide 
e-Learning web-based training 
online recruiting services 
links to benefits providers and other key vendors 
frequently asked questions 

(cid:120) 
(cid:120) 
(cid:120) 
(cid:120) 
(cid:120) 
(cid:120) 
(cid:120) 
(cid:120) 
(cid:120) 
(cid:120) 
(cid:120) 

MarketPlaceSM provided by InsperityTM.  Through our many alliances with best-of-class providers, 

Insperity(cid:182)(cid:86)(cid:3)(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:51)(cid:79)(cid:68)(cid:70)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:38)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:72)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:68)(cid:79)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:69)(cid:85)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:68)(cid:3)(cid:90)(cid:76)(cid:71)(cid:72)(cid:3)(cid:85)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)s and services to our clients, 
worksite employees and their families.  Through MarketPlace, our clients also have the opportunity to offer their 
products and services to other clients and worksite employees. 

MidMarket SolutionsTM.  We believe the mid-market sector, which we define as those companies with 

employees ranging from 150 to 2,000 worksite employees, has historically been under-served by the PEO industry.  
Currently, we have a dedicated sales management and consulting staff who concentrate solely on the mid-market 
sector.  In addition, we have service personnel who have been trained and specialize in the mid-market sector.  The 
mid-market sector, which represented approximately 17% of our total paid worksite employees during 2012, 
increased 25% over 2011. 

Adjacent Business Unit Offerings 

In 2010, we initiated (cid:68)(cid:81)(cid:3)(cid:36)(cid:71)(cid:77)(cid:68)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:3)(cid:11)(cid:179)(cid:36)(cid:37)(cid:56)(cid:180)(cid:12)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:92)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:86)(cid:72)(cid:72)(cid:78)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)type and 

number of business performance improvement services available to our current and prospective client base and to 
provide the ability to offer these products and services outside of our Workforce Optimization solution.  We also 
intend to leverage the existing customer relationships of the ABUs to cross sell our Workforce Optimization solution 
and various ABU services.  Execution of this ABU strategy has included the acquisition of certain human resources 

- 6 - 

 
 
 
 
 
 
 
 
 
technology companies that provide services through a SaaS delivery model.  During both 2012 and 2011, total ABU 
revenues unrelated to our Workforce Optimization solution were 1.2% of our total revenues and 4.3% of our gross 
profit.  The following are the key components of our ABU services: 

Human Capital Management.  Insperity Human Capital ManagementTM is a comprehensive solution for 
human resources data and processes.  This SaaS solution is a unified human resources suite that includes payroll 
processing, tax compliance, employee administration, benefits management and enrollment, reporting and analytics, 
as well as employee and manager self-service.  The solution is offered as a stand-alone SaaS solution or in 
conjunction with our Payroll Services offering and/or our Time and Attendance products.  We initially launched this 
product late in 2012. 

Payroll Services.  In 2012, we announced the launch of InsperityTM Payroll Services.  This robust SaaS 

payroll solution is designed to help alleviate administrative burdens associated with payroll processing and 
government-related compliance and provides the premium level support of our highly skilled service team.  We 
offer a seamless integration with three new offerings, including Insperity NetSaver TM, an online 401(k) solution for 
small businesses; a pay-as-you-(cid:74)(cid:82)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:43)(cid:53)(cid:3)(cid:40)(cid:86)(cid:86)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:86)(cid:15)(cid:3)(cid:68)(cid:3)(cid:73)(cid:88)(cid:79)(cid:79)(cid:92)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:43)(cid:53)(cid:3)
platform that assists companies with tracking employee data, important milestones and company property. 

Time and Attendance.  Our Time and Attendance business unit provides small to medium-sized businesses, 

including Workforce Optimization clients, with software, hardware and services to track, allocate, and analyze 
employee resources (cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:76)(cid:81)(cid:83)(cid:88)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:83)(cid:68)(cid:92)(cid:85)(cid:82)(cid:79)(cid:79)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:86).  The service is 
delivered as a SaaS solution or as an (cid:179)(cid:82)(cid:81)-(cid:83)(cid:85)(cid:72)(cid:80)(cid:76)(cid:86)(cid:72)(cid:180)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)-server solution.  Custom interfaces exist between our Time 
and Attendance products and our Workforce Optimization technologies for those customers utilizing both services. 

Performance Management.  Our Performance Management business provides human resources software 

offerings including a suite of desktop products:  InsperityTM Descriptions Now®, InsperityTM Policies Now®, 
InsperityTM Performance Now®, and InsperityTM Ultimate Employer®; along with a SaaS offering for Performance 
Management and InsperityTM PerformSmartTM.  Insperity PerformSmart has been integrated into our Workforce 
Optimization solution and we will continue to sell to both Workforce Optimization and non-Workforce 
Optimization small business customers through online subscription arrangements, packaged software ordered online, 
and through various reseller arrangements.   

Organizational Planning.  In January 2011, we entered the organizational planning and analysis solution 

business with our acquisition of certain assets from HumanConcepts associated with the OrgPlusTM desktop product 
lines for small and medium-sized businesses and a source code license for a SaaS based version.  In December 2012 
we launched the SaaS product derived from this source code, OrgPlusTM RealtimeTM.  Organizational planning 
facilitates the creation, management and communication of detailed organizational management charts. 

Recruiting Services.  Our Recruiting Services business unit offers direct hire placement on an as-needed 

basis and provides outsourced support for individual requisitions or large-scale hiring projects.  In addition, we 
provide consulting services to assist in the creation and maintenance of consistent hiring practices and retention 
strategies.  We also provide compensation services, behavior-based interview training and talent assessment.  These 
services are provided to both Workforce Optimization customers and non-Workforce Optimization customers. 

Employment Screening.  Our Employment Screening business unit offers a customized approach to 
background-check reporting for companies, including our Workforce Optimization clients. Services include criminal 
records checks; verification of employment history or education; driving record, civil record and credit history 
checks; and confirmation of extraordinary credentials. 

Financial Services.  In 2012, we announced the launch of InsperityTM Financial Services.  This suite of 
financial management tools and solutions for small to medium-sized companies provides business owners with 
financial intelligence and an alternative source for capital to help drive business performance. The core products and 
services include Insperity RevealTM, a Web-based financial dashboard and toolset; an outsourced, online 
bookkeeping and controller service offered through an alliance with a third party; and an online receivables 
marketplace, also provided through an alliance with a third party. 

- 7 - 

 
 
 
 
 
 
 
 
 
 
 
Expense Management.  Our Expense Management business unit delivers employee expense management 
solutions that automate employee expense reporting, enforce travel and expense policies, and provide management 
reporting and analysis.  The service is delivered both as a SaaS solution and as a desktop software product.  

Retirement Services.  Our Retirement Services business unit delivers comprehensive 401(k) plan 

recordkeeping and administrative services to small and medium-sized businesses, primarily to our Workforce 
Optimization clients. Services include employee education and enrollment, participant communications, elective  
deferral withholding and transmission, matching contribution calculation, loan and distribution processing, 
regulatory filing preparation and nondiscrimination testing. 

Insurance Services.  Our Insurance Services business unit, through alliances with selected third-party 

insurance carriers, allows small businesses to secure affordable, customizable business insurance packages. 

Client Service Agreement 

All Workforce Optimization clients execute an Insperity CSA.  The CSA generally provides for an ongoing 
relationship between Insperity and the Workforce Optimization client.  The CSA generally is subject to termination 
by Insperity or the client upon 30 days written notice or upon shorter notice in the event of default.  The CSA 
establishes our comprehensive service fee, which is subject to periodic adjustments to account for changes in the 
(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:73)(cid:82)(cid:85)(cid:70)(cid:72)(cid:15)(cid:3)(cid:72)(cid:80)(cid:83)loyee benefit election changes and statutory changes that affect our costs.  
Under the provisions of the CSA, clients active in January of any year are obligated to pay the estimated payroll tax 
component of the comprehensive service fee in a manner that reflects the pattern of incurred payroll tax costs.  This 
(cid:83)(cid:85)(cid:68)(cid:70)(cid:87)(cid:76)(cid:70)(cid:72)(cid:3)(cid:68)(cid:79)(cid:76)(cid:74)(cid:81)(cid:86)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:182)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)Insperity for payroll taxes with Insperity(cid:182)(cid:86)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:68)(cid:78)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)
authorities, which are higher in the earlier part of the year, and decrease as limits on wages subject to payroll tax, are 
reached.  New clients enrolling subsequent to January of any year are invoiced at a relatively constant rate 
throughout the remaining portion of the year, resulting in Insperity(cid:182)(cid:86)(cid:3)improving profitability over the course of the 
year for those clients because of the typical pattern of incurred payroll tax costs.   

The CSA also establishes the division of responsibilities between Insperity and the client as co-employers.  

Pursuant to the CSA, we are responsible for personnel administration and are liable for compliance with certain 
employment-related government regulations.  In addition, we assume liability for payment of salaries and wages (as 
well as related payroll taxes) of our worksite employees and responsibility for providing specified employee benefits 
to such persons.  These liabilities are not contingent on the prepayment by the client of the associated 
comprehensive service fee and, as a result of our employment relationship with each of our worksite employees, we 
are liable for payment of salary and wages to the worksite employees as reported by the client and are responsible 
for providing specified employee benefits to such persons, regardless of whether the client pays the associated 
comprehensive service fee.  The (cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:182)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)complying with certain 
government regulations that require control of the worksite or daily supervisory responsibility or is otherwise 
beyond our ability to assume.  A third group of responsibilities and liabilities are shared by Insperity and the client 
where such joint responsibility is appropriate.  The specific division of applicable responsibilities under the majority 
of CSAs are as follows: 

Insperity 

(cid:120)  Payment of wages and salaries as reported by the client and related tax reporting and remittance (local, state and 

federal withholding, FICA, FUTA, state unemployment) 

(cid:120)  (cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74) 
(cid:120)  Compliance with the Code, COBRA, HIPAA and ERISA (for each employee benefit plan sponsored solely by 
Insperity), as well as monitoring changes in other governmental regulations governing the employer/employee 
relationship and updating the client when necessary 

(cid:120)  Employee benefits administration of plans sponsored solely by Insperity 

Client 

(cid:120)  Payment, through Insperity, of commissions, bonuses, vacations, paid time off, sick pay, paid leaves of absence 

and severance payments 

- 8 - 

 
 
 
 
 
 
 
 
 
 
 
(cid:120)  Payment  and  related  tax  reporting  and  remittance  of  non-qualified  deferred  compensation  and  equity-based 

compensation 

(cid:120)  Ownership and protection of all client intellectual property rights 
(cid:120)  Compliance  with  OSHA  regulations,  EPA  regulations,  FLSA,  FMLA,  WARN,  USERRA  and  state  and  local 

equivalents and compliance with government contracting provisions 

(cid:120)  Compliance  with  state  and  local  pay  or  play  health  care  mandates  and  all  such  other  similar  state  and  local 

legislation 

(cid:120)  (cid:38)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:49)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:47)(cid:68)(cid:69)(cid:82)(cid:85)(cid:3) (cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:36)(cid:70)(cid:87)(cid:3) (cid:11)(cid:179)(cid:49)(cid:47)(cid:53)(cid:36)(cid:180)(cid:12)(cid:15)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:79)(cid:79)(cid:3) (cid:82)(cid:85)(cid:74)(cid:68)(cid:81)(cid:76)(cid:93)(cid:76)(cid:81)(cid:74)(cid:3) (cid:72)(cid:73)(cid:73)(cid:82)(cid:85)(cid:87)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3)

related to a collective bargaining agreement and related benefits 

(cid:120)  Professional licensing requirements, fidelity bonding and professional liability insurance 
(cid:120)  Products produced and/or services provided 
(cid:120)  COBRA, HIPAA and ERISA compliance for client-sponsored benefit plans 

Joint 

Implementation of policies and practices relating to the employee/employer relationship 

(cid:120) 
(cid:120)  Compliance with all federal, state and local employment laws, including, but not limited to Title VII of the Civil 
Rights  Act  of  1964,  ADEA,  Title  I of  ADA,  the  Consumer  Credit  Protection  Act,  and  immigration  laws  and 
regulations 

We maintain employment practice liability insurance coverages (including coverages for our clients) to 
manage our exposure for various employee-related claims, and as a result, our incurred costs with respect to this 
exposure have historically been insignificant to our operating results. 

Because we are a co-employer with the client for some purposes, it is possible that we could incur liability 

for violations of such laws, even if we are not responsible for the conduct giving rise to such liability.  The CSA 
addresses this issue by providing that the client will indemnify us for liability incurred to the extent the liability is 
attributable to conduct by the client.  Notwithstanding this contractual right to indemnification, it is possible that we 
could be unable to collect on a claim for indemnification and may therefore be ultimately responsible for satisfying 
the liability in question.  

In most instances, clients are required to remit their comprehensive service fees no later than one day prior 
to the applicable payroll date by wire transfer or automated clearinghouse transaction.  Although we are ultimately 
liable, as the employer for payroll purposes, to pay employees for work previously performed, we retain the ability 
to terminate immediately the CSA and associated worksite employees or to require prepayment, letters of credit or 
(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:79)(cid:79)(cid:68)(cid:87)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:76)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:81)(cid:82)(cid:81)-payment by a client.  These rights, 
the periodic nature of payroll, and the overall quality of our client base have resulted in an excellent overall 
collections history.   

Workforce Optimization Clients 

Insperity(cid:182)(cid:86)(cid:3)Workforce Optimization solution provides a value-added, full-service human resources solution 

we believe is most suitable to a specific segment of the small and medium-sized business community.  We target 
successful businesses with 10 to 2,000 employees that recognize the advantage in the strategic use of high-
performance human resources practices.  We refer to clients with 150 to 2,000 employees as mid-market clients.  
These clients, which represented approximately 17% of our total client base as of December 31, 2012, are sold and 
serviced by sales and service personnel who specialize in the mid-market sector.  We have set a long-term goal to 
serve approximately 10% of the overall small and medium-sized business community.  We serve clients and 
worksite employees located throughout the United States.  By region, our 2012 revenue change compared to 2011 
and revenue distribution for the year ended December 31, 2012, was as follows: 

- 9 - 

 
 
 
 
 
 
 
 
 
 
 
Revenue Change  % of Total Revenues 

Northeast.........................................................  
Southeast.........................................................  
Central ............................................................  
Southwest .......................................................  
West ................................................................  

9.2% 
3.1% 
10.6% 
6.0% 
16.1% 

26.3% 
9.3% 
14.7% 
28.0% 
21.7% 

As part of our client selection strategy, we generally do not offer our Workforce Optimization solution to 

businesses falling within certain specified NAICS (North American Industry Classification System) codes, 
attempting to minimize our exposure to certain industries which we believe present a higher employer risk such as 
employee injury, high turnover or litigation.  All prospective Workforce Optimization clients are evaluated 
(cid:76)(cid:81)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:15)(cid:3)(cid:74)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:80)(cid:72)(cid:71)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:75)(cid:76)(cid:86)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:11)(cid:90)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:79)(cid:68)(cid:90)(cid:12)(cid:15)(cid:3)
unemployment history, operating stability and human resources practices.   

Our client base is broadly distributed throughout a wide variety of industries including: 

Industry 

% of Client Base 

Computer and information services 
Finance, insurance and real estate 
Management, administration and consulting services 
Wholesale trade 
Manufacturing 
Medical services 
Retail trade 
Not-for-profit and similar organizations 
Engineering, accounting and legal services 
Construction 
Other 

26% 
15% 
14% 
8% 
7% 
7% 
5% 
5% 
4% 
4% 
5% 

This diverse client base lowers our exposure to downturns or volatility in any particular industry.  

However, our performance could be affected by a downturn in one of these industries or by general economic 
conditions within the small and medium-sized business community.   

We focus heavily on client retention.  During 2012 and 2011, our retention rate was approximately 81% 

and 82%, respectively. Insperity(cid:182)(cid:86)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:68)(cid:86)(cid:87)(cid:3)(cid:73)(cid:76)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)78% of 
our Workforce Optimization clients remain for more than one year.  The average annual retention rate over the last 
five years was approximately 80%.  Client attrition is attributable to a variety of factors, including: (i) client non-
renewal due to price or service factors; (ii) client business failure, sale, merger, or disposition; (iii) our termination 
(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:54)(cid:36)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:81)(cid:82)(cid:81)-compliance or inability to make timely payments; and (iv) competition 
from other PEOs or business services firms. 

- 10 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marketing and Sales 

As of December 31, 2012, we had 48 Workforce Optimization sales offices located in 25 markets.  Our 

sales offices typically consist of six to eight Business Performance Advisors (cid:11)(cid:179)(cid:37)(cid:51)(cid:36)(cid:86)(cid:180)(cid:12), a district sales manager and 
an office administrator.  To take advantage of economic efficiencies, multiple sales offices may share a physical 
location.  Insperity(cid:182)(cid:86)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:81)(cid:87)(cid:85)(cid:92)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:86)(cid:29) 

Market 

Sales Offices 

Initial 
Entry Date 

Houston 
San Antonio 
Austin 
Orlando 
Dallas/Fort Worth 
Atlanta 
Phoenix 
Chicago 
Washington D.C. 
Denver 
Los Angeles 
Charlotte 
St. Louis 
San Francisco 
New York 
Baltimore 
New Jersey 
San Diego 
Boston 
Minneapolis 
Raleigh 
Kansas City 
Columbus 
Nashville 
Philadelphia 

5 
1 
1 
1 
4 
2 
1 
2 
3 
2 
5 
1 
1 
3 
3 
1 
2 
1 
2 
2 
1 
1 
1 
1 
1 

1986 
1989 
1989 
1989 
1993 
1994 
1995 
1995 
1995 
1996 
1997 
1997 
1998 
1998 
1999 
2000 
2000 
2001 
2001 
2002 
2006 
2007 
2010 
2011 
2012 

Our existing and prospective markets are identified using a systematic market evaluation and selection 

process. We continue to evaluate a broad range of factors in the selection process, using a market selection model 
that weights various criteria we believe are reliable predictors of successful penetration based on our experience. 
Among the factors we consider are:  

(cid:120)  market size, in terms of small and medium-sized businesses engaged in selected industries that meet 

our risk profile 

(cid:120)  market receptivity to PEO services, including the regulatory environment and relevant history with 

(cid:120) 
(cid:120) 
(cid:120) 

(cid:120) 

(cid:120) 

other PEO providers 
existing relationships within a given market, such as vendor or client relationships 
expansion cost issues, such as advertising and overhead costs 
direct cost issues that bear on our effectiveness in controlling and managing the cost of our services, 
(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:15)(cid:3)(cid:88)(cid:81)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3)(cid:79)(cid:72)(cid:74)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
other factors  
a comparison of the services we offer to alternatives available to small and medium-sized businesses in 
the relevant market, such as the cost to the target clients of procuring services directly or through other 
PEOs 
long-term strategy issues, such as the general perception of markets and our estimate of the long-term 
revenue growth potential of the market  

- 11 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Each of our expansion markets, beginning with Dallas in 1993, was selected in this manner.   

In 2011, we launched our rebranding initiative whereby Administaff became Insperity; a new brand backed 

by an innovative strategy for meeting th(cid:72)(cid:3)(cid:82)(cid:81)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:81)(cid:72)(cid:72)(cid:71)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:182)(cid:86)(cid:3)(cid:69)(cid:72)(cid:86)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:81)(cid:68)(cid:80)(cid:72)(cid:3)
Insperity is drawn from the linked entrepreneurial goals of inspiration and prosperity, and underscores our ongoing 
vision of helping businesses succeed. 

We develop a mix of national and local advertising media and a placement strategy tailored to each 
individual market.  After selecting a market and developing our marketing mix, but prior to entering the market, we 
engage in an organized media and public relations campaign to prepare the market for our entry and to begin the 
process of generating sales leads.  We market our services through various business promotions and a broad range of 
media outlets, including television, radio, newspapers, periodicals, direct mail and the Internet.  We employ public 
relations firms for most of our markets as well as advertising consultants to coordinate and implement our marketing 
campaigns.  We have developed an inventory of television, radio and newsprint advertisements, which are utilized in 
this effort.   

We continuously seek to develop new marketing approaches and campaigns to capitalize on changes in the 
competitive landscape for our human resources services and to more successfully reach our target market.  We have 
an agreement with the Professional Golf Association Champions Tour to be the title sponsor of the annual Insperity 
ChampionshipTM presented by UnitedHealthcare® professional golf tournament held annually in The Woodlands, 
Texas (a suburb of Houston).  In addition, we have arrangements with Arnold Palmer and Jim Nantz, a sports 
commentator, to serve as our national spokespersons.  Our marketing campaigns use this event and the relationships 
with Mr. Palmer and Mr. Nantz as a focal point of our brand marketing efforts. 

Our organic growth model generates sales leads from five primary sources: direct sales efforts, advertising, 

referrals, marketing alliances and the Internet.  These leads result in initial presentations to prospective Workforce 
Optimization clients, and ultimately, prospective Workforce Optimization client census reports.  A prospective 
Workforce Optimization (cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:70)(cid:72)(cid:81)(cid:86)(cid:88)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:74)(cid:68)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)BPA (cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:182)(cid:86)(cid:3)
(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:77)(cid:82)(cid:69)(cid:3)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)ensation claims history, group medical 
information (where permitted by law), salary and desired level of benefits.  This information is entered into our 
customized bid system, which applies Insperity(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:85)(cid:76)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:80)(cid:82)(cid:71)(cid:72)(cid:79)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:72)(cid:81)(cid:86)(cid:88)(cid:86)(cid:3)(cid:71)(cid:68)(cid:87)(cid:68)(cid:15)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)to the 
(cid:83)(cid:85)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:69)(cid:76)(cid:71)(cid:17)(cid:3)(cid:3)(cid:38)(cid:82)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)
health insurance, employer practices and financial stability from a risk management perspective.  Upon completion 
of a favorable risk evaluation, the BPA presents the bid and attempts to enroll the prospect.  Our selling process 
typically takes approximately 90 days for clients with less than 150 employees, and up to approximately 180 days 
for larger clients. The process can be extended during economic downturns. 

We have implemented cross-selling channels between our Workforce Optimization business and our ABUs 

in order to execute on our ABU strategy.  This strategy focuses on using our Workforce Optimization offering to 
increase market penetration in each of our ABU businesses and using our ABU offering as a source of leads for our 
Workforce Optimization solution.  The cross-selling channels attempt to reduce barriers to selling our products and 
services and results in tailored service packages to better meet the specific needs of the business.   

Competition 

We provide a value-added, full-service human resources solution through our Workforce Optimization 

solution, which we believe is most suitable to a specific segment of the small and medium-sized business 
community.  This full-service approach is exemplified by our commitment to provide a high level of service and 
technology personnel, which (cid:75)(cid:68)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:86)(cid:87)(cid:68)(cid:73)(cid:73)(cid:3)(cid:87)(cid:82)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:86)(cid:87)(cid:68)(cid:73)(cid:73)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:180)(cid:12)(cid:3)
that is higher than average for the PEO industry.  Based on an analysis of the 2009 through 2011 annual NAPEO 
surveys of the PEO industry, we have successfully leveraged our full-service approach into significantly higher 
returns for Insperity on a per worksite employee per month basis.  During the three-year period from 2009 through 
2011, our staff support ratio averaged 56% higher than the PEO industry average.  During the same three-year 
period, our gross profit per worksite employee and operating income per worksite employee exceeded industry 
averages by 142% and 206%, respectively. 

- 12 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Competition in the PEO industry revolves primarily around quality of services, scope of services, choice 

and quality of benefits packages, reputation and price.  We believe reputation, national presence, regulatory 
expertise, financial resources, risk management and information technology capabilities distinguish leading PEOs 
from the rest of the industry.  We also believe we compete favorably in these areas; however, other PEOs may offer 
their PEO services at more competitive prices than we may be able to offer. 

Due to the differing geographic regions and market segments in which most PEOs operate, and the 
relatively low level of market penetration by the industry, we consider our primary competition to be the traditional 
in-house provision of human resources services.  The PEO industry is highly fragmented, and we believe Insperity is 
one of the largest PEO service providers in the United States.  Our largest national competitors include PEO 
divisions of large business services companies such as Automatic Data Processing, Inc. and Paychex, Inc., and other 
PEOs, such as TriNet.  In addition, we compete to some extent with: i) fee-for-service providers such as payroll 
processors and human resources consultants; ii) human resources technology solution companies; and iii) large 
regional PEOs in certain areas of the country.  As Insperity and other large PEO service providers expand nationally, 
we expect that competition may intensify. 

Vendor Relationships 

Insperity provides benefits to its worksite employees under arrangements with a variety of vendors. We 

consider our contracts with UnitedHealthcare (cid:11)(cid:179)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:180)(cid:12) and member insurance companies of ACE American 
(cid:44)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:11)(cid:179)(cid:36)(cid:38)(cid:40)(cid:180)(cid:12) to be the most significant elements of our employee benefits package.  These contracts 
would be the most difficult to replace. 

We provide group health insurance coverage to our worksite employees through a national network of 

carriers including United, UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA 
BlueCross BlueShield of Hawaii, Unity Health Plan and Tufts, all of which provide fully insured policies or service 
contracts.  In October 2012, we successfully negotiated an additional two-year extension of our health insurance 
contract with United.  The health insurance contract with United provides approximately 89% of our health 
insurance coverage and expires on December 31, 2015, subject to cancellation by either party upon 180 days notice. 
For a discussion of our contract with United, which is accounted for using a partially self-funded insurance 
accounting model, (cid:83)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:44)(cid:87)(cid:72)(cid:80)(cid:3)(cid:26)(cid:17)(cid:3)(cid:3)(cid:179)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)
of Operations (cid:177) Critical Accounting Policies and Estimates (cid:177) Benefits Costs.(cid:180)(cid:3) 

(cid:50)(cid:88)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)coverage (cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)ACE Program(cid:180)(cid:12)(cid:3)has been provided through an arrangement 
with ACE since 2007.  The ACE Program is a fully insured policy whereby ACE has the responsibility to pay all 
claims incurred under the policy regardless of whether we satisfy our responsibilities. For additional discussion of 
the ACE Program, which includes terms shifting some of the economic burden to us, please read Item 7. 
(cid:179)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:177) Critical Accounting 
Policies and Estimates (cid:177) Worke(cid:85)(cid:86)(cid:182)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:86).(cid:180)(cid:3) 

Information Technology 

Insperity utilizes a variety of information technology capabilities to provide its human resources services to 

Workforce Optimization clients and worksite employees and for its own administrative and management 
information requirements. 

(cid:44)(cid:81)(cid:86)(cid:83)(cid:72)(cid:85)(cid:76)(cid:87)(cid:92)(cid:182)(cid:86) information management system is a proprietary Workforce Optimization information system 
that utilizes both purchased and internally developed software applications.  This system manages transactions and 
information unique to the Workforce Optimization solution and to Insperity, including: 

(cid:120)  worksite employee enrollment  
(cid:120) 
human resources management 
(cid:120) 
benefits and defined contribution plan administration 
(cid:120) 
payroll processing 
(cid:120) 
client invoicing and collection 

- 13 - 

 
 
 
 
 
 
 
 
 
 
 
(cid:120)  management information and reporting 
(cid:120) 

sales bid calculations 

Central to the system are transaction processing capabilities that allow us to process a high volume of 

payroll, invoice, and bid transactions that meet the specific needs of our clients and prospects.  We administer our 
employee benefits through a proprietary application designed to process employee eligibility and enrollments, 
manage carrier relationships, and maintain a variety of plan offerings.  Our retirement services operations are 
conducted utilizing an industry leading retirement plan administration application in a third-party hosted 
environment.  Aspects of all of these components are delivered to our Workforce Optimization clients and worksite 
employees through the ESC.  We utilize commercially available software for other business functions such as 
finance and accounting, contract and litigation management, sales force activity management and customer 
relationship management.   

Insperity has hosting facilities located at our corporate headquarters in Kingwood, Texas (a suburb of 

Houston), and in Bryan, Texas.  The hosting facilities house the majority of our business applications, 
telecommunications equipment and network equipment.  Each hosting facility houses a mix of primary production 
applications, disaster recovery, replication and back-up applications, and pre-production environments with the 
Bryan facility acting as our primary data center for all mission-critical applications.  Both hosting facilities are 
designed to run all of our critical business applications and have sufficient capacity to handle all of our operations on 
a stand-alone basis, if required.  Periodically, we perform testing to ensure our disaster recovery capabilities remain 
effective and available.  We also utilize additional leased hosting facilities for certain of our business units. 

Our network infrastructure ensures appropriate connectivity exists among all of our facilities and 

employees and provides appropriate Internet connectivity to conduct business with our clients and worksite 
employees.  The network infrastructure is provided through industry standard core network hardware and via high-
speed network services provided by multiple vendors. 

We have incorporated a variety of measures to maintain the security and privacy of the information 
managed through our systems and applications.  These measures include industry standard technologies designed to 
protect, monitor and assess the network environment; best practice security policies and procedures; and standard 
access controls designed to control access to sensitive and private information. 

Industry Regulations 

Insperity(cid:182)(cid:86)(cid:3)Workforce Optimization operations are affected by numerous federal and state laws relating to 
tax, insurance and employment matters.  By entering into a co-employer relationship with our worksite employees, 
we assume certain obligations and responsibilities of an employer under these federal and state laws.  Because many 
of these federal and state laws were enacted prior to the development of nontraditional employment relationships, 
such as PEOs, temporary employment and outsourcing arrangements, many of these laws do not specifically address 
the obligations and responsibilities of nontraditional employers.  Currently, 41 states have passed laws that 
recognize PEOs or require licensing, registration or certification requirements for PEOs, and several others are 
considering such regulation. 

As an employer, we are subject to federal statutes and regulations governing the employer/employee 

relationship.  Subject to the issues discussed below, we believe that our operations are in compliance, in all material 
respects, with all applicable federal statutes and regulations. 

Employee Benefit Plans 

We offer various employee benefits plans to eligible employees, including our worksite employees.  These 

plans include: 

(cid:120) 
(cid:120) 
(cid:120) 

a 401(k) retirement plan  
cafeteria plans under Code Section 125 for group health and health savings account contributions 
a group health plan, which includes medical, dental, vision and prescription drug coverage, as well as a 
worklife program  

- 14 - 

 
 
 
 
 
 
 
 
 
 
 
 
(cid:120) 
(cid:120) 

(cid:120) 
(cid:120) 
(cid:120) 

a health savings account program 
a welfare benefits plan, which includes life, disability and accidental death and dismemberment 
coverage 
a health care flexible spending account plan 
an educational assistance program 
an adoption assistance program 

Generally, employee benefit plans are subject to provisions of the Code, ERISA and COBRA. 

Employer Status.  In order to qualify for favorable tax treatment under the Code, employee benefit plans 

must be established and maintained by an employer for the exclusive benefit of its employees.  Generally, an entity 
(cid:76)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:179)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:180)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:73)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)ment tax purposes if an employment relationship exists between 
the entity and the individuals under the common law test of employment.  In addition, the officers of a corporation 
are deemed to be employees of that corporation for federal employment tax purposes.  The common law test of 
employment, as applied by the IRS, involves an examination of approximately 20 factors to ascertain whether an 
employment relationship exists between a worker and a purported employer.  Generally, the test is applied to 
determine whether an individual is an independent contractor or an employee for federal employment tax purposes 
(cid:68)(cid:81)(cid:71)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:82)(cid:85)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:179)(cid:70)(cid:82)-(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:17)(cid:180)(cid:3)(cid:3)(cid:54)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:90)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:92)(cid:83)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)
given to the question of whether the purported employer has the right to direct and control the details of an 
(cid:76)(cid:81)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:182)(cid:86)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:17)(cid:3)(cid:3)(cid:36)(cid:80)(cid:82)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:83)(cid:83)(cid:72)(cid:68)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:82)(cid:85)(cid:87)(cid:68)(cid:81)(cid:87)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:53)(cid:54)(cid:3)(cid:68)(cid:85)(cid:72)(cid:29)(cid:3) 

(cid:120) 

(cid:120) 
(cid:120) 

(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:71)(cid:72)(cid:74)(cid:85)(cid:72)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:69)(cid:72)(cid:75)(cid:68)(cid:89)(cid:76)(cid:82)(cid:85)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:87)(cid:85)(cid:68)ining and the nature of the 
work) 
the financial control or the economic aspects of the relationship 
the intended relationship of the parties (whether employee benefits are provided, whether any contracts 
exist, whether services are ongoing or for a project, whether there are any penalties for 
discharge/termination, and the frequency of the business activity) 

ERISA Requirements.  Employee pension and welfare benefit plans are also governed by ERISA.  ERISA 
(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:72)(cid:86)(cid:3)(cid:179)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:180)(cid:3)(cid:68)(cid:86)(cid:3)(cid:179)(cid:68)(cid:81)(cid:92)(cid:3)(cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:79)(cid:92)(cid:3)as an employer, or indirectly in the interest of an employer, in 
(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:17)(cid:180)(cid:3)(cid:3)(cid:40)(cid:53)(cid:44)(cid:54)(cid:36)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:179)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:180)(cid:3)(cid:68)(cid:86)(cid:3)(cid:179)(cid:68)(cid:81)(cid:92)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:68)(cid:81)(cid:3)
(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:17)(cid:180)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:54)(cid:88)(cid:83)(cid:85)(cid:72)(cid:80)(cid:72)(cid:3)(cid:38)(cid:82)(cid:88)(cid:85)(cid:87)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:75)(cid:72)(cid:79)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:79)(cid:68)(cid:90)(cid:3)(cid:87)(cid:72)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:80)ployment must be applied to 
determine whether an individual is an employee or an independent contractor under ERISA.  A definitive judicial 
(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:72)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:179)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:72)(cid:91)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:51)(cid:40)(cid:50)(cid:3)(cid:82)(cid:85)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:85)(cid:85)(cid:68)(cid:81)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:17) 

If Insperity were found not to be an employer with respect to worksite employees for ERISA purposes, its 
plans would not comply with ERISA.  Further, as a result of such finding, Insperity and its plans would not enjoy, 
with respect to worksite employees, the preemption of state laws provided by ERISA and could be subject to 
varying state laws and regulations, as well as to claims based upon state common laws.  Even if such a finding were 
made, we believe we would not be materially adversely affected because we could continue to make available 
similar benefits at comparable costs. 

In addition to ERISA and the Code provisions discussed herein, issues related to the relationship between 

Insperity and its worksite employees may also arise under other federal laws, including other federal income tax 
laws. 

Patient Protection and Affordable Care Act.  The PPACA was signed into law on March 23, 2010.  The 

PPACA was subsequently amended on March 30, 2010, by the Reconciliation Act.  The PPACA and the 
Reconciliation Act (cid:11)(cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:36)(cid:70)(cid:87)(cid:180)(cid:12)(cid:3)(cid:72)(cid:81)(cid:87)(cid:68)(cid:76)(cid:79)(cid:3)(cid:86)(cid:90)(cid:72)(cid:72)(cid:83)(cid:76)(cid:81)(cid:74)(cid:3)(cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:70)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:73)(cid:82)(cid:85)(cid:80)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:86)(cid:87)(cid:68)(cid:74)(cid:74)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)
2010 through 2018, and many provisions in the Act require the issuance of additional guidance from the U.S. 
Department of Labor, the Internal Revenue Service (cid:11)(cid:179)(cid:44)(cid:53)(cid:54)(cid:180)(cid:12), the U.S. Department of Health & Human Services and 
the states.  Many provisions of the Act do not become operative until future years.  The Act did not have a material 
adverse impact on our results of operations in 2012.   

- 15 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
The number and complex nature of federal and state regulations relating to employer-sponsored health 

plans has continued to increase over time.  The Act has already generated many new regulations, and is expected to 
generate many more as various provisions take effect.  We believe that additional regulatory burdens placed on 
employers can increase the demand for our services because small and medium-sized businesses are especially 
challenged by such governmental regulations due to limited resources and the lack of expertise.  As a co-employer 
in the PEO relationship, we assume or share many of the employer-related responsibilities and assist our clients in 
complying with many employment-related governmental regulations.  Historically, we believe we have successfully 
marketed the compliance component of our service offering and that our compliance-related services have increased 
the value proposition of our service offering.  However, given the length and complexity of the Act, the extended 
time period over which the reforms will be implemented, and the unknown impact of regulatory guidance, much of 
which has not yet been issued, we are unable to determine the ultimate impact the Act will have in future periods on 
the costs we will incur to comply with the Act, our ability to match any resulting increased costs with pricing, our 
ability to attract and retain clients, our business model and our results of operations. 

Beginning in 2010, the Act provided for a small business tax credit for eligible companies offering health 

care coverage to employees.  Based upon information contained in the Congressional Record, which specifically 
references PEOs, we believe that these tax credits are available to our clients that meet the qualification 
requirements.  However, the Act and subsequently issued IRS guidance do not expressly address the issue of 
whether qualifying small business clients of a PEO are entitled to the tax credits.  At this time, we do not believe 
that this issue has had an adverse effect on our operations or our ability to attract and retain clients.  

Beginning in 2011, the Act imposed a number of new mandates on the coverage required to be provided 

under health insurance plans, some of which were already standard in our group health plan.  For mandates not 
already included, we worked with our insurance carriers to incorporate the required changes.  While we are unable 
to determine the impact of the required plan changes at this time, in future periods they may result in increased costs 
to us and could affect our ability to attract and retain clients.  Additionally, contractual arrangements and 
competitive market conditions may limit or delay our ability to increase service fees to offset the associated potential 
increased costs.  

Beginning in 2014, the (cid:36)(cid:70)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:72)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:11)(cid:179)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:180)(cid:12)(cid:3)(cid:87)(cid:82)(cid:3)

make health insurance available to individuals and small employers (initially defined as 100 employees or less).  
States have the option of building a state based exchange, entering into a state-federal partnership exchange or 
accepting the federally-facilitated exchange.  States that accept the federally-facilitated exchange can transition to a 
state based exchange at a later date.  The Exchanges are anticipated to provide consumers with educational services 
and information on available options and offer a variety of health plans.  Small business tax credits and subsidies 
will be available to qualifying businesses and individuals who purchase health insurance through the Exchanges.   

Additionally in 2014, the Act ushers in a number of insurance market reforms for the small group and 

individual markets.  The reforms, intended to result in the community rating of health insurance for these markets, 
require guaranteed issue and renewability of coverage, eliminate certain underwriting practices by issuers, 
consolidate the number of risk pools in each state and restrict the permissible factors and variable ranges of those 
factors that can be considered in determining health insurance premiums. 

(cid:36)(cid:79)(cid:86)(cid:82)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:23)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:76)(cid:80)(cid:83)(cid:82)(cid:86)(cid:72)(cid:86)(cid:3)(cid:179)(cid:83)(cid:68)(cid:92)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:79)(cid:68)(cid:92)(cid:180)(cid:3)(cid:83)(cid:72)(cid:81)(cid:68)(cid:79)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:87)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:87)(cid:3)(cid:24)(cid:19)(cid:3)(cid:73)(cid:88)(cid:79)(cid:79)-time 
(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:12)(cid:3)(cid:90)(cid:75)(cid:82)(cid:3)(cid:73)(cid:68)(cid:76)(cid:79)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:3)(cid:179)(cid:80)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:72)(cid:86)(cid:86)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:180)(cid:3)(cid:76)(cid:73)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:68)(cid:81)(cid:3)
Exchange and receives a subsidy or tax credit for such coverage.  To qualify as minimum essential coverage, 
employer plans must satisfy affordability and minimum value tests or be subject to financial penalties if any 
employee obtains coverage from an Exchange and receives a subsidy or tax credit for such coverage.  Information 
contained in the Congressional Record, which specifically references PEOs, indicates that any pay or play penalties 
should apply separately to clients of a PEO and not at the PEO level.  However, the Act and subsequently issued IRS 
guidance do not expressly address the issue of whether the pay or play penalties apply only at the client level or 
whether the penalties can be applied at the PEO level.  At this time, we are unable to determine whether the 
Exchanges, tax credits, subsidies, insurance market reforms or the pay or play penalties will have an adverse impact 
on our business operations, our ability to attract and retain clients, or our ability to increase service fees to offset any 
increased costs or associate penalties assessed at the PEO level.   

- 16 - 

 
 
 
 
 
 
 
 
 
The health insurance industry will be subject to additional excise taxes beginning in 2014.  In addition, 

starting in 2014 reinsurance taxes will be imposed on insurers and third party administrators for the purpose of 
helping to offset the cost for insurance covering high risk individuals.  As the policy holder, all or a portion of these 
increased costs may be passed on to us by our carriers.  Contractual arrangements and competitive market conditions 
may limit or delay our ability to match pricing with any potential increased costs. 

In 2018, the Act implements rules imposing excise taxes on employers who offer excessive health benefits 

under so-(cid:70)(cid:68)(cid:79)(cid:79)(cid:72)(cid:71)(cid:3)(cid:179)(cid:38)(cid:68)(cid:71)(cid:76)(cid:79)(cid:79)(cid:68)(cid:70)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:17)(cid:180)(cid:3) We anticipate taking appropriate steps to avoid, to the extent necessary and 
possible, incurring any such excise taxes.  At this time, we are unable to determine the effect the excise taxes will 
have on our ability to match pricing with any increased costs. 

401(k) Retirement Plans.  Our 401(k) Retirement Plans are operated pursuant to guidance provided by the 
IRS under Revenue Procedure 2002-21 and Revenue Procedure 2003-86, each of which provides guidance for the 
operation of defined contribution plans maintained by PEOs that benefit worksite employees.  This guidance 
provides qualification standards for PEO plans which, if met, negate the inquiry of common law employer status for 
purposes of the exclusive benefit rule.  All of Insperity(cid:182)(cid:86)(cid:3)(cid:23)(cid:19)(cid:20)(cid:11)(cid:78)(cid:12)(cid:3)(cid:53)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:71)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
letters from the IRS confirming the qualified status of the Plans. 

Employment Taxes 

As a co-employer, Insperity assumes responsibility and liability for the payment of federal and state 

employment taxes with respect to wages and salaries paid to our worksite employees.  There are essentially three 
types of federal employment tax obligations:  

(cid:120)  withholding of income tax requirements governed by Code Section 3401, et seq. 
(cid:120) 
(cid:120) 

obligations under FICA, governed by Code Section 3101, et seq. 
obligations under FUTA, governed by Code Section 3301, et seq.  

Under these Code sections, employers have the obligation to withhold and remit the employer portion and, 

where applicable, the employee portion of these taxes.  

Code Section 3401, which applies to federal income tax withholding requirements, contains an exception to 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:79)(cid:68)(cid:90)(cid:3)(cid:87)(cid:72)(cid:86)(cid:87)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:179)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:83)(cid:88)(cid:85)(cid:83)(cid:82)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)
tax withholding.  Section 3401(d)(1) states that if the person for whom services are rendered does not have control 
(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:68)(cid:74)(cid:72)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:83)(cid:88)(cid:85)(cid:83)(cid:82)(cid:86)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:3)(cid:75)(cid:68)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:68)(cid:74)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)
Treasury regulations issued under Section 3401(d)(1) state that a third party can be deemed to be the employer of 
workers under this section for income tax withholding purposes where the person for whom services are rendered 
does not have legal control of the payment of wages.  While Section 3401(d) (1) has been examined by several 
courts, its ultimate scope has not been delineated.  Moreover, the IRS has to date relied extensively on the common 
law test of employment in determining liability for failure to comply with federal income tax withholding 
requirements. 

Accordingly, while we believe that we can assume the withholding obligations for worksite employees, in 
the event we fail to meet these obligations, the client may be held ultimately liable for those obligations.  While this 
interpretive issue has not to our knowledge discouraged clients from enrolling with Insperity, there can be no 
assurance that a definitive adverse resolution of this issue would not do so in the future.  These interpretive 
uncertainties may also impact our ability to report employment taxes on our own account rather than the accounts of 
our clients. 

Unemployment Taxes 

(cid:58)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:88)(cid:81)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:11)(cid:179)(cid:54)(cid:56)(cid:44)(cid:180)(cid:12)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:68)(cid:91)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:90)(cid:68)(cid:74)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)
each state.  State unemployment tax rates vary by state and are determined, in part, based on Insperity(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:182)(cid:3)
compensation experience in each state.  (cid:38)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:71)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:15)(cid:3)(cid:69)(cid:92)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:82)(cid:90)(cid:81)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
experience.   In addition, states have the ability under law to increase unemployment tax rates, including 
retroactively, to cover deficiencies in the unemployment tax funds.  Due to the adverse U.S. economic conditions 

- 17 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
during recent years and the associated reductions in employment levels, the state unemployment funds have 
experienced a significant increase in the number of unemployment claims.  Accordingly, state unemployment tax 
rates increased substantially over the past few years, but we anticipate certain SUI rates may decline in 2013.  Rate 
notices are typically provided by the states during, or prior to, the first quarter of each year; however, some notices 
are received later.  Until we receive the final tax rate notices, we estimate our expected SUI rate in those particular 
states.   

Employers in certain states are experiencing higher FUTA tax rates as a result of certain states not repaying 

their unemployment loans from the federal government in a timely manner.  We are obligated to pay the federal 
government at a higher rate in these situations.  As such, we estimate the additional tax owed in states that have had 
a history of not repaying their federal loans in a timely manner.   

State Regulation 

While many states do not explicitly regulate PEOs, 41 states have adopted provisions for licensing, 
registration, certification or recognition of PEOs, and several others are considering such regulation.  Such laws vary 
from state to state but generally provide for monitoring the fiscal responsibility of PEOs, and in some cases codify 
and clarify the co-(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:88)(cid:81)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:83)(cid:88)(cid:85)(cid:83)(cid:82)(cid:86)(cid:72)(cid:86)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)
state law.  Insperity is in compliance with the requirements in all 41 states.  Regardless of whether a state has 
licensing, registration or certification requirements for PEOs, we must comply with a number of other state and local 
regulations that could impact our operations.  

Corporate Office Employees 

We had approximately 2,200 corporate employees as of December 31, 2012.  We believe our relations with 

our corporate employees are good.  None of our corporate employees is covered by a collective bargaining 
agreement. 

Intellectual Property 

Insperity currently has registered trademarks, copyrights and other intellectual property.  In connection with 

our rebranding efforts in 2011, we applied for registration of our new trademarks, several of which are currently 
pending. We believe that our trademarks as a whole are of considerable importance to our business.   

- 18 - 

 
 
 
 
 
 
 
 
 
 
  
 
 
 
ITEM 1A.  RISK FACTORS. 

Factors That May Affect Future Results and the Market Price of Common Stock 

Continued Effects of the Economic Recession may Adversely Affect our Industry, Business and Results 

of Operations 

Over the past several years, the United States economy has experienced negative economic conditions and 

a generally uncertain business environment.  Although conditions have moderately improved over the last three 
years, the future economic environment may continue to be less favorable than in years past.  The continued effects 
of the economic recession or a generally uncertain business environment could adversely affect the financial 
condition and levels of business activity of our clients.  Recent economic conditions have had, and may continue to 
have, a corresponding negative impact on our operating results as some of our clients may suffer business failures, 
and others may react to worsening conditions by reducing their employee headcount, lowering their wage and bonus 
levels, lowering their spending on other human resources benefits and services or determining not to outsource those 
services to us.  In addition, economic conditions may impair our ability to attract new clients.  The average number 
of paid worksite employees per month increased 7.5% in 2012 to 125,650 from 116,839 in 2011.  We expect the 
average number of paid worksite employees per month to be in the range of 123,250 to 123,750 in the first quarter 
of 2013.  Negative economic conditions could continue to have a material adverse effect on our future financial 
results.  

We Assume Liability for Worksite Employee Payroll, Payroll Taxes and Benefits Costs and are 

Responsible for their Payment Regardless of the Amount Billed to or Paid by our Clients 

Under the CSA, we become a co-employer of worksite employees and assume the obligations to pay the 

salaries, wages and related benefits costs and payroll taxes of such worksite employees.  We assume such 
obligations as a principal, not as an agent of the client.  Our obligations include responsibility for:  

(cid:120) 

payment of the salaries and wages for work performed by worksite employees, regardless of 
whether the client timely pays us the associated service fee 

(cid:120)  withholding and payment of federal and state payroll taxes with respect to wages and salaries 

(cid:120) 

reported by Insperity 
providing benefits to worksite employees even if our costs to provide such benefits exceed the fees 
the client pays us  

If a client does not pay us, or if the costs of benefits we provide to worksite employees exceed the fees a 

client pays us, our ultimate liability for worksite employee payroll and benefits costs could have a material adverse 
effect on our financial condition or results of operations. 

Increases in Health Insurance Premiums or Inability to Secure Replacement Contracts on Competitive 

Terms could have a Material Adverse Effect on our Financial Condition or Results of Operations 

Maintaining health insurance plans that cover worksite employees is a significant part of our business.  Our 

primary health insurance contract expires on December 31, 2015, subject to cancellation by either party upon 180 
days notice.  In the event we are unable to secure replacement contracts on competitive terms, significant disruption 
to our business could occur. 

Health insurance premiums are in part determined by our claims experience and comprise a significant 

portion of our direct costs.  We employ extensive risk management procedures in an attempt to control our claims 
incidence and structure our benefits contracts to provide as much cost stability as possible.  However, if we 
experience a sudden and unexpected large increase in claim activity, our health insurance costs could increase.  
Claim activity levels are impacted by a number of factors, including, but not limited to, macro-economic changes, 
proposed and enacted regulatory changes and medical outbreaks.  Contractual arrangements with our clients limit 
our ability to incorporate such increases into service fees, which could result in a delay before such increases could 
be reflected in service fees.  As a result, such increases could have a material adverse effect on our financial  

- 19 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
condition or results of operations.  For additional information related to our health insurance costs, please read Item 
(cid:26)(cid:17)(cid:3)(cid:179)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)dition and Results of Operations (cid:177) Critical Accounting 
Policies and Estimates (cid:177) Benefits Costs.(cid:180)(cid:3) 

Health Care Reform could Affect Our Health Insurance Plan and could Lead to a Significant 

Disruption in our Business 

The PPACA was signed into law on March 23, 2010.  The PPACA was subsequently amended on March 
30, 2010 by the Reconciliation Act.  (cid:55)(cid:75)(cid:72)(cid:3)(cid:51)(cid:51)(cid:36)(cid:38)(cid:36)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:11)(cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:36)(cid:70)(cid:87)(cid:180)(cid:12)(cid:3)(cid:72)(cid:81)(cid:87)(cid:68)(cid:76)(cid:79)(cid:3)(cid:86)(cid:90)(cid:72)(cid:72)(cid:83)(cid:76)(cid:81)(cid:74)(cid:3)
health care reforms with staggered effective dates from 2010 through 2018, and many provisions in the Act require 
the issuance of additional guidance from the U.S. Department of Labor, the IRS, the U.S. Department of Health & 
Human Services (cid:11)(cid:179)(cid:43)(cid:43)(cid:54)(cid:180)(cid:12), and the states. 

Beginning in 2014, a number of key provisions of the Act take effect including, the establishment of state 
(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:72)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:11)(cid:179)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:180)(cid:12)(cid:15)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:85)(cid:72)(cid:73)(cid:82)(cid:85)(cid:80)(cid:86)(cid:15)(cid:3)(cid:179)(cid:83)(cid:68)(cid:92)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:79)(cid:68)(cid:92)(cid:180)(cid:3)(cid:83)(cid:72)(cid:81)(cid:68)(cid:79)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
imposition of excise taxes on the health insurance industry and reinsurance taxes on insurers and third party 
administrators.   Collectively, these items have the potential to significantly change the insurance marketplace for 
small and medium sized businesses and how employers provide insurance to employees.  In addition, as a co-
employer in the PEO relationship, we assume or share many of the employer-related responsibilities and assist our 
clients in complying with many employment-related governmental regulations.  Generally, the Act and subsequently 
issued guidance by IRS and HHS have not addressed or in some instances are unclear as to their application in the 
PEO relationship or whether such provisions should be applied at the PEO or client level. 

We are currently unable to determine the impact of the Act on our benefit plans, business model and future 
results of operations.  In future periods, the changes may result in increased costs to us and could affect our ability to 
attract and retain clients.  Additionally, contractual arrangements and competitive market conditions may limit or 
delay our ability to increase service fees to offset any associated potential increased costs.  For additional 
(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:51)(cid:51)(cid:36)(cid:38)(cid:36)(cid:15)(cid:3)(cid:83)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:44)(cid:87)(cid:72)(cid:80)(cid:3)(cid:20)(cid:17)(cid:3)(cid:179)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:177) Industry Regulations (cid:177) Patient Protection and 
Affordable Care Act(cid:17)(cid:180)  

(cid:44)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:44)(cid:81)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:3)(cid:53)(cid:72)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:38)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)

Terms could Lead to a Significant Disruption to our Business 

(cid:50)(cid:88)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:68)(cid:81)(cid:3)(cid:68)(cid:85)(cid:85)(cid:68)(cid:81)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:36)(cid:38)(cid:40)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:19)(cid:26)(cid:17)(cid:3)(cid:3)

Under our current arrangement with ACE, we bear the economic burden for the first $1 million layer of claims per 
occurrence and the economic burden for claims over $1 million, up to a maximum aggregate amount of $5 million 
per policy year for claims that exceed the first $1 million.  ACE bears the burden for all claims in excess of these 
levels. The ACE Program is a fully insured policy whereby ACE has the responsibility to pay all claims incurred 
under the policy regardless of whether we satisfy our responsibilities. For additional discussion of our policy with 
(cid:36)(cid:38)(cid:40)(cid:15)(cid:3)(cid:83)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:44)(cid:87)(cid:72)(cid:80)(cid:3)(cid:26)(cid:17)(cid:3)(cid:179)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)Operations 
(cid:177) Critical Accounting Policies and Estimates (cid:177) (cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:86).(cid:180)(cid:3) 

(cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)(cid:44)(cid:73)(cid:3)(cid:90)(cid:72)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:3)

sudden and unexpected large increase in the number or severity (cid:82)(cid:73)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:15)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)
increase, which could have a material adverse effect on our results of operations or financial condition.  

(cid:55)(cid:75)(cid:72)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:36)(cid:38)(cid:40)(cid:3)(cid:72)(cid:91)(cid:83)(cid:76)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3) September 30, 2013.  In the event we 

are unable to secure replacement coverage on competitive terms, significant disruption to our business could occur. 

Our Ability to Adjust and Collect Service Fees for Increases in Unemployment Tax Rates may be Limited 

We record our SUI tax expense based on taxable wages and tax rates assigned by each state.  State 
(cid:88)(cid:81)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:89)(cid:68)(cid:85)(cid:92)(cid:3)(cid:69)(cid:92)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:71)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:15)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)
each state.  Prior to the receipt of final tax rate notices, we estimate our expected SUI tax rate in those states for 
which tax rate notices have not yet been received for purposes of pricing.  Due to adverse economic conditions in 
recent years and the associated reductions in employment levels, the state unemployment funds have experienced a 
significant increase in the number of unemployment claims.  Accordingly, state unemployment tax rates increased 
substantially over the past few years.  Some states have the ability under law to increase unemployment tax rates 
retroactively to cover deficiencies in the unemployment fund.  In addition, federal unemployment tax rates may be 

- 20 - 

 
 
 
 
 
 
 
 
 
 
 
 
retroactively increased in certain states in the event the state fails to timely repay federal unemployment loans.  
Generally, our contractual agreements allow us to incorporate such increases into our service fees upon the effective 
date of the rate change.  However, our ability to fully adjust service fees in our billing systems and collect such 
(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:69)(cid:72)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)
not being fully recovered.  As a result, such increases could have a material adverse effect on our financial condition 
or results of operations.  For additional information related to state unemployment taxes, please read Note 13 to the 
Consolidated Financial Statements(cid:15)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86).(cid:180)  

Our Contracts may be Cancelled on Short Notice.  Our Inability to Renew Client Contracts or Attract 

New Clients could Materially and Adversely Affect our Financial Conditions and Results of Operations 

Our standard CSA can generally be cancelled by us or the client with 30 days notice.  Accordingly, the 

short-term nature of the CSA makes us vulnerable to potential cancellations by existing clients, which could 
materially and adversely affect our financial condition and results of operations.  In the event we have a high 
proportion of terminating clients from our mid-market customer base, the financial impact of such an event could be 
significant.  In addition, our results of operations are dependent in part upon our ability to retain or replace our 
clients upon the termination or cancellation of the CSA.  Our client attrition rate was approximately 19% in 2012.  
There can be no assurance that the number of contract cancellations will continue at these levels and such 
cancellations may increase in the future due to various factors, including but not limited to, economic conditions in 
the markets we operate. 

Established Competitors and New Market Entrants may have a Competitive Advantage over Us 

The human resources services industry, including the PEO industry, is highly fragmented.  Many PEOs 

have limited operations and fewer than 1,000 worksite employees, but there are several industry participants that are 
comparable to our size or larger.  We also encoun(cid:87)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:179)(cid:73)(cid:72)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:180)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:68)(cid:86)(cid:3)(cid:83)(cid:68)(cid:92)(cid:85)(cid:82)(cid:79)(cid:79)(cid:3)
processing firms, insurance companies and human resources consultants.  Our competitors include the PEO 
divisions of large business services companies, such as Automatic Data Processing, Inc. and Paychex, Inc., and 
other PEOs such as TriNet.  Other PEOs may offer their PEO services at more competitive prices than we may be 
able to offer.  Moreover, we expect that as the PEO industry grows and its regulatory framework becomes better 
established, well-organized competition with greater resources than we have may enter the PEO market, possibly 
(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3)(cid:179)(cid:73)(cid:72)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:180)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:85)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:17) 

We may be Subject to Liabilities for Client and Employee Actions 

A number of legal issues remain unresolved with respect to the co-employment arrangement between a 

PEO and its worksite employees, including questions concerning the ultimate liability for violations of employment 
and discrimination laws.  Our CSA establishes the contractual division of responsibilities between Insperity and our 
clients for various personnel management matters, including compliance with and liability under various 
governmental regulations.   

Because we act as a co-employer, we may be subject to liability for violations of various employment and 
discrimination laws despite these contractual provisions, even if we do not participate in such violations.  Although 
the CSA provides that the client is to indemnify us for any liability at(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:88)(cid:70)(cid:87)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)
be able to collect on such a contractual indemnification claim and thus may be responsible for satisfying such 
liabilities to the extent that such liabilities are not covered or insured against under our insurance policies. In 
addition, worksite employees may be deemed to be our agents, which may subject us to liability for the actions of 
such worksite employees.  

Changes  in  Federal,  State  and  Local  Regulation  or  our  Inability  to  Obtain  Licenses  under  New 
Regulatory  Frameworks  could  have  a  Material  Adverse  Effect  on  our  Results  of  Operations  or  Financial 
Condition 

As a major employer, our operations are affected by numerous federal, state and local laws and regulations 
relating to labor, tax, benefit, insurance and employment matters.  By entering into a co-employer relationship with 
employees assigned to work at client locations, we assume certain obligations and responsibilities of an employer 
under these laws.  However, many of these laws (such as the Act, ERISA and federal and state employment tax 
laws) do not specifically address the obligations and responsibilities of non-traditional employers such as PEOs, and 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:179)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:180)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:88)(cid:81)(cid:76)(cid:73)(cid:82)(cid:85)(cid:80)(cid:17)(cid:3)(cid:3)(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:80)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)es in which we operate 

- 21 - 

 
 
 
 
 
 
 
 
 
 
 
have not addressed the PEO relationship for purposes of compliance with applicable state laws governing the 
employer/employee relationship.  Any adverse application of new or existing federal or state laws to the PEO 
relationship with our worksite employees and client companies could have a material adverse effect on our results of 
operations or financial condition. 

While many states do not explicitly regulate PEOs, 41 states have passed laws that have recognition, 

licensing, certification or registration requirements for PEOs and several other states are considering such 
regulation.  Such laws vary from state to state, but generally provide for monitoring the fiscal responsibility of 
PEOs, and in some cases codify and clarify the co-(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:88)(cid:81)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)
compensation and other purposes under state law.  While we generally support licensing regulation because it serves 
to validate the PEO relationship, we may not be able to satisfy licensing requirements or other applicable regulations 
for all states.  In addition, there can be no assurance that we will be able to renew our licenses in all states. 

Geographic Market Concentration makes our Results of Operations Vulnerable to Economic Factors 

Our Houston, California, and Texas (including Houston) markets accounted for approximately 13%, 18% 
and 26%, respectively, of our worksite employees for the year ended December 31, 2012.  Accordingly, while we 
have a goal of expanding in our current markets and into new markets, for the foreseeable future, a significant 
portion of our revenues may be subject to economic factors specific to Texas and California.   

A Determination that a Client is Liable for Employment Taxes not Paid by a PEO may Discourage 

Clients from Contracting with us in the Future 

Under the CSA, we assume sole responsibility and liability for paying federal employment taxes imposed 

under the Code with respect to wages and salaries we pay our worksite employees.  There are essentially three types 
of federal employment tax obligations:  

income tax withholding requirements 

(cid:120) 
(cid:120)  FICA 
(cid:120)  FUTA 

Under the Code, employers have the obligation to withhold and remit the employer portion and, where 
applicable, the employee portion of these taxes.  Most states impose similar employment tax obligations on the 
employer.  While the CSA provides that we have sole legal responsibility for making these tax contributions, the 
IRS or applicable state taxing authority could conclude that such liability cannot be completely transferred to us.  
Accordingly, in the event that we fail to meet our tax withholding and payment obligations, the client may be held 
jointly and severally liable for those obligations.  While this interpretive issue has not, to our knowledge, 
discouraged clients from enrolling with Insperity, a definitive adverse resolution of this issue may discourage clients 
from enrolling in the future. 

Potential Disclosure of Sensitive or Private Information could Damage our Reputation and Impact our 

Operating Results 

Unauthorized access or unintentional disclosure of personal or confidential information could damage our 

reputation and operating results.  While we strive to comply with all applicable data protection laws and regulations, 
and maintain stringent privacy and security policies and procedures, any failure or perceived failure to adequately 
protect sensitive information may result in negative publicity and / or proceedings or actions against us by 
government entities or others, which could potentially have an adverse effect on our business.  

Most states and the District of Columbia have enacted notification rules concerning privacy and data 

protection.  It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our 
data practices.  If so, in addition to the possibility of fines, this could result in an order requiring that we change our 
data practices, which could have a material effect on our business.  Complying with these various laws could cause 
us to incur substantial costs or require us to change our business practices in a manner adverse to our business. 

- 22 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
The Failure of our Insurance Carriers or Financial Institutions could have a Material Adverse Effect on 

Us 

We contract with various insurance carriers to provide certain insurance coverages as a part of our 

Workforce Optimization solution(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:86)(cid:3)(cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
employment practices liability insurance. In addition, we obtain insurance coverage for various commercial risks in 
our business such as property insurance, errors and omissions insurance, general liability insurance, fiduciary 
(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:68)(cid:88)(cid:87)(cid:82)(cid:80)(cid:82)(cid:69)(cid:76)(cid:79)(cid:72)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:79)(cid:76)ability insurance.  The failure of any 
insurance carrier providing such coverage could leave us exposed to uninsured risk and could have a material 
adverse effect upon our business.  

Please read Note 13 to the Consolidated Financial Statements, (cid:179)Commitments and Contingencies,(cid:180) for 

additional information concerning the potential failure of one of our former (cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)carriers. 

In conjunction with providing services to clients, we rely on financial institutions to electronically transfer 
funds for the collection of our comprehensive service fee as well as the payment of wages and associated payroll tax 
withholdings. Failure by these financial institutions, for any reason, to deliver their services in a timely manner 
could result in material interruptions to our operations, impact client relations, and result in significant penalties or 
liabilities to us. 

New and Higher Federal, State and Local Taxes could have a Material and Adverse Impact on our 

Financial Condition and Results of Operations 

Many states and municipalities in which we operate have experienced economic slowdowns, as has the 

nation as a whole.  This decline in economic activity has resulted in reductions of tax revenues and corresponding 
budget deficits.  In response to the budget shortfalls, many states and municipalities have increased or enacted new 
taxes on businesses operating within their tax jurisdiction, including but not limited to, business activity taxes and 
income taxes.  In addition, many federal, state and local taxing agencies have increased their audit activity in an 
effort to identify additional tax revenues.  New tax assessments on our operations could result in increased costs.  
(cid:51)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:20)(cid:22)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)
information regarding the tax assessment by the State of Massachusetts.  Our ability to adjust our service fees and 
incorporate additional tax assessments into our billing system could be limited.  As a result, such higher taxes could 
have a material adverse impact on our financial condition or results of operations. 

Failure to Integrate or Realize the Expected Return on our Acquisitions could have a Material and 

Adverse Impact on our Financial Condition and Results of Operations 

We have adopted a strategy to market and sell additional products and services within and outside of the 

core Workforce Optimization solution.  As a part of this strategy, periodically we make strategic long-term decisions 
to invest in and/or acquire new companies, business units or assets.  New business strategies including the cross-
selling of adjacent business offerings to Workforce Optimization clients and the acquisition or development of new 
businesses involve risk, including those associated with integrating the operations, technologies and 
personnel.  Failure to effectively integrate newly acquired businesses could result in us not achieving anticipated 
revenues and cost savings.  Acquiring new businesses and implementing new selling strategies could also result in 
the loss of prospective or existing (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:68)(cid:87)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)
business concerns.   

During the fourth quarter of 2012, we recorded an impairment charge of $4.2 million in our Performance 
Management reporting unit in connection with our annual goodwill impairment assessment.  In addition, based on 
market conditions or changes in operating plans, the fair value of our other acquired businesses could decline, 
requiring us to record additional impairment charges for all or portions of the investments.  The failure to effectively 
implement new selling strategies, (cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:68)ttention from other business concerns, failure to 
integrate new acquisitions or the occurrence of impairment, could have a material adverse effect on our financial 
condition or operating results.  Please read Note 5 to the Consolidated Financial Statements(cid:15)(cid:3)(cid:179)(cid:42)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)
(cid:44)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)regarding the impairment charge. 

- 23 - 

 
 
 
 
 
 
 
 
 
 
 
ITEM 1B.  UNRESOLVED STAFF COMMENTS. 

None. 

ITEM 2.  PROPERTIES. 

We believe our current real estate and facilities are adequate for the purposes for which they are intended 

and provide for further expansion to accommodate our long-term growth and expansion goals.  We believe that 
short-term leased facilities are readily available if needed to accommodate near-term needs if they arise.  We will 
continue to evaluate the need for additional facilities based on the extent of our product and service offerings, the 
rate of customer growth, the geographic distribution of our customer base and our long-term service delivery 
requirements. 

Corporate Facilities 

Our corporate headquarters is located in Kingwood, Texas, in a 327,000 square foot office campus-style 
facility.  This 30-acre company-owned office campus includes approximately nine acres of undeveloped land for 
future expansion.  Development and support operations are located in the Kingwood facility, along with our record 
retention center and a technology hosting facility. 

Service Centers 

We currently have four regional service centers located in Atlanta, Dallas, Houston and Los Angeles. 

The Atlanta service center, which currently services approximately 32% of our worksite employee base, is 

located in a 40,000 square foot facility under lease until 2014. 

The Dallas service center, which currently services approximately 19% of our worksite employee base, is 

located in a 48,600 square foot facility under lease until 2016.  In addition to the service center, the facility also 
contains sales operations. 

 The Houston service center, which currently services approximately 24% of our worksite employee base, 

is located in a 60,600 square foot facility under lease until 2014.  In addition to the service center operations, the 
facility also contains corporate support operations.  

The Los Angeles service center, which currently services approximately 25% of our worksite employee 

base, is located in a 38,000 square foot facility under lease until 2019. 

Sales Offices 

As of December 31, 2012, we had Workforce Optimization sales and service personnel in 33 facilities 
located in 25 sales markets throughout the United States.  All of the facilities are leased and some are shared by 
multiple sales offices and/or client service personnel.  As of December 31, 2012, we had 48 Workforce Optimization 
sales offices in these 25 markets.  To take advantage of economic efficiencies, multiple sales offices may share a 
physical location.  Each sales office is typically staffed by six to eight BPAs, a district sales manager and an office 
administrator.  In addition, we have placed certain client service personnel in a majority of our sales markets to 
provide high-quality, localized service to our clients in those major markets.  We expect to continue placing various 
client service personnel in sales markets as a critical mass of clients is attained in each market. 

ITEM 3.  LEGAL PROCEEDINGS. 

We are not a party to any material pending legal proceedings other than ordinary routine litigation 

incidental to our business that we believe would not have a material adverse effect on our financial condition or 
results of operations, except as discussed in Note 13 to the Consolidated Financial Statements, (cid:179)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:180) which is incorporated herein by reference. 

- 24 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM S-K 401 (b).  EXECUTIVE OFFICERS OF THE REGISTRANT. 

The following table sets forth the names, ages (as of February 4, 2013) and positions of Insperity(cid:182)(cid:86)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)

officers:  

Name 

Age 

Position 

Paul J. Sarvadi .......................................   56  Chairman of the Board and Chief Executive Officer 
Richard G. Rawson ................................   64 
A. Steve Arizpe .....................................   55 

Jay E. Mincks ........................................   59 
Douglas S. Sharp ...................................   51 

Daniel D. Herink....................................   46 

President 
Executive Vice President of Client Services and Chief Operating 
Officer 
Executive Vice President of Sales and Marketing 
Senior Vice President of Finance, Chief Financial Officer and 
Treasurer 
Senior Vice President of Legal, General Counsel and Secretary 

Paul J. Sarvadi has served as Chairman of the Board and Chief Executive Officer since August 2003.  Mr. 
Sarvadi co-founded Insperity in 1986 and served as Vice President and Treasurer of Insperity from its inception in 
1986 through April 1987, as Vice President from April 1987 through 1989 and as President and Chief Executive 
Officer from 1989 to August 2003.  Prior to founding Insperity, Mr. Sarvadi started and operated several small 
businesses.  Mr. Sarvadi has served as President of NAPEO and was a member of its Board of Directors for five years.  
Mr. Sarvadi was selected as the 2001 National Ernst & Young Entrepreneur Of The Year® for service industries.  In 
2004, he received the Conn Family Distinguished New Venture Leader Award from Mays Business School at Texas 
A&M University.  In 2007, he was inducted into the Texas Business Hall of Fame. 

Richard G. Rawson is President of Insperity and most of its subsidiaries, a Class III director, and has been a 
director of Insperity since 1989.  He has been President since August 2003.  Before being elected President, he served 
as Executive Vice President of Administration, Chief Financial Officer and Treasurer of the Company from February 
1997 until August 2003.  Prior to that, he served as Senior Vice President, Chief Financial Officer and Treasurer of 
Insperity since 1989.  Prior to joining Insperity in 1989, Mr. Rawson served as a Senior Financial Officer and 
Controller for several companies in the manufacturing and seismic data processing industries.  Mr. Rawson has served 
NAPEO as Chairman of the Accounting Practices Committee and several other offices and became President in 1999-
2000.  Mr. Rawson has a Bachelor of Business Administration in finance from the University of Houston and currently 
(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:39)(cid:72)(cid:68)(cid:81)(cid:182)(cid:86)(cid:3)(cid:36)(cid:71)(cid:89)(cid:76)(cid:86)(cid:82)(cid:85)(cid:92)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:38)(cid:17)(cid:55)(cid:17)(cid:3)(cid:37)(cid:68)(cid:88)(cid:72)(cid:85)(cid:3)(cid:38)(cid:82)(cid:79)(cid:79)(cid:72)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17) 

A. Steve Arizpe has served as Executive Vice President of Client Services and Chief Operating Officer since 

August 2003.  He joined Insperity in 1989 and has served in a variety of roles, including Houston Sales Manager, 
Regional Sales Manager and Vice President of Sales.  Prior to joining Insperity, Mr. Arizpe served in sales and sales 
management roles for NCR Corporation and Clarke-American. He has also served as a director of the Texas Chapter 
of NAPEO.  Mr. Arizpe graduated from Texas A&M University in 1979, earning his degree in Business Management. 

Jay E. Mincks has served as Executive Vice President of Sales and Marketing since January 1999.  Mr. 
Mincks served as Vice President of Sales and Marketing from February 1997 through January 1999.  He joined 
Insperity in 1990 and has served in a variety of other roles, including Houston Sales Manager and Regional Sales 
Manager for the Western United States.  Prior to joining Insperity, Mr. Mincks served in a variety of positions, 
including management positions, in the sales and sales training fields with various large companies.  He holds a 
business degree from the University of Houston.  

Douglas S. Sharp has served as Senior Vice President of Finance, Chief Financial Officer and Treasurer since 

May 2008.  He served as Vice President of Finance, Chief Financial Officer and Treasurer from August 2003 until 
May 2008.  Mr. Sharp joined Insperity in January 2000 as Vice President of Finance and Controller.  From July 1994 
until he joined Insperity, he served as Chief Financial Officer for Rimkus Consulting Group, Inc.  Prior to that, he 
served as Controller for a small publicly held company; as Controller for a software company; and as an Audit 
Manager for Ernst & Young LLP.  Mr. Sharp has served as a member of the Accounting Practices Committee of 
NAPEO.  Mr. Sharp is also a certified public accountant. 

- 25 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
Dan Herink has served as Senior Vice President of Legal, General Counsel and Secretary since May 2008.  

Mr. Herink joined Insperity in 2000 as Assistant General Counsel and was promoted to Associate General Counsel in 
2002.  He was elected to his current position in May 2007.  Mr. Herink previously served as an attorney at Rodriguez, 
Colvin & Chaney, L.L.P. and McGinnis, Lochridge & Kilgore, L.L.P.  He earned his Bachelor of Science degree in 
business administration from the University of Nebraska and a Doctorate of Jurisprudence from The University of 
Texas School of Law, where he was a member of the Texas Law Review and The Order of the Coif.  Mr. Herink is 
also a certified public accountant. 

- 26 - 

 
 
PART II 

(cid:44)(cid:55)(cid:40)(cid:48)(cid:3)(cid:24)(cid:17)(cid:3)(cid:3)(cid:48)(cid:36)(cid:53)(cid:46)(cid:40)(cid:55)(cid:3)(cid:41)(cid:50)(cid:53)(cid:3)(cid:55)(cid:43)(cid:40)(cid:3)(cid:53)(cid:40)(cid:42)(cid:44)(cid:54)(cid:55)(cid:53)(cid:36)(cid:49)(cid:55)(cid:182)(cid:54)(cid:3)(cid:38)(cid:50)(cid:48)(cid:48)(cid:50)(cid:49)(cid:3)(cid:40)(cid:52)(cid:56)(cid:44)(cid:55)(cid:60)(cid:15)(cid:3)(cid:53)(cid:40)(cid:47)(cid:36)(cid:55)(cid:40)(cid:39)(cid:3)(cid:54)(cid:55)(cid:50)(cid:38)(cid:46)(cid:43)(cid:50)(cid:47)(cid:39)(cid:40)(cid:53)(cid:3)
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. 

Price Range of Common Stock 

(cid:50)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:49)(cid:72)(cid:90)(cid:3)(cid:60)(cid:82)(cid:85)(cid:78)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:92)(cid:80)(cid:69)(cid:82)(cid:79)(cid:3)(cid:179)NSP.(cid:180)(cid:3)(cid:3)(cid:36)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)February 4, 
2013, there were 370 holders of record of our common stock.  This number does not include stockholders for whom 
(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:75)(cid:72)(cid:79)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:81)(cid:82)(cid:80)(cid:76)(cid:81)(cid:72)(cid:72)(cid:180)(cid:3)(cid:82)(cid:85)(cid:3)(cid:179)(cid:86)(cid:87)(cid:85)(cid:72)(cid:72)(cid:87)(cid:3)(cid:81)(cid:68)(cid:80)(cid:72)(cid:17)(cid:180)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:82)(cid:90)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
common stock as reported on the New York Stock Exchange transactional tape.   

2012 

High 

Low 

Dividends 
per Share 

First Quarter ..........................................................................  
Second Quarter ......................................................................  
Third Quarter .........................................................................  
Fourth Quarter .......................................................................  

$  31.79 
31.14 
28.48 
33.24 

$  25.62 
24.10 
23.94 
24.95 

2011 

First Quarter ..........................................................................  
Second Quarter ......................................................................  
Third Quarter .........................................................................  
Fourth Quarter .......................................................................  

$  30.42 
32.38 
32.26 
27.55 

$  25.13 
28.47 
19.88 
20.91 

$ 

$ 

0.15 
0.17 
0.17 
1.17 (1) 

0.15 
0.15 
0.15 
0.15 

(1) 

Includes a $1.00 per share special dividend. 

Dividend Policy 

During 2012 and 2011, we paid dividends of $42.7 million and $15.7 million, respectively, including a 

special cash dividend of $25.7 million paid in the fourth quarter of 2012.  The payment of dividends is made at the 
discretion of our Board of Directors and depends upon our operating results, financial condition, capital requirements, 
general business conditions and such other factors as our Board of Directors deems relevant.  

Issuer Purchases of Equity Securities 

The following table provides information about our purchases of Insperity common stock during the three 

months ended December 31, 2012:  

Period 

10/01/2012 (cid:177) 
10/31/2012 
11/01/2012 (cid:177) 
11/30/2012 
12/01/2012 (cid:177) 
12/31/2012 
Total 

Total Number 
of Shares  
Purchased (1) (2) 

Average Price 
Paid per Share 

Total Number of Shares 
Purchased as Part of 
Publicly Announced 
Programs (1) (2) 

Maximum Number of 
Shares that May Yet 
be Purchased Under 
the Program (1) 

(cid:178) 

(cid:178) 

81,048 
81,048 

$ 

(cid:178) 

(cid:178) 

31.00 
31.00 

$ 

(cid:178) 

(cid:178) 

80,983 
80,983 

829,472 

829,472 

829,472 
829,472 

(1) 

Our Board of Directors has authorized a program to repurchase up to 14,500,000 shares of our outstanding common stock.  During the three 
months ended December 31, 2012, no shares were repurchased under the program; however 65 shares were withheld to satisfy tax withholding 
obligations for the vesting of restricted stock awards.  As of December 31, 2012, we are authorized to repurchase an additional 829,472 shares 
under the program.  Unless terminated early by resolution of the board of directors, the repurchase program will expire when we have 
repurchased all shares authorized for repurchase under the repurchase program.  

- 27 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2)  (cid:50)(cid:81)(cid:3)(cid:49)(cid:82)(cid:89)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:25)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:80)(cid:82)(cid:71)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:179)(cid:39)(cid:88)(cid:87)(cid:70)(cid:75)(cid:3)(cid:68)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180)(cid:3)(cid:87)(cid:72)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:7)(cid:24)(cid:19)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)on stock 
at a price not less than $27.00 per share and not more than $31.00 per share.  The tender offer expired on December 21, 2012, resulting in the 
repurchase on December 28, 2012, of 80,983 shares at a price of $31.00 per share, excluding transaction costs.   

Performance Graph 

The following graph compares our cumulative total stockholder return since December 31, 2007, with the 

S&P Smallcap 600 Index and the S&P 1500 Composite Human Resources and Employment Services Index.  The 
graph assumes that the value of the investment in our common stock and each index (including reinvestment of 
dividends) was $100 on December 31, 2007. 

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* 
Among Insperity, Inc., the S&P Smallcap 600 Index,  
and S&P 1500 Composite Human Resource and Employment Services Index 

$160

$140

$120

$100

$80

$60

$40

$20

$0

12/07

12/08

12/09

12/10

12/11

12/12

Insperity, Inc.

S&P Smallcap 600

S&P 1500 Composite Human Resource and Employment Services

*$100 invested on 12/31/07 in stock or index, including reinvestment of dividends. 
Fiscal year ending December 31. 

Copyright© 2012 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. 

12/07 

12/08 

12/09 

12/10 

12/11 

12/12 

Insperity, Inc. 
S&P Smallcap 600 
S&P 1500 Composite Human Resources and Employment Services 

100.00 
100.00 
100.00 

78.32 
68.93 
73.03 

87.23 
86.55 
96.49 

110.88 
109.32 
114.35 

98.16 
110.43 
95.09 

133.47 
128.46 
106.80 

This graph shall not (cid:69)(cid:72)(cid:3)(cid:71)(cid:72)(cid:72)(cid:80)(cid:72)(cid:71)(cid:3)(cid:179)(cid:73)(cid:76)(cid:79)(cid:72)(cid:71)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:83)(cid:88)(cid:85)(cid:83)(cid:82)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:20)(cid:27)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:28)(cid:22)(cid:23)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)
(cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:36)(cid:70)(cid:87)(cid:180)(cid:12)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:90)(cid:76)(cid:86)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:81)(cid:82)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:79)(cid:79)(cid:3)(cid:76)(cid:87)(cid:3)(cid:69)(cid:72)(cid:3)(cid:71)(cid:72)(cid:72)(cid:80)(cid:72)(cid:71)(cid:3)
incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, regardless of any general 
incorporation language in such filing. 

- 28 - 

 
 
 
 
 
  
  
 
 
 
ITEM 6.  SELECTED FINANCIAL DATA. 

The selected consolidated financial data set forth below should be read in conjunction with the Consolidated 

Financial Statements and accompanying Notes and Item 7.  (cid:179)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
Condition and Results of Operations(cid:17)(cid:180) 

2012 

Year ended December 31, 
2010 
(in thousands, except per share and statistical data) 

    2011 

2009 

    2008 

Income Statement Data: 

Revenues(1) .............................................   $  2,158,824 
382,221 
Gross profit ...........................................  
67,494(2) 
Operating income ..................................  
40,402 
Net income ............................................  
1.56 
Diluted net income per share .................   $ 

$  1,976,219 
351,775 
57,314 
30,470(3) 
1.16 

$ 

$  1,719,752 
298,536 
37,060 
22,440 
0.86 

$ 

$  1,653,096 
287,967 
27,033 
16,574 
0.65 

$ 

$  1,724,434 
343,739 
64,982 
45,780 
1.76 

$ 

Balance Sheet Data: 

Working capital .....................................   $  115,706 
750,200 
Total assets ............................................  
(cid:178) 
Total debt/capital lease obligations .......  
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) .....................  
240,905 
Cash dividends per share .......................   $ 

1.66 (4)  $ 

$  126,562 
712,259 
(cid:178) 
245,207 
0.60 

$  144,479 
659,845 
(cid:178) 
240,395 
0.52 

$ 

$  127,627 
576,470 
(cid:178) 
223,160 
0.52 

$ 

$ 

$ 

98,414 
616,840 
537 
208,479 
0.48 

Statistical Data: 

Average number of worksite employees 
  paid per month during period .............  
Revenues per worksite employee  
  per month(5) .........................................  
Gross profit per worksite employee 
  per month ...........................................  
Operating income per worksite 

$ 

$ 

employee per month ...........................  

$ 

_________________ 

125,650 

116,839 

107,014 

108,736 

116,957 

1,432 

253 

45 

$ 

$ 

$ 

1,410 

251 

41 

$ 

$ 

$ 

1,339 

232 

29 

$ 

$ 

$ 

1,267 

221 

21 

$ 

$ 

$ 

1,229 

245 

46 

(1)  Gross billings of $12.992 billion, $11.700 billion, $10.169 billion, $9.856 billion and $10.372 billion, less worksite employee payroll cost of 

(2) 

(3) 

$10.833 billion, $9.724 billion, $8.449 billion, $8.203 billion and $8.648 billion, respectively. 
Includes an impairment charge in the fourth quarter of 2012 of $4.2 million.  Please read Note 5 to the Consolidated Financial Statements, 
(cid:179)(cid:42)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:44)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17) 
Includes the impact of a $4.4 million loss related to the exchange of an aircraft, and a $3.1 million loss related to a settlement with the State of 
California.  Please read Note 13 (cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) on 
the settlement with the State of California. 
Includes a $1.00 per share special dividend paid in the fourth quarter of 2012. 

(4) 
(5)  Gross billings of $8,617, $8,345, $7,919, $7,553 and $7,391 per worksite employee per month, less payroll cost of $7,185, $6,935, $6,580, 

$6,286 and $6,162 per worksite employee per month, respectively. 

- 29 - 

 
 
 
   
 
 
   
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(cid:44)(cid:55)(cid:40)(cid:48)(cid:3)(cid:26)(cid:17)(cid:3)(cid:3)(cid:3)(cid:48)(cid:36)(cid:49)(cid:36)(cid:42)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)(cid:182)(cid:54)(cid:3)(cid:39)(cid:44)(cid:54)(cid:38)(cid:56)(cid:54)(cid:54)(cid:44)(cid:50)(cid:49)(cid:3)(cid:36)(cid:49)(cid:39)(cid:3)(cid:36)(cid:49)(cid:36)(cid:47)(cid:60)SIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS. 

You should read the following discussion in conjunction with our Consolidated Financial Statements and 
related Notes included elsewhere in this annual report.  Historical results are not necessarily indicative of trends in 
operating results for any future period. 

The statements contained in this annual report that are not historical facts are forward-looking statements that 
involve a number of risks and uncertainties.  The actual results of the future events described in such forward-looking 
statements in this annual report could differ materially from those stated in such forward-looking statements. Among 
the factors that could cause actual results to differ materially are the risks and uncertainties discussed in Item 1A. Risk 
Factors and the uncertainties set forth from time to time in our other public reports and filings and public statements. 

Overview 

Our long-term strategy continues to be providing the best small and medium-sized businesses in the United 

States with the opportunity to participate in our unique human resources service offering, thereby leveraging our 
buying power and expertise to provide additional valuable services to clients.  Our most comprehensive HR business 
offering is provided through our PEO services, now known as our Workforce OptimizationTM solution, which 
encompasses a broad range of human resources functions, including payroll and employment administration, employee 
benef(cid:76)(cid:87)(cid:86)(cid:15)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)mpliance, performance management and training and development 
services.  Our overall operating results can be measured in terms of revenues, payroll costs, gross profit or operating 
income per worksite employee per month.  We often use the average number of worksite employees paid during a 
period as our unit of measurement in analyzing and discussing our results of operations. 

In addition to Workforce Optimization, we offer Human Capital Management, Payroll Services, Time and 

Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening, 
Financial Services, Expense Management, Retirement Services and Insurance Services, (colle(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:179)(cid:36)(cid:71)(cid:77)(cid:68)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)
(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:180)(cid:12)(cid:15)(cid:3)many of which are offered via desktop applications and SaaS delivery models.  These other products or 
services are offered separately, as a bundle, or along with Workforce Optimization. 

We ended 2012 averaging 129,345 paid worksite employees in the fourth quarter, which represents a 6.0% 

increase over the fourth quarter of 2011.  Approximately 17% of our paid worksite employees were in our mid-market 
sector for the year ended December 31, 2012, which is defined as companies with 150 to 2,000 worksite employees.  
We expect the average number of paid worksite employees per month to be in the range of 123,250 to 123,750 in the 
first quarter of 2013. 

Our 2012 average gross profit per worksite employee per month was $253, a $2 increase over 2011.  Higher 

gross profit per worksite employee per month in 2012 compared to 2011 was primarily the result of a higher 
contribution from our direct cost programs. 

Operating expenses increased 6.9% in 2012 to $314.7 million.  On a per worksite employee per month basis, 

operating expenses decreased from $210 in 2011 to $208 in 2012.  The 2012 operating expenses included a $4.2 
million impairment charge related to our Performance Management reporting unit.  Please read Note 5 to the 
(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:179)(cid:42)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:44)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17) 

Our net income in 2012 was $40.4 million, a $9.9 million increase compared to 2011.  We ended 2012 with 
working capital of $115.7 million.  During 2012, we paid $42.7 million in dividends and repurchased shares at a cost 
of $16.9 million.   

Revenues 

We account for our revenues in accordance with (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:38)(cid:82)(cid:71)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:36)(cid:54)(cid:38)(cid:180)(cid:12)(cid:3)(cid:25)(cid:19)(cid:24)-45, 

Revenue Recognition. Our Workforce Optimization gross billings to clients include the payroll cost of each worksite 
employee at the client location and a markup computed as a percentage of each worksite (cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:182)(cid:86)(cid:3)(cid:83)(cid:68)(cid:92)(cid:85)(cid:82)(cid:79)(cid:79)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:17)(cid:3)(cid:3)(cid:58)(cid:72)(cid:3)
invoice the gross billings concurrently with each periodic payroll of our worksite employees.  Revenues, which 
exclude the payroll cost component of gross billings, and therefore, consist solely of the markup, are recognized 

- 30 - 

 
 
 
 
 
 
 
 
 
 
 
ratably over the payroll period as worksite employees perform their service at the client worksite.  This markup 
(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:68)(cid:92)(cid:85)(cid:82)(cid:79)(cid:79)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:15)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:15)(cid:3)
plus a separate component related to our HR services.  We include revenues that have been recognized but not 
invoiced in unbilled accounts receivable on our Consolidated Balance Sheets.  

Our revenues are primarily dependent on the number of clients enrolled, the resulting number of worksite 
employees paid each period and the number of worksite employees enrolled in our benefit plans.  Because our total 
markup is computed as a percentage of payroll cost, certain revenues are also affected by the payroll cost of worksite 
employees, which may fluctuate based on the composition of the worksite employee base, inflationary effects on wage 
levels and differences in the local economies of our markets. 

Direct Costs 

The primary direct costs associated with our Workforce Optimization revenue-generating activities are:  

employment-(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:3)(cid:11)(cid:179)(cid:83)(cid:68)(cid:92)(cid:85)(cid:82)(cid:79)(cid:79)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:180)(cid:12) 
costs of employee benefit plans 

(cid:120) 
(cid:120) 
(cid:120)  (cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86) 

(cid:51)(cid:68)(cid:92)(cid:85)(cid:82)(cid:79)(cid:79)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:82)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:48)(cid:72)(cid:71)(cid:76)(cid:70)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:41)(cid:44)(cid:38)(cid:36)(cid:15)(cid:3)(cid:73)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)

unemployment taxes and state unemployment taxes.  Payroll taxes are generally paid as a percentage of payroll cost. 
The federal tax rates are defined by federal regulations.  State unemployment tax rates are subject to claim histories 
and vary from state to state. 

Employee benefits costs are comprised primarily of health insurance premiums and claims costs (including 

dental and pharmacy costs), but also include costs of other employee benefits such as life insurance, vision care, 
disability insurance, education assistance, adoption assistance, a flexible spending account and a worklife program. 

(cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)osts include administrative and risk charges paid to the insurance carrier, and claims 

costs, which are driven primarily by the frequency and severity of claims. 

Gross Profit 

Our gross profit per worksite employee is primarily determined by our ability to accurately estimate and 

control direct costs and our ability to incorporate changes in these costs into the gross billings charged to Workforce 
Optimization clients, which are subject to contractual arrangements that are typically renewed annually.  We use gross 
profit per worksite employee per month as our principal measurement of relative performance at the gross profit level. 

Operating Expenses 

(cid:120)  Salaries, wages and payroll taxes (cid:177) Salaries, wages and payroll taxes are primarily a function of the number of 

corporate employees and their associated average pay and any additional incentive compensation.  Our corporate 
employees include client services, sales and marketing, benefits, legal, finance, information technology, 
administrative support personnel and those associated with our ABUs. 

(cid:120)  Stock-based compensation (cid:177) Our stock-based compensation relates to the recognition of non-cash compensation 

expense over the vesting period of restricted stock awards. 

(cid:120)  Commissions (cid:177) Commission expense consists primarily of amounts paid to sales managers and BPAs.  

Commissions are based on the number of new accounts sold and a percentage of revenue generated by such 
personnel. 

(cid:120)  Advertising (cid:177) Advertising expense primarily consists of media advertising and other business promotions in our 
current and anticipated sales markets, including the Insperity ChampionshipTM presented by UnitedHealthcare® 
sponsorship.  In 2011, certain costs incurred as a result of our rebranding initiative are also included in advertising.  

- 31 - 

  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(cid:120)  General and administrative expenses (cid:177) Our general and administrative expenses primarily include:  

(cid:120) 
(cid:120) 

(cid:120) 
(cid:120) 
(cid:120) 
(cid:120) 

rent expenses related to our service centers and sales offices 
outside professional service fees related to legal, consulting and accounting services, and 
acquisition transaction expenses 
administrative costs, such as postage, printing and supplies  
employee travel expenses 
technology and facility repairs and maintenance costs 
rebranding initiative costs in 2011 

(cid:120)  Depreciation and amortization (cid:177) Depreciation and amortization expense is primarily a function of our capital 

investments in corporate facilities, service centers, sales offices, technology infrastructure and that associated with 
our acquisitions. 

(cid:120)  Impairment charge (cid:177) Non-cash expense associated with the decline in fair value of intangible assets, including 

(cid:74)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:17)(cid:3)(cid:3)(cid:51)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:24)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:179)(cid:42)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:44)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3)
for additional information. 

Income Taxes 

Our provision for income taxes typically differs from the U.S. statutory rate of 35%, due primarily to state 

income taxes and non-deductible expenses.  Deferred income taxes reflect the net tax effects of temporary differences 
between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for 
income tax purposes.  Significant items resulting in deferred income taxes include prepaid assets, accruals for (cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)
compensation expenses, stock-based compensation and depreciation.  Changes in these items are reflected in our 
financial statements through a deferred income tax provision. 

Critical Accounting Policies and Estimates 

The discussion and analysis of our financial condition and results of operations is based upon our 
Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally 
accepted in the United States (cid:11)(cid:179)(cid:42)(cid:36)(cid:36)(cid:51)(cid:180)(cid:12).  The preparation of these financial statements requires our management to 
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related 
disclosure of contingent assets and liabilities.  On an ongoing basis, we evaluate these estimates, including those 
(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)ation insurance claims experience, client bad debts, income taxes, property and 
equipment, goodwill and other intangibles, and contingent liabilities.  We base these estimates on historical experience 
and on various other assumptions that management believes to be reasonable under the circumstances, the results of 
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily 
apparent from other sources. Actual results may differ from these estimates. 

We believe the following accounting policies are critical and/or require significant judgments and estimates 

used in the preparation of our Consolidated Financial Statements: 

(cid:120)  Benefits costs (cid:177) We provide group health insurance coverage to our worksite employees through a national 

(cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:76)(cid:72)(cid:85)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:43)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:70)(cid:68)(cid:85)(cid:72)(cid:3)(cid:11)(cid:179)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:180)(cid:12), UnitedHealthcare of California, Kaiser Permanente, 
Blue Shield of California, HMSA BlueCross BlueShield of Hawaii, Unity Health Plan and Tufts, all of which 
provide fully insured policies or service contracts.  

The health insurance contract 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 
(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:15)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:11)(cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:86)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
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. 

- 32 - 

 
 
 
 
 
 
 
 
 
Additio(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:72)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:15)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:86)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:28)(cid:19)(cid:3)
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 we would accrue a liability for 
the excess costs on 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 on our Consolidated Balance Sheets.  The terms of the arrangement with 
United require us to maintain an accumulated cash surplus in the plan of $9.0 million, which is reported as long-
term prepaid insurance.  As of December 31, 2012, Plan Costs were less than the premiums paid and owed to 
United by $18.5 million. As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, 
the $9.5 million balance is included in prepaid insurance, a current asset, on our Consolidated Balance Sheets.  
The premiums owed to United at December 31, 2012, were $10.5 million, which is included in accrued health 
insurance costs, a current liability, on our Consolidated Balance Sheets. 

We believe the use of recent claims activity is representative of incurred and paid trends during the reporting 
period.  The estimated completion rate used to compute incurred but not reported claims involves a significant 
level of judgment.  Accordingly, an increase (or decrease) in the completion rates used to estimate the incurred 
claims would result in an increase (or decrease) in benefits costs and net income would decrease (or increase) 
accordingly.   

The following table illustrates the sensitivity of changes in the completion rates on our estimate of total 
benefit costs of $939.5 million in 2012: 

Change in 
Completion Rate 

(2.5)% 
(1.0)% 
1.0% 
2.5% 

Change in  
Benefits Costs  
(in thousands) 

$  (18,064) 
(7,226) 
7,226 
18,064 

Change in 
Net Income 
(in thousands) 

$  7,370 
2,948 
(2,948) 
(7,370) 

(cid:120)  (cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86) (cid:177) (cid:54)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:50)(cid:70)(cid:87)(cid:82)(cid:69)(cid:72)(cid:85)(cid:3)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:19)(cid:26)(cid:15)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)
through our arrangement with the (cid:36)(cid:38)(cid:40)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:3)(cid:11)(cid:179)(cid:36)(cid:38)(cid:40)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:56)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:85)(cid:85)(cid:68)(cid:81)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:36)(cid:38)(cid:40)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72) 
(cid:179)(cid:36)(cid:38)(cid:40)(cid:3)(cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:180)(cid:12)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:69)(cid:72)(cid:68)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:69)(cid:88)(cid:85)(cid:71)(cid:72)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:7)(cid:20)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:68)(cid:92)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72), and 
effective October 1, 2010, we also bear the economic burden for a maximum aggregate amount of $5 million per 
policy year for claim amounts that exceed the first $1 million.  ACE bears the economic burden for all claims in 
excess of these levels.  The ACE Program is a fully insured policy whereby ACE has the responsibility to pay all 
claims incurred under the policy regardless of whether we satisfy our responsibilities.  Our coverage from 
September 1, 2003 through September 30, 2007 was provided through selected member insurance companies of 
American International Group, Inc.  

Because we bear the economic burden for claims up to the levels noted above, such claims, which are the primary 
(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:15)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:17)(cid:3)(cid:3)(cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182) 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 
(cid:82)(cid:73)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:182)(cid:3)(cid:77)(cid:82)(cid:69)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:76)(cid:86)(cid:87)(cid:82)(cid:85)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:73)(cid:85)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
severity of workers(cid:182) 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 (cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:39)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)years ended December 31, 2012 and 2011, 
Insperity (cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:71)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:7)13.1 million and $11.4 million, respectively, for 
(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:86)(cid:17)(cid:3)(cid:3)(cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)
discounted to present value at a rate based upon the U.S. Treasury rates that correspond with the weighted average 

- 33 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
estimated claim payout period (the average discount rate utilized in 2012 and 2011 was 0.6% and 1.1%, 
respectively) and are accreted over the estimated claim payment period and included as a component of direct 
costs in our Consolidated Statements of Operations.   

Our claim trends could be greater than or less than our prior estimates, in which case we would revise our claims 
estimates and record an adjustment (cid:87)(cid:82)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:17)(cid:3)(cid:3)(cid:44)(cid:73)(cid:3)
we were to experience any significant changes in actuarial assumptions, our loss development rates could increase 
(or decrease), which would result in an increase (or decrease) i(cid:81)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
decrease (or increase) in net income reported in our Consolidated Statements of Operations.   

(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:76)(cid:79)(cid:79)(cid:88)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:72)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182) 
compensation costs totaling $51.6 million in 2012: 

Change in Loss 
Development Rate 

(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182) 
Compensation Costs 
(in thousands) 

(5.0)% 
(2.5)% 
2.5% 
5.0% 

$ 

(2,491) 
(1,246) 
1,246 
2,491 

Change in  
Net Income  
(in thousands) 

$ 

1,470 
735 
(735) 
(1,470) 

At the beginning of each policy period, the insurance carrier establishes monthly funding requirements comprised 
(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:72)(cid:80)(cid:76)(cid:88)(cid:80)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:86)(cid:72)(cid:87)(cid:3)(cid:68)(cid:86)(cid:76)(cid:71)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:11)(cid:179)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)
is primarily (cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:85)(cid:82)(cid:79)(cid:79)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)
rates, as determined by the carrier.  Monies funded into the program for incurred claims expected to be paid 
within one year are recorded as restricted cash, a short-term asset, while the remainder of claim funds are included 
in deposits, a long-term asset in our Consolidated Balance Sheets.  In 2012, we received $2.5 million for the 
return of excess claim funds related to the ACE program, which reduced deposits.  As of December 31, 2012, we 
had restricted cash of $47.1 million and deposits of $64.2 million.  We have estimated and accrued $111.7 million 
(cid:76)(cid:81)(cid:3)(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)12.  Our estimate of incurred claim costs 
(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:83)(cid:68)(cid:76)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:75)(cid:82)(cid:85)(cid:87)-
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. 

(cid:120)  Contingent liabilities (cid:177) We accrue and disclose contingent liabilities in our Consolidated Financial Statements in 
accordance with ASC 450-10, Contingencies.  GAAP requires accrual of contingent liabilities that are considered 
probable to occur and that can be reasonably estimated.  For contingent liabilities that are considered reasonably 
possible to occur, financial statement disclosure is required, including the range of possible loss if it can be 
reasonably determined. From time to time we disclose in our financial statements issues that we believe are 
reasonably possible to occur, although we cannot determine the range of possible loss in all cases.  As issues 
develop, we evaluate the probability of future loss and the potential range of such losses.  If such evaluation were 
to determine that a loss was probable and the loss could be reasonably estimated, we would be required to accrue 
our estimated loss, which would reduce net income in the period that such determination was made.   

(cid:120)  Deferred taxes (cid:177) We have recorded a valuation allowance to reduce our deferred tax assets to the amount that is 
more likely than not to be realized.  While we have considered future taxable income and ongoing prudent and 
feasible tax planning strategies in assessing the need for the valuation allowance, our ability to realize our deferred 
tax assets could change from our current estimates.  If we determine that we would be able to realize our deferred 
tax assets in the future in excess of the net recorded amount, an adjustment to reduce the valuation allowance 
would increase net income in the period that such determination is made.  Likewise, should we determine that we 
will not be able to realize all or part of our net deferred tax assets in the future, an adjustment to increase the 
valuation allowance would reduce net income in the period such determination is made. 

- 34 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(cid:120)  Allowance for doubtful accounts (cid:177) We maintain an allowance for doubtful accounts for estimated losses resulting 
from the inability of our customers to pay their comprehensive service fees.  We believe that the success of our 
business is heavily dependent on our ability to collect these comprehensive service fees for several reasons, 
including:  

(cid:120) 

(cid:120) 
(cid:120) 

the fact that we are at risk for the payment of our direct costs and worksite employee payroll costs regardless 
of whether our clients pay their comprehensive service fees 
the large volume and dollar amount of transactions we process 
the periodic and recurring nature of payroll, upon which the comprehensive service fees are based 

To mitigate this risk, we have established very tight credit policies.  We generally require our Workforce 
Optimization clients to pay their comprehensive service fees no later than one day prior to the applicable payroll 
date.  In addition, we maintain the right to terminate the CSA and associated worksite employees or to require 
prepayment, letters of credit or other co(cid:79)(cid:79)(cid:68)(cid:87)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:76)(cid:73)(cid:3)(cid:68)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:76)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)(cid:71)(cid:82)(cid:72)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)
pay the comprehensive service fee.  As a result of these efforts, losses related to customer nonpayment have 
historically been low as a percentage of revenues.  However, if ou(cid:85)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:182)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:76)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)
rapidly, resulting in nonpayment, our accounts receivable balances could grow and we could be required to 
provide for additional allowances, which would decrease net income in the period that such determination was 
made.  

(cid:120)  Property and equipment (cid:177) Our property and equipment relate primarily to our facilities and related 

improvements, furniture and fixtures, computer hardware and software and capitalized software development 
costs.  These costs are depreciated or amortized over the estimated useful lives of the assets.  If we determine that 
the useful lives of these assets will be shorter than we currently estimate, our depreciation and amortization 
expense could be accelerated, which would decrease net income in the periods of such a determination.  In 
addition, we periodically evaluate these costs for impairment.  If events or circumstances were to indicate that any 
of our long-lived assets might be impaired, we would assess recoverability based on the estimated undiscounted 
future cash flows to be generated from the applicable asset.  In addition, we may record an impairment loss, which 
would reduce net income, to the extent that the carrying value of the asset exceeded the fair value of the asset.  
Fair value is generally determined using an estimate of discounted future net cash flows from operating activities 
or upon disposal of the asset. 

(cid:120)  Goodwill and other intangibles (cid:177) Goodwill is tested for impairment on an annual basis and between annual tests 
in certain circumstances, and is written down when impaired. Purchased intangible assets other than goodwill are 
amortized over their useful lives unless these lives are determined to be indefinite.  Our purchased intangible 
assets are carried at cost less accumulated amortization.  Amortization is computed over the estimated useful lives 
of the respective assets, which ranges from three to 10 years.  Please read Note 5 to the Consolidated Financial 
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:179)(cid:42)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:44)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17) 

New Accounting Pronouncements  

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

statements and do not believe there are any new or pending pronouncements that will materially impact our financial 
position or results of operations. 

- 35 - 

 
 
 
 
 
 
 
 
 
 
Results of Operations 

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011. 

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

Year ended December 31, 
2011 

2012 

% Change  
(in thousands, except per share and statistical data) 

Revenues (gross billings of $12.992 billion and $11.700 
billion, less worksite employee payroll cost of $10.833 
billion and $9.724 billion, respectively) ...........................  
Gross profit ...........................................................................  
Operating expenses ...............................................................  
Operating income .................................................................  
Other income (expense) ........................................................  
Net income ............................................................................  
Diluted net income per share of common stock....................  

Statistical Data: 
Average number of worksite employees paid per month .....  
Revenues per worksite employee per month(3) ......................  
Gross profit per worksite employee per month .....................  
Operating expenses per worksite employee per month ........  
Operating income per worksite employee per month ...........  
Net income per worksite employee per month .....................  
_______________ 

  $  2,158,824 
382,221 
314,727(1) 
67,494 
796 
40,402 
1.56 

  $  1,976,219 
351,775 
294,461 
57,314 
(6,539)(2) 
30,470 
1.16 

  $ 

125,650 
1,432 
253 
208 
45 
27 

  $ 

116,839 
1,410 
251 
210 
41 
22 

9.2% 
8.7% 
6.9% 
17.8% 
112.2% 
32.6% 
34.5% 

7.5% 
1.6% 
0.8% 
(1.0)% 
9.8% 
22.7% 

(1) 

(2) 

Includes an impairment charge in the fourth quarter of 2012 of $4.2 million.  Please read Note 5 to the Consolidated Financial Statements, 
(cid:179)(cid:42)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:44)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17) 
Includes the impact of a $4.4 million loss related to the exchange of an aircraft, and a $3.1 million loss related to a settlement with the State of 
California.  Please read Note 13 to (cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) on 
the settlement with the State of California. 

(3)  Gross billings of $8,617 and $8,345 per worksite employee per month, less payroll cost of $7,185 and $6,935 per worksite employee per 

month, respectively. 

- 36 - 

 
 
 
 
  
 
 
  
 
 
 
 
 
 
   
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues 

Our revenues in 2012, which represent gross billings net of worksite employee payroll cost, increased 9.2% 

compared to 2011, due to a 1.6%, or $22 increase in revenues per worksite employee per month and a 7.5% increase in 
the average number of worksite employees paid per month.  The 1.6% increase in revenues per worksite employee per 
month was due primarily to increases in the benefits and payroll tax pricing to offset increases in these direct costs.   

By region, our Workforce Optimization revenue change from 2011 and distribution for the years ended 

December 31, 2012 and 2011 were as follows: 

  2012  

Year ended December 31, 
  2011 
(in thousands) 

% Change 

Northeast...............................  $ 
Southeast............................... 
Central .................................. 
Southwest ............................. 
West ...................................... 

560,455 
198,049 
312,373 
595,379 
461,427 
    2,127,683 
Other revenue ....................... 
31,141 
Total revenue ........................  $  2,158,824 

$ 

513,075 
192,116 
282,503 
561,908 
397,363 
    1,946,965 
29,254 
$  1,976,219 

9.2% 
3.1% 
10.6% 
6.0% 
16.1% 
9.3% 
6.5% 
9.2% 

 Year ended December 31,   
  2012 

  2011 

(% of total revenue) 

26.3% 
9.3% 
14.7% 
28.0% 
  21.7%  
100.0% 

26.3% 
9.9% 
14.5% 
28.9% 
  20.4%  
100.0% 

Other revenue is comprised primarily of revenues generated by our ABUs. 

Our growth in the number of worksite employees paid is affected by three primary sources (cid:177) new client sales, 
client retention and the net change in existing clients through worksite employee new hires and layoffs.  During 2012, 
new client sales and client retention declined, while the net change in existing clients remained flat compared to 2011.  
As a result, our year-over-year growth in worksite employees paid per month during 2012 was 7.5% compared to 9.2% 
during 2011. 

Gross Profit  

Gross profit increased 8.7% to $382.2 million compared to 2011.  The average gross profit per worksite 

employee increased 0.8% to $253 per month in 2012 versus $251 in 2011.  Our pricing objectives attempt to maintain 
or improve the gross profit per worksite employee by increasing revenue per worksite employee to match or exceed 
changes in primary direct costs and operating expenses. 

While our revenues per worksite employee per month increased 1.6% to $1,432 in 2012 versus 2011, our 

direct costs, which primarily incl(cid:88)(cid:71)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:85)(cid:82)(cid:79)(cid:79)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:15)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)ensation expenses, increased 1.7% to 
$1,179 per worksite employee per month.  The primary direct cost components changed as follows: 

(cid:120)  Benefits costs (cid:177) The cost of group health insurance and related employee benefits increased $8 per worksite 

employee per month, or 3.5%, on a per covered employee basis compared to 2011.  The percentage of worksite 
employees covered under our health insurance plan was 72.1% in 2012 versus 73.7% in 2011(cid:17)(cid:3)(cid:3)(cid:51)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:179)(cid:178)
Critical Accounting Policies and Estimates (cid:177) (cid:37)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:86)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)
insurance costs.   

(cid:120)  (cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:177) (cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)increased 9.8%, or $1 per worksite employee per 

month compared to 2011.  As a percentage of non-(cid:69)(cid:82)(cid:81)(cid:88)(cid:86)(cid:3)(cid:83)(cid:68)(cid:92)(cid:85)(cid:82)(cid:79)(cid:79)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:15)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)remained flat 
at 0.54% compared to 2011.  During 2012(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)13.1 
million, or 0.14% of non-bonus payroll costs, for changes in estimated losses related to prior reporting periods, 
compared to $11.4 million, or 0.13% of non-bonus payroll costs in 2011.  The 2012 period costs include the 
impact of a 0.6(cid:8)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:15)(cid:3)(cid:70)(cid:82)mpared to a 1.1% discount 
rate used in the 2011 period.  (cid:51)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:179)(cid:178)Critical Accounting Policies and Estimates (cid:177) (cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)
(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:86)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:17) 

- 37 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(cid:120)  Payroll tax costs (cid:177) Payroll taxes increased 9.9%, or $11 per worksite employee per month compared to 2011, due 
primarily to an 11.4% increase in total payroll cost in 2012 as compared to 2011.  Payroll taxes as a percentage of 
payroll cost decreased to 7.05% in 2012 compared to 7.15% in 2011.   

Operating Expenses 

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

Year ended December 31, 

Year ended December 31, 

2012 

  2011 
(in thousands) 

  %  Change 

    2012 

    2011    %  Change 
(per worksite employee per month) 

Salaries, wages and payroll taxes .......   $  168,807 
9,814 
Stock(cid:177)based compensation ................  
14,515 
Commissions ......................................  
21,586 
Advertising ........................................  
77,564 
General and administrative expenses .  
4,191 
Impairment charge .............................  
18,250 
Depreciation and amortization ...........  
Total operating expenses ..............   $  314,727 

$  155,233 
8,601 
13,451 
26,613 
75,345 
(cid:178) 
15,218 
$  294,461 

8.7% 
14.1% 
7.9% 
(18.9)% 
2.9% 
(cid:178) 
19.9% 
6.9% 

$ 

$ 

112 
7 
10 
14 
50 
3 
12 
208 

$ 

$ 

111 
6 
10 
19 
53 
(cid:178) 
11 
210 

0.9% 
16.7% 

  (cid:178) 

(26.3)% 
(5.7)% 

  (cid:178) 

9.1% 
(1.0)% 

Operating expenses increased 6.9% to $314.7 million compared to 2011.  The 2012 operating expenses 

included a $4.2 million impairment charge incurred in connection with our annual goodwill impairment assessment of 
our Performance Management reporting unit.  (cid:51)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:24)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:179)(cid:42)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:44)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)Operating expenses per worksite employee per month 
decreased to $208 in 2012 from $210 in 2011.  The components of operating expenses changed as follows: 

(cid:120)  Salaries, wages and payroll taxes of corporate and sales staff increased 8.7%, or $1 per worksite employee per 

month compared to 2011, primarily due to a 6.1% rise in headcount. 

(cid:120)  Stock-based compensation increased 14.1%, or $1 per worksite employee per month compared to 2011, 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 and the annual stock grant made to non-employee directors.  Please read Note 1 to the Consolidated 
(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:179)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:51)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:180) for additional information.  

(cid:120)  Commissions expense increased 7.9%, but remained flat on a per worksite employee per month basis compared to 

2011. 

(cid:120)  Advertising costs decreased 18.9%, or $5 per worksite employee per month compared to 2011, primarily due to 

the non-recurrence of expenses related to our 2011 rebranding initiative. 

(cid:120)  General and administrative expenses increased 2.9%, but decreased $3 per worksite employee per month, 
primarily due to increased professional fees and office expenses, partially offset by the non-recurrence of 
expenses related to our 2011 rebranding initiative.   

(cid:120)  Depreciation and amortization expense increased 19.9%, or $1 per worksite employee per month compared to 
2011, primarily due to investments in our technology infrastructure and amortization associated with our 
acquisitions.   

Other Income (Expense) 

Other income was $0.8 million in 2012 compared to other expense of $6.5 million in 2011, primarily due to a 

$4.4 million loss in 2011 related to the exchange of an aircraft, and a $3.1 million loss in 2011 related to a settlement 
with the State of California.  Please read Note 13 (cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
Contingencies,(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) on the settlement with the State of California. 

- 38 - 

 
 
 
 
   
 
   
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income Tax Expense 

During 2012 we incurred federal and state income tax expense of $27.9 million on pre-tax income of $68.3 

million.  Our provision for income taxes differed from the US statutory rate of 35% primarily due to state income taxes 
and non-deductible expenses, offset slightly by tax-exempt interest income.  Our effective income tax rate was 40.8% 
in 2012 compared to 40.0% in 2011. 

Net Income 

Net income for 2012 was $40.4 million, or $1.56 per diluted share, compared to $30.5 million, or $1.16 per 
diluted share in 2011.  On a per worksite employee per month basis, net income was $27 in 2012 compared to $22 in 
2011. 

- 39 - 

 
 
 
 
 
 
 
Results of Operations 

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010. 

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

Year ended December 31, 
2010 

2011 

% Change  
(in thousands, except per share and statistical data) 

Revenues (gross billings of $11.700 billion and $10.169 
billion, less worksite employee payroll cost of $9.724 
billion and $8.449 billion, respectively) ...........................  
Gross profit ...........................................................................  
Operating expenses ...............................................................  
Operating income .................................................................  
Other income (expense) ........................................................  
Net income ............................................................................  
Diluted net income per share of common stock....................  

Statistical Data: 
Average number of worksite employees paid per month .....  
Revenues per worksite employee per month(2) ......................  
Gross profit per worksite employee per month .....................  
Operating expenses per worksite employee per month ........  
Operating income per worksite employee per month ...........  
Net income per worksite employee per month .....................  
_______________ 

  $  1,976,219 
351,775 
294,461 
57,314 
(6,539)(1) 
30,470 
1.16 

  $  1,719,752 
298,536 
261,476 
37,060 
961 
22,440 
0.86 

  $ 

116,839 
1,410 
251 
210 
41 
22 

  $ 

107,014 
1,339 
232 
204 
29 
17 

14.9% 
17.8% 
12.6% 
54.7% 
(780.4)% 
35.8% 
34.9% 

9.2% 
5.3% 
8.2% 
2.9% 
41.4% 
29.4% 

(1) 

Includes the impact of a $4.4 million loss related to the exchange of an aircraft, and a $3.1 million loss related to a settlement with the State of 
California.  Please read Note 13 (cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:180) for additional information on 
the settlement with the State of California. 

(2)  Gross billings of $8,345 and $7,919 per worksite employee per month, less payroll cost of $6,935 and $6,580 per worksite employee per 

month, respectively. 

Revenues 

Our revenues in 2011, which represent gross billings net of worksite employee payroll cost, increased 14.9% 
compared to 2010, due to a 5.3%, or $71 increase in revenues per worksite employee per month and a 9.2% increase in 
the average number of worksite employees paid per month.  The 5.3% increase in revenues per worksite employee per 
month was due primarily to increases in the benefits and payroll tax pricing to offset increases in these direct costs.   

By region, our Workforce Optimization revenue change from 2010 and distribution for the years ended 

December 31, 2011 and 2010 were as follows: 

  2011  

Year ended December 31, 
  2010 
(in thousands) 

% Change 

Northeast...............................  $ 
Southeast............................... 
Central .................................. 
Southwest ............................. 
West ...................................... 

513,075 
192,116 
282,503 
561,908 
397,363 
    1,946,965 
Other revenue ....................... 
29,254 
Total revenue ........................  $  1,976,219 

$ 

412,233 
184,223 
251,756 
522,518 
331,916 
    1,702,646 
17,106 
$  1,719,752 

24.5% 
4.3% 
12.2% 
7.5% 
19.7% 
14.3% 
71.0% 
14.9% 

Other revenue is comprised primarily of revenues generated by our ABUs. 

- 40 - 

 Year ended December 31,   
  2011 

  2010 

(% of total revenue) 

26.3% 
9.9% 
14.5% 
28.9% 
  20.4%  
100.0% 

24.2% 
10.8% 
14.8% 
30.7% 
  19.5%  
100.0% 

 
 
 
 
  
 
 
  
 
 
 
 
 
 
   
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Our growth in the number of worksite employees paid is affected by three primary sources (cid:177) new client 

sales, client retention and the net change in existing clients through worksite employee new hires and layoffs.  
During 2011, new client sales, client retention and the net change in existing clients all improved as compared to 
2010.  As a result, our average number of paid worksite employees increased 9.2% in 2011 compared to 2010.   

Gross Profit  

Gross profit increased 17.8% to $351.8 million compared to 2010.  The average gross profit per worksite 

employee increased 8.2% to $251 per month in 2011 versus $232 in 2010.  Our pricing objectives attempt to 
maintain or improve the gross profit per worksite employee by increasing revenue per worksite employee to match 
or exceed changes in primary direct costs and operating expenses. 

While our revenues per worksite employee per month increased 5.3% to $1,410 in 2011 versus 2010, our 

(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:85)(cid:82)(cid:79)(cid:79)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:15)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)ensation expenses, increased 4.7% to 
$1,159 per worksite employee per month.  The primary direct cost components changed as follows: 

(cid:120)  Benefits costs (cid:177) The cost of group health insurance and related employee benefits increased $23 per worksite 
employee per month, or 4.8%, on a per covered employee basis compared to 2010.  These results were 
favorably impacted by a decrease in the number of COBRA participants.  The number of participants electing 
COBRA coverage in the United plan declined from 5.5% in the fourth quarter of 2010 to 3.2% in the fourth 
quarter of 2011, due primarily to the August 2011 expiration of the 65% federal premium subsidy provided to 
COBRA eligible participants under the ARRA.  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 plan was 73.7% in 2011 versus 74.3% in 2010(cid:17)(cid:3)(cid:3)(cid:51)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:179)(cid:178)Critical 
Accounting Policies and Estimates (cid:177) (cid:37)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:86)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)
costs.   

(cid:120)  (cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:177) (cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)increased 3.0%, but decreased $2 per worksite 
employee per month compared to 2010.  As a percentage of non-(cid:69)(cid:82)(cid:81)(cid:88)(cid:86)(cid:3)(cid:83)(cid:68)(cid:92)(cid:85)(cid:82)(cid:79)(cid:79)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:15)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
costs decreased to 0.54% in 2011 from 0.60% in 2010.  During 2011, we (cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)
compensation costs of $11.4 million, or 0.13% of non-bonus payroll costs, for changes in estimated losses 
related to prior reporting periods, compared to $6.2 million, or 0.08% of non-bonus payroll costs in 2010.  The 
2011 period costs include the impact of a 1.1(cid:8)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) loss claims, 
compared to a 1.4% discount rate used in the 2010 period.  (cid:51)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:179)(cid:178)Critical Accounting Policies and 
Estimates (cid:177) (cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:86)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:17) 

(cid:120)  Payroll tax costs (cid:177) Payroll taxes increased 15.7%, or $28 per worksite employee per month compared to 2010.   
Payroll taxes as a percentage of payroll cost increased from 7.11% in 2010 to 7.15% in 2011.  The increase in 
payroll tax costs was due primarily to a 15.1% increase in total payroll cost in 2011 as compared to 2010. 

Operating Expenses 

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

Year ended December 31, 

Year ended December 31, 

2011 

  2010 
(in thousands) 

  %  Change 

    2011 

    2010    %  Change 
(per worksite employee per month) 

Salaries, wages and payroll taxes ........  
Stock(cid:177)based compensation ..................  
Commissions .......................................  
Advertising ..........................................  
General and administrative expenses ...  
Depreciation and amortization .............  
Total operating expenses ..............  

  $  155,233  $  146,901 
8,126 
11,881 
16,447 
63,214 
14,907 
$  294,461  $  261,476 

8,601 
13,451 
26,613 
75,345 
15,218 

5.7% 
5.8% 
13.2% 
61.8% 
19.2% 
2.1% 
12.6% 

$ 

$ 

111 
6 
10 
19 
53 
11 
210 

$ 

$ 

115 
6 
9 
13 
49 
12 
204 

(3.5)% 

  (cid:178) 

11.1% 
46.2% 
8.2% 
(8.3)% 
2.9% 

- 41 - 

 
 
 
 
 
 
 
 
 
 
   
 
   
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
Operating expenses increased 12.6% to $294.5 million compared to 2010.  The 2011 operating expenses 

included $11.8 million related to our rebranding initiative and $9.2 million associated with acquisitions completed in 
late 2010 and early 2011.  Operating expenses per worksite employee per month increased to $210 in 2011 versus 
$204 in 2010.  The components of operating expenses changed as follows: 

(cid:120)  Salaries, wages and payroll taxes of corporate and sales staff increased 5.7%, but decreased $4 per worksite 
employee per month compared to 2010.  The overall increase was primarily due to a 7.4% rise in headcount 
related to our ABU strategy and associated acquisitions, offset by a decrease in incentive compensation. 

(cid:120)  Stock-based compensation increased 5.8%, but remained flat on a per worksite employee per month basis 
compared to 2010, 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 and the annual stock grant made to non-employee directors.  Please read 
Note 1 to the Consolidated Financial Statements, (cid:179)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:51)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86),(cid:180) for additional information.  

(cid:120)  Commissions expense increased 13.2%, or $1 per worksite employee per month compared to 2010, primarily 

due to a 9% increase in the average number of worksite employees paid per month and an $0.8 million increase 
in ABU commissions. 

(cid:120)  Advertising costs increased 61.8%, or $6 per worksite employee per month compared to 2010, primarily due to 

advertising and business promotions related to our rebranding initiative. 

(cid:120)  General and administrative expenses increased 19.2%, or $4 per worksite employee per month, primarily due to 
increased travel and training, costs associated with our rebranding initiative, increased consulting and costs 
associated with acquisitions made in late 2010 and early 2011. 

(cid:120)  Depreciation and amortization expense decreased $1 per worksite employee per month, but increased 2.1% 

compared to the 2010 period due to investments in our technology infrastructure and amortization associated 
with our acquisitions.   

Other Income (Expense) 

Other expense was $6.5 million in 2011 compared to other income of $961,000 in 2010, primarily due to a 

$4.4 million loss related to the exchange of an aircraft and a $3.1 million loss related to a settlement with the State 
of California in the third quarter of 2011.  Please read Note 13 to the Consolidated Financial Statements, 
(cid:179)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86),(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) on the settlement with the State of California. 

Income Tax Expense 

During 2011 we incurred federal and state income tax expense of $20.3 million on pre-tax income of $50.8 

million.  Our provision for income taxes differed from the US statutory rate of 35% primarily due to state income 
taxes and non-deductible expenses, offset slightly by tax-exempt interest income.  Our effective income tax rate was 
40.0% in the 2011 period compared to 41.0% in the 2010 period. 

Net Income 

Net income for 2011 was $30.5 million, or $1.16 per diluted share, compared to $22.4 million, or $0.86 
per diluted share in 2010.  On a per worksite employee per month basis, net income was $22 in 2011 compared to 
$17 in 2010. 

- 42 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP Financial Measures 

Non-bonus payroll cost is a non-GAAP financial measure that excludes the impact of bonus payrolls paid to 

our worksite employees.  Bonus payroll cost varies from period to period, but has no direct impact to our ultimate 
(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:17)(cid:3)(cid:3)(cid:36)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:15)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:81)(cid:82)(cid:81)-bonus payroll cost 
(cid:76)(cid:81)(cid:3)(cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:93)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:70)(cid:68)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)(cid:49)(cid:82)(cid:81)-GAAP financial measures are not 
prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other 
companies.  Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of 
financial performance prepared in accordance with GAAP.  We include these non-GAAP financial measures because 
we believe they are useful to investors in allowing for greater transparency related to the costs incurred under our 
(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:17)(cid:3)(cid:3)(cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)encouraged to review the reconciliation of the non-GAAP 
financial measures used to their most directly comparable GAAP financial measures as provided in the table below. 

Year ended December 31, 
  % Change  
2011 
(in thousands, except per worksite employee) 

2012 

GAAP to non-GAAP reconciliation: 

Payroll cost (GAAP) .......................................................     $ 10,832,966 
1,326,442 
Less: bonus payroll cost ..................................................      
Non-bonus payroll cost ................................................     $  9,506,524 

  $  9,723,990 
    1,059,677 
  $  8,664,313 

Payroll cost per worksite employee (GAAP) ..................   $ 
Less: Bonus payroll cost per worksite employee ............      

Non-bonus payroll cost per worksite employee ...........     $ 

7,185 
880 
6,305 

$ 

  $ 

6,935 
755 
6,180 

11.4% 
25.2% 
9.7% 

3.6% 
16.6% 
2.0% 

Liquidity and Capital Resources 

We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of, 
among other things, our expansion plans, potential acquisitions, debt service requirements and other operating cash 
needs.  To meet short-term liquidity requirements, which are primarily the payment of direct and operating 
expenses, we rely primarily on cash from operations.  Longer-term projects or significant acquisitions may be 
financed with debt or equity.  We have in the past sought, and may in the future seek, to raise additional capital or 
take other steps to increase or manage our liquidity and capital resources.  We had $281.4 million in cash, cash 
equivalents and marketable securities at December 31, 2012, of which approximately $158.2 million was payable in 
early January 2013 for withheld federal and state income taxes, employment taxes and other payroll deductions, and 
$13.5 million were customer prepayments that were payable in January 2013.  At December 31, 2012, we had 
working capital of $115.7 million compared to $126.6 million at December 31, 2011.  We currently believe that our 
cash on hand, marketable securities, cash flows from operations and availability under our credit facility will be 
adequate to meet our liquidity requirements for 2013.  We will rely on these same sources, as well as public and 
private debt or equity financing, to meet our longer-term liquidity and capital needs. 

In September 2011, we completed the financing for a four-year, $100 million revolving credit facility 
(cid:11)(cid:179)(cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:180)(cid:12), with a syndicate of financial institutions.  The Facility is available for working capital and general 
corporate purposes, including acquisitions, and was undrawn at December 31, 2012.  Please read Note 7 to the 
Consolidated Financial Statements, (cid:179)(cid:53)(cid:72)(cid:89)(cid:82)(cid:79)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92),(cid:180)(cid:3)for additional information. 

Cash Flows from Operating Activities 

Our cash flows from operating activities in 2012 were $90.8 million.  Our primary source of cash from 

operations is the comprehensive service fee and payroll funding we collect from our Workforce Optimization 
clients.  Cash and cash equivalents, and thus our reported cash flows from operating activities, are significantly 
impacted by various external and internal factors, which are reflected in part by the changes in our balance sheet 
accounts.  These include the following: 

- 43 - 

 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
(cid:120) 

(cid:120) 

(cid:120) 

(cid:120) 

Timing of client payments / payroll levels (cid:177) We typically collect our comprehensive service fee, along with 
the client(cid:182)(cid:86)(cid:3)(cid:83)(cid:68)(cid:92)(cid:85)(cid:82)(cid:79)(cid:79)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:87)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:71)(cid:68)(cid:92)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)
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 and at month-end; therefore, operating cash flows decrease in the reporting periods that end 
on a Friday.  In the year ended December 31, 2012, which the last business day of the reporting period 
ended on a Monday, client prepayments were $13.5 million and accrued worksite employee payroll was 
$150.1 million.  In the year ended December 31, 2011, which ended on a Friday, client prepayments were 
$10.4 million and accrued worksite employee payroll was $130.3 million. 

(cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:177) (cid:56)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:85)(cid:85)(cid:68)(cid:81)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)
make monthly payments to the carriers comprised of premium costs and funds to be set aside for payment 
(cid:82)(cid:73)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:11)(cid:179)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)-determined amounts are stipulated in our agreements with the 
(cid:70)(cid:68)(cid:85)(cid:85)(cid:76)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:85)(cid:82)(cid:79)(cid:79)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)
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 the cash payments, which will impact our 
reporting of operating cash flows.  Our claim funds paid, based upon anticipated worksite employee payroll 
(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:7)46.7 million in 2012 and $41.5 million in 2011.  
However, our estimates (cid:82)(cid:73)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:90)ere $36.9 million and $35.3 million in 2012 
and 2011, respectively.  During 2012 and 2011, we received $2.5 million and $10.0 million, respectively, 
(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:81)(cid:3)
increase to working capital.   

Medical plan funding (cid:177) Our health care contract with United establishes participant cash funding rates 90 
days in advance of the beginning of a reporting quarter.  Therefore, changes in the participation level of the 
United Plan have a direct impact on our operating cash flows.  In addition, changes to the funding rates, 
which are solely determined by United based primarily upon recent claim history and anticipated cost 
trends, also have a significant impact on our operating cash flows.  Since inception of the United plan, 
premiums paid and owed to United have exceeded Plan Costs, resulting in an $18.5 million surplus, $9.5 
million of which is reflected as a current asset, and $9.0 million of which is reflected as a long-term asset 
on our Consolidated Balance Sheets at December 31, 2012.  The premiums owed to United at December 
31, 2012, were $10.5 million, which is included in accrued health insurance costs, a current liability, on our 
Consolidated Balance Sheets. 

Operating results (cid:177) Our net income has a significant impact on our operating cash flows.  Our net income 
increased 32.6% to $40.4 million in 2012 from $30.5 million in 2011.  Please read (cid:179)Results of Operations (cid:177) 
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011.(cid:180) 

Cash Flows From Investing Activities 

Our cash flows from investing activities were $17.9 million during 2012.  We invested $17.6 million in 

capital expenditures, primarily related to our technology infrastructure.  We also invested $37.8 million, net, in 
marketable securities and $2.4 million in acquisitions. 

Cash Flows Used in Financing Activities 

Our cash flows used in financing activities were $55.3 million during 2012, primarily due to $16.9 million 
in share repurchases and $42.7 million in dividends paid, including a special cash dividend of $25.7 million paid in 
the fourth quarter.  

- 44 - 

 
 
 
 
 
 
 
 
 
Contractual Obligations and Commercial Commitments 

The following table summarizes our contractual obligations and commercial commitments as of  
December 31, 2012, and the effect they are expected to have on our liquidity and capital resources (in thousands): 

Contractual obligations 

Total 

Less than 
1 Year 

1-3 Years 

3-5 Years 

More than 
5 Years 

Non-cancelable operating leases .............  
Purchase obligations(1)..............................  
Other long-term liabilities: 

(cid:36)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)

  $  42,309 
30,836 

  $  13,648 
6,308 

  $  17,726 
12,706 

  $ 

8,454 
6,332 

  $  2,481 
5,490 

claim costs(2) ....................................  
Total contractual cash obligations .......  

  $ 111,685 
  $ 184,830 

  $  45,396 
  $  65,352 

  $  29,903 
  $  60,335 

  $  25,196 
  $  39,982 

  $  11,190 
  $  19,161 

(1) 
The table includes purchase obligations associated with non-cancelable contracts individually greater than  $100,000 and one year. 
(2)  (cid:36)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)claim costs include the short and long-term amounts.  For more information, please read, (cid:179)(cid:38)(cid:85)(cid:76)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)

Accounting Policies and Estimates (cid:177) (cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:86).(cid:180)(cid:3) 

Seasonality, Inflation and Quarterly Fluctuations 

We believe the effects of inflation have not had a significant impact on our results of operations or financial 

condition. 

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 

We are primarily exposed to market risks from fluctuations in interest rates and the effects of those 

fluctuations on the market values of our cash equivalent short-term investments and our available-for-sale 
marketable securities.  In addition, borrowings under our Facility bear interest at a variable market rate.  As of 
December 31, 2012, we had not drawn on the Facility.  Please read Note 7 to the Consolidated Financial Statements, 
(cid:179)(cid:53)(cid:72)(cid:89)(cid:82)(cid:79)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92),(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)The cash equivalent short-term investments consist 
primarily of overnight investments, which are not significantly exposed to interest rate risk, except to the extent that 
changes in interest rates will ultimately affect the amount of interest income earned on these investments.  The 
available-for-sale marketable securities are subject to interest rate risk because these securities generally include a 
fixed interest rate.  As a result, the market values of these securities are affected by changes in prevailing interest 
rates. 

We attempt to limit our exposure to interest rate risk primarily through diversification and low investment 

turnover.  Our investment policy is designed to maximize after-tax interest income while preserving our principal 
investment.  As a result, our marketable securities consist of tax-exempt short and intermediate-term debt securities, 
which are primarily prefunded municipal bonds that are secured by escrow funds containing U.S. Government 
Securities. 

- 45 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table presents information about our available-for-sale marketable securities as of December 

31, 2012 (dollars in thousands): 

  Principal 
    Maturities   

Coupon 
  Interest Rate  

Effective 
  Yield 

2013 ................................. 
2014 ................................. 
2015 ................................. 
Total ................................. 
Fair Market Value ............ 

  $ 

9,055 
6,110 
1,050 
  $  16,215 
  $  16,904 

5.24% 
4.92% 
3.57% 
5.01% 

0.64% 
0.36% 
0.41% 
0.52% 

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 

The information required by this Item 8 is contained in a separate section of this Annual Report.  See 

(cid:179)(cid:44)(cid:81)(cid:71)(cid:72)(cid:91)(cid:3)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86).(cid:180)(cid:3) 

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE. 

None. 

ITEM 9A.  CONTROLS AND PROCEDURES. 

Evaluation of Disclosure Controls and Procedures 

In accordance with Exchange Act Rules 13a-15 and 15a-15, we carried out an evaluation, under the 

supervision and with the participation of management, including our Chief Executive Officer and Chief Financial 
Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this 
report.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our 
disclosure controls and procedures were effective as of December 31, 2012. 

Design and Evaluation of Internal Control over Financial Reporting 

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we included a report of m(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)

assessment of the design and effectiveness of our internal controls as part of this Annual Report on Form 10-K for 
the fiscal year ended December 31, 2012.  Ernst & Young, LLP, our independent registered public accounting firm, 
also audited our internal control over financial reporting.  (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)and the independent registered 
(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:76)(cid:85)(cid:80)(cid:182)(cid:86)(cid:3)audit report are included in our 2012 Consolidated Financial Statements under the captions 
(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:79)(cid:72)(cid:71)(cid:3)(cid:179)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:51)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:41)(cid:76)(cid:85)(cid:80)(cid:15)(cid:180)(cid:3)and are incorporated herein by reference. 

There has been no change in our internal controls over financial reporting that occurred during the three 

months ended December 31, 2012, that has materially affected, or is reasonably likely to materially affect, our 
internal controls over financial reporting. 

ITEM 9B.  OTHER INFORMATION. 

None. 

- 46 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART III 

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. 

Some of the information required by this item is incorporated by reference to the information set forth 

(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:179)(cid:51)(cid:85)(cid:82)(cid:83)(cid:82)(cid:86)(cid:68)(cid:79)(cid:3)(cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:20)(cid:29)(cid:3)(cid:40)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:177) Nominees (cid:177) Class II Directors (For Terms Expiring 
at the 2015 (cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:48)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:12)(cid:15)(cid:180)(cid:3)(cid:179)(cid:177) Directors Rema(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:15)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:177) Section 16(a) Beneficial Ownership 
(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:51)(cid:85)(cid:82)(cid:91)(cid:92)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:73)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)
pursuant to Regulation 14A within 120 days after the end of the fiscal year covered (cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)Insperity 
(cid:51)(cid:85)(cid:82)(cid:91)(cid:92)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:12)(cid:17) 

Code of Business Conduct and Ethics 

(cid:50)(cid:88)(cid:85)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:38)(cid:82)(cid:71)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:87)(cid:75)(cid:76)(cid:70)(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:82)(cid:71)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:40)(cid:87)(cid:75)(cid:76)(cid:70)(cid:86)(cid:180)(cid:12)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)

meets the requirements of Rule 303A.10 of the New York Stock Exchange Listed Company Manual and Item 406 of 
Regulation S-K.  You can access our Code of Ethics on the Corporate Governance page of our website at 
insperity.com.  Changes in and waivers to the Code of Ethics for our directors, executive officers and certain senior 
financial officers will be posted on our Internet website within five business days and maintained for at least 12 
months. 

ITEM 11.  EXECUTIVE COMPENSATION. 

The information required by this item is incorporated by reference to the information set forth under the 

(cid:70)(cid:68)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:179)(cid:51)(cid:85)(cid:82)(cid:83)(cid:82)(cid:86)(cid:68)(cid:79)(cid:3)(cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:20)(cid:29)(cid:3)(cid:40)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:177) (cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:178)Exec(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)
the Insperity Proxy Statement. 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND 
RELATED STOCKHOLDER MATTERS. 

The information required by this item is incorporated by reference to the information set forth under the 
(cid:70)(cid:68)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:179)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:50)(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:37)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)Insperity Proxy Statement. 

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR 
INDEPENDENCE. 

The information required by this item is incorporated by reference to the information set forth under the 

(cid:70)(cid:68)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:179)(cid:51)(cid:85)(cid:82)(cid:83)(cid:82)(cid:86)(cid:68)(cid:79)(cid:3)(cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:20)(cid:29)(cid:3)(cid:40)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:177) (cid:38)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
Insperity Proxy Statement.   

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES. 

The information required by this item is incorporated by reference to the information set forth under the 

(cid:70)(cid:68)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:179)(cid:51)(cid:85)(cid:82)(cid:83)(cid:82)(cid:86)(cid:68)(cid:79)(cid:3)Number 3:  Ratification and Appointment of Independent Public Accountants (cid:177) Fees of Ernst & 
Yo(cid:88)(cid:81)(cid:74)(cid:3)(cid:47)(cid:47)(cid:51)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:178)Finance, Risk Management and Audit Committee Pre-Approval Policy for Audit and Non-
(cid:36)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)Insperity Proxy Statement. 

- 47 - 

 
 
 
 
 
 
 
 
 
 
 
 
ITEM 15.  EXHIBITS FINANCIAL STATEMENT SCHEDULES. 

(a) 

1. 

Financial Statements of the Company 

PART IV 

The Consolidated Financial Statements listed by the Registrant on the accompanying Index to 
Consolidated Financial Statements are filed as part of this Annual Report. 

(a) 

2. 

Financial Statement Schedules 

The required information is included in the Consolidated Financial Statements or Notes thereto. 

(a) 

3. 

List of Exhibits 

3.1 

3.2 

3.3 

3.4 

4.1 

  4.2 

  4.3 
10.1(cid:130) 

10.2(cid:130)(cid:3)(cid:3) 

10.3(cid:130)(cid:3)(cid:3) 

10.4(cid:130)(cid:3)(cid:3) 

10.5(cid:130) 

10.6(cid:130) 

10.7(cid:130) 

10.8(cid:130) 

Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the 
(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:54)-1 (No. 33-96952)). 
Certificate of Ownership and Merger dated March 3, 2011 (incorporated by 
(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:22)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q for the quarter ended March 
31, 2011). 
Amended and Restated Bylaws of Insperity, Inc. dated March 3, 2011 (incorporated 
by reference to Exhibit 3.2 to the (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q for the quarter ended 
March 31, 2011). 
Certificate of Designation of Series A Junior Participating Preferred Stock setting 
forth the terms of the Preferred Stock (included as Exhibit A to the Rights 
Agreement). 
Specimen Common Stock Certificate  (incorporated by reference to Exhibit 4.1 to 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:54)-1 (No. 33-96952)). 
Rights Agreement dated as of November 13, 2007 between Insperity, Inc. and 
Mellon Investor Services, LLC, as Righ(cid:87)(cid:86)(cid:3)(cid:36)(cid:74)(cid:72)(cid:81)(cid:87)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:53)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)(cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:12)(cid:3)
(cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:23)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)
8-K filed on November 16, 2007). 
Form of Rights Certificate (included as Exhibit B to the Rights Agreement).  
Insperity, Inc. 2001 Incentive Plan, as amended and restated (incorporated by 
reference to (cid:36)(cid:83)(cid:83)(cid:72)(cid:81)(cid:71)(cid:76)(cid:91)(cid:3)(cid:36)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:91)(cid:92)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:54)(cid:70)(cid:75)(cid:72)(cid:71)(cid:88)(cid:79)(cid:72)(cid:3)
14A filed on March 18, 2009 (No. 1-13998)). 
Form of Incentive Stock Option Agreement (1997 Plan) (incorporated by reference 
(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:26)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-K filed for the year ended December 31, 
2004). 
Form of Incentive Stock Option Agreement (2001 Plan (cid:177) 3 year vesting) 
(incorporated by reference to Exhibit 10.8 to the Registra(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-K filed for the 
year ended December 31, 2004). 
Form of Incentive Stock Option Agreement (2001 Plan (cid:177) 5 year vesting) 
((cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:28)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-K filed for the 
year ended December 31, 2004). 
Form of Director Stock Option Agreement (Annual Grant) (incorporated by 
(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:20)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-K filed for the year ended 
December 31, 2004). 
Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.12 to 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-K filed for the year ended December 31, 2004). 
Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.1 to 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q filed for the quarter ended September 30, 2012). 
Form of Director Stock Option Agreement (incorporated by reference to Exhibit 10.2 
(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q filed for the quarter ended September 30, 2012). 

- 48 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.9(cid:130) 

10.10 

10.11 

10.12 

10.13 

10.14 

10.15 

10.16(cid:130) 

10.17(cid:130) 

10.18 

10.19 

Form of Director Restricted Stock Award Agreement (incorporated by reference to 
Ex(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:22)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q filed for the quarter ended September 30, 
2012). 
Insperity, Inc. Nonqualified Stock Option Plan (incorporated by reference to Exhibit 
(cid:28)(cid:28)(cid:17)(cid:25)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:54)-8 (No. 333-85151)). 
First Amendment to Insperity, Inc. Nonqualified Stock Option Plan, effective August 
(cid:26)(cid:15)(cid:3)(cid:21)(cid:19)(cid:19)(cid:20)(cid:3)(cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:27)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-K for 
the year ended December 31, 2002). 
Second Amendment to Insperity, Inc. Nonqualified Stock Option Plan, effective 
(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:27)(cid:15)(cid:3)(cid:21)(cid:19)(cid:19)(cid:22)(cid:3)(cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:28)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)
10-K for the year ended December 31, 2002). 
Insperity, Inc. Amended and Restated Employee Stock Purchase Plan effective April 
(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:19)(cid:21)(cid:3)(cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:20)(cid:19)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-K 
for the year ended December 31, 2002). 
First Amendment to Insperity, Inc. Amended and Restated Employee Stock Purchase 
Plan, effective July 31, 2002 (incorporated by reference to Exhibit 10.11 to the 
(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-K for the year ended December 31, 2002). 
Second Amendment to Insperity, Inc. Amended and Restated Employee Stock 
Purchase Plan, effective August 15, 2003 (incorporated by reference to Exhibit 10.12 
(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-K for the year ended December 31, 2003). 
Directors Compensation Plan (incorporated by reference to Exhibit 10.4 to the 
(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q filed for the quarter ended September 30, 2012). 
Board of Directors Compensation Arrangements (incorporated by reference to the 
(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)Form 8-K dated February 7, 2005). 
Insperity, Inc. 2008 Employee Stock Purchase Plan (incorporated by reference to 
(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) Statement on Form S-8 (No. 333-
151275)). 
Insperity, Inc. 2012 Incentive Plan (incorporated by reference to (cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86) 
definitive proxy statement on Schedule 14A filed on March 29, 2012 (No. 1-13998)). 

10.20(+)  Minimum Premium Financial Agreement by and between Insperity Holdings, Inc. 

and United Healthcare Insurance Company, Hartford, Connecticut (incorporated by 
(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:22)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q for the quarter ended June 
30, 2002).  

10.21(+)  Minimum Premium Administrative Services Agreement by and between Insperity 
Holdings, Inc. and United Healthcare Insurance Company, Hartford, Connecticut 
(cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:23)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q for the 
quarter ended June 30, 2002). 

10.22(+)  Amended and Restated Security Deposit Agreement by and between Insperity 

Holdings, Inc. and United Healthcare Insurance Company, Hartford, Connecticut 
(cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:24)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q for the 
quarter ended June 30, 2002).  

10.23(+)  Amendment to Various Agreements between United Healthcare Insurance Company 

10.24 

and Insperity Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the 
(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q for the quarter ended June 30, 2005). 
Houston Service Center Operating Lease Amendment (incorporated by reference to 
(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:21)(cid:26)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-K for the year ended December 31, 2004). 

10.25(+)  Letter Agreement dated April 21, 2007, between Insperity Holdings, Inc. and 

UnitedHealthcare Insurance Company (incorporated by reference to Exhibit 10.1 to 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q for the quarter ended June 30, 2007). 

10.26(+)   Amendment to Minimum Premium Financial Agreement, as amended and restated 
effective January 1, 2005, by and between Insperity Holdings, Inc., and 
UnitedHealthcare Insurance Company (incorporated by reference to Exhibit 10.2 to 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q for the quarter ended June 30, 2007). 

10.27(+)  Amendment to Minimum Premium Administrative Services Agreement, as amended 
and restated effective January 1, 2005, by and between Insperity Holdings, Inc., and 
UnitedHealthcare Insurance Company (incorporated by reference to Exhibit 10.3 to 

- 49 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q for the quarter ended June 30, 2007). 
10.28(+)  Letter Agreement dated October 1, 2010, between Insperity Holdings, Inc. and 

UnitedHealthcare Insurance Company (incorporated by reference to Exhibit 10.29 to 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-K filed for the year ended December 31, 2010). 

10.29(+)*  Letter Agreement dated October 22, 2012, between Insperity Holdings, Inc. and 

10.30 

10.31 

10.32* 
21.1* 
23.1* 
24.1* 
31.1* 

31.2* 

32.1** 

32.2** 

UnitedHealthcare Insurance Company. 
Exchange Agreement for Corporate Aircraft, dated August 30, 2011 (incorporated by 
(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q for the quarter ended 
September 30, 2011). 
Credit Agreement dated September 15, 2011 (incorporated by reference to Exhibit 
10.1 (cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86) Current Report on Form 8-K filed on September 1, 2011). 
Amendment No. 1 to the Credit Agreement dated December 7, 2012. 
Subsidiaries of Insperity, Inc. 
Consent of Independent Registered Public Accounting Firm. 
Powers of Attorney. 
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 Schema Document. 
101.CAL*  XBRL Taxonomy Extension Calculation Linkbase Document. 
101.DEF*  XBRL Extension Definition Linkbase Document. 
101.LAB*  XBRL Taxonomy Extension Label Linkbase Document. 
101.PRE*  XBRL Taxonomy Extension Presentation Linkbase Document. 
_____________________ 

* 

Filed herewith. 

**  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 years ended December 31, 2012, 2011 
and 2010; (ii) the Consolidated Balance Sheets at December 31, 2012 and 2011; (iii) the Consolidated Statements of 
Comprehensive Income for the years ended December 31, 2012, 2011 and 2010; (iv) the Consolidated Statements of 
(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)2010; and (v) the Consolidated Statements of 
Cash Flows for the years ended December 31, 2012, 2011 and 2010.  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.  

(cid:130)  Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. 

(+)  Confidential treatment has been requested for this exhibit and confidential portions have been filed with the 

Securities and Exchange Commission. 

- 50 - 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SIGNATURES 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Insperity, Inc. 
has duly caused this report to be signed in its behalf by the undersigned, thereunto duly authorized, on February 11, 
2013. 

INSPERITY, INC. 

By: /s/ Douglas S. Sharp 

Douglas S. Sharp 
 Senior Vice President of Finance  
Chief Financial Officer and Treasurer 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the 

following persons on behalf of Insperity, Inc. in the capacities indicated on February 11, 2013: 

Signature 

/s/ Paul J. Sarvadi 
Paul J. Sarvadi 

/s/ Richard G. Rawson 
Richard G. Rawson 

/s/ Douglas S. Sharp 
Douglas S. Sharp 

* 
Michael W. Brown 

* 
Jack M. Fields, Jr. 

Eli Jones 

* 

* 

Paul S. Lattanzio 

* 
Gregory E. Petsch 

/s/ Austin P. Young 
Austin P. Young 

* By:/s/ Daniel D. Herink  
Daniel D. Herink, attorney-in-fact 

- 51 - 

Title 

Chairman of the Board, Chief Executive Officer  
and Director 
(Principal Executive Officer) 

President and Director 

Senior Vice President of Finance  
Chief Financial Officer and Treasurer 
(Principal Financial Officer) 

Director 

Director 

Director 

Director 

Director 

Director 

 
 
 
  
        
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 

Report of Independent Registered Public Accounting Firm ...................................................................................... F-2 

(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)s Report on Internal Control ................................................................................................................ F-3 

Report of Independent Registered Public Accounting Firm 
  on Internal Control over Financial Reporting ........................................................................................................ F-4 

Consolidated Balance Sheets as of December 31, 2012 and 2011 ............................................................................ F-5 

Consolidated Statements of Operations for the years ended  

December 31, 2012, 2011 and 2010 ....................................................................................................................... F-7 

Consolidated Statements of Comprehensive Income for the years ended 
  December 31, 2012, 2011 and 2010 ....................................................................................................................... F-8 

(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71) 

December 31, 2012, 2011 and 2010 ....................................................................................................................... F-9 

Consolidated Statements of Cash Flows for the years ended 

December 31, 2012, 2011 and 2010 ..................................................................................................................... F-10 

Notes to Consolidated Financial Statements ........................................................................................................... F-12 

F-1 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

Board of Directors and Stockholders 
Insperity, Inc. 

We have audited the accompanying Consolidated Balance Sheets of Insperity, Inc. as of December 31, 2012 and 
2011, and the related Consolidated Statements of Operations, Comprehensive Income, (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) and 
Cash Flows for each of the three years in the period ended December 31, 2012.  These financial statements are the 
(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
statements based on our audits. 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board 
(United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the 
accounting principles used and significant estimates made by management, as well as evaluating the overall 
financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion. 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated 
financial position of Insperity, Inc. at December 31, 2012 and 2011, and the consolidated results of its operations 
and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. 
generally accepted accounting principles. 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United 
States), Insperity(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)eporting as of December 31, 2012, based on criteria 
established in Internal Control (cid:177) Integrated Framework issued by the Committee of Sponsoring Organizations of the 
Treadway Commission and our report dated February 11, 2013 expressed an unqualified opinion thereon. 

/s/ Ernst & Young LLP 

Houston, Texas 
February 11, 2013 

F-2 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(cid:48)(cid:36)(cid:49)(cid:36)(cid:42)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)(cid:182)(cid:54)(cid:3)(cid:53)(cid:40)(cid:51)(cid:50)(cid:53)(cid:55)(cid:3)ON INTERNAL CONTROL 

The Company has assessed the effectiveness of its internal control over financial reporting as of December 31, 2012, 
based on criteria established by Internal Control (cid:177) Integrated Framework issued by the Committee of Sponsoring 
Organizat(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:55)(cid:85)(cid:72)(cid:68)(cid:71)(cid:90)(cid:68)(cid:92)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:38)(cid:50)(cid:54)(cid:50)(cid:3)(cid:41)(cid:85)(cid:68)(cid:80)(cid:72)(cid:90)(cid:82)(cid:85)(cid:78)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)
for establishing and maintaining adequate internal controls over financial reporting.  The effectiveness of the 
(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74) as of December 31, 2012 (cid:75)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)
independent registered public accounting firm, as stated in their report that is included herein. 

Internal control over financial reporting is a process designed 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.  Internal control over financial reporting includes those policies and 
procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the 
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are 
recorded as necessary to permit preparation of financial statements in accordance with generally accepted 
accounting principles, and that receipts and expenditures of the company are being made only in accordance with 
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding 
(cid:83)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:79)(cid:92)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:88)(cid:81)(cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:88)(cid:86)(cid:72)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)
have a material effect on the financial statements.  Because of the inherent limitations, internal control over financial 
reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future 
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the 
degree of compliance with the policies and procedures may deteriorate. 

(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:87)(cid:72)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
evaluating the design and operating effectiveness of its internal controls.  (cid:44)(cid:81)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)
has maintained effective internal control over financial reporting as of December 31, 2012, based on criteria 
established in the COSO Framework. 

/s/ Paul J. Sarvadi 
Paul J. Sarvadi 
Chairman of the Board and 
Chief Executive Officer 

/s/ Douglas S. Sharp 
Douglas S. Sharp 
Senior Vice President of Finance 
Chief Financial Officer and Treasurer 

F-3 

 
 
 
 
 
 
 
 
 
 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

Board of Directors and Stockholders 
Insperity, Inc. 

We have audited Insperity(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)reporting as of December 31, 2012, based on criteria 
established in Internal Control(cid:178)Integrated Framework issued by the Committee of Sponsoring Organizations of the 
Treadway Commission (the COSO criteria). Insperity(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:182)(cid:86)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial 
(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)Internal Control. Our responsibility is to express 
(cid:68)(cid:81)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:17)(cid:3) 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board 
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about 
whether effective internal control over financial reporting was maintained in all material respects. Our audit 
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material 
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the 
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe 
that our audit provides a reasonable basis for our opinion. 

(cid:36)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in 
(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:79)(cid:72)(cid:86)(cid:17)(cid:3)(cid:36)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, 
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable 
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance 
with generally accepted accounting principles, and that receipts and expenditures of the company are being made 
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable 
assurance reg(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:79)(cid:92)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:88)(cid:81)(cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:88)(cid:86)(cid:72)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)
assets that could have a material effect on the financial statements. 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become 
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may 
deteriorate. 

In our opinion, Insperity, Inc. maintained, in all material respects, effective internal control over financial reporting 
as of December 31, 2012, based on the COSO criteria. 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United 
States), the Consolidated Balance Sheets of Insperity, Inc. as of December 31, 2012 and 2011, and the related 
Consolidated Statements of Operations, Comprehensive Income, (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) and Cash Flows for each of 
the three years in the period ended December 31, 2012 of Insperity, Inc. and our report dated February 11, 2013 
expressed an unqualified opinion thereon. 

/s/ Ernst & Young LLP 

Houston, Texas 
February 11, 2013 

F-4 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
CONSOLIDATED BALANCE SHEETS 
(in thousands) 

ASSETS 

December 31, 
2012 

December 31, 
2011 

Current assets: 

Cash and cash equivalents ...........................................................  
Restricted cash .............................................................................  
  Marketable securities ...................................................................  

$ 

Accounts receivable, net: 

Trade ....................................................................................  
Unbilled ................................................................................  
Other .....................................................................................  
Prepaid insurance .........................................................................  
Other current assets ......................................................................  
Income taxes receivable ..............................................................  
Deferred income taxes .................................................................  
Total current assets ...............................................................  

Property and equipment: 

Land .............................................................................................  
Buildings and improvements .......................................................  
Computer hardware and software ................................................  
Software development costs ........................................................  
Furniture and fixtures ..................................................................  
Aircraft ........................................................................................  

Accumulated depreciation and amortization ......................................  
Total property and equipment, net........................................  

Other assets: 

Prepaid health insurance ..............................................................  
Deposits (cid:177) health insurance .........................................................  
Deposits (cid:177) (cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) ..............................................  
Goodwill and other intangible assets, net ....................................  
Other assets ..................................................................................  
Total other assets ..................................................................  
Total assets .......................................................................  

$ 

264,544 
47,149 
16,904 

6,931 
181,040 
2,415 
15,620 
9,651 
(cid:178) 
7,211 
551,465 

4,115 
68,583 
81,140 
35,866 
36,717 
35,879 
262,300 
(168,358) 
93,942 

9,000 
3,000 
64,201 
23,775 
4,817 
104,793 
750,200 

$ 

$ 

211,208 
44,737 
56,987 

7,893 
158,508 
4,532 
21,300 
11,488 
2,902 
3,233 
522,788 

3,653 
67,496 
76,105 
32,699 
36,133 
35,866 
251,952 
(159,008) 
92,944 

9,000 
2,640 
52,320 
28,433 
4,134 
96,527 
712,259 

F-5 

 
 
 
 
 
 
 
       
                                                                                                                            
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
CONSOLIDATED BALANCE SHEETS (Continued) 
(in thousands) 

(cid:47)(cid:44)(cid:36)(cid:37)(cid:44)(cid:47)(cid:44)(cid:55)(cid:44)(cid:40)(cid:54)(cid:3)(cid:36)(cid:49)(cid:39)(cid:3)(cid:54)(cid:55)(cid:50)(cid:38)(cid:46)(cid:43)(cid:50)(cid:47)(cid:39)(cid:40)(cid:53)(cid:54)(cid:182)(cid:3)(cid:40)(cid:52)(cid:56)(cid:44)(cid:55)(cid:60) 

December 31, 
2012 

December 31, 
2011 

Current liabilities: 

Accounts payable ............................................................................  
Payroll taxes and other payroll deductions payable ........................  
Accrued worksite employee payroll cost ........................................  
Accrued health insurance costs .......................................................  
(cid:36)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)............................................  
Accrued corporate payroll and commissions ..................................  
Other accrued liabilities ..................................................................  
Income tax payable .........................................................................  
Total current liabilities.............................................................  

Noncurrent liabilities: 

(cid:36)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)............................................  
Deferred income taxes ....................................................................  
Total noncurrent liabilities .......................................................  

Commitments and contingencies 

(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:29) 

Preferred stock, par value $0.01 per share: 

Shares authorized (cid:177) 20,000 
Shares issued and outstanding (cid:177) none .........................................  

Common stock, par value $0.01 per share: 

Shares authorized  (cid:177) 60,000 
Shares issued (cid:177) 30,758 and 30,839 at December 31, 2012 and  
  2011, respectively ....................................................................  
Additional paid-in capital ...............................................................  
Treasury stock, at cost (cid:177) 5,096 and 5,141 shares at December 31, 
2012 and 2011, respectively ........................................................  
Accumulated other comprehensive income, net of tax ...................  
Retained earnings ...........................................................................  
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) .......................................................  
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)..............................  

$ 

3,660 
178,534 
150,070 
13,942 
49,484 
23,537 
12,478  
4,054 
435,759 

64,536 
9,000 
73,536 

(cid:178) 

308 

133,207 

(133,950) 
16 
241,324 
240,905 
750,200 

$ 

$ 

5,085 
168,652 
130,317 
9,427 
46,548 
22,383 
13,814 
(cid:178) 
396,226 

60,054 
10,772 
70,826 

(cid:178) 

309 

135,871 

(134,647) 
24 
243,650 
245,207 
712,259 

$ 

See accompanying notes. 

F-6 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
CONSOLIDATED STATEMENTS OF OPERATIONS 
(in thousands, except per share amounts) 

Revenues (gross billings of $12.992 billion, $11.700 
billion and $10.169 billion, less worksite employee 
payroll cost of $10.833 billion, $9.724 billion and 
$8.449 billion, respectively) ..........................................

Direct costs: 
  (cid:51)(cid:68)(cid:92)(cid:85)(cid:82)(cid:79)(cid:79)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:15)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)compensation  

Year ended December 31, 

2012 

2011 

2010 

  $  2,158,824 

  $  1,976,219 

  $  1,719,752 

  costs ...........................................................................
Gross profit .......................................................................

1,776,603 
382,221 

1,624,444 
351,775 

1,421,216 
298,536 

Operating expenses: 
  Salaries, wages and payroll taxes ..................................
  Stock-based compensation ............................................
  Commissions .................................................................
  Advertising ....................................................................
  General and administrative expenses .............................
  Impairment charge .........................................................
  Depreciation and amortization .......................................    

Operating income ..............................................................

Other income (expense): 
  Interest, net ....................................................................
  Other, net .......................................................................    

168,807 
9,814 
14,515 
21,586 
77,564 
4,191 
18,250 
314,727 
67,494 

609 
187 

Income before income tax expense ...................................

68,290 

Income tax expense ...........................................................    

27,888 

155,233 
8,601 
13,451 
26,613 
75,345 
(cid:178) 
15,218 
294,461 
57,314 

969 
(7,508) 

50,775 

20,305 

146,901 
8,126 
11,881 
16,447 
63,214 
(cid:178) 
14,907 
261,476 
37,060 

991 
(30) 

38,021 

15,581 

Net income ........................................................................   $ 

40,402 

  $ 

30,470 

  $ 

22,440 

Less distributed and undistributed earnings allocated to 
participating securities...................................................

(1,224) 

(908) 

(657) 

Net income allocated to common shares ...........................   $ 

39,178 

  $ 

29,562 

  $ 

21,783 

Basic net income per share of common stock ...................   $ 

1.57 

  $ 

1.16 

  $ 

Diluted net income per share of common stock ................   $ 

1.56 

  $ 

1.16 

  $ 

0.86 

0.86 

See accompanying notes. 

F-7 

 
 
 
 
 
 
 
 
 
   
 
 
   
 
   
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
   
 
   
 
 
 
 
 
 
 
   
   
 
   
   
   
 
 
 
 
 
 
 
   
   
 
 
 
 
 
 
 
 
   
   
 
 
 
 
 
 
 
 
 
   
 
   
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
(in thousands) 

2012 

Year ended December 31, 
2011 

2010 

Net income ...............................................................  

  $ 

40,402 

  $ 

30,470 

  $ 

22,440 

Other comprehensive income: 

Unrealized gain (loss) on available-for-sale 

securities, net of tax ......................................  

(8) 

3 

18 

Comprehensive income ...........................................  

  $ 

40,394 

  $ 

30,473 

  $ 

22,458 

F-8 

 
 
 
 
 
 
   
 
 
   
 
   
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
 
 
 
 
 
 
 
 
INSPERITY, INC. 
(cid:38)(cid:50)(cid:49)(cid:54)(cid:50)(cid:47)(cid:44)(cid:39)(cid:36)(cid:55)(cid:40)(cid:39)(cid:3)(cid:54)(cid:55)(cid:36)(cid:55)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)(cid:54)(cid:3)(cid:50)(cid:41)(cid:3)(cid:54)(cid:55)(cid:50)(cid:38)(cid:46)(cid:43)(cid:50)(cid:47)(cid:39)(cid:40)(cid:53)(cid:54)(cid:182)(cid:3)(cid:40)(cid:52)(cid:56)(cid:44)(cid:55)(cid:60) 
(in thousands) 

Common Stock  
Issued 
Shares   Amount 

Additional 
Paid-In 
Capital 

Treasury 
Stock 

Accumulated 
Other 
Comprehensive 
Income (Loss) 

Retained 
Earnings 

Total 

30,839 

$   309 

$  138,551 

$  (135,712)   

$ 

3 

  $  220,009 

 $  223,160 

  (cid:650) 
  (cid:650) 

  (cid:650) 
  (cid:650) 

(cid:650) 
(1,963) 

(7,852) 
9,146 

  (cid:650) 

  (cid:650) 

  (cid:178) 
  (cid:650) 
  (cid:178) 

  (cid:178) 
  (cid:178) 
30,839 

  (cid:178) 
  (cid:650) 
  (cid:178) 

  (cid:178) 
  (cid:178) 
$   309 

25 

(966) 
(40) 
(cid:178) 

(cid:178) 
(cid:178) 
$  135,607 

(cid:178) 

9,092 
862 
(cid:178) 

(cid:178) 
(cid:178) 

$  (124,464)   

$ 

  (cid:650) 
  (cid:650) 

  (cid:650) 
  (cid:650) 

(cid:650) 
(1,042) 

(25,079) 
4,998 

  (cid:650) 

  (cid:650) 

1,663 

  (cid:178) 
  (cid:650) 
  (cid:178) 

  (cid:178) 
  (cid:178) 
30,839 

  (cid:178) 
  (cid:650) 
  (cid:178) 

  (cid:178) 
  (cid:178) 
$  309 

(416) 
59 
(cid:178) 

(cid:178) 
(cid:178) 
$  135,871 

(cid:178) 

9,017 
881 
(cid:178) 

(cid:178) 
(cid:178) 

$  (134,647)   

$ 

  (cid:650) 
(81) 
  (cid:650) 

  (cid:650) 
(1) 
  (cid:650) 

(cid:650) 
(3,161) 
(1,630) 

(13,773) 
(cid:650) 
3,879 

  (cid:650) 

  (cid:650) 

1,751 

  (cid:178) 
  (cid:650) 
  (cid:178) 

  (cid:178) 
  (cid:178) 
30,758 

  (cid:178) 
  (cid:650) 
  (cid:178) 

  (cid:178) 
  (cid:178) 
$  308 

289 
87 
(cid:178) 

(cid:178) 
(cid:178) 
$  133,207 

(cid:178) 

9,525 
1,066 
(cid:178) 

(cid:178) 
(cid:178) 

$  (133,950)   

$ 

(cid:178) 
(cid:178) 

(cid:178) 

(cid:178) 
(cid:178) 
(cid:178) 

18 
(cid:178) 
21 

(cid:178) 
(cid:178) 

(cid:178) 

(cid:178) 
(cid:178) 
(cid:178) 

3 
(cid:178) 
24 

(cid:178) 
(cid:650) 
(cid:178) 

(cid:178) 

(cid:178) 
(cid:178) 
(cid:178) 

(cid:650) 
(cid:650) 

(cid:650) 

(cid:178) 
(cid:650) 
(13,527) 

(7,852) 
7,183 

25 

8,126 
822 
(13,527) 

(cid:178) 
22,440 
  $  228,922 

18 
22,440 
 $  240,395 

(cid:650) 
(cid:650) 

(cid:650) 

(cid:178) 
(cid:650) 
(15,742) 

(25,079) 
3,956 

1,663 

8,601 
940 
(15,742) 

(cid:178) 
30,470 
  $  243,650 

3 
30,470 
 $  245,207 

(cid:650) 
(cid:650) 
(cid:650) 

(cid:650) 

(cid:178) 
(cid:650) 
(42,728) 

(13,773) 
(3,162) 
2,249 

1,751 

9,814 
1,153 
(42,728) 

(8) 
(cid:178) 
16 

(cid:178) 
40,402 
  $  241,324 

(8) 
40,402 
 $  240,905 

Balance at December 31, 2009 
  Purchase of treasury stock,  

at cost 

  Exercise of stock options 

Income tax benefit from stock-
  based compensation, net 
  Stock-based compensation  

  expense 

  Other 
  Dividends paid 
  Unrealized gain on marketable 

securities, net of tax 

  Net income 
Balance at December 31, 2010 
  Purchase of treasury stock,  

at cost 

  Exercise of stock options 

Income tax benefit from stock-
  based compensation, net 
  Stock-based compensation  

  expense 

  Other 
  Dividends paid 
  Unrealized gain on marketable 

securities, net of tax 

  Net income 
Balance at December 31, 2011 
  Purchase of treasury stock,  

at cost 

  Repurchase of common stock 
  Exercise of stock options 

Income tax benefit from stock-
  based compensation, net 
  Stock-based compensation  

  expense 

  Other 
  Dividends paid 
  Unrealized loss on marketable 

securities, net of tax 

  Net income 
Balance at December 31, 2012 

See accompanying notes.

F-9 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
INSPERITY, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(in thousands) 

Year ended December 31, 
2011 

2010 

2012 

Cash flows from operating activities: 

Net income .............................................................................................. 
Adjustments to reconcile net income to net cash provided by  
  operating activities: 

Depreciation and amortization ......................................................... 
Loss on exchange of assets .............................................................. 
Impairment charge ........................................................................... 
Amortization of marketable securities ............................................. 
Stock-based compensation .............................................................. 
Deferred income taxes ..................................................................... 
Changes in operating assets and liabilities,  

net of acquisitions: 

Restricted cash ............................................................................. 
Accounts receivable ..................................................................... 
Prepaid insurance ......................................................................... 
Other current assets ...................................................................... 
Other assets .................................................................................. 
Accounts payable ......................................................................... 
Payroll taxes and other payroll deductions payable ..................... 
Accrued worksite employee payroll expense ............................... 
Accrued health insurance costs .................................................... 
(cid:36)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86) ......................................... 
Accrued corporate payroll, commissions and other 
  accrued liabilities ...................................................................... 
Income taxes payable/receivable.................................................. 
Total adjustments .................................................................... 
Net cash provided by operating activities ........................... 

Cash flows from investing activities: 
  Marketable securities: 

Purchases ......................................................................................... 
Proceeds from maturities ................................................................. 
Proceeds from dispositions .............................................................. 
Investments and acquisitions, net of cash acquired ................................ 
Property and equipment: 

Purchases ......................................................................................... 
Proceeds from dispositions .............................................................. 
Net cash provided by (used in) investing activities ............. 

  $  40,402 

  $  30,470 

  $  22,440 

18,183 
(cid:178) 
4,191 
2,295 
9,814 
(5,743) 

(2,412) 
(19,453) 
5,680 
1,837 
(12,924) 
(1,425) 
9,922 
19,753 
4,515 
7,418 

2,353 
6,392 
50,396 
90,798 

(30,680) 
32,619 
35,891 
(2,410) 

(17,631) 
69 
17,858 

15,218 
4,408 
(cid:178) 
2,172 
8,601 
(46) 

(3,533) 
(28,826) 
3,678 
(2,862) 
(652) 
1,776 
23,556 
20,620 
(5,992) 
8,791 

(1,871) 
(1,597) 
43,441 
73,911 

(51,397) 
31,706 
3,907 
(14,555) 

(31,440) 
82 
(61,697) 

14,950 
(cid:178) 
(cid:178) 
1,650 
8,126 
1,179 

(4,768) 
(18,874) 
(10,494) 
(2,141) 
4,180 
1,136 
17,499 
16,559 
9,045 
8,748 

9,556 
49 
56,400 
78,840 

(60,003) 
18,301 
2,748 
(12,918) 

(6,764) 
 54 
(58,582) 

F-10 

 
 
 
 
 
 
   
 
 
   
 
   
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
 
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
 
 
 
 
 
 
 
 
   
   
 
 
 
INSPERITY, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) 
(in thousands) 

Year ended December 31, 
2011 

2010 

2012 

Cash flows from financing activities: 

Purchase of treasury stock ...........................................................  
Repurchase of common stock ......................................................  
Dividends paid .............................................................................  
Proceeds from the exercise of stock options ................................  
Income tax benefit from stock-based compensation ....................  
Other ............................................................................................  
Net cash used in financing activities ........................  

  $  (13,773) 
(3,162) 
(42,728) 
2,249 
2,316 
(222) 
(55,320) 

  $  (25,079) 
(cid:178) 
(15,742) 
3,956 
2,166 
(1,136) 
(35,835) 

  $ 

(7,852) 
(cid:178) 
(13,527) 
7,183 
860 
822 
(12,514) 

Net increase (decrease) in cash and cash equivalents .........................  
Cash and cash equivalents at beginning of year .................................  
Cash and cash equivalents at end of year ...........................................  

53,336 
    211,208 
  $ 264,544 

(23,621) 
    234,829 
  $ 211,208 

7,744 
    227,085 
  $ 234,829 

Supplemental disclosures: 

Cash paid for income taxes ..........................................................  

  $  24,924 

  $  19,782 

  $  13,492 

In September 2011, we exchanged an existing aircraft with a fair value of $4.0 million and paid an 

additional $10.0 million to acquire a replacement aircraft, resulting in a non-cash loss of $4.4 million, which is 
included in other income (expense). 

See accompanying notes. 

F-11 

 
 
 
 
 
 
   
 
 
   
 
   
 
   
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
 
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
December 31, 2012 

1.  Accounting Policies 

Description of Business 

InsperityTM, Inc., formerly named Administaff, Inc. (cid:11)(cid:179)(cid:44)(cid:81)(cid:86)(cid:83)(cid:72)(cid:85)(cid:76)(cid:87)(cid:92)(cid:180)(cid:3)(cid:82)(cid:85)(cid:3)(cid:179)(cid:90)(cid:72)(cid:180)(cid:15)(cid:3)(cid:179)(cid:82)(cid:88)(cid:85)(cid:180)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:88)(cid:86)(cid:180)) provides an array 

(cid:82)(cid:73)(cid:3)(cid:75)(cid:88)(cid:80)(cid:68)(cid:81)(cid:3)(cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:3)(cid:11)(cid:179)(cid:43)(cid:53)(cid:180)(cid:12)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:86)(cid:82)(cid:79)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:75)(cid:72)(cid:79)(cid:83)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:17)(cid:3)(cid:3)Our name 
change, which was effective March 3, 2011, reflects our evolution over the past 25 years from a professional 
(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:85)(cid:3)(cid:82)(cid:85)(cid:74)(cid:68)(cid:81)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:51)(cid:40)(cid:50)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:3)we pioneered, to our current position as a comprehensive business 
performance solutions provider.   

Our most comprehensive HR business offering is provided through our PEO services, known as Workforce 

OptimizationTM solution, which encompasses a broad range of human resources functions, including payroll and 
(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:15)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)
management, and training and development services.  We were organized as a corporation in 1986 and have 
provided PEO services since inception. 

In addition to Workforce Optimization, we offer Human Capital Management, Payroll Services, Time and 

Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening, 
Financial Services, Expense Management, Retirement Services and Insurance Services, (colle(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:179)(cid:36)(cid:71)(cid:77)(cid:68)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)
(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:180)(cid:12)(cid:15)(cid:3)many of which are offered via desktop applications and software as a service delivery models.  These 
other products or services are offered separately, as a bundle, or along with Workforce Optimization. 

We provide our Workforce Optimization solution by entering into a co-employment relationship with our 
clients, under which Insperity and its clients each take responsibility for certain portions of the employer-employee 
relationship.  Insperity (cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:68)(cid:87)(cid:72)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:92)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:38)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)ces Agreement 
(cid:11)(cid:179)(cid:38)(cid:54)(cid:36)(cid:180)(cid:12)(cid:15)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)Insperity becomes the employer of (cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3)(cid:90)(cid:75)(cid:82)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
(cid:11)(cid:179)worksite employees(cid:180)(cid:12) for most administrative and regulatory purposes. 

As a co-employer of its worksite employees, we assume many of the rights and obligations associated with 

being an employer.  We enter into an employment agreement with each worksite employee, thereby maintaining a 
variety of employer rights, including the right to hire or terminate employees, the right to evaluate employee 
qualifications or performance, and the right to establish employee compensation levels.  Typically, Insperity only 
exercises these rights in consultation with its clients or when necessary to ensure regulatory compliance.  The 
responsibilities associated with our role as employer include the following obligations with regard to our worksite 
employees: (i) to compensate its worksite employees through wages and salaries; (ii) to pay the employer portion of 
payroll-related taxes; (iii) to withhold and remit (where applicable) the employee portion of payroll-related taxes; 
(cid:11)(cid:76)(cid:89)(cid:12)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:89)(cid:12)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:17)(cid:3) 

In addition to our assumption of employer status for our worksite employees, our Workforce Optimization 

solution also includes other human resources functions for our clients to support the effective and efficient use of 
personnel in their business operations.  To provide these functions, we maintain a significant staff of professionals 
trained in a wide variety of human resources functions, including employee training, employee recruiting, employee 
performance management, employee compensation, and employer liability management.  These professionals 
interact and consult wit(cid:75)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:3)(cid:71)(cid:68)(cid:76)(cid:79)(cid:92)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:75)(cid:72)(cid:79)(cid:83)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:92)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)irements and to ensure that 
we are providing appropriate and timely personnel management services. 

F-12 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

We provide our Workforce OptimizationTM solution to small and medium-sized businesses in strategically 

selected markets throughout the United States.  During 2012, 2011 and 2010, Workforce Optimization revenues 
from Insperity(cid:182)(cid:86)(cid:3)(cid:55)(cid:72)(cid:91)(cid:68)(cid:86)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:72)(cid:71) 26%, 27% and 28%, while Workforce Optimization revenues from 
Insperity(cid:182)(cid:86)(cid:3)California markets represented 17%, 16% and 15% of Insperity(cid:182)(cid:86)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)Workforce Optimization 
revenues, respectively. 

Revenue and Direct Cost Recognition 

We account for our Workforce Optimization revenues in accordance with Accounting Standards 
(cid:38)(cid:82)(cid:71)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:36)(cid:54)(cid:38)(cid:180)(cid:12)(cid:3)(cid:25)(cid:19)(cid:24)-45, Revenue Recognition, Principal Agent Considerations.  Our Workforce Optimization 
revenues are derived from our gross billings, which are based on (i) the payroll cost of its worksite employees; and 
(ii) a markup computed as a percentage of the payroll cost.  The gross billings are invoiced concurrently with each 
periodic payroll of its worksite employees.  Revenues, which exclude the payroll cost component of gross billings, 
and therefore, consist solely of markup, are recognized ratably over the payroll period as worksite employees 
perform their service at the client worksite.  Revenues that have been recognized but not invoiced are included in 
unbilled accounts receivable on our Consolidated Balance Sheets. 

In determining the pricing of the markup component of the gross billings, we take into consideration our 

estimates of the costs directly associated with our worksite employees, including payroll taxes, benefits and 
(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:15)(cid:3)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)fit margin.  As a result, our operating results are 
significantly impacted by our ability to accurately estimate, control and manage our direct costs relative to the 
revenues derived from the markup component of our gross billings. 

Consistent with our revenue recognition policy, our direct costs do not include the payroll cost of our 

worksite employees.  Our direct costs associated with our revenue generating activities are primarily comprised of 
all other costs related to our worksite employees, such as the employer portion of payroll-related taxes, employee 
(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:83)(cid:85)(cid:72)(cid:80)(cid:76)(cid:88)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:17) 

Segment Reporting 

 We operate one reportable segment under ASC 280, Segment Reporting. 

Principles of Consolidation 

The Consolidated Financial Statements include the accounts of Insperity, Inc. and its wholly owned 

subsidiaries.  Intercompany accounts and transactions have been eliminated in consolidation. 

Use of Estimates 

The preparation of financial statements in conformity with United States Generally Accepted Accounting 

Principles requires management to make estimates and assumptions that affect the amounts reported in the financial 
statements and accompanying notes. Actual results could differ from those estimates. 

Concentrations of Credit Risk 

Financial instruments that could potentially subject us to concentration of credit risk include accounts 

receivable and marketable securities.  

Cash, Cash Equivalents and Marketable Securities 

We invest our excess cash in federal government and municipal-based money market funds and debt 
instruments of U.S. municipalities.  All highly liquid investments with stated maturities of three months or less from  

F-13 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

date of purchase are classified as cash equivalents.  Liquid investments with stated maturities of greater than three 
months are classified as marketable securities in current assets.   

We account for marketable securities in accordance with ASC 320, Investments (cid:177) Debt and Equity 

Securities.  We determine the appropriate classification of all marketable securities as held-to-maturity, available-
for-sale or trading at the time of purchase, and re-evaluate such classification as of each balance sheet date.  At 
December 31, 2012 and 2011, all of our investments in marketable securities were classified as available-for-sale, 
and as a result, were reported at fair value.  Unrealized gains and losses are reported as a component of accumulated 
(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:72)(cid:69)(cid:87)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)
amortization of premiums and accretion of discounts from the date of purchase to maturity.  Such amortization is 
included in interest income as an addition to or deduction from the coupon interest earned on the investments.  We 
use the specific identification method of determining the cost basis in computing realized gains and losses on the 
sale of our available-for-sale securities. Realized gains and losses are included in other income. 

Fair Value of Financial Instruments 

The carrying amounts of cash, cash equivalents, accounts receivable and accounts payable approximate 

their fair values due to the short-term maturities of these instruments.   

Property and Equipment 

Property and equipment are recorded at cost and are depreciated over the estimated useful lives of the 

related assets using the straight-line method.  The estimated useful lives of property and equipment for purposes of 
computing depreciation are as follows: 

Buildings and improvements .........................................................................   5-30 years 
1-5 years 
Computer hardware and software, and acquired technologies .......................  
3 years 
Software development costs ..........................................................................  
Furniture and fixtures ....................................................................................  
5-7 years 
Aircraft...........................................................................................................   15-20 years 

Software development costs relate primarily to software coding, system interfaces and testing of our 

proprietary professional employer information systems and are accounted for in accordance with ASC 350-40, 
Internal Use Software. Capitalized software development costs are amortized using the straight-line method over the 
estimated useful lives of the software, generally three years.  We recognized $2.8 million, $1.6 million and $1.6 
million in amortization of capitalized computer software costs in 2012, 2011 and 2010, respectively.  Unamortized 
computer software costs were $8.2 million and $7.6 million in 2012 and 2011, respectively. 

We account for our software products in accordance with ASC 985-20, Costs of Software to be Sold. This 

Topic establishes standards of financial accounting and reporting for the costs of computer software to be sold, 
leased, or otherwise marketed as a separate product or as part of a product or process, whether internally developed 
and produced or purchased.  

We periodically evaluate our long-lived assets for impairment in accordance with ASC 360-10, Property, 
Plant, and Equipment.  ASC 360-10 requires that an impairment loss be recognized for assets to be disposed of or 
held-for-use when the carrying amount of an asset is deemed to not be recoverable.  If events or circumstances were 
to indicate that any of our long-lived assets might be impaired, we would assess recoverability based on the 
estimated undiscounted future cash flows to be generated from the applicable asset.  In addition, we may record an 
impairment loss to the extent that the carrying value of the asset exceeded the fair value of the asset.  Fair value is 
generally determined using an estimate of discounted future net cash flows from operating activities or upon 
disposal of the asset.   

F-14 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

Goodwill and Other Intangible Assets 

Our purchased intangible assets are carried at cost less accumulated amortization.  Amortization is 

computed over the estimated useful lives of the respective assets, ranging from three to 10 years. 

Our goodwill and intangible assets are subject to the provisions of ASC 350, Intangibles (cid:177) Goodwill and 
Other. Accordingly, goodwill is tested for impairment on an annual basis or when indicators of impairment exist, 
and written down when impaired.  Our goodwill impairment test involves a comparison of the fair value of each of 
our reporting units with its carrying amount.  Fair value is estimated using a discounted cash flow model.  An 
indication of potential impairment exists if the fair value is less than the carrying value.  The amount of the 
impairment, if any, is then determined based on an allocation of the reporting unit fair values to individual assets and 
liabilities.  Furthermore, ASC 350 requires purchased intangible assets other than goodwill to be amortized over 
their useful lives unless these lives are determined to be indefinite.  (cid:51)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:24)(cid:15)(cid:3)(cid:179)(cid:42)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)
Inta(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17) 

Health Insurance Costs 

We provide group health insurance coverage to our worksite employees through a national network of 

(cid:70)(cid:68)(cid:85)(cid:85)(cid:76)(cid:72)(cid:85)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:43)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:70)(cid:68)(cid:85)(cid:72)(cid:3)(cid:11)(cid:179)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:180)(cid:12)(cid:15)(cid:3)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 cost of the United portion of the plan, including an estimate of the 
(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:15)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:11)(cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:86)(cid:180)(cid:12)(cid:3)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
Statements of Operations.  The estimated incurred claims are based upon: (i) the level of claims processed during 
each 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. 

(cid:36)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:72)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:15)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:86)(cid:3)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.  As of December 31, 2012, Plan Costs were less than the net premiums paid and owed to United by $18.5 
million.  As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $9.5 million 
balance is included in prepaid insurance, a current asset, in our Consolidated Balance Sheets.  The premiums owed 
to United at December 31, 2012, were $10.5 million, which is included in accrued health insurance costs, a current 
liability in our Consolidated Balance Sheets. 

(cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:38)(cid:82)(cid:86)(cid:87)(cid:86) 

Our (cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)has been provided through an arrangement with the ACE Group of 

(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:3)(cid:11)(cid:179)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:38)(cid:40)(cid:3)(cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:180)(cid:12) 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.    

F-15 

 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

Effective October 1, 2010, in addition to 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 (cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:15)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:17)  (cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)
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 
(cid:81)(cid:68)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:182)(cid:3)(cid:77)(cid:82)(cid:69)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:76)(cid:86)(cid:87)(cid:82)(cid:85)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:73)(cid:85)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
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 (cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:39)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)s ended December 31, 2012 and 2011, we 
re(cid:71)(cid:88)(cid:70)(cid:72)(cid:71)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:7)13.1 million and $11.4 million, respectively, for changes in 
(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:86)(cid:17)(cid:3)(cid:3)(cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:3)
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 0.6% and 1.1%, 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 tabl(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)

compensation claims: 

Year ended December 31, 
    2012 

    2011 

(in thousands) 

Beginning balance ..........................................  
Accrued claims...............................................  
Present value discount ....................................  
Paid claims .....................................................  
Ending balance ...............................................  

  $ 104,791 
37,772 
(868) 
(30,010) 
  $ 111,685 

  $  96,934 
36,845 
(1,513) 
(27,475) 
  $ 104,791 

Current portion of accrued claims ..................  
Long-term portion of accrued claims .............  

  $  47,149 
64,536 
  $ 111,685 

  $  44,737 
60,054 
  $ 104,791 

The (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)2 and 2011 includes $2.3 

million and $1.8 million(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:15)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:17) 

(cid:36)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:81)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)costs were $123.4 million in 2012 

and $118.3 million in 2011. 

At the beginning of each policy period, the insurance carrier establishes monthly funding requirements 

(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:72)(cid:80)(cid:76)(cid:88)(cid:80)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:86)(cid:72)(cid:87)(cid:3)(cid:68)(cid:86)(cid:76)(cid:71)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:11)(cid:179)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)
claim funds is primarily based upon anticipated worksite employee payroll levels and expected workers(cid:182) 
compensation loss rates, as determined by the insurance carrier.  Monies funded into the program for incurred claims 
expected to be paid within one year are recorded as restricted cash, a short-term asset, while the remainder of claim 
funds are included in deposits, a long-term asset in our Consolidated Balance Sheets.   In 2012, we received $2.5 
million for the return of excess claim funds related to the ACE program, which reduced deposits.  As of December 
31, 2012, we had restricted cash of $47.1 million and deposits of $64.2 million. 

F-16 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
 
 
 
   
   
 
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

Our (cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:83)(cid:68)(cid:76)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)
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. 

Stock-Based Compensation 

At December 31, 2012, we have three stock-based employee compensation plans.  We account for these 

plans under the recognition and measurement principles of ASC 718, Compensation (cid:177) Stock Compensation, which 
requires all share-based payments to employees, including grants of employee stock options, to be recognized in the 
income statement based on their fair values.   

We generally make annual grants of restricted and unrestricted stock under our stock-based incentive 

compensation plans to our directors, officers and other management. Restricted stock grants to officers and other 
management vest over three to five years from the date of grant.  Annual stock grants issued to directors are 
100% vested on the grant date.  Shares of restricted stock are based on fair value on date of grant and the associated 
expense, net of estimated forfeitures, is recognized over the vesting period.   

Company-Sponsored 401(k) Plans 

Under our 401(k) (cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:15)(cid:3)we matched 50% of eligible 

(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)tions, up to 6% of the employees(cid:182) eligible compensation in 2012, 2011 and 2010.  
Under our separa(cid:87)(cid:72)(cid:3)(cid:23)(cid:19)(cid:20)(cid:11)(cid:78)(cid:12)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:58)(cid:82)(cid:85)(cid:78)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3)(cid:40)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:15)(cid:3)(cid:87)he match percentage for 
worksite employees ranges from 0% to 6%, as determined by each client company.  Matching contributions under 
the Corporate Plan and the Worksite Employee Plan are immediately vested.  During 2012, 2011 and 2010, we made 
matching contributions to the Corporate and Worksite Employee Plans of $65.9 million, $58.1 million and $49.6 
million, respectively.  Of these contributions, $63.3 million, $55.7 million and $47.5 million were made under the 
Worksite Employee Plan on behalf of worksite employees.  The remainder represents matching contributions made 
under the Corporate Plan on behalf of corporate employees. 

Advertising 

We expense all advertising costs as incurred. 

Income Taxes 

We use the liability method in accounting for income taxes.  Under this method, deferred tax assets and 

liabilities are determined based on differences between financial reporting and income tax carrying amounts of 
assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are 
expected to reverse. 

Reclassifications 

Certain prior year amounts have been reclassified to conform to the 2012 presentation. 

New Accounting Pronouncements 

We believe that we have implemented the accounting pronouncements with a material impact on our 

financial statements and do not believe there are any new or pending announcements that will materially impact our 
financial position or results of operations. 

F-17 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

2. 

Cash, Cash Equivalents and Marketable Securities 

The following table summarizes our investments in cash equivalents and marketable securities held by 

investment managers and overnight investments: 

Overnight holdings: 
  Money market funds (cash equivalents) ...............................................  
Investment holdings: 
  Money market funds (cash equivalents) ...............................................  
  Marketable securities ............................................................................  

Cash held in demand accounts .................................................................  
Outstanding checks ..................................................................................  
Total cash, cash equivalents and marketable securities .................  

Cash and cash equivalents ........................................................................  
Marketable securities ................................................................................  

December 31, 

2012 

2011 

(in thousands) 

  $  255,000 

  $ 

71,350 

26,087 
16,904 
297,991 
21,732 
(38,275) 
  $  281,448 

59,587 
56,987 
187,924 
113,968 
(33,697) 
  $  268,195 

  $  264,544 
16,904 
  $  281,448 

  $  211,208 
56,987 
  $  268,195 

Our (cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:73)(cid:79)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:79)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:83)(cid:68)(cid:92)(cid:85)(cid:82)(cid:79)(cid:79)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)

cycle.  Included in the cash balance as of December 31, 2012 and December 31, 2011, are $158.2 million and 
$150.8 million, respectively, in withholdings associated with federal and state income taxes, employment taxes and 
other payroll deductions, as well as $13.5 million and $10.4 million, respectively, in client prepayments. 

We account for our financial assets in accordance with ASC 820, Fair Value Measurement.  This standard 

defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value 
measurements.  The fair value measurement disclosures are grouped into three levels based on valuation factors: 

(cid:120)  Level 1 - quoted prices in active markets using identical assets  
(cid:120)  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 

(cid:120)  Level 3 - significant unobservable inputs 

F-18 

 
 
 
 
 
   
 
 
   
 
   
 
 
   
 
 
 
   
   
 
   
   
   
   
   
   
 
 
 
 
   
   
 
 
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

The following tables summarize the levels of fair value measurements of our financial assets: 

Fair Value Measurements 
(in thousands) 

December 31, 
2012 

    Level 1   

    Level 2   

    Level 3   

Money market funds ......................................  
Municipal bonds ............................................  
Total .......................................................  

  $  281,087 
16,904 
  $  297,991 

 $  281,087 
(cid:178) 
 $  281,087 

 $ 

 $ 

(cid:178) 
16,904 
16,904 

 $ 

 $ 

(cid:178) 
(cid:178) 
(cid:178) 

Fair Value Measurements 
(in thousands) 

December 31, 
2011 

    Level 1   

    Level 2   

    Level 3   

Money market funds ......................................  
Municipal bonds ............................................  
Total .......................................................  

  $  130,937 
56,987 
  $  187,924 

 $  130,937 
(cid:178) 
 $  130,937 

 $ 

 $ 

(cid:178) 
56,987 
56,987 

 $ 

 $ 

(cid:178) 
(cid:178) 
(cid:178) 

The municipal bond securities valued as Level 2 investments are primarily pre-refunded municipal bonds 
that are secured by escrow funds containing U.S. Government securities. Our valuation techniques used to measure 
fair value for these securities during the period consisted primarily of third party pricing services that utilized actual 
market data such as trades of comparable bond issues, broker/dealer quotations for the same or similar investments 
in active markets and other observable inputs.  

The following is a summary of our available-for-sale marketable securities: 

Amortized 
    Cost 

Gross 
Unrealized 
    Gains 

Gross 
Unrealized 
    Losses 

(in thousands) 

Estimated 
  Fair Value  

December 31, 2012: 

Municipal bonds ..........................................  

  $ 

16,878 

 $ 

29 

  $ 

(3) 

 $ 

16,904 

December 31, 2011: 

Municipal bonds ..........................................  

  $ 

56,945 

 $ 

90 

  $ 

(48) 

 $ 

56,987 

For the year ended December 31, 2012, we realized a $58,000 gain on sales of available-for-sale 

marketable securities.  For the years ended December 31, 2011 and 2010, we had no realized gains or losses 
recognized on sales of available-for-sale marketable securities. 

As of December 31, 2012, the contractual maturities of our marketable securities were as follows: 

Amortized 
  Cost 

Estimated 
Fair Value 

(in thousands) 

Less than one year .....................................  
One to five years .......................................  
Total ..........................................................  

$ 

9,301 
7,577 
$  16,878 

$ 

$ 

9,309 
7,595 
16,904 

F-19 

 
 
 
  
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
  
  
  
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

3.   

Accounts Receivable 

Our accounts receivable is primarily composed of trade receivables and unbilled receivables.  Our trade 

receivables, which represent outstanding gross billings to customers, are reported net of allowance for doubtful 
accounts of $1.0 million as of December 31, 2012 and 2011.  We establish an allowance for doubtful accounts based 
(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)essment of the collectability of specific accounts and by making a general provision for other 
potentially uncollectible amounts.  

We make an accrual at the end of each accounting period for our obligations associated with the earned but 

unpaid wages of our worksite employees and for the accrued gross billings associated with such wages.  These 
accruals are included in accrued worksite employee payroll cost and unbilled accounts receivable; however, these 
amounts are presented net in the Consolidated Statements of Operations.  We generally require clients to pay 
invoices for service fees no later than one day prior to the applicable payroll date.  As such, we generally do not 
require collateral.  Customer prepayments directly attributable to unbilled accounts receivable have been netted 
against such receivables as the gross billings have been earned and the payroll cost has been incurred, thus we have 
the legal right of offset for these amounts.  Unbilled accounts receivable consisted of the following:  

December 31, 

  2012 

  2011 

(in thousands) 

Accrued worksite employee payroll cost .............  
Unbilled revenues ................................................  
Customer prepayments ........................................  
Unbilled accounts receivable ...............................  

  $  150,070 
44,483 
(13,513) 
  $  181,040 

  $  130,317 
38,564 
(10,373) 
  $  158,508 

4.  

Deposits 

The contractual arrangement with United for health insurance coverage requires us to maintain an 

accumulated cash surplus in the plan of $9.0 million, which is reported as long-term prepaid health insurance.  
Please read Note 1, (cid:179)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:51)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86),(cid:180) for a discussion of our accounting policies for health insurance costs. 

As of December 31, 2012, we had $64.2 million in (cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)compensation long-term deposits. Please read 

Note 1 (cid:179)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:51)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:180) for a discussion of our acc(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:17) 

5.   

Goodwill and Other Intangible Assets 

The following table provides the gross carrying amount and accumulated amortization for each class of 

intangible assets and goodwill: 

December 31, 

2012 

2011 

Gross 
Carrying 
Amount 

Accumulated 
Amortization/ 
Impairment 

Net 
Carrying 
Amount 

Gross 
Carrying 
Amount 

Accumulated 
Amortization 

Net 
Carrying 
Amount 

(in thousands) 

Amortizable intangible assets: 

Trademarks ..................................   $ 
Customer relationships ................  
Goodwill ................................................  

1,285 
9,643 
21,156 

  $ 

(571) 
(3,790) 
(3,948) 

  $ 

714 
5,853 
    17,208 

$ 

1,785 
9,043 
21,156 

Total goodwill and intangible assets ......   $ 

32,084 

  $  (8,309) 

  $ 23,775 

$ 

31,984 

  $ 

(742) 
(2,809) 
(cid:178) 
  $  (3,551) 

  $ 

1,043 
6,234 
21,156 

  $ 

28,433 

F-20 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

We performed our annual asset impairment testing as of December 31, 2012, the end of our calendar year.  
The estimated fair value of our Performance Management reporting unit was less than its related book value and we 
determined that its goodwill balance was impaired.  Accordingly, step two of the goodwill impairment test was 
completed for the Performance Management reporting unit, which resulted in an impairment write down to goodwill 
and other intangible assets totaling $4.2 million in the fourth quarter of 2012. 

The following summarizes the changes in the carrying amount of goodwill: 

  Goodwill 
(in thousands) 

Balance at December 31, 2010 ................  
  Acquisitions .......................................  
Balance at December 31, 2011 ................  
Impairment .........................................  
Balance at December 31, 2012 ................  

$  14,327 
6,829 
21,156 
(3,948) 
$  17,208 

Our amortization expense related to purchased intangible assets other than goodwill was $1.8 million in 

2012, $1.7 million in 2011 and $799,000 in 2010, and is estimated to be $2.0 million in 2013, $2.0 million in 2014, 
$1.5 million in 2015, $700,000 in 2016 and $527,000 in 2017. 

6. 

Acquisitions 

We account for our acquisitions in accordance with ASC 805, Business Combinations, which requires 

allocation of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based 
on the fair value at the date of purchase.  All acquisition related costs are expensed as incurred and recorded in 
operating expenses.  We include operations associated with acquisitions from the date of acquisition forward. 

In January 2011, we acquired certain assets from HumanConcepts, a provider of workforce decision 

support solutions.  We acquired ownership of the OrgPlus desktop software product line (cid:11)(cid:179)(cid:50)(cid:85)(cid:74)(cid:51)(cid:79)(cid:88)(cid:86)(cid:180)(cid:12), targeted at 
small and medium-sized businesses, and its associated customer base, as well as a source code license for a SaaS 
based version. The OrgPlus software facilitates creation, management and communication of detailed organizational 
charts. The acquisition represents our continued business strategy to expand the sales opportunity of our human 
resources services as well as the solutions available to our current and prospective clients.  We paid $10.8 million 
upon the closing of the transaction and paid an additional $1.2 million in 2012 based on the terms of the agreement. 

In June 2010, we acquired OneMind Connect, Inc. which conducted business under the name 
(cid:179)(cid:40)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:36)(cid:69)(cid:79)(cid:72),(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)management solutions delivered as both a SaaS and as a desktop 
software product.  The acquisition of ExpensAble extends the sales opportunity of our human resources services as 
well as the solutions available to our current and prospective clients.  We paid $5.5 million upon the closing of the 
transaction and paid an additional $1.3 million in 2011 based on the terms of the agreement.   

In July 2010, we acquired certain assets from Galaxy Technologies, Inc. in an effort to expand the sales 

opportunity of our human resources services as well as the solutions available to our current and prospective clients.  
The primary assets acquired include time and attendance software solutions, which are delivered through a SaaS 
model and as a desktop software product, and the associated customer base.  We paid $7.4 million upon the closing 
of the transaction and an additional $1.4 million in each of 2011 and 2012, respectively, based on the terms of the 
purchase agreement.   

7.   

Revolving Credit Facility 

On September 15, 2011, we entered into a four-year, $100 (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:72)(cid:89)(cid:82)(cid:79)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:180)(cid:12)(cid:15)(cid:3)
which may be increased to $150 million based on the terms and subject to the conditions set forth in the agreement 
(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:12)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)

F-21 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

purposes, including acquisitions, and issuances of letters of credit. Our obligations under the Facility are secured by 
65% of the stock of our captive insurance subsidiary and are guaranteed by all of our domestic subsidiaries. At 
December 31, 2012, we had not drawn on the Facility.  

The Facility matures on September 15, 2015.  Borrowings under the Facility bear interest at an alternate 

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

The Facility contains both affirmative and negative covenants, which we believe are customary for 
arrangements of this nature.  Covenants include, but are not limited to, limitations on our ability to incur additional 
indebtedness, sell material assets, retire, redeem or otherwise reacquire our capital stock, acquire the capital stock or 
assets of another business, make investments and pay dividends.  In addition, the Credit Agreement requires us to 
comply with financial covenants limiting our total funded debt, minimum interest coverage ratio and maximum 
leverage ratio.  In December 2012, the Credit Agreement was amended to modify the interest coverage ratio 
covenant to exclude the impact of the $25.7 million special dividend.  We were in compliance with all financial 
covenants under the Credit Agreement at December 31, 2012. 

F-22 

 
 
 
 
 
  
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

8. 

Income Taxes 

Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets 

and liabilities used for financial reporting purposes and the amounts used for income tax purposes.  Significant 
components of the net deferred tax assets and net deferred tax liabilities as reflected on the Consolidated Balance 
Sheets are as follows: 

Deferred tax liabilities: 
  Prepaid assets ..................................................................................  
  Depreciation ....................................................................................  
  Software development costs ............................................................  
  Amortization ...................................................................................  
Total deferred tax liabilities .......................................................  

Deferred tax assets: 
  Accrued incentive compensation ....................................................  
  Net operating loss carryforward ......................................................  
  (cid:58)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:68)(cid:79)(cid:86) ....................................................  
  Accrued rent ....................................................................................  
  Stock-based compensation ..............................................................  
  Other ...............................................................................................  
Total deferred tax assets ............................................................  
  Valuation allowance ........................................................................  
Total net deferred tax assets ......................................................  

December 31, 

  2012 

  2011 

(in thousands) 

  $ 

(6,929) 
(8,580) 
(3,104) 
(cid:178) 
(18,613) 

  $ 

(9,268) 
(8,616) 
(2,858) 
(1,210) 
(21,952) 

4,896 
2,057 
5,079 
1,033 
3,114 
645 
16,824 
(cid:178) 
16,824 

3,877 
2,290 
3,744 
1,132 
2,908 
610 
14,561 
(148) 
14,413 

Net deferred tax liabilities ..................................................................  

  $ 

(1,789) 

  $ 

(7,539) 

Net current deferred tax assets ............................................................  
Net noncurrent deferred tax liabilities ................................................  

  $ 

  $ 

7,211 
(9,000) 
(1,789) 

  $ 

  $ 

3,233 
(10,772) 
(7,539) 

F-23 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
 
   
   
 
 
 
 
 
 
   
   
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

The components of income tax expense are as follows:  

Year ended December 31, 

    2012 

    2011 

    2010 

(in thousands) 

Current income tax expense: 
  Federal ............................................................................................   $  29,280 
4,351 
  State ................................................................................................  
  33,631 
Total current income tax expense ..............................................  

Deferred income tax (benefit) expense: 
  Federal ............................................................................................  
  State ................................................................................................  
Total deferred income tax (benefit) expense .............................  

(5,363) 
(380) 
(5,743) 
Total income tax expense .....................................................   $  27,888 

$  16,816 
3,535 
  20,351 

$  12,668 
1,734 
  14,402 

47 
(93) 
(46) 
$  20,305 

1,033 
146 
1,179 
$  15,581 

As a result of nonqualified stock option exercises, disqualifying dispositions of certain employee incentive 

stock options and vesting of restricted stock awards, we had a net income tax benefit of $1.8 million in 2012, $1.7 
million in 2011 and $25,000 in 2010.  The income tax benefit is reported as a component of additional paid-in 
capital. 

The reconciliation of income tax expense computed at U.S. federal statutory tax rates to the reported 

income tax expense from continuing operations is as follows: 

Year ended December 31, 

    2012 

    2011 

    2010 

(in thousands) 

Expected income tax expense at 35% .................................................   $  23,901 
2,497 
State income taxes, net of federal benefit ...........................................  
1,663 
Nondeductible expenses .....................................................................  
(cid:178) 
Research and development credit .......................................................  
Other, net ............................................................................................  
(173) 
Reported total income tax expense .....................................................   $  27,888 

$  17,770 
2,249 
904 
(558) 
(60) 
$  20,305 

$  13,307 
1,273 
1,092 
(cid:177)(cid:177) 
(91) 
$  15,581 

During 2012, we utilized $55,000 of our capital loss carryforwards.  The remaining $345,000 expired at 

December 31, 2012.  We had a valuation allowance of $345,000 against these related capital loss carryforwards at 
the time they expired.  At December 31, 2012, we have net operating loss carryforwards totaling approximately $5.4 
million that expire from 2021 to 2030 related to our acquisition of ExpensAble.   

We recognize interest and penalties related to uncertain tax positions in income tax expense.  As of 
December 31, 2012, 2011 and 2010, we made no provisions for interest or penalties related to uncertain tax 
positions.  The tax years 2009 through 2011 remain open to examination by the Internal Revenue Service of the 
United States. 

9.   

(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)Equity 

Repurchase Program 

Our (cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:180)(cid:12)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)14,500,000 shares of 

our outstanding common stock (cid:11)(cid:179)(cid:53)(cid:72)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:180)(cid:12).  The purchases are to be made from time to time in the 
open market or directly from stockholders at prevailing market prices based on market conditions or other factors.  
We repurchased 407,400 shares under the Repurchase Program during 2012.  In addition, 107,293 shares were 
withheld during 2012 to satisfy tax withholding obligations for the vesting of restricted stock awards.  These  

F-24 

 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

purchases are not subject to the Repurchase Program.  During 2011, we repurchased 902,521 shares under the 
Repurchase Program and 108,280 shares were withheld to satisfy tax withholding obligations for the vesting of 
restricted stock awards.  As of December 31, 2012, we were authorized to repurchase an additional 829,472 shares 
under the Repurchase Program.  Shares repurchased under the Repurchase Program and shares withheld to satisfy 
tax withholding obligations for the vesting of restricted stock awards are recorded in treasury. 

Dividends 

The Board declared quarterly dividends of $0.17 per share of common stock in the second, third and fourth 

quarters of 2012 and $0.15 per share of common stock in the first quarter of 2012 and each quarter of 2011.  
Additionally, the Board declared a special dividend of $1.00 per share of common stock in the fourth quarter of 
2012, resulting in a total of $42.7 million and $15.7 million in dividends paid in 2012 and 2011, respectively. 

Tender Offer for Common Stock 

I(cid:81)(cid:3)(cid:49)(cid:82)(cid:89)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:80)(cid:82)(cid:71)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:179)(cid:39)(cid:88)(cid:87)(cid:70)(cid:75)(cid:3)(cid:68)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180)(cid:3)(cid:87)(cid:72)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:7)(cid:24)(cid:19)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)

in value of our common stock at a price not less than $27.00 per share and not more than $31.00 per share.  The 
tender offer period expired on December 21, 2012, resulting in the repurchase of 80,983 shares at a per share price 
of $31.00 and an aggregate price of $3.2 million, including transaction costs.  The shares were immediately retired.   

Preferred Stock 

At December 31, 2012, 20 million shares of preferred stock were authorized, of which 600,000 shares were 

designated as Series A Junior Participating Preferred Stock that is reserved for issuance on exercise of preferred 
stock purchase rights under our (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:53)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:53)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:40)(cid:68)ch issued share of our common 
stock has one preferred stock purchase right attached to it.  No preferred shares have been issued and the rights are 
not currently exercisable.  The Rights Plan expires on November 13, 2017. 

10.   

Incentive Plans 

The Insperity, Inc. 1997 Incentive Plan, as amended, the 2001 Incentive Plan, as amended, and the 2012 
Incentive Plan (cid:11)(cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:44)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:86)(cid:180)(cid:12)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)-based awards that may be 
granted to eligible employees and non-employee directors of Insperity or its subsidiaries.  At the 2012 Annual 
Meeting, stockholders approved the 2012 Incentive Plan, which is currently the only plan under which new stock-
based awards may be granted.  There are no longer any awards outstanding under the 1997 Incentive Plan, and no 
new grants may be made under that Plan.  The Incentive Plans are administered by the Compensation Committee of 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:72)(cid:79)(cid:76)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3)
will receive awards, the timing and manner of the grant of such awards, the exercise price of stock options (which 
may not be less than market value on the date of grant), the number of shares and all of the terms of the awards.  The 
Board may at any time amend or terminate the Incentive Plans.  However, no amendment that would impair the 
(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:69)(cid:72)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:3)
Stockholder approval of amendments to the Incentive Plans is necessary only when required by applicable law or 
stock exchange rules.  At December 31, 2012, 1,770,329 shares of common stock were available for future grants 
under the 2012 Incentive Plan.  The Incentive Plans permit stock options, including nonqualified stock options and 
options (cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:92)(cid:3)(cid:68)(cid:86)(cid:3)(cid:179)(cid:76)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:180)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:72)(cid:68)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:23)(cid:21)(cid:21)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)
Code, stock awards, phantom stock awards, stock appreciation rights, performance units, and other stock-based 
awards and cash awards, all of which may or may not be subject to the achievement of one or more performance 
objectives.  The purposes of the Incentive Plans generally are to retain and attract persons of training, experience 
and ability to serve as employees of Insperity and its subsidiaries and to serve as non-employee directors of 
Insperity, to encourage the sense of proprietorship of such persons and to stimulate the active interest of such 
persons in the development and financial success of Insperity and its subsidiaries. 

F-25 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

The Insperity (cid:49)(cid:82)(cid:81)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:50)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:49)(cid:82)(cid:81)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)d for options to purchase 

shares of Insperity(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)were granted to employees who were not officers.  An aggregate of 
3,600,000 shares of common stock of Insperity were authorized to be issued under the Nonqualified Plan.  Although 
there are unissued shares remaining, no new awards may be granted under the Nonqualified Plan.  The Committee 
may at any time terminate or amend the Nonqualified Plan, provided that no such amendment may adversely affect 
the rights of optionees with regard to outstanding options. 

We recognized $9.8 million, $8.6 million and $8.1 million of compensation expense associated with the 
restricted stock awards in 2012, 2011 and 2010, respectively. We recognized $4.0 million, $3.4 million and $3.3 
million of tax benefits associated with stock-based compensation in 2012, 2011 and 2010, respectively.   

Stock Option Awards 

The following is a summary of stock option award activity for 2012: 

Weighted 
Average 
Exercise 
Price 
  Per Share   

Weighted 
Average 
Remaining 
Contractual 
Life 
(in years) 

Aggregate 
Intrinsic 
Value 
(in thousands) 

Shares 
(in thousands) 

Outstanding (cid:177) December 31, 2011 ........  
  Granted ............................................  
  Exercised .........................................  
  Cancelled .........................................  
Outstanding (cid:177) December 31, 2012 ........  
Exercisable (cid:177) December 31, 2012 .........  

  $ 

315 
(cid:178) 
(160) 
(3) 
152 
152 

16.67 
(cid:178) 
14.05 
25.99 
19.30 
19.30 

3.3 
3.3 

  $ 
  $ 

2,019 
2,019 

The intrinsic value of options exercised during the year was $2.5 million in 2012, $2.2 million in 2011 and 

$2.0 million in 2010.  

Restricted Stock Awards 

Restricted common shares, under equity plan accounting, are generally measured at fair value on the date 

of grant based on the number of shares granted, estimated forfeitures and the quoted price of the common stock.  
Such value is recognized as compensation expense over the corresponding vesting period, three to five years for our 
shares currently outstanding.  The total fair value of shares vested during the years ended December 31, 2012, 2011, 
and 2010 was $11.7 million, $11.1 million and $6.7 million, respectively.  The weighted average grant date fair 
value of restricted stock awards during the years ended December 31, 2012, 2011 and 2010 was $30.47, $29.47 and 
$17.55, respectively.  As of December 31, 2012, unrecognized compensation expense associated with the unvested 
shares outstanding was $12.2 million and is expected to be recognized over a weighted average period of 22 months.   

F-26 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
 
 
   
 
 
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

The following is a summary of restricted stock award activity for 2012: 

Weighted Average 
Grant Date 
Fair Value 

Shares 
(in thousands) 

Non-vested (cid:177) December 31, 2011 ...........  
  Granted ...............................................  
  Vested.................................................  
  Cancelled/Forfeited ............................  
Non-vested (cid:177) December 31, 2012 ...........  

778 
375 
(383) 
(19) 
751 

$ 

23.91 
30.47 
22.65 
28.51 
27.70 

11.   

Net Income Per Share 

We utilize the two-class method to compute net income per share.  The two-class method allocates a 

portion of net income to participating securities, which include unvested awards of share-based payments with non-
forfeitable rights to receive dividends.  Net income allocated to unvested share-based payments is excluded from net 
income allocated to common shares.  Any undistributed losses resulting from dividends exceeding net income are 
not allocated to participating securities.  Basic net income per share is computed by dividing net income allocated to 
common shares by the weighted average number of common shares outstanding during the period.  Diluted net 
income per share is computed by dividing net income allocated to common shares by the weighted average number 
of common shares outstanding during the period, plus the dilutive effect of outstanding stock options. 

The following table summarizes the net income allocated to common shares and the basic and diluted 

shares used in the net income per share computations: 

Year ended December 31, 

2012 

2011 

2010 

(in thousands) 

Net income ........................................................................................  
Less distributed and undistributed earnings allocated to  

  $ 

40,402    $ 

30,470    $ 

22,440 

participating securities .................................................................  
Net income allocated to common shares ...........................................  

  $ 

(1,224) 
39,178    $ 

(908) 
29,562    $ 

(657) 
21,783 

Weighted average common shares outstanding ................................  
Incremental shares from assumed conversions of common stock 

options .........................................................................................  
Adjusted weighted average common shares outstanding  .................  

25,007     

25,405     

25,254 

60 
25,067     

92 
25,497     

114 
25,368 

Potentially dilutive securities not included in weighted average 

share calculation due to anti-dilutive effect .................................  

29 

29 

372 

F-27 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
   
 
   
 
   
 
 
 
 
 
 
 
 
 
 
   
   
   
 
 
 
 
   
 
   
 
   
 
   
   
 
 
 
 
 
 
 
   
 
   
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

12.   

Leases 

We lease various office facilities, furniture, equipment and vehicles under operating lease arrangements, 
some of which contain rent escalation clauses.  Most of the leases contain purchase and/or renewal options at fair 
market and fair rental value, respectively.  Rental expense relating to all operating leases was $13.8 million, $14.0 
million and $14.0 million in 2012, 2011 and 2010, respectively.  At December 31, 2012, future minimum rental 
payments under noncancelable operating leases are as follows: 

  Operating 
  Leases 
 (in thousands) 

2013 .............................................................................  
2014 .............................................................................  
2015 .............................................................................  
2016 .............................................................................  
2017 .............................................................................  
Thereafter ....................................................................  
Total minimum lease payments .....................  

  $  13,648 
10,658 
7,068 
5,196 
3,258 
2,481 
  $  42,309 

13.   

Commitments and Contingencies 

We enter into non-cancelable fixed purchase and service obligations in the ordinary course of business.  
These arrangements primarily consist of advertising commitments and service contracts.  At December 31, 2012, 
future non-cancelable purchase and service obligations greater than $100,000 and one year were as follows (in 
thousands): 

2013 ..........................................................................  
2014 ..........................................................................  
2015 ..........................................................................  
2016 ..........................................................................  
2017 ..........................................................................  
Thereafter .................................................................  
Total obligations ............................................  

  $  6,308 
7,006 
5,700 
4,902 
1,430 
5,490 
  $  30,836 

We are a defendant in various lawsuits and claims arising in the normal course of business.  Management 

believes it has valid defenses in these cases and is defending them vigorously.  While the results of litigation cannot 
be predicted with certainty, except as set forth below, management believes the final outcome of such litigation will 
not have a material adverse effect on our financial position or results of operations. 

Massachusetts Tax Assessment  

During the fourth quarter of 2012, we received assessments of approximately $2.5 million, including 

interest and penalties, related to the alleged underpayment of corporate income taxes to the State of Massachusetts 
for tax years 2006 through 2008.  In 2009, we received similar assessments of approximately $470,000, including 
interest and penalties, which covered tax years 2003 through 2005.  We believe the assessments are without merit 
and intend to vigorously contest them.  At this time, we are unable to determine the ultimate outcome of this matter.  
However, in the event the State of Massachusetts succeeds with enforcement of the assessments, we may be required 
to pay some or all of the assessments, which would reduce net income and could have a material adverse effect on 
net income in the reported period. 

Kemper Insurance Companies 

In 2003, facing continued capital constraints and a series of downgrades from various rating agencies, our 

(cid:73)(cid:82)(cid:85)(cid:80)(cid:72)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:76)(cid:72)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:90)(cid:82)-year period ended September 2003, Lumbermens 

F-28 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

Mutual Casualty C(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15)(cid:3)(cid:73)(cid:82)(cid:85)(cid:80)(cid:72)(cid:85)(cid:79)(cid:92)(cid:3)(cid:78)(cid:81)(cid:82)(cid:90)(cid:81)(cid:3)(cid:68)(cid:86)(cid:3)(cid:46)(cid:72)(cid:80)(cid:83)(cid:72)(cid:85)(cid:3)(cid:11)(cid:179)(cid:47)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:80)(cid:72)(cid:81)(cid:86)(cid:3)(cid:48)(cid:88)(cid:87)(cid:88)(cid:68)(cid:79)(cid:180)(cid:12), made the decision to substantially 
(cid:70)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:90)(cid:85)(cid:76)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:89)(cid:82)(cid:79)(cid:88)(cid:81)(cid:87)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:179)(cid:85)(cid:88)(cid:81)-(cid:82)(cid:73)(cid:73)(cid:17)(cid:180)   In July 2012, Lumbermens Mutual announced 
that an agreed order of rehabilitation had been entered against it in Cook County, Illinois.  Under the order, the 
Director of the Illinois Department of Insurance was vested with control over Lumbermens Mutual property and 
decision-making.  The Director has publicly announced that while claims will continue to be paid during the 
rehabilitation process, he intends to use the rehabilitation period to work with state guaranty associations to prepare 
for the orderly transition of claim handling responsibilities to such funds once an Order of Liquidation is 
entered.  After this transition process has been completed, the Director has stated that he intends to file a verified 
complaint for liquidation. 

Guaranty associations are non-profit organizations created by statute for the purpose of protecting 

policyholders from severe financial losses and preventing delays in claim payment due to the insolvency of an 
insurer. They do this by assuming responsibility for the payment of claims that would otherwise have been paid by 
the insurer had it not become insolvent. Each state has one or more guaranty association(s), with each association 
handling certain types of insurance. Insurance companies are required to be members of the state guaranty 
association as a condition of being licensed to do business in the state. 

The guaranty associations in some states, including Texas, may assert that state law allows them to recover 
the amount of benefits paid by the guaranty association along with associated administration and defense costs from 
an insured with a net worth exceeding certain specified levels.  If an Order of Liquidation is entered and if one or 
more guaranty associations were to seek recovery from us for open claims with Lumbermens Mutual, we may be 
required to repay those amounts.  While we are not certain when or if Lumbermens Mutual will be placed into 
liquidation or whether any state guaranty association will ultimately assert a claim against us, we intend to 
vigorously assert any and all available defenses to any such claim.  We estimate the outstanding claims that may be 
subject to such contentions from state guaranty associations to range from $2.9 million to $5.0 million as of 
December 31, 2012.  In the event state guaranty associations attempt to seek recovery from us and are successful, 
we would be required to pay such claims, which would reduce net income and could have a material adverse effect 
on net income in the reported period. 

Pennsylvania Sales Taxes 

(cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)(cid:3)(cid:76)(cid:80)(cid:83)(cid:82)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:82)(cid:81)(cid:3)(cid:179)(cid:75)(cid:72)(cid:79)(cid:83)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:79)(cid:92)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:17)(cid:180)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)(cid:3)(cid:39)(cid:72)(cid:83)(cid:68)(cid:85)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72) 
(cid:11)(cid:179)(cid:39)(cid:72)(cid:83)(cid:68)(cid:85)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:12)(cid:3)(cid:75)(cid:68)(cid:71)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:51)(cid:40)(cid:50)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:72)(cid:3)(cid:75)(cid:72)(cid:79)(cid:83)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:79)(cid:92)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:17)(cid:3)(cid:3)(cid:50)(cid:81)(cid:3)
February 21, 2012, the Pennsylvania Supreme Court affirmed the Appeals Court decision in the matter titled All 
Staffing vs. Commonwealth of Pennsylvania, which ruled that PEO services are not subject to the Pennsylvania 
sales tax.   

For the period January 1, 2010, through September 30, 2011, we accrued approximately $2.5 million in 

Pennsylvania sales tax.  As we believed our PEO services were not subject to the sales tax, we reduced our accrual 
for such amounts in the fourth quarter of 2011. 

In 2010, we filed refund claims totaling $2.9 million with the Department for the sales taxes paid in error 
for the period April 1, 2007 through December 31, 2009.  In the second quarter of 2012, the Pennsylvania Board of 
Finance and Revenue approved our refund claims, and we recognized a $2.9 million receivable and a corresponding 
reduction to payroll tax expense, a component of direct costs.  During the third quarter of 2012, we received the $2.9 
million refund. 

California Unemployment Taxes 

As a result of a 2001 corporate restructuring, we filed for a transfer of our state unemployment tax reserve 
account with the Employment Development Department of the State of Californi(cid:68)(cid:3)(cid:11)(cid:179)(cid:40)(cid:39)(cid:39)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:40)(cid:39)(cid:39)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3)
our request for transfer of the reserve account in May 2002 and also notified us of our new contribution rates based 
upon the approved transfer.  In December 2003, we received a Notice of Duplicate Accounts and Notification of 
(cid:36)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:11)(cid:179)(cid:49)(cid:82)(cid:87)(cid:76)(cid:70)(cid:72)(cid:180)(cid:12)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:40)(cid:39)(cid:39)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:49)(cid:82)(cid:87)(cid:76)(cid:70)(cid:72)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:40)(cid:39)(cid:39)(cid:3)(cid:90)(cid:68)s collapsing the accounts of our 

F-29 

 
 
 
  
 
 
 
 
 
 
 
 
 
INSPERITY, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 

subsidiaries into the account of the entity with the highest unemployment tax rate.  The Notice also retroactively 
imposed the higher unemployment insurance rate on all of our California employees for 2003, resulting in an 
assessment of $5.6 million.  In January 2004, we filed petitions with an administrative law judge of the California 
(cid:56)(cid:81)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:44)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:36)(cid:83)(cid:83)(cid:72)(cid:68)(cid:79)(cid:86)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:11)(cid:179)(cid:36)(cid:47)(cid:45)(cid:180)(cid:12)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:87)(cid:72)(cid:86)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:89)(cid:68)(cid:79)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:49)(cid:82)(cid:87)(cid:76)(cid:70)(cid:72)(cid:15)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:71)(cid:88)(cid:85)(cid:68)(cid:79)(cid:3)
and substantive defenses.  

One procedural defense included in our appeal asserts that the EDD failed to meet the statutory requirement 

related to serving a proper notice within the stipulated time frame and that all of the statutes of limitations 
concerning the (cid:40)(cid:39)(cid:39)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:80)(cid:82)(cid:71)(cid:76)(cid:73)(cid:92)(cid:3)(cid:88)(cid:81)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:86)(cid:3)(cid:68)(cid:71)(cid:71)(cid:85)(cid:72)(cid:86)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:49)(cid:82)(cid:87)(cid:76)(cid:70)(cid:72) 
(cid:75)(cid:68)(cid:71)(cid:3)(cid:72)(cid:91)(cid:83)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:11)(cid:179)(cid:49)(cid:82)(cid:87)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:39)(cid:72)(cid:73)(cid:72)(cid:81)(cid:86)(cid:72)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:39)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:21)(cid:19)(cid:20)(cid:19)(cid:15)(cid:3)(cid:68)(cid:3)(cid:38)(cid:68)(cid:79)(cid:76)(cid:73)(cid:82)(cid:85)(cid:81)(cid:76)(cid:68)(cid:3)(cid:38)(cid:76)(cid:85)(cid:70)(cid:88)(cid:76)(cid:87)(cid:3)(cid:38)(cid:82)(cid:88)(cid:85)(cid:87)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:85)(cid:88)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:73)(cid:68)(cid:89)(cid:82)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)the EDD 
regarding a dispute involving a taxpayer who made arguments similar to our Notification Defense. The Supreme 
Court of California subsequently denied the taxpa(cid:92)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:17)(cid:3)(cid:3)We subsequently received a statement of 
account from the EDD indicating taxes, penalties and interest due of approximately $8.1 million. 

While still denying all liability, we entered into a written agreement with the EDD in September 2011 to 

(cid:73)(cid:88)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:71)(cid:76)(cid:86)(cid:83)(cid:88)(cid:87)(cid:72)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:54)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:51)(cid:88)(cid:85)(cid:86)(cid:88)(cid:68)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)
Agreement, we (cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:68)(cid:92)(cid:3)(cid:7)(cid:22)(cid:17)(cid:20)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:54)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:36)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:180)(cid:12)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:40)(cid:39)(cid:39)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:54)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:36)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:22)(cid:17)(cid:20)(cid:3)
million was paid and recorded in other income (expense) during the year ended December 31, 2011. 

14.    Quarterly Financial Data (Unaudited) 

2012: 

    March 31 

    June 30 

    Sept. 30 

    Dec. 31 

(in thousands, except per share amounts) 

Quarter ended 

Revenues .............................................  
Gross profit .........................................  
Operating income ................................  
Net income ..........................................  
Basic net income per share .................  
Diluted net income per share ..............  

$  595,177 
103,004 
23,046 
13,884 
0.54 
0.54 

$  519,256 
87,294(1) 
9,415 
5,621 
0.22 
0.22 

$  511,953 
98,420 
19,140 
11,452 
0.45 
0.45 

$  532,438 
93,503 
15,893(2) 
9,445 
0.34(3) 
0.34(3) 

2011: 

Revenues .............................................  
Gross profit .........................................  
Operating income ................................  
Net income ..........................................  
Basic net income per share .................  
Diluted net income per share ..............  

$  536,381 
90,959 
15,129 
8,786 
0.33 
0.33 

$  472,903 
83,841 
11,400 
6,741 
0.25 
0.25 

$  471,821 
87,029 
14,094 
4,099(5) 
0.16 
0.16 

$  495,114 

89,946(4) 
16,691 
10,844 
0.42 
0.42 

(1) 

(2) 

Included in the results for the second quarter of 2012 is a $2.9 million reduction to payroll tax expense related to a refund of Pennsylvania 
(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:51)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:20)(cid:22)(cid:15)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17) 
Included in the results for the fourth quarter of 2012 is a $4.2 million impairment charge, related to our Performance Management reporting 
unit.  Please read Note 5, (cid:179)(cid:42)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:44)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:15)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17) 

(3)  Under the two-class earnings per share method, undistributed losses resulting from dividends exceeding net income are not allocated to 

(4) 

(5) 

participating securities.  This resulted in a $0.03 earnings per share decrease in the fourth quarter of 2012.  Please read N(cid:82)(cid:87)(cid:72)(cid:3)(cid:20)(cid:20)(cid:15)(cid:3)(cid:179)(cid:49)(cid:72)(cid:87)(cid:3)
(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:51)(cid:72)(cid:85)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:15)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17) 
Included in the results for the fourth quarter of 2011 is a $2.5 million adjustment related to the reversal of Pennsylvania sales taxes accrued 
in prior periods.  Please read Note 13, (cid:179)Commitments and Contingencies,(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81).   
Included in the results for the third quarter of 2011 is a $4.4 million loss related to the exchange of an aircraft and a $3.1 million loss related 
(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:68)(cid:79)(cid:76)(cid:73)(cid:82)(cid:85)(cid:81)(cid:76)(cid:68)(cid:17)(cid:3)(cid:3)(cid:51)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:20)(cid:22)(cid:15)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)rmation on the 
settlement with the State of California. 

F-30 

 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP to Non-GAAP Reconciliation 

Net income (GAAP) 
Income tax expense 
Interest expense 
Depreciation and amortization 
EBITDA 
Impairment charge 
Stock-based compensation 
Non-operational items 
Adjusted EBITDA 

 Year ended December 31,   

2012 

2011 

(in thousands) 

  $  40,402 
27,888 
354 
18,250 
86,894 
4,191 
9,814 
(cid:178) 
  $ 100,899 

$ 

  $ 

30,470 
20,305 
108 
15,218 
66,101 
(cid:178) 
8,601 
7,496 
82,198 

EBITDA represents net income computed in accordance with GAAP, plus interest expense, income tax expense, depreciation and 
amortization expense.  Insperity management believes EBITDA is often a useful measure of our operating performance, as it 
allows for additional analysis of our operating results separate from the impact of taxes and capital and financing transactions on 
earnings. 

 Year Ended December 31,   

2012 

2011 

(in thousands) 

Net income (GAAP) 
Impairment charge, net of tax 
Non-operational items, net of tax 
Adjusted net income 

  $  40,402 
2,460 
(cid:178) 
  $  42,862 

  $ 

  $ 

30,470 
(cid:178) 
4,493 
34,963 

Diluted net income per share of 

common stock (GAAP) 
Impairment charge, net of tax 
Impact of dividends exceeding  
  earnings 
Non-operational items, net of tax 
Adjusted diluted net income per  
  share of common stock 

 Year Ended December 31,   

2012 

2011 

  $ 

$ 

1.56 
0.10 

0.01 
(cid:178) 

1.16 
(cid:178) 

(cid:178) 
0.17 

  $ 

1.67 

$ 

1.33 

Adjusted net income and adjusted diluted net income per share of common stock represent net income and diluted net income per 
share computed in accordance with GAAP, excluding the impact of a $4.2 million impairment charge associated with our 
Performance Management reporting unit in 2012, and two non-operational items in 2011 (loss on aircraft exchange and California 
settlement), net of tax.  Under the two-class earnings per share method, the undistributed losses resulting from dividends exceeding 
net income are not allocated to participating securities.  Insperity management believes adjusted net income is a useful measure of 
our operating performance in this period, as it allows for additional analysis of our operating results separate from the impact of 
these items. 

EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted net income per share of common stock are not financial 
measures prepared in accordance with GAAP and may be different from similar measures used by other companies.  EBITDA, 
adjusted EBITDA, adjusted net income and adjusted diluted net income per share of common stock should not be considered as a 
substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.  Insperity includes EBITDA, 
adjusted EBITDA, adjusted net income and adjusted diluted net income per share of common stock in this report because we 
believe they are useful to investors in allowing for greater transparency related to the costs incurred under our (cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)
compensation program and our operating performance during the periods presented. Investors are encouraged to review the 
reconciliation of the non-GAAP financial measures used in this report to their most directly comparable GAAP financial measures 
as provided in the tables above.  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
OFFICERS

Paul J. Sarvadi
(cid:39)(cid:76)(cid:69)(cid:77)(cid:86)(cid:81)(cid:69)(cid:82)(cid:3)(cid:69)(cid:82)(cid:72)(cid:3)(cid:39)(cid:76)(cid:77)(cid:73)(cid:74)(cid:3)(cid:41)(cid:92)(cid:73)(cid:71)(cid:89)(cid:88)(cid:77)(cid:90)(cid:73)(cid:3)(cid:51)(cid:74)(cid:189)(cid:71)(cid:73)(cid:86)

Richard G. Rawson
President

A. Steve Arizpe
Executive Vice President of Client Services 
(cid:69)(cid:82)(cid:72)(cid:3)(cid:39)(cid:76)(cid:77)(cid:73)(cid:74)(cid:3)(cid:51)(cid:84)(cid:73)(cid:86)(cid:69)(cid:88)(cid:77)(cid:82)(cid:75)(cid:3)(cid:51)(cid:74)(cid:189)(cid:71)(cid:73)(cid:86)

Jay E. Mincks
Executive Vice President of Sales and Marketing

Daniel D. Herink
Senior Vice President of Legal, General Counsel 
and Secretary

Douglas S. Sharp
Senior Vice President of Finance, Chief Financial 
(cid:51)(cid:74)(cid:189)(cid:71)(cid:73)(cid:86)(cid:3)(cid:69)(cid:82)(cid:72)(cid:3)(cid:56)(cid:86)(cid:73)(cid:69)(cid:87)(cid:89)(cid:86)(cid:73)(cid:86)

Mark W.  Allen
Senior Vice President of Strategic Planning

Jim Allison
Senior Vice President of Pricing and Cost Analysis 

Gregory R. Clouse
Senior Vice President of Service Operations

Betty L. Collins
Senior Vice President of Corporate Human Resources

Jason Cutbirth
Senior Vice President of Marketing

Samuel G. Larson
Senior Vice President of Enterprise and Technology Solutions

Ronald M. McGee
Senior Vice President of Property and Casualty Products
and Services

Larry Shaffer
Senior Vice President of Adjacent Business Development

CORPORATE INFORMATION

Corporate Headquarters
19001 Crescent Springs Drive
Kingwood, TX 77339-3802
281-358-8986

Sales Department
800-465-3800

Website
insperity.com

Independent Auditors
Ernst & Young LLP
5 Houston Center
1401 McKinney, Suite 1200
Houston, TX 77010

Legal Counsel
Baker Botts LLP
One Shell Plaza
910 Louisiana
Houston, TX 77002-4995

Transfer Agent and Registrar
Computershare
Shareholder correspondence should be mailed to:
P.O. Box 43006
Providence, RI  02940-3006
Overnight correspondence should be sent to:
250 Royall Street
Canton, MA 02021
866-229-4421
TDD for Hearing Impaired: 800-231-5469
Foreign Stockholders: 201-680-6578
Shareholder website
www.computershare.com/investor
Shareholder online inquiries
https://www-us.computershare.com/investor/Contact

Annual Meeting
Insperity, Inc.’s Annual Meeting of Stockholders 
will be held at 3 p.m. CDT on Tuesday, May 14, 2013,
at the Company’s corporate headquarters, Centre I, 
in the Auditorium, located at 22900 Highway 59N
(Eastex Freeway), Kingwood, Texas 77339.

Board of Directors
Members of the Board of Directors can be contacted
at directors@insperity.com.

Common Stock
Insperity, Inc.’s common stock is traded on the New York 
Stock Exchange under the symbol “NSP. ”

Investor Relations
Stockholders are encouraged to contact the Company 
with questions or requests for information. Copies of the 
(cid:39)(cid:83)(cid:81)(cid:84)(cid:69)(cid:82)(cid:93)(cid:180)(cid:87)(cid:3)(cid:37)(cid:82)(cid:82)(cid:89)(cid:69)(cid:80)(cid:3)(cid:54)(cid:73)(cid:84)(cid:83)(cid:86)(cid:88)(cid:3)(cid:83)(cid:82)(cid:3)(cid:42)(cid:83)(cid:86)(cid:81)(cid:3)(cid:21)(cid:20)(cid:17)(cid:47)(cid:3)(cid:69)(cid:87)(cid:3)(cid:189)(cid:80)(cid:73)(cid:72)(cid:3)(cid:91)(cid:77)(cid:88)(cid:76)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)
Securities and Exchange Commission are available without 
charge upon written request.

Inquiries should be directed to:

Investor Relations Administrator
Insperity, Inc.
19001 Crescent Springs Drive
Kingwood, TX 77339-3802
281-348-3987

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INV-P12-1348        Cover photo courtesy of: NASA