<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 June 30, 1999.
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 August 4, 1999: 13,503,895 shares.
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<PAGE> 2
TABLE OF CONTENTS
PART I
<TABLE>
<S> <C>
Item 1. Financial Statements .............................................................................. 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................................... 14
</TABLE>
PART II
<TABLE>
<S> <C>
Item 1. Legal Proceedings.................................................................................. 26
Item 4. Submission of Matters to a Vote of Security Holders................................................ 26
Item 5. Other Information.................................................................................. 27
</TABLE>
<PAGE> 3
ADMINISTAFF, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ---------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents .............. $ 23,521 $ 18,991
Marketable securities .................. 49,670 30,176
Accounts receivable:
Trade ............................... 4,663 1,475
Unbilled ............................ 19,719 35,262
Other ............................... 1,668 1,294
Prepaid expenses ....................... 2,469 6,052
Income taxes receivable ................ 1,426 2,824
--------- ---------
Total current assets ............. 103,136 96,074
Property and equipment:
Land ................................... 2,913 2,922
Buildings and improvements ............. 9,915 10,617
Computer equipment ..................... 15,078 17,179
Furniture and fixtures ................. 10,378 11,701
Vehicles ............................... 1,308 1,201
--------- ---------
39,592 43,620
Accumulated depreciation ............... (8,552) (9,791)
--------- ---------
Total property and equipment ..... 31,040 33,829
Other assets:
Notes receivable from employees ........ 1,181 1,027
Software development costs ............. 3,010 5,231
Other assets ........................... 4,432 4,280
--------- ---------
Total other assets ............... 8,623 10,538
--------- ---------
Total assets ..................... $ 142,799 $ 140,441
========= =========
</TABLE>
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<PAGE> 4
ADMINISTAFF, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ---------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Accounts payable ..................................... $ 2,555 $ 2,373
Payroll taxes and other payroll deductions payable ... 26,607 15,673
Accrued worksite employee payroll expense ............ 19,161 37,587
Other accrued liabilities ............................ 2,190 4,634
Deferred income taxes ................................ 148 141
--------- ---------
Total current liabilities ...................... 50,661 60,408
Noncurrent liabilities:
Other accrued liabilities ............................ 2,558 2,558
Deferred income taxes ................................ 2,723 3,619
--------- ---------
Total noncurrent liabilities ................... 5,281 6,177
Commitments and contingencies
Stockholders' equity:
Common stock ......................................... 149 149
Additional paid-in capital ........................... 64,293 64,493
Treasury stock, at cost .............................. (1,968) (14,284)
Accumulated other comprehensive income ............... 342 --
Retained earnings .................................... 24,041 23,498
--------- ---------
Total stockholders' equity ..................... 86,857 73,856
--------- ---------
Total liabilities and stockholders' equity ..... $ 142,799 $ 140,441
========= =========
</TABLE>
See accompanying notes.
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<PAGE> 5
ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues ...................................... $ 393,643 $ 505,683 $ 756,039 $ 981,536
Direct costs:
Salaries and wages of worksite employees ... 325,432 419,593 624,954 814,685
Benefits and payroll taxes ................. 51,885 66,171 103,586 133,377
--------- --------- --------- ---------
Gross profit .................................. 16,326 19,919 27,499 33,474
Operating expenses:
Salaries, wages and payroll taxes .......... 6,251 8,843 12,557 17,626
General and administrative expenses ........ 4,094 5,221 8,025 10,306
Commissions ................................ 1,518 1,507 2,875 2,976
Advertising ................................ 1,012 1,010 1,866 1,929
Depreciation and amortization .............. 838 1,537 1,611 2,898
--------- --------- --------- ---------
13,713 18,118 26,934 35,735
--------- --------- --------- ---------
Operating income (loss) ....................... 2,613 1,801 565 (2,261)
Other income (expense):
Interest income ............................ 886 585 1,698 1,315
Other, net ................................. 20 19 30 85
--------- --------- --------- ---------
906 604 1,728 1,400
--------- --------- --------- ---------
Income (loss) before income taxes ............. 3,519 2,405 2,293 (861)
Income tax expense (benefit) .................. 1,356 890 872 (318)
--------- --------- --------- ---------
Net income (loss) ............................. $ 2,163 $ 1,515 $ 1,421 $ (543)
========= ========= ========= =========
Basic and diluted net income (loss)
per share of common stock ................ $ 0.15 $ 0.11 $ 0.10 $ (0.04)
========= ========= ========= =========
</TABLE>
See accompanying notes.
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<PAGE> 6
ADMINISTAFF, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
ISