What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-08-04 compared with 2020-05-05 · 156 added, 93 removed, 290 unchanged (46% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

March 31, 2020

December 31, 2019

(in thousands) June 30, 2020 December 31, 2019

Cash and cash equivalents $ 459,399 $ 367,342

13 unchanged sentences

Deferred income taxes, net — 3,956

Liabilities and stockholders’ equity (deficit)

Other assets 6,151 5,975

Total assets $ 1,517,733 $ 1,394,996

Liabilities and stockholders' equity

Accounts payable $ 2,885 $ 4,565

11 unchanged sentences

Deferred income taxes, net 712 —

Other accrued liabilities, net of current 4,104 —

Total noncurrent liabilities 632,532 521,872

Commitments and contingencies — —

Common stock 555 555

Additional paid-in capital 54,783 48,141

1 unchanged sentence

Retained earnings 581,613 499,485

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

Total stockholders’ equity 44,638 4,079

Total liabilities and stockholders’ equity $ 1,517,733 $ 1,394,996

See accompanying notes.

Insperity | 2020 First Quarter Form 10-Q

Insperity | 2020 Second Quarter Form 10-Q 4

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Three Months Ended June 30, Six Months Ended June 30,

(in thousands, except per share amounts) 2020 2019 2020 2019

$ 993,366 $ 1,043,316 $ 2,222,849 $ 2,196,326

Payroll taxes, benefits and workers’ compensation costs

773,117 869,581 1,768,578 1,795,874

Gross profit 220,249 173,735 454,271 400,452

Salaries, wages and payroll taxes 90,710 74,696 177,211 158,076

Stock-based compensation 10,694 8,256 17,246 14,296

Commissions 7,475 7,741 15,935 14,693

Advertising 5,720 7,548 10,553 12,579

General and administrative expenses 24,755 29,866 59,608 63,028

7 unchanged sentences

Income tax expense 19,286 11,327 41,932 22,063

Net income $ 51,851 $ 28,556 $ 113,943 $ 104,845

Less distributed and undistributed earnings allocated to participating securities

( 276 ) ( 309 ) ( 724 ) ( 1,183 )

Net income allocated to common shares $ 51,575 $ 28,247 $ 113,219 $ 103,662

Net income per share of common stock

Basic $ 1.34 $ 0.69 $ 2.93 $ 2.55

Diluted $ 1.33 $ 0.69 $ 2.91 $ 2.54

____________________________________

(1) Revenues are comprised of gross billings less worksite employee (“WSEE”) payroll costs as follows:

Three Months Ended

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2020 2019 2020 2019

1 unchanged sentence

WSEE payroll cost 5,362,317 5,333,698 11,569,588 11,052,358

Revenues $ 993,366 $ 1,043,316 $ 2,222,849 $ 2,196,326

See accompanying notes.

Insperity | 2020 First Quarter Form 10-Q

Insperity | 2020 Second Quarter Form 10-Q 5

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2020 2019

Cash flows from operating activities

Net income $ 113,943 $ 104,845

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

18 unchanged sentences

Marketable securities:

Purchases ( 25,438 ) ( 60,609 )

Proceeds from dispositions 484 5,499

1 unchanged sentence

Property and equipment:

Net cash provided by (used in) investing activities

Purchases ( 39,466 ) ( 17,207 )

Net cash used in investing activities ( 36,795 ) ( 17,207 )

Cash flows from financing activities

2 unchanged sentences

Borrowings under revolving line of credit 100,000 25,000

Other 4,247 3,763

Net cash provided by (used in) financing activities 11,943 ( 34,773 )

2 unchanged sentences

Cash, cash equivalents and restricted cash end of period $ 682,559 $ 555,922

Insperity | 2020 First Quarter Form 10-Q

Insperity | 2020 Second Quarter Form 10-Q 6

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2020 2019

11 unchanged sentences

See accompanying notes.

Insperity | 2020 First Quarter Form 10-Q

Insperity | 2020 Second Quarter Form 10-Q 7

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

For the Three Months Ended March 31, 2020 and 2019

Common Stock Issued

Additional Paid-In Capital

Treasury Stock

Retained Earnings and AOCI

(in thousands)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Six Months Ended June 30, 2020 and 2019

Common Stock Issued Additional Paid-In Capital Treasury Stock Retained Earnings and AOCI Total

(in thousands) Shares Amount

Balance at December 31, 2019 55,489 $ 555 $ 48,141 $ ( 544,102 ) $ 499,485 $ 4,079

1 unchanged sentence

Issuance of long-term incentive awards and dividend equivalents

— — ( 7,088 ) 7,898 ( 810 ) —

Stock-based compensation expense — — 13,341 3,905 — 17,246

Other — — 389 1,216 — 1,605

Dividends paid — — — — ( 31,074 ) ( 31,074 )

Unrealized gain on marketable securities, net of tax

Balance at March 31, 2020

— — — — 69 69

Net income — — — — 113,943 113,943

Balance at June 30, 2020 55,489 $ 555 $ 54,783 $ ( 592,313 ) $ 581,613 $ 44,638

Balance at December 31, 2018 55,489 $ 555 $ 36,752 $ ( 357,569 ) $ 397,938 $ 77,676

1 unchanged sentence

Issuance of long-term incentive awards and dividend equivalents

— — ( 7,695 ) 8,646 ( 951 ) —

Stock-based compensation expense — — 10,776 3,520 — 14,296

Other — — 1,176 369 — 1,545

Dividends paid — — — — ( 24,740 ) ( 24,740 )

Unrealized gain on marketable securities, net of tax

— — — — 63 63

Net income — — — — 104,845 104,845

Balance at June 30, 2019 55,489 $ 555 $ 41,009 $ ( 383,830 ) $ 477,155 $ 134,889

Insperity | 2020 Second Quarter Form 10-Q 8

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

For the Three Months Ended June 30, 2020 and 2019

Common Stock Issued Additional Paid-In Capital Treasury Stock Retained Earnings and AOCI Total

(in thousands) Shares Amount

Balance at March 31, 2020 55,489 $ 555 $ 46,327 $ ( 595,487 ) $ 545,295 $ ( 3,310 )

Insperity | 2020 First Quarter Form 10-Q

Purchase of treasury stock, at cost — — — ( 27 ) — ( 27 )

Stock-based compensation expense — — 8,448 2,246 — 10,694

Other — — 8 955 — 963

Dividends paid — — — — ( 15,517 ) ( 15,517 )

Unrealized loss on marketable securities, net of tax

— — — — ( 16 ) ( 16 )

Net income — — — — 51,851 51,851

Balance at June 30, 2020 55,489 $ 555 $ 54,783 $ ( 592,313 ) $ 581,613 $ 44,638

Balance at March 31, 2019 55,489 $ 555 $ 33,833 $ ( 376,097 ) $ 460,903 $ 119,194

Purchase of treasury stock, at cost — — — ( 9,759 ) — ( 9,759 )

Stock-based compensation expense — — 6,436 1,820 — 8,256

Other — — 740 206 — 946

Dividends paid — — — — ( 12,354 ) ( 12,354 )

Unrealized gain on marketable securities, net of tax

— — — — 50 50

Net income — — — — 28,556 28,556

Balance at June 30, 2019 55,489 $ 555 $ 41,009 $ ( 383,830 ) $ 477,155 $ 134,889

See accompanying notes.

Insperity | 2020 Second Quarter Form 10-Q 9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12 unchanged sentences

Our Condensed Consolidated Balance Sheet at December 31, 2019 has been derived from the audited financial statements at that date, but does not include all of the information or footnotes required by GAAP for complete financial statements.

Our Condensed Consolidated Balance Sheet at March 31, 2020 and our Consolidated Statements of Operations for the three month periods ended March 31, 2020 and 2019 , our Consolidated Statements of Cash Flows for the three month periods ended March 31, 2020 and 2019 and our Consolidated Statements of Stockholders’ Equity for the three month periods ended March 31, 2020 and 2019 , have been prepared by us without audit.

Our Condensed Consolidated Balance Sheet at June 30, 2020 and our Consolidated Statements of Operations for the three and six month periods ended June 30, 2020 and 2019, our Consolidated Statements of Cash Flows for the six month periods ended June 30, 2020 and 2019 and our Consolidated Statements of Stockholders’ Equity for the six month periods ended June 30, 2020 and 2019, have been prepared by us without audit.

