INSPERITY, INC. 10-Q

Item 1. Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) June 30, 2021 December 31, 2020 Assets Cash and cash equivalents $ 455,387 $ 554,846 Restricted cash 46,128 45,522 Marketable securities 34,597 34,529 Accounts receivable, net 595,836 392,746 Prepaid insurance 17,143 10,164 Other current assets 47,070 39,461 Income taxes receivable 5,128 — Total current assets 1,201,289 1,077,268 Property and equipment, net of accumulated depreciation 219,611 216,256 Right-of-use (“ROU”) leased assets 66,463 60,663 Prepaid health insurance 9,000 9,000 Deposits – health insurance 7,900 7,900 Deposits – workers’ compensation 203,612 186,331 Goodwill and other intangible assets, net 12,707 12,707 Deferred income taxes, net 442 9,603 Other assets 7,060 4,548 Total assets $ 1,728,084 $ 1,584,276 Liabilities and stockholders' equity Accounts payable $ 4,063 $ 6,203 Payroll taxes and other payroll deductions payable 262,975 377,960 Accrued worksite employee payroll cost 529,881 334,836 Accrued health insurance costs 29,064 32,685 Accrued workers’ compensation costs 49,845 48,186 Accrued corporate payroll and commissions 63,901 44,277 Other accrued liabilities 62,960 60,777 Total current liabilities 1,002,689 904,924 Accrued workers’ compensation cost, net of current 192,703 195,239 Long-term debt 369,400 369,400 Operating lease liabilities, net of current 69,736 64,289 Other accrued liabilities, net of current 6,294 6,292 Total noncurrent liabilities 638,133 635,220 Commitments and contingencies Common stock 555 555 Additional paid-in capital 94,396 95,528 Treasury stock, at cost ( 635,627 ) ( 626,984 ) Retained earnings 627,938 575,033 Total stockholders’ equity 87,262 44,132 Total liabilities and stockholders’ equity $ 1,728,084 $ 1,584,276 See accompanying notes. Insperity | 2021 Second Quarter Form 10-Q 6 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share amounts) 2021 2020 2021 2020 Revenues (1) $ 1,185,371 $ 993,366 $ 2,472,206 $ 2,222,849 Payroll taxes, benefits and workers’ compensation costs 985,817 773,117 2,021,207 1,768,578 Gross profit 199,554 220,249 450,999 454,271 Salaries, wages and payroll taxes 94,362 90,710 197,437 177,211 Stock-based compensation 13,781 10,694 25,603 17,246 Commissions 8,251 7,475 15,970 15,935 Advertising 8,975 5,720 14,297 10,553 General and administrative expenses 29,211 24,755 60,847 59,608 Depreciation and amortization 9,751 7,908 17,798 15,510 Total operating expenses 164,331 147,262 331,952 296,063 Operating income 35,223 72,987 119,047 158,208 Other income (expense): Interest income 1,436 369 1,979 2,248 Interest expense ( 1,975 ) ( 2,219 ) ( 3,574 ) ( 4,581 ) Income before income tax expense 34,684 71,137 117,452 155,875 Income tax expense 9,530 19,286 30,376 41,932 Net income $ 25,154 $ 51,851 $ 87,076 $ 113,943 Less distributed and undistributed earnings allocated to participating securities ( 37 ) ( 276 ) ( 193 ) ( 724 ) Net income allocated to common shares $ 25,117 $ 51,575 $ 86,883 $ 113,219 Net income per share of common stock Basic $ 0.65 $ 1.34 $ 2.26 $ 2.93 Diluted $ 0.65 $ 1.33 $ 2.24 $ 2.91 ____________________________________ (1) Revenues are comprised of gross billings less WSEE payroll costs as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2021 2020 2021 2020 Gross billings $ 7,637,851 $ 6,355,683 $ 15,688,273 $ 13,792,437 Less: WSEE payroll cost 6,452,480 5,362,317 13,216,067 11,569,588 Revenues $ 1,185,371 $ 993,366 $ 2,472,206 $ 2,222,849 See accompanying notes. Insperity | 2021 Second Quarter Form 10-Q 7 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, (in thousands) 2021 2020 Cash flows from operating activities Net income $ 87,076 $ 113,943 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,798 15,510 Stock-based compensation 25,603 17,246 Deferred income taxes 9,161 4,668 Changes in operating assets and liabilities: Accounts receivable ( 203,559 ) ( 8,156 ) Prepaid insurance ( 6,979 ) ( 13,076 ) Other current assets ( 7,609 ) 8,842 Other assets and ROU assets 5,407 6,979 Accounts payable ( 2,140 ) ( 1,680 ) Payroll taxes and other payroll deductions payable ( 114,985 ) ( 57,756 ) Accrued worksite employee payroll expense 195,045 7,209 Accrued health insurance costs ( 3,621 ) 8,534 Accrued workers’ compensation costs ( 877 ) ( 357 ) Accrued corporate payroll, commissions and other accrued liabilities 13,697 ( 19,273 ) Income taxes payable/receivable ( 7,022 ) 32,228 Total adjustments ( 80,081 ) 918 Net cash provided by operating activities 6,995 114,861 Cash flows from investing activities Marketable securities: Purchases ( 30,862 ) ( 25,438 ) Proceeds from dispositions — 484 Proceeds from maturities 30,340 27,625 Property and equipment: Purchases ( 20,708 ) ( 39,466 ) Net cash used in investing activities ( 21,230 ) ( 36,795 ) Cash flows from financing activities Purchase of treasury stock ( 38,536 ) ( 61,230 ) Dividends paid ( 32,828 ) ( 31,074 ) Borrowings under revolving line of credit — 100,000 Other 4,027 4,247 Net cash provided by (used in) financing activities ( 67,337 ) 11,943 Net increase (decrease) in cash, cash equivalents and restricted cash ( 81,572 ) 90,009 Cash, cash equivalents and restricted cash beginning of period 786,699 592,550 Cash, cash equivalents and restricted cash end of period $ 705,127 $ 682,559 Insperity | 2021 Second Quarter Form 10-Q 8 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Six Months Ended June 30, (in thousands) 2021 2020 Supplemental schedule of cash and cash equivalents and restricted cash Cash and cash equivalents $ 554,846 $ 367,342 Restricted cash 45,522 49,295 Deposits – workers’ compensation 186,331 175,913 Cash, cash equivalents and restricted cash beginning of period $ 786,699 $ 592,550 Cash and cash equivalents $ 455,387 $ 459,399 Restricted cash 46,128 45,216 Deposits – workers’ compensation 203,612 177,944 Cash, cash equivalents and restricted cash end of period $ 705,127 $ 682,559 Supplemental operating lease cash flow information: ROU assets obtained in exchange for lease obligations $ 15,047 $ 10,196 See accompanying notes. Insperity | 2021 Second Quarter Form 10-Q 9 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the Six Months Ended June 30, 2021 and 2020 Common Stock Issued Additional Paid-In Capital Treasury Stock Retained Earnings and AOCI Total (in thousands) Shares Amount Balance at December 31, 2020 55,489 $ 555 $ 95,528 $ ( 626,984 ) $ 575,033 $ 44,132 Purchase of treasury stock, at cost — — — ( 38,536 ) — ( 38,536 ) Issuance of equity-based incentive awards and dividend equivalents — — ( 25,085 ) 26,421 ( 1,336 ) — Stock-based compensation expense — — 23,439 2,164 — 25,603 Exercise of stock options — — ( 329 ) 569 — 240 Other — — 843 739 — 1,582 Dividends paid — — — — ( 32,828 ) ( 32,828 ) Unrealized loss on marketable securities, net of tax — — — — ( 7 ) ( 7 ) Net income — — — — 87,076 87,076 Balance at June 30, 2021 55,489 $ 555 $ 94,396 $ ( 635,627 ) $ 627,938 $ 87,262 Balance at December 31, 2019 55,489 $ 555 $ 48,141 $ ( 544,102 ) $ 499,485 $ 4,079 Purchase of treasury stock, at cost — — — ( 61,230 ) — ( 61,230 ) Issuance of equity-based 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 — — — — 69 69 Net income — — — — 113,943 113,943 Balance at June 30, 2020 55,489 $ 555 $ 54,783 $ ( 592,313 ) $ 581,613 $ 44,638 Insperity | 2021 Second Quarter Form 10-Q 10 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued) For the Three Months Ended June 30, 2021 and 2020 Common Stock Issued Additional Paid-In Capital Treasury Stock Retained Earnings and AOCI Total (in thousands) Shares Amount Balance at March 31, 2021 55,489 $ 555 $ 81,329 $ ( 628,391 ) $ 620,151 $ 73,644 Purchase of treasury stock, at cost — — — ( 8,850 ) — ( 8,850 ) Stock-based compensation expense — — 12,588 1,193 — 13,781 Other — — 479 421 — 900 Dividends paid — — — — ( 17,367 ) ( 17,367 ) Net income — — — — 25,154 25,154 Balance at June 30, 2021 55,489 $ 555 $ 94,396 $ ( 635,627 ) $ 627,938 $ 87,262 Balance at March 31, 2020 55,489 $ 555 $ 46,327 $ ( 595,487 ) $ 545,295 $ ( 3,310 ) 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 See accompanying notes. Insperity | 2021 Second Quarter Form 10-Q 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation Insperity, Inc., a Delaware corporation (“Insperity,” “we,” “our,” and “us”), provides an array of human resources (“HR”) and business solutions designed to help improve business performance. Our most comprehensive HR services offerings are provided through our professional employer organization (“PEO”) services, known as Workforce Optimization ® and Workforce Synchronization TM solutions (together, our “PEO HR Outsourcing solutions”), which we provide by entering into a co-employment relationship with our clients. Our PEO HR Outsourcing solutions encompass a broad range of HR functions, including payroll and employment administration, employee benefits, workers’ compensation, government compliance, performance management, and training and development services, along with our cloud-based human capital management solution, the Insperity Premier TM platform. In addition to our PEO HR Outsourcing solutions, we offer a comprehensive traditional payroll and human capital management solution, known as Workforce Acceleration TM . 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. The Consolidated Financial Statements include the accounts of Insperity, Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The accompanying Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements at and for the year ended December 31, 2020. Our Condensed Consolidated Balance Sheet at December 31, 2020 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 June 30, 2021 and our Consolidated Statements of Operations for the three and six month periods ended June 30, 2021 and 2020, our Consolidated Statements of Cash Flows for the six month periods ended June 30, 2021 and 2020 and our Consolidated Statements of Stockholders’ Equity for the three and six month periods ended June 30, 2021 and 2020, have been prepared by us without audit. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows have been made, and all such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the operating results for a full year or of future operations. 2. Accounting Policies Health Insurance Costs We provide group health insurance coverage to our WSEEs in our PEO HR Outsourcing solutions through a national network of carriers, including UnitedHealthcare (“United”), UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield of Hawaii, and Tufts, all of which provide fully insured policies or service contracts. The policy with United provides approximately 87 % of our participants’ health insurance coverage. 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 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. The estimated incurred claims are based upon: (1) the level of claims processed during the quarter; (2) estimated completion rates based upon recent claim development patterns under Insperity | 2021 Second Quarter Form 10-Q 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) the plan; and (3) the number of participants in the plan, including both active and COBRA enrollees. Each reporting period, changes in the estimated ultimate costs resulting from claim trends, plan design and migration, participant demographics and other factors are incorporated into the benefits costs, 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. If the Plan Costs for a reporting quarter are greater than the premiums paid and owed to United, a deficit in the plan would be incurred and a liability for the excess costs would be accrued in our Condensed Consolidated Balance Sheets. On the other hand, if the Plan Costs for the reporting quarter are less than the premiums paid and owed to United, a surplus in the plan would be incurred and we would record an asset for the excess premiums in our Condensed Consolidated Balance Sheets. The terms of the arrangement require us to maintain an accumulated cash surplus in the plan of $ 9.0 million, which is reported as long-term prepaid insurance. In addition, United requires a deposit equal to approximately one day of claims funding activity, which was $ 6.5 million at June 30, 2021, and is included in deposits - health insurance as a long-term asset on our Condensed Consolidated Balance Sheets. As of June 30, 2021, Plan Costs were less than the net premiums paid and owed to United by $ 0.6 million. As this amount is less than the agreed-upon $ 9.0 million surplus maintenance level, the $ 8.4 million difference is included in accrued health insurance costs, a current liability, in our Condensed Consolidated Balance Sheets. The premiums, including the additional quarterly premiums, owed to United at June 30, 2021 were $ 14.5 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 2021 included an increase of $ 5.7 million for changes in estimated run-off related to prior periods. 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. Workers’ Compensation Costs Our workers’ compensation coverage for our WSEEs in our PEO HR Outsourcing solutions has been provided through an arrangement with the Chubb Group of Insurance Companies or its predecessors (the “Chubb Program”) since 2007. The Chubb Program is fully insured in that Chubb has the responsibility to pay all claims incurred under the policy regardless of whether we satisfy our responsibilities. Under the Chubb Program for claims incurred on or before September 30, 2019, we have financial responsibility to Chubb for the first $ 1 million layer of claims per occurrence and, for claims over $ 1 million, up to a maximum aggregate amount of $ 6 million per policy year for claims that exceed $ 1 million. Chubb bears the financial responsibility for all claims in excess of these levels. Effective for claims incurred on or after October 1, 2019, we have financial responsibility to Chubb for the first $ 1.5 million layer of claims per occurrence and, for claims over $ 1.5 million, up to a maximum aggregate amount of $ 6 million per policy year for claims that exceed $ 1.5 million. 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 injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment. We utilize a third-party actuary to estimate our loss development rate, which is primarily based upon the nature of WSEEs’ job responsibilities, the location of WSEEs, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers’ compensation claims cost estimates. During the six months ended June 30, 2021 and 2020, we reduced accrued workers’ compensation costs by $ 23.0 million and $ 22.2 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 2021 period was 0.5 % and in the 2020 period was 0.8 %) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Operations. Insperity | 2021 Second Quarter Form 10-Q 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following table provides the activity and balances related to incurred but not paid workers’ compensation claims: Six Months Ended June 30, (in thousands) 2021 2020 Beginning balance, January 1, $ 240,761 $ 242,904 Accrued claims 20,559 21,888 Present value discount, net of accretion 407 223 Paid claims ( 22,904 ) ( 22,298 ) Ending balance $ 238,823 $ 242,717 Current portion of accrued claims $ 46,120 $ 45,216 Long-term portion of accrued claims 192,703 197,501 Total accrued claims $ 238,823 $ 242,717 The current portion of accrued workers’ compensation costs on our Condensed Consolidated Balance Sheets at June 30, 2021 includes $ 3.7 million of workers’ compensation administrative fees. As of June 30, 2021 and 2020, the undiscounted accrued workers’ compensation costs were $ 254.8 million and $ 261.4 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”). The level of claim funds is primarily based upon anticipated WSEE payroll levels and expected workers’ compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as restricted cash, a short-term asset, while the remainder of claim funds are included in deposits – workers’ compensation, a long-term asset in our Condensed Consolidated Balance Sheets. At June 30, 2021, we had restricted cash of $ 46.1 million and deposits – workers’ compensation of $ 203.6 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. Revenue and Direct Cost Recognition We enter into contracts with our customers for human resources services based on a stated rate and price in the contract. Our contracts generally establish pricing for a period of 12 months, and are generally cancellable at any time by either party with 30-days’ notice. Our performance obligations are satisfied as services are rendered each month. The term between invoicing and when our performance obligations are satisfied is not significant. Payment terms are typically due concurrently with the invoicing of our PEO services. We do not have significant financing components or significant payment terms. Our revenue is generally recognized ratably over the payroll period as WSEEs perform their service at the client worksite. Customers are invoiced concurrently with each periodic payroll of its WSEEs. Revenues that have been recognized but unbilled of $ 585.4 million and $ 380.8 million at June 30, 2021 and December 31, 2020, respectively, are included in accounts receivable, net on our Condensed Consolidated Balance Sheets. Pursuant to the “practical expedients” provided under Accounting Standards Update 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 | 2021 Second Quarter Form 10-Q 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 June 30, Six Months Ended June 30, (in thousands) 2021 2020 % Change 2021 2020 % Change Northeast $ 329,016 $ 273,543 20.3 % $ 702,645 $ 617,401 13.8 % Southeast 150,810 117,013 28.9 % 307,070 258,175 18.9 % Central 206,084 177,022 16.4 % 431,784 388,314 11.2 % Southwest 238,368 222,734 7.0 % 495,348 494,658 0.1 % West 247,184 192,310 28.5 % 508,538 439,121 15.8 % 1,171,462 982,622 19.2 % 2,445,385 2,197,669 11.3 % Other revenue 13,909 10,744 29.5 % 26,821 25,180 6.5 % Total revenue $ 1,185,371 $ 993,366 19.3 % $ 2,472,206 $ 2,222,849 11.2 % 3. 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: June 30, 2021 December 31, 2020 (in thousands) Cash & Cash Equivalents Marketable Securities Total Cash & Cash Equivalents Marketable Securities Total Overnight holdings $ 387,027 $ — $ 387,027 $ 503,221 $ — $ 503,221 Investment holdings 47,987 34,597 82,584 47,992 34,529 82,521 Cash in demand accounts 31,931 — 31,931 33,692 — 33,692 Outstanding checks ( 11,558 ) — ( 11,558 ) ( 30,059 ) — ( 30,059 ) Total $ 455,387 $ 34,597 $ 489,984 $ 554,846 $ 34,529 $ 589,375 Our cash and overnight holdings fluctuate based on the timing of clients’ payroll processing cycles. Our cash, cash equivalents and marketable securities at June 30, 2021 and December 31, 2020 included $ 226.7 million and $ 342.0 million, respectively, of funds associated with federal and state income tax withholdings, employment taxes and other payroll deductions, as well as $ 50.4 million and $ 35.3 million, respectively, in client prepayments. 4. Fair Value Measurements We account for our financial assets in accordance with Accounting Standard Codification 820, Fair Value Measurement . This standard defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value measurement disclosures are grouped into three levels based on valuation factors: • 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 Insperity | 2021 Second Quarter Form 10-Q 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Fair Value of Instruments Measured and Recognized at Fair Value The following table summarizes the levels of fair value measurements of our financial assets: June 30, 2021 December 31, 2020 (in thousands) Total Level 1 Level 2 Total Level 1 Level 2 Money market funds $ 435,014 $ 435,014 $ — $ 551,213 $ 551,213 $ — U.S. Treasury bills 12,318 12,318 — 10,531 10,531 — Municipal bonds 22,279 — 22,279 23,998 — 23,998 Total $ 469,611 $ 447,332 $ 22,279 $ 585,742 $ 561,744 $ 23,998 The municipal bond securities valued as Level 2 are primarily pre-refunded municipal bonds that are secured by escrow funds containing U.S. government securities. Our valuation techniques used to measure fair value for these securities during the period consisted primarily of third-party pricing services that utilized actual market data such as trades of comparable bond issues, broker/dealer quotations for the same or similar investments in active markets and other observable inputs. The following is a summary of our available-for-sale marketable securities: (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value June 30, 2021 U.S. Treasury bills $ 12,318 $ — $ — $ 12,318 Municipal bonds 22,281 1 ( 3 ) 22,279 Total $ 34,599 $ 1 $ ( 3 ) $ 34,597 December 31, 2020 U.S. Treasury bills $ 10,530 $ 1 $ — $ 10,531 Municipal bonds 23,994 8 ( 4 ) 23,998 Total $ 34,524 $ 9 $ ( 4 ) $ 34,529 As of June 30, 2021, the contractual maturities of our marketable securities were as follows: (in thousands) Amortized Cost Estimated Fair Value Less than one year $ 29,469 $ 29,468 One to five years 5,130 5,129 Total $ 34,599 $ 34,597 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 June 30, 2021, 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 | 2021 Second Quarter Form 10-Q 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. Long-Term Debt We have a revolving credit facility (the “Facility”) with borrowing capacity of up to $ 500 million. The Facility may be further increased to $ 550 million based on the terms and subject to the conditions set forth in the agreement relating to the Facility (as amended, the “Credit Agreement”). The Facility is available for working capital and general corporate purposes, including acquisitions, stock repurchases and issuances of letters of credit. Our obligations under the Facility are secured by 65 % of the stock of our captive insurance subsidiary and are guaranteed by all of our domestic subsidiaries other than certain excluded subsidiaries. At June 30, 2021, 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 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 % per year. The average interest rate for the six month period ended June 30, 2021 was 1.9 %. Interest expense and unused commitment fees are recorded in other income (expense). Following early opt-in by us or our lenders or such other time as LIBOR rates have permanently or indefinitely ceased to be published by the regulatory supervisory authority of LIBOR, then LIBOR will be replaced by a rate per annum equal to the secured overnight financing rate published by the Federal Reserve Bank of New York or such other benchmark as determined in accordance with the Credit Agreement. The Facility contains both affirmative and negative covenants that we believe are customary for arrangements of this nature. Covenants include, but are not limited to, limitations on our ability to incur additional indebtedness, sell material assets, retire, redeem or otherwise reacquire our capital stock, acquire the capital stock or assets of another business, make investments and pay dividends. In addition, the Credit Agreement requires us to comply with financial covenants limiting our total funded debt, minimum interest coverage ratio and maximum leverage ratio. We were in compliance with all financial covenants under the Credit Agreement at June 30, 2021. 6. Stockholders' Equity During the first six months of 2021, we repurchased or withheld an aggregate of 437,903 shares of our common stock, as described below. Repurchase Program Our Board of Directors (the “Board”) has authorized a program to repurchase shares of our outstanding common stock (“Repurchase Program”). The purchases may 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. During the six months ended June 30, 2021, 147,281 shares were repurchased under the Repurchase Program. As of June 30, 2021, we were authorized to repurchase an additional 980,856 shares under the Repurchase Program. Withheld Shares During the six months ended June 30, 2021, we withheld 290,622 shares to satisfy tax withholding obligations for the vesting of long-term incentive and restricted stock awards. Dividends The Board declared quarterly dividends as follows: (amounts per share) 2021 2020 First quarter $ 0.40 $ 0.40 Second quarter 0.45 0.40 Insperity | 2021 Second Quarter Form 10-Q 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) During the six months ended June 30, 2021 and 2020, we paid dividends totaling $ 32.8 million and $ 31.1 million, respectively. 7. Net Income Per Share We utilize the two-class method to compute net income per share. The two-class method allocates a portion of net income to participating securities, which includes unvested awards of share-based payments with non-forfeitable rights to receive dividends. Net income allocated to unvested share-based payments is excluded from net income allocated to common shares. Any undistributed losses resulting from dividends exceeding net income are not allocated to participating securities. Basic net income per share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding during the period, plus the dilutive effect of time-vested and performance-based restricted stock units (“RSUs”) and outstanding stock options. The following table summarizes the net income allocated to common shares and the basic and diluted shares used in the net income per share computations: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2021 2020 2021 2020 Net income $ 25,154 $ 51,851 $ 87,076 $ 113,943 Less distributed and undistributed earnings allocated to participating securities ( 37 ) ( 276 ) ( 193 ) ( 724 ) Net income allocated to common shares $ 25,117 $ 51,575 $ 86,883 $ 113,219 Weighted average common shares outstanding 38,591 38,567 38,410 38,684 Incremental shares from assumed time-vested and performance-based RSU awards and conversions of common stock options 232 79 427 173 Adjusted weighted average common shares outstanding 38,823 38,646 38,837 38,857 8. Commitments and Contingencies 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 (“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. On April 26, 2021, the defendants moved to dismiss the consolidated complaint with prejudice. The Lead Plaintiff filed its opposition to the motion to dismiss on June 10, 2021, and the defendants filed their reply in support of the motion to dismiss on July 12, 2021. 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. Insperity | 2021 Second Quarter Form 10-Q 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Other Litigation We are a defendant in various other lawsuits and claims arising in the normal course of business. Management believes it has valid defenses in these cases and is defending them vigorously. While the results of litigation cannot be predicted with certainty, management believes the final outcome of such litigation will not have a material adverse effect on our financial position or results of operations. Insperity | 2021 Second Quarter Form 10-Q 19 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS