What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-02-12 compared with 2020-02-12 · 287 added, 179 removed, 853 unchanged (35% of the section changed)

5 unchanged sentences

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we included a report of management’s assessment of the design and effectiveness of our internal controls as part of this Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Ernst & Young LLP, our independent registered public accounting firm, also audited our internal control over financial reporting.

Ernst & Young LLP, our independent registered public accounting firm, also audited our internal controls over financial reporting.

Management’s report and the independent registered public accounting firm’s audit report are included in our 2020 Consolidated Financial Statements under the captions entitled “Management’s Report on Internal Control” and “Report of Independent Registered Public Accounting Firm,” and are incorporated herein by reference.

1 unchanged sentence

Other Information.

On February 10, 2020, we entered into a letter agreement with United pursuant to which our financial responsibility to United under our existing Minimum Premium Financial Agreement is limited to the first $1 million of combined medical and pharmacy claims paid per claimant in 2020 and, at our option, in subsequent calendar years.

2020 Form 10-K

26 unchanged sentences

4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1 (No.

Description of Registrant’s Common Stock.

4.2 Description of Registrant’s Common Stock (incorporated by reference to Ex hibit 4.2 to th e Registrant’s Form 10-K for the year ended December 31, 2019) .

4.3 Rights Agreement dated as of May 21, 2020 between Insperity, Inc.

and Computershare Trust Company, N.A., as Rights Agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on May 22, 2020).

4.4 Certificate of Designations of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 22, 2020).

10.1 † Insperity, Inc.

11 unchanged sentences

10.12 † Form of Employee Award Notice and Agreement under LTIP for awards granted on or after March 29, 2016 (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on April 1, 2016).

Form of Restricted Stock Award Agreement for awards granted to certain senior personnel on or after March 29, 2016 (incorporated by reference to Exhibit 10.5 to the Registrant’s Form 10-Q for the quarter ended March 31, 2016).

Form of Restricted Stock Award Agreement for awards granted to other employees on or after March 29, 2016 (incorporated by reference to Exhibit 10.6 to the Registrant’s Form 10-Q for the quarter ended March 31, 2016).

2020 Form 10-K

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

10.13 † Form of Restricted Stock Award Agreement for awards granted to certain senior personnel on or after March 29, 2016 (incorporated by reference to Exhibit 10.5 to the Registrant’s Form 10-Q for the quarter ended March 31, 2016).

10.14 † Form of Restricted Stock Award Agreement for awards granted to other employees on or after March 29, 2016 (incorporated by reference to Exhibit 10.6 to the Registrant’s Form 10-Q for the quarter ended March 31, 2016).

10.15 † Form of Restricted Stock Award Agreement for awards granted to executive officers on or after November 10, 2017 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended September 30, 2017).

1 unchanged sentence

10.17 † Form of Restricted Stock Award Agreement for awards granted to other employees on or after November 10, 2017 (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q for the quarter ended September 30, 2017).

Form of Restricted Stock Unit Agreement for awards granted to executive officers on or after December 30, 2019.

Form of Restricted Stock Unit Agreement for awards granted to certain senior personnel on or after December 30, 2019.

Form of Restricted Stock Unit Agreement for awards granted to other employees on or after December 30, 2019.

10.18 † Form of Restricted Stock Unit Agreement for awards granted to executive officers on or after December 30, 2019 (incorporated by referen ce to Exhibit 10.18 to the Registr ant ’ s Form 10-K for the year ended December 31, 2019) .

10.19 † Form of Restricted Stock Unit Agreement for awards granted to certain senior personnel on or after December 30, 2019 ( inc or por at ed by reference to Exhibit 10.19 to the Registrant ’ s F orm 10-K for the year ended Dece mber 31, 2019 ) .

10.20 † Form of Restricted Stock Unit Agreement for awards granted to other employees on or after December 30, 2019 (incorporated by reference to Exhibit 10.

20 to the Registrant’s Form 10-K for the year ended December 31, 2019) .

10.21 † Form of Employee Award Notice and Agreement under LTIP granted on or after November 10, 2017 (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q for the quarter ended September 30, 2017).

Form of Employee Award Notice and Agreement under LTIP granted on or after December 30, 2019.

10.22 † Form of Employee Award Notice and Agreement under LTIP granted on or after December 30, 2019 (incorporated by reference to Exhibit 10.2 2 to the Registrant’s Form 10-K for the year ended December 31, 2019) .

10.23 † Directors Compensation Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q for the quarter ended September 30, 2012).

17 unchanged sentences

10.34 First Amendment to the Insperity Inc.

2012 Incentive Plan, as amended and restated.

2012 Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.

34 to the Registrant’s Form 10 -K filed for the ye ar ended December 31, 2019 ) .

10.35 Insperity, Inc.

Long-Term Incentive Program (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 2, 2015).

2020 Form 10-K

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

10.36 † Insperity, Inc.

4 unchanged sentences

(fka Administaff of Texas, Inc.) and United Healthcare Insurance Company (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005).

2019 Form 10-K

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

10.39 (+) Minimum Premium Administrative Services Agreement, amended and restated effective January 1, 2005, by and between Insperity Holdings, Inc.

22 unchanged sentences

and UnitedHealthcare Insurance Company (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2018).

Amendment to Minimum Premium Administrative Services Agreement (as previously amended effective January 1, 2016) by and between Insperity Holdings, Inc., and United Healthcare Insurance Company entered into as of January 1, 2019 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended March 31, 2019).

Amendment to Minimum Premium Financial Agreement (as previously amended effective January 1, 2017) by and between Insperity Holdings, Inc., and United Healthcare Insurance Company entered into as of January 1, 2019 (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q for the quarter ended March 31, 2019).

2020 Form 10-K

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

10.52 (+) Amendment to Minimum Premium Administrative Services Agreement (as previously amended effective January 1, 2016) by and between Insperity Holdings, Inc., and United Healthcare Insurance Company entered into as of January 1, 2019 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended March 31, 2019).

10.53 (+) Amendment to Minimum Premium Financial Agreement (as previously amended effective January 1, 2017) by and between Insperity Holdings, Inc., and United Healthcare Insurance Company entered into as of January 1, 2019 (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q for the quarter ended March 31, 2019).

10.54 Letter Agreement by and between Insperity Holdings, Inc.

and United Healthcare Insurance company entered into as of February 7, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended March 31, 2020).

10.55 Amended and Restated Credit Agreement dated February 6, 2018 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 12, 2018).

10 unchanged sentences

32.2 ** Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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† Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K.

Certain portions of the exhibit have been omitted pursuant to an order granting confidential treatment or Rule 601(b)(10) of Regulation S-K.

(+) Certain portions of the exhibit have been omitted pursuant to an order granting confidential treatment or Item 601(b)(10) of Regulation S-K.

The omitted information is (i) not material and (ii) would likely cause competitive hard to the Company if publicly disclosed.

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in the capacities indicated on February 11, 2021:

Chairman of the Board, Chief Executive Officer

Signature Title

Sarvadi Chairman of the Board, Chief Executive Officer

Sarvadi and Director

(Principal Executive Officer)

/s/ Douglas S.

Senior Vice President of Finance

Chief Financial Officer and Treasurer

Sharp Senior Vice President of Finance

Sharp Chief Financial Officer and Treasurer

(Principal Financial Officer)

16 unchanged sentences

Notes to Consolidated Financial Statements

Insperity F-1

2020 Form 10-K

8 unchanged sentences

We also have 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, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 11, 2021 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2019 the Company changed its method of accounting for leases due to the modified retrospective adoption of ASU No.

2016-02, Leases (Topic 842).

Basis for Opinion

13 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Insperity F-2

2020 Form 10-K

1 unchanged sentence

Estimation of the Cost of Incurred Health Insurance Claims

Description of the Matter

As discussed in Note 1 of the consolidated financial statements under “Health Insurance Costs”, the Company provides the majority of its health insurance coverage to its worksite employees through a fully insured health insurance policy with UnitedHealthcare (“United”).

Description of the Matter As discussed in Note 1 of the consolidated financial statements under “Health Insurance Costs”, the Company provides the majority of its health insurance coverage to its worksite employees through a fully insured health insurance policy with UnitedHealthcare (“United”).

While the policy with United is a fully-insured plan, as a result of certain contractual terms, the Company accounts for this plan using a partially self-funded insurance accounting model.

6 unchanged sentences

Estimating actual claims incurred is subjective due to the large number of plan participants and the possibility that the number, magnitude, nature, and the timing of processing of current period claims may not be comparable to historical results experienced by the Company.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the estimation process, including, among others, controls over the completeness and accuracy of the data used to estimate the cost of incurred health insurance claims and the review and approval processes that management has in place for the assumptions applied and the calculation of the cost of incurred health insurance claims.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the estimation process, including, among others, controls over the completeness and accuracy of the data used to estimate the cost of incurred health insurance claims and the review and approval processes that management has in place for the assumptions applied and the calculation of the cost of incurred health insurance claims.

With the support of our actuarial specialists, we performed an independent assessment of the estimated cost of incurred health insurance claims.

2 unchanged sentences

We compared the Company’s estimate to a range developed by our actuarial specialists based on independently selected assumptions and historical data.

Insperity F-3

2020 Form 10-K

1 unchanged sentence

Estimation of the Cost of Incurred Workers’ Compensation Claims and Related Liability

Description of the Matter

As discussed in Note 1 of the consolidated financial statements under “Workers’ Compensation Costs”, the Company provides workers’ compensation insurance, including ongoing health care and indemnity coverage, to its worksite employees whereby claims are paid over numerous years following the date of injury.

Description of the Matter As discussed in Note 1 of the consolidated financial statements under “Workers’ Compensation Costs”, the Company provides workers’ compensation insurance, including ongoing health care and indemnity coverage, to its worksite employees whereby claims are paid over numerous years following the date of injury.

Under the Company’s insurance program, the Company has financial responsibility for a significant portion of the workers’ compensation claims.

3 unchanged sentences

These assumptions have a significant effect on the valuation of the liability.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the estimation process, including, among others, controls over the completeness and accuracy of data used to estimate the cost of incurred workers’ compensation claims and the review and approval processes that management has in place for the assumptions applied and the calculation of the cost of incurred workers’ compensation claims.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the estimation process, including, among others, controls over the completeness and accuracy of data used to estimate the cost of incurred workers’ compensation claims and the review and approval processes that management has in place for the assumptions applied and the calculation of the cost of incurred workers’ compensation claims.

With the support of our actuarial specialists, we performed an independent assessment of the estimated cost of workers’ compensation claims incurred and the related liability.

3 unchanged sentences

We compared the Company's reserved amount to a range developed by our actuarial specialists based on historical loss data and independently selected assumptions.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1991.

/s/ Ernst & Young LLP

Houston, Texas

February 11, 2021

Insperity F-4

2020 Form 10-K

13 unchanged sentences

In management’s opinion, the Company has maintained effective internal control over financial reporting as of December 31, 2020, based on criteria established in the COSO 2013 framework .

/s/ Douglas S.

Chairman of the Board and

Senior Vice President of Finance

Chief Executive Officer

Chief Financial Officer and Treasurer

Sarvadi /s/ Douglas S.

Sarvadi Douglas S.

Chairman of the Board and Senior Vice President of Finance

Chief Executive Officer Chief Financial Officer and Treasurer

Insperity F-5

2020 Form 10-K

7 unchanged sentences

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Insperity, Inc.

as of December 31, 2019 and 2018 , the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019 , and the related notes and our report dated February 11, 2020 expressed an unqualified opinion thereon.

as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated February 11, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

17 unchanged sentences

February 11, 2021

Insperity F-6

2020 Form 10-K

2 unchanged sentences

— CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

December 31, 2019

December 31, 2018

(in thousands, except per share amounts) December 31, 2020 December 31, 2019

Cash and cash equivalents $ 554,846 $ 367,342

7 unchanged sentences

Property and equipment, net 216,256 147,706

Right-of-use leased assets

Right-of-use “ROU” leased assets 60,663 56,886

Deposits and prepaid health insurance 203,231 193,013

1 unchanged sentence

Deferred income taxes, net 9,603 3,956

Other assets 4,548 5,975

Total assets $ 1,584,276 $ 1,394,996

Liabilities and stockholders’ equity

22 unchanged sentences

Treasury stock, at cost ( 17,236 and 16,117 shares held in treasury)

( 626,984 ) ( 544,102 )

Accumulated other comprehensive income, net of tax 5 12

3 unchanged sentences

See accompanying notes.

Insperity F-7

2020 Form 10-K

4 unchanged sentences

(in thousands, except per share amounts)

2020 2019 2018

$ 4,287,004 $ 4,314,804 $ 3,828,549

Payroll taxes, benefits and workers’ compensation costs

3,480,150 3,581,870 3,146,640

Gross profit 806,854 732,934 681,909

Salaries, wages and payroll taxes 353,273 317,124 301,027

Stock-based compensation 60,145 23,993 20,425

Commissions 32,835 31,420 28,957

Advertising 21,556 21,603 18,554

General and administrative expenses 113,167 123,438 111,068

1 unchanged sentence

Total operating expenses

612,165 546,301 502,873

Operating income 194,689 186,633 179,036

4 unchanged sentences

Income tax expense 51,033 38,544 46,947

Net income $ 138,237 $ 151,099 $ 135,413

Less distributed and undistributed earnings allocated to participating securities ( 782 ) ( 1,759 ) ( 1,875 )

1 unchanged sentence

Net income per share of common stock

Basic $ 3.57 $ 3.72 $ 3.24

Diluted $ 3.54 $ 3.70 $ 3.22

____________________________________

2 unchanged sentences

(in thousands)

2020 2019 2018

Gross billings

$ 28,168,611 $ 27,212,010 $ 23,830,731

WSEE payroll cost

23,881,607 22,897,206 20,002,182

$ 4,287,004 $ 4,314,804 $ 3,828,549

See accompanying notes.

Insperity F-8

2020 Form 10-K

4 unchanged sentences

(in thousands) 2020 2019 2018

Net income $ 138,237 $ 151,099 $ 135,413

Other comprehensive loss:

2 unchanged sentences

See accompanying notes.

Insperity F-9

2020 Form 10-K

2 unchanged sentences

— CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(in thousands) Common Stock

Additional Paid

1 unchanged sentence

Income (Loss)

Shares Amount

Balance at December 31, 2017 55,489 $ 555 $ 25,337 $ ( 256,363 ) $ ( 5 ) $ 296,797 $ 66,321

Purchase of treasury stock, at cost — — — ( 113,327 ) — — ( 113,327 )

Issuance of long-term incentive awards and dividend equivalents — — ( 5,764 ) 6,619 — ( 855 ) —

Stock-based compensation expense — — 15,460 4,965 — — 20,425

Other — — 1,719 537 — — 2,256

Dividends paid — — — — — ( 33,408 ) ( 33,408 )

Unrealized loss on marketable securities, net of tax — — — — ( 4 ) — ( 4 )

Net income — — — — — 135,413 135,413

Balance at December 31, 2018 55,489 $ 555 $ 36,752 $ ( 357,569 ) $ ( 9 ) $ 397,947 $ 77,676

2 unchanged sentences

Stock-based compensation expense — — 16,899 7,094 — — 23,993

Other — — 2,185 770 — — 2,955

Dividends paid — — — — — ( 48,622 ) ( 48,622 )

Unrealized loss on marketable securities, net of tax

Unrealized gain on marketable securities, net of tax — — — — 21 — 21

Net income — — — — — 151,099 151,099

Balance at December 31, 2019 55,489 $ 555 $ 48,141 $ ( 544,102 ) $ 12 $ 499,473 $ 4,079

2 unchanged sentences

Stock-based compensation expense — — 53,561 6,584 — — 60,145

Other — — 966 1,996 — — 2,962

Dividends paid — — — — — ( 61,869 ) ( 61,869 )

Unrealized gain on marketable securities, net of tax

Unrealized loss on marketable securities, net of tax — — — — ( 7 ) — ( 7 )

Net income — — — — — 138,237 138,237

Balance at December 31, 2020 55,489 $ 555 $ 95,528 $ ( 626,984 ) $ 5 $ 575,028 $ 44,132

See accompanying notes.

Insperity F-10

2020 Form 10-K

4 unchanged sentences

(in thousands)

2020 2019 2018

Cash flows from operating activities

Net income $ 138,237 $ 151,099 $ 135,413

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

7 unchanged sentences

Other current assets 4,032 ( 15,772 ) ( 730 )

Other assets and ROU assets 15,725 9,722 ( 2,005 )

Accounts payable 1,638 ( 6,057 ) 4,175

9 unchanged sentences

Marketable securities:

Purchases ( 50,624 ) ( 110,131 ) ( 87,887 )

Proceeds from maturities 49,635 108,380 12,625

1 unchanged sentence

Property and equipment:

Purchases ( 98,159 ) ( 56,307 ) ( 35,328 )

Proceeds from dispositions 43 21 151

4 unchanged sentences

Borrowings under long-term debt agreement 100,000 125,000 40,000

Other 7,701 8,312 2,257

Net cash used in financing activities ( 53,583 ) ( 118,353 ) ( 104,478 )

2 unchanged sentences

Cash, cash equivalents and restricted cash at end of year $ 786,699 $ 592,550 $ 535,474

Insperity F-11

2020 Form 10-K

19 unchanged sentences

See accompanying notes.

Insperity F-12

2020 Form 10-K

8 unchanged sentences

In addition to our PEO HR Outsourcing solutions, we offer a comprehensive traditional payroll and human capital management solution, known as Workforce Acceleration.

We also offer a number of other business performance solutions, including Time and Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening, Expense Management Services, Retirement Services and Insurance Services, many of which are offered as a cloud-based software solution.

We also offer a number of other business performance solutions, including Comprehensive Traditional Payroll and Human Capital Management, Time and Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening, Retirement Services and Insurance Services, many of which are offered as a cloud-based software solution.

These other products or services are offered separately or with our other solutions.

1 unchanged sentence

Insperity and its clients designate each party’s responsibilities through its Client Service Agreement (“CSA”), under which Insperity becomes an employer of the employees who work at the client’s location (“WSEE”) for most administrative and regulatory purposes.

As a co-employer of its WSEEs, we assume many of the rights and obligations associated with being an employer.

As a co-employer of our WSEEs, we assume many of the rights and obligations associated with being an employer.

We enter into an employment agreement with each WSEE, thereby maintaining a variety of employer rights, including the right to hire or terminate employees, the right to evaluate employee qualifications or performance, and the right to establish employee compensation levels.

1 unchanged sentence

The responsibilities associated with our role as employer include the following obligations with regard to our WSEEs:

(1) to compensate its WSEEs through wages and salaries;

(1) to compensate our WSEEs through wages and salaries;

(2) to pay the employer portion of payroll-related taxes;

14 unchanged sentences

2014-09 and we did not have any significant changes in our business processes or systems.

Insperity F-13

2020 Form 10-K

14 unchanged sentences

(in thousands) 2020 2019 2018

Northeast $ 1,189,837 $ 1,135,771 $ 996,541

Southeast 509,846 499,201 447,584

Central 761,905 743,514 637,779

Southwest 935,634 1,001,845 895,243

West 839,347 880,434 797,942

4,236,569 4,260,765 3,775,089

Other revenue 50,435 54,039 53,460

Total revenue $ 4,287,004 $ 4,314,804 $ 3,828,549

Our PEO HR Outsourcing solutions revenues are primarily derived from our gross billings, which are based on (1) the payroll cost of its WSEEs;

Our PEO HR Outsourcing solutions revenues are primarily derived from our gross billings, which are based on (1) the payroll cost of our WSEEs;

and (2) a markup computed as a percentage of the payroll cost.

The gross billings are invoiced concurrently with each periodic payroll of its WSEEs.

The gross billings are invoiced concurrently with each periodic payroll of our WSEEs.

Revenues, which exclude the payroll cost component of gross billings and therefore consist solely of markup, are recognized ratably over the payroll period as WSEEs perform their service at the client worksite.

9 unchanged sentences

Intercompany accounts and transactions have been eliminated in consolidation.

Insperity F-14

2020 Form 10-K

21 unchanged sentences

Property and equipment, net consisted of the following:

(in thousands)

December 31, 2019

December 31, 2018

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

Land $ 6,215 $ 6,215

Buildings and improvements 125,704 119,635

3 unchanged sentences

Construction in progress (1)

84,668 20,885

495,078 403,301

Accumulated depreciation and amortization ( 278,822 ) ( 255,595 )

Total property and equipment, net $ 216,256 $ 147,706

____________________________________

(1) Construction in progress is related to our corporate office expansion.

Insperity F-15

2020 Form 10-K

1 unchanged sentence

The estimated useful lives of property and equipment for purposes of computing depreciation are as follows:

Buildings and improvements

Computer hardware and software

Software development costs

Furniture, fixtures and other

Buildings and improvements 5 — 32 years

Computer hardware and software 2 — 5 years

Software development costs 3 — 3 years

Furniture, fixtures and other 5 — 7 years

Software development costs relate primarily to software code development, systems integration and testing of our proprietary professional employer information systems and are accounted for in accordance with ASC 350-40, Internal Use Software .

1 unchanged sentence

We recognized $ 8.7 million, $ 7.8 million and $ 6.0 million in amortization of capitalized computer software costs in 2020, 2019 and 2018, respectively.

Unamortized software development costs were $ 25.8 million and $ 19.6 million in 2019 and 2018 , respectively.

Unamortized software development costs were $ 32.6 million and $ 25.8 million at December 31, 2020 and 2019, respectively.

We periodically evaluate our long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment.

2 unchanged sentences

In addition, we may record an impairment loss to the extent that the carrying value of the asset exceeded the fair value of the asset.

Fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset.

Fair value is generally determined using an estimate of undiscounted future net cash flows from operating activities or upon disposal of the asset.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No.

18 unchanged sentences

Please read Note 11, “Leases,” for additional information.

Goodwill and Other Intangible Assets

Our goodwill is not amortized, but is tested for impairment on an annual basis or when there is an indication that there has been a potential decline in the fair value of a reporting unit.

Annually, we perform a qualitative analysis to determine if it is

Insperity F-16

2020 Form 10-K

Notes to the Consolidated Financial Statements

more likely than not that the fair value has declined below its carrying value.

Goodwill and Other Intangible Assets

Our goodwill is not amortized, but is tested for impairment on an annual basis or when there is an indication that there has been a potential decline in the fair value of a reporting unit.

Annually, we perform a qualitative analysis to determine if it is more likely than not that the fair value has declined below its carrying value.

This analysis considers various qualitative factors.

8 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 participant’s annual claim costs that exceed $1 million.

Accordingly, we record the cost 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.

9 unchanged sentences

In addition, United requires a deposit equal to approximately one day of claims funding activity, which was $ 6.5 million as of December 31, 2020, and is reported as a long-term asset.

As of December 31, 2019 , Plan Costs were less than the net premiums paid and owed to United by $ 2.6 million .

As of December 31, 2020, Plan Costs were more than the net premiums paid and owed to United by $ 6.0 million.

As this amount is less than the agreed-upon $ 9.0 million surplus maintenance level, the $ 15.0 million difference is also included in accrued health insurance costs, a current liability, in our Consolidated Balance Sheets.

The premiums, including the additional quarterly premiums, owed to United at December 31, 2020, were $ 11.7 million, which is included in accrued health insurance costs, a current liability in our Consolidated Balance Sheets.

Our benefits costs incurred included an increase of $ 2.3 million in 2019 , a reduction of $ 1.3 million in 2018 and an increase of $ 1.2 million in 2017 for changes in estimated run-off related to prior periods.

Our benefits costs incurred included a reduction of $ 0.2 million in 2020, an increase of $ 2.3 million in 2019 and a reduction of $ 1.3 million in 2018 for changes in estimated run-off related to prior periods.

Insperity F-17

2020 Form 10-K

Notes to the Consolidated Financial Statements

Workers’ Compensation Costs

5 unchanged sentences

Because we bear the financial responsibility for claims up to the levels noted above, such claims, which are the primary component of our workers’ compensation costs, are recorded in the period incurred.

Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of

2019 Form 10-K

Notes to the Consolidated Financial Statements

Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury.

Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment.

9 unchanged sentences

Accrued claims 42,639 62,552

Present value discount

Present value discount, net of accretion 740 ( 3,643 )

Paid claims ( 45,522 ) ( 45,644 )

Ending balance $ 240,761 $ 242,904

7 unchanged sentences

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

In 2019 , we received $ 18.8 million for the return of excess claim funds related to the workers’ compensation program, which decreased deposits.

In 2020, we received $ 28.2 million for the return of excess claim funds related to

Insperity F-18

2020 Form 10-K

Notes to the Consolidated Financial Statements

the workers’ compensation program, which decreased deposits.

As of December 31, 2020, we had restricted cash of $ 45.5 million and deposits of $ 186.3 million.

3 unchanged sentences

We account for this plan under the recognition and measurement principles of ASC 718, Compensation – Stock Compensation , which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.

2019 Form 10-K

Notes to the Consolidated Financial Statements

We generally make annual grants of restricted and unrestricted stock under our stock-based incentive compensation plan to our non-employee directors, officers and other management.

Restricted stock grants to officers and other management generally vest over a period of three years from the date of grant.

Shares of restricted stock are valued based on the fair value on date of grant and the associated expense, net of estimated forfeitures, is recognized over the vesting period.

We generally make annual grants of restricted and unrestricted stock under our stock-based incentive compensation plan to our non-employee directors, officers and other management but changed to restricted stock units for employees in 2020.

Restricted stock and restricted stock unit grants to officers and other employees generally vest over a period of three years from the date of grant.

Shares of restricted stock and restricted stock units are valued based on the fair value on date of grant and the associated expense, net of estimated forfeitures, is recognized over the requisite service period.

Stock grants issued to non-employee directors are 100 % vested on the grant date.

During 2020, we also granted performance-based restricted stock units to officers and other management, which vest or expire based on the achievement of various performance metrics.

Performance-based restricted stock units have a vesting schedule of one year.

The fair value of each performance-based restricted stock unit is the market price of our common stock on the date of grant.

The compensation expense for such awards is recognized on a straight line basis over the requisite service period.

Over the performance period, the number of shares expected to be issued is adjusted upward or downward based on the probability of achievement of the performance target.

Our Insperity Long-Term Incentive Program (the “LTIP”) provides for performance based long-term compensation awards in the form of performance units to certain employees based on the achievement of pre-established performance goals.

14 unchanged sentences

We expense all advertising costs as incurred.

Insperity F-19

2020 Form 10-K

Notes to the Consolidated Financial Statements

We use the liability method in accounting for income taxes.

1 unchanged sentence

On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Reform Act”) was signed into law.

The 2017 Tax Reform Act significantly changes U.S.

The 2017 Tax Reform Act significantly changed U.S.

corporate income tax laws by, among other things, reducing the U.S.

4 unchanged sentences

New Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses.

The new standard defines a current expected credit loss model which requires us to measure all expected credit loss for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts.

This replaced the existing incurred loss model and is applicable to the measurement of credit losses on financial assets, including trade receivables.

The guidance is effective for interim periods and fiscal years beginning after December 15, 2019.

We do not expect the new standard to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

The new standard requires a customer in a cloud computing arrangement that is a service contract to follow the

2019 Form 10-K

Notes to the Consolidated Financial Statements

internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets.

The guidance is effective for fiscal years beginning after December 15, 2019.

We do not expect the new standard to have a material impact on our consolidated financial statements.

We adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) effective January 1, 2020 with no material impact.

Under this standard, we estimate our reserves using information about past events, current conditions and risk characteristics of our client base 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 December 31, 2020, allowance for bad debts was immaterial.

Cash, Cash Equivalents and Marketable Securities

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

(in thousands)

Cash & Cash Equivalents

Marketable Securities

Cash & Cash Equivalents

Marketable Securities

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

Overnight holdings $ 503,221 $ — $ 503,221 $ 349,857 $ — $ 349,857

2 unchanged sentences

Outstanding checks ( 30,059 ) — ( 30,059 ) ( 32,254 ) — ( 32,254 )

Total $ 554,846 $ 34,529 $ 589,375 $ 367,342 $ 34,728 $ 402,070

Our cash and overnight holdings fluctuate based on the timing of the client’s payroll processing cycle.

7 unchanged sentences

• Level 3 - significant unobservable inputs

Insperity F-20

2020 Form 10-K

Notes to the Consolidated Financial Statements

Fair Value of Instruments Measured and Recognized at Fair Value

The following tables summarize the levels of fair value measurements of our financial assets:

December 31, 2019

December 31, 2018

(in thousands)

December 31, 2020 December 31, 2019

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

Money market funds $ 551,213 $ 551,213 $ — $ 363,075 $ 363,075 $ —

1 unchanged sentence

Municipal bonds 23,998 — 23,998 — — —

Total $ 585,742 $ 561,744 $ 23,998 $ 397,803 $ 397,803 $ —

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

Government securities.

Our valuation techniques used to measure fair value for these securities during the period consisted primarily of third-party pricing services that utilized actual market data such as trades

2019 Form 10-K

Notes to the Consolidated Financial Statements

of comparable bond issues, broker/dealer quotations for the same or similar investments in active markets and other observable inputs.

Our valuation techniques used to measure fair value for these securities during the period consisted primarily of third-party pricing services that utilized actual market data such as trades of comparable bond issues, broker/dealer quotations for the same or similar investments in active markets and other observable inputs.

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

(in thousands)

(in thousands) Amortized

December 31, 2020

Treasury bills $ 10,530 $ 1 $ — $ 10,531

Municipal bonds 23,994 8 ( 4 ) 23,998

December 31, 2019

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

Municipal bonds

As of December 31, 2020, the contractual maturities of all marketable securities in our portfolio were less than one year.

6 unchanged sentences

(in thousands) 2020 2019

Trade, net $ 6,559 $ 12,731

Unbilled 380,819 448,088

Other 5,368 4,960

Accounts receivable, net $ 392,746 $ 465,779

2 unchanged sentences

We establish an allowance for doubtful accounts based on management’s assessment of the collectability of specific accounts and by making a general provision for other potentially uncollectible amounts.

Insperity F-21

2020 Form 10-K

Notes to the Consolidated Financial Statements

We make an accrual at the end of each accounting period for our obligations associated with the earned but unpaid wages of our WSEEs and for the accrued gross billings associated with such wages.

1 unchanged sentence

however, these amounts are presented net in the Consolidated Statements of Operations.

We generally require clients to pay invoices for service fees no later than one day prior to the applicable payroll date.

We generally require clients to pay invoices for service fees no later than the same day as the applicable payroll date.

As such, we generally do not require collateral.

Client prepayments directly attributable to unbilled accounts receivable have been netted against such receivables as the gross billings have been earned and the payroll cost has been incurred, thus we have the legal right of offset for these amounts.

Client prepayments directly attributable to accrued worksite employee payroll costs and unbilled revenues have been netted as we have the legal right of offset for these amounts.

Unbilled accounts receivable consisted of the following:

2019 Form 10-K

Notes to the Consolidated Financial Statements

(in thousands) 2020 2019

1 unchanged sentence

Unbilled revenues 81,311 105,841

Customer prepayments

Client prepayments ( 35,328 ) ( 59,612 )

Unbilled accounts receivable $ 380,819 $ 448,088

6 unchanged sentences

Deposits and prepaid health insurance $ 203,231 $ 193,013

The contractual arrangement with United for health insurance coverage requires us to maintain an accumulated cash surplus in the plan of $ 9.0 million , which is reported as long-term prepaid health insurance.

The contractual arrangement with United for health insurance coverage requires us to maintain an accumulated cash surplus in the plan of $ 9.0 million, which is reported as deposits and prepaid health insurance.

Please read Note 1, “Accounting Policies,” for a discussion of our accounting policies for health insurance costs and workers’ compensation costs.

Long-Term Debt

We have a revolving credit facility which is available for working capital and general corporate purposes, including acquisitions, stock repurchases and issuances of letters of credit.

In September 2019, the revolving credit facility was increased from $ 350 million to $ 500 million (the “Facility”).

We have a $ 500 million revolving credit facility (the “Facility”) which is available for working capital and general corporate purposes, including acquisitions, stock repurchases and issuances of letters of credit.

Borrowings may be increased to $ 550 million based on the terms and subject to the conditions set forth in the agreement relating to the Facility (the “Credit Agreement”).

1 unchanged sentence

In addition, as of December 31, 2020, we had an outstanding $ 1.0 million letter of credit issued under the Facility.

As of December 31, 2019 , our outstanding balance on the Facility was $ 269.4 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.

As of December 31, 2020, our outstanding balance on the Facility was $ 369.4 million and is due when the Facility matures on September 13, 2024 .

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 %.

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Covenants include, but are not limited to, limitations on our ability to incur additional indebtedness, sell material assets, retire, redeem or otherwise reacquire our capital stock, acquire the capital stock or assets of another business, make investments and pay dividends.

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

We were in compliance with all financial covenants under the Credit Agreement at December 31, 2019 .

In addition, the Credit Agreement requires us to comply with financial covenants limiting our

Insperity F-22

2020 Form 10-K

Notes to the Consolidated Financial Statements

total funded debt, minimum interest coverage ratio and maximum leverage ratio.

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

Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes.

3 unchanged sentences

Prepaid assets $ ( 4,207 ) $ ( 4,252 )

Depreciation ( 4,941 ) ( 4,564 )

Software development costs ( 8,230 ) ( 6,475 )

1 unchanged sentence

Right-of-use leased assets ( 17,322 ) ( 15,949 )

Intangibles ( 1,444 ) ( 955 )

Total deferred tax liabilities ( 39,846 ) ( 35,404 )

3 unchanged sentences

Workers’ compensation accruals 6,310 5,404

Accrued rent 1,553 1,223

Stock-based compensation 11,383 6,712

1 unchanged sentence

Minority investment impairment 676 673

Cares act deferral 3,235 —

Other 294 287

Total deferred tax assets 50,125 40,035

2 unchanged sentences

Net deferred tax assets $ 9,603 $ 3,956

Insperity F-23

2020 Form 10-K

Notes to the Consolidated Financial Statements

The components of income tax expense are as follows:

2 unchanged sentences

Current income tax expense

Federal $ 45,558 $ 27,385 $ 40,347

State 11,122 6,299 11,133

Total current income tax expense 56,680 33,684 51,480

Deferred income tax (benefit) expense

Federal ( 4,678 ) 4,016 ( 3,398 )

State ( 969 ) 844 ( 1,135 )

Total deferred income tax (benefit) expense ( 5,647 ) 4,860 ( 4,533 )

Total income tax expense $ 51,033 $ 38,544 $ 46,947

2019 Form 10-K

Notes to the Consolidated Financial Statements

In 2016, we prospectively adopted ASU No.

1 unchanged sentence

Improvements to Employee Share-Based Payment Accounting.

We recognized an income tax benefit of $ 14.6 million in 2019 , $ 3.9 million in 2018 and $ 6.8 million in 2017 related to excess tax benefits from the vesting of long-term incentive awards and restricted stock awards.

We recognized an income tax benefit of $ 2.1 million in 2020, $ 14.6 million in 2019 and $ 3.9 million in 2018 related to excess tax benefits from the vesting of equity compensation.

The reconciliation of income tax expense computed at U.S.

2 unchanged sentences

(in thousands) 2020 2019 2018

Expected income tax expense at 21%, 21% and 35%, respectively

Expected income tax expense at 21 %

$ 39,747 $ 39,825 $ 38,296

State income taxes, net of federal benefit 7,818 5,821 7,660

Nondeductible expenses 3,641 5,959 4,831

Section 199 benefits

Equity compensation

Equity compensation, net 1,335 ( 12,120 ) ( 2,737 )

Research and development credit ( 1,479 ) ( 1,069 ) ( 856 )

Disaster employee retention credit

Enactment of the 2017 Tax Reform Act

Other, net ( 29 ) 128 ( 247 )

Reported total income tax expense $ 51,033 $ 38,544 $ 46,947

4 unchanged sentences

The tax years 2016 through 2019 remain open to examination by various state tax authorities.

Insperity F-24

2020 Form 10-K

Notes to the Consolidated Financial Statements

Stockholders’ Equity

Two-for-One Stock Split

On December 18, 2017, we effected a two-for-one stock split in the form of a 100% stock dividend.

Share and per share amounts for 2017 presented in these financial statements have been retroactively restated to reflect this change in our capital structure.

Repurchase Program

2 unchanged sentences

We repurchased 1,285,696 shares under the Repurchase Program during 2020.

In addition, 227,208 shares were withheld during 2019 to satisfy minimum tax withholding obligations for the vesting of long-term incentive and restricted stock awards, which are not subject to the Repurchase Program.

In 2019, the Board authorized an increase of 700,000 shares that may be repurchased under the Repurchase Program.

In addition, 151,332 shares were withheld during 2020 to satisfy minimum tax withholding obligations for the vesting of long-term incentive, restricted stock awards and restricted stock units, which are not subject to the Repurchase Program.

In 2020, the Board authorized an increase of 2 million shares that may be repurchased under the Repurchase Program.

During 2019, we repurchased 1,897,322 shares under the Repurchase Program and 227,208 shares were withheld to satisfy minimum tax withholding obligations for the vesting of long-term incentive and restricted stock awards.

1 unchanged sentence

Shares repurchased under the Repurchase Program are recorded in treasury.

2019 Form 10-K

Notes to the Consolidated Financial Statements

The Board declared quarterly dividends as follows:

7 unchanged sentences

At December 31, 2020, 20 million shares of preferred stock were authorized.

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, if and when it becomes exercisable, entitles the registered holder to purchase from us one unit consisting of one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share.

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

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

Incentive Plans

1 unchanged sentence

2001 Incentive Plan, as amended, and the 2012 Incentive Plan, as amended, (collectively, the “Incentive Plans”) provide for options and other stock-based awards that have been and may be granted to eligible employees and non-employee directors of Insperity or its subsidiaries.

The 2012 Incentive Plan is currently the only plan under which new stock-based awards may be granted.

The 2012 Incentive Plan is currently the only plan under which new stock-based awards may be granted.The 2001 Incentive Plan only has outstanding nonqualified stock options.

The 2012 Incentive Plan permits stock options, including nonqualified stock options and options intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code, stock awards, phantom stock awards, stock appreciation rights, performance units, and other stock-based awards and cash awards, all of which may or may not be subject to the achievement of one or more performance objectives.

The purpose of the Incentive Plan generally is to retain and attract persons of training, experience and ability to serve as employees of Insperity and its subsidiaries and to serve as non-employee directors of Insperity, to encourage the sense of proprietorship of such persons and to stimulate the active interest of such persons in the development and financial success of Insperity and its subsidiaries.

The Incentive Plans are administered by the Compensation Committee of the Board (the “Committee”).

1 unchanged sentence

The Board may at any time amend or terminate the Incentive Plans.

However, no amendment that would impair the rights of any participant, with respect to outstanding grants, can be made without the participant’s prior consent.

Insperity F-25

2020 Form 10-K

Notes to the Consolidated Financial Statements

amendment that would impair the rights of any participant, with respect to outstanding grants, can be made without the participant’s prior consent.

Stockholder approval of amendments to the Incentive Plans is necessary only when required by applicable law or stock exchange rules.

At December 31, 2019 , 2,615,253 shares of common stock were available for future grants under the 2012 Incentive Plan.

The 2001 Incentive Plan only has outstanding nonqualified stock options.

Assuming all outstanding awards are paid at max, at December 31, 2020, 1,417,062 shares of common stock were available for future grants under the 2012 Incentive Plan.

We also maintain the Insperity, Inc.

LTIP under the 2012 Incentive Plan.

Long-Term Incentive Plan (“LTIP”) under the 2012 Incentive Plan.

The LTIP provides for performance-based long-term compensation awards in the form of performance units to certain employees based on the achievement of pre-established performance goals.

We granted performance units under the LTIP to our named executive officers and certain other officers in 2018, 2019 and 2020.

We recognized $ 24.0 million , $ 20.4 million and $ 24.3 million of compensation expense associated with the restricted stock and the LTIP awards in 2019 , 2018 and 2017 , respectively.

Included in 2017, is $ 2.3 million of stock-based compensation associated with the acceleration of restricted stock awards from the first quarter of 2018 to December 2017 in order to maximize our tax deduction, which would have been limited under the 2017 Tax Reform Act.

We recognized $ 4.9 million , $ 5.3 million and $ 8.5 million of tax benefits associated with stock-based compensation in 2019 , 2018 and 2017 , respectively.

2019 Form 10-K

Notes to the Consolidated Financial Statements

Restricted Stock Awards

Restricted common shares, under equity plan accounting, are generally measured at fair value on the date of grant based on the number of shares granted, estimated forfeitures and the quoted price of the common stock.

Such value is recognized as compensation expense over the corresponding vesting period, three years to five years for our shares currently outstanding.

The total fair value of shares vested during the years ended December 31, 2019 , 2018 , and 2017 was $ 39.7 million , $ 1.2 million and $ 46.0 million , respectively.

The weighted average grant date fair value of restricted stock awards granted during the years ended December 31, 2019 , 2018 and 2017 was $ 124.04 , $ 65.98 and $ 42.15 , respectively.

As of December 31, 2019 , unrecognized compensation expense associated with the unvested shares outstanding was $ 23.9 million and is expected to be recognized over a weighted average period of 22 months .

The following is a summary of restricted stock award activity for 2019 :

Beginning with stock-based awards granted in 2020, employees who attain a minimum age of 62 and have provided 15 years or more of continuous service may continue to vest in awards following a qualifying retirement as defined under the 2012 Incentive Plan award agreement, as though he or she were still an employee, provided the grant date of the award is six months or more before the employee’s last day of employment.

For a termination following a qualifying retirement, time-vested awards will continue to vest in the normal course.

For a termination following a qualifying retirement, performance-based awards with completed or in-process performance periods are adjusted for achievement of the performance criteria, prorated through the date of termination and paid in the normal course, while performance-based awards for performance periods that have not started are forfeited.

Stock-based compensation expense related to time-vested and performance-based awards is accelerated over the requisite service period for employees who meet the requirements for continued vesting.

Stock-based compensation expense and other disclosures for stock-based awards follows:

Year Ended December 31,

(in thousands) 2020 2019 2018

Stock-based compensation expense recognized $ 60,145 $ 23,993 $ 20,425

Income tax benefit realized from stock-based compensation expense 16,217 4,876 5,249

Time-Based Restricted Stock Awards and Time-Based Restricted Stock Units

Time-based restricted stock awards (“RSAs”) and time-based restricted stock units (“RSUs”), under equity plan accounting, are generally measured at fair value on the date of grant based on the number of shares granted, estimated forfeitures and the quoted price of the common stock.

Such value is recognized as compensation expense over the corresponding vesting period, generally three years to five years for awards currently outstanding.

However, for some RSUs currently outstanding, compensation expense is accelerated over the shortened requisite service period for employees who meet the requirements for continued vesting.

Following is a summary of time-based RSAs and time-based RSUs award activity for 2020:

(in thousands)

Weighted Average

1 unchanged sentence

Non-vested - December 31, 2019 443 $ 86.10

Granted 468 66.32

Vested ( 262 ) 70.65

Canceled ( 13 ) 79.89

Non-vested - December 31, 2020 636 $ 78.04

Additional disclosures for time-based RSAs and time-based RSUs:

Year Ended December 31,

2020 2019 2018

Weighted average grant date fair value of awards granted $ 66.32 $ 124.04 $ 65.98

Fair value of awards vested during the year (in millions)

18.1 39.7 1.2

Insperity F-26

2020 Form 10-K

Notes to the Consolidated Financial Statements

As of December 31, 2020, unrecognized compensation expense associated with the unvested RSAs and RSUs outstanding was $ 26.1 million and is expected to be recognized over a weighted average period of 20 months.

Long-Term Incentive Program Awards

12 unchanged sentences

Unvested at December 31, 2019 272 $ 79.95

Granted 113 70.05

Vested ( 115 ) 48.06

Unvested at December 31, 2020 270 $ 89.40

1 unchanged sentence

As of December 31, 2020, we estimate that approximately 167,000 , 21,000 and 89,000 shares will vest with $ 0.3 million, $ 1.0 million and $ 2.4 million in unamortized compensation expense related to the 2018, 2019 and 2020 LTIP grants, respectively.

Performance-Based Restricted Stock Units

During 2020, we granted performance-based RSUs (“pRSU”) under the 2012 Incentive Plan to our named executive officers and certain other management.

The pRSUs are performance-based short-term compensation awards in the form of performance units to certain employees based on the achievement of pre-established performance goals.

Each pRSU represents the right to receive common shares at a future date based on our performance against specified targets.

The ultimate number of shares issued and the related compensation cost recognized is based on a comparison of the final performance metrics to the specified targets, which can range from 0% to 300% of the targeted amounts.

The pRSUs have a vesting schedule of less than one year and compensation expense is recognized based on the number of common shares expected to be issued and the market price per common share on the date of grant.

For pRSUs currently outstanding, compensation expense is accelerated over the requisite service period for employees who meet the requirements for continued vesting.

Over the performance period, the number of shares expected to be issued is adjusted upward or downward based upon the probability of achievement of the performance targets.

During 2020, we granted approximately 221,000 pRSUs (at target) with a weighted average grant date fair value of $ 64.85 and canceled approximately 2,000 pRSUs (at target) with a weighted average grant date fair value of $ 65.19 .

At December 31, 2020, we had approximately 219,000 unvested pRSUs (at target) with a weighted average grant date fair value of $ 64.85 .

Insperity F-27

2020 Form 10-K

Notes to the Consolidated Financial Statements

As of December 31, 2020, we estimate that approximately 379,000 pRSUs will vest with $ 1.5 million in unamortized compensation expense related to the 2020 pRSU grants.

Employee Stock Purchase Plan

13 unchanged sentences

(in thousands)

2020 2019 2018

Net income $ 138,237 $ 151,099 $ 135,413

Less distributed and undistributed earnings allocated to participating securities ( 782 ) ( 1,759 ) ( 1,875 )

1 unchanged sentence

Weighted average common shares outstanding 38,503 40,186 41,217

Incremental shares from assumed LTIP awards and conversions of common stock options

Incremental shares from assumed time-vested and performance-based RSU awards and conversions of common stock options 317 166 289

Adjusted weighted average common shares outstanding 38,820 40,352 41,506

5 unchanged sentences

During 2020, cash paid for amounts included in the measurement of operating lease liabilities was $ 19.1 million.

Insperity F-28

2020 Form 10-K

1 unchanged sentence

The following table presents the lease balances within our Consolidated Balance Sheets, weighted average lease term and weighted average discount rates related to our operating leases:

(dollars in thousands)

Classification in Consolidated Balance Sheets

December 31, 2019

Operating lease ROU assets

Right-of-use leased assets

(dollars in thousands) Classification in Consolidated Balance Sheets December 31, 2020

Operating lease ROU assets Right-of-use leased assets $ 60,663

Lease liabilities:

Current operating lease liabilities

Other accrued liabilities

Long-term operating lease liabilities

Operating lease liabilities, net of current

Current operating lease liabilities Other accrued liabilities 16,518

Long-term operating lease liabilities Operating lease liabilities, net of current 64,289

Total operating lease liabilities 80,807

5 unchanged sentences

The following presents the maturity of our operating leases liabilities as of December 31, 2020:

(in thousands)

Operating Leases

(in thousands) Operating Leases

2021 $ 19,384

Thereafter 14,306

Total remaining obligation 89,990

6 unchanged sentences

At December 31, 2020, future purchase and service obligations greater than $100,000 and one year were as follows (in thousands):

2021 $ 24,580 (1)

Thereafter 329

Total obligations $ 43,282

1 unchanged sentence

(1) Includes $3.4 million related to the construction of a new facility on our corporate campus.

Insperity F-29

2020 Form 10-K

1 unchanged sentence

Worksite Employee 401(k) Retirement Plan Class Action Litigation

In December 2015, a class action lawsuit was filed against us and a third-party who served as the discretionary trustee of the Insperity 401(k) retirement plan that is available to eligible worksite employees (the “Plan”) in the United States District Court for the Northern District of Georgia, Atlanta Division, on behalf of Plan participants.

In December 2015, a class action lawsuit was filed against us and a third-party who served as the discretionary trustee (the “Co-Defendant”) of the Insperity 401(k) retirement plan that is available to eligible worksite employees (the “Plan”) in the United States District Court for the Northern District of Georgia, Atlanta Division, on behalf of Plan participants.

The suit generally alleges the third-party discretionary trustee of the Plan and Insperity breached their fiduciary duties to plan participants by selecting an Insperity subsidiary to serve as the recordkeeper for the Plan, by causing participants in the Plan to pay excessive recordkeeping fees to the Insperity subsidiary, by failing to monitor other fiduciaries, and by making imprudent investment choices.

1 unchanged sentence

On March 28, 2019, the court partially granted Insperity’s motion for summary judgment, resulting in the dismissal of the claims concerning allegations of excessive recordkeeping fees.

The court has denied plaintiffs’ request for a jury trial and has set a bench trial for March 2, 2020.

With respect to plaintiffs’ remaining claims, plaintiffs allege damages up to $ 146.0 million against all defendants.

We believe we have meritorious defenses, and we intend to vigorously defend this litigation.

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

At trial, the plaintiffs alleged damages up to approximately $ 146.0 million against all defendants.

All parties filed proposed findings of fact and conclusions of law on June 15, 2020.

On September 18, 2020, the plaintiffs and Co-Defendant informed the court that they reached an agreement in principle to settle the entire case, including a full and final release of all claims against Insperity.

Insperity did not participate in the settlement discussions and will make no financial contribution to the settlement.

In connection with the settlement, the plaintiffs and Co-Defendant filed a motion to extend the class period to March 31, 2019, which the court granted.

The court has also granted preliminary approval of the settlement and has set the final approval hearing on March 5, 2021.

As a result of the uncertainty regarding the outcome of this matter and the subsequent settlement agreement that, if approved by the court, will end the case with no financial contribution from Insperity, no provision has been made in the accompanying Consolidated Financial Statements.

Securities Class Action Lawsuit

In July 2020, a federal securities class action was filed against us and certain of our officers in the United States District Court for the Southern District of New York.

The name of the case is Building Trades Pension Fund of Western Pennsylvania v.

Insperity, Inc., et al., Case No.

1:20-cv-05635-NRB.

On October 23, 2020, the court issued an order appointing Oakland County Employees’ Retirement System and Oakland County Voluntary Employees’ Beneficiary Association Trust as lead plaintiff.

On December 22, 2020, the lead plaintiff filed its consolidated complaint alleging that we made materially false and misleading statements regarding our business and operations in violation of the federal securities laws and seeking unspecified damages, attorneys’ fees, costs, equitable/injunctive relief, and such other relief that may be deemed proper.

We believe the allegations in the action 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.

3 unchanged sentences

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.

Quarterly Financial Data (Unaudited)

Quarter Ended

(in thousands, except per share amounts)

Operating income

Basic net income per share

Diluted net income per share

Operating income

Basic net income per share

Diluted net income per share

Insperity F-30

2020 Form 10-K

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-K

Item 9A. Controls and Procedures