In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows, have been made.

5 unchanged sentences

While the policy with United is a fully-insured plan, as a result of certain contractual terms, we have accounted for this plan since its inception using a partially self-funded insurance accounting model.

Effective January 1, 2020, under the amended agreement with United, we no longer have financial responsibilities for a participant’s annual claim costs that exceeds $1 million.

Effective January 1, 2020, under the amended agreement with United, we no longer have financial responsibilities for a participant’s annual claim costs that exceed $1 million.

Accordingly, we record the costs of the United plan, including an estimate of the incurred claims, taxes and administrative fees (collectively the “Plan Costs”) as benefits expense, which is a component of direct costs, in our Consolidated Statements of Operations.

3 unchanged sentences

and (3) the number of participants in the plan, including both active and COBRA enrollees.

Each reporting

Insperity | 2020 First Quarter Form 10-Q

Each reporting period, changes in the estimated ultimate costs resulting from claim trends, plan design and migration, participant

Insperity | 2020 Second Quarter Form 10-Q 10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

period, changes in the estimated ultimate costs resulting from claim trends, plan design and migration, participant demographics and other factors are incorporated into the benefits costs, which requires a significant level of judgment.

demographics and other factors are incorporated into the benefits costs, which requires a significant level of judgment.

Additionally, since the plan’s inception, under the terms of the contract, United establishes cash funding rates 90 days in advance of the beginning of a reporting quarter.

2 unchanged sentences

The terms of the arrangement require us to maintain an accumulated cash surplus in the plan of $ 9.0 million, which is reported as long-term prepaid insurance.

In addition, United requires a deposit equal to approximately one day of claims funding activity, which was $ 6.5 million at March 31, 2020 , and is included in deposits - health insurance as a long-term asset on our Condensed Consolidated Balance Sheets.

As of March 31, 2020 , Plan Costs were less than the net premiums paid and owed to United by $ 36.8 million .

In addition, United requires a deposit equal to approximately one day of claims funding activity, which was $ 6.5 million at June 30, 2020, and is included in deposits - health insurance as a long-term asset on our Condensed Consolidated Balance Sheets.

As of June 30, 2020, Plan Costs were less than the net premiums paid and owed to United by $ 19.5 million.

As this amount is in excess of the agreed-upon $ 9.0 million surplus maintenance level, the $ 10.5 million difference is included in prepaid insurance, a current asset, in our Condensed Consolidated Balance Sheets.

The premiums, including the additional quarterly premiums, owed to United at March 31, 2020 were $ 40.7 million , which is included in accrued health insurance costs, a current liability in our Condensed Consolidated Balance Sheets.

Our benefits costs incurred in the first three months of 2020 included a reduction of $ 1.5 million for changes in estimated run-off related to prior periods.

Our benefits costs incurred in the first three months of 2019 included a reduction of $ 0.3 million for changes in estimated run-off related to prior periods.

The premiums, including the additional quarterly premiums, owed to United at June 30, 2020 were $ 23.4 million, which is included in accrued health insurance costs, a current liability in our Condensed Consolidated Balance Sheets.

Our benefits costs incurred in the first six months of 2020 included a reduction of $ 3.0 million for changes in estimated run-off related to prior periods.

Our benefits costs incurred in the first six months of 2019 included a charge of $ 3.5 million for changes in estimated run-off related to prior periods.

Workers’ Compensation Costs

9 unchanged sentences

Each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers’ compensation claims cost estimates.

During the three months ended March 31, 2020 and 2019 , we reduced accrued workers’ compensation costs by $ 10.1 million and $ 7.8 million , respectively, for changes in estimated losses related to prior reporting periods.

During the six months ended June 30, 2020 and 2019, we reduced accrued workers’ compensation costs by $ 22.2 million and $ 19.0 million, respectively, for changes in estimated losses related to prior reporting periods.

Workers’ compensation cost estimates are discounted to present value at a rate based upon the U.S.

Treasury rates that correspond with the weighted average estimated claim payout period (the average discount rate utilized in the 2020 period was 0.8 % and in the 2019 period was 2.3 %) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Operations.

Insperity | 2020 First Quarter Form 10-Q

Insperity | 2020 Second Quarter Form 10-Q 11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides the activity and balances related to incurred but not paid workers’ compensation claims:

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2020 2019

1 unchanged sentence

Accrued claims 21,888 27,299

Present value discount

Present value discount, net of accretion 223 ( 2,703 )

Paid claims ( 22,298 ) ( 22,727 )

Ending balance $ 242,717 $ 231,508

2 unchanged sentences

Total accrued claims $ 242,717 $ 231,508

The current portion of accrued workers’ compensation costs on our Condensed Consolidated Balance Sheets at March 31, 2020 includes $ 4.0 million of workers’ compensation administrative fees.

As of March 31, 2020 and 2019 , the undiscounted accrued workers’ compensation costs were $ 265.6 million and $ 250.2 million , respectively.

The current portion of accrued workers’ compensation costs on our Condensed Consolidated Balance Sheets at June 30, 2020 includes $ 3.4 million of workers’ compensation administrative fees.

As of June 30, 2020 and 2019, the undiscounted accrued workers’ compensation costs were $ 261.4 million and $ 250.9 million, respectively.

At the beginning of each policy period, the workers’ compensation insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim funds”).

1 unchanged sentence

Monies funded into the program for incurred claims expected to be paid within one year are recorded as restricted cash, a short-term asset, while the remainder of claim funds are included in deposits – workers’ compensation, a long-term asset in our Condensed Consolidated Balance Sheets.

At March 31, 2020 , we had restricted cash of $ 48.3 million and deposits – workers’ compensation of $ 188.5 million .

During the first six months of 2020, we received $ 24.8 million for the return of excess claim funds related to the workers’ compensation program, which resulted in a net decrease to deposits – workers’ compensation.

During the first six months of 2019, we funded a collateral deposit of $6.4 million for policy years prior to 2017, which increased deposits – workers’ compensation.

At June 30, 2020, we had restricted cash of $ 45.2 million and deposits – workers’ compensation of $ 177.9 million.

Our estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while our estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on our Condensed Consolidated Balance Sheets.

8 unchanged sentences

Customers are invoiced concurrently with each periodic payroll of its WSEEs.

Revenues that have been recognized but unbilled of $ 509.3 million and $ 448.1 million at March 31, 2020 and December 31, 2019 , respectively, are included in accounts receivable, net on our Condensed Consolidated Balance Sheets.

Revenues that have been recognized but unbilled of $ 463.1 million and $ 448.1 million at June 30, 2020 and December 31, 2019, respectively, are included in accounts receivable, net on our Condensed Consolidated Balance Sheets.

Pursuant to the “practical expedients” provided under Accounting Standards Update (“ASU”) No 2014-09, we expense sales commissions when incurred because the terms of our contracts generally are cancellable by either party with a 30-day notice.

These costs are recorded in commissions in our Consolidated Statements of Operations.

Insperity | 2020 First Quarter Form 10-Q

Insperity | 2020 Second Quarter Form 10-Q 12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our revenue for our PEO HR Outsourcing solutions by geographic region and for our other products and services offerings are as follows:

Three Months Ended March 31,

(in thousands)

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2020 2019 % Change 2020 2019 % Change

Northeast $ 273,543 $ 270,475 1.1 % $ 617,401 $ 581,422 6.2 %

Southeast 117,013 120,148 (2.6) % 258,175 250,054 3.2 %

Central 177,022 179,443 (1.3) % 388,314 375,196 3.5 %

Southwest 222,734 244,462 (8.9) % 494,658 514,294 (3.8) %

West 192,310 215,639 (10.8) % 439,121 448,842 (2.2) %

982,622 1,030,167 (4.6) % 2,197,669 2,169,808 1.3 %

Other revenue 10,744 13,149 (18.3) % 25,180 26,518 (5.0) %

3 unchanged sentences

Under this standard, we estimate our reserves using information about past events, current conditions and risk characteristics of our customer when assessing risk associated with the collectability of accounts receivables, including unbilled accounts receivables.

We require clients to pay invoices for service fees not later than the same day as the applicable payroll date.As such, we generally do not require collateral.

As of March 31, 2020, allowance for bad debts was immaterial.

We require clients to pay invoices for service fees not later than the same day as the applicable payroll date.

As such, we generally do not require collateral.

As of June 30, 2020, allowance for bad debts was immaterial.

Cash, Cash Equivalents and Marketable Securities

The following table summarizes our cash and investments in cash equivalents and marketable securities held by investment managers and overnight investments:

March 31, 2020

December 31, 2019

(in thousands)

Cash & Cash Equivalents

Marketable Securities

Cash & Cash Equivalents

Marketable Securities

June 30, 2020 December 31, 2019

(in thousands) Cash & Cash Equivalents Marketable Securities Total Cash & Cash Equivalents Marketable Securities Total

Overnight holdings $ 398,668 $ — $ 398,668 $ 349,857 $ — $ 349,857

2 unchanged sentences

Outstanding checks ( 11,925 ) — ( 11,925 ) ( 32,254 ) — ( 32,254 )

Total $ 459,399 $ 31,952 $ 491,351 $ 367,342 $ 34,728 $ 402,070

Our cash and overnight holdings fluctuate based on the timing of clients’ payroll processing cycles.

Our cash, cash equivalents and marketable securities at March 31, 2020 and December 31, 2019 included $ 235.2 million and $ 234.6 million , respectively, of funds associated with federal and state income tax withholdings, employment taxes and other payroll deductions, as well as $ 22.1 million and $ 59.6 million , respectively, in client prepayments.

Our cash, cash equivalents and marketable securities at June 30, 2020 and December 31, 2019 included $ 190.9 million and $ 234.6 million, respectively, of funds associated with federal and state income tax withholdings, employment taxes and other payroll deductions, as well as $ 31.5 million and $ 59.6 million, respectively, in client prepayments.

Fair Value Measurements

2 unchanged sentences

The fair value measurement disclosures are grouped into three levels based on valuation factors:

Level 1 - quoted prices in active markets using identical assets

Level 2 - significant other observable inputs, such as quoted prices for similar assets or liabilities,

Insperity | 2020 First Quarter Form 10-Q

Insperity | 2020 Second Quarter Form 10-Q 13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

quoted prices in markets that are not active, or other observable inputs

• Level 1 - quoted prices in active markets using identical assets

• Level 2 - significant other observable inputs, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other observable inputs

• Level 3 - significant unobservable inputs

1 unchanged sentence

The following table summarizes the levels of fair value measurements of our financial assets:

March 31, 2020

December 31, 2019

(in thousands)

June 30, 2020 December 31, 2019

(in thousands) Total Level 1 Level 2 Total Level 1 Level 2

Money market funds $ 439,496 $ 439,496 $ — $ 363,075 $ 363,075 $ —

1 unchanged sentence

Municipal bonds 23,205 — 23,205 — — —

Total $ 473,898 $ 450,693 $ 23,205 $ 397,803 $ 397,803 $ —

The municipal bond securities valued as Level 2 are primarily pre-refunded municipal bonds that are secured by escrow funds containing U.S.

2 unchanged sentences

The following is a summary of our available-for-sale marketable securities:

(in thousands)

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

March 31, 2020

(in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

June 30, 2020

Treasury bills $ 11,170 $ 27 $ — $ 11,197

Municipal bonds 20,700 56 ( 1 ) 20,755

Total $ 31,870 $ 83 $ ( 1 ) $ 31,952

December 31, 2019

Treasury bills $ 34,716 $ 13 $ ( 1 ) $ 34,728

As of March 31, 2020 , the contractual maturities of our marketable securities were as follows:

(in thousands)

Amortized Cost

Estimated Fair Value

Total $ 34,716 $ 13 $ ( 1 ) $ 34,728

As of June 30, 2020, the contractual maturities of our marketable securities were as follows:

(in thousands) Amortized Cost Estimated Fair Value

Less than one year $ 31,870 $ 31,952

One to five years — —

Total $ 31,870 $ 31,952

Fair Value of Other Financial Instruments

The carrying amounts of cash, cash equivalents, restricted cash, accounts receivable, deposits and accounts payable approximate their fair values due to the short-term maturities of these instruments.

As of March 31, 2020 , the carrying value of borrowings under our revolving credit facility approximates fair value and was classified as Level 2 in the fair value hierarchy.

Please read Note 5 , “ Long-Term Debt ,” for additional information.

Insperity | 2020 First Quarter Form 10-Q

Insperity | 2020 Second Quarter Form 10-Q 14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2020, the carrying value of borrowings under our revolving credit facility approximates fair value and was classified as Level 2 in the fair value hierarchy.

Please read Note 5, “Long-Term Debt,” for additional information.

Long-Term Debt

3 unchanged sentences

Our obligations under the Facility are secured by 65 % of the stock of our captive insurance subsidiary and are guaranteed by all of our domestic subsidiaries.

At March 31, 2020 , our outstanding balance on the Facility was $ 369.4 million , and we had an outstanding $ 1.0 million letter of credit issued under the Facility, resulting in an available borrowing capacity of $ 129.6 million .

At June 30, 2020, our outstanding balance on the Facility was $ 369.4 million, and we had an outstanding $ 1.0 million letter of credit issued under the Facility, resulting in an available borrowing capacity of $ 129.6 million.

The Facility matures on September 13, 2024.

Borrowings under the Facility bear interest at an alternate base rate or LIBOR , at our option, plus an applicable margin.

Borrowings under the Facility bear interest at an annual rate equal to an alternate base rate or LIBOR, at our option, plus an applicable margin.

Depending on our leverage ratio, the applicable margin varies (1) in the case of LIBOR loans, from 1.50 % to 2.25 % and (2) in the case of alternate base rate loans, from 0.00 % to 0.50 %.

The alternate base rate is the highest of (1) the prime rate most recently published in The Wall Street Journal, (2) the federal funds rate plus 0.50 % and (3) the 30-day LIBOR rate plus 2.00 %.

We also pay an unused commitment fee on the average daily unused portion of the Facility at a rate of 0.25 % .

The average interest rate for the period ended March 31, 2020 was 3.29 % .

We also pay an unused commitment fee on the average daily unused portion of the Facility at a rate of 0.25 % per year.

The average interest rate for the six month period ended June 30, 2020 was 2.82 %.

Interest expense and unused commitment fees are recorded in other income (expense).

3 unchanged sentences

In addition, the Credit Agreement requires us to comply with financial covenants limiting our total funded debt, minimum interest coverage ratio and maximum leverage ratio.

We were in compliance with all financial covenants under the Credit Agreement at March 31, 2020 .

Stockholders' Equity (Deficit)

During the first three months of 2020 , we repurchased or withheld an aggregate of 878,305 shares of our common stock, as described below.

We were in compliance with all financial covenants under the Credit Agreement at June 30, 2020.

Stockholders' Equity

During the first six months of 2020, we repurchased or withheld an aggregate of 878,884 shares of our common stock, as described below.

Repurchase Program

1 unchanged sentence

The purchases are to be made from time to time in the open market or directly from stockholders at prevailing market prices based on market conditions and other factors.

In February 2020, the Board authorized an increase of 1,000,000 shares that may be repurchased under the Repurchase Program.

During the three months ended March 31, 2020 , 728,000 shares were repurchased under the Repurchase Program.

As of March 31, 2020 , we were authorized to repurchase an additional 685,833 shares under the Repurchase Program.

During the six months ended June 30, 2020, 728,000 shares were repurchased under the Repurchase Program.

As of June 30, 2020, we were authorized to repurchase an additional 685,833 shares under the Repurchase Program.

Withheld Shares

During the three months ended March 31, 2020 , we withheld 150,305 shares to satisfy tax withholding obligations for the vesting of long-term incentive and restricted stock awards.

During the six months ended June 30, 2020, we withheld 150,884 shares to satisfy tax withholding obligations for the vesting of long-term incentive and restricted stock awards.

The Board declared quarterly dividends as follows:

1 unchanged sentence

First quarter $ 0.40 $ 0.30

During the three months ended March 31, 2020 and 2019 , we paid dividends totaling $ 15.6 million and $ 12.4 million , respectively.

Insperity | 2020 First Quarter Form 10-Q

Second quarter 0.40 0.30

Insperity | 2020 Second Quarter Form 10-Q 15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the six months ended June 30, 2020 and 2019, we paid dividends totaling $ 31.1 million and $ 24.7 million, respectively.

On May 21, 2020, the Board declared a dividend of one right (“Right”) for each outstanding share of common stock to common stockholders of record at the close of business on June 1, 2020 (the “Rights Plan”).

Each Right entitles the registered holder to purchase from us a unit consisting of one one-hundredth of a share (a “Fractional Share”) of Series A Junior Participating Preferred Stock, par value $0.01 per share, at a purchase price of $ 255.00 per Fractional Share, subject to adjustment.

Initially, the Rights are attached to all outstanding shares of our common stock.

The Rights will be separate from our common stock and a “Distribution Date” will occur, with certain exceptions, upon the earlier of (i) ten days following a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has acquired, or obtained the right to acquire, beneficial ownership of 10% (or 20% in the case of a “13G Investor,” as defined in the Rights Plan) or more of the outstanding shares of our common stock, or (ii) ten business days following the commencement of a tender offer or exchange offer that would result in a person’s becoming an Acquiring Person.

The Rights are not exercisable until the Distribution Date and will expire at the close of business on May 20, 2021, unless earlier redeemed or exchanged by us.

If the rights become exercisable, each holder other than the Acquiring Person (and certain related parties) will be entitled to acquire shares of our common stock at a 50% discount or we may exchange each right held by such holders for one share of common stock.

Incentive Plans

13 unchanged sentences

Diluted net income per share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options.

Insperity | 2020 Second Quarter Form 10-Q 16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the net income allocated to common shares and the basic and diluted shares used in the net income per share computations:

Three Months Ended

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2020 2019 2020 2019

Net income $ 51,851 $ 28,556 $ 113,943 $ 104,845

Less distributed and undistributed earnings allocated to participating securities

( 276 ) ( 309 ) ( 724 ) ( 1,183 )

Net income allocated to common shares

$ 51,575 $ 28,247 $ 113,219 $ 103,662

Weighted average common shares outstanding 38,567 40,771 38,684 40,640

Incremental shares from assumed time-vested and performance-based RSU awards and conversions of common stock options

79 145 173 140

Adjusted weighted average common shares outstanding 38,646 40,916 38,857 40,780

Insperity | 2020 First Quarter Form 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies

5 unchanged sentences

The court denied plaintiffs’ request for a jury trial and set a bench trial, which was held from March 2, 2020 to March 13, 2020.

The court has asked the parties to submit proposed findings of fact and conclusions of law by June 15, 2020, after which the court is expected to render its judgment.

At trial, plaintiffs alleged damages up to approximately $ 146 million against all defendants.

All parties filed proposed findings of fact and conclusions of law on June 15, 2020, and we are now awaiting judgment from the court.

We believe we presented meritorious defenses, and we intend to continue to vigorously defend this litigation in the post-trial proceedings.

As a result of uncertainty regarding the outcome of this matter, no provision has been made in the accompanying Consolidated Financial Statements.

Securities Class Action Lawsuit

In July 2020, the Building Trades Pension Fund of Western Pennsylvania, individually and on behalf of all others similarly situated, filed a federal securities class action against us and certain officers in the United States District Court for the Southern District of New York.

The complaint alleges that we made materially false and misleading statements regarding our business and operations in violation of the federal securities laws and seeks unspecified damages, the payment of reasonable attorneys’ fees, expert fees and other costs, and such other relief that may be deemed proper.

We believe these allegations are without merit, and we intend to vigorously defend this litigation.

As a result of uncertainty regarding the outcome of this matter, no provision has been made in the accompanying Consolidated Financial Statements.

Other Litigation

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While the results of litigation cannot be predicted with certainty, management believes the final outcome of such litigation will not have a material adverse effect on our financial position or results of operations.

Insperity | 2020 First Quarter Form 10-Q

Insperity | 2020 Second Quarter Form 10-Q 17

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements