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The CompanyTMInsperity , a trusted advisor to America’sbest businesses for more than 25 years,provides an array of human resource andbusiness solutions designed to help improvebusiness performance. Insperity BusinessPerformance Advisors offer the mostcomprehensive Workforce OptimizationSM(PEO) solution in the marketplace thatdelivers administrative relief, big companybenefits, reduced liabilities and a systematicway to improve productivity. Additionalofferings include MidMarket SolutionsSM,Performance Management, ExpenseManagement, Time and Attendance, Organizational Planning, Employment Screening,Recruiting Services, Retirement Services,Business Insurance and Technology Services.Insperity business performance solutionssupport more than 100,000 businesses withover 2 million employees. With 2010 revenuesin excess of 1.7 billion, Insperity operates in58 offices throughout the United States.Company FactsvvvvFounded in 1986, IPO 199758 officesCorporate headquarters in HoustonRegional Service Centers in Atlanta,Dallas, Houston and Los Angelesv Accredited by Employer ServicesAssurance Corporation (ESAC)Mission StatementThe mission of Insperity is to help businessessucceed so communities prosper.Insperity Valuesv Integrity as the cornerstone of personaland corporate conductv Respect for the worth of the individualv Achieving goals through servantleadership and teamworkv Commitment to high standards and thepursuit of excellencev Accountability as a means to elevateindividual and corporate performancev Innovation as a fundamental driver oflong-term successv Embracing change as an opportunity tolearn and improvev Contributing to the communities wherewe live and workv Perseverance through an abiding faithand optimismContentsFinancial HighlightsLetter to StakeholdersOur New Brand StrategyBoard of DirectorsFinancial ReviewOfficersCorporate Information12467inside back coverinside back cover
Financial HighlightsYear ended December 31,2010 2009 2008 2007 2006(in thousands, except per share and statistical data)Income Statement Data: 1,719,752Revenues(1) 1,653,096 1,724,434 1,569,977 1,389,464Gross profit298,536287,967343,739305,922282,729Operating income37,060 27,03364,98262,214 61,565Net income22,440 16,57445,78047,49246,506Diluted net income per share(2) 0.86 0.65 1.76 1.72 1.6398,414 97,180 128,401Balance Sheet Data:Working capital 127,627 659,845576,470616,840560,651561,515Total assets—Total debt/capital lease obligations— 537 1,166 1,749240,395223,160208,479198,675228,445Total stockholders’ equityCash dividends per share144,479 0.52 0.52 0.48 0.44 0.36Statistical Data:Average number of worksite employeespaid per month during period107,014108,736116,957110,291100,675Revenues per worksite employeeper month(3) 1,339 1,267 1,229 1,186 1,150Gross profit per worksite employeeper month 232 221 245 231 234Operating income per worksiteemployee per month 29 21 46 47 51(1) Gross billings of 10.169 billion, 9.856 billion, 10.372 billion, 9.437 billion and 8.055 billion, less worksite employeepayroll cost of 8.449 billion, 8.203 billion, 8.648 billion, 7.867 billion and 6.666 billion, respectively.(2) Diluted net income per share has been reduced by the following amounts to reflect the two-class earnings per sharemethod: 2009 - 0.01; 2008 - 0.03; 2007 - 0.02; and 2006 - 0.01.(3) Gross billings of 7,919, 7,553, 7,391, 7,130 and 6,667 per worksite employee per month, less payroll cost of 6,580, 6,286, 6,162, 5,944 and 5,517 per worksite employee per month, respectively.-1-
To Our Fellow StakeholdersBuilding on a quarter of a century of providing vitalhuman resource services to our nation’s businesses,Administaff has become Insperity, a new brand backedby an innovative strategy for meeting the ongoingperformance needs of America’s best companies. Thename Insperity is drawn from the linked entrepreneurialgoals of inspiration and prosperity, and boldly restatesour ongoing vision of helping businesses succeed.Net income rose from 16.6 million in 2009 to 22.4million in 2010, and client satisfaction levels remainedat an all-time high of 99 percent for the third year ina row.During 2010, we repurchased 7.9 million of the Company’s shares, and paid dividends totaling 13.5 million.Insperity generated more than 61.1 million in EBITDAplus stock-based compensation during the year andincreased operating income by 37.1 percent to 37.1 million.As we prepared to launch our new brand, 2010 sawInsperity make a strong recovery in both growth andprofitability, and take advantage of key opportunitiesto strengthen its cash position. In addition, theCompany announced two acquisitions in the areasof expense reporting, time and attendance trackingand, in early January 2011, organizational planning,furthering our ability to serve more companiesthrough complementary business services. We areexcited about the new Insperity brand and what itsignifies, energized by a fresh strategy to deliver ourexpanded offering and eager to further supportAmerica’s entrepreneurial companies.These financial results not only affirm a solid return tothe increasing profitability and growth experienced byInsperity, but also help to lay the groundwork for extending our brand and serving a larger number of businesses,employees and their families in 2011 and beyond.v Returning to Growth – By the end of 2010, Insperityreversed a downward unit growth event from 2009caused by the recession and resumed a growth pattern seen in previous economic recoveries, averaging111,249 worksite employees in the fourth quarter.The reasons for this increase include a retooled salesengine, continued high levels of client retention andnet gains from hiring within our client base. In addition, the Company built a strong pipeline of qualifiedprospects, improved MidMarket sales and increasedfull-service core market sales. The combination ofthese factors, coupled with the implementation ofour new adjacent business development strategy,sets the stage for continued growth in 2011.2010 Financial PerformanceRevenues increased 4.0 percent in 2010 to 1.7 billion, ona 5.7 percent increase in revenues per worksite employeeper month and a 1.6 percent decrease in the average number of paid worksite employees largely due to a reductionof worksite employees in early 2010. Gross profit increased3.7 percent to 298.5 million, and diluted net incomeper share increased 32.3 percent to 0.86 from 0.65.-2-
v Resuming Increases in Profitability – In additionto resuming our growth momentum, the Companyhas experienced a return to increasing profitability.This accomplishment is particularly notable given theprolonged sluggish pace of the nation’s economicrecovery. To help our clients, we implementedmoderate price decreases for our services duringthe most severe phase of the downturn, but during2010, the Company was able to show a slightrecovery toward our previous rates as clientsrenewed. Additionally, a significant portion ofInsperity’s profit increases for 2010 were the resultof effective direct cost management involvingworkers’ compensation insurance, benefits costs(including costs related to COBRA participants)and payroll tax costs. If the national economyimproves in 2011 as some project, any associatedrevenue increases, coupled with continued directcost management efforts, may help positionthe Company for further profit increases.v Implementing a New Strategy – Our new name isbacked by a new and exciting growth strategycentered on the implementation of our adjacentbusiness development plan. The primary goal ofthis effort is to develop profitable adjacent businessunits with recurring revenue streams, strong growthpotential and substantial cross-selling opportunitiesthat feed our core Workforce Optimization business.In September, we formally launched eight adjacentbusiness offerings following our “Build, Buy, Partner”approach. This introduction was the first stepin expanding the identity of Insperity beyondWorkforce Optimization and evolving into abusiness performance improvement companywith the ability to help businesses succeed in avariety of ways. The resulting Company changeswere born out of the desire to grow the primarybusiness faster and more consistently, while capitalizing on the many strengths and assets Insperity hasdeveloped over the last 25 years. We are confidentthat we have the right plan and the right people toproperly execute this new strategy.-3-The past year was instrumental for Insperity in provingonce again the Company’s ability to progress in themidst of a tepid economy, while addressing the variedneeds of complementary target markets. The result isa company that is financially strong with substantialcash reserves and no debt, and is growing its clientbase through strategic market extension and a broadened product mix. Just as 2010 built upon our successfulbusiness model of the first 25 years, I firmly believe thatour current transformation will prove to be the drivingforce behind Insperity’s future growth and profitability.In closing, I want to thank our corporate staff fortheir hard work and dedication in providing first-classbusiness performance improvement services to ourclients and implementing our exciting new brand. Inaddition, I am sincerely appreciative to our Board ofDirectors for its valuable counsel and guidanceregarding our 2010 performance and the Company’sstrategic branding efforts. Last year, I said that I lookedforward to a productive 2010, and it certainly was asuccessful year on many levels. I can already see that2011 is another milestone period in the Company’stimeline of helping businesses succeed so communitiesprosper. Our new brand represents the resourcefulnesswe are using to meet that goal for even more companies and employees in America, and I look forward to adynamic and profitable year.Sincerely,Paul J. SarvadiChairman and Chief Executive OfficerMarch 31, 2011
Insperity: A New Brand Backedby a Dynamic StrategyThe name Insperity draws meaning from our 25 yearsof support to the business community and simultaneously sets the stage for providing even more servicesto expanded markets over the next quarter of a century.Our strategy for achieving this goal is based on four keyelements that explode our market potential toAmerican businesses.Management), ExpensAble (Insperity Expense Management), Galaxy Technologies (Insperity Time andAttendance), and OrgPlus (Insperity OrganizationalPlanning). The last four business units now or willsoon provide Software as a Service (SaaS) productsand services to our clients.u Finally, we may “Partner” with firms like we havedone with Lockton Affinity Group to offer keybusiness insurance coverage, and with CompuComto provide vital technology support. It is worthnoting that these two relationships exemplify howwe can meet growing client demands for such services and further leverage our resources and smalland medium-sized business channels.v Leveraging our financial strength By tapping theCompany’s strong cash reserves, Insperity has beenable to strategically and conservatively make keyacquisitions and fund important expansion effortsthat allow us to serve even more businesses. A solidbalance sheet with little or no debt has long been ahallmark of our financial position and equips us toserve clients more effectively and efficiently.v Broadening our product offerings to help all customersWhile the preceding point addresses the method ofexecuting our plan, this component speaks more tothe mix of products and services in that plan. Businesses often go through progressive stages of development with each having different levels of need.Rather than focusing only on those that require thecomplete Workforce Optimization solution, Insperityis now or will soon be organized to meet many of theessential needs of our nation’s businesses.v Executing our Adjacent Business Development PlanFor the last few years, the Company has been acquiring complementary client services using a “Build,Buy, Partner” approach. The launch of our AdjacentBusiness Development Plan was the first step inexpanding the identity of the Company beyond ourcore business, now called Workforce Optimization,and evolving into a business performance improvement company with the ability to help businessesthrive using a range of services.v Expanding our client base Markets are generallyu We “Build” certain business performance solutionscomposed of firms that vary in size, offerings andmaturity, among other things. There may even be asignificant degree of category overlap when a companyis transitioning from one stage to another. Our goal isto assist clients in focusing on their core businesseswherever they may be in the growth process. AsInsperity implements its Adjacent Business Development Plan, we will continue to develop our targetmarkets and enlarge our client base.from the ground up, such as Insperity RecruitingServices and Insperity Retirement Services.u At other times, Insperity may “Buy” complementarybusiness units, either as existing companies or byacquiring potentially profitable assets, includingproducts and processes. We have used this approachto purchase USDatalink (Insperity EmploymentScreening), PerformSmart (Insperity Performance-4-
We intend to leverage our 300 professional BusinessPerformance Advisors and Consultants, our substantialmarketing expertise and the 30,000 WorkforceOptimization prospects that we see face-to-face eachyear in order to grow the revenues of each of our Adjacent Business Units.This approach provides Insperity with increased opportunity to grow our core Workforce Optimization businessand the overall revenue and earnings of the Company.Historically, the lion’s share of our revenue and profitcomes from the 5,700 clients and 110,000 associatedworksite employees using the complete WorkforceOptimization solution. Now, through our adjacent businesses, Insperity supports more than 100,000 small tomedium-sized companies representing 2 million employees.Our core Workforce Optimization solution remains thebest way we can help businesses improve their performance. However, Insperity will now be able to offersome level of business performance assistance toevery prospect we call on. Additionally, nine out of 10companies not currently qualified for Workforce Optimization are well suited for one or more of our businessperformance solutions, each of which in turn becomesan incubator and feeder for our core services.In April 2011, Insperity celebrated its 25th anniversary.Over the past quarter of a century, we established a newindustry and developed the most successful businessmodel in our market. The Company built a national salesand service infrastructure, replicating processes and programs that produced consistent growth and profitability.The financial leverage of this new strategy is substantial.Insperity is adding significant ways to grow profitablyfrom the major investment it is already making every dayto get in front of owners of small and medium-sized businesses. The relatively modest add-on investment to offercomplementary products and services through our current sales organization represents a small percentage ofthe overall costs of our sales infrastructure, but providesthe Company with vital market expansion opportunities .What started years ago as our primary objective of helping businesses succeed, remains unchanged in principle,but dynamic in application. Insperity, both in word anddeed, is the next step in our journey.-5-
Board of DirectorsMichael W. Brown I Independent DirectorMr. Brown, age 65, joined the Company as a Class I director in November 1997. He is a member of the Company’sFinance, Risk Management and Audit Committee and theNominating and Corporate Governance Committee. Mr.Brown is the past Chairman of the Nasdaq Stock MarketBoard of Directors and a past governor of the NationalAssociation of Securities Dealers. Mr. Brown joinedMicrosoft Corporation in 1989 as its Treasurer and became its Chief FinancialOfficer in 1993, in which capacity he served until his retirement in July 1997.Prior to joining Microsoft, Mr. Brown spent 18 years with Deloitte & Touche LLP.Mr. Brown is also a director of EMC Corporation, Stifel Financial Corporation andVMware, Inc. and formerly served as a director of Thomas Weisel Partners, andserves on the audit committees of EMC Corporation and VMware, Inc. Mr. Brownalso serves or has served as a director, trustee or advisor of several private business, civic or charitable organizations. Mr. Brown holds a Bachelor of Science inEconomics from the University of Washington in Seattle.Jack M. Fields, Jr. I Independent DirectorMr. Fields, age 59, joined the Company as a Class III directorin January 1997 following his retirement from the UnitedStates House of Representatives, where he served for 16years. Mr. Fields is a member of the Company’s Compensation Committee and the Nominating and CorporateGovernance Committee. During 1995 and 1996, Mr. Fieldsserved as Chairman of the House Telecommunicationsand Finance Subcommittee, which has jurisdiction and oversight of the FederalCommunications Commission and the Securities and Exchange Commission.Mr. Fields has been Chief Executive Officer of the Twenty-First Century Group inWashington, D.C. since January 1997. Mr. Fields serves on the Board of Directorsfor AIM Mutual Funds, and also serves or has served as a director, trustee or advisor of several private business, civic or charitable organizations. Mr. Fields earneda Bachelor of Arts in 1974 from Baylor University and graduated from Baylor LawSchool in 1977.Dr. Eli Jones I Independent DirectorDr. Jones, age 49, joined the Company as a Class I directorin April 2004. He is Chairman of the Company’s Compensation Committee and a member of the Nominating andCorporate Governance Committee. Dr. Jones is Dean ofthe E. J. Ourso College of Business and Ourso DistinguishedProfessor of Business at Louisiana State University. Priorto joining the faculty at Louisiana State University, he wasProfessor of Marketing and Associate Dean at the C.T. Bauer College of Businessat the University of Houston from 2007 to 2008; an Associate Professor ofMarketing from 2002 to 2007; and an Assistant Professor from 1997 until 2002.He taught at Texas A&M University for several years before joining the faculty ofthe University of Houston. Before becoming a professor, Dr. Jones worked in salesand sales management for three Fortune 100 companies: Quaker Oats, Nabisco,and Frito-Lay. He received his Bachelor of Science degree in journalism in 1982,his MBA in 1986, and his Ph.D. in 1997 from Texas A&M University.Paul S. Lattanzio I Independent DirectorMr. Lattanzio, age 47, has been a Class III director of theCompany since 1995. He is a member of the Company’sFinance, Risk Management and Audit Committee andthe Nominating and Corporate Governance Committee.Mr. Lattanzio has been President of Star Avenue Capital,LLC since May 2010. Prior to that, he most recently servedas a Senior Managing Director and head of Bear GrowthCapital Partners, a private equity group, from July 2003 to January 2009. Heserved as a Managing Director for TD Capital Communications Partners (f/k/aToronto Dominion Capital), a venture capital investment firm, from July 1999until July 2002. From February 1998 to March 1999, he was a co-founder andSenior Managing Director of NMS Capital Management, LLC, a 600 millionprivate equity fund affiliated with NationsBanc Montgomery Securities. Priorto NMS Capital, Mr. Lattanzio served in several positions with various affiliatesof Bankers Trust New York Corporation for over 13 years, most recently as aManaging Director of BT Capital Partners, Inc. Mr. Lattanzio has experience ina variety of investment banking disciplines, including mergers and acquisitions,private placements and restructuring. Mr. Lattanzio received his Bachelor ofScience in economics with honors from the Universi
Performance Management, Expense Management, Time and Attendance, Orga-nizational Planning, Employment Screening, Recruiting Services, Retirement Services, Business Insurance and Technology Services. Insperity business performance solutions support more than 100,000 businesses with over 2 mi
