2018-TriNet_Annual-Report-COVER.pdf 2 3/29/2019 10:46:46 AM
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2018 ANNUAL REPORT
BOARD OF DIRECTORS
BOARD OF DIRECTORS
David C. Hodgson
David C. Hodgson
EXECUTIVE TEAM
EXECUTIVE TEAM
Burton M. Goldfield
Burton M. Goldfield
Chair of the Board of Directors and
Chair of the Board of Directors and
President and Chief Executive Officer
President and Chief Executive Officer
Nominating and Corporate Governance
Nominating and Corporate Governance
Committee Member
Committee Member
Michael J. Angelakis
Michael J. Angelakis
Compensation Committee Member and
Compensation Committee Member and
Nominating and Corporate Governance
Nominating and Corporate Governance
Committee Member
Committee Member
Katherine August-deWilde
Katherine August-deWilde
Compensation Committee Chair
Compensation Committee Chair
Martin Babinec
Martin Babinec
H. Raymond Bingham
H. Raymond Bingham
Nominating and Corporate Governance
Nominating and Corporate Governance
Committee Chair and Compensation
Committee Chair and Compensation
Committee Member
Committee Member
Paul Chamberlain
Paul Chamberlain
Audit Committee Member
Audit Committee Member
Burton M. Goldfield
Burton M. Goldfield
President and Chief Executive Officer
President and Chief Executive Officer
Kenneth Goldman
Kenneth Goldman
Audit Committee Member
Audit Committee Member
Wayne Lowell
Wayne Lowell
Audit Committee Chair
Audit Committee Chair
Richard Beckert
Richard Beckert
Senior Vice President and
Senior Vice President and
Chief Financial Officer
Chief Financial Officer
Barrett Boston
Barrett Boston
Senior Vice President and
Senior Vice President and
Chief Revenue Officer
Chief Revenue Officer
James “Jimmy” Franzone
James “Jimmy” Franzone
Senior Vice President, Strategy
Senior Vice President, Strategy
Edward Griese
Edward Griese
Senior Vice President, Insurance Services
Senior Vice President, Insurance Services
Olivier Kohler
Olivier Kohler
Senior Vice President and
Senior Vice President and
Chief Operating Officer
Chief Operating Officer
Michael Mendenhall
Michael Mendenhall
Senior Vice President, Chief Marketing
Senior Vice President, Chief Marketing
Officer and Chief Communications Officer
Officer and Chief Communications Officer
Dilshad Simons
Dilshad Simons
Senior Vice President, Products
Senior Vice President, Products
Samantha Wellington
Samantha Wellington
Senior Vice President, Chief Legal Officer
Senior Vice President, Chief Legal Officer
and Secretary
and Secretary
Catherine Wragg
Catherine Wragg
Senior Vice President, Human Resources
Senior Vice President, Human Resources
CORPORATE INFORMATION
Corporate Headquarters
One Park Place, Suite 600
Stock Exchange
New York Stock Exchange
NYSE Trading Symbol: TNET
Dublin, CA 94568
T: 510.352.5000
F: 510.352.6480
TriNet.com
Investor Relations
investorrelations@trinet.com
510.875.7201
Transfer Agent
Computershare
P.O. Box 505000
Louisville, KY 40233
800.736.3001 (US, Canada, Puerto Rico)
781.575.3100 (non-US)
computershare.com/investor
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2018
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-36373
TRINET GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
One Park Place, Suite 600, Dublin, CA
(Address of principal executive offices)
95-3359658
(I.R.S. Employer
Identification No.)
94568
(Zip Code)
Registrant’s telephone number, including area code: (510) 352-5000
Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par Value $0.000025 Per Share; Common stock traded on the New York Stock
Exchange.
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
No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
No
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
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) 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.
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
Emerging growth company
(do not check if a smaller reporting company)
Smaller reporting company
Accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes
No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares
of common stock on The New York Stock Exchange on June 30, 2018, was $2.5 billion.
The number of shares of Registrant’s Common Stock outstanding as of February 7, 2019 was 70,170,155.
Portions of the Registrant’s Definitive Proxy Statement to be issued in connection with its Annual Meeting of Stockholders, scheduled to be held on
May 9, 2019, are incorporated by reference into Part III of this Form 10-K.
TRINET GROUP, INC.
Form 10-K - Annual Report
For the Year End December 31, 2018
TABLE OF CONTENTS
Glossary
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Consolidated Balance Sheets
Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures
Form 10-K
Cross Reference
Page
Part I, Item 1.
Part I, Item 1A.
Part I, Item 1B.
Part I, Item 2.
Part I, Item 3.
Part I, Item 4.
Part II, Item 5.
Part II, Item 6.
Part II, Item 7.
Part II, Item 7A.
Part II, Item 8.
Part II, Item 9.
Part II, Item 9A.
Part II, Item 9B.
Part III, Item 10.
Part III, Item 11.
Part III, Item 12.
Part III, Item 13.
Part III, Item 14.
Part IV, Item 15.
Part IV, Item 16.
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GLOSSARY
Glossary of Acronyms and Abbreviations
Acronyms and abbreviations are used throughout this report, particularly in Part I, Item 1. Business; Part 1, Item 1A.
Risk Factors; Part II, Item 7. MD&A; Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk
and Part II, Item 8. Financial Statements and Supplementary Data.
ACA
ACH
AFS
ASC
ASU
The Patient Protection and Affordable Care Act
Automated Clearinghouse Transaction
Available-for-sale
Accounting standards codification
Accounting standards update
CCPA
California Consumer Privacy Act of 2018
COBRA
Consolidated Omnibus Budget Reconciliation Act
COPS
COSO
DOL
Cost of providing services
Committee of Sponsoring Organizations of Treadway Commission
U.S. Department of Labor
EBITDA
Earnings before interest expense, taxes, depreciation and amortization of intangible assets
EPLI
EPS
Employment Practices Liability Insurance
Earnings Per Share
ERISA
Employee Retirement Income Security Act of 1974
ESAC
ESPP
ETR
FASB
G&A
GAAP
HIPAA
Employer Services Assurance Corporation
Employee stock purchase plan
Effective tax rate
Financial Accounting Standards Board
General and administrative
Generally Accepted Accounting Principles in the United States
Health Insurance Portability and Accountability Act of 1996
HITECH Act Health Information Technology for Economic and Clinical Health Act of 2009
HR
IBNP
IBNR
IGP
IRS
ISR
LDF
LIBOR
MD&A
NISR
NSR
OE
Human Resources
Incurred but not yet reported
Incurred but not reported
Indemnity Guarantee Payment
Internal Revenue Service
Insurance service revenues
Loss development factor
London Inter-bank Offered Rate
Management's Discussion and Analysis of Financial Condition and Results of Operations
Net Insurance Service Revenues
Net service revenues
Operating expenses
PCAOB
Public Company Accounting Oversight Board
PEO
PFC
PHI
PSR
Professional Employer Organization
Payroll funds collected
Protected Health Information
Professional service revenues
1
GLOSSARY
RSA
RSU
SBC
S&M
Restricted Stock Award
Restricted Stock Unit
Stock Based Compensation
Sales and marketing
S&P 500
Standard and Poor's 500 Stock Index
SD&P
Systems development and programming
SEC
SMB
SOX
TCJA
U.S.
UTP
WSE
Securities and Exchange Commission
Small to midsize business
Sarbanes-Oxley Act of 2002
Tax Cuts and Jobs Act of 2017
United States
Uncertain tax position
Worksite employee
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BUSINESS
Cautionary Note Regarding Forward-Looking Statements
For purposes of this Annual Report, the terms “TriNet,” “the Company,” “we,” “us” and “our” refer to TriNet Group, Inc.,
and its subsidiaries. This Annual Report on Form 10-K (Form 10-K) contains statements that are not historical in nature,
are predictive in nature, or that depend upon or refer to future events or conditions or otherwise contain forward-looking
statements within the meaning of Section 21 of the Securities Exchange Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by the use of words such as,
but not limited to, “ability,” “anticipate,” “believe,” “can,” “continue,” “could,” “design,” “estimate,” “expect,” “forecast,”
“hope,” “impact,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “strategy,” “target,”
“value,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. Examples
of forward-looking statements include, among others, TriNet’s expectations regarding: the growth of our customer
base, our ability to roll out additional offerings as and when planned, our planned improvements to our technology
platform, our ability to drive operating efficiencies and improve the customer experience, the impact of any future
changes to health care regulations, our ability and intention to pursue strategic acquisitions, the possibility and impact
of future competitors entering our industry, our ability to execute on our vertical market strategy, the impact of our
vertical approach, metrics that may be indicators of future financial performance, relative value of our benefit offerings
versus those SMBs can independently obtain, the principal competitive drivers in our market, our plans to retain clients
and manage client attrition, our ability to penetrate the market for human resources (HR) solutions for small to midsize
businesses, our investment strategy and its impact on our ability to generate future interest income, net income, and
Adjusted EBITDA, the types of cyber security threats we may face, insurance cost variability, seasonal trends and
variability, fluctuations in the period-to-period timing of when we incur certain operating expenses, and other
expectations, outlooks and forecasts on our future business, operational and financial performance.
Forward-looking statements are not guarantees of future performance, but are based on management’s expectations
as of the date of this Form 10-K and assumptions that are inherently subject to uncertainties, risks and changes in
circumstances that are difficult to predict. Forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause actual results, performance or achievements to be materially different from our current
expectations and any past results, performance or achievements. Given these risks and uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements.
Important factors that could cause actual results to differ materially from those expressed or implied by these forward-
looking statements are discussed throughout this Form 10-K, including those appearing under Part I, Item 1A. Risk
Factors, and Part II, Item 7. MD&A, as well as in our periodic filings with the SEC. Those factors could cause our actual
results to differ materially from our anticipated results.
The information provided in this Form 10-K is based upon the facts and circumstances known at this time, and any
forward-looking statements made by us in this Form 10-K speak only as of the date of this Form 10-K. We undertake
no obligation to revise or update any of the information provided in this Form 10-K, except as required by law.
3
BUSINESS
Item 1. Business
PART I
TriNet is a leading provider of HR expertise, payroll services, employee benefits and employment risk mitigation services
for SMBs. Since our founding in 1988, TriNet has served, and continues to serve, thousands of SMBs. For the year
ended December 31, 2018, we processed $37.7 billion in payroll and payroll taxes for our clients and ended 2018 with
approximately 16,900 clients with about 325,600 WSEs primarily in 48 states, the District of Columbia, and in Canada.
Our Products and Services
We deliver a comprehensive suite of products and services, which allows our clients to administer and manage various
HR-related functions, including compensation and benefits, payroll processing, employee data, health insurance and
workers' compensation programs, and other transactional HR needs using our technology platform and HR, benefits
and compliance expertise.
We also leverage our scale and industry specific HR experience to design product and service offerings for SMBs in
specific industries. We believe our industry-specific approach, which we call our vertical approach, is a key differentiator
for us and creates additional value for our clients by allowing our product and service offerings to address the common
HR needs in different client industries. For example, in 2018 we launched TriNet Professional Services to better support
consulting, advertising, and other expertise-driven industries. As of December 31, 2018, we offer six industry-tailored
vertical products, TriNet Financial Services, TriNet Life Sciences, TriNet Nonprofit, TriNet Technology, TriNet Main
Street, and TriNet Professional Services.
Our comprehensive HR products and solutions include the following common capabilities:
HR EXPERTISE
ACCESS TO
BENEFITS
PAYROLL
SERVICES
RISK MITIGATION
TECHNOLOGY
PLATFORM
HR Expertise
We use the collective insights and experience of our teams of HR, benefits, risk management and compliance
professionals to help clients manage many of the administrative, regulatory and practical requirements associated with
being employers. Our HR professionals and services help clients address a variety of HR issues, including employee
onboarding and terminations, benefits enrollment and support, immigration and visa support, and support for certain
types of tax credits. Depending on their needs, our clients and WSEs have access to varying levels of service and
support from our HR professionals ranging from call center support for basic questions, to pooled HR resources, to
onsite consulting and services. Our HR professionals also provide additional specialized HR consulting and services
upon request.
Access to Benefits
We utilize our size and scale to provide our clients and WSEs access to a broad range of cost-effective, TriNet-
sponsored employee benefit and insurance programs at a value that we believe most of our clients would be unable
to obtain on their own. Our benefit and insurance programs are designed to comply with state, local, and federal
regulations, and our benefit and insurance service offerings include plan design and administration, enrollment
management, leave management, plan document distribution and WSE and client communications.
Under our benefit and insurance programs, we pay third-party insurance carriers for WSE insurance benefits and
reimburse insurance carriers or third-party administrators for claims payments within our insurance deductible layer,
where applicable.
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BUSINESS
We sponsor and administer several fully insured employee benefit plans through a broad range of carriers, including
group health, dental, vision, short- and long-term disability, and life insurance as an employer plan sponsor under
Section 3(5) of ERISA. We also offer other benefit programs to our WSEs, including flexible spending accounts, health
savings accounts, retirement benefits, COBRA benefits, individual life insurance, commuter benefits, home insurance,
critical illness insurance, accident insurance, hospital indemnity, pet insurance, and auto insurance. For further
discussion of our fully insured programs including policies where we reimburse our carriers for certain amounts relating
to claims, refer to Note 1 in Part II, Item 8. Financial Statements and Supplementary Data, of this Form 10-K.
Payroll Services
We help clients manage all aspects of their employee compensation by providing multi-state payroll processing and
tax administration services and other payroll-related services, such as time and attendance management, time off and
overtime tracking, and expense management solutions. Our clients and WSEs can access payroll and tax information
and carry-out a variety of common HR transactions using our online and mobile tools. Our tax administration services
include calculating, withholding and reporting certain federal, state and local payroll and unemployment taxes on behalf
of clients and WSEs.
Risk Mitigation
Our HR professionals monitor employment-related regulatory developments at the local, state and federal levels to
help our clients comply with employment laws and mitigate many of the risks associated with being an employer. Using
our HR experience, we are able to provide guidance on a variety of employment regulations, from state and local laws
like minimum wage, unemployment insurance, family and medical leave laws and anti-discrimination laws, to federal
laws like the ACA.
We provide fully insured workers' compensation insurance coverage for our clients and WSEs through insurance
policies that we negotiate with our third-party insurance carriers. We manage the deductible risk that we assume in
connection with these policies by being selective in the types of businesses that we take on as new clients, and by
monitoring claims data and the performance of our carriers and third-party claims management services and vendors.
In addition, we advise clients on workers’ compensation best practices, including by performing workplace assessment
consultations and assisting with client efforts to identify conditions or practices that might lead to employee injuries.
We also provide EPLI coverage for our clients through insurance policies that we obtain from a third-party EPLI carrier.
These policies provide coverage for certain claims that arise in the course of the employment relationship, such as
discrimination, harassment, and certain other employee claims, with a per-claim retention amount. The retention amount
is split between the client and TriNet, with the client generally paying its portion of the retention amount first.
While we do not provide legal representation to our clients, our clients can benefit from the extensive experience of
our employment law specialists and HR professionals who assist clients in implementing HR best practices to avoid
employment practices liability claims to manage, process and respond to such claims. For claims covered by our EPLI,
actual litigation defense is conducted by outside employment law firms with whom we and our EPLI carriers have
previously negotiated rates, established billing guidelines and invoice review processes. We have also developed a
case management protocol to efficiently and effectively defend such claims.
Technology Platform
Our technology platform includes online and mobile tools that allow our clients and WSEs to store, view, and manage
core HR information and administer a variety of HR transactions, such as payroll processing, tax administration,
employee onboarding and termination, compensation reporting, expense management, and benefits enrollment and
administration. In 2018, we continued to make significant investments in our technology platform to provide our users
with improved functionality and HR management options, and we continued to retire legacy technology inherited from
acquisitions. We intend to continue to invest in our technology platform to improve its functionality, ease of use and
the overall user experience for our clients and WSEs. We believe the continued investment in and improvement of our
technology platform will drive operating efficiencies and improve the customer experience.
We invested approximately $81 million, $74 million and $53 million, during 2018, 2017 and 2016, respectively,
developing our technology platform.
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BUSINESS
Our Co-Employment Model
We operate using a co-employment model, under which employment-related responsibilities are allocated by contract
between us and our clients. This model allows WSEs to receive the full benefit of our services, including access to our
sponsored employee benefit plan offerings. Each of our clients enters into a client service agreement with us that
defines the suite of professional and insurance services and benefits to be provided by us, the fees payable to us, and
the division of responsibilities between us and our clients as co-employers. The division of responsibilities under our
client service agreements is typically as follows:
TriNet Responsibilities
We generally assume responsibility for, and manage certain risks associated with:
•
•
•
•
•
•
•
remittance to WSEs of salaries, wages and certain other compensation (as reported and paid to us by our client),
related tax reporting and remittance to tax authorities, and processing of garnishment and wage deduction orders.
Unlike a payroll service provider, we pay WSEs from our own bank accounts,
reporting of wages, withholding and deposit of associated payroll taxes as the employer for regulatory reporting
and payroll tax returns,
provision and maintenance of workers' compensation insurance and workers' compensation claims processing,
provision of access to, and administration of, group health, welfare, and retirement benefits to WSEs under TriNet-
sponsored insurance plans,
compliance with applicable law for certain employee benefits offered to WSEs,
processing of unemployment claims, and
provision of certain HR policies, including an employee handbook describing the co-employment relationship.
Client Responsibilities
Our clients are responsible for employment-related responsibilities that we do not specifically assume, generally
including:
•
•
•
•
•
•
•
•
day-to-day management of their worksites and WSEs,
compliance with laws associated with the classification of employees as exempt or non-exempt, such as overtime
pay and minimum wage law compliance,
accurate and timely reporting to TriNet of compensation and deduction information, including information relating
to hours worked, rates of pay, salaries, wages and certain other compensation,
accurate and timely reporting to TriNet of information relating to workplace injuries, employee hires and termination,
and certain other information relevant to TriNet’s services,
provision and administration of any employee benefits not provided by TriNet such as equity incentive plans,
compliance with all laws and regulations applicable to the clients' workplace and business, including work eligibility
laws, laws relating to workplace safety or the environment, laws relating to family and medical leave, laws pertaining
to employee organizing efforts and collective bargaining and employee termination notice requirements,
payment of TriNet invoices, which include salary, wages and other relevant compensation to WSEs and applicable
employment taxes and service fees, and
all other matters for which TriNet does not assume responsibility under the client service agreement, such as
intellectual property ownership and protection and liability for products produced and services provided by the
client company to its own customers.
As a result of our co-employment relationship with each of our WSEs, we are liable for payment of salary, wages and
certain other compensation to the WSEs as reported and paid to us by the client, and are responsible for providing
specified employee benefits to such persons to the extent provided in each client service agreement and under federal
and state law. In most instances, clients are required to remit payment prior to the applicable payroll date by wire
transfer or ACH.
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BUSINESS
We also assume responsibility for payment and liability for the withholding and remittance of federal and state income
and employment taxes with respect to salaries, wages and certain other compensation paid to WSEs, although we
reserve the right to seek recourse against our clients for any liabilities arising out of their conduct. We perform these
functions as the statutory employer for federal employment tax purposes, since our clients transfer legal control over
these payroll functions to us. The laws that govern the payment of salaries, wages and related payroll taxes for our
WSEs are complex and the various federal, state and local laws that govern such payments can have significant
differences. For example, except to the extent applicable federal and state laws otherwise provide, the client may be
held ultimately liable for those obligations if we fail to remit taxes and the bonding security provided by the ESAC or
other surety is not sufficient to satisfy the obligation.
Sales and Marketing
Our Sales Organization
We sell our solutions primarily through our direct sales organization. We have aligned our sales organization by industry
vertical with the goal of growing profitable market share in our targeted industries. This vertical approach deepens our
network of relationships and gives us an understanding of the unique HR needs facing SMBs in those industries. Our
sales representatives are supported by marketing, inside sales, lead generation efforts, and referral networks.
We sponsor and participate in associations and events around the country and utilize these forums to target specific
vertical and geographic markets. We also generate sales opportunities within key industry verticals, through marketing
alliances and other indirect channels, such accounting firms, venture capital firms, incubators, insurance brokers, and
other vertical market industry associations. Additionally, we utilize digital marketing programs, including digital
advertising, search and email marketing, to create awareness and interest in our products.
Our Marketing Organization
Our marketing organization is charged with driving overall brand awareness, managing lead generation, creating and
managing our website and other online properties, creating content for all of our outbound and inbound marketing
efforts, media relations, and managing our sponsorships, major marketing events, and client communications. In 2018
our marketing team focused on strategic marketing, communications and branding initiatives, in part by launching a
comprehensive company re-branding and marketing campaign that included social media and advertising across
digital, television, radio and out-of-home media.
Legal and Regulatory
Our business operates in a complex environment of numerous federal, state and local laws and regulations relating
to our solutions. The following summarizes what we believe are the most important legal and regulatory aspects of our
business:
Federal Regulations
Employer Status
We sponsor our employee benefit plan offerings as the employer of our WSEs under the Internal Revenue Code of
1986, as amended (the Code), and ERISA. The multiple definitions of “employer” under both the Code and ERISA are
not clear and most are defined in part by complex multi-factor tests under common law. We believe that we qualify as
an “employer” of our WSEs in the U.S. under both the Code and ERISA, as well as various state regulations, but this
status could be subject to challenge by various regulators. For additional information on our employer status and its
impact on our business and results of operations, refer to Part I, Item 1A. Risk Factors, of this Form 10-K, under the
heading - If we are not recognized as an employer of worksite employees under federal and state regulations, or are
deemed to be an insurance agent or third-party administrator, we and our clients could be adversely impacted.
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BUSINESS
The ACA and Health Care Reform
The ACA was signed into law in March 2010. The ACA implemented sweeping health care reforms with staggered
effective dates from 2010 through 2020, and many provisions in the ACA still require the issuance of additional guidance
from the DOL, the IRS, the U.S. Department of Health and Human Services and various U.S. states. Passage of the
TCJA in December 2017 eliminated the individual mandate tax penalty under the ACA beginning in 2019, while retaining
employer ACA obligations. Further significant changes to health care statutes, regulations and policy at the federal,
state and local levels could occur in 2019 and beyond, including the potential further modification, amendment or repeal
of the ACA. For additional information on the ACA and its impact on our business and results of operations, refer to
Part I, Item 1A. Risk Factors, of this Form 10-K, under the heading - Our business is subject to numerous complex
state and federal laws, and changes in, uncertainty regarding, or adverse application of these laws could adversely
affect our business.
HIPPA
Maintaining the security of our WSEs information is important to TriNet as we sponsor employee benefit plans and
may have access to personal health information (PHI) of our WSEs. The manner in which we manage PHI is subject
to HIPAA and the HITECH Act. HIPAA contains restrictions and health data privacy, security and breach notification
requirements with respect to the use and disclosure of PHI. Further, under the HITECH Act there are penalties and
fines for HIPAA violations. Our health plans are covered entities under HIPAA, and we are therefore required to comply
with HIPAA's portability, privacy, and security requirements.
To the extent possible, the health claim information we possess is anonymized and accessed through a secured third-
party database. For additional information on the security of our clients' and WSEs' personal data and PHI and the
potential impact to our business if we fail to protect such personal data and PHI, refer to Part I, Item 1A. Risk Factors,
of this Form 10-K, under the heading - Cyber-attacks or security breaches could result in reduced revenue, increased
costs, liability claims, regulatory penalties, and damage to our reputation.
U.S. State Regulations
Forty-four states have adopted provisions for licensing, registration, certification or recognition of co-employers, and
others are considering such regulation. Such laws vary from state to state but generally provide for monitoring or
ensuring the fiscal responsibility of PEOs, and in some cases codify and clarify the co-employment relationship for
unemployment, workers' compensation and other purposes under state laws. We believe we are in compliance in all
material respects with the requirements in those forty-four states.
We must also comply with state unemployment tax requirements where our clients are located. State unemployment
taxes are based on taxable wages and tax rates assigned by each state. The tax rates vary by state and are determined,
in part, based on our prior years’ compensation and unemployment claims experience in each state. Certain rates are
also determined, in part, by each client’s own compensation and unemployment claims experience. In addition, states
have the ability under law to increase unemployment tax rates, including retroactively, to cover deficiencies in the
unemployment tax funds.
We must also comply with general state tax laws, including payroll tax laws. Continued tax reform efforts may lead to
significant state tax law changes in 2019 and beyond.
Strategic Acquisitions
Historically, we have pursued strategic acquisitions to both expand our product capabilities and supplement our growth
across geographies and certain industry verticals. Our acquisition targets have included PEOs and other HR solution
providers as well as technology companies or technology product offerings to supplement or enhance our existing HR
solutions. We intend to continue to pursue strategic acquisitions, where appropriate, that will enable us to add new
clients and WSEs, expand our presence in certain geographies or industry verticals and offer our clients and WSEs
more attractive products and services.
Client Industries and Geographies
Our clients are distributed across a variety of industries, including technology, life sciences, not-for-profit, professional
services, financial services, property management, retail, manufacturing, and hospitality. Our clients execute annual
service contracts with us that automatically renew. Generally, our clients may cancel these contracts with thirty days'
8
BUSINESS
notice and we may cancel these contracts with thirty days' notice.
We conduct our business primarily in the United States, with more than 99% of our total revenues being attributable
to WSEs in the United States and its territories with the remainder being attributable to WSEs in Canada. Substantially
all our long-lived assets are located in the United States.
Seasonality
Our business is affected by seasonality in client business activity and WSE product selection. In addition, the timing
of benefits open enrollment periods and utilization of medical services above each WSE's deductible causes variation
in our quarterly results. Finally, clients generally change their payroll service providers at the beginning of the payroll
tax year; as a result, we have historically experienced our highest volumes of new and exiting clients in the month of
January.
Competition
We face competition from:
• PEOs that compete directly with us,
• HR and information systems departments and personnel of companies that administer employee benefits, payroll
and HR for their companies in-house,
•
•
providers of certain endpoint HR services, including payroll, employee benefits, business process outsourcers with
high-volume transaction and administrative capabilities, and other third-party administrators,
employee benefit exchanges that provide benefits administration services over the Internet to companies that
otherwise maintain their own employee benefit plans, and
•
insurance brokers who allow third-party HR systems to integrate with their technology platform.
Our competitors include large PEOs such as the TotalSource unit of Automatic Data Processing, Inc., the PEO operations
of Paychex, Inc. and Insperity, Inc., as well as specialized and smaller PEOs and similar HR service providers with
PEO operations. To the extent that we and other companies providing these services are successful in growing our
businesses, we anticipate that future competitors will enter this industry.
We believe that our services are attractive to many SMBs in part because of our ability to provide access to a broad
range of TriNet-sponsored workers' compensation, health insurance and other benefits programs on a cost-effective
basis. We compete with insurance brokers and other providers of this coverage in this regard, and our offerings must
be priced competitively with those provided by these competitors in order for us to attract and retain our clients.
We believe that we compete based upon the breadth and depth of our benefit plans, vertical market expertise, total
cost of service, brand awareness and reputation, ability to innovate and respond to customer needs rapidly, access to
online and mobile solutions, and subject matter expertise. We believe that we are competitive across these factors.
For additional information about our competition, please refer to Part I, Item 1A. Risk Factors, of this Form 10-K, under
the heading - Our reputation could suffer and our business could be adversely affected if our products do not perform,
and our services are not delivered, as expected by our clients and WSEs.
Intellectual Property
We own or license from third parties various computer software, as well as other intellectual property rights, used in
our business. Generally, we protect our intellectual property rights through the use of confidentiality and non-disclosure
agreements and policies with our employees and third-party partners and vendors. We also own registered trademarks
in the United States, Canada and the European Union covering our name and other trademarks and logos that we
believe are materially important to our operations.
Corporate Employees
We refer to our employees that are not co-employed with our clients as our corporate employees. We had approximately
3,100 corporate employees as of December 31, 2018. Our corporate employees are not covered by a collective
bargaining agreement.
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BUSINESS
Corporate and Other Available Information
We were incorporated in 1988 as TriNet Employer Group, Inc., a California corporation. We reincorporated as TriNet
Merger Corporation, a Delaware corporation, in 2000 and during that year changed our name to TriNet Group, Inc.
Our principal executive office is located at One Park Place, Suite 600, Dublin, CA 94568 and our telephone number
is (510) 352-5000. Our website address is www.trinet.com. Information contained in or accessible through our website
is not a part of this report.
On the Investor Relations page of our Internet website at http://www.trinet.com, we make available, free of charge, our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to
those reports, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.
Alternatively, the public may access these reports at the SEC's internet site at www.sec.gov. The contents of these
websites are not incorporated into this report and are not part of this report.
10
RISK FACTORS
Item 1A. Risk Factors
Our business is subject to numerous complex laws, and changes in, uncertainty regarding, or adverse application of
these laws could negatively affect our business.
The products and services we provide to our clients are subject to numerous complex federal, state and local laws
and regulations, including those described in Part I, Item 1. Business, of this Form 10-K. Many of these laws (such as
ERISA, the ACA, other federal and state employee benefit laws, workers' compensation laws, employment tax laws,
worksite safety laws, insurance and banking laws, wage and hour laws, anti-discrimination laws, and laws specific to
the industries of our clients) do not specifically address PEOs or co-employment relationships, which can lead to
unpredictable application, regulatory interpretation and discretion in enforcement at the federal, state and local levels
in relation to our business.
In addition, new laws, changes in existing laws, or adverse application or interpretation of new or existing laws, whether
they apply to employers generally or specifically to PEOs or our co-employment relationships with our WSEs, could
reduce or eliminate the need for, or value and benefit provided by, some or all of the products and services we provide,
and/or require us to make significant changes to our methods of doing business and providing products and services,
including providing additional customer and WSE disclosures. Any such new laws, changes in laws or adverse
application or interpretation of laws could also affect the extent and type of employee benefits employers and co-
employers can or must provide employees, the amount and type of taxes employers, co-employers and employees
are required to pay, or the time within which employers and co-employers must remit taxes to applicable tax authorities.
The laws that apply in our industry and to employers and co-employers have and could be changed, replaced or
interpreted in a manner adverse to our operations and we are not able to predict the occurrence, direction or ultimate
impact of these events. Any such new laws, change in laws or adverse application or interpretation of laws could have
material adverse effect on our financial condition and results of operations.
Changes to and continued uncertainty regarding the implementation and future of health care reform in the United
States, including under the ACA, any successor to the ACA, or related or similar state and local laws, has the potential
to substantially change the health insurance market for SMBs and how such employers provide health insurance to
their employees, which could have a materially adverse effect on our ability to attract and retain our clients. For example,
the elimination of the ACA individual mandate tax penalty beginning in 2019 may reduce the number of WSEs who
participate in our insurance programs. Significant changes could be made to the ACA in 2019 and beyond, including
the potential modification, amendment or repeal of the ACA. Changes to federal health care laws, including the ACA,
could also result in new or amended laws being introduced at the state or local level. Our ability to comply with, and
adapt our product offerings to take advantage of, any such changes could require significant additional costs and divert
management attention, which could result in a material adverse effect on our financial condition and results of operations.
Similarly, changes to federal, state and local laws regarding other traditional employee benefits, such as retirement
benefits, also have the potential to substantially change the types of benefit programs that are available to SMBs and
that may be offered by PEOs. For example, proposed rule changes by the DOL may make available "open multiple
employer plans" for retirement benefits, which plans may compete with the benefit plans we provide. The availability
of alternative employee benefit plans for SMBs, or any reduction in the types of plans that we can offer our clients,
could have a material adverse effect on our financial condition and results of operations.
If we are not recognized as an employer of worksite employees under federal and state regulations, or are deemed to
be an insurance agent or third-party administrator, we and our clients could be adversely impacted.
In order to sponsor our employee benefit plan offerings for WSEs, we must qualify as an employer of WSEs for certain
purposes under the Code and ERISA. In addition, our status as an employer is important for purposes of ERISA’s
preemption of certain state laws. The definition of employer under various laws is not uniform, and under both the
Code and ERISA, the term is defined in part by complex multi-factor tests.
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RISK FACTORS
Generally, these tests are designed to evaluate whether an individual is an independent contractor or employee and
they provide substantial weight to whether a purported employer has the right to direct and control the details of an
individual's work. Some factors that the IRS has considered important in the past in evaluating this issue have included
the employer’s degree of behavioral control (for example the extent of instructions, training and evaluation of the work),
financial control and the economic aspects of the work relationship, the type of relationship, as evidenced by the specific
contract, if any, whether employee benefits are provided, whether the work is indefinite in duration or project-based,
and whether it is a regular part of the employer’s business. However, a definitive judicial interpretation of “employer”
in the context of PEOs has not been established. For ERISA purposes, for example, courts have held that test factors
relating to the ability to control and supervise an individual are less important, while the DOL has issued guidance that
certain entities in the HR outsourcing industry do not qualify as common law employers for ERISA purposes. Although
we believe that we qualify as an employer of WSEs under ERISA and the DOL has not provided guidance otherwise,
we are not able to predict the outcome of any regulatory challenge.
If we were found not to be an employer for ERISA purposes, it could adversely affect the manner in which we are able
to provide employee benefits to WSEs. Similarly, to qualify for favorable tax treatment under the Code, certain employee
benefit plans, such as 401(k) retirement plans and cafeteria plans must be established and maintained by an employer
for the exclusive benefit of its employees. All of our 401(k) retirement plans are operated pursuant to guidance provided
by the IRS and we have received favorable determination letters from the IRS confirming the qualified status of these
plans. However, the IRS uses its own complex, multi-factor test to ascertain whether an employment relationship exists
between a worker and a purported employer. Although we believe that we qualify as an employer of WSEs under the
Code, we cannot assure you that the IRS will not challenge our position or continue to provide favorable determination
letters. Moreover, the IRS' 401(k) guidance and qualification requirements are not applicable to the operation of our
cafeteria plans.
If we are not recognized as an employer under the Code or ERISA, we may be required to change the method by
which we report and remit payroll taxes to the tax authorities and the method by which we provide, or discontinue
providing, certain employee benefits to WSEs. Such changes could have a material adverse effect on our business
and results of operations.
We must also qualify as co-employers of WSEs and comply with state licensing, certification and registration
requirements for the regulation of PEOs. Forty-four states have passed such laws and other states may implement
such requirements in the future. While we believe that we satisfy these state regulations, these requirements vary from
state to state, they can and have changed frequently with varying degrees of impact on our operations. If we are not
able to satisfy existing or future licensing requirements or other applicable regulations in any state, we may be prohibited
from doing business in that state, including having any clients within that state.
In addition, state regulatory authorities generally impose licensing requirements on companies acting as insurance
agents or third-party administrators, such as those that handle health or retirement plan funding and claim processing.
We do not believe that our current activities require such licensing, but we and others in our industry have received
inquiries from regulatory authorities in the past and could receive them in the future. If regulatory authorities in any
state determine that we are acting as an insurance agent, third-party administrator, we may need to hire additional
personnel to manage regulatory compliance and pay annual regulatory fees, which could have a material adverse
effect on our financial condition and results of operations.
Our co-employment relationship with our worksite employees exposes us to business risks.
We are the co-employer of our WSEs. As the co-employer of our WSEs, we assume certain risks and obligations of
an employer. For instance, we face the risk of providing access to health benefits to our WSEs even if the cost of
providing benefits exceeds the fees received from our clients. However, the extent of our responsibility for other aspects
of our co-employer relationship with our WSEs remains subject to regulatory uncertainty at the local, state and federal
levels. For example, under certain circumstances, we may be found to be responsible for paying salaries, wages and
related payroll taxes of our WSEs, even if our clients have not timely remitted payments to us.
Our WSEs work in our clients' workplaces. Our ability to control the workplace environment of our clients is limited. As
a co-employer of WSEs, we may be subject to liability for violations of labor and employment laws, industry-specific
laws that apply to the businesses our clients operate, other laws that apply to our clients or to employers generally,
and other acts and omissions by our clients or WSEs, even if we do not violate such laws or participate in such acts
or omissions. State and federal positions regarding co-employment relationships are in a constant state of flux and
have changed with varying degrees of impact on our operations. We cannot predict when changes will occur or forecast
whether any particular future changes will be favorable or unfavorable to our operations.
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RISK FACTORS
We seek to mitigate these risks through agreements and insurance coverage. Our agreements with our clients divide
responsibilities between us and our clients and provide that our clients will indemnify us for any liability attributable to
their own or our WSEs' conduct. However, we may not be able to effectively enforce or collect on these obligations.
In addition, we maintain insurance coverage, including workers’ compensation and EPLI coverage, to limit our and our
clients' exposure to various WSE-related claims, but subject to split by contract, we are still responsible for any deductible
layer under such insurance and such insurance generally excludes coverage for claims relating to the classification of
employees as exempt or non-exempt, other wage and hour issues, and employment contract disputes, among other
things. We cannot assure you that our insurance will be sufficient in amount or scope to cover all claims that may be
asserted against us and for which we are unable to obtain indemnification from our clients.
Negative publicity relating to events or activities attributed to us, our corporate employees, WSEs, or others associated
with us, whether or not justified, may tarnish our reputation and reduce the value of our brand. In addition, if our brand
is negatively impacted, it may have a material adverse effect on our business, including creating challenges in retaining
clients or attracting new clients and hiring and retaining employees.
Cyber-attacks or other security-related incidents could result in reduced revenue, increased costs, liability claims,
regulatory penalties, and damage to our reputation.
Maintaining the security of our infrastructure and the confidentiality of our clients' and WSEs' personal data and
information is paramount for us and our clients. Clients using our technology platform and services rely on the security
of our infrastructure to ensure the reliability of our products and services and the protection of sensitive client and WSE
data. We collect, store, use, process, transfer, disclose, and transmit a large amount of personal and confidential
information about our clients, WSEs and colleagues, including bank account and social security numbers, data used
for tax returns, certain medical information, retirement account information and payroll data. In providing our services,
we also rely on third-party service providers, such as insurance carriers and banks, who have access to personal and
confidential information about our clients, WSEs and employees and some of those service providers subcontract
some of their responsibilities to other third-party service providers. Through contractual provisions and third party risk
management processes, we take steps to require that our service providers protect our funds and sensitive information.
Due to the size and complexity of our information technology system, the amount of sensitive data that we store and
the number of employees and third-party service providers with access to that data, our information technology systems
are potentially vulnerable to a variety of intentional and inadvertent security threats.
Threats to our information technology systems and data security can take a variety of forms. Hackers may develop
and deploy viruses, worms and other malicious software programs that attack our networks and data centers or those
of our service providers. Other malicious actors may direct social engineering, phishing, credential stuffing and similar
types of attacks against either or both of us and our clients and service providers. Other threats include inadvertent
security breaches by our employees, clients, WSEs, service providers and other business partners.
Organizations and individuals have launched and will continue to potentially launch such targeted attacks, including
social engineering, phishing and credential stuffing attacks, against us, our service providers, and our clients. Such
attacks have and can disrupt, or result in unauthorized access to, our networks, applications, bank accounts, and
confidential data, or those of our clients or WSEs or service providers. In addition, we, our service providers and our
clients have experienced inadvertent security breaches that led to disclosures of sensitive client and WSE data in the
past and could have such experiences in the future.
Any cyber-attack, unauthorized intrusion, insider theft, malicious software infiltration, network disruption, denial of
service or other data security incident could result in disruption to our systems and services, product development
delays, and the disclosure or misuse of personal and confidential information. This could have a material adverse effect
on our business operations, result in liability or regulatory sanction or a loss of confidence in our ability to provide our
services, or harm our reputation and relationships with current or potential clients. The costs of identifying and
remediating any attack, breach, or disclosure, and the costs associated with responding to litigation or regulatory
investigations, could have a material adverse effect on our business and reduce our operating margins. Any publicized
security problems, or even public rumors about a security problem, affecting our businesses and/or those of our service
providers may have a similarly material adverse effect on our business or reputation.
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RISK FACTORS
We have implemented policy, procedural, technical, physical, and administrative controls with the aim of protecting
our networks, applications, bank accounts, and the personal and confidential information entrusted to us from such
threats. While we, and our service providers, have security measures and programs in place to prevent, detect, and
respond to attacks, data security incidents and other similar threats, these security measures and programs and our
collective efforts may not always succeed. Despite our efforts and those of our service providers, we cannot fully
eliminate the possibility of such attacks, data security incidents and other threats, whether intentional or inadvertent
and whether internal or external and we, our clients or our service providers may not discover a security incident for
a significant period of time after the incident occurs. We also expect that intentional threats to our infrastructure and
our clients’ and WSEs’ data will continue to grow in frequency, complexity and sophistication. As a result, we are
investing, and plan to continue investing, resources to protect our information security ecosystem against such incidents
though we may not have adequate insurance coverage to compensate for losses from a security incident.
Maintaining the security of confidential WSE information is particularly important to us as a sponsor of employee benefit
plans with access to certain personal health information. The manner in which we manage PHI is subject to HIPAA
and the HITECH Act. To the extent possible, the health information we possess is anonymized and accessed through
a secured third-party database. Although we maintain, and actively seek to improve, security measures and
infrastructure designed to protect against unauthorized access to this sensitive data, cyber-attacks and security
breaches remain a significant threat to our business. Any security breach, whether deliberate or inadvertent, could
result in the access, public disclosure, loss or theft of our clients' and WSEs' confidential and personal data, including
PHI, which could negatively affect our ability to attract new clients, cause existing clients to terminate their agreements
with us, result in reputational damage and subject us to lawsuits, regulatory fines, or other actions or liabilities which
could materially and adversely affect our business and operating results.
We are also subject to various federal, state and foreign laws, rules, and regulations relating to the collection, use, and
security of personal and confidential information. For example, U.S. states, the District of Columbia and Canada have
enacted breach notification laws that may require us to notify WSEs, clients, employees, or regulators in the event of
unauthorized access to or disclosure of personal or confidential information. Complying with these various laws, and
with any new laws or regulations or changes to existing laws, could cause us to incur substantial costs or require us
to change our business practices in a manner adverse to our business. For example, we must comply with the
requirements of the California Consumer Privacy Act of 2018 (CCPA) by January 1, 2020, which may require us to
incur additional costs. Changes or inconsistencies in interpretations of these laws and regulations and/or changes in
enforcement priorities may result in significant penalties or liability for non-compliance.
Unexpected changes in workers' compensation and health insurance claims by worksite employees could harm our
business.
Our insurance costs, which make up a significant portion of our overall costs, are significantly affected by our WSEs’
health and workers' compensation insurance claims experience. We establish accrued costs to provide for the estimated
costs of reimbursing our workers' compensation and health insurance carriers under our insurance policies, relying on
third-party actuaries and our own experience, but the volume and severity of claims activity is inherently unpredictable.
If we experience a sudden or unexpected increase or decrease in claims activity including an increase in WSE incidents
or costs of those incidents, our costs could increase or decrease, respectively. An increase in claims activity could
make it more difficult to secure replacement insurance policies on competitive terms once our current policies expire.
Estimating these accrued costs requires us to consider a number of factors and requires significant judgment. If there
is an unexpected increase or decrease in the severity or frequency of claims activity of our WSEs (including activity
arising from any of a number of factors that affect claim activity levels, such as changes in general economic conditions,
claims differing significantly from expectations, and terrorism, disease outbreaks or other catastrophic events), or if
we subsequently receive updated information indicating insurance claims were higher or lower than previously
estimated and reported, our insurance costs could be higher or lower, respectively, in that period or subsequent periods
as we adjust our accrued costs accordingly, which could have a material adverse effect on our business. We have
experienced both favorable and unfavorable insurance cost variability due to claims activity in the past and could have
similar or worse experiences in the future.
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RISK FACTORS
Some of our health insurance policies include risk-based policies that can limit our exposure for individual claims and
our maximum aggregate claims exposure in each policy year. Refer to Note 1 in Part II, Item 8. Financial Statements
and Supplementary Data, of this Form 10-K for further discussion of these policies. We have experienced variability,
and may experience variability in the future, in the amounts that we are required to pay for group health insurance
expenses incurred by WSEs within our deductible layer under these risk-based policies, based on continually changing
trends in the frequency and severity of claims. These historical trends may change, and other seasonal trends and
variability may develop, which may make it more difficult for us to manage this aspect of our business and which may
have a material adverse effect on our business.
Our results of operations and stock price may fluctuate as a result of numerous factors, many of which are outside of
our control.
Our future operating results and stock price are subject to fluctuations and quarterly variations based upon a variety
of factors, many of which are not within our control, including, without limitation:
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the volume and severity of health and workers' compensation insurance claims by our WSEs, recorded as part of
our insurance costs, and the timing of related claims information provided by our insurance carriers,
the amount and timing of our other insurance costs, operating expenses and capital expenditures,
the number of our new clients initiating service and the number of WSEs employed by each new client,
the retention, loss or merger of existing clients,
a reduction in the number of WSEs employed by existing clients,
the timing of client payments and payment defaults by clients,
the costs associated with our acquisitions of companies, assets and technologies,
any payments or draw downs on our credit facility,
any unanticipated expenses, such as litigation or other dispute-related settlement payments,
any expenses we incur for geographic and service expansion,
any changes in laws or adverse interpretation of laws, which may require us to change the manner in which we
operate and/or increase our regulatory compliance costs,
any changes in our effective tax rate, and
the impact of new accounting pronouncements.
In addition, the trading price of our common stock is subject to fluctuation in response to a variety of factors, including
the factors above and below, many of which are not within our control, including, without limitation:
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the overall performance of the equity markets,
any trading activity, or a market expectation regarding such activity, by our directors, executive officers and
significant stockholders,
the economy as a whole, and its impact on SMBs and our clients,
the performance and market perception of companies that investors believe are similar to us, and
any significant changes in the liquidity of our common stock.
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RISK FACTORS
Many of the above factors are discussed in more detail elsewhere in this Risk Factors section and in Part II, Item 7.
MD&A, of this Form 10-K. Many of these factors are outside our control, and the variability and unpredictability of these
factors have in the past and could in the future cause us to fail to meet our expectations and the expectations of
investors and any industry analysts who cover our shares, which could result in a decline in our share price and reduced
liquidity in our shares. In addition, the occurrence of one or more of these factors might cause our results of operations
to vary widely, which could lead to negative impacts on our margins, short-term liquidity, and our ability to retain or
attract key personnel, and could cause other unanticipated issues, including a downgrade of our shares by or change
in opinion of industry analysts and a related decline in our share price.
Any failure in our business systems, or any third-party business systems or service provider that we rely upon, could
reduce the quality of our business services, harm our reputation and expose us to liability.
Our business is highly dependent on data processing systems that rely on the complex integration of numerous hardware
and software subsystems to manage, on a daily basis, a large volume of client and WSE transactions, including the
processing of employee, payroll and benefits data. Our systems have and could be disrupted by, among other things,
equipment failures, computer server or systems failures, network outages, malicious acts, software errors or defects,
vendor performance problems, power failures, natural disasters, terrorist actions or similar events. Any delay or failure
in these systems, even if only for a short period of time, can have a significant impact on our clients and WSEs and
result in a loss of clients and/or liability to our clients and WSEs or fines and penalties levied by the government agencies
that regulate our operations, any of which could result in a materially adverse effect on our reputation and business.
For example, errors in our products and services, such as the erroneous denial of healthcare benefits or delays in
making payroll, could expose our clients to liability claims from improperly serviced WSEs, for which we may be
contractually obligated to provide indemnification.
In addition, we rely on third-party systems to provide services for our clients and WSEs, such as electronic banking
systems and payroll tax systems that transmit client and WSE data to taxing agencies. If any of these systems were
disrupted or if the third parties who provide those systems were to experience operational or financial difficulties even
if only for a short period of time, which has happened in the past and could happen in the future, the solutions we
provide to our clients and WSEs could be significantly affected, which could also result in a material adverse effect on
our reputation and business. We also rely on enterprise software applications licensed from third parties that are
upgraded from time to time. Any difficulties we encounter in adapting application upgrades to our systems could harm
our performance, delay or prevent us from providing services to our clients.
To succeed, we must constantly improve our technology to meet the expectations of our clients. If we fail to meet those
expectations, we may lose clients and harm our business.
In order to attract and retain clients and satisfy their expectations, the software, hardware and networking technologies
we use must be frequently and rapidly upgraded, enhanced and expanded in response to technological advances,
competitive pressures, client expectations, and new and changing laws. As a result, we must timely and effectively
identify, develop, or license from third parties, and integrate such upgraded, enhanced or expanded technologies into
the solutions that we provide. New products or upgrades may not be released according to schedule, or may contain
defects when released. Difficulties in integrating new technologies could result in adverse publicity, loss of sales, delay
in market acceptance of our services, or client claims against us, any of which could materially harm our business. We
could also incur substantial costs in modifying our services or infrastructure to adapt to these changes. In addition, we
could lose market share if our competitors develop technologically superior products and services.
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RISK FACTORS
We have remediated the material weakness previously reported in our internal control over financial reporting, but if
we fail to properly manage our internal control over financial reporting on a go forward basis, future material weaknesses
could be identified that could, if not remediated, result in a material misstatement in our financial statements.
We have remediated the material weakness that we previously identified in connection with the audit of our consolidated
financial statements as of and for the year ended December 31, 2017 by implementing and enhancing our control
procedures. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated
financial statements will not be prevented or detected on a timely basis. In order to properly manage our internal control
over financial reporting, we may need to take additional measures, including system migration and automation, and
we cannot be certain that the measures we have taken, and expect to take, to improve our internal controls will be
sufficient to ensure that our internal controls will remain effective and eliminate the possibility that other material
weakness or deficiencies may develop or be identified in the future. Implementing any changes to our internal controls
may distract our officers and employees and require expenditures to implement new process or modify our existing
processes. If we experience future material weaknesses or deficiencies in internal controls and we are unable to correct
them in a timely manner, our ability to record, process, summarize and report financial information accurately and
within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission, will be
adversely affected. Any such failure could negatively affect the market price and trading liquidity of our common stock,
lead to delisting, cause investors to lose confidence in our reported financial information, subject us to civil and criminal
investigations and penalties, and generally materially and adversely impact our business and financial condition.
We have acquired, and may in the future acquire, other businesses and technologies, which can divert management's
attention and create integration risks and other risks for our business.
We have completed numerous acquisitions of other businesses and technologies, and we expect that we will continue
to pursue future acquisitions. Such acquisitions involve numerous other risks, including:
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identifying attractive acquisition candidates,
over-valuing and over-paying for acquisition candidates,
integrating the operations, systems, technologies, services and personnel of the acquired companies, which may
include the migration of WSEs from the technology platform and service providers used by the acquired company
to our own,
establishing or maintaining internal controls, procedures and policies relating to the acquired systems and
processes, including the potential for actual or perceived control weaknesses associated with or arising from the
acquisitions and integration of acquired systems,
diversion of management’s attention from other business concerns,
litigation resulting from activities of the acquired company, including claims from terminated employees, clients,
former stockholders and other third parties,
insufficient revenues to offset increased expenses associated with the acquisitions and unanticipated liabilities of
the acquired companies,
insufficient indemnification or security from the selling parties for legal liabilities that we may assume in connection
with our acquisitions,
entering markets in which we have no prior experience and may not succeed,
potential loss of key employees of the acquired companies, and
impairment of relationships with clients and employees of the acquired companies or our clients and employees
as a result of the integration of acquired operations and new management personnel.
We have experienced increased operating costs to resolve the challenges of prior acquisitions. If we fail to appropriately
integrate any acquired business, we may fail to achieve our growth, service enhancement or operational efficiency
objectives, and our business, results of operations and financial condition could be harmed.
17
RISK FACTORS
We may pay for acquisitions by issuing additional shares of our common stock, which would dilute our stockholders,
or by issuing debt, which could include terms that restrict our ability to operate our business or pursue other opportunities
and subject us to significant debt service obligations. We may also use significant amounts of cash to complete
acquisitions. To the extent that we complete acquisitions in the future, we likely will incur future amortization expenses
associated with the acquired assets. We may also record significant amounts of intangible assets, including goodwill,
which could become impaired in the future. Any such impairment charges would adversely affect our results of
operations.
Our SMB clients are particularly affected by volatility in the financial and economic environment, which could harm our
business.
Our clients are small and mid-sized businesses that we believe can be particularly susceptible to changes in the level
of overall economic activity in the markets in which we operate. During periods of weak economic conditions, small
business failures tend to increase and employment levels tend to decrease. Current or potential clients may react to
weak or forecasted weak economic conditions by reducing employee headcount or wages, bonuses or benefits levels,
any of which would affect our revenues, and may affect our margins, because we may be unable to reduce our operating
expenses sufficiently enough or quickly enough to offset the decrease in revenues. It is difficult to forecast future
demand for our services due to the inherent difficulty in forecasting the direction, strength and length of economic
cycles. These conditions may affect the willingness of our clients and potential clients to pay outside vendors for services
like ours, and may impact their ability to pay their obligations to us on time, or at all.
For example, as a result of macroeconomic factors, interest rates may become more volatile. Increased interest rate
volatility could also negatively impact our clients' and prospects' access to credit. If businesses have difficulty obtaining
credit, business growth and new business formation may be impaired, which could also harm our business. Even
modest downturns in economic activity on a regional or national level could have a material adverse effect on our
financial condition or results of operations.
Our business and operations have undergone and will continue to undergo significant change as we seek to improve
our operational effectiveness. If we are unable to effectively manage this change, our business and results of operations
may suffer.
We have significantly changed our operations and internal processes in recent periods in order to improve our
operational effectiveness, which has placed a strain on our systems, management, administrative, operational and
financial infrastructure. We believe these efforts are important to our long-term success. Managing these changes will
continue to require further refinement to our operational, financial and management controls and reporting systems
and procedures while we simultaneously seek to effectively recruit, integrate, train and motivate new corporate
employees, retain our existing corporate employees, maintain the beneficial aspects of our corporate culture, effectively
execute our business plan, satisfy the requirements of our existing clients, acquire new clients, and enhance the quality
and scope of our services. These activities will require significant operating and capital expenditures and allocation of
valuable management and employee resources, which we expect will continue to place significant demands on our
management and on our operational and financial infrastructure. If we fail to manage these changes effectively, our
costs and expenses may increase more than we expect and our business, financial condition and results of operations
may be harmed.
If our vertical strategy is unsuccessful, we may not be able to grow our business at the rate that we anticipate.
We have developed an industry vertical business strategy and we plan to continue to devote significant resources and
time in pursuit of this strategy. Under our industry vertical strategy, our sales force, product development, and service
teams are focused on specific business sectors. We cannot assure you that our industry vertical approach will resonate
with our existing and prospective clients, that we will target the right industries, that our vertical products will have all
of the features most valuable to existing and prospective clients in those industries, or that we will implement our
strategy in a timely and effective manner. If our vertical strategy is unsuccessful, our business may not grow at the
rate that we anticipate, which could have a material adverse effect on our financial condition and results of operations.
18
RISK FACTORS
If we are unable to train and manage our sales force effectively, our business may be harmed.
We have experienced sales force attrition in the past and we rely on a well-trained sales force to promote our industry
vertical strategy and sell our solutions. Competition for skilled sales personnel is intense, and we cannot assure you
that we will be successful in attracting, training and retaining qualified sales personnel, or that any newly hired sales
personnel will function effectively either individually or as a group. In addition, newly hired sales personnel are typically
not productive for some period of time following their hiring, which results in increased near-term costs to us relative
to their actual sales contributions during this period. If we are unable to effectively train our sales force and benefit
from greater productivity of our sales representatives, or if our sales force is otherwise unable to sell our solutions as
we anticipate, our revenues likely will not increase at the rate that we anticipate, which could have a material adverse
effect on our business, financial condition and results of operations.
Our reputation could suffer and our business could be adversely affected if our products do not perform, and our
services are not delivered, as expected by our clients and WSEs.
In order to attract and retain clients, we believe that we must compete in our industry effectively on the basis of the
value proposition that we deliver to our clients including customer experience and satisfaction, breadth and depth of
our benefit plans, vertical market expertise, total cost of service, brand awareness and reputation, ability to innovate
and respond to customer needs rapidly, access to online and mobile solutions, and subject matter expertise. The
expectations of our clients and prospective clients in these areas change over time as a result of many factors outside
of our control, such as competition, regulatory and technical changes, and changing trends in the demands employees
place on SMB employers. If we are unable to continually satisfy the evolving product and service delivery expectations
of our clients and WSEs, then we could experience greater rates of attrition and lower rates for on-boarding new clients,
which could have a material adverse effect on our business. Even if we are capable of satisfying client expectations
in these areas, we may not be able to do so on a cost-effective basis, which could have a material adverse effect on
our financial condition and our results of operations.
Most of our clients are concentrated in certain geographic regions and a relatively small number of industries, making
us vulnerable to downturns in those geographies and industries.
Most of our clients are concentrated in certain geographic regions and operate in a relatively small number of industries,
including the technology, life sciences, not-for-profit, professional services and financial services industries. As a result,
if any of those geographic regions or specific industries suffers a downturn, the portion of our business attributable to
clients in that region or industry could be adversely affected, which could have a material adverse effect on our financial
condition or results of operations.
We are subject to legal proceedings that may result in adverse outcomes.
We are subject to claims, suits, government investigations, and proceedings arising from the ordinary course of our
business. Refer to Note 8 in Part II, Item 8. Financial Statements and Supplementary Data, of this Form 10-K for
additional information about the legal proceedings we are currently involved in and future proceedings that we may
face. Current and future legal proceedings may result in substantial costs and may divert management’s attention and
resources, which may seriously harm our business, results of operations, financial condition and liquidity.
Changes in our income tax positions or adverse outcomes resulting from on-going or future tax audits could harm our
business, operating results, financial condition and prospects.
Significant judgments and estimates are required in determining our provision for income taxes and other tax liabilities.
Our provision for income taxes, results of operations and cash flows may be impacted if any of our tax positions are
challenged and successfully disputed by the tax authorities. In determining the adequacy of our tax provision, we
assess the likelihood of adverse outcomes that could result if our tax positions were challenged by the IRS and other
tax authorities. The tax authorities in the U.S. regularly examine our income and other tax returns. Refer to Note 10 in
Part II, Item 8. Financial Statements and Supplementary Data, of this Form 10-K for additional details regarding our
on-going tax examinations and disputes. The ultimate outcome of tax examinations and disputes cannot be predicted
with certainty. Should the IRS or other tax authorities assess additional taxes as a result of these or other examinations,
we may be required to record charges to operations that could have a material impact on our results of operations,
financial position or cash flows.
19
RISK FACTORS
Adverse changes in our insurance coverage, or in our relationships with key insurance carriers, could harm our business.
Our success depends in part on our ability to maintain competitive health and workers' compensation coverage options
and insurance rates through well-known insurance carriers. If we are unable to maintain competitive insurance rates
or obtain popular and desirable coverage plans through well-known insurance carriers, it could affect our ability to
attract and retain clients, which could have a material adverse effect on our business. Where we sponsor insurance
coverage and we are not responsible for any deductibles, our carriers set the premiums and the rates set by our carriers
on these policies may not be competitive. Even where we sponsor insurance under which we are responsible for
deductibles, we may not be able to control costs through the deductible layer in a way that would make our rates
competitive.
In addition, broad adoption of our services in certain geographic regions or industries may make it more difficult for us
to obtain competitive health and/or workers' compensation insurance rates due to concentration of clients within a
particular region or industry. The loss of any one or more of our key insurance vendors in these areas, or our inability
to partner with certain vendors that are better-known or more desirable to our clients or potential clients, could have
a material adverse effect on our financial condition and results of operations.
There is significant competition for our clients and clients may terminate our services based on a variety of factors,
many of which are difficult for us to control, which can negatively impact our business.
We regularly experience client attrition due to a variety of factors that are difficult for us to control, including cost
pressures, client merger and acquisition activity, increases in administrative and insurance service fees, client business
failure, effects of competition, and client decisions to bring their HR administration in-house. Our standard client service
agreement can be canceled by us or by the client without penalty with 30 days’ prior written notice. Clients who intend
to cease doing business with us often elect to do so effective as of the beginning of a calendar year. As a result, we
have historically experienced our largest concentration of client attrition in the first quarter of each year. In addition,
we experience higher levels of client attrition in connection with renewals of the health insurance coverage we sponsor
for WSEs in the event that such renewals result in increased costs. If we were to experience client attrition in excess
of our historic annual attrition rate, it could have a material adverse effect on our business, financial condition and
results of operations.
The terms of our credit facility may restrict our current and future operations, which would impair our ability to respond
to changes in our business and to manage our business.
Our credit facility contains, and any future indebtedness of ours would likely contain, a number of restrictive covenants
that impose significant operating and financial restrictions on us subject to customary exceptions, including restricting
our ability to:
•
•
•
incur, assume or guarantee additional debt,
pay dividends or distributions or redeem or repurchase capital stock,
incur or assume liens,
• make loans, investments and acquisitions,
•
•
•
•
•
engage in sales of assets and subsidiary stock,
enter into sale-leaseback transactions,
enter into certain transactions with affiliates,
enter into certain hedging agreements,
enter into new lines of business,
20
RISK FACTORS
•
•
•
prepay certain indebtedness,
transfer all or substantially all of our assets or enter into merger or consolidation transactions with another person,
and
enter into agreements that prohibit the incurrence of liens or the payment by our subsidiaries of dividends and
distributions.
Our failure to comply with these restrictions and the other terms and conditions under our credit facility could result in
a default, which in turn could result in the termination of the lenders’ commitments to extend further credit to us under
our credit facility and acceleration of a substantial portion of our indebtedness then outstanding under our credit facility.
If that were to happen, we may not be able to repay all of the amounts that would become due under our indebtedness
or refinance our debt, which could materially harm our business and force us to seek bankruptcy protection.
Atairos, our largest stockholder, may have significant influence over our Company, and the ownership of capital stock,
and thus the voting control, of our Company remains concentrated in our executive officers, directors and their affiliates,
which limits your ability to influence corporate matters.
On February 1, 2017, an entity affiliated with Atairos Group, Inc. (together with its affiliates, “Atairos”) became our
largest stockholder when it acquired the shares of TriNet common stock previously held by General Atlantic. In
connection with this transaction, we appointed Michael J. Angelakis, the Chairman and CEO of Atairos, to our board
of directors and agreed to nominate Mr. Angelakis or another designee of Atairos reasonably acceptable to our
Nominating and Corporate Governance Committee for election at future annual meetings until Atairos’ beneficial
ownership falls below 15% of our common stock. As of February 7, 2019, Atairos beneficially owned approximately
28% of our outstanding common stock, and all of our directors, executive officers and their affiliates, including Atairos,
beneficially own, in the aggregate, approximately 37% of our outstanding common stock. As a result, of the foregoing,
Atairos, particularly when acting with our executive officers, directors and their affiliates, will be able to exert substantial
influence on all matters requiring stockholder approval, including the election of directors and approval of significant
corporate transactions, such as a merger or other sale of our company or its assets. This concentration of ownership
could limit the ability of other stockholders to influence corporate matters and may have the effect of delaying or
preventing a third party from acquiring control over us.
Our industry is highly competitive, which may limit our ability to maintain or increase our market share or improve our
results of operations.
We face significant competition on a national and regional level from other PEOs, as well as other existing, and potential,
companies and industries that service, or may in the future service, client HR needs. Refer to the heading “Competition”
under Part I, Item 1. Business, above for more details. Our competitors, regardless of industry, may have greater
marketing and financial resources than we have, and may be better positioned than we are in certain markets. Increased
competition in our industry could result in price reductions or loss of market share, any of which could harm our business.
We expect that we will continue to experience competitive pricing pressure.
Moreover, we may not be successful in convincing potential clients that the use of our services is a superior, cost-
effective means of satisfying their HR obligations relative to the way in which they currently satisfy these obligations
either by themselves or by using the services of our competitors. If we cannot compete effectively against other PEOs
or against the alternative means by which companies meet their HR obligations, or if we are unable to convince clients
or potential clients of the advantages of our offerings, our market share and business may suffer, resulting in a material,
adverse effect on our financial condition and results of operations.
21
PROPERTIES, LEGAL PROCEEDINGS AND MINE SAFETY DISCLOSURES
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease space for 58 offices in various U.S. states, including the following:
Corporate:
• Dublin, California
Client Service Centers:
• Bradenton, Florida
• Reno, Nevada
• Fort Mill, South Carolina
• New York, New York
All of these leases expire at various times up through 2028. We believe that our leases are sufficient for our current
purposes and long-term growth and expansion goals.
Item 3. Legal Proceedings
For the information required in this section, refer to Note 8 in Part II, Item 8. Financial Statements and Supplementary
Data, of this Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.
22
STOCK ACTIVITIES
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Market Information and Holders of Record
Our common stock has been listed on the New York Stock Exchange under the symbol “TNET” since March 2014.
On February 7, 2019, the last reported sales price of our common stock on the New York Stock Exchange was $45.53
per share. As of February 7, 2019, we had 42 holders of record of our common stock per Computershare Trust Company
N.A., our transfer agent. The actual number of stockholders is greater than this number of record holders, and includes
stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This
number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
For information regarding our equity-based incentive plans, please refer to Part III, Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters, of this Form 10-K.
Dividend Policy
We did not declare or pay cash dividends in 2018 or 2017. Payment of cash dividends, if any, in the future will be at the
discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating
results, contractual restrictions under our credit facility (refer to Note 7 in Part II, Item 8. Financial Statements and
Supplementary Data, of this Form 10-K), capital requirements, business prospects and other factors our board of
directors may deem relevant.
Performance Graph
The graph on the following page compares the cumulative return on our common stock since the initial public offering
in March 2014 with the cumulative return on the S&P 500 Index and a Peer Group Index. The cumulative return is based
on the assumption that $100 had been invested in TriNet Group, Inc. common stock, the Standard & Poor's 500 Stock
Index (S&P 500) and common stock of members of a Peer Group Index, all on the date of TriNet's initial public offering
in March 2014 and that all quarterly dividends were reinvested. The cumulative dollar returns shown on the graph
represent the value that such investments would have had at each quarter end.
23
STOCK ACTIVITIES
COMPARISON OF 57 MONTH CUMULATIVE TOTAL RETURN
Among TriNet Group, Inc., the S&P 500 Index, and a Peer Group(1)
(1) The Peer Group Index used in the chart above consists of the following companies:
Automatic Data Processing, Inc.
Barrett Business Services, Inc.
Insperity, Inc.
Intuit, Inc.
Paychex, Inc.
Issuer Purchases of Equity Securities
Our ongoing stock repurchase program was originally approved by our board of directors in 2014 and has been
subsequently amended. As of December 31, 2018, our board of directors had authorized us to repurchase up to an
aggregate of $315 million under this program of which approximately $75 million remains available for repurchases
under all authorizations approved by the board of directors. We repurchased a total of approximately $61 million of our
outstanding common stock in 2018 using existing cash and cash equivalents through our Rule 10b5-1 plan. Under the
program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans
complying with Rule 10b5-1 under the Exchange Act. This repurchase authorization has no expiration. We plan to use
current cash and cash generated from ongoing operating activities to fund this share repurchase program. Stock
repurchases under the program are primarily intended to return value to our stockholders and offset the dilutive effect
of equity-based employee incentive compensation.
24
STOCK ACTIVITIES
The following table provides information about our purchases of TriNet common stock during the fourth quarter of 2018:
Period
October 1 - October 31, 2018
November 1 - November 30, 2018
December 1 - December 31, 2018
Total
Total Number of
Shares
Purchased (1)
Weighted Average
Price
Paid Per Share
136,944 $
242,679 $
79,375 $
458,998
50.57
45.07
41.30
Total Number of
Shares
Purchased
as Part of Publicly
Announced Plans (2)
Approximate Dollar
Value
of Shares that May
Yet Be Purchased
Under the Plans
(in millions) (2)
135,026 $
158,563 $
1,707 $
295,296
83
75
75
(1) Includes shares surrendered by employees to us to satisfy tax withholding obligations that arose upon vesting of restricted stock units granted
pursuant to approved plans.
(2) We repurchased a total of approximately $14 million of our outstanding stock during the three months ended December 31, 2018.
On February 6, 2019, our board of directors authorized a $300 million incremental increase to our ongoing stock
repurchase program initiated in May 2014. We use this program to return value to our stockholders and to offset dilution
from the issuance of stock under our equity-based incentive plan and employee purchase plan.
Our stock repurchases are subject to certain restrictions under the terms of our credit facility. For more information about
our stock repurchases and the restrictions imposed by our credit facility, refer to Note 7 and Note 9 in Part II, Item 8.
Financial Statements and Supplementary Data, of this Form 10-K.
25
SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
The following selected consolidated financial and other data should be read in conjunction with Part II, Item 7. MD&A,
as well as our audited consolidated financial statements and related notes included in Part II, Item 8. Financial
Statements and Supplementary Data, of this Form 10-K.
(in millions, except per share data)
Income Statement Data:
Total revenues
Net income
Diluted net income per share of common stock
Non-GAAP measures (1):
Net Service Revenues
Net Insurance Service Revenues
Adjusted EBITDA
Adjusted Net Income
Balance Sheet Data:
Cash and cash equivalents
Working capital
Total assets
Long-term debt
Total liabilities
Total stockholders’ equity (deficit)
Year Ended December 31,
2018
2017
2016
2015
2014
$
3,503 $
3,275 $
3,060 $
2,659 $
2,194
192
2.65
893
406
347
218
178
2.49
809
351
285
142
61
0.85
646
199
185
87
32
0.44
547
146
151
71
$
228 $
336 $
184 $
166 $
221
2,435
413
2,060
375
234
2,593
423
2,387
206
156
2,095
459
2,060
35
112
2,092
494
2,084
8
15
0.22
508
166
165
74
134
121
2,341
545
2,366
(25)
Cash Flow Data:
Net cash (used in) provided by operating activities (2)
Net cash (used in) provided by investing activities
Net cash (used in) financing activities (2)
Non-GAAP measures (1):
$
(104) $
606 $
192 $
(281) $
1,038
(200)
(85)
(24)
(77)
(27)
(104)
(38)
(81)
(45)
(76)
Corporate operating cash flows
234
299
189
169
143
(1)
(2)
Refer to Non-GAAP Financial Measures section on the following pages for definitions and reconciliations from GAAP measures.
Prior year balances were retrospectively adjusted for ASU 2016-18. Refer to Note 1 in Item 8: Financial Statements and Supplementary
Data, of this Form 10-K for details.
Non-GAAP Financial Measures
In addition to financial measures presented in accordance with U.S. Generally Accepted Accounting Principles (GAAP),
we monitor other non-GAAP financial measures that we use to manage our business, to make planning decisions, to
allocate resources and to use as performance measures in our executive compensation plan. These key financial
measures provide an additional view of our operational performance over the long-term and provide information that
we use to maintain and grow our business.
The presentation of these non-GAAP financial measures is used to enhance the understanding of certain aspects of
our financial performance. It is not meant to be considered in isolation, superior to, or as a substitute for the directly
comparable financial measures prepared in accordance with GAAP.
26
SELECTED FINANCIAL DATA
Non-GAAP Measure
Net Service Revenues
Definition
• Sum of professional service revenues and
Net Insurance Service Revenues,
or total revenues less insurance costs.
Net Insurance Service Revenues
• Insurance revenues less insurance costs.
Adjusted EBITDA
• Net income, excluding the effects of:
- income tax provision,
- interest expense,
- depreciation,
- amortization of intangible assets, and
- stock-based compensation expense.
Adjusted Net Income
• Net income, excluding the effects of:
- effective income tax rate (1),
- stock-based compensation,
- amortization of intangible assets,
- non-cash interest expense (2), and
- the income tax effect (at our effective tax
rate (1)) of these pre-tax adjustments.
27
How We Use The Measure
• Provides a comparable basis of revenues on
a net basis. Professional service revenues
are represented net of client payroll costs
whereas insurance service revenues are
presented gross of insurance costs for
financial reporting purposes.
• Acts as the basis to allocate resources to
different
the
effectiveness of our business strategies by
each business function.
• Provides a measure, among others, used in
the determination of incentive compensation
for management.
functions and evaluates
• Is a component of Net Service Revenues.
• Provides a comparable basis of revenues on
a net basis. Professional service revenues
are represented net of client payroll costs
whereas insurance service revenues are
presented gross of insurance costs for
financial reporting purposes. Promotes an
understanding of our insurance services
business by evaluating insurance service
revenues net of our WSE related costs which
are substantially pass-through for the benefit
of our WSEs. Under GAAP, insurance service
revenues and costs are recorded gross as
we have latitude in establishing the price,
service and supplier specifications.
• We also sometimes refer to Net Insurance
Service Margin, which is the ratio of Net
Insurance Revenue to Insurance Service
Revenue.
• Provides period-to-period comparisons on a
consistent basis and an understanding as to
how our management evaluates
the
effectiveness of our business strategies by
excluding certain non-cash charges such as
depreciation and amortization, and stock-
based compensation recognized based on
the estimated fair values. We believe these
charges are either not directly resulting from
our core operations or not indicative of our
ongoing operations.
• Enhances comparisons to prior periods and,
accordingly, facilitates the development of
future projections and earnings growth
prospects.
• Provides a measure, among others, used in
the determination of incentive compensation
for management.
• We also sometimes refer to Adjusted EBITDA
margin, which is the ratio of Adjusted EBITDA
to Net Service Revenue.
• Provides information to our stockholders and
board of directors to understand how our
management evaluates our business, to
monitor and evaluate our operating results,
and analyze profitability of our ongoing
operations and trends on a consistent basis
by excluding certain non-cash charges.
SELECTED FINANCIAL DATA
Corporate Operating Cash Flows
• Net cash (used in) provided by operating
activities, excluding the effects of:
- Assets associated with WSEs (accounts
receivable, unbilled
revenue, prepaid
expenses and other current assets) and
- Liabilities associated with WSEs (client
deposits, accrued wages, payroll
tax
liabilities and other payroll withholdings,
accrued health benefit costs, accrued
workers' compensation costs, insurance
premiums and other payables, and other
current liabilities).
• Provides information that our stockholders
and management can use to evaluate our
cash flows from operations independent of
the current assets and liabilities associated
with our WSEs.
• Enhances comparisons to prior periods and,
accordingly, used as a liquidity measure to
manage liquidity between corporate and
WSE related activities, and to help determine
and plan our cash flow and capital strategies.
(1) We have adjusted our non-GAAP effective tax rate to 26%, 41%, 43%, 42% and 40% for 2018, 2017, 2016, 2015 and 2014, respectively.
The change in 2018 is due primarily to a decrease in the statutory tax rate from 35% to 21%. The changes in 2017, 2016, 2015 and 2014
are a result of changes in state income taxes from an increase in excludable income for state income tax purposes or state legislative
changes. These non-GAAP effective tax rates exclude the income tax impact from stock-based compensation, changes in uncertain tax
positions and nonrecurring benefits or expenses from federal legislative changes.
(2)
Non-cash interest expense represents amortization and write-off of our debt issuance costs.
Reconciliation of GAAP to Non-GAAP Measures
The table below presents a reconciliation of total revenues to Net Service Revenues:
(in millions)
Total revenues
Less: Insurance costs
Net Service Revenues
Year Ended December 31,
2018
2017
2016
2015
2014
$
$
3,503 $
3,275 $
3,060 $
2,659 $
2,610
2,466
2,414
2,112
893 $
809 $
646 $
547 $
2,194
1,686
508
The table below presents a reconciliation of insurance service revenues to Net Insurance Service Revenues:
(in millions)
Insurance service revenues
Less: Insurance costs
Net Insurance Service Revenues
Year Ended December 31,
2018
2017
2016
2015
2014
$
$
3,016
2,610
406
$
$
2,817
2,466
351
$
$
2,613
2,414
199
$
$
2,258
2,112
146
$
$
1,852
1,686
166
Net Insurance Service Revenue Margin
13%
12%
8%
6%
9%
The table below presents a reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA Margin:
(in millions)
Net income
Provision for income taxes
Stock-based compensation
Interest expense and bank fees
Depreciation
Amortization of intangible assets
Secondary offering costs
Adjusted EBITDA
Adjusted EBITDA Margin
Year Ended December 31,
2018
2017
2016
2015
2014
$
192
$
178
$
49
44
22
35
5
—
22
32
20
28
5
—
$
61
43
26
20
19
16
—
$
32
28
18
19
15
39
—
15
18
11
54
14
52
1
$
347
$
285
$
185
$
151
$
165
39%
35%
29%
28%
33%
28
SELECTED FINANCIAL DATA
The table below presents a reconciliation of net income to Adjusted Net Income:
(in millions)
Net income
Effective income tax rate adjustment
Stock-based compensation
Amortization of intangible assets
Debt prepayment premium
Secondary offering costs
Non-cash interest expense
Income tax impact of pre-tax adjustments
Adjusted Net Income
Year Ended December 31,
2018
2017
2016
2015
2014
$
$
192 $
(13)
178 $
(59)
44
5
—
—
4
32
5
—
—
2
61 $
(1)
26
16
—
—
4
32 $
3
18
39
—
—
4
(14)
218 $
(16)
142 $
(19)
87 $
(25)
71 $
15
5
11
52
4
1
22
(36)
74
The table below presents a reconciliation of net cash (used in) provided by operating activities to corporate
operating cash flows:
(in millions)
Net cash (used in) provided by operating activities
Change in WSE related other current assets
Change in WSE related liabilities
Corporate Operating Cash Flows
2018
2017
2016
2015
2014
$
$
(104) $
606 $
192 $
(281) $
1,038
33
305
35
(342)
(96)
93
188
262
234 $
299 $
189 $
169 $
(32)
(863)
143
Year Ended December 31,
29
MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Significant Developments and Performance Highlights in 2018
Operational achievements in 2018
Our results for 2018 reflect continued progress marketing and selling our vertical products and our insurance service
offerings, combined with WSE enrollment growth within our insurance offerings. This was offset by WSE attrition that
we experienced primarily as a result of our migration of Main Street WSEs to a single technology platform. Our
operational achievements included:
• Continuing to invest in our efforts to enhance our clients' experience through operational and process improvements,
•
Launching a marketing and branding campaign in September 2018 to improve our brand awareness and enhance
our sales efforts,
•
Launching TriNet Professional Services, our sixth vertical product,
• Completing the migration of existing clients from our legacy SOI platform onto our single technology platform,
• Continuing to benefit from changes for one of our health insurance carrier contracts, where we converted from a
guaranteed-cost to risk-based plan in late 2017,
•
Investing corporate funds and enhancing our investment strategy to generate interest income which improved our
future interest income, net income, and our Adjusted EBITDA, accordingly,
• Refinancing our term loans during the second quarter of 2018, and
• Continuing to invest in improving our internal control environment to support our ongoing compliance with the
requirements of the Sarbanes-Oxley Act of 2002 (SOX).
These operational achievements drove the financial performance improvements noted below in 2018 when compared
to the prior year:
$3.5B
Total revenues
7% increase
$192M
Net income
8% increase
* Non-GAAP measure
$251M
Operating income
15% increase
$2.65
Diluted EPS
6% increase
$893M
Net Service Revenue *
10% increase
$218M
Adjusted Net income *
53% increase
Our results for WSEs and payroll and payroll tax payments in 2018 when compared to the prior year were:
325,616
Total WSE
Flat
317,104
Average WSE
2% reduction
$37.7B
Payroll and payroll tax payments
1% increase
We experienced a decline in Average WSEs (defined as average monthly WSEs paid during the period) during 2018
as compared to 2017 primarily due to client attrition, including attrition from our Main Street vertical due to our planned
migration of our Main Street clients from our legacy (SOI) platform onto our single technology platform, partially offset
by growth in our other verticals.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
The following table summarizes our results of operations for the three years ended December 31, 2018, 2017 and
2016. For details of the critical accounting judgments and estimates that could affect the Results of Operations, see
the Critical Accounting Judgments and Estimates section within MD&A.
Year Ended December 31,
% Change
(in millions, except operating metrics data)
2018
2017
2016
Income Statement Data:
Professional service revenues
Insurance service revenues
Total revenues
Insurance costs
Operating expenses
Total costs and operating expenses
Operating income
Other income (expense)
Income before provision for income taxes
Income tax expense
Net income
Non-GAAP measures (1):
Net Service Revenues
Net Insurance Service Revenues
Adjusted EBITDA
Adjusted Net income
Operating Metrics:
$
487 $
458 $
3,016
3,503
2,610
642
3,252
251
(10)
241
49
2,817
3,275
2,466
592
3,058
217
(17)
200
22
$
$
192 $
178 $
893 $
809 $
406
347
218
351
285
142
447
2,613
3,060
2,414
522
2,936
124
(20)
104
43
61
646
199
185
87
Total WSEs payroll and payroll taxes processed (in
millions)
Average WSEs
Total WSEs
$
37,666 $
37,115 $
34,281
317,104
325,616
324,679
325,370
326,850
337,885
2018 vs.
2017
2017 vs.
2016
6%
3%
7
7
6
8
6
15
48
21
128
8%
8
7
2
13
4
75
10
91
(50)
190%
10%
25%
16
22
53
1%
(2)
—
76
53
62
8%
(1)
(4)
(1)
Refer to Non-GAAP measures definitions and reconciliations from GAAP measures in Part II, Item 6. Selected Financial Data.
31
MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Metrics
Worksite Employees (WSE)
Average WSE growth is a volume measure we use to monitor the performance of our business. Average WSEs
decreased 2% and 1% in 2018 and 2017, respectively. Throughout 2018, we experienced elevated attrition, including
attrition due to our planned migration of our Main Street clients from our legacy (SOI) platform onto our single technology
platform, partially offset by an improvement in new sales growth in our other verticals.
Total WSEs can be used to estimate our beginning WSEs for the next period and, as a result, can be used as an
indicator of our potential future success in growing our business and retaining clients.
Anticipated revenues for future periods can diverge from the revenue expectation derived from Average WSEs or Total
WSEs due to pricing differences across our HR solutions and services and the degree to which clients and WSEs elect
to participate in our solutions during future periods. In addition to focusing on growing our Average WSE and Total
WSE counts, we also focus on pricing strategies, product participation and product differentiation to expand our revenue
opportunities. We report the impact of client and WSE participation differences as a change in mix.
We are focused on growing our WSE base, including by pursuing strategic acquisitions where appropriate, while we
improve our customer service experience and continue to manage attrition, including attrition arising from the migration
of our legacy SOI clients to our single technology platform.
32
MANAGEMENT'S DISCUSSION AND ANALYSIS
Total Revenues
Our revenues consist of professional service revenues (PSR) and insurance service revenues (ISR). PSR represents
fees charged to clients for processing payroll-related transactions on behalf of our clients, access to our HR expertise,
employment and benefit law compliance services, and other HR-related services. ISR consists of insurance-related
billings and administrative fees collected from clients and withheld from WSEs for workers' compensation insurance
and health benefit insurance plans provided by third-party insurance carriers.
Monthly total revenues per Average WSE is a measure we use to monitor the success of our product and service
pricing strategies. This measure increased 9% during 2018 compared to 2017, and increased 8% during 2017 compared
to 2016.
We also use the following measures to further analyze changes in total revenue:
• Volume - the percentage change in period over period Average WSEs,
• Mix - the change in composition of Average WSEs within our verticals combined with the composition of our
enrolled WSEs within our insurance offerings, and
• Rate - the combined percentage changes in service fees for each vertical product and changes in service fees
associated with each insurance service offering.
The changes attributed to mix and rate during 2018 and 2017, when compared to the respective prior year periods,
were primarily driven by ISR.
33
MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Income
Our operating income consists of total revenues less insurance costs and OE. Our insurance costs include insurance
premiums for coverage provided by insurance carriers, reimbursement of claims payments made by insurance carriers
or third-party administrators, and changes in accrued costs related to contractual obligations with our workers'
compensation and health benefit carriers. Our OE consists primarily of corporate payroll.
The table below provides a view of the changes in components of operating income on a year-over-year basis.
(in millions)
$124
+$215
-$52
-$70
2016 Operating Income
Higher total revenues primarily as a result of an increase in ISR related to health plan participation
combined with an increase in fees per service offering.
Higher insurance costs primarily as a result of an increase in health plan participation.
Higher OE primarily as a result of an increase in our corporate employees and an increase in the
costs associated with internal control remediation.
$217
2017 Operating Income
+$228
-$144
-$50
Higher total revenues primarily as a result of a change in the PSR mix of our vertical products, an
increase in participation in our insurance services and an increase in fees per service offering.
Higher insurance costs primarily as a result of an increase in health plan participation.
Higher OE primarily as a result of an increase in our corporate employees, an increase in costs
associated with a marketing campaign and an increase in our investment in operational and
process improvements.
$251
2018 Operating Income
34
MANAGEMENT'S DISCUSSION AND ANALYSIS
Professional Service Revenues
Our clients are billed either based on a fee per WSE per month per transaction or on a percentage of the WSEs’ payroll.
For those clients that are billed on a percentage of WSEs' payroll, as our clients' payrolls increase, our fees also
increase. As such, payroll and payroll taxes processed may also be an indicator of our PSR growth.
Our vertical approach provides us the flexibility to offer our clients in different industries with varied services at different
prices. We believe our vertical approach will improve our ability to retain our customers, and potentially reduce the
value of using Average WSE and Total WSE counts as indicators of future potential revenue performance. During the
year ended December 31, 2018, we experienced a change in mix of our client base due to an increase in client attrition
from our Main Street vertical as a result of our planned migration from our legacy (SOI) platform onto our single
technology platform, partially offset by new sales in our other verticals, primarily our Technology and Financial Services
verticals.
We also use the following measure to further analyze changes in PSR:
• Volume - the percentage change in period over period Average WSEs,
• Mix - the change in composition of Average WSEs within our verticals, and
• Rate - the percentage changes in fees for each vertical.
35
MANAGEMENT'S DISCUSSION AND ANALYSIS
Insurance Service Revenues
ISR consists of insurance services-related billings and administrative fees collected from clients and withheld from
WSE payroll for health benefits and workers' compensation insurance provided by third-party insurance carriers.
We use the following measures to analyze changes in ISR:
• Volume - the percentage change in period over period Average WSEs,
• Mix - all other changes including the composition of our enrolled WSEs within our insurance service offerings, and
• Rate - the percentage changes in fees associated with each of our insurance service offerings.
Changes attributed to mix in ISR during 2018 and 2017, when compared to the respective prior year periods, are
primarily attributed to an increase of health plan participants.
36
MANAGEMENT'S DISCUSSION AND ANALYSIS
Insurance Costs
Insurance costs include insurance premiums for coverage provided by insurance carriers, reimbursement of claims
payments made by insurance carriers or third-party administrators, and changes in accrued costs related to contractual
obligations with our workers' compensation and health benefit carriers.
We use the following measures to analyze changes in insurance costs:
• Volume - the percentage change in period over period Average WSEs,
• Rate - the percentage changes in cost trend associated with each of our insurance service offerings, and
• Mix - all other changes including the composition of our enrolled WSEs within our insurance offerings.
Changes in mix during 2018 and 2017, when compared to the respective prior year periods, are primarily a result of
an increase in health plan participants.
Changes in rate during 2018 and 2017, when compared to the respective prior year periods, are driven by:
•
•
•
higher per enrollee medical costs (medical cost trend) of 7.0% - 8.0% in 2018 and 3.2% in 2017, as a result of
higher medical utilization and prescription drug price increases,
administrative cost reductions from insurance carriers, and
favorable prior year development on our accrued workers' compensation costs of $28 million in 2018 and $6 million
in 2017, primarily as a result of lower than expected severity development.
In addition, we benefited when we changed one of our carrier contracts from a guaranteed cost contract to a risk-based
contract.
37
MANAGEMENT'S DISCUSSION AND ANALYSIS
Net Service Revenues
NSR provides us with a comparable basis of revenues on a net basis, acts as the basis to allocate resources to different
functions and helps us evaluate the effectiveness of our business strategies by each business function.
The primary drivers to the changes in our NSR are presented below.
(1)
(2)
Change in NISR during 2017 comprised of an increase in ISR of $204, partially offset by an increase in insurance costs of $52.
Change in NISR during 2018 comprised of an increase in ISR of $199, partially offset by an increase in insurance costs of $144.
NISR margin was 13%, 12% and 8% for 2018, 2017 and 2016, respectively. NISR margin expanded during 2018 and
2017, when compared to the respective prior year periods, as we managed our insurance costs while we benefited
from increased health plan participation. In addition, NSR benefited during 2018 and 2017, when compared to the
respective prior year periods, from improvements in both PSR and NISR.
38
MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Expenses
OE includes cost of providing services (COPS), sales and marketing (S&M), general and administrative (G&A), systems
development and programming (SD&P), and depreciation and amortization expenses (D&A).
We manage our operating expenses and allocate resources across different business functions based on percentage
of NSR which has decreased to 72% in 2018 from 73% and 81% in 2017 and 2016, respectively.
We had approximately 3,100 corporate employees as of December 31, 2018 in 58 offices across the U.S. Our corporate
employees' compensation-related expenses represent a majority of our operating expenses. Compensation costs for
our corporate employees include payroll, payroll taxes, SBC, bonuses, commissions and other payroll- and benefits-
related costs. Compensation-related expense represented 61% of our OE in 2018, 61% in 2017 and 62% in 2016.
Compensation expense for internal employees was and is primarily driven by our continued efforts to improve our
customer service experience, and our systems, processes, and internal controls.
We expect our OE to increase in the foreseeable future due to our continued strategy to improve our customer service
experience, and our systems, processes, and internal controls. These expenses may fluctuate as a percentage of our
total revenues from period-to-period depending on the timing of when expenses are incurred.
We analyze and present our OE based upon the business functions COPS, S&M, G&A and SD&P and depreciation
and amortization. The charts below provide a view of the expenses of the business functions. Dollars are presented
in millions and percentages represent year-over-year change.
39
MANAGEMENT'S DISCUSSION AND ANALYSIS
COPS increased in 2018 and 2017, when compared to the respective prior year periods, primarily due to increased
initiatives to improve the customer experience, enhancing our product offerings and internal control remediation efforts.
S&M decreased in 2018, when compared to the prior year period, primarily driven by $31 million in net capitalized
costs related to adoption of ASC Topic 606, offset by implementation of our new branding campaign. S&M increased
in 2017, when compared to the prior year period, primarily due to an increase in sales-related compensation costs
associated with a new sales performance incentive program.
G&A increased in 2018 and 2017, when compared to the respective prior year periods, primarily driven by increased
headcount supporting our internal control remediation efforts.
SD&P increased in 2018, when compared to the prior year period, primarily due to an increase in expenses associated
with enhancing our product offerings. SD&P increased in 2017, when compared to the prior year period, primarily due
to expenses related to investments in technology to support product delivery and platform integration and as a result
of our internal control remediation efforts.
Depreciation expense increased in 2018 and 2017, when compared to the respective prior year periods, as a result
of our additional investment in technology products and platforms and the associated depreciation of those assets.
Amortization of intangible assets represents costs associated with acquired companies' developed technologies, client
lists, trade names and contractual agreements. Amortization expense remained consistent in 2018 and decreased
67% to $5 million in 2017, when compared to the prior year period, as a result of the 2016 revision to the expected
useful life of certain client lists and trademarks primarily related to our previous acquisitions.
We break out the expenses that make up our OE in the chart below:
Other Income (Expense)
Other income (expense) consists primarily of interest expense under our credit facility and interest and dividend income
from investments.
Interest expense, bank fees and other, remained consistent for the years ended 2018, 2017 and 2016.
Interest income increased to $12 million in 2018 from $3 million in 2017. The increase in 2018, when compared to the
prior year period, was primarily due to a change in our investment strategy initiated in the second quarter of 2018.
We intend to continue our new investment strategy, which we expect will improve our future interest income, net income,
and our Adjusted EBITDA, accordingly.
40
MANAGEMENT'S DISCUSSION AND ANALYSIS
Provision for Income Taxes
Our effective tax rate (ETR) was 20%, 11% and 41% for the years ended December 31, 2018, 2017 and 2016,
respectively. The primary drivers to the changes in our ETR are presented below.
Our ETR increased 9% in 2018 from 11% in 2017 primarily due to the following:
•
•
•
•
•
7% net increase due to current year impact and prior year non-recurring discrete tax benefits resulting from federal
legislative changes,
4% increase from a decrease in excess tax benefits and disqualifying dispositions from SBC,
2% increase resulting from the repeal of Section 199 benefits and other non-deductible expenses,
2% decrease in uncertain tax positions (UTP) recorded compared to prior year, and
2% decrease in other as a result of 3% decrease due to changes related to ongoing litigation, partially offset by a
1% increase due to apportionment changes in higher tax jurisdictions.
Our ETR decreased 30% in 2017 from 41% in 2016 primarily due to the following:
•
•
•
•
20% decrease attributable to revaluation of deferred taxes resulting from federal legislative changes pursuant to
the TCJA passed in December 2017,
8% decrease due to a discrete tax benefit from recognizing excess tax benefits from SBC,
4% decrease resulting from the recognition of Section 199 benefits and decreased non-deductible expenses, and
3% decrease related to tax credits and excludable income for state tax purposes.
41
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
Liquidity
We believe that we have sufficient liquidity and capital resources to satisfy future requirements and meet our obligations
to our clients, creditors and debt holders.
Included in our balance sheets are assets and liabilities resulting from transactions directly or indirectly associated
with WSEs, including payroll and related taxes and withholdings, our sponsored workers' compensation and health
insurance programs, and other benefit programs. Although we are not subject to regulatory restrictions, we distinguish
and manage our corporate assets and liabilities separately from those current assets and liabilities held by us to satisfy
our employer obligations associated with our WSEs as follows:
(in millions)
Current assets:
Cash and cash equivalents
Investments
Restricted cash, cash equivalents and investments
Other current assets
Total current assets
Total current liabilities
Working capital
Working capital for WSEs activities
December 31,
Corporate
2018
WSE
Total
Corporate
2017
WSE
Total
$
228 $
— $
228 $
336 $
54
15
36
—
927
386
54
942
422
—
15
15
— $
—
1,265
360
333 $
1,313 $
1,646 $
366 $
1,625 $
112 $
1,313 $
1,425 $
139 $
1,618 $
336
—
1,280
375
1,991
1,757
221 $
— $
221 $
227 $
7 $
234
$
$
$
We designate funds to ensure that we have adequate current assets to satisfy our current obligations associated with
WSEs. We manage our WSE payroll and benefits obligations through collections of payments from our clients which
generally occurs two to three days in advance of client payroll dates. We regularly review our short-term obligations
associated with our WSEs (such as payroll and related taxes, insurance premium and claim payments) and designate
funds required to fulfill these short-term obligations, which we refer to as PFC. PFC is included in current assets as
restricted cash, cash equivalents and investments.
We manage our sponsored benefit and workers' compensation insurance obligations by maintaining collateral funds
in restricted cash, cash equivalents and investments. These collateral amounts are generally determined at the
beginning of each plan year and we may be required by our insurance carriers to adjust our collateral balances when
facts and circumstances change. We regularly review our collateral balances with our insurance carriers and anticipate
funding further collateral in the future based upon our capital requirements. We classify our restricted cash, cash
equivalents and investments as current and noncurrent assets to match against the anticipated timing of payment of
claims.
Working capital for corporate purposes
We use our available cash and cash equivalents to satisfy our operational and regulatory requirements and to fund
capital expenditures. We believe that our existing corporate cash and cash equivalents and positive working capital
will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.
Capital Resources
Sources of Funds
We believe that we can meet our present and reasonably foreseeable operating cash needs and future commitments
through existing liquid assets, continuing cash flows from corporate operating activities, our borrowing capacity under
our revolving credit facility and the potential issuance of debt or equity securities.
42
MANAGEMENT'S DISCUSSION AND ANALYSIS
In June 2018 we refinanced approximately $415 million of, and repaid in full, our outstanding A and A-2 term loans
(together, our 2014 Term Loans) under our previous credit agreement (our 2014 Credit Agreement). Our 2014 Term
Loans were replaced with a $425 million term loan A (our 2018 Term Loan) under our new credit agreement (our 2018
Credit Agreement). We also replaced our previous $75 million revolving credit facility established under our 2014 Credit
Agreement with a $250 million revolving credit facility under our 2018 Credit Agreement (our 2018 Revolver), which
will be used solely for working capital and other general corporate purposes.
Each of our 2018 Term Loan and our 2018 Revolver mature in June 2023 and bear interest, at our option, either at a
LIBOR rate, or the prime lending rate, plus an applicable margin subject to change in the future based on our leverage
ratio, as set forth in our 2018 Credit Agreement. As of December 31, 2018, $414 million was outstanding under our
2018 Term Loan and the full amount of our 2018 Revolver, less approximately $16 million representing an undrawn
letter of credit, was available.
Cash Flows
In January 2018, we adopted ASU 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash, which significantly
impacted our net cash provided by (used in) operating activities as changes in our restricted cash and cash equivalents
balances are no longer included within operating cash activities.
The following table presents our cash flow activities for the stated periods:
(in millions)
2018
2017
2016
Corporate WSE
Total
Corporate WSE
Total
Corporate WSE
Total
Year Ended December 31,
Net cash provided by (used in):
Operating activities (1)
Investing activities
Financing activities
Net increase (decrease) in cash and cash
equivalents, unrestricted and restricted
Cash and cash equivalents, unrestricted and
restricted:
Beginning of period
End of period
$
$
$
Net increase (decrease) in cash and cash
equivalents:
$
234 $ (338) $ (104) $
299 $ 307 $ 606 $
189 $
3 $ 192
(200)
— (200)
(24)
—
(24)
(85)
—
(51) $ (338) $ (389) $
(85)
(77)
—
198 $ 307 $ 505 $
(77)
(27)
(104)
58 $
—
(27)
— (104)
61
3 $
476 $1,262 $ 1,738 $
278 $ 955 $1,233 $
220 $ 952 $ 1,172
425 $ 924 $ 1,349 $
476 $ 1,262 $1,738 $
278 $ 955 $ 1,233
Unrestricted
Restricted
$
(108) $ — $ (108) $
152 $ — $ 152 $
18 $ — $
57
(338)
(281)
46
307
353
40
3
18
43
(1)
Prior year balances were retrospectively adjusted for ASU 2016-18.
43
MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Activities
Components of net cash provided by operating activities are as follows:
(in millions)
Net income
Depreciation and amortization
Stock-based compensation expense
Payment of interest
Income tax payments, net
Collateral (paid to) refunded from insurance
carriers, net
Changes in deferred taxes
Changes in other operating assets
Changes in other operating liabilities
Net cash provided by (used in) operating
activities (1)
Year Ended December 31,
2018
2017
2016
Corporate WSE
Total
Corporate WSE
Total
Corporate WSE
Total
$
192 $ — $ 192 $
178 $ — $ 178 $
61 $ — $
46
44
(17)
(49)
—
1
(44)
61
—
—
—
—
26
—
46
44
(17)
(49)
26
1
(27)
(71)
(337)
(276)
35
32
(16)
(2)
—
(25)
36
61
—
—
—
—
(3)
—
(36)
346
35
32
(16)
(2)
(3)
(25)
—
407
39
26
(15)
(39)
—
42
(38)
113
61
39
26
(15)
(39)
—
—
—
—
(25)
(25)
—
92
(64)
42
54
49
$
234 $ (338) $ (104) $
299 $ 307 $ 606 $
189 $
3 $ 192
(1)
Prior year balances were retrospectively adjusted for ASU 2016-18, where applicable.
Year-over-year fluctuation in net cash used in operating activities for WSE purposes was primarily driven by timing of
client payments, payments of payroll and payroll taxes, and collateral funding and insurance claim activities. We expect
the changes in restricted cash and cash equivalents to correspond to WSE cash provided by (or used in) operations
as we manage our obligations associated with WSEs through restricted cash.
Corporate operating cash flows decreased in 2018 as compared to 2017 primarily due to an increase in income tax
payments in 2018, partially offset by 8% increase in our net income.
Corporate operating cash flows increased in 2017 as compared to 2016 due to a 190% increase in our net income,
decrease in income tax payments, partially offset by changes in deferred tax liabilities primarily associated with the
revaluation of deferred taxes resulting from the passage of the TCJA in 2017.
Investing Activities
Net cash used in investing activities for the periods presented below primarily consisted of purchases of investments
and capital expenditures, partially offset by proceeds from the sale and maturity of investments.
(in millions)
Investments:
Purchases of marketable securities
Proceeds from sale and maturity of marketable securities
Cash (used in) provided by investments
Capital expenditures:
Software and hardware
Office furniture, equipment and leasehold improvements
Cash used in capital expenditures
Investments
Year Ended December 31,
2018
2017
2016
$
$
$
$
(258) $
101
(157) $
30 $
13
43 $
— $
14
14 $
28 $
10
38 $
(15)
28
13
31
9
40
During the year ended December 31, 2018, we invested a portion of available cash in investment-grade securities with
effective maturities less than five years that are classified on our balance sheet as investments. As of December 31,
2018, we had approximately $189 million in investments.
44
MANAGEMENT'S DISCUSSION AND ANALYSIS
We also invest funds held as collateral to satisfy our long-term obligation towards workers' compensation liabilities in
U.S. long-term treasuries. These investments are classified on our balance sheets as restricted cash, cash equivalents
and investments. We review the amount and the anticipated holding period of these investments regularly in conjunction
with our estimated long-term workers' compensation liabilities and anticipated claims payment trend.
As of December 31, 2018, we held approximately $1.5 billion in cash, cash equivalents and investments. Refer to Note
2 in Part II, Item 8. Financial Statements and Supplemental Data, in this Form 10-K for a summary of these funds.
Capital Expenditures
During the years ended December 31, 2018, 2017 and 2016 we continued to make investments in software and
hardware, enhanced existing products and technology platform, and implemented legacy platform migrations. We also
incurred expenses related to the build out of our corporate headquarters and our technology and client service centers.
We expect capital investments in our software and hardware to continue in the future.
Financing Activities
Net cash used in financing activities in the years ended December 31, 2018, 2017 and 2016 consisted of our debt and
equity-related activities.
(in millions)
Financing activities
Repurchase of common stock, net of issuance
Repayment of borrowings
Net proceeds from issuance of debt
Cash used in financing activities
Year Ended December 31,
2018
2017
2016
$
$
69 $
39 $
22
(6)
38
—
67
37
—
85 $
77 $
104
In the year ended December 31, 2018 we refinanced our 2014 Term Loans with our 2018 Term Loan, as discussed
above in this MD&A. For additional information refer to Note 7 in Part II, Item 8. Financial Statements and Supplementary
Data, of this Form 10-K.
Our board of directors authorizes common stock repurchases through an ongoing program initiated in May 2014,
primarily to offset dilution from the issuance of stock under our equity-based incentive plan and employee stock purchase
plan. During the year ended December 31, 2018, we repurchased 1,190,995 shares of our common stock for
approximately $61 million through our stock repurchase program. As of December 31, 2018, approximately $75 million
remained available for repurchase under all authorizations by our board of directors.
On February 6, 2019, our board of directors authorized a $300 million incremental increase to our ongoing stock
repurchase program initiated in May 2014. We use this program to return value to our stockholders and to offset dilution
from the issuance of stock under our equity-based incentive plan and employee purchase plan. We plan to use current
cash and cash generated from ongoing operating activities to fund this share repurchase program.
Covenants
Our 2018 Credit Agreement contains customary representations and warranties and customary affirmative and negative
covenants applicable to us, including, among other things, restrictions on indebtedness, liens, investments, mergers,
dispositions, prepayment of indebtedness (other than our 2018 Term Loan and our 2018 Revolver), dividends,
distributions and transactions with affiliates. It also contains financial covenants requiring us to maintain certain minimum
interest coverage and maximum total leverage ratios, as set forth in our 2018 Credit Agreement. These covenants took
effect on June 30, 2018 and require us to maintain a minimum consolidated interest coverage ratio of at least 3.50 to
1.00 at each quarter end and a maximum total leverage ratio of 3.50 to 1.00. In the event of an acquisition the maximum
ratio can be raised to 4.00 to 1.00 for four consecutive quarters. We were in compliance with these financial covenants
under the credit facilities at December 31, 2018. For more details on the covenants under our 2018 Credit Agreement,
refer to Note 7 in Part II, Item 8. Financial Statements and Supplementary Data, of this Form 10-K.
45
MANAGEMENT'S DISCUSSION AND ANALYSIS
In order to meet various U.S state licensing requirements and maintain accreditation by the ESAC, we are subject to
various minimum working capital and net worth requirements. As of December 31, 2018 and 2017, we believe we have
fully complied in all material respects with all applicable state regulations regarding minimum net worth, working capital
and all other financial and legal requirements. Further, we have maintained positive working capital throughout each
of the periods covered by the financial statements.
Contractual Obligations
The following table summarizes our significant contractual obligations as of December 31, 2018:
(in millions)
Debt obligations (1)
Workers' compensation obligations (2)
Operating lease obligations (3)
Purchase obligations (4)
Uncertain tax positions (5)
Payments Due by Period
Total
Less than 1
year
1-3 years
3-5 years
More than 5
years
$
483 $
241
88
42
6
39 $
75 $
369 $
73
18
31
1
57
28
11
5
37
17
—
—
—
74
25
—
—
99
Total
$
860 $
162 $
176 $
423 $
(1) Includes principal and the projected interest payments of our term loans, see Note 7 in Part II, Item 8. Financial Statements and
Supplementary Data of this Form 10-K, for details.
(2) Represents estimated payments that are expected to be made to carriers for various workers' compensation program under the contractual
obligations. These obligations include the costs of reimbursing the carriers for paying claims within the deductible layer in accordance with the
workers' compensation insurance policy as well as other liabilities.
(3) Includes various facilities and equipment leases under various operating lease agreements.
(4) Our purchase obligations primarily consist of software licenses, consulting and maintenance agreements, and sales and marketing events
pertaining to various contractual agreements.
(5) Our uncertain tax positions primarily pertain to tax credits and other related reserves, including interest and penalties.
In the normal course of business, we make representations and warranties that guarantee the performance of services
under service arrangements with clients. Historically, there have been no material losses related to such guarantees.
In addition, we have entered into indemnification agreements with our officers and directors, which require us to defend
and, if necessary, indemnify these individuals for certain pending or future legal claims as they relate to their services
provided to us. Such indemnification obligations are not included in the table above.
Off-Balance Sheet Arrangements
As of December 31, 2018, we did not have any material off-balance sheet arrangements that are reasonably likely to
have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital
resources within the meaning of Item 303(a)(4) of Regulation S-K.
46
MANAGEMENT'S DISCUSSION AND ANALYSIS
Critical Accounting Judgments and Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP, which require us to make estimates,
judgments, and assumptions that affect reported amounts of assets, liabilities, revenues and expenses, and the related
disclosures of contingent assets and liabilities. These estimates are based on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances. Some of the assumptions are highly
uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our consolidated
financial statements could be materially affected. For additional information about our accounting policies, refer to Note
1 in Part II, Item 8. Financial Statements and Supplementary Data, of this Form 10-K.
Recent Accounting Pronouncements
Refer to Note 1 in Part II, Item 8. Financial Statements and Supplementary Data, of this Form 10-K for additional
information related to recent accounting pronouncements.
Insurance Costs
We purchase fully insured workers' compensation and health benefits coverage for our employees and WSEs. As part
of these insurance policies, we bear claims costs up to a defined deductible amount and as a result, we establish
accrued insurance costs including both known and incurred but not reported (IBNR) costs.
As workers' compensation costs for a particular period are not known for many years after the losses have occurred
these costs represent our best estimate of unpaid claim losses and loss adjustment expenses within the deductible
layer in accordance with our insurance policies.
We use external actuaries to evaluate, review and recommend estimates of our workers' compensation and health
insurance costs. The accrued costs studies performed by these qualified actuaries analyze historical claims data to
develop a range of potential ultimate losses using loss development, expected loss ratio and frequency/severity methods
in accordance with Actuarial Standards of Practice. These loss methods are applied to classes or segments of the loss
data organized by policy year and risk class.
Key judgments and evaluations in arriving at loss estimates by segment and the accrued costs selection overall include:
•
•
•
•
the selection of method used and the relative weights given to selecting the method used for each policy year,
the underlying assumptions of LDF used in these models,
the effect of any changes to claims handling and payment processes,
evaluation of loss (medical and indemnity) cost trends, costs from changes in the risk exposure being evaluated
and any applicable changes in legal, regulatory or judicial environment.
We review and evaluate these judgments and the associated recommendations in concluding the adequacy of accrued
costs. Where adjustments are necessary these are recorded in the period in which the adjustments are identified.
47
MANAGEMENT'S DISCUSSION AND ANALYSIS
Accrued Workers' Compensation Costs
Under our policies, we are responsible for reimbursing the insurance carriers for workers' compensation losses up to
$1 million per claim occurrence (Deductible Layer). We use external actuaries to evaluate, review and recommend
accrued workers' compensation costs on a quarterly basis. The data is segmented by class and state and analyzed
by policy year; states where we have small exposure are aggregated into a single segment.
We use a combination of loss development, expected loss ratio and frequency/severity methods which include the
following inputs, assumptions and analytical techniques:
• TriNet's historical frequency and severity of workers' compensation claims experience, exposure data and industry
loss experience,
inputs of WSEs’ job responsibilities and location,
estimates of future cost trends to establish expected loss ratios for subsequent accident years,
expected loss ratios for the latest accident year or prior accident years, adjusted for the loss trend, the effect of
rate changes and other quantifiable factors, and
•
•
•
•
LDFs to project the reported losses for each accident year to an ultimate basis.
Final claim settlements may vary materially from the present estimates, particularly when those payments may not
occur until well into the future. In our experience, plan years related to workers' compensation programs may take 10
years or more to be fully settled. Certain assumptions used in estimating these accrued costs are highly judgmental.
Our accrued costs, results of operations and financial condition can be materially impacted if actual experience differs
from the assumptions used in establishing these accrued costs.
We believe that our estimate of accrued workers' compensation costs are most sensitive to LDFs given the long
reporting and paid development patterns for our workers' compensation loss costs. Our methods of estimating accrued
workers' compensation costs rely on these LDFs and an estimate of future cost trend.
The following table illustrates the sensitivity of changes in the LDFs on our year end estimate of insurance costs (in
millions of dollars):
Change in loss development factor
Change in insurance costs
-5.0%
-2.5%
+2.5%
+5.0%
Accrued Health Insurance Costs
($33)
($18)
$20
$39
We sponsor and administer a number of fully insured, risk-based employee benefit plans, including group health,
dental, vision and life insurance as an employer plan sponsor under section 3(5) of the ERISA. Approximately 81% of
our 2018 group health insurance costs relate to risk-based plans in which we agree to reimburse our carriers for any
claims paid within an agreed-upon per-person deductible layer up to a maximum aggregate exposure limit per policy.
These deductible dollar limits and maximum limits vary by carrier and year.
Costs covered by these insurance plans generally develop on average within three to six months so accrued health
insurance costs include estimates of reported losses and claims incurred but not yet paid (IBNP). Data is segmented
and analyzed by insurance carrier.
To estimate accrued health benefits costs we use a number of inputs, assumptions and analytical techniques:
• TriNet historical loss claims payment patterns and medical cost trend rates,
•
•
current period claims costs and claims reporting patterns (completion factors), and
plan enrollment.
48
MANAGEMENT'S DISCUSSION AND ANALYSIS
These accrued costs may vary in subsequent quarters from the amount estimated. Our accrued costs, results of
operations and financial condition can be materially impacted if actual experience differs from our key assumptions
used in establishing these accrued costs.
We believe that our year end estimate of accrued health insurance costs are most sensitive to changes in medical
claim costs in the markets in which participating WSEs reside (medical cost trend) and our estimate of paid costs to
carriers as a percentage of the expected ultimate costs to carriers (completion factors).
A 250 basis point increase in the medical cost trend would increase our year end accrued health insurance costs by
approximately $13 million, and a 50 basis point decrease in completion factors would increase our year end accrued
health insurance costs by approximately $8 million.
49
QUANTITATIVE AND QUALITATIVE DISCLOSURES
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to changes in interest rates relates primarily to our investment portfolio and outstanding floating rate
debt. Changes in U.S. interest rates affect the interest earned on the Company’s cash, cash equivalents and investments
and the fair value of the investments, as well as interest costs associated with our debt.
Our board of directors approved a corporate investment policy that defines our investable cash in instruments that
meet certain credit quality, liquidity, diversification and other requirements. Under our investment policy, the Company's
investment portfolio must maintain a minimum average credit quality of AA minus by Standard & Poor's (or an equivalent
nationally recognized statistical rating organization), maintain average effective maturity durations of less than 36
months (or less than 24 months in some cases), and satisfy diversification requirements intended to reduce overall
investment consolidating. We believe that our exposure to losses resulting from credit risk is not significant. We
performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of the
investment portfolio assuming a 100 basis point parallel shift in the yield curve. Based on investment positions as
of December 31, 2018, a hypothetical 100 basis point increase or decrease in interest rates across all maturities would
result in a $2 million incremental increase or decrease in the fair market value of the portfolio, respectively. Such losses
would only be realized if we sold the investments prior to maturity. The risk of rate changes on investment balances
was not significant at December 31, 2018.
In June 2018, we refinanced our term loans which would have matured in July 2019 and replaced them with a term
loan maturing in 2023. At December 31, 2018, after this refinancing, we had total outstanding indebtedness of $414
million, of which $22 million is due within 12 months. A 100 basis point increase or decrease in market interest rates
would cause interest expense on our debt as of December 31, 2018 to increase or decrease by $4 million on an
annualized basis, respectively.
50
FINANCIAL STATEMENTS
Item 8. Financial Statements and Supplementary Data
TRINET GROUP, INC.
Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Note 1. Description of Business and Significant Accounting Policies
Note 2. Cash, Cash Equivalents and Investments
Note 3. Investments
Note 4. Property and Equipment, Net
Note 5. Goodwill and Other Intangible Assets
Note 6. Accrued Workers' Compensation Costs
Note 7. Long-term Debt
Note 8. Commitments and Contingencies
Note 9. Stockholders' Equity
Note 10. Income Taxes
Note 11. Earnings Per Share
Note 12. Financial Instruments and Fair Value Measurements
Note 13. 401(k) Plan
Note 14. Related Party Transactions
Note 15. Quarterly Financial Data (Unaudited)
52
54
55
56
57
58
58
69
70
72
73
73
74
76
77
79
82
82
84
85
85
51
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of TriNet Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of TriNet Group, Inc. and subsidiaries (the "Company")
as of December 31, 2018 and 2017, and the related consolidated statements of income and comprehensive income,
stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2018, and
the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as
of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated February 14, 2019, expressed an unqualified opinion on the
Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
February 14, 2019
We have served as the Company's auditor since 2016.
52
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of TriNet Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of TriNet Group, Inc. and subsidiaries (the "Company”)
as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based
on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended
December 31, 2018, of the Company and our report dated February 14, 2019, expressed an unqualified opinion on
those financial statements and financial statement schedule.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company's 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. A company's 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
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's 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 the 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.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
February 14, 2019
53
FINANCIAL STATEMENTS
TRINET GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents
Investments
Restricted cash, cash equivalents and investments
Accounts receivable, net
Unbilled revenue, net
Prepaid expenses
Other current assets
Total current assets
Restricted cash, cash equivalents and investments, noncurrent
Investments, noncurrent
Property & equipment, net
Goodwill
Other intangible assets, net
Other assets
Total assets
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and other current liabilities
Long-term debt, current portion
Client deposits
Accrued wages
Accrued health insurance costs, net
Accrued workers' compensation costs, net
Payroll tax liabilities and other payroll withholdings
Insurance premiums and other payables
Total current liabilities
Long-term debt, less current portion
Accrued workers' compensation costs, less current portion, net
Deferred taxes
Other non-current liabilities
Total liabilities
Commitments and contingencies (see Note 8)
Stockholders' equity:
Preferred stock
($0.000025 par value per share; 20,000,000 shares authorized; no shares issued or outstanding at
December 31, 2018 and 2017)
Common stock and additional paid-in capital
($0.000025 par value per share; 750,000,000 shares authorized; 70,596,559 and 69,818,392
shares issued and outstanding at December 31, 2018 and 2017, respectively)
Accumulated deficit
Total stockholders' equity
Total liabilities & stockholders' equity
See accompanying notes.
54
December 31, December 31,
2018
2017
$
228
$
54
942
11
304
48
59
1,646
187
135
79
289
21
78
336
—
1,280
21
297
38
19
1,991
162
—
70
289
26
55
$
$
2,435
$
2,593
$
45
22
56
352
135
67
729
19
1,425
391
158
68
18
59
40
52
329
151
67
1,034
25
1,757
383
165
68
14
2,060
2,387
—
641
(266)
375
$
2,435
$
—
583
(377)
206
2,593
FINANCIAL STATEMENTS
TRINET GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Year Ended December 31
2017
2016
2018
$
487 $
458 $
3,016
3,503
2,610
229
182
142
49
40
3,252
251
(22)
12
241
49
192 $
—
192 $
2,817
3,275
2,466
213
187
114
45
33
3,058
217
(20)
3
200
22
178 $
—
178 $
447
2,613
3,060
2,414
190
174
92
31
35
2,936
124
(20)
—
104
43
61
1
62
2.72 $
2.65 $
2.57 $
2.49 $
0.88
0.85
70,385,639
72,300,663
69,175,377
71,385,280
70,159,696
71,972,486
$
$
$
$
(in millions, except share and per share data)
Professional service revenues
Insurance service revenues
Total revenues
Insurance costs
Cost of providing services (exclusive of depreciation and amortization of
intangible assets)
Sales and marketing
General and administrative
Systems development and programming
Depreciation and amortization of intangible assets
Total costs and operating expenses
Operating income
Other income (expense):
Interest expense, bank fees and other
Interest income
Income before provision for income taxes
Income tax expense
Net income
Other comprehensive income, net of tax
Comprehensive income
Net income per share:
Basic
Diluted
Weighted average shares:
Basic
Diluted
See accompanying notes.
55
Common Stock and
Additional Paid-In Capital
Shares
Amount
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
(Deficit)
70,371,425 $
494 $
(485) $
(1) $
61
—
—
—
—
—
(72)
(4)
—
(500)
178
—
—
—
—
(44)
(11)
(377)
192
2
—
—
—
—
(61)
(22)
(266)
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8
61
1
—
4
5
26
(72)
(4)
6
35
178
—
5
11
32
(44)
(11)
206
192
2
—
7
7
44
(61)
(22)
375
FINANCIAL STATEMENTS
TRINET GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions, except share data)
Balance at December 31, 2015
Net income
Other comprehensive income
Issuance of common stock for vested restricted stock units
Issuance of common stock under employee stock purchase plan
Issuance of common stock from exercise of stock options
Stock-based compensation expense
Repurchase of common stock
Awards effectively repurchased for required employee withholding taxes
Excess tax benefit from equity incentive plan activity
Balance at December 31, 2016
Net income
Issuance of common stock from vested restricted stock units
Issuance of common stock for employee stock purchase plan
Issuance of common stock from exercise of stock options
Stock-based compensation expense
Repurchase of common stock
Awards effectively repurchased for required employee withholding taxes
Balance at December 31, 2017
Net income
Cumulative effect of accounting change
Issuance of common stock from restricted stock units and restricted stock
awards
Issuance of common stock for employee stock purchase plan
Issuance of common stock from exercise of stock options
Stock-based compensation expense
Repurchase of common stock
Awards effectively repurchased for required employee withholding taxes
—
—
695,253
283,644
1,297,812
—
(3,414,675)
(217,769)
—
—
—
—
4
5
26
—
—
6
69,015,690
535
—
1,020,352
224,928
1,441,957
—
(1,549,434)
(335,101)
—
—
5
11
32
—
—
69,818,392
583
—
—
1,634,271
175,966
617,157
—
(1,190,995)
(458,232)
—
—
—
7
7
44
—
—
Balance at December 31, 2018
70,596,559
641
See accompanying notes.
56
FINANCIAL STATEMENTS
TRINET GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Operating activities
Year Ended December 31,
2017
2016
2018
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
$
192 $
178
61
39
26
42
—
(79)
(45)
11
(2)
73
16
60
(175)
174
(9)
192
(15)
28
(40)
(27)
(72)
9
(4)
58
(58)
(37)
(104)
61
46
44
1
10
(14)
(9)
(8)
4
23
(16)
(7)
(305)
(64)
(1)
(104)
(258)
101
(43)
(200)
(61)
14
(22)
210
(204)
(22)
(85)
(389)
35
32
(25)
(14)
(4)
28
23
(4)
26
22
9
294
(11)
17
606
—
14
(38)
(24)
(44)
16
(11)
—
—
(38)
(77)
505
1,738
1,349 $
1,233
1,738 $
1,172
1,233
17 $
49
3 $
16
2
2
15
39
1
$
$
$
Depreciation and amortization
Stock-based compensation
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable
Unbilled revenue
Prepaid expenses
Accounts payable and other current liabilities
Client deposits
Accrued wages
Accrued health insurance costs
Accrued workers' compensation costs
Payroll taxes payable and other payroll withholdings
Other assets
Other liabilities
Net cash (used in) provided by operating activities
Investing activities
Purchases of marketable securities
Proceeds from sale and maturity of marketable securities
Acquisitions of property and equipment
Net cash used in investing activities
Financing activities
Repurchase of common stock
Proceeds from issuance of common stock
Awards effectively repurchased for required employee withholding taxes
Proceeds from issuance of debt, net
Payments for extinguishment of debt
Repayment of debt
Net cash used in financing activities
Net (decrease) increase in unrestricted and restricted cash and cash
equivalents
Cash and cash equivalents, unrestricted and restricted:
Beginning of period
End of period
Supplemental disclosures of cash flow information
Interest paid
Income taxes paid, net
Supplemental schedule of noncash investing and financing activities
Payable for purchase of property and equipment
See accompanying notes.
57
FINANCIAL STATEMENTS
TRINET GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
TriNet Group Inc. (TriNet, or the Company, we, our and us), a professional employer organization (PEO), provides
comprehensive human resources (HR) solutions for small to midsize businesses (SMBs) under a co-employment
model. These HR solutions include bundled services, such as multi-state payroll processing and tax administration,
employee benefits programs, including health insurance and retirement plans, workers' compensation insurance and
claims management, employment and benefit law compliance, and other services. Through the co-employment
relationship, we are the employer of record for most administrative and regulatory purposes, including:
•
•
•
•
compensation through wages and salaries,
employer payroll-related tax payments,
employee payroll-related tax withholdings and payments,
employee benefit programs including health and life insurance, and others, and
• workers' compensation coverage.
Our clients are responsible for the day-to-day job responsibilities of the worksite employees (WSEs).
We operate in one reportable segment. All of our service revenues are generated from external clients. Less than 1%
of revenue is generated outside of the U.S.
Basis of Presentation
Our consolidated financial statements are prepared in conformity with generally accepted accounting principles in the
United States of America (GAAP). All intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications and Impact of Recently Adopted Accounting Guidance
Certain prior year amounts have been reclassified to conform to current period presentation.
Balance sheet reclassifications are summarized in the tables below:
(in millions)
Assets
December 31, 2017
As previously
Reclassification
As
Reported
Amounts
Revised
Restricted cash, cash equivalents, and investments
$
Accounts receivable, net
Unbilled revenue, net
Prepaid income taxes
Prepaid expenses
Other current assets
Worksite employee related assets
Workers' compensation collateral receivable
Deferred and other long term income taxes
Other assets
15
—
—
5
8
2
$
1,265
$
21
297
(5)
30
17
1,625
(1,625)
39
2
14
(39)
(2)
41
1,280
21
297
—
38
19
—
—
—
55
58
FINANCIAL STATEMENTS
(in millions)
Liabilities and stockholders' equity
December 31, 2017
As previously
Reclassification
As
Reported
Amounts
Revised
Accounts payable & other current liabilities
$
Accrued wages
Client deposits
Accrued health insurance costs, net
Accrued workers' compensation costs, net
Payroll tax liabilities and other payroll withholdings
Insurance premiums and other payables
Other current liabilities
Worksite employee related liabilities
45
40
—
—
—
—
—
14
1,618
$
14
$
289
52
151
67
1,034
25
(14)
(1,618)
59
329
52
151
67
1,034
25
—
—
Effects on the cash flow statement due to adoption of ASU 2016-18 and effects due to reclassifications are
summarized below:
(in millions)
Operating activities
Changes in operating assets and liabilities:
Year ended December 31,
2017
2016
As
previously
reported
Effect of
ASU
adoption
Reclassified
amounts
As
revised
As
previously
reported
Effect of
ASU
adoption
Reclassified
amounts
As
revised
Accounts receivable
$
— $
— $
(14) $
(14) $
— $
— $
— $ —
Restricted cash, cash equivalents, and
investments
Unbilled revenue
Prepaid income taxes
Prepaid expenses
Workers' compensation collateral receivable
Accounts payable
Client deposits
Accrued wages
Accrued health insurance costs
Accrued workers' compensation costs
Payroll taxes payable and other payroll
withholdings
Worksite employee related assets
Worksite employee related liabilities
Other assets
Other liabilities
Net cash provided by operating activities
Financing activities
Proceeds from issuance of common stock on
exercised options
Proceeds from issuance of common stock on
employee stock purchase plan
Proceeds from issuance of common stock
(46)
—
37
1
(7)
22
—
11
—
12
—
(343)
342
4
—
253
11
5
—
46
—
—
—
—
—
—
—
—
—
—
307
—
—
—
353
—
—
—
—
(4)
(37)
27
7
1
(4)
15
22
(3)
294
36
(342)
(15)
17
—
(11)
(5)
16
—
(4)
—
28
—
23
(4)
26
22
9
294
—
—
(11)
17
606
—
—
16
(42)
—
(38)
(2)
(3)
9
—
4
—
55
—
92
(94)
—
—
149
5
4
—
42
—
—
—
—
—
—
—
—
—
—
1
—
—
—
43
—
—
—
—
(79)
38
(43)
3
2
(2)
69
16
5
—
(79)
—
(45)
—
11
(2)
73
16
60
(175)
(175)
(93)
94
174
(9)
—
(5)
(4)
9
—
—
174
(9)
192
—
—
9
61
Net increase in cash and cash equivalents
$
152 $
353 $
— $ 505 $
18 $
43 $
— $
Interest income previously classified in other income (expense), net is now presented in a new line item. Depreciation
expense and amortization of intangible assets previously reported separately, are now presented together as
depreciation and amortization of intangible assets.
59
FINANCIAL STATEMENTS
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that
affect certain reported amounts and related disclosures. Significant estimates include:
•
•
•
•
•
•
liability for unpaid losses and loss adjustment expenses (accrued workers' compensation costs) related to workers'
compensation and workers' compensation collateral receivable,
accrued health insurance costs,
liability for insurance premiums payable,
impairments of goodwill and other intangible assets,
income tax assets and liabilities, and
liability for legal contingencies.
These estimates are based on historical experience and on various other assumptions that we believe to be reasonable
from the facts available to us. Some of the assumptions are highly uncertain at the time of estimation. To the extent
actual experience differs from the assumptions used, our consolidated financial statements could be materially affected.
Revenue Recognition
On January 1, 2018, we adopted Accounting Standards Codification Topic 606 (ASC Topic 606) using the modified
retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting
periods beginning after January 1, 2018 are presented under ASC Topic 606, while the comparative prior period amounts
are not restated and continue to be reported in accordance with statements previously accounted for under Accounting
Standards Codification Topic 605.
Upon adoption of ASC Topic 606, we recorded a $2 million cumulative effect adjustment to opening retained earnings
as of January 1, 2018. Impacts from adoption of the new standard on our revenue recognition include:
• Our annual service contracts with our clients that are cancellable with 30 days' notice are initially considered 30-
day contracts under the new standard;
• Professional service revenues are recognized on an output basis which results in recognition at the time payroll
is processed;
• Our non-refundable set up fees are no longer deferred but accounted for as part of our transaction price and are
allocated among professional service revenues and insurance services revenues; and
• The majority of sales commissions related to onboarding new clients that were previously expensed are capitalized
as contract assets and amortized over the estimated client life.
Revenues are recognized when control of the promised services are transferred to our clients, in an amount that reflects
the consideration that we expect to receive in exchange for services. We generate all of our revenue from contracts
with clients. We disaggregate revenues into professional services revenues and insurance services revenues as
reported on the consolidated statements of income and comprehensive income. Generally, both the client and the
Company may terminate the contract without penalty by providing a 30-day notice.
Performance Obligations
At contract inception, we assess the services promised in our contracts with clients and identify a performance obligation
for each distinct promise to transfer to the client a service or bundle of services. We determined that the following
distinct services represent separate performance obligations:
• Payroll and payroll tax processing,
• Health benefits services, and
• Workers’ compensation services.
60
FINANCIAL STATEMENTS
Payroll and payroll tax processing performance obligations include services to process payroll and payroll tax-related
transactions on behalf of our clients. Revenues associated with this performance obligation are reported as professional
service revenues and recognized using an output method in which the control of the promised services is considered
transferred when a client's payroll is processed by us and WSEs are paid. Professional service revenues are stated
net of the gross payroll and payroll tax amounts funded by our clients. Although we assume the responsibilities to
process and remit the payroll and payroll related obligations, we do not assume employment-related responsibilities
such as determining the amount of the payroll and related payroll obligations. As a result, we are the agent in this
arrangement for revenue recognition purposes.
Health benefits and workers' compensation services include performance obligations to provide TriNet-sponsored
health benefits and workers' compensation insurance coverage through insurance policies provided by third-party
insurance carriers and settle high deductible amounts on those policies. Revenues associated with these performance
obligations are reported as insurance services revenues and are recognized using the output method over the period
of time that the client and WSEs are covered under TriNet-sponsored insurance policies.
We control the selection of health benefits and workers' compensation coverage made available. As a result, we are
the principal in this arrangement for revenue recognition purposes and insurance services revenues are reported gross.
We generally charge new customers a nominal upfront non-refundable fee to recover our costs to set them up on our
TriNet platform for payroll processing and other administrative services, such as benefit enrollments. These fees are
accounted for as part of our transaction price and are allocated among the performance obligations based on their
relative standalone selling prices.
Variable Consideration and Pricing Allocation
Our contracts with customers generally do not include any variable consideration. However, from time to time, we may
offer incentive credits to our clients considered to be variable consideration including incentive credits issued related
to contract renewals. Incentive credits are recorded as a reduction to revenue as part of the transaction price at contract
inception when there is a basis to reasonably estimate the amount of the incentive credit and we reduce the full amount
of the credit only to the extent that it is probable that a significant reversal of any incremental revenue will not occur.
These incentive credits are allocated among the performance obligations based on their relative standalone selling
prices.
We allocate the total transaction price to each performance obligation based on the estimated relative standalone
selling prices of the promised services underlying each performance obligation. The transaction price for the payroll
and payroll tax processing performance obligations is determined upon establishment of the contract that contains the
final terms of the arrangement, including the description and price of each service purchased. The estimated service
fee is calculated based on observable inputs and include the following key assumptions: target profit margin, pricing
strategies including the mix of services purchased and competitive factors, and client and industry specifics.
The transaction price for health benefits insurance and worker’s compensation insurance performance obligations is
determined during the new client on-boarding and enrollment processes based on the types of benefits coverage the
clients and WSEs have elected and the applicable risk profile of the client. We estimate our service fees based on
actuarial forecasts of our expected insurance premiums and claim costs, and amounts to cover our costs to administer
these programs.
We require our clients to prefund payroll and related taxes and other withholding liabilities before payroll is processed
or due for payment. Under the provision of our contracts with clients, we generally will process the payment of a client’s
payroll only when the client successfully funds the amount required. As a result, there is no financing arrangement for
the contracts, however, certain contracts to provide payroll and payroll tax processing services permit the client to pay
certain payroll tax components ratably over a 12-month period rather than as payroll tax is determined on wages paid,
which may be considered a significant financing arrangement under ASC Topic 606. However, as the period between
our performing the service under the contract and when the client pays for the service is less than one year, we have
elected, as a practical expedient, not to adjust the transaction price.
61
FINANCIAL STATEMENTS
Contract Costs
We recognize as deferred commission expense the incremental cost to obtain a contract with a client for certain
components under our commission plans for sales representatives and channel partners that are directly related to
new customers onboarded as we expect to recover these costs through future service fees. Such assets will be
amortized over the estimated average client tenure. These commissions are earned on the basis of the revenue
generated from payroll and payroll tax processing performance obligations. When the commission on a renewal contract
is not commensurate with the commission on the initial contract, such incremental commission will be capitalized and
amortized over the estimated average client tenure. If the commission for both initial contract and renewal contracts
are commensurate, such commissions are expensed in the contract period. When the amortization period is less than
one year, we apply practical expedient to expense sales commissions in sales and marketing expenses in the period
incurred. The below table summarizes the amounts capitalized and amortized during the year ended December 31,
2018:
(in millions)
Deferred commission costs
Year Ended December 31,
2018
Capitalized
Amortized
$
33 $
2
Certain commission plans will pay a commission on estimated professional service revenues over the first 12 months
of the contract with clients. The portion of commission paid in excess of the actual commission earned in that period
is recorded as prepaid commission. When the prepaid commission is considered earned, it is classified as a deferred
commission expense and subject to amortization. We do not have material contract liabilities as of December 31, 2018.
Insurance Costs
Our fully insured insurance plans are provided by third-party insurance carriers under risk-based or guaranteed-cost
insurance policies. Under risk-based policies, we agree to reimburse our carriers for any claims paid within an agreed-
upon per-person deductible layer up to a maximum aggregate exposure limit per policy. These deductible dollar limits
and maximum limits vary by carrier and year. Under guaranteed-cost policies, our carriers establish the premiums and
we are not responsible for any deductible.
Insurance costs include insurance premiums for coverage provided by insurance carriers, reimbursement of claims
payments made by insurance carriers or third-party administrators, and changes in accrued costs related to our workers'
compensation and health benefit insurance.
At policy inception, annual workers' compensation premiums are estimated by the insurance carriers based on projected
wages over the duration of the policy period and the risk categories of the WSEs. As actual wages are realized, premium
expense recorded may differ from estimated premium expense, creating an asset or liability throughout the policy year.
Such asset or liability is reported on our consolidated balance sheets as prepaid expenses or insurance premiums
and other payables, respectively.
Accrued Workers' Compensation Costs
We have secured fully insured workers' compensation insurance policies with insurance carriers to administer and pay
claims for our clients and WSEs. We are responsible for reimbursing the insurance carriers for losses up to $1 million
per claim occurrence (deductible layer). Insurance carriers are responsible for administering and paying claims. We
are responsible for reimbursing each carrier up to a deductible limit per occurrence. Accrued workers' compensation
costs represent our liability for unpaid losses and loss adjustment expenses. These accrued costs are established to
provide for the estimated ultimate costs of paying claims within the deductible layer in accordance with worker's
compensation insurance policies. These accrued costs include estimates for reported and incurred but not reported
(IBNR) losses, accrued costs on reported claims, and expenses associated with processing and settling the claims.
In establishing these accrued costs, we use an independent actuary to provide an estimate of undiscounted future
cash payments that would be made to settle the claims based upon:
• TriNet's historical loss experience, exposure data, and industry loss experience,
•
•
inputs including WSE job responsibilities and location,
historical frequency and severity of workers' compensation claims,
62
FINANCIAL STATEMENTS
•
•
an estimate of future cost trends to establish expected loss ratios for subsequent accident years,
expected loss ratios for the latest accident year or prior accident years, adjusted for the loss trend, the effect of
rate changes and other quantifiable factors, and
•
loss development factors to project the reported losses for each accident year to an ultimate basis.
We assess the accrued workers' compensation costs on a quarterly basis. For each reporting period, changes in the
actuarial methods and assumptions resulting from changes in actual claims experience and other trends are
incorporated into the accrued workers' compensation costs. Adjustments to previously established accrued costs
estimate are reflected in the results of operations for the period in which the adjustment is identified. Such adjustments
could be significant, reflecting any variety of new adverse or favorable trends. Accordingly, final claim settlements may
vary materially from the present estimates, particularly when those payments may not occur until well into the future.
In our experience, plan years related to workers' compensation programs may take ten years or more to be settled.
We do not discount accrued workers' compensation costs. Claim costs expected to be paid within one year are recorded
as accrued workers' compensation costs. Claim costs expected to be paid beyond one year are included in accrued
workers' compensation costs, less current portion.
We have collateral agreements with various insurance carriers where either we retain custody of funds in trust accounts
which we record as restricted cash and cash equivalents, or remit funds to carriers. Collateral whether held by us, or
the carriers, is used to settle our insurance and claim deductible obligations to them. Collateral requirements are
established at the policy year and are re-assessed by each carrier annually. Based on the results of each assessment,
additional collateral may be required for or paid to the carrier or collateral funds may be released or returned to the
Company. Collateral paid to carriers, by agreement permits net settlement of obligations against collateral held, which
we record net of our accrued costs (Carrier Collateral Offset). We offset Carrier Collateral Offset against our obligation
due within the next 12 months before applying against long term obligations. Collateral balances in excess of accrued
costs are recorded as accounts receivable or in other assets.
Accrued Health Insurance Costs
We sponsor and administer a number of fully insured, risk-based employee benefit plans, including group health,
dental, and vision as an employer plan sponsor under section 3(5) of the ERISA. In 2018, a majority of our group health
insurance costs related to risk-based plans. Our remaining group health insurance costs were for guaranteed-cost
policies.
Accrued health insurance costs are established to provide for the estimated unpaid costs of reimbursing the carriers
for paying claims within the deductible layer in accordance with risk-based health insurance policies. These accrued
costs include estimates for reported losses, plus estimates for claims incurred but not paid. We assess accrued health
insurance costs regularly based upon independent actuarial studies that include other relevant factors such as current
and historical claims payment patterns, plan enrollment and medical trend rates.
In certain carrier contracts we are required to prepay the expected claims activity for the subsequent period. These
prepaid balances by agreement permit net settlement of obligations and offset the accrued health insurance costs or
when the prepaid is in excess of our recorded liability the net asset position is included in prepaid expenses. As of
December 31, 2018 and 2017, prepayments included in accrued health insurance costs were $33 million and $19
million, respectively.
Under certain policies, based on plan performance, we may be entitled to receive refunds of premiums which we
recognize in accordance with the policy terms. We estimate these refunds based on premium and claims data and
record as a reduction in the insurance costs on the consolidated statements of income and comprehensive income
and prepaid expenses on the consolidated balance sheets. As of December 31, 2018, there were no prepaid insurance
premiums. As of December 31, 2017, there was $11 million included within prepaid expenses as prepaid insurance
premiums.
Cash and Cash Equivalents
Cash and cash equivalents include bank deposits and short-term, highly liquid investments. Investments with original
maturity dates of three months or less are considered cash equivalents.
63
FINANCIAL STATEMENTS
Restricted Cash, Cash Equivalents and Investments
Restricted cash, cash equivalents and investments presented on our consolidated balance sheets include:
•
•
•
cash and cash equivalents in trust accounts functioning as security deposits for our insurance carriers,
payroll funds collected representing cash collected in advance from clients which we designate as restricted for
the purpose of funding WSE payroll and payroll taxes and other payroll related liabilities, and
amounts held in trust for current and future premium and claim obligations with our insurance carriers, which
amounts are held in trust according to the terms of the relevant insurance policies and by the local insurance
regulations of the jurisdictions in which the policies are in force.
Investments
Our investments are primarily classified as available-for-sale and are carried at estimated fair value.
Unrealized gains and losses are reported as a component of accumulated other comprehensive income, net of deferred
income taxes. The amortized cost of debt investments is adjusted for amortization of premiums and accretion of
discounts from the date of purchase to the earliest call date for premiums or the maturity date for discounts. 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 to determine the realized gains and losses on the sale of
available-for-sale securities. Realized gains and losses are included in interest income in the accompanying
consolidated statements of income and comprehensive income.
We assess our investments for an other-than-temporary impairment loss due to a decline in fair value or other market
conditions. We review several factors to determine whether a loss is other than temporary, such as the length and
extent of the fair value decline, the financial condition and near-term prospects of the issuer and whether we have the
intent to sell or will more likely than not be required to sell before the securities' anticipated recovery, which may be at
maturity. If management determines that a security is impaired under these circumstances, the impairment recognized
in earnings is measured as the entire difference between the amortized cost and the then-current fair value.
We have investments within our unrestricted and our restricted accounts. Unrestricted investments are recorded on
the balance sheet as current or noncurrent based upon the remaining time to maturity, and investments subject to
restrictions are classified as current or noncurrent based on the expected payout of the related liability.
Fair Value of Financial Instruments
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based
measurement that should be determined based on assumptions that market participants would use in pricing an asset
or a liability.
Our financial assets recorded at fair value on a recurring basis are comprised of cash equivalents, available-for-sale
marketable securities and certificates of deposits. We measure certain financial assets at fair value for disclosure
purposes, as well as on a nonrecurring basis when they are deemed to be other-than-temporarily impaired. Our other
current financial assets and liabilities have fair values that approximate their carrying value due to their short-term
nature.
Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value
hierarchy based on the observability of the inputs available in the market to measure fair value, summarized as follows:
•
•
•
Level 1—observable inputs for identical assets or liabilities, such as quoted prices in active markets,
Level 2—inputs other than the quoted prices in active markets that are observable either directly or indirectly,
Level 3—unobservable inputs in which there is little or no market data, which requires that we develop our own
assumptions.
The fair value hierarchy requires us to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. We classify our cash equivalents, debt securities and debt payable in the fair value
hierarchy based on the lowest level input that is significant to the fair value measurement in its entirety.
64
FINANCIAL STATEMENTS
Unbilled Revenue
We recognize WSE payroll and payroll tax liabilities in the period in which the WSEs perform work. When clients' pay
periods cross reporting periods, we accrue the portion of the unpaid WSE payroll where we assume, under state
regulations, the obligation for the payment of wages and the corresponding payroll tax liabilities associated with the
work performed prior to period-end. These estimated payroll and payroll tax liabilities are recorded in accrued wages.
The associated receivables, including estimated revenues, offset by advance collections from clients, are recorded as
unbilled revenue. As of December 31, 2018 and 2017, advance collections included in unbilled revenue were $23
million and $12 million respectively.
Accounts Receivable
Our accounts receivable represents outstanding gross billings to clients, net of an allowance for doubtful accounts.
We require our clients to prefund payroll and related liabilities before payroll is processed or due for payment. If a client
fails to fund payroll or misses the funding cut-off, at our sole discretion, we may pay the payroll and the resulting
unfunded payroll is recognized as accounts receivable. When client payment is received in advance of our performance
under the contract, such amount is recorded as client deposits. We establish an allowance for doubtful accounts based
on historical experience, the age of the accounts receivable balances, credit quality of clients, current economic
conditions and other factors that may affect clients’ ability to pay, and charge-off amounts when they are deemed
uncollectible.
Property and Equipment
We record property and equipment at historical cost and compute depreciation using the straight-line method over the
estimated useful lives of the assets or the lease terms, generally three to five years for software and office equipment,
five to seven years for furniture and fixtures, and the shorter of the asset life or the remaining lease term for leasehold
improvements. We expense the cost of maintenance and repairs as incurred and capitalize leasehold improvements.
We capitalize internal and external costs incurred to develop internal-use computer software during the application
development stage. Application development stage costs include license fee paid to third-parties for software use,
software configuration, coding, and installation. Capitalized costs are amortized on a straight-line basis over the
estimated useful life, typically ranging from three to five years, commencing when the software is placed into service.
We expense costs incurred during the preliminary project stage, as well as general and administrative, overhead,
maintenance and training costs, and costs that do not add functionality to existing systems. For the years ended
December 31, 2018, 2017 and 2016, internally developed software costs capitalized were $33 million, $29 million and
$21 million respectively.
We periodically assess the likelihood of unsuccessful completion of projects in progress, as well as monitor events or
changes in circumstances, which might suggest that impairment has occurred and recoverability should be evaluated.
An impairment loss is recognized if the carrying amount of the asset is not recoverable and exceeds the future net
cash flows expected to be generated by the asset.
Goodwill and Other Intangible Assets
Our goodwill and identifiable intangible assets with indefinite useful lives are not amortized, but are tested for impairment
on an annual basis or when an event occurs or circumstances change in a way to indicate that there has been a
potential decline in the fair value of the reporting unit. Goodwill impairment is determined by comparing the estimated
fair value of the reporting unit to its carrying amount, including goodwill. All goodwill is associated with one reporting
unit within our one reportable segment.
Annually, we perform a qualitative assessment to determine whether it is more likely than not that the fair value of the
reporting unit has declined below carrying value. This assessment considers various financial, macroeconomic, industry,
and reporting unit specific qualitative factors. We perform our annual impairment testing in the fourth quarter. Based
on the results of our reviews, no impairment loss was recognized in the results of operations for the years ended
December 31, 2018, 2017 and 2016.
65
FINANCIAL STATEMENTS
Intangible assets with finite useful lives are amortized over their respective estimated useful lives ranging from two to
ten years using either the straight-line method or an accelerated method. Intangible assets are reviewed for indicators
of impairment at least annually and evaluated for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Based on the results of our reviews, no impairment loss
was recognized in the results of operations for the years ended December 31, 2018, 2017 and 2016.
Impairment of Long-Lived Assets
We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An asset is considered impaired if the carrying amount exceeds
the undiscounted future net cash flows the asset is expected to generate. An impairment charge is recognized for the
amount by which the carrying amount of the assets exceeds its fair value. Assets to be disposed of are reported at the
lower of the carrying amount or fair value, less selling costs.
Advertising Costs
We expense the costs of producing advertisements at the time production occurs, and expense the cost of running
advertisements in the period in which the advertising space or airtime is used as sales and marketing expense.
Advertising costs were $17 million, $8 million, and $6 million for the years ended December 31, 2018, 2017 and 2016,
respectively.
Stock-Based Compensation
Our stock-based awards to employees include time-based and performance-based restricted stock units and restricted
stock awards, stock options and an employee stock purchase plan. Compensation expense associated with restricted
stock units and restricted stock awards is based on the fair value of common stock on the date of grant. Compensation
expense associated with stock options and employee stock purchase plan are based on the estimated grant date fair
value method using the Black-Scholes option pricing model. Expense is recognized using a straight-line amortization
method over the respective vesting period for awards that are ultimately expected to vest, with adjustments to expense
recognized in the period in which forfeitures occur.
Income Taxes
We account for our provision for income taxes using the asset and liability method, under which we recognize income
taxes payable or refundable for current year and deferred tax assets and liabilities for future tax effect of events that
have been recognized in our financial statements or tax returns. We measure our current and deferred tax assets and
liabilities based on provision of enacted tax laws of those jurisdictions in which we operate. The effect of changes in
tax laws and regulations, or interpretations, is recognized in our consolidated financial statements in the period that
includes the enactment date.
We recognize deferred tax assets and liabilities based on temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and amounts used for income tax purposes, as well as the expected
benefits of using net operating loss and other carryforwards. We are required to establish a valuation allowance when
it is determined more likely than not that the deferred tax assets will not be realized. Provision for income taxes may
change when estimates used in determining valuation allowances change or when receipt of new information indicates
the need for adjustment in valuation allowances. Changes in valuation allowances are reflected as a component of
provision for income taxes in the period the change is enacted.
We recognize a reserve for uncertain tax positions taken or expected to be taken in a tax return when it is concluded
that tax positions are not more likely than not to be sustained upon examination by taxing authorities, including resolution
of any related appeals or litigation processes, based on the technical merits of the positions. Assumptions, judgment
and the use of estimates are required in determining if the more likely than not standard has been met when developing
the provision for income taxes and in determining the expected benefit. The tax benefits of the position recognized in
the financial statements are then measured based on the largest amount of benefit that is greater than 50% likely to
be realized upon settlement with a taxing authority. Unrecognized tax benefits due to tax uncertainties that do not meet
the minimum probability threshold are included as other liabilities and are charged to earnings in the period that such
determination is made. We recognize interest and penalties related to uncertain tax positions as a component of income
tax expense. Accrued interest and penalties are included in other liabilities on the consolidated balance sheet.
66
FINANCIAL STATEMENTS
Concentrations of Credit Risk
Financial instruments subject to concentrations of credit risk include cash, cash equivalents and investments
(unrestricted and restricted), accounts receivable, and amounts due from insurance carriers. We maintain these financial
assets principally in domestic financial institutions. We perform periodic evaluations of the relative credit standing of
these institutions. Our exposure to credit risk in the event of default by the financial institutions holding these funds is
limited to amounts currently held by the institution in excess of insured amounts.
Under the terms of professional services agreements, clients agree to maintain sufficient funds or other satisfactory
credit at all times to cover the cost of their current payroll, all accrued paid time off, vacation or sick leave balances,
and other vested wage and benefit obligations for all their work site employees. We generally require payment from
our clients on or before the applicable payroll date.
For certain clients, we require an indemnity guarantee payment (IGP) supported by a letter of credit, bond, or a certificate
of deposit from certain financial institutions. The IGP typically equals the total payroll and service fee for one average
payroll period.
As of December 31, 2018, no client accounted for over 10% of total accounts receivable. One client accounted for
more than 47% of accounts receivable as of December 31, 2017. No client accounted for more than 10% of total
revenues in the years ended December 31, 2018, 2017 and 2016. Bad debt expense, net of recoveries was $1 million,
for each of the years ended December 31, 2018, 2017 and 2016.
Recent Accounting Pronouncements
Recently adopted accounting guidance
Revenue Recognition - In May 2014, the FASB issued ASU 2014-09-Revenue from Contracts with Customers, which
replaces most existing revenue recognition guidance under GAAP. The core principle of the guidance is that an entity
should recognize revenue for the transfer of promised goods or services to customers that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. The standard provides a five-step
analysis of transactions to determine when and how revenue is recognized.
We have adopted the new standard effective January 1, 2018 using the modified retrospective method. For further
discussion of our adoption of ASC Topic 606, including our operating results under the new standard, see Revenue
Recognition section above.
67
FINANCIAL STATEMENTS
The impact from the adoption of ASC Topic 606 to our consolidated income statements and balance sheets is as
follows:
(in millions)
Balance sheet
Assets
Cash and cash equivalents
Restricted cash, cash equivalents and investments, current
Unbilled revenue, net
Prepaid expenses
Other current assets
Other assets
Liabilities
Accounts payable and other current liabilities
Deferred taxes
Other non-current liabilities
Equity
Accumulated deficit
(in millions, except per share data)
Income statement
Revenue
Professional service revenues
Total revenues
Expense
Sales and marketing expense
Commissions expense
Total expense
Income before provision for income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
December 31, 2018
As reported
Balance Using
Previous Standard
Increase
(Decrease)
228 $
235 $
942
304
48
59
78
45 $
68
18
935
311
44
49
67
48 $
67 $
22 $
(7)
7
(7)
4
10
11
3
(1)
4
(266) $
(290) $
(24)
Year Ended December 31, 2018
As Reported
Balance Using
Previous Standard
Increase
(Decrease)
487 $
3,503
485 $
3,501
22
3,252
241
49
192 $
2.72 $
2.65 $
53
3,283
208
40
168 $
2.40 $
2.34 $
2
2
(31)
(31)
33
9
24
0.32
0.31
$
$
$
$
$
$
$
Statement of Cash Flows - In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic
230): Restricted Cash. ASU 2016-18 addresses diversity in practice from entities classifying and presenting transfers
between cash and restricted cash as operating, investing or financing activities or as a combination of those activities
in the statement of cash flows. The ASU requires entities to show the changes in the total of cash, cash equivalents,
restricted cash and restricted cash equivalents in the statement of cash flows. As a result, transfers between such
categories are no longer be presented in the statement of cash flows. We adopted ASU 2016-18 on January 1, 2018
using the retrospective method. See the effects of this adoption under the Impact of Reclassifications and Recently
Adopted Accounting Guidance section above.
68
FINANCIAL STATEMENTS
Recent issued accounting pronouncements
Lease arrangements - In February 2016, the FASB issued ASU 2016-02-Leases (Topic 842) and subsequent
amendments to the initial guidance (collectively, ASC Topic 842) to supersede existing guidance on accounting for
leases in ASC 840, Leases (ASC 840). ASC Topic 842 requires us to recognize on our balance sheet a lease liability
representing the present value of future lease payments and a right-of-use asset representing our right to use, or
control the use of, a specified asset for the lease term for any operating lease with a term greater than one year. This
standard is effective for annual and interim reporting periods beginning after December 15, 2018. Our leases primarily
consist of leases for office space. We have an immaterial amount of capitalized leases.
We will adopt the new standard effective January 1, 2019 using the optional transition method, under which we will
recognize the cumulative effects of initially applying the standard as an adjustment to the opening balance of retained
earnings on January 1, 2019 with unchanged comparative periods.
Additionally, we will elect the practical expedient approach and will not reassess whether any contracts that existed
prior to adoption have or contain leases or the classification of our existing leases. We will continue to classify initial
indirect costs of existing leases as part of our existing leases and not separate any non-lease components.
On the date of adoption, the consolidated balance sheet will be adjusted by the following amounts:
(in millions)
Recognizing right-of-use asset
Long-term right-of-use assets
Recognizing lease liability and derecognizing deferred rent
Accounts payable and other current liabilities
Other non-current liabilities
Increase Under New
Guidance
$
$
53
16
37
The impact on the consolidated statements of income is expected to be immaterial.
In addition, ASC Topic 842 requires significant new disclosures, including significant judgments regarding our leasing
activities. We have completed our implementation, including a review of the processes and controls to ensure we meet
the reporting and disclosure requirements.
NOTE 2. CASH, CASH EQUIVALENTS AND INVESTMENTS
Under the terms of the agreements with certain of our workers' compensation and health benefit insurance carriers,
we are required to maintain collateral in trust accounts for the benefit of specified insurance carriers and to reimburse
the carriers’ claim payments within our deductible layer. We invest a portion of the collateral amounts in marketable
securities. We report the current and noncurrent portions of these trust accounts as restricted cash, cash equivalents
and investments on the consolidated balance sheets.
We require our clients to prefund their payroll and related taxes and other withholding liabilities before payroll is
processed or due for payment. This prefund is included in restricted cash, cash equivalents and investments as payroll
funds collected, which is designated to pay pending payrolls, payroll tax liabilities and other payroll withholdings.
We also invest available corporate funds, primarily in fixed income securities which meet the requirements of our
corporate investment policy and are classified as available for sale (AFS).
69
FINANCIAL STATEMENTS
Our total cash, cash equivalents and investments are summarized in the table below:
(in millions)
December 31, 2018
December 31, 2017
Cash and
cash
equivalents
Available-
for-sale
marketable
securities
Certificate
of
deposits
Cash and
cash
equivalents
Available-
for-sale
marketable
securities
Certificate
of
deposits
Total
Total
— $
54
— $
—
228 $
336 $
54
—
— $
—
— $
—
336
—
Cash and cash equivalents
$
228 $
Investments
Restricted cash, cash equivalents and
investments
Insurance carriers security deposits
Payroll funds collected
Collateral for health benefits claims
Collateral for workers' compensation claims
Collateral to secure standby letter of credit
Total restricted cash, cash equivalents and
investments, current
Investments, noncurrent
Restricted cash, cash equivalents and
investments, noncurrent
—
15
783
75
66
—
939
—
—
—
—
1
—
1
135
—
—
—
—
2
2
—
—
15
783
75
67
2
942
135
15
1,095
69
98
—
1,277
—
187
125
—
—
—
1
—
1
—
37
38 $
—
—
—
—
2
2
—
—
15
1,095
69
99
2
1,280
—
162
2 $
1,778
Collateral for workers' compensation claims
182
5
Total
$
1,349 $
195 $
2 $
1,546 $
1,738 $
NOTE 3. INVESTMENTS
All of our investment securities that have a contractual maturity date greater than three months are classified as AFS.
The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of our investments as of
December 31, 2018 and December 31, 2017 are presented below:
(in millions)
Asset-backed securities
Corporate bonds
U.S. government agencies and government-sponsored agencies
U.S. treasuries
Exchange traded fund
Other debt securities
Total
(in millions)
U.S. treasuries
Exchange traded fund
Total
December 31, 2018
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair Value
$
33 $
— $
— $
99
7
46
1
9
—
—
—
—
—
—
—
—
—
—
33
99
7
46
1
9
$
195 $
— $
— $
195
December 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair Value
$
$
37 $
1
38 $
— $
—
— $
— $
—
— $
37
1
38
70
FINANCIAL STATEMENTS
Investments in a continuous unrealized loss position as of December 31, 2018 and December 31, 2017 are presented
below.
Less than 12 months
12 months or more
Total
December 31, 2018
(in millions)
Asset-backed securities
Corporate bonds
U.S. government agencies and government-
sponsored agencies
U.S. treasuries
Other debt securities
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
25 $
— $
— $
— $
25 $
84
4
21
7
—
—
—
—
—
—
—
—
—
—
—
—
84
4
21
7
$
141 $
— $
— $
— $
141 $
—
—
—
—
—
—
(in millions)
U.S. treasuries
Total
Less than 12 months
12 months or more
Total
December 31, 2017
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
$
5 $
5 $
— $
— $
24 $
24 $
— $
— $
29 $
29 $
—
—
Unrealized losses on fixed income securities are principally caused by changes in interest rates and the financial
condition of the issuer. In analyzing an issuer's financial condition, we consider whether the securities are issued by
the federal government or its agencies, whether downgrades by credit rating agencies have occurred, and industry
analysts' reports. As we have the ability to hold these investments until maturity, or for the foreseeable future, no decline
was deemed to be other-than-temporary. Actual maturities may differ from contractual maturities because borrowers
may have the right to prepay obligations with or without prepayment penalties.
The fair value of debt investments by contractual maturity are shown below:
(in millions)
Asset-backed securities
Corporate bonds
U.S. government agencies and government-
sponsored agencies
U.S. treasuries
Other debt securities
Total
(in millions)
U.S. treasuries
Total
December 31, 2018
One year or
less
Over One
Year
Through
Five Years
Over Five
Years
Through
Ten Years
Over Ten
Years
Fair Value
$
4 $
26 $
3 $
— $
42
1
12
—
57
2
34
1
—
—
—
—
—
4
—
8
33
99
7
46
9
$
59 $
120 $
3 $
12 $
194
December 31, 2017
One year or
less
Over One
Year
Through
Five Years
Over Five
Years
Through
Ten Years
Over Ten
Years
Fair Value
$
$
— $
— $
37 $
37 $
— $
— $
— $
— $
37
37
71
FINANCIAL STATEMENTS
The gross proceeds from sales and maturities of AFS securities for the years ended December 31, 2018, 2017 and
2016 are shown below. We had immaterial gross realized gains and losses from sales of investments for the years
ended December 31, 2018, 2017 and 2016.
(in millions)
Gross proceeds from sales
Gross proceeds from maturities
Total
Year Ended December 31,
2018
2017
2016
$
$
54 $
47
101 $
— $
14
14 $
—
28
28
Our asset-backed securities include auto loan/lease, credit card, and equipment leases with investment-grade ratings.
Our corporate bonds include investment-grade debt securities from a wide variety of issuers, industries, and sectors.
Our U.S. government agencies and government-sponsored agency securities primarily include mortgage-backed
securities consisting of Federal Home Loan Mortgage Corporation and Federal National Mortgage Association
securities with investment-grade ratings.
Our other debt securities primarily include mortgage-backed securities with investment-grade ratings issued by
institutions without federal backing.
NOTE 4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following:
(in millions)
Software
Office equipment, including data processing equipment
Leasehold improvements
Furniture, fixtures, and equipment
Projects in progress
Total
Less: Accumulated depreciation
Property and equipment, net
December 31, 2018 December 31, 2017
$
$
144 $
27
21
15
2
209
(130)
79 $
114
23
15
15
7
174
(104)
70
Depreciation expense for the years ended December 31, 2018, 2017 and 2016 was $35 million, $28 million and $19
million, respectively. Projects in progress consist primarily of development costs for internally developed software,
which we capitalize and amortize on a straight-line basis over the estimated useful life. We recognized depreciation
expense for capitalized internally developed software of $24 million, $17 million, and $10 million for the years ended
December 31, 2018, 2017 and 2016, respectively.
72
FINANCIAL STATEMENTS
NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS
The following summarizes goodwill and other intangible assets:
(in millions)
Goodwill
Amortizable intangibles:
Customer contracts
Developed technology
Total
December 31, 2018
December 31, 2017
Weighted
Average
Amortization
Period
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
289 $
— $
289 $
289 $
— $
289
10 years
5 years
90
5
(71)
(3)
19
2
210
6
(187)
(3)
$
95 $
(74) $
21 $
216 $
(190) $
23
3
26
Amortization of intangible assets during the years ended December 31, 2018, 2017 and 2016 was $5 million, $5 million
and $16 million, respectively. As of December 31, 2018, we had $120 million of fully amortized customer contracts and
$1 million of fully amortized developed technology. We evaluate the remaining useful life of intangible assets annually
to determine whether events and circumstances warrant a revision to the estimated remaining useful life.
Expense related to intangibles amortization in future periods as of December 31, 2018 is expected to be as follows:
Year ending December 31:
2019
2020
2021
2022
2023
Total
Amount
(in millions)
5
5
4
4
3
21
$
$
NOTE 6. ACCRUED WORKERS' COMPENSATION COSTS
The following table summarizes the accrued workers’ compensation cost activity for the years ended December 31,
2018, 2017 and 2016:
(in millions)
Year Ended December 31,
2018
2017
2016
Total accrued costs, beginning of year
$
255 $
255 $
Incurred
Current year
Prior years
Total incurred
Paid
Current year
Prior years
Total paid
80
(28)
52
(12)
(57)
(69)
98
(6)
92
(14)
(78)
(92)
Total accrued costs, end of year
$
238 $
255 $
The following table summarizes workers' compensation liabilities on the consolidated balance sheets:
73
190
113
28
141
(14)
(62)
(76)
255
FINANCIAL STATEMENTS
(in millions)
Total accrued costs, end of year
Collateral paid to carriers and offset against accrued costs
Total accrued costs, net of carrier collateral offset
Payable in less than 1 year
(net of collateral paid to carriers of $3 and $6 as of December 31, 2018
and 2017, respectively)
Payable in more than 1 year
(net of collateral paid to carriers of $10 and $17 as of December 31,
2018 and 2017, respectively)
Total accrued costs, net of carrier collateral offset
December 31,
2018
December 31,
2017
$
$
$
238 $
(13)
225 $
67
158
225 $
255
(23)
232
67
165
232
Incurred claims related to prior years represent changes in estimates for ultimate losses on workers' compensation
claims. For the year ended December 31, 2018, the favorable development was primarily due to lower than expected
severity development on claims that had previously been reported, as well as a lower than expected reported claim
frequency during 2018. For the year ended December 31, 2017, the favorable development was primarily due to lower
than expected severity of reported claims associated with office worker WSEs in recent accident years. For the year
ended December 31, 2016, the adverse development was primarily due to higher than expected severity of reported
claims associated with non-office WSEs in recent accident years.
As of December 31, 2018 and 2017, we had $57 million and $63 million, respectively, of collateral held by insurance
carriers of which $13 million and $23 million was offset against accrued workers' compensation costs as the agreements
permit and are net settled of insurance obligations against collateral held.
NOTE 7. LONG-TERM DEBT
As of December 31, 2018 and 2017, long-term debt consisted of the following:
(in millions)
Term Loan A
Term Loan A-2
2018 Term Loan A
Total term loans
Deferred loan costs
Less: current portion
Annual
Contractual
Interest Rate
3.95% (1)
3.83% (2)
4.15% (3)
Effective
Interest Rate
Maturity
Date
4.07%
3.90%
July 2019
July 2019
4.25%
June 2023
December 31,
2018
December 31,
2017
$
— $
—
414
414
(1)
(22)
303
122
—
425
(2)
(40)
383
Long-term debt, noncurrent
$
391 $
(1) Bears interest at LIBOR plus 2.25% or the prime rate plus 1.25% at our option, subject to certain rate adjustments based upon our total
leverage ratio.
(2) Bears interest at LIBOR plus 2.125% or the prime rate plus 1.125% at our option, subject to certain rate adjustments based upon our total
leverage ratio.
(3) Bears interest at LIBOR plus 1.625% or the prime rate plus 0.625% at our option in the first full fiscal quarter of the term loan, thereafter
subject to certain rate adjustments based on our total leverage ratio. As of December 31, 2018, the interest rate was based on LIBOR plus
1.625%.
In June 2018 we refinanced approximately $415 million of, and repaid in full, our outstanding A and A-2 term loans
(together, our 2014 Term Loans) under our previous credit agreement (our 2014 Credit Agreement). Our 2014 Term
Loans were replaced with a $425 million term loan A (our 2018 Term Loan) under our new credit agreement (our 2018
Credit Agreement). We also replaced our previous $75 million revolving credit facility established under our 2014 Credit
Agreement with a $250 million revolving credit facility under our 2018 Credit Agreement (our 2018 Revolver), which
will be used solely for working capital and other general corporate purposes. As part of this approximately $415 million
refinancing transaction, $204 million was recorded as an extinguishment, and $211 million was rolled over into the
2018 Term Loan and was treated as a debt modification. As of December 31, 2018, $414 million was outstanding under
74
FINANCIAL STATEMENTS
our 2018 Term Loan and the full amount of our 2018 Revolver, less approximately $16 million representing an undrawn
letter of credit, was available.
We incurred approximately $4 million in fees and acquisition costs related to our June 2018 refinancing, of which we
capitalized approximately $3 million allocated proportionally between our 2018 Term Loan and 2018 Revolver. As a
result of this modification, we expensed approximately $2 million in new and existing fees.
Interest on our 2018 Term Loan is payable quarterly. We are required to pay a quarterly commitment fee on the daily
unused amount of the commitments under our 2018 Revolver, as well as fronting fees and other customary fees for
letters of credit issued under our 2018 Revolver, which is subject to adjustments based on our total leverage ratio.
Borrowings under our 2018 Term Loan and 2018 Revolver are secured by substantially all of our assets, other than
excluded assets as defined in our 2018 Credit Agreement, which includes certain customary assets, assets held in
trusts as collateral and WSE related assets.
We are permitted to make voluntary prepayments at any time without payment of a premium. We are required to make
mandatory prepayments of term loans (without payment of a premium) with (i) net cash proceeds from issuances of
debt (other than certain permitted debt), and (ii) net cash proceeds from certain non-ordinary course asset sales and
casualty and condemnation proceeds (subject to reinvestment rights and other exceptions).
The remaining balance of our 2018 Term Loan will be repaid in quarterly installments in aggregate annual amounts as
follows:
(in millions)
2019
Year ending December 31,
2021
2022
2020
2023
Thereafter
Term loan repayments
$
22 $
22 $
22 $
22 $
326 $
—
Our 2018 Credit Agreement contains customary representations and warranties, and customary affirmative and
negative covenants applicable to us, including, among other things, restrictions on indebtedness, liens, investments,
mergers, dispositions, prepayment of indebtedness (other than our 2018 Term Loan and our 2018 Revolver), dividends,
distributions and transactions with affiliates.
Our 2018 Credit Agreement restricts our ability to make certain types of payments, including dividends and stock
repurchases and other similar distributions, though such payments may generally be made as long as our total leverage
ratio remains below 3.00 to 1.00 after the effect of these payments and there exists no default under the 2018 Credit
Agreement.
The financial covenants under our 2018 Credit Agreement require us to maintain a minimum consolidated interest
coverage ratio of at least 3.50 to 1.00 at each quarter end and a maximum total leverage ratio of 3.50 to 1.00. In the
event of an acquisition the maximum ratio can be raised to 4.00 to 1.00 for four consecutive quarters. We were in
compliance with these financial covenants under the credit facilities at December 31, 2018.
75
FINANCIAL STATEMENTS
NOTE 8. COMMITMENTS AND CONTINGENCIES
Lease Commitments
We lease office facilities, including our headquarters and other facilities under non-cancelable operating leases. The
schedule of minimum future rental payments under non-cancelable operating leases having initial terms in excess of
one year at December 31, 2018, is as follows:
(in millions)
Year ending December 31:
2019
2020
2021
2022
2023
Thereafter
Minimum lease payments
Operating Leases
$
$
18
17
11
9
8
25
88
The lease agreements generally provide for rental payments on a graduated basis and for options to renew, which
could increase future minimum lease payments if exercised. We recognize rent expense on a straight-line basis over
the lease period and accrue for rent expense incurred but not paid. Rent expense for the years ended December 31,
2018, 2017 and 2016 was $20 million, $18 million and $17 million, respectively.
Credit Facilities
We maintain a $250 million revolving credit facility which includes capacity for a $20 million swingline facility. Letters
of credit issued pursuant to the revolving credit facility reduce the amount available for borrowing under the revolving
credit facility. The total unused portion of the revolving credit facility was $234 million as of December 31, 2018.
The terms of the credit agreement governing the revolving credit facility require us to maintain certain financial ratios
at each quarter end. We were in compliance with these covenants as of December 31, 2018.
We also have a $5 million line of credit facility to secure standby letters of credit related to our workers' compensation
obligation. At December 31, 2018, the total unused portion of the credit facility was $3 million.
Standby Letters of Credit
We have two standby letters of credit up to an aggregate of $18 million provided as collateral for our workers’
compensation obligations. At December 31, 2018, the facilities were not drawn down.
Contingencies
In August 2015, Howard Welgus, a purported stockholder, filed a putative securities class action lawsuit, Welgus v.
TriNet Group, Inc., et. al., under the Securities Exchange Act of 1934 in the United States District Court for the Northern
District of California. The complaint was later amended in April 2016 and again in March 2017. On December 18, 2017,
the district court granted TriNet’s motion to dismiss the amended complaint in its entirety, without leave to amend.
Plaintiff filed a notice of appeal of the district court’s order on January 17, 2018. Plaintiff-Appellant filed his opening
appeal brief before the Ninth Circuit Court of Appeals on April 27, 2018. TriNet filed a responsive brief on June 28,
2018. Plaintiff-Appellant filed his reply brief on August 20, 2018. The Ninth Circuit has scheduled a hearing date for
March 14, 2019. We see no basis for a reversal of the district court’s decision. We are unable to reasonably estimate
the possible loss or expense, or range of losses and expenses, if any, arising from this litigation.
We are and, from time to time, have been and may in the future become involved in various litigation matters, legal
proceedings, and claims arising in the ordinary course of our business, including disputes with our clients or various
class action, collective action, representative action, and other proceedings arising from the nature of our co-
employment relationship with our clients and WSEs in which we are named as a defendant. In addition, due to the
nature of our co-employment relationship with our clients and WSEs, we could be subject to liability for federal and
76
FINANCIAL STATEMENTS
state law violations, even if we do not participate in such violations. While our agreements with our clients contain
indemnification provisions related to the conduct of our clients, we may not be able to avail ourselves of such provisions
in every instance. We have accrued our current best estimates of probable losses with respect to these matters, which
are individually and in aggregate immaterial to our consolidated financial statements.
While the outcome of the matters described above cannot be predicted with certainty, management currently does not
believe that any such claims or proceedings or the above mentioned securities class action will have a materially
adverse effect on our consolidated financial position, results of operations, or cash flows. However, the unfavorable
resolution of any particular matter or our reassessment of our exposure for any of the above matters based on additional
information obtained in the future could have a material impact on our consolidated financial position, results of
operations, or cash flows.
NOTE 9. STOCKHOLDERS' EQUITY
Equity-Based Incentive Plans
Our 2009 Equity Incentive Plan (the 2009 Plan) provides for the grant of stock awards, including stock options, RSUs,
RSAs, and other stock awards. Shares available for grant as of December 31, 2018 were 12 million.
Stock Options
Stock options are granted to employees under the 2009 Plan at exercise prices equal to the fair market value of our
common stock on the dates of grant. Options generally have a maximum contractual term of 10 years. Options are
generally vested over four years, based on continued service. Stock options are forfeited if the employee ceases to
be employed by us prior to vesting.
The following table summarizes stock option activity under our equity-based plan for the year ended December 31,
2018:
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(in millions)
5.87 $
41
4.91 $
4.94 $
4.91 $
19
19
19
7
21
5
Balance at December 31, 2017
Exercised
Forfeited
Canceled
Balance at December 31, 2018
Exercisable at December 31, 2018
Vested and expected to vest at December 31, 2018
Number
of Shares
Weighted
Average
Exercise
Price
1,296,863 $
(617,157)
(15,694)
(8,497)
655,515 $
642,631 $
655,515 $
12.27
11.00
32.81
32.02
12.90
12.65
12.90
Additional Disclosures for Stock Options (in millions)
2018
2017
2016
Total fair value of options vested
Total intrinsic value of options exercised
Cash received from options exercised
$
4 $
24
7
7 $
36
11
Year Ended December 31,
Restricted Stock Units and Restricted Stock Awards
In 2018, the Company granted time-based and performance-based restricted stock awards to the Company's named
executive officers. A recipient of RSAs owns the underlying shares of common stock upon grant and some of the
benefits of ownership, such as voting and dividend rights, but the recipient may not sell those shares and realize any
value on a sale, until all time-based and performance-based restrictions have been satisfied or lapsed.
77
FINANCIAL STATEMENTS
Time-based RSUs and RSAs generally vest over a four-year term. Performance-based RSUs and RSAs are subject
to vesting requirements based on certain financial performance metrics as defined in the grant notice. Actual number
of shares earned may range from 0% to 200% of the target award. Awards granted in 2017 and 2018 are based on
single-year performance period subject to subsequent multi-year vesting with 50% of the shares earned will vest in
one year after the performance period and the remaining shares in the year after.
Compensation expense is recognized ratably over the vesting period based on the probability of the number of awards
expected to vest at each reporting date.
The following table summarizes RSU and RSA activity under our equity-based plans for the year ended December 31,
2018:
Nonvested at December 31, 2017
Granted
Vested
Forfeited
Nonvested at December 31, 2018
RSUs
RSAs
Number of
Units
2,703,335 $
714,358
(1,273,796)
(406,343)
1,737,554 $
RSUs
Weighted-
Average
Grant Date
Fair Value
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
25.82
47.07
27.26
28.68
32.83
—
49.02
47.61
47.61
49.13
— $
372,783
(13,683)
(12,308)
346,792 $
RSAs
Year Ended December 31,
Year Ended December 31,
Additional Disclosures for equity-based plans
2018
2017
2016
2018
2017
2016
Total grant date fair value of shares granted (in
millions)
$
Total grant date fair value of shares vested (in millions) $
Shares withheld to settle payroll tax liabilities related to
vesting of shares held by employees
34 $
35 $
46 $
21 $
42
16
$
$
18 $
1 $
— $
— $
451,875
335,101
217,769
6,357
—
—
—
—
Employee Stock Purchase Plan
Our 2014 Employee Stock Purchase plan (ESPP) offers eligible employees an option to purchase shares of our common
stock through a payroll deduction. The purchase price is equal to the lesser of 85% of the fair market value of our
common stock on the offering date or 85% of the fair market value of our common stock on the applicable purchase
date. Offering periods are approximately six months in duration and will end on or about May 15 and November 15 of
each year. Employees may contribute a minimum of 1% and a maximum of 15% of their earnings. The plan is considered
to be a compensatory plan. We issued 175,966, 224,928, and 283,644 shares under the ESPP during 2018, 2017,
and 2016, respectively. As of December 31, 2018, approximately 3 million shares were reserved for future issuances
under the ESPP.
Equity-Based Compensation
Year Ended December 31,
2018
2017
2016
ESPP Assumptions
Expected
Term (in
Years)
Expected
Volatility
Risk-Free
Interest
Rate
Expected
Dividend
Yield
0.50
0.50
0.50
27-37% 1.42-2.5%
28-37% 0.62-1.42%
32-76% 0.33-0.62%
0%
0%
0%
78
FINANCIAL STATEMENTS
Stock-based compensation expense and other disclosures for stock-based awards made to our employees pursuant
to the equity plans was as follows:
(in millions)
Cost of providing services
Sales and marketing
General and administrative
Systems development and programming costs
Total stock-based compensation expense
Income tax benefit related to stock-based compensation expense
Tax benefit realized from stock options exercised and similar awards
Year Ended December 31,
2018
2017
2016
10 $
8 $
8
22
4
44 $
11 $
23 $
6
14
4
32 $
7 $
28 $
7
6
11
2
26
9
7
$
$
$
$
The table below summarizes unrecognized compensation expense for the year ended December 31, 2018 associated
with the following:
Nonvested stock options
Nonvested RSUs
Nonvested RSAs
Stock Repurchases
Amount
(in millions)
Weighted-Average
Period (in Years)
$
—
49
12
0.11
2.07
2.44
During 2018, the board of directors did not authorize additional repurchases. During 2017 and 2016, the board of
directors authorized $120 million and $100 million, respectively, of outstanding common stock to be repurchased with
no expiration from the date of authorization. As of December 31, 2018, approximately $75 million remained available
for repurchase pursuant to our stock repurchase program. During 2018, 2017, and 2016, we repurchased 1,190,995
shares, 1,549,434 shares and 3,414,675 shares, respectively.
On February 6, 2019, our board of directors authorized a $300 million incremental increase to our ongoing stock
repurchase program initiated in May 2014.
NOTE 10. INCOME TAXES
Provision for Income Taxes
The provision for income taxes consists of the following:
(in millions)
Current:
Federal
State
Total Current
Deferred:
Federal
State
Revaluation due to legislative changes
Total Deferred
Total
Year Ended December 31,
2018
2017
2016
$
41 $
7
48
(3)
4
—
1
$
49 $
46 $
1
47
12
3
(40)
(25)
22 $
1
—
1
38
5
(1)
42
43
79
FINANCIAL STATEMENTS
The U.S. federal statutory income tax rate reconciled to our effective tax rate is as follows:
Year Ended December 31,
2018
Tax
Expense/
(Benefit)
Percent
of Pre-
Tax
Income
(Loss)
Pre-Tax
Income
$
241
Pre-Tax
Income
$
200
2017
Tax
Expense
/(Benefit)
Percent
of Pre-
Tax
Income
(Loss)
Pre-Tax
Income
$
104
2016
Tax
Expense
/(Benefit)
Percent
of Pre-
Tax
Income
(Loss)
$
$
51
18
—
1
(9)
1
(4)
(7)
—
(2)
49
21%
$
8
—
1
(4)
—
(2)
(3)
—
(1)
$
70
10
(40)
1
(15)
4
(3)
(5)
(3)
3
35%
5
(20)
—
(7)
2
(1)
(3)
(1)
1
20%
$
22
11%
$
37
4
(1)
4
1
—
(1)
(1)
—
—
43
35%
4
(1)
4
1
—
(1)
(1)
—
—
41%
(in millions, except percent)
U.S. federal statutory tax rate
State income taxes, net of federal benefit
Tax rate change
Nondeductible meals, entertainment and
penalties
Stock-based compensation
Uncertain tax positions
Tax credits
State and tax return to provision
adjustment
Sec 199 benefits
Other
Total
Our effective income tax rate increased by 9% to 20% in 2018 from 11% in 2017. The increase was primarily attributable
to federal legislative changes enacted in the prior year resulting from non-recurring discrete tax benefits and
apportionment changes. The remaining increase consisted of a reduction from excess tax benefits related to stock-
based compensation and a one-time qualified production activities deduction for certain software offerings recorded
in the prior year. These increases were partially offset by decreases due to changes related to the ongoing litigation
and changes in uncertain tax positions.
The revaluation of deferred taxes resulted in a discrete tax benefit representing an immaterial amount in 2018, and
20% and 1% for the years ended December 31, 2017 and 2016, respectively.
80
FINANCIAL STATEMENTS
Deferred Income Taxes
Significant components of our deferred tax assets and liabilities are as follows:
(in millions)
Deferred tax assets:
Year Ended December 31,
2018
2017
Net operating losses (federal and state)
$
3 $
Accrued expenses
Accrued workers' compensation costs
Stock-based compensation
Tax benefits relating to uncertain positions
Tax credits (federal and state)
Total
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Deferred service revenues
Prepaid health plan expenses
Prepaid commission expenses
Total deferred tax liabilities
Net deferred tax liabilities
8
9
8
—
7
35
(7)
28
(24)
(62)
—
(9)
(95)
$
(67) $
4
6
8
8
1
9
36
(7)
29
(13)
(79)
(3)
—
(95)
(66)
We recorded an immaterial change to the valuation allowance in 2018, related to certain state net operating loss and
state tax credit carryforwards. We have $61 million in state net operating loss carryforwards as of December 31, 2018
and have utilized all of the federal net operating loss carryforwards. The state net operating loss carryforwards will
begin expiring in 2019.
Excess tax benefits or deficiencies from equity-based award activities are now reflected as a component of the provision
for income taxes instead of equity. The provision for income taxes for the year ended December 31, 2018 included
$10 million of excess tax benefits resulting from equity incentive plan activities.
We have $7 million state tax credit carryforwards (net of federal benefit) available that will begin expiring in 2021, which
are offset by a valuation allowance of $6 million as of December 31, 2018 and 2017, respectively.
We are subject to tax in U.S. federal and various state and local jurisdictions, as well as Canada. We are not subject
to any material income tax examinations in federal or state jurisdictions for tax years prior to January 1, 2012. We
previously paid Notices of Proposed Assessments disallowing employment tax credits totaling $11 million, plus interest
of $4 million in connection with the IRS examination of Gevity HR, Inc. and its subsidiaries, which was acquired by
TriNet in June 2009. TriNet filed suit in June 2016 to recover the disallowed credits, and the issue is being resolved
through the litigation process. TriNet and the IRS filed cross motions for summary judgment in this matter in federal
district court on February 27, 2018. On September 17, 2018, the district court granted our motion for summary judgment
and denied the IRS' motion. On January 18, 2019, the district court entered judgment in favor of TriNet in the amount
of $15 million, plus interest. The IRS has 60 days to appeal the district court’s decision. We will continue to vigorously
defend our position through the litigation process, including the appeal, if necessary. Given the uncertainty of the
outcome of any appeal, it remains possible that our recovery of the refund will be less than the total amount in dispute.
81
FINANCIAL STATEMENTS
Uncertain Tax Positions
As of December 31, 2018 and 2017, the total unrecognized tax benefits related to uncertain income tax positions,
which would affect the effective tax rate if recognized, were $6 million.
A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) is
presented in the table below:
(in millions)
Unrecognized tax benefits at January 1
Additions for tax positions of prior periods
Additions for tax positions of current period
Reductions for tax positions of prior period:
Settlements with taxing authorities
Lapse of applicable statute of limitations
Unrecognized tax benefits at December 31
Year Ended December 31,
2018
2017
2016
6 $
1 $
1
—
—
(1)
4
1
—
—
6 $
6 $
3
—
—
(2)
—
1
$
$
As of December 31, 2018 and 2017, the total amount of gross interest and penalties accrued were immaterial. The
unrecognized tax benefit, including accrued interest and penalties are included in other liabilities on the consolidated
balance sheet.
It is reasonably possible the amount of the unrecognized benefit could increase or decrease within the next twelve
months, which would have an impact on net income.
NOTE 11. EARNINGS PER SHARE
Basic EPS is computed based on the weighted average shares of common stock outstanding during the period. Diluted
EPS is computed based on those shares used in the basic EPS computation, plus potentially dilutive shares issuable
under our equity-based compensation plans using the treasury stock method. Shares that are potentially anti-dilutive
are excluded.
The following table presents the computation of our basic and diluted EPS attributable to our common stock:
(in millions, except per share data)
Net income
Weighted average shares of common stock outstanding
Basic EPS
Net income
Weighted average shares of common stock outstanding
Dilutive effect of stock options and restricted stock units
Weighted average shares of common stock outstanding
Diluted EPS
Year Ended December 31,
2018
2017
2016
192 $
70
2.72 $
178 $
69
2.57 $
192 $
178 $
70
2
72
69
2
71
61
70
0.88
61
70
2
72
2.65 $
2.49 $
0.85
$
$
$
$
Common stock equivalents excluded from income per
diluted share because of their anti-dilutive effect
1
2
1
82
FINANCIAL STATEMENTS
NOTE 12. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Fair Value of Financial Instruments
We use an independent pricing source to determine the fair value of our available-for-sale securities included as Level
1 and Level 2. For purposes of valuing our securities, the independent pricing source utilizes the following market
approach by investment class:
• Money market mutual funds are valued on a spread or discount rate basis,
•
Asset-backed securities are valued using historical and projected prepayments speed and loss scenarios and
spreads obtained from the new issue market, dealer quotes and trade prices,
• U.S. treasuries, corporate bonds, and other debt securities are priced based on dealer quotes from multiple sources,
and
• US government agencies and government sponsored agencies are priced using LIBOR/swap curves, credit spreads
and interest rate volatilities.
We have not adjusted the prices obtained from the independent pricing service and we believe the prices received
from the independent pricing service are representative of the prices that would be received to sell the assets at the
measurement date (exit price).
On a recurring basis, we did not have any Level 3 financial instruments as of December 31, 2018 and December 31,
2017. There were transfers between levels as of December 31, 2018 and December 31, 2017.
Fair Value Measurements on a Recurring Basis
The following tables summarize our financial instruments by significant categories and fair value measurement on a
recurring basis as of December 31, 2018 and 2017:
(in millions)
December 31, 2018
Cash equivalents:
Level 1
Level 2
Total
Money market mutual funds
$
4 $
— $
U.S. treasuries
Total cash equivalents
Investments:
Asset-backed securities
Corporate bonds
U.S. government agencies and government-sponsored
agencies
U.S. treasuries
Other debt securities
Total investments
Restricted cash equivalents:
Money market mutual funds
Commercial paper
Total restricted cash equivalents
Restricted investments:
U.S. treasuries
Exchange traded fund
Certificate of deposit
Total restricted investments
—
4
—
—
—
—
—
—
48
20
68
—
1
—
1
1
1
33
99
7
41
9
4
1
5
33
99
7
41
9
189
189
—
—
—
5
—
2
7
48
20
68
5
1
2
8
Total investments and restricted cash equivalents and
investments
$
73 $
197 $
270
83
FINANCIAL STATEMENTS
(in millions)
December 31, 2017
Restricted cash equivalents:
Money market mutual funds
Commercial paper
Total restricted cash equivalents
Restricted investments:
U.S. treasuries
Exchange traded fund
Certificate of deposit
Total restricted investments
Level 1
Level 2
Total
$
199 $
21
220
37
1
—
38
— $
—
—
—
—
2
2
Total restricted cash equivalents and investments
$
258 $
2 $
Restricted Cash Equivalents
199
21
220
37
1
2
40
260
The Company's restricted cash equivalents include money market mutual funds and commercial paper. The carrying
value of cash equivalents approximate their fair values due to the short-term maturities and are classified as Level 1
in the fair value hierarchy because we use quoted market prices that are readily available in an active market to
determine the fair value.
Restricted Investments
The Company's restricted investments include U.S. treasuries, an exchange traded fund and a certificate of deposit.
The exchange traded fund is classified as Level 1 in the fair value hierarchy as we use active quoted market prices
that are readily available in an active market to determine fair value. The U.S. treasuries are classified as Level 2 in
the fair value hierarchy as their prices are based on dealer quotes from multiple sources. The certificate of deposit is
classified as Level 2 in the fair value hierarchy as we use a market approach that compares the fair values on certificates
with similar maturities.
Fair Value of Financial Instruments Disclosure
Long-Term Debt
The carrying value of our long-term debt at December 31, 2018 and 2017 was $414 million and $425 million, respectively.
The estimated fair values of our debt payable at December 31, 2018 and 2017 were $414 million and $428 million,
respectively. On September 30, 2018 we changed our methodology of estimating the fair values of our debt payable
to a discounted cash flow, which incorporates credit spreads and market interest rates to estimate the fair value and
is considered Level 3 in the hierarchy for fair value measurement. The valuation at December 31, 2017 is considered
Level 2 in the hierarchy for fair value measurement.
NOTE 13. 401(k) PLAN
Under our 401(k) plan, participants may direct the investment of contributions to their accounts among certain
investments. Effective July 1, 2018, we matched 100% of individual employee 401(k) plan contributions, up to 4% of
cash compensation per the calendar year, and made a one-time contribution to certain employees. Prior to July 1,
2018 and in the years ended December 31, 2017 and 2016, we matched individual employee 401(k) plan contributions
at the rate of $0.50 for every dollar contributed by employees subject to a cap. We recorded matching contributions
to the 401(k) plan of $11 million, $6 million, and $5 million during the years ended December 31, 2018, 2017, and
2016, respectively, which are reflected in various operating expense lines within the accompanying consolidated
statements of income and comprehensive income.
We also maintain multiple employer defined contribution plans, which cover WSEs for client companies electing to
participate in the plan and for their internal staff employees. We contribute, on behalf of each participating client, varying
amounts based on the clients’ policies and serviced employee elections.
84
FINANCIAL STATEMENTS
NOTE 14. RELATED PARTY TRANSACTIONS
We have service agreements with certain stockholders that we process their employees' payrolls and payroll taxes.
From time to time, we also enter into sales and purchases agreements with various companies that have a relationship
with our executive officers or members of our board of directors. The relationships are typically an equity investment
by the executive officer or board member in the customer / vendor company or our executive officer or board member
is a member of the customer / vendor company's board of directors. We have received $20 million, $22 million, and
$10 million in total revenues from such related parties during the years ended December 31, 2018, 2017 and 2016,
respectively.
We have also entered into various software license agreements with software service providers who have board
members in common with us. We paid the software service providers $5 million, $6 million, and $7 million during the
years ended December 31, 2018, 2017 and 2016, for services we received, respectively.
NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
(in millions, except per share data)
March 31
June 30
September 30
December 31
Quarter ended
2018
Total revenues
Insurance costs
Operating income
Net income
Basic net income per share
Diluted net income per share
2017
Total revenues
Insurance costs
Operating income
Net income (1)
Basic net income per share (1)
Diluted net income per share (1)
$
$
$
$
$
$
861 $
850 $
875 $
641
71
54
0.77 $
0.75 $
630
76
58
0.82 $
0.80 $
647
62
51
0.73 $
0.71 $
808 $
801 $
818 $
609
49
29
0.42 $
0.41 $
600
57
40
0.58 $
0.56 $
613
63
43
0.62 $
0.60 $
917
692
42
29
0.41
0.40
848
644
48
66
0.95
0.92
(1) Results of the quarter ended December 31, 2017 included a $40 million benefit due to tax rate change as a result of the TCJA enactment on
December 22, 2017.
85
DISCLOSURE CONTROLS AND PROCEDURES
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
We have, with the participation of our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), evaluated
the effectiveness of our disclosure controls and procedures as of December 31, 2018, as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Based on the evaluation of our disclosure controls and procedures as of December 31, 2018, our Chief Executive
Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective
as of December 31, 2018 in ensuring that (i) information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including
the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and (ii)
such information is recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms.
Management’s Report on Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with
GAAP.
Due to inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that
a misstatement of our financial statements would be prevented or detected. 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 policies or procedures may deteriorate.
We have performed an assessment of the effectiveness of our internal control over financial reporting as of December
31, 2018 based upon criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Based on this assessment, we determined that our internal control over financial reporting was effective as of December
31, 2018.
Deloitte & Touche LLP, our independent registered public accounting firm, has issued an audit report on the effectiveness
of our internal control over financial reporting as of December 31, 2018. This audit report appears in Part II, Item 8.
Financial Statements and Supplementary Data, of this Form 10-K.
Changes in Internal Control over Financial Reporting
Throughout 2018, we implemented enhanced review procedures and documentation standards to remediate the control
deficiencies aggregating to a material weakness related to the operating effectiveness of controls over professional
service and workers' compensation insurance services revenues as of December 31, 2017. As of December 31, 2018,
our testing of both the design and operating effectiveness of these controls was completed, and we have concluded
that the material weakness existing at December 31, 2017 has been remediated.
Item 9B. Other Information.
Not applicable.
86
MANAGEMENT AND CERTAIN SECURITY HOLDERS
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information required by this item is incorporated by reference to TriNet Group Inc.’s Proxy Statement for its 2019 Annual
Meeting of Shareholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2018.
Item 11. Executive Compensation.
Information required by this item is incorporated by reference to TriNet Group Inc.’s Proxy Statement for its 2019 Annual
Meeting of Shareholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2018.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Information required by this item is incorporated by reference to TriNet Group Inc.’s Proxy Statement for its 2019 Annual
Meeting of Shareholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2018.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information required by this item is incorporated by reference to TriNet Group Inc.’s Proxy Statement for its 2019 Annual
Meeting of Shareholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2018.
Item 14. Principal Accounting Fees and Services.
Information required by this item is incorporated by reference to TriNet Group Inc.’s Proxy Statement for its 2019 Annual
Meeting of Shareholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2018.
87
FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as a part of the report:
PART IV
(1) The financial statements filed as part of this report are listed in the “Index to Financial Statements” under Part II,
Item 8. Financial Statements and Supplementary Data.
(2) Financial statement schedules.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(in millions)
Allowances for Doubtful Accounts and Authorized
Credits
Year ended December 31, 2018
Year ended December 31, 2017
Year ended December 31, 2016
Tax Valuation Allowance
Year ended December 31, 2018
Year ended December 31, 2017
Year ended December 31, 2016
Item 16. Form 10-K Summary.
None.
Balance at
Beginning of
Period
Credited/
Charged to
Net Income
Charges
Utilized/
Write-Offs
Balance at
End of
Period
$
$
$
$
$
$
—
—
1
7
6
5
2
1
1
—
1
1
(1) $
(1) $
(2) $
— $
— $
— $
1
—
—
7
7
6
88
EXHIBITS
Exhibit
No.
3.1
3.2
3.3
4.1
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
EXHIBIT INDEX
Description of Exhibit
Form
File No.
Exhibit
Filing
Filed
Herewith
Incorporated by Reference
Amended and Restated Certificate of
Incorporation of TriNet Group, Inc.
Certificate of Correction of Amended and
Restated Certificate of Incorporation of TriNet
Group, Inc.
8-K
001-36373
3.1
4/1/2014
10-Q
001-36373
3.1
11/2/2017
Amended and Restated Bylaws of TriNet
Group, Inc.
S-1/A 333-192465
8-K
001-36373
3.4
4.1
3/4/2014
2/2/2017
Registration Rights Agreement, by and
between TriNet Group, Inc. and AGI-T, L.P.,
dated as of February 1, 2017.
Amended and Restated 2009 Equity Incentive
Plan.
Form of Performance-Based Restricted Stock
Unit Award Agreement and Performance-
Based Restricted Stock Unit Grant Notice
under the Amended and Restated 2009 Equity
Incentive Plan.
Form of Option Agreement and Option Grant
Notice under the Amended and Restated 2009
Equity Incentive Plan.
Form of Restricted Stock Unit Agreement and
Restricted Stock Unit Award Notice under the
Amended and Restated 2009 Equity Incentive
Plan.
Form of Restricted Stock Unit Award
Agreement and Restricted Stock Unit Grant
Notice under 2009 Equity Incentive Plan. as
amended through February 20, 2014.
Form of Performance-Based Restricted
Stock Unit Award Agreement and
Performance-Based Restricted Stock Unit
Grant Notice under the 2009 Equity Incentive
Plan, as amended through February 20,
2014.
Form of Restricted Stock Award Agreement
and Restricted Stock Grant Notice under the
2009 Equity Incentive Plan, as amended
through February 20, 2014.
Form of Performance-Based Restricted
Stock Award Agreement and Performance-
Based Restricted Stock Grant Notice under
the 2009 Equity Incentive Plan, as amended
through February 20, 2014.
S-1/A 333-192465
10.3
3/14/2014
10-Q
001-36373
10.1
5/8/2015
S-1/A 333-192465
10.4
3/4/2014
S-1/A 333-192465
10.6
3/4/2014
10-Q
001-36373
10.1
4/30/2018
10-Q
001-36373
10.2
4/30/2018
10-Q
001-36373
10.3
4/30/2018
10-Q
001-36373
10.4
4/30/2018
10.9*
2014 Employee Stock Purchase Plan.
S-1/A 333-192465
10.7
3/14/2014
10.10*
2015 Executive Bonus Plan.
8-K
001-36373
N/A
3/11/2015
10.11*
Amended and Restated Non-Employee
Director Compensation Policy.
10-K
001-36373
10.7
2/27/2018
10.12*
TriNet Group, Inc. Severance Benefit Plan.
10-K
001-36373
10.10
4/1/2016
89
EXHIBITS
Exhibit
No.
10.13*
Description of Exhibit
TriNet Group, Inc. Amended and Restated
Executive Severance Benefit Plan
Form
8-K
File No.
001-36373
Exhibit
10.1
Filing
5/23/2017
Filed
Herewith
Incorporated by Reference
10.14*
TriNet Group Inc. Amended and Restated
Executive Severance Benefit Plan
10-Q
001-36373
10.5
4/30/2018
10.15
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
Form of Indemnification Agreement made by
and between TriNet Group, Inc. and each of its
directors and executive officers.
Employment Agreement, dated November 9,
2009, between Burton M. Goldfield and TriNet
Group, Inc.
Employment Agreement, dated March 31,
2017, between Richard Beckert and TriNet
Group, Inc.
Employment Agreement, dated May 8, 2015,
between Brady Mickelsen and TriNet Group,
Inc.
Second Amended and Restated Employment
Agreement, dated December 31, 2016
between Edward Griese and TriNet Group,
Inc.
Employment Agreement, dated October 16,
2017, between Barrett Boston and TriNet
Group, Inc., as amended on February 26,
2018.
Employment Agreement, dated August 23,
2010, between William Porter and TriNet
Group, Inc.
Employment Agreement dated November 19,
2018 between Samantha Wellington and
TriNet Group, Inc.
Transition Agreement by and among TriNet
Group, Inc. and William Porter, dated as of
September 30, 2016
Amendment to Transition Agreement by and
among TriNet Group, Inc. and William Porter,
dated as of January 1, 2018
Transition Agreement by and among TriNet
Group, Inc. and Brady Mickelsen, dated as of
August 16, 2018
Stockholder Agreement, by and between
TriNet Group, Inc. and AGI-T, L.P., dated as of
December 21, 2016
Credit Agreement, dated as of June 22,
2018, among TriNet Group, Inc., TriNet USA,
Inc., as borrower, the lenders party thereto,
and Bank of America, N.A., as administrative
agent.
S-1/A 333-192465
10.8
3/4/2014
S-1/A 333-192465
10.9
2/13/2014
10-Q
001-36373
10.1
8/1/2017
10-Q
001-36373
10.2
8/6/2015
10-Q
001-36373
10.2
8/1/2017
10-K
001-36373
10.15
2/27/2018
S-1/A 333-192465
10.11
2/13/2014
X
8-K
001-36373
10.1
10/3/2016
10-K
001-36373
10.19
2/27/2018
10-Q
001-36373
10.1
10/29/2018
8-K
001-36373
10.1
12/22/2016
8-K
001-36373
10.1
6/22/2018
90
Description of Exhibit
Form
File No.
Exhibit
Filing
Filed
Herewith
Incorporated by Reference
EXHIBITS
Exhibit
No.
21.1
23.1
24.1
31.1
31.2
List of Subsidiaries.
Consent of Deloitte & Touche LLP, independent
registered public accounting firm.
Power of Attorney (included on the signature
page of this report).
Certification of Principal Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1**
Certification of Principal Executive Officer and
Principal Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema
Document.
101.CAL XBRL Taxonomy Extension Calculation
Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition
Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase
Document.
101.PRE XBRL Taxonomy Extension Presentation
Linkbase Document.
X
X
X
X
X
X
X
X
X
X
X
*
**
Constitutes a management contract or compensatory plan or arrangement.
Document has been furnished, is deemed not filed and is not to be incorporated by reference into any of the Company’s filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general
incorporation language contained in any such filing.
91
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dublin, State
of California, on the day of 14th February, 2019.
Date: February 14, 2019
Date: February 14, 2019
TRINET GROUP, INC.
By:
/s/ Burton M. Goldfield
Burton M. Goldfield
Chief Executive Officer
By:
/s/ Richard Beckert
Richard Beckert
Chief Financial Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Burton M. Goldfield, Richard Beckert and Samantha Wellington, and each of them, as his or her true and
lawful attorneys-in-fact and agents, each with the full power of substitution, for him or her and in his or her name, place
or stead, in any and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that any of said attorneys-in-fact and agents, or their or his or her substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
92
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Burton M. Goldfield
Burton M. Goldfield
/s/ Richard Beckert
Richard Beckert
/s/ Michael P. Murphy
Michael P. Murphy
/s/ Michael J. Angelakis
Michael J. Angelakis
/s/ Katherine August-deWilde
Katherine August-deWilde
/s/ Martin Babinec
Martin Babinec
/s/ H. Raymond Bingham
H. Raymond Bingham
/s/ Paul Chamberlain
Paul Chamberlain
/s/ Kenneth Goldman
Kenneth Goldman
/s/ David C. Hodgson
David C. Hodgson
/s/ Wayne B. Lowell
Wayne B. Lowell
Chief Executive Officer (principal
executive officer)
February 14, 2019
Chief Financial Officer (principal financial
officer)
February 14, 2019
Chief Accounting Officer (principal
accounting officer)
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
Director
Director
Director
Director
Director
Director
Director
Director
93
BOARD OF DIRECTORS
BOARD OF DIRECTORS
EXECUTIVE TEAM
EXECUTIVE TEAM
Burton M. Goldfield
Burton M. Goldfield
President and Chief Executive Officer
President and Chief Executive Officer
Richard Beckert
Richard Beckert
Senior Vice President and
Senior Vice President and
Chief Financial Officer
Chief Financial Officer
Barrett Boston
Barrett Boston
Senior Vice President and
Senior Vice President and
Chief Revenue Officer
Chief Revenue Officer
James “Jimmy” Franzone
James “Jimmy” Franzone
Senior Vice President, Strategy
Senior Vice President, Strategy
Edward Griese
Edward Griese
Senior Vice President, Insurance Services
Senior Vice President, Insurance Services
Olivier Kohler
Olivier Kohler
Senior Vice President and
Senior Vice President and
Chief Operating Officer
Chief Operating Officer
Michael Mendenhall
Michael Mendenhall
Senior Vice President, Chief Marketing
Senior Vice President, Chief Marketing
Officer and Chief Communications Officer
Officer and Chief Communications Officer
Dilshad Simons
Dilshad Simons
Senior Vice President, Products
Senior Vice President, Products
Samantha Wellington
Samantha Wellington
Senior Vice President, Chief Legal Officer
Senior Vice President, Chief Legal Officer
and Secretary
and Secretary
Catherine Wragg
Catherine Wragg
Senior Vice President, Human Resources
Senior Vice President, Human Resources
Stock Exchange
New York Stock Exchange
NYSE Trading Symbol: TNET
David C. Hodgson
David C. Hodgson
Chair of the Board of Directors and
Chair of the Board of Directors and
Nominating and Corporate Governance
Nominating and Corporate Governance
Committee Member
Committee Member
Michael J. Angelakis
Michael J. Angelakis
Compensation Committee Member and
Compensation Committee Member and
Nominating and Corporate Governance
Nominating and Corporate Governance
Committee Member
Committee Member
Katherine August-deWilde
Katherine August-deWilde
Compensation Committee Chair
Compensation Committee Chair
Martin Babinec
Martin Babinec
H. Raymond Bingham
H. Raymond Bingham
Nominating and Corporate Governance
Nominating and Corporate Governance
Committee Chair and Compensation
Committee Chair and Compensation
Committee Member
Committee Member
Paul Chamberlain
Paul Chamberlain
Audit Committee Member
Audit Committee Member
Burton M. Goldfield
Burton M. Goldfield
President and Chief Executive Officer
President and Chief Executive Officer
Kenneth Goldman
Kenneth Goldman
Audit Committee Member
Audit Committee Member
Wayne Lowell
Wayne Lowell
Audit Committee Chair
Audit Committee Chair
CORPORATE INFORMATION
Corporate Headquarters
One Park Place, Suite 600
Dublin, CA 94568
T: 510.352.5000
F: 510.352.6480
TriNet.com
Investor Relations
investorrelations@trinet.com
510.875.7201
Transfer Agent
Computershare
P.O. Box 505000
Louisville, KY 40233
800.736.3001 (US, Canada, Puerto Rico)
781.575.3100 (non-US)
computershare.com/investor
2018-TriNet_Annual-Report-BACKPAGE.pdf 3 3/28/2019 7:53:10 AM
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