News Column

INSPERITY, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

August 1, 2014

You should read the following discussion in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013, as well as our Consolidated Financial Statements and notes thereto included in this quarterly report on Form 10-Q.



New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 outlines a single comprehensive revenue recognition model for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Under ASU No. 2014-09, an entity recognizes revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 is effective for annual reporting periods ending after December 15, 2016, and early adoption is not permitted. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU No. 2014-09. We are currently evaluating the guidance and have not determined the impact this standard may have on our Consolidated Financial Statements.



Results of Operations

Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013.

The following table presents certain information related to our results of operations: Three Months Ended June 30, 2014 2013 % Change (in thousands, except per share and statistical data) Revenues (gross billings of $3.281 billion and $3.167 billion, less worksite employee payroll cost of $2.716 billion and $2.620 billion, respectively) $ 564,621$ 547,274 3.2 % Gross profit 95,453 97,746 (2.3 )% Operating expenses 92,039 (1) 87,518 5.2 % Operating income 3,414 10,228 (66.6 )% Other income (expense) 36 (2,616 ) (2) (101.4 )% Net income 1,891 3,488 (45.8 )% Diluted net income per share of common stock 0.07 0.14 (50.0 )% Statistical Data: Average number of worksite employees paid per month 128,274 126,696 1.2 %



Revenues per worksite employee per month(3) $ 1,467 $ 1,440

1.9 % Gross profit per worksite employee per month 248 257 (3.5 )% Operating expenses per worksite employee per month 239 230 3.9 % Operating income per worksite employee per month 9 27 (66.7 )% Net income per worksite employee per month 5 9 (44.4 )%



____________________________________

(1) Includes a non-cash impairment charge of $2.5 million, or $0.06 per share.

Please read Note 4 to the Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for additional information. - 17 -



--------------------------------------------------------------------------------

Table of Contents

(2) Includes the impact of a $2.7 million, or $0.10 per share, non-cash

impairment charge in the second quarter of 2013. Please read Note 5 to the

Consolidated Financial Statements, "Other Assets," for additional information.



(3) Gross billings of $8,526 and $8,332 per worksite employee per month, less

payroll cost of $7,059 and $6,892 per worksite employee per month, respectively. Revenues Our revenues for the second quarter of 2014 increased 3.2% over the 2013 period, primarily due to a 1.2% increase in the average number of worksite employees paid per month and a 1.9%, or $27, increase in revenues per worksite employee per month. We provide our Workforce Optimization solution to small and medium-sized businesses in strategically selected markets throughout the United States. By region, our Workforce Optimization revenue change from the second quarter of 2013 and distribution for the quarters ended June 30, 2014 and 2013 were as follows: Three Months Ended Three Months Ended June 30, June 30, 2014 2013 % Change 2014 2013 (in thousands) (% of total revenue) Northeast $ 143,436$ 141,054 1.7 % 25.9 % 26.2 % Southeast 55,210 51,435 7.3 % 10.0 % 9.6 % Central 79,618 78,941 0.9 % 14.4 % 14.7 % Southwest 151,238 148,042 2.2 % 27.3 % 27.5 % West 124,903 119,082 4.9 % 22.4 % 22.0 % 554,405 538,554 2.9 % 100.0 % 100.0 % Other revenue(1) 10,216 8,720 17.2 % Total revenue $ 564,621$ 547,274 3.2 % _____________________________



(1) Comprised primarily of revenues generated by Adjacent Businesses.

The percentage of total Workforce Optimization revenues in our significant markets include the following:

Three Months Ended June 30, 2014 2013 Texas 25.2 % 25.5 % California 17.7 % 17.6 % New York 9.6 % 9.5 % Other 47.5 % 47.4 % Total 100.0 % 100.0 % Our Workforce Optimization growth rate is affected by three primary sources - worksite employees paid from new client sales, client retention and the net change in existing clients through worksite employee new hires and layoffs. During the second quarter of 2014, we saw slight improvement in the net change in existing clients as compared with the second quarter of 2013, while worksite employees paid from new client sales and client retention remained flat compared to the second quarter of 2013. - 18 -



--------------------------------------------------------------------------------

Table of Contents

Gross Profit

Gross profit for the second quarter of 2014 decreased 2.3% compared to the second quarter of 2013 to $95.5 million. The average gross profit per worksite employee decreased 3.5% to $248 per month in the 2014 period from $257 per month in the 2013 period. Included in gross profit in the 2014 period is a $17 per worksite employee per month contribution from our Adjacent Businesses compared to $14 per worksite employee per month in the 2013 period. Our pricing objectives attempt to maintain or improve the gross profit per worksite employee by increasing revenue per worksite employee to match or exceed changes in primary direct costs and operating expenses. Our revenues during the second quarter of 2014 increased 1.9% per worksite employee per month over the second quarter of 2013. However, our direct costs, which primarily include payroll taxes, benefits and workers' compensation expenses, increased 3.0% to $1,219 per worksite employee per month in the second quarter of 2014 versus $1,183 in the second quarter of 2013. The primary direct cost components changed as follows:



Benefits costs - The cost of group health insurance and related employee

benefits increased $27 per worksite employee per month, or 5.0% on a cost

per covered employee basis over the second quarter of 2013. Our benefits

costs incurred in the second quarter of 2014 included $3.3 million, or $9 per worksite employee per month, of additional taxes primarily due to new health care reform requirements. Also included in our benefits costs are



reductions for lower than expected claim costs and premium taxes related to

prior periods of $3.1 million, or $8 per worksite employee per month, in the

second quarter of 2014 and $3.4 million, or $9 per worksite employee per

month, in the second quarter of 2013. The percentage of worksite employees

covered under our health insurance plans was 71.6% in the 2014 period and

72.1% in the 2013 period. Please read Note 2 to the Consolidated Financial

Statements, "Accounting Policies-Health Insurance Costs," for a discussion

of our accounting for health insurance costs.



Workers' compensation costs - Workers' compensation costs increased $4 per

worksite employee per month, or 13.8%, compared to the second quarter of

2013, primarily due to higher incurred claim levels. As a percentage of

non-bonus payroll cost, workers' compensation costs were 0.62% in the 2014

period compared to 0.55% in the 2013 period. During the 2014 period, we

recorded reductions in workers' compensation costs of $1.1 million, or 0.04%

of non-bonus payroll costs, for changes in estimated losses related to prior

reporting periods, compared to $3.0 million, or 0.12% of non-bonus payroll

costs in the 2013 period. Please read Note 2 to the Consolidated Financial

Statements, "Accounting Policies - Workers' Compensation Costs," for a discussion of our accounting for workers' compensation costs.



Payroll tax costs - Payroll taxes increased 2.1%, or $4 per worksite

employee per month, compared to the second quarter of 2013, primarily due to

a 3.7% increase in total payroll costs. Payroll taxes as a percentage of

payroll cost were 7.0% in the 2014 period and 7.1% in the 2013 period.



Operating Expenses

The following table presents certain information related to our operating expenses: Three Months Ended Three Months Ended June 30, June 30, 2014 2013 % Change 2014 2013 % Change (in thousands) (per worksite employee per month) Salaries, wages and payroll taxes $ 47,829$ 45,689 4.7 % $ 124$ 120 3.3 % Stock-based compensation 3,245 3,292 (1.4 )% 8 9 (11.1 )% Commissions 3,717 3,533 5.2 % 10 9 11.1 % Advertising 8,356 9,720 (14.0 )% 22 25 (12.0 )% General and administrative expenses 21,116 20,039 5.4 % 55 53 3.8 % Impairment charge 2,485 - - 6 - - Depreciation and amortization 5,291 5,245 0.9 % 14 14 - Total operating expenses $ 92,039$ 87,518 5.2 % $ 239$ 230 3.9 % - 19 -



--------------------------------------------------------------------------------

Table of Contents

Operating expenses increased 5.2% to $92.0 million compared to $87.5 million in the second quarter of 2013. We recorded impairment charges of $2.5 million in our Employment Screening reporting unit in the second quarter of 2014. Please read Note 4 to the Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for additional information. Operating expenses per worksite employee per month increased to $239 in the 2014 period from $230 in the 2013 period. The components of operating expenses changed as follows:



Salaries, wages and payroll taxes of corporate and sales staff increased

4.7%, or $4 per worksite employee per month, compared to the 2013 period,

primarily due to a 3.5% rise in headcount. Stock-based compensation decreased 1.4%, or $1 per worksite employee per month, compared to the 2013 period. Stock-based compensation expense



represents amortization of restricted stock awards granted to employees.

Commissions expense increased 5.2%, or $1 per worksite employee per month,

compared to the 2013 period, primarily due to commissions associated with

our Adjacent Businesses.



Advertising costs decreased 14.0%, or $3 per worksite employee per month,

compared to the 2013 period, primarily due to lower media advertising costs

in the 2014 period.



General and administrative expenses increased 5.4%, or $2 per worksite

employee per month, compared to the 2013 period, primarily due to increased

costs in professional services related to our investment in Human Capital

Management technology. Other Income (Expense) Other expense decreased $2.7 million in the second quarter of 2014 compared to the second quarter of 2013, primarily due to the non-cash impairment charge related to our minority investment in The Receivables Exchange in the second quarter of 2013. Please read Note 5 to the Consolidated Financial Statements, "Other Assets," for additional information.



Income Tax Expense

Our effective income tax rate was 45.2% in the 2014 period compared to 54.2% in the 2013 period. Our provision for income taxes differed from the U.S. statutory rate of 35% primarily due to state income taxes, non-deductible expenses, and the effects of the impairment charges recorded during the period. The effect of the non-cash impairment charges on the income tax rates for the 2014 and 2013 periods was 3.5% and 14.1%, respectively.



Operating and Net Income

Operating and net income per worksite employee per month was $9 and $5 in the 2014 period, versus $27 and $9 in the 2013 period.

- 20 -



--------------------------------------------------------------------------------

Table of Contents

Results of Operations

Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013.

The following table presents certain information related to our results of operations: Six Months Ended June 30, 2014 2013 % Change (in thousands, except per share and statistical data) Revenues (gross billings of $6.869 billion and $6.499 billion, less worksite employee payroll cost of $5.667 billion and $5.340 billion, respectively) $ 1,201,620$ 1,159,110 3.7 % Gross profit 201,629 205,864 (2.1 )% Operating expenses 181,624 (1) 173,627 4.6 % Operating income 20,005 32,237 (37.9 )% Other income (expense) 57 (2,538 ) (2) (102.2 )% Net income 11,455 16,661 (31.2 )% Diluted net income per share of common stock 0.45 0.65 (30.8 )% Statistical Data: Average number of worksite employees paid per month 127,281 125,044 1.8 %



Revenues per worksite employee per month(3) $ 1,573 $

1,545 1.8 % Gross profit per worksite employee per month 264 274 (3.6 )% Operating expenses per worksite employee per month 238 231 3.0 % Operating income per worksite employee per month 26 43 (39.5 )% Net income per worksite employee per month 15 22 (31.8 )%



____________________________________

(1) Includes a non-cash impairment charge of $2.5 million, or $0.06 per share in

the second quarter of 2014. Please read Note 4 to the Consolidated Financial

Statements, "Goodwill and Other Intangible Assets," for additional information.



(2) Includes the impact of a $2.7 million, or $0.10 per share, non-cash

impairment charge in the second quarter of 2013. Please read Note 5 to the

Consolidated Financial Statements, "Other Assets," for additional information.



(3) Gross billings of $8,994 and $8,663 per worksite employee per month, less

payroll cost of $7,421 and $7,118 per worksite employee per month, respectively. Revenues Our revenues for the six months ended June 30, 2014 increased 3.7% over the 2013 period, primarily due to a 1.8% increase in the average number of worksite employees paid per month and a 1.8%, or $28, increase in revenues per worksite employee per month. - 21 -



--------------------------------------------------------------------------------

Table of Contents

We provide our Workforce Optimization solution to small and medium-sized businesses in strategically selected markets throughout the United States. By region, our Workforce Optimization revenue change from the first six months of 2013 and distribution for the six months ended June 30, 2014 and 2013 were as follows: Six Months Ended Six Months Ended June 30, June 30, 2014 2013 % Change 2014 2013 (in thousands) (% of total revenue) Northeast $ 309,298$ 303,344 2.0 % 26.2 % 26.6 % Southeast 115,835 107,121 8.1 % 9.8 % 9.4 % Central 170,016 168,691 0.8 % 14.4 % 14.8 % Southwest 320,752 312,102 2.8 % 27.1 % 27.3 % West 266,059 250,771 6.1 % 22.5 % 21.9 % 1,181,960 1,142,029 3.5 % 100.0 % 100.0 % Other revenue(1) 19,660 17,081 15.1 % Total revenue $ 1,201,620$ 1,159,110 3.7 %



_____________________________

(1) Comprised primarily of revenues generated by Adjacent Businesses.

The percentage of total Workforce Optimization revenues in our significant markets include the following:

Six Months Ended June 30, 2014 2013 Texas 25.1 % 25.4 % California 17.8 % 17.5 % New York 9.9 % 9.7 % Other 47.2 % 47.4 % Total 100.0 % 100.0 % Our Workforce Optimization growth rate is affected by three primary sources - worksite employees paid from new client sales, client retention and the net change in existing clients through worksite employee new hires and layoffs. During the first six months of 2014, we saw slight improvement in worksite employees paid from new client sales as compared with the first six months of 2013, while client retention remained flat and the net change in existing clients declined modestly compared to the first six months of 2013.



Gross Profit

Gross profit for the first six months of 2014 decreased 2.1% compared to the first six months of 2013 to $201.6 million. The average gross profit per worksite employee decreased 3.6% to $264 per month in the 2014 period from $274 per month in the 2013 period. Included in gross profit in the 2014 period is a $16 per worksite employee per month contribution from our Adjacent Businesses compared to $14 per worksite employee per month in the 2013 period. Our pricing objectives attempt to maintain or improve the gross profit per worksite employee by increasing revenue per worksite employee to match or exceed changes in primary direct costs and operating expenses. Our revenues during the first six months of 2014 increased 1.8% per worksite employee per month as compared to the first six months of 2013. However, our direct costs, which primarily include payroll taxes, benefits and workers' compensation expenses, increased 3.0% to $1,309 per worksite employee per month in the first six months of 2014 versus $1,271 in the first six months of 2013. The primary direct cost components changed as follows: - 22 -



--------------------------------------------------------------------------------

Table of Contents

Benefits costs - The cost of group health insurance and related employee

benefits increased $30 per worksite employee per month, or 5.2% on a cost

per covered employee basis compared to the first six months of 2013. Our

benefits costs incurred in the first six months of 2014 included costs of

$2.8 million, or $4 per worksite employee per month, for changes in

estimated run-off related to 2013. However, in 2013 benefits costs included

a reduction of $3.4 million, or $5 per worksite employee per month, for

lower than expected claim costs and premium taxes related to prior periods.

In addition $5.4 million, or $7 per worksite employee per month, of additional taxes were included in the 2014 period, primarily due to new health care reform requirements. The percentage of worksite employees covered under our health insurance plans was 72.0% in the 2014 period



compared to 72.3% in the 2013 period. Please read Note 2 to the Consolidated

Financial Statements, "Accounting Policies-Health Insurance Costs," for a

discussion of our accounting for health insurance costs.

Workers' compensation costs - Workers' compensation costs increased $6 per

worksite employee per month, or 19.0%, compared to the first six months of

2013, primarily due to higher incurred claim levels. As a percentage of

non-bonus payroll cost, workers' compensation costs were 0.63% in the 2014

period compared to 0.54% in the 2013 period. During the 2014 period, we

recorded reductions in workers' compensation costs of $2.0 million, or 0.04%

of non-bonus payroll costs, for changes in estimated losses related to prior

reporting periods, compared to $6.5 million, or 0.14% of non-bonus payroll

costs in the 2013 period. Please read Note 2 to the Consolidated Financial

Statements, "Accounting Policies - Workers' Compensation Costs," for a discussion of our accounting for workers' compensation costs. Payroll tax costs - Payroll taxes increased 2.2%, or $2 per worksite



employee per month, compared to the first six months of 2013, primarily due

to a 6.1% increase in total payroll costs offset by lower state unemployment

tax rates. Payroll taxes as a percentage of payroll cost were 8.0% in the 2014 period compared to 8.3% in the 2013 period.



Operating Expenses

The following table presents certain information related to our operating expenses: Six Months Ended Six Months Ended June 30, June 30, 2014 2013 % Change 2014 2013 % Change (in thousands) (per worksite employee per month) Salaries, wages and payroll taxes $ 98,861$ 93,900 5.3 % $ 129$ 125 3.2 % Stock-based compensation 5,645 5,602 0.8 % 7 7 - Commissions 6,963 6,740 3.3 % 9 9 - Advertising 13,297 14,970 (11.2 )% 18 20 (10.0 )% General and administrative expenses 43,848 42,025 4.3 % 58 56 3.6 % Impairment charge 2,485 - - 3 - - Depreciation and amortization 10,525 10,390 1.3 % 14 14 - Total operating expenses $ 181,624$ 173,627 4.6 % $ 238$ 231 3.0 % Operating expenses increased 4.6% to $181.6 million compared to $173.6 million in the six months ended 2013. We recorded impairment charges of $2.5 million in our Employment Screening reporting unit in the second quarter of 2014. Please read Note 4 to the Consolidated Financial Statements, "Goodwill and Other Intangible Assets," for additional information. Operating expenses per worksite employee per month increased to $238 in the 2014 period from $231 in the 2013 period. The components of operating expenses changed as follows:



Salaries, wages and payroll taxes of corporate and sales staff increased

5.3%, or $4 per worksite employee per month, compared to the 2013 period,

primarily due to a 4.0% rise in headcount.



Stock-based compensation increased 0.8%, but remained flat on a per worksite

employee per month basis, compared to the 2013 period. Stock-based

compensation expense represents amortization of restricted stock awards

granted to employees.



Commissions expense increased 3.3%, but remained flat on a per worksite

employee per month basis, compared to the 2013 period. - 23 -



--------------------------------------------------------------------------------

Table of Contents

Advertising costs decreased 11.2%, or $2 per worksite employee per month,

compared to the 2013 period, primarily due to lower media advertising costs

in the 2014 period.



General and administrative expenses increased 4.3%, or $2 per worksite

employee per month, compared to the 2013 period, primarily due to increased

spending in professional services related to our investment in Human Capital

Management technology.



Depreciation and amortization expense increased 1.3%, but remained flat on a

per worksite employee per month basis compared to the 2013 period.

Other Income (Expense)

Other expense decreased $2.6 million in the first six months of 2014 compared to the first six months of 2013, primarily due to the non-cash impairment charge related to our minority investment in The Receivables Exchange in 2013. Please read Note 5 to the Consolidated Financial Statements, "Other Assets," for additional information.



Income Tax Expense

Our effective income tax rate was 42.9% in the 2014 period compared to 43.9% in the 2013 period. Our provision for income taxes differed from the U.S. statutory rate of 35% primarily due to state income taxes, non-deductible expenses, and the effects of the impairment charges recorded during the period. The effect of the non-cash impairment charges on the income tax rates for the 2014 and 2013 periods was 0.7% and 3.6%, respectively.



Operating and Net Income

Operating and net income per worksite employee per month was $26 and $15 in the 2014 period, versus $43 and $22 in the 2013 period.

Non-GAAP Financial Measure

Non-bonus payroll cost is a non-GAAP financial measure that excludes the impact of bonus payrolls paid to our worksite employees. Bonus payroll cost varies from period to period, but has no direct impact to our ultimate workers' compensation costs under the current program. As a result, our management refers to non-bonus payroll cost in analyzing, reporting and forecasting our workers' compensation costs. Non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. We include these non-GAAP financial measures because we believe they are useful to investors in allowing for greater transparency related to the costs incurred under our current workers' compensation program. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used to their most directly comparable GAAP financial measures as provided in the table below. - 24 -



--------------------------------------------------------------------------------

Table of Contents Three Months Ended Six Months Ended June 30, June 30, 2014 2013 % Change 2014 2013 % Change (in thousands, except per worksite employee per month data) GAAP to non-GAAP reconciliation: Payroll cost (GAAP) $ 2,716,514$ 2,619,690 3.7 % $ 5,667,082$ 5,340,202 6.1 % Less: Bonus payroll cost 222,005 171,362 29.6 % 743,346 513,927 44.6 % Non-bonus payroll cost $ 2,494,509$ 2,448,328 1.9 % $



4,923,736 $ 4,826,275 2.0 %

Payroll cost per worksite employee per month (GAAP) $ 7,059$ 6,892 2.4 % $ 7,421$ 7,118 4.3 % Less: Bonus payroll cost per worksite employee per month 577 451 27.9 % 973 685 42.0 % Non-bonus payroll cost per worksite employee per month $ 6,482$ 6,441 0.6 % $ 6,448$ 6,433 0.2 %



Liquidity and Capital Resources

We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of, among other things, our expansion plans, potential acquisitions and other operating cash needs. To meet short-term liquidity requirements, which are primarily the payment of direct and operating expenses, we rely primarily on cash from operations. Longer-term projects or significant acquisitions may be financed with debt or equity. We have in the past sought, and may in the future seek, to raise additional capital or take other steps to increase or manage our liquidity and capital resources. We had $212.3 million in cash, cash equivalents and marketable securities at June 30, 2014, of which approximately $95.3 million was payable in early July 2014 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $13.7 million were customer prepayments that were payable in July 2014. At June 30, 2014, we had working capital of $121.6 million compared to $128.6 million at December 31, 2013. We currently believe that our cash on hand, marketable securities, cash flows from operations and availability under our credit facility will be adequate to meet our liquidity requirements for the remainder of 2014. We will rely on these same sources, as well as public and private debt or equity financing, to meet our longer-term liquidity and capital needs. We have a $100 million revolving credit facility ("Facility") with a syndicate of financial institutions. The Facility is available for working capital and general corporate purposes, including acquisitions, and was undrawn at June 30, 2014. Please read Note 6 to the Consolidated Financial Statements, "Revolving Credit Facility," for additional information.



Cash Flows from Operating Activities

Net cash used in operating activities in 2014 was $29.4 million. Our primary source of cash from operations is the comprehensive service fee and payroll funding we collect from our clients. Our cash and cash equivalents, and thus our reported cash flows from operating activities are significantly impacted by various external and internal factors, which are reflected in part by the changes in our balance sheet accounts. These include the following: Timing of client payments / payroll levels - We typically collect our comprehensive service fee, along with the client's payroll funding, from



clients at least one day prior to the payment of worksite employee payrolls

and associated payroll taxes. Therefore, the last business day of a

reporting period has a substantial impact on our reporting of operating

cash flows. For example, many worksite employees are paid on Fridays;

therefore, operating cash flows decrease in the reporting periods that end

on a Friday or a Monday. In the period ended June 30, 2014, the last

business day of the reporting period was a Monday, client prepayments were

$13.7 million and accrued worksite employee payroll was $188.6 million. In

the period ended December 31, 2013, the last business day of the reporting

period was a Tuesday, client prepayments were $24.5 million and accrued

worksite employee payroll was $173.8 million. - 25 -



--------------------------------------------------------------------------------

Table of Contents

Workers' compensation plan funding - Under our workers' compensation

insurance arrangements, we make monthly payments to the carriers comprised

of premium costs and funds to be set aside for payment of future claims

("claim funds"). These pre-determined amounts are stipulated in our agreements with the carriers, and are based primarily on anticipated worksite employee payroll levels and workers' compensation loss rates during the policy year. Changes in payroll levels from those that were



anticipated in the arrangements can result in changes in the amount of cash

payments, which will impact our reporting of operating cash flows. Our

claim funds paid, based upon anticipated worksite employee payroll levels

and workers' compensation loss rates, were $28.0 million in the first six

months of 2014 and $22.2 million in the first six months of 2013. However,

our estimate of workers' compensation loss costs was $24.1 million in the 2014 period and $18.8 million in the 2013 period, respectively.



Medical plan funding - Our health care contract with United establishes

participant cash funding rates 90 days in advance of the beginning of a reporting quarter. Therefore, changes in the participation level of the



United plan have a direct impact on our operating cash flows. In addition,

changes to the funding rates, which are solely determined by United based

primarily upon recent claim history and anticipated cost trends, also have

a significant impact on our operating cash flows. At June 30, 2014,

premiums owed and cash funded to United have exceeded Plan Costs, resulting

in a $28.3 million surplus, $19.3 million of which is reflected as a

current asset, and $9.0 million of which is reflected as a long-term asset

on our Consolidated Balance Sheets. The premiums owed to United at June 30,

2014, were $17.7 million, which is included in accrued health insurance

costs, a current liability, on our Consolidated Balance Sheets. Higher

funding rates, as determined by United, resulted in a higher additional

quarterly premium of $14.6 million at June 30, 2014 as compared to no additional quarterly premium at June 30, 2013. Operating results - Our net income has a significant impact on our operating cash flows. Our net income decreased 31.2% to $11.5 million in the six months ended June 30, 2014, compared to $16.7 million in the six



months ended June 30, 2013. Please read "Results of Operations - Six Months

Ended June 30, 2014 Compared to Six Months Ended June 30, 2013."

Cash Flows from Investing Activities

Net cash flows used in investing activities were $4.7 million for the six months ended June 30, 2014, primarily due to property and equipment purchases of $6.6 million.



Cash Flows from Financing Activities

Net cash flows used in financing activities were $22.8 million for the six months ended June 30, 2014, including $14.7 million in stock repurchases and $9.2 million in dividends paid.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters