<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee required]
For the transition period from to
------------------ --------------------
Commission File No. 1-13998
ADMINISTAFF, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0479645
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19001 Crescent Springs Drive
Kingwood, Texas 77339
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(Registrant's Telephone Number, Including Area Code): (281) 358-8986
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X
No
Number of shares outstanding of each of the issuer's classes of common
stock, as of November 6, 1998: 14,513,393 shares.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C> <C>
Item 1. Financial Statements .................................................................. 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................... 15
PART II
Item 1. Legal Proceedings...................................................................... 26
Item 5. Other Information...................................................................... 26
</TABLE>
<PAGE> 3
ADMINISTAFF, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 40,561 $ 18,414
Marketable securities ................................... 26,012 50,102
Accounts receivable:
Trade ................................................ 4,324 922
Unbilled ............................................. 15,371 31,490
Related parties ...................................... 163 59
Other ................................................ 1,208 1,501
Prepaid expenses ........................................ 1,585 1,813
Deferred income taxes ................................... 199 164
------------ ------------
Total current assets .............................. 89,423 104,465
Property and equipment:
Land .................................................... 817 2,918
Buildings and improvements .............................. 7,557 8,517
Computer equipment ...................................... 6,219 11,721
Furniture and fixtures .................................. 6,342 9,338
Vehicles ................................................ 950 1,226
Construction in progress ................................ -- 633
------------ ------------
21,885 34,353
Accumulated depreciation ................................ (5,214) (7,532)
------------ ------------
Total property and equipment ...................... 16,671 26,821
Other assets:
Notes receivable from employees ......................... 1,181 1,242
Intangible assets ....................................... 822 1,968
Other assets ............................................ 1,358 1,404
------------ ------------
Total other assets ................................ 3,361 4,614
------------ ------------
Total assets ...................................... $ 109,455 $ 135,900
============ ============
</TABLE>
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ADMINISTAFF, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Accounts payable ............................................. $ 1,421 $ 1,264
Payroll taxes and other payroll deductions payable ........... 19,190 11,067
Accrued worksite employee payroll expense .................... 18,153 32,308
Other accrued liabilities .................................... 3,319 4,136
Income taxes payable ......................................... 729 1,361
------------ ------------
Total current liabilities .............................. 42,812 50,136
Noncurrent liabilities:
Other accrued liabilities .................................... 2,558 2,558
Deferred income taxes ........................................ 322 978
------------ ------------
Total noncurrent liabilities ........................... 2,880 3,536
Commitments and contingencies
Stockholders' equity:
Common stock ................................................. 142 149
Additional paid-in capital ................................... 50,670 63,591
Treasury stock, at cost ...................................... (1,998) (1,979)
Accumulated other comprehensive income ....................... 31 342
Retained earnings ............................................ 14,918 20,125
------------ ------------
Total stockholders' equity ............................. 63,763 82,228
------------ ------------
Total liabilities and stockholders' equity ............. $ 109,455 $ 135,900
============ ============
</TABLE>
See accompanying notes.
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ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues ......................................... $ 302,618 $ 431,511 $ 839,610 $ 1,187,550
Direct costs:
Salaries and wages of worksite employees ...... 249,541 357,827 691,244 982,781
Benefits and payroll taxes .................... 39,049 53,647 113,902 157,233
------------ ------------ ------------ ------------
Gross profit ..................................... 14,028 20,037 34,464 47,536
Operating expenses:
Salaries, wages and payroll taxes ............. 4,397 6,672 13,014 19,229
General and administrative expenses ........... 2,863 4,711 9,449 12,736
Commissions ................................... 1,192 1,530 3,361 4,405
Advertising ................................... 1,083 911 2,752 2,777
Depreciation and amortization ................. 572 961 1,495 2,572
------------ ------------ ------------ ------------
10,107 14,785 30,071 41,719
------------ ------------ ------------ ------------
Operating income ................................. 3,921 5,252 4,393 5,817
Other income (expense):
Interest income ............................... 793 837 2,171 2,535
Interest expense .............................. (23) -- (363) --
Other, net .................................... (1) 17 (13) 47
------------ ------------ ------------ ------------
769 854 1,795 2,582
------------ ------------ ------------ ------------
Income before income tax expense ................. 4,690 6,106 6,188 8,399
Income tax expense ............................... 1,767 2,320 2,338 3,192
------------ ------------ ------------ ------------
Net income ....................................... $ 2,923 $ 3,786 $ 3,850 $ 5,207
============ ============ ============ ============
Basic net income
per share of common stock ................ $ 0.22 $ 0.26 $ 0.29 $ 0.36
============ ============ ============ ============
Diluted net income
per share of common stock ................ $ 0.21 $ 0.26 $ 0.28 $ 0.35
============ ============ ============ ============
</TABLE>
See accompanying notes.
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ADMINISTAFF, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
ISSUED ADDITIONAL OTHER
--------------------- PAID-IN TREASURY COMPREHENSIVE RETAINED
SHARES AMOUNT CAPITAL STOCK INCOME EARNINGS TOTAL
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 14,221 $ 142 $ 50,670 $ (1,998) $ 31 $ 14,918 $ 63,763
Purchase of treasury stock, at cost -- -- -- (6,101) -- -- (6,101)
Sale of units consisting of common
stock and common stock purchase
warrants, net of issuance costs of $146 400 4 11,468 6,116 -- -- 17,588
Exercise of common stock
purchase warrants 141 2 633 -- -- -- 635
Exercise of stock options 93 1 800 -- -- -- 801
Other -- -- 20 4 -- -- 24
Unrealized gain on
marketable securities -- -- -- -- 311 -- 311
Net income -- -- -- -- -- 5,207 5,207
-------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1998 14,855 $ 149 $ 63,591 $ (1,979) $ 342 $ 20,125 $ 82,228
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
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ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 3,850 $ 5,207
Adjustments to reconcile net income to net cash
provided by operating activities :
Depreciation and amortization ......................... 1,815 2,950
Bad debt expense ...................................... 1,659 412
Deferred income taxes ................................. (1,159) 691
Loss (gain) on the disposition of assets .............. 13 (47)
Changes in operating assets and liabilities:
Accounts receivable .................................. (9,121) (13,318)
Prepaid expenses ..................................... 332 (228)
Other assets ......................................... 164 (55)
Accounts payable ..................................... 67 (157)
Payroll taxes and other payroll deductions payable ... (2,364) (8,123)
Other accrued liabilities ............................ 7,610 14,972
Income taxes payable ................................. 874 632
---------- ----------
Total adjustments ................................. (110) (2,271)
---------- ----------
Net cash provided by operating activities ......... 3,740 2,936
Cash flows from investing activities:
Marketable securities:
Purchases .............................................. (35,287) (43,502)
Proceeds from dispositions ............................. 10,986 19,450
Property and equipment:
Purchases .............................................. (4,238) (12,638)
Proceeds from dispositions ............................. 33 70
Investment in intangible assets ........................... (160) (1,349)
---------- ----------
Net cash used in investing activities ............. (28,666) (37,969)
</TABLE>
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ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1998
---------- ----------
<S> <C> <C>
Cash flows from financing activities:
Repayment of long-term debt ............................. $ (4,603) $ --
Proceeds from the sale of units consisting of common
stock and common stock purchase warrants ............. -- 17,588
Proceeds from the issuance of common stock .............. 47,430 --
Purchase of treasury stock .............................. (1,999) (6,101)
Repurchase of common stock purchase warrants ............ (542) --
Prepaid expenses - initial public offering costs ........ (107) --
Proceeds from the exercise of stock options ............. 82 635
Proceeds from the exercise of common stock
purchase warrants .................................... 48 801
Loans to employees ...................................... (99) (61)
Other ................................................... -- 24
---------- ----------
Net cash provided by financing activities ......... 40,210 12,886
---------- ----------
Net increase (decrease) in cash and cash equivalents ....... 15,284 (22,147)
Cash and cash equivalents at beginning of period ........... 13,360 40,561
---------- ----------
Cash and cash equivalents at end of period ................. $ 28,644 $ 18,414
========== ==========
</TABLE>
See accompanying notes.
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ADMINISTAFF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
Administaff, Inc. ("the Company") is a professional employer
organization ("PEO") that provides a comprehensive Personnel Management System
which encompasses a broad range of services, including benefits and payroll
administration, medical and workers' compensation insurance programs, personnel
records management, employer liability management, recruiting and selection,
performance management, and training and development services to small and
medium-sized businesses in several strategically selected markets. Approximately
70% of the Company's revenues are generated in the state of Texas.
The consolidated financial statements include the accounts of
Administaff, Inc., and its wholly owned subsidiaries. Intercompany accounts and
transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles 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 consolidated balance sheet at December 31, 1997 has been derived
from the audited financial statements at that date but does not include all of
the information or footnotes required by generally accepted accounting
principles for complete financial statements. The Company's consolidated balance
sheet at September 30, 1998 and the consolidated statements of operations, cash
flows and stockholders' equity for the interim periods ended September 30, 1998
and 1997 have been prepared by the Company without audit. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the consolidated financial position, results of
operations and cash flows have been made. The results of operations for the
interim periods are not necessarily indicative of the operating results for a
full year or of future operations. Historically, the Company's earnings pattern
has included losses in the first quarter, followed by improved profitability in
subsequent quarters throughout the year. This pattern is due to the effects of
employment-related taxes which are based on each employee's cumulative earnings
up to specified wage levels, causing employment-related taxes to be largest in
the first quarter and then decline over the course of the year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying consolidated
financial statements should be read in conjunction with the Company's audited
consolidated financial statements for the year ended December 31, 1997.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
2. Accounting Changes
Effective January 1, 1998, the Company adopted Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The requirements of SOP 98-1 are materially
consistent with the Company's existing capitalization policy, and as a result,
the adoption of SOP 98-1 did not have a significant impact on the Company's
financial position or results of operations.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of SFAS No. 130 had no impact
on the Company's net income or stockholders' equity. SFAS No. 130 requires
unrealized gains and losses on the Company's available-for-sale marketable
securities to be included in other comprehensive income. Prior to the adoption
of SFAS No. 130, these amounts were reported as a separate component of
stockholders' equity. Prior year financial statements have been reclassified to
conform with the requirements of SFAS No. 130.
3. NET INCOME PER SHARE
The numerator used in the calculations of both basic and diluted net
income per share for all periods presented was net income. The denominator for
each period presented was determined as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Basic net income per share -
weighted average shares outstanding ..................... 13,451 14,504 13,129 14,335
Effect of dilutive securities:
Common stock purchase warrants -
treasury stock method ................................ 514 -- 541 10
Common stock options - treasury stock method ............ 210 301 168 328
-------- -------- -------- --------
724 301 709 338
-------- -------- -------- --------
Diluted net income per share - weighted average shares
outstanding plus effect of dilutive securities .......... 14,175 14,805 13,838 14,673
======== ======== ======== ========
</TABLE>
4. STOCKHOLDERS' EQUITY
In March 1998, the Company completed a Securities Purchase Agreement
with American Express Travel Related Services Company, Inc. ("American Express")
whereby the Company sold units consisting of 693,126 shares of its common stock
(293,126 shares from Treasury Stock) and common stock purchase warrants for an
additional 2,065,515 shares of common stock to American
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<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
Express for a total purchase price of $17.7 million. The common stock purchase
warrants have prices ranging from $40 to $80 per share and terms ranging from
three to seven years.
In January 1998, a third party warrant holder exercised warrants to
purchase 140,508 shares of common stock at a price of $4.52 per share. The
Company then repurchased the shares from the warrant holder at a price of $21
per share.
In March 1998 and prior to the closing of the transaction with American
Express, the Company completed the repurchase of 150,000 shares of common stock
from three stockholders for $21 per share. The three stockholders included two
former officers of the Company and a current director of the Company.
5. MARKETING AGREEMENT
In conjunction with the Securities Purchase Agreement with American
Express, the Company entered into a Marketing Agreement with American Express to
jointly market the Company's services to American Express's substantial small
business customer base across the country. Under the Marketing Agreement,
American Express will utilize its resources to generate appointments with
prospects for the Company's services. In addition, the Company and American
Express will work to jointly develop product offerings that enhance the current
PEO services offered by the Company. The Marketing Agreement has a seven year
term and provides that the Company will be the exclusive PEO partner of American
Express for the first three years. The Company will pay a commission to American
Express based upon the number of worksite employees paid from clients referred
to the Company pursuant to the Marketing Agreement.
6. MARKETABLE SECURITIES
At September 30, 1998, the Company's marketable securities consisted of
debt securities issued by corporate and governmental entities, with contractual
maturities ranging from 91 days to five years from the date of purchase. All of
the Company's investments in marketable securities are classified as
available-for-sale.
7. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various 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 the Company's
financial position or results of operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
The Company's 401(k) plan is currently under audit by the Internal
Revenue Service (the "IRS") for the year ended December 31, 1993. Although the
audit is for the 1993 plan year, certain conclusions of the IRS could be
applicable to other years as well. In addition, the IRS has established an
Employee Leasing Market Segment Group for the purpose of identifying specific
compliance issues prevalent in certain segments of the PEO industry.
Approximately 70 PEOs, including the Company, have been randomly selected by the
IRS for audit pursuant to this program. One issue that has arisen from these
audits is whether a PEO can be a co-employer of worksite employees, including
officers and owners of client companies, for various purposes under the Internal
Revenue Code of 1986, as amended (the "Code"), including participation in the
PEO's 401(k) plan. With respect to the 401(k) Plan audit, the IRS Houston
District has sought technical advice (the "Technical Advice Request") from the
IRS National Office about (1) whether participation in the 401(k) Plan by
worksite employees, including officers of client companies, violates the
exclusive benefit rule under the Code because they are not employees of the
Company, and (2) whether the 401(k) Plan's failure to satisfy a
nondiscrimination test relating to contributions should result in
disqualification of the 401(k) Plan because the Company has failed to provide
evidence that it satisfies an alternative nondiscrimination test for the 1993
Plan year. A copy of the Technical Advice Request and the Company's response
have been sent to the IRS National Office for review. The Technical Advice
Request contains the conclusions of the IRS Houston District with respect to the
1993 plan year that the 401(k) Plan should be disqualified because it (1) covers
worksite employees who are not employees of the Company, and (2) failed a
nondiscrimination test applicable to contributions and the Company has not
furnished evidence that the 401(k) Plan satisfies an alternative test. The
Company's response refutes the conclusions of the IRS Houston District. The
Company also understands that, with respect to the Market Segment Group study,
the issue of whether a PEO and a client company may be treated as co-employers
of worksite employees for certain federal tax purposes (the "Industry Issue")
has been referred to the IRS National Office.
Whether the National Office will address the Technical Advice Request
independently of the Industry Issue is unclear. Should the IRS conclude that the
Company is not a "co-employer" of worksite employees for purposes of the Code,
worksite employees could not continue to make salary deferral contributions to
the 401(k) Plan or pursuant to the Company's cafeteria plan or continue to
participate in certain other employee benefit plans of the Company. The Company
believes that, although unfavorable to the Company, a prospective application of
such a conclusion (that is, one applicable only to periods after the conclusion
by the IRS is finalized) would not have a material adverse effect on its
financial position or results of operations, as the Company could continue to
make available comparable benefit programs to its client companies at comparable
costs to the Company. However, if the IRS National Office adopts the conclusions
of the IRS Houston District set forth in the Technical Advice Request and any
such conclusions were applied retroactively to disqualify the 401(k) Plan for
1993 and subsequent years, employees' vested account balances under the 401(k)
Plan would become taxable, the Company would lose its tax deductions to the
extent its matching contributions were not vested, the 401(k) Plan's trust would
become a taxable trust and the Company would be subject to liability with
respect to its failure to withhold applicable taxes with
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
respect to certain contributions and trust earnings. Further, the Company would
be subject to liability, including penalties, with respect to its cafeteria plan
for the failure to withhold and pay taxes applicable to salary deferral
contributions by employees, including worksite employees. In such a scenario,
the Company also would face the risk of client dissatisfaction and potential
litigation. While the Company is not able to predict either the timing or the
nature of any final decision that may be reached with respect to the 401(k) Plan
audit or with respect to the Technical Advice Request or the Market Segment
Group study and the ultimate outcome of such decisions, the Company believes
that a retroactive application of an unfavorable determination is unlikely. The
Company also believes that a prospective application of an unfavorable
determination will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
In addition to the 401(k) Plan audit and Market Segment Group study,
the Company notified the IRS of certain operational issues concerning
nondiscrimination test results for certain prior plan years. In 1991 the Company
engaged a third party vendor to be the 401(k) Plan's record keeper and to
perform certain required annual nondiscrimination tests for the 401(k) Plan.
Each year such record keeper reported to the Company that such nondiscrimination
tests had been satisfied. However, in August 1996 the 401(k) Plan's record
keeper advised the Company that certain of these tests had been performed
incorrectly for prior years and, in fact, that the 401(k) Plan had failed
certain tests for the 1993, 1994 and 1995 plan years. The Company has
subsequently determined that the 401(k) Plan also failed a nondiscrimination
test for 1991 and 1992, closed years for tax purposes. At the time the Company
received such notice, the period in which the Company could voluntarily "cure"
this operational defect had lapsed for all such years except 1995.
With respect to the 1995 plan year, the Company has caused the 401(k)
Plan to refund the required excess contributions and earnings thereon to the
affected employees. In connection with this correction, the Company paid
approximately $47,000 for an excise tax applicable to this plan year. With
respect to all other plan years, the Company has proposed a corrective action to
the IRS under which the Company would make additional contributions to certain
plan participants which bring the plan into compliance with the
nondiscrimination tests.
During 1996, the Company recorded an accrual for its estimate of the
cost of corrective measures and penalties for all of the affected plan years,
which accrual is reflected in "Other accrued liabilities - noncurrent" on the
Consolidated Balance Sheets. The Company calculated its estimates based on its
understanding of the resolution of similar issues with the IRS. Separate
calculations were made to determine the Company's estimate of both the cost of
corrective measures and penalties for each plan year. In addition, at the same
time, the Company recorded an asset for an amount recoverable from the 401(k)
Plan's record keeper should the Company ultimately be required to pay the amount
accrued for such corrective measures and penalties, which amount is reflected in
"Other assets" on the Consolidated Balance Sheets. The amount of the accrual is
the Company's estimate of the cost of corrective measures and practices,
although no assurance can be given that the actual amount that the Company may
be ultimately required to pay will not substantially exceed
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<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
the amount accrued. There has been no change in the amounts of the accrual or
the amount recoverable from the record keeper subsequent to December 31, 1997.
Based on its understanding of the settlement experience of other companies with
the IRS, the Company does not believe the ultimate resolution of this 401(k)
Plan matter will have a material adverse effect on the Company's financial
condition or results of operations.
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<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the 1997
annual report on Form 10-K as well as with the consolidated financial statements
and notes thereto included in this quarterly report on Form 10-Q.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1998 CHANGE
--------- --------- --------
(OPERATING RESULTS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING RESULTS:
Revenues ...................................... $302,618 $431,511 42.6%
Gross profit .................................. 14,028 20,037 42.8%
Gross profit margin ........................... 4.6% 4.6%
Operating income .............................. 3,921 5,252 33.9%
STATISTICAL DATA:
Monthly revenue per worksite employee ......... 3,509 3,785 7.9%
Monthly payroll cost per worksite employee .... 2,873 3,112 8.3%
Monthly gross markup per worksite employee .... 636 673 5.8%
Average number of worksite employees paid
per month during period .................... 27,604 36,161 31.0%
</TABLE>
REVENUES
The Company's revenues for the nine months ended September 30, 1998
increased 42.6% over the same period in 1997 due to an increase in worksite
employees paid accompanied by an increase in revenue per worksite employee. The
Company's expansion of its sales force through new market and sales office
openings over the past five years is the primary factor contributing to the
31.0% increase in worksite employees paid. Revenues from markets opened prior to
1993 (the commencement of the Company's national expansion plan) increased 31.1%
over the third quarter of 1997, while revenues from markets opened after 1993
increased 61.9%. The Company expects continued growth in the number of worksite
employees paid during the remainder of 1998 versus 1997 due to the effect of
sales in existing markets and the Company's national expansion plan.
The increase in revenue per worksite employee of 7.9% directly relates
to the increase in payroll cost per worksite employee of 8.3%. This increase
reflects the continuing effects of the net addition of clients with worksite
employees that have higher average base pay than the existing client
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<PAGE> 16
base, primarily through the penetration of markets with generally higher wage
levels, such as Los Angeles, Chicago and Washington, D.C. In addition, wage
inflation within the Company's existing worksite employee base has contributed
to the increase in payroll cost per worksite employee.
GROSS PROFIT
The Company's gross profit for the third quarter of 1998 increased
42.8% over the third quarter of 1997, with a gross profit margin of 4.6% in both
periods. Gross profit per worksite employee increased from $169 per month in the
third quarter of 1997 to $185 per month in the third quarter of 1998, reflecting
the Company's success in managing its pricing policy, which is designed to match
changes in the Company's direct cost structure with the comprehensive service
fees charged for its services. In addition, lower employee benefits costs as a
percentage of revenue contributed to the increase in gross profit per worksite
employee.
The cost of providing employee benefits, which includes benefit plan
premiums and workers' compensation costs, was slightly lower as a percentage of
revenue in the third quarter of 1998 than in the third quarter of 1997. Benefit
plan premiums remained constant at 5.8% of revenue during the third quarter of
1997 and 1998. Workers' compensation costs decreased from 1.6% of payroll cost
during the third quarter of 1997 to 0.9% of payroll cost during the third
quarter of 1998, due to a lower rate on the Company's fixed premium policy and
the receipt of $475,000 of net proceeds from the settlement of a class action
lawsuit related to premiums paid in a prior policy year.
The continued addition of higher wage, less risk sensitive worksite
employees resulted in a decrease in gross markup per employee as a percentage of
revenue from 18.1% in the third quarter of 1997 to 17.8% in the third quarter of
1998. However, gross mark-up per worksite employee increased 5.8% from $636 per
month in the 1997 period to $673 per month in the 1998 period.
Employment-related taxes as a percentage of payroll cost were 6.9% in
both the third quarter of 1997 and 1998.
OPERATING EXPENSES
Operating expenses increased as a percentage of revenue from 3.34% in
the third quarter of 1997 to 3.43% in the third quarter of 1998. Total operating
expenses increased 46.3% while revenues and gross profit increased 42.6% and
42.8%, respectively. The overall increase in operating expenses can be
attributed principally to increased compensation-related costs (salaries, wages
and payroll taxes and commissions), increased general and administrative
expenses and increased depreciation and amortization expense.
Compensation-related costs increased 46.8% over the third quarter of
1997, and increased from 1.85% of revenues in the 1997 period to 1.90% in the
1998 period. These increases are primarily related to a 39.0% and 45.4% increase
over the 1997 period in corporate and sales office
- 16 -
<PAGE> 17
staff, respectively, as the Company has continued to increase its sales and
service capacity to accommodate its rapid growth.
General and administrative expenses increased from 0.95% of revenues in
the third quarter of 1997 to 1.09% of revenues in the third quarter of 1998.
This increase is primarily due to consulting fees incurred to assist the Company
in developing and implementing its technology and telecommunications
infrastructure plans.
Depreciation and amortization expense increased 68.0% over the 1997
period. This increase is primarily due to a substantial increase in capital
expenditures, beginning in 1997, related to investments in technology and
infrastructure to increase corporate service capacity and the opening of new
sales offices as part of the Company's national expansion.
NET INCOME
Interest income increased 5.5% over the third quarter of 1997 due to
the investment of the proceeds from the sale of common stock to American Express
received in March 1998.
The Company's provision for income taxes in both periods differs from
the U.S. statutory rate of 34% due primarily to the effect of state income
taxes.
The Company's net income for the three months ended September 30, 1998
was $3.8 million or $0.26 per share (diluted), versus $2.9 million, or $0.21 per
share (diluted), for the three months ended September 30, 1997. Historically,
the Company's earnings pattern has included losses in the first quarter,
followed by improved profitability in subsequent quarters throughout the year.
This pattern is due to the effects of employment-related taxes which are based
on each employee's cumulative earnings up to specified wage levels, causing
employment-related taxes to be largest in the first quarter and then decline
over the course of the year. The Company expects the remaining 1998 results to
be consistent with this pattern.
- 17 -
<PAGE> 18
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1997 1998 CHANGE
---------- ---------- ----------
(OPERATING RESULTS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING RESULTS:
Revenues ...................................... $ 839,610 $1,187,550 41.4%
Gross profit .................................. 34,464 47,536 37.9%
Gross profit margin ........................... 4.1% 4.0%
Operating income .............................. 4,393 5,817 32.4%
STATISTICAL DATA:
Monthly revenue per worksite employee ......... 3,423 3,714 8.5%
Monthly payroll cost per worksite employee .... 2,797 3,049 9.0%
Monthly gross markup per worksite employee .... 626 665 6.2%
Average number of worksite employees paid
per month during period .................... 26,121 33,840 29.6%
</TABLE>
REVENUES
The Company's revenues for the nine months ended September 30, 1998
increased 41.4% over the same period in 1997 due to an increase in worksite
employees paid accompanied by an increase in revenue per worksite employee. The
Company's expansion of its sales force through new market and sales office
openings over the past five years is the primary factor contributing to the
29.6% increase in worksite employees paid. Revenues from markets opened prior to
1993 (the commencement of the Company's national expansion plan) increased 28.5%
over the first nine months of 1997, while revenues from markets opened after
1993 increased 65.1%. The Company expects continued growth in the number of
worksite employees paid during the remainder of 1998 versus 1997 due to the
effect of sales in existing markets and the Company's national expansion plan.
The increase in revenue per worksite employee of 8.5% directly relates
to the increase in payroll cost per worksite employee of 9.0%. This increase
reflects the continuing effects of the net addition of clients with worksite
employees that have higher average base pay than the existing client base,
primarily through the penetration of markets with generally higher wage levels,
such as Los Angeles, Chicago and Washington, D.C. In addition, wage inflation
within the Company's existing worksite employee base has contributed to the
increase in payroll cost per worksite employee.
GROSS PROFIT
The Company's gross profit for first nine months of 1998 increased
37.9% over the first nine months of 1997, while the gross profit per worksite
employee increased from $147 per month in the
- 18 -
<PAGE> 19
1997 period to $156 per month in the 1998 period. The increase in gross profit
per worksite employee reflects the Company's success in managing its pricing
policy, which is designed to match changes in the Company's direct cost
structure with the comprehensive service fees charged for its services. Gross
profit margin decreased from 4.1% in the 1997 period to 4.0% in the 1998 period,
primarily due to an increase in the gross payroll cost per worksite employee and
an increase in the Company's weighted average state unemployment tax rate as a
percentage of payroll cost.
The continued addition of higher wage, less risk sensitive worksite
employees resulted in a decrease in gross markup per employee as a percentage of
revenue from 18.3% in the first nine months of 1997 to 17.9% in the first nine
months of 1998. However, gross mark-up per worksite employee increased 6.2% from
$626 per month in the 1997 period to $665 per month in the 1998 period.
Employment-related taxes as a percentage of payroll cost increased from
7.5% during the first nine months of 1997 to 7.7% during the 1998 period,
reflecting an increase in the weighted average state unemployment tax rate paid
by the Company as compared to the same period in 1997.
The cost of providing employee benefits, which includes benefit plan
premiums and workers' compensation costs, was slightly lower as a percentage of
revenue in the first nine months of 1998 than in the comparable 1997 period.
Benefit plan premiums declined slightly from 5.9% of revenue during the first
nine months of 1997 to 5.8% of revenue during the first nine months of 1998.
Workers' compensation costs decreased from 1.7% of payroll cost during the first
nine months of 1997 to 1.2% of payroll cost during the first nine months of
1998, due primarily to a rate decrease on the Company's fixed premium policy.
OPERATING EXPENSES
Operating expenses decreased as a percentage of revenue from 3.58% in
the first nine months of 1997 to 3.51% in the first nine months of 1998,
primarily due to a $1.3 million bad debt charge in the 1997 period. Excluding
the effects of this charge, operating expenses were 3.42% of revenues in the
1997 period. Total operating expenses increased 38.7% (45.2% excluding the
charge) while revenues and gross profit increased 41.4% and 37.9%, respectively.
The overall increase in operating expenses can be attributed principally to
increased compensation-related costs (salaries, wages and payroll taxes and
commissions), increased general and administrative expenses and increased
depreciation and amortization expense.
Compensation-related costs increased 44.3% over the first nine months
of 1997, and increased from 1.95% of revenues in the 1997 period to 1.99% in the
1998 period. This increase is primarily related to a 33.4% and 47.5% increase
over the 1997 period in corporate and sales office staff, respectively, as the
Company has continued to increase its sales and service capacity to accommodate
its rapid growth.
- 19 -
<PAGE> 20
General and administrative expenses decreased from 1.13% of revenues in
the first nine months of 1997 to 1.07% of revenues in the first nine months of
1998. This decrease was primarily the result of the $1.3 million bad debt charge
taken in the 1997 period. Excluding the effects of the bad debt charge, general
and administrative expenses increased 57.1%, and increased from 0.97% of
revenues in the 1997 period to 1.07% of revenues in the 1998 period. This
increase is primarily due to consulting fees incurred to assist the Company in
developing and implementing its technology and telecommunications infrastructure
plans, higher printing expenses related to the redesign of marketing brochures
as part of the Company's brand building strategy, and slight increases in
several other general and administrative expenses in connection with the
Company's growth.
Depreciation and amortization expense increased 72.0% over the 1997
period. This increase is primarily due to a substantial increase in capital
expenditures, beginning in 1997, related to investments in technology and
infrastructure to increase corporate service capacity and the opening of new
sales offices as part of the Company's national expansion.
NET INCOME
Interest income increased 16.8% over the first nine months of 1997 due
to the investment of the proceeds from the Company's initial public offering
("IPO") for the entire nine months in 1998 and the investment of the proceeds
from the sale of common stock to American Express received in March 1998. The
Company incurred no interest expense in the first nine months of 1998, while the
1997 period included a write-off of deferred financing costs relating to
long-term debt that was repaid using a portion of the proceeds from the IPO.
The Company's provision for income taxes in both periods differs from
the U.S. statutory rate of 34% due primarily to state income taxes.
The Company's net income for the nine months ended September 30, 1998
was $5.2 million or $0.35 per share (diluted), versus $3.9 million, or $0.28 per
share (diluted), for the nine months ended September 30, 1997. Excluding the
effects of the bad debt charge in the 1997 period, net income and diluted net
income per share were $4.7 million and $0.34 per share (diluted), respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company periodically evaluates its liquidity requirements, capital
needs and availability of resources in view of, among other things, capital
expenditure plans, expansion costs including potential acquisitions and other
operating cash needs. As a result of this process, the Company has, in the past,
sought and may, in the future, seek to raise additional capital or take other
steps to increase or manage its liquidity and capital resources. The Company
currently believes that its cash and marketable securities on hand and cash
flows from operations will be adequate to meet its liquidity requirements
through at least 1999. The Company will rely on these sources, as well as public
and private debt and equity financing, to meet its long-term liquidity needs.
- 20 -
<PAGE> 21
The Company had $68.5 million in cash and cash equivalents and
marketable securities at September 30, 1998, of which approximately $11.1
million was payable in early October 1998 for withheld federal and state income
taxes, FICA and other payroll deductions. The remainder is available to the
Company for general corporate purposes, including, but not limited to, current
working capital requirements, expenditures related to the continued expansion of
the Company's sales force through the opening of new sales offices and capital
expenditures. At September 30, 1998 the Company had net working capital of $54.3
million, which increased from $46.6 million at December 31, 1997 due to the
receipt of the net proceeds from the sale of common stock to American Express in
March 1998. As of September 30, 1998, the Company had no long-term debt.
CASH FLOWS FROM OPERATING ACTIVITIES
The Company's cash flows from operating activities decreased slightly
for the first nine months of 1998 versus the first nine months of 1997,
primarily due to higher levels of payroll taxes and other payroll deductions
payable at the end of the prior year compared to September 30, 1998. This
decrease was partially offset by increased net income, adjusted for non-cash
expense items, and higher levels of accounts receivable and accrued worksite
payroll expense due to the timing of the accrual, collection and payment of the
Company's service fees and payroll costs at the end of the respective periods.
CASH FLOWS FROM INVESTING ACTIVITIES
Net purchases of marketable securities during the first nine months of
1998 primarily reflect the investment of the proceeds from the Company's sale of
common stock to American Express in highly liquid marketable securities with
maturities ranging from 91 days to five years from the date of purchase,
consisting primarily of corporate and government bonds. Net purchases of
marketable securities in the 1997 period reflect a similar investment of a
portion of the proceeds from the Company's IPO.
Capital expenditures during the first nine months of 1998 consisted
primarily of computer equipment, furniture and fixtures, and telecommunications
equipment at the Company's headquarters, its new Dallas operations center, and
its new sales offices in Los Angeles, Dallas, St. Louis and San Francisco. The
capital expenditures included significant hardware and software related to the
Company's new Internet-based service platform, Administaff Assistant. In
addition, the Company purchased land adjacent to its Houston, Texas headquarters
to provide the capacity for future facilities expansion.
Investments in intangible assets during the first nine months of 1998
primarily represent capitalized software development costs related to
Administaff Assistant and enhancements to the Company's proprietary professional
employer information system.
- 21 -
<PAGE> 22
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows from financing activities for the first nine months of 1998
consist primarily of items relating to the sale of units consisting of 693,126
shares of common stock (293,126 shares from Treasury Stock) and common stock
purchase warrants for an additional 2,065,515 shares to American Express for a
total cost of $17.7 million. Other significant cash flows from financing
activities during the first nine months of 1998 included the exercise of
warrants to purchase 140,508 shares of common stock by a third party warrant
holder at a price of $4.52 per share, the repurchase of 140,508 shares of common
stock from the third party warrant holder at a price of $21 per share, and the
repurchase of 150,000 shares of common stock from three shareholders at a price
of $21 per share.
Cash flows from financing activities during the first nine months of
1997 consist primarily of items resulting from the completion of the Company's
IPO. Such offering was completed in January 1997. The net proceeds to the
Company from the offering (after deducting underwriting discounts and
commissions of $3.6 million) were $47.4 million. The Company utilized
approximately $7.1 million of the proceeds as follows: (i) $4.6 million to repay
certain subordinated notes and other secured notes comprising all of the
Company's outstanding indebtedness at the time, (ii) approximately $2.0 million
to exercise its option to repurchase 348,945 shares of common stock from one of
its stockholders, which is now held in treasury by the Company, and (iii)
approximately $0.5 million to exercise its option to repurchase 173,609 warrants
to purchase shares of common stock from the subordinated note holder.
YEAR 2000
As the Company's operations rely on several internal computer systems
and third party vendor relationships, the Company believes that the Year 2000
issue presents potentially significant operational issues if not properly
addressed. The Year 2000 issue generally describes the various problems that may
result from the failure of computer and other mechanical systems to properly
process certain dates and date sensitive information.
State of Readiness. The Company has concluded the assessment phase of
its Year 2000 preparations and has identified two primary risk areas. First, the
Company's operations rely heavily on its proprietary PEO information system,
which includes several applications such as payroll processing, benefits
enrollment, bid calculation, client invoicing and direct deposit payroll
transmission. Second, the Company relies on several third party vendors to
assist in delivering its PEO services to its clients and worksite employees. The
Company believes that it does not have material risks associated with Year 2000
issues for non-information technology systems due to the nature of its
operations.
In conjunction with the redesign and upgrade of the Company's PEO
information system in 1996 and 1997, the Company addressed Year 2000 programming
issues in a manner which it believes makes the system Year 2000 compliant. The
Company intends to perform testing on the system to ensure that it is able to
process all dates appropriately. In early October 1998, the
- 22 -
<PAGE> 23
Company completed the first phase of tests designed to assess the ability of its
internal operating environment to operate appropriately under Year 2000 dates.
No significant issues were detected during this testing phase. The Company plans
to test the system for data processing accuracy through the use of test data on
a wide variety of the Company's normal operating transactions under various date
conditions. The Company believes that these tests can be completed in sufficient
time to ensure that required modifications, if any, can be made on a timely
basis.
The Company has also assessed its third party vendor relationships and
has identified approximately 40 vendors that it considers critical to the
operations of the Company. These critical vendors primarily include third party
hardware and software vendors, financial institutions and benefit providers. The
Company has requested written information from each of these vendors regarding
their Year 2000 plans and state of readiness. As of October 31, 1998, the
Company has received responses to most of the requests and is in the process of
evaluating the responses. Upon completion of the evaluation, and upon completion
of the testing of its PEO information system, the Company intends to test
significant data interfaces with third party vendors to verify their compliant
status.
Costs to Address Year 2000 Issues. The Company has not incurred and
does not expect to incur significant costs related to Year 2000 issues other
than the time of internal personnel to complete the Company's Year 2000 plans.
Risks Associated with Year 2000 Issues. The Company believes that the
risks associated with Year 2000 issues would primarily affect the areas of
payroll processing, electronic funds transfers and the dissemination of benefits
information electronically. Among the problems which might occur without
appropriate planning and testing are: the inability to transmit direct deposit
payroll through banking systems to deposit funds into worksite employees' bank
accounts; the inability to collect funds electronically in payment of the
Company's service fees; the failure to properly calculate payroll information;
the untimely transmission of benefits enrollment or claims data to and from
benefit providers; and the inability to deliver payroll checks to employees due
to failure in transportation or courier systems. As a result, the Company's
plans, including the testing of its systems, vendor assessment and contingency
planning, will be focused in these areas.
Contingency Planning. The Company has previously developed a disaster
recovery plan to be used in the event of unexpected business interruptions. The
Company is currently developing specific contingency plans, to complement its
disaster recovery plan, for those processes that are considered critical in
preventing an interruption of business operations as a result of Year 2000
issues.
The Company's Year 2000 plans, as discussed above, represent an ongoing
process which will continue throughout 1999. Although the Company believes it is
taking the appropriate courses of action to ensure that material interruptions
in business operations do not occur as a result of the Year 2000 conversion,
there can be no assurances that the action discussed herein will have the
anticipated results or that the Company's financial condition or results of
operations will not be
- 23 -
<PAGE> 24
adversely affected as a result of Year 2000 issues. Among the factors which
might affect the success of the Company's Year 2000 plans are: (i) the Company's
ability to properly identify deficient systems; (ii) the ability of third
parties to adequately address Year 2000 issues or to notify the Company of
potential deficiencies; (iii) the Company's ability to adequately address any
such internal or external deficiencies; (iv) the Company's ability to complete
its Year 2000 plans in a timely manner; and (v) unforeseen expenses related to
the Company's Year 2000 plans.
OTHER MATTERS
In July 1998, the Company announced plans to accelerate the development
of Administaff Assistant, the Company's Internet-based service platform, along
with other technology and telecommunications infrastructure projects. This
decision was made based on several factors, including the recent acceleration in
the Company's growth rate, the previously announced marketing agreement with
American Express, and the initial response to the Administaff Assistant project.
The Company currently expects to incur approximately $10 million of
capital expenditures and software development costs in excess of the Company's
previous capital expenditure plans. The Company anticipates that this amount
will be expended over the last half of 1998 and the first half of 1999, with
individual projects being placed into service during that time period. The
Company believes it has sufficient capital resources to accommodate this
investment in addition to its previously planned capital expenditures at least
through the end of 1999.
SEASONALITY, INFLATION AND QUARTERLY FLUCTUATIONS
Historically, the Company's earnings pattern has included losses in the
first quarter, followed by improved profitability in subsequent quarters
throughout the year. This pattern is due to the effects of employment-related
taxes which are based on each employee's cumulative earnings up to specified
wage levels, causing employment-related taxes to be highest in the first quarter
and then decline over the course of the year. Since the Company's revenues
related to an individual employee are generally earned and collected at a
relatively constant rate throughout each year, payment of such
employment-related tax obligations has a substantial impact on the Company's
financial condition and results of operations during the first six months of
each year. Other factors that affect direct costs could mitigate or enhance this
trend.
The Company believes the effects of inflation have not had a
significant impact on its results of operations or financial condition.
CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
The statements contained in this Quarterly Report on Form 10-Q which
are not historical facts are forward-looking statements that involve a number of
risks and uncertainties. In the normal course of business, Administaff, Inc., in
an effort to help keep its stockholders and the public informed about the
Company's operations, may from time to time issue such forward-looking
- 24 -
<PAGE> 25
statements, either orally or in writing. Generally, these statements relate to
business plans or strategies, projected or anticipated benefits or other
consequences of such plans or strategies, or projections involving anticipated
revenues, earnings or other aspects of operating results. All phases of the
Company's operations are subject to a number of uncertainties, risks and other
influences. Therefore, the actual results of the future events described in such
forward-looking statements could differ materially from those stated in such
forward-looking statements. Among the factors that could cause actual results to
differ materially are: (i) regulatory and tax developments including the ongoing
audit of the Company's 401(k) Plan and related compliance issues, and possible
adverse application of various federal, state and local regulations; (ii)
changes in the Company's direct costs and operating expenses including increases
in health insurance premiums, workers' compensation rates and state unemployment
tax rates, liabilities for employee and client actions or payroll-related
claims, changes in the costs of expanding into new markets, and failure to
manage growth of the Company's operations; (iii) the effectiveness of the
Company's sales and marketing efforts, including the Company's marketing
agreement with American Express, American Express' ability to set qualified
appointments and the Company's ability to convert those appointments into sales;
(iv) the estimated costs and effectiveness of capital projects and investments
in technology and infrastructure; (v) the effectiveness and estimated costs of
the Company's Year 2000 conversion and contingency plans; and (vi) changes in
the competitive environment in the PEO industry. Any of these factors, or a
combination of such factors, could materially affect the results of the
Company's operations and whether forward-looking statements made by the Company
ultimately prove to be accurate.
- 25 -
<PAGE> 26
PART II
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal proceedings,
other than ordinary routine litigation incidental to its business that the
Company believes would not have a material adverse effect on its financial
position or results of operations.
ITEM 5. OTHER INFORMATION.
Pursuant to the Company's Amended and Restated Bylaws, stockholder
proposals submitted for consideration at the Company's 1999 Annual Meeting of
Stockholders must be delivered to the Corporate Secretary, Administaff, Inc.,
19001 Crescent Springs Drive, Kingwood, Texas 77339, no later than November 27,
1998 but no earlier than October 28, 1998. If such timely notice of a
stockholder proposal is not given, the proposal may not be brought before the
Annual Meeting. If timely notice is given but is not accompanied by a written
statement to the extent required by applicable securities laws, the Company may
exercise discretionary voting authority over proxies with respect to such
proposal if presented at the Company's 1999 Annual Meeting of Stockholders.
- 26 -
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Administaff, Inc.
Date: November 13, 1998 By: /s/ Richard G. Rawson
--------------------------------
Richard G. Rawson
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: November 13, 1998 By: /s/ Samuel G. Larson
--------------------------------
Samuel G. Larson
Vice President, Finance
(Principal Accounting Officer)
- 27 -
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 18,414
<SECURITIES> 50,102
<RECEIVABLES> 34,522
<ALLOWANCES> (550)
<INVENTORY> 0
<CURRENT-ASSETS> 104,465
<PP&E> 34,353
<DEPRECIATION> (7,532)
<TOTAL-ASSETS> 135,900
<CURRENT-LIABILITIES> 50,136
<BONDS> 0
0
0
<COMMON> 149
<OTHER-SE> 82,079
<TOTAL-LIABILITY-AND-EQUITY> 82,228
<SALES> 431,511
<TOTAL-REVENUES> 431,511
<CGS> 411,474
<TOTAL-COSTS> 411,474
<OTHER-EXPENSES> 13,931
<LOSS-PROVISION> 109
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,106
<INCOME-TAX> 2,320
<INCOME-CONTINUING> 3,786
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,786
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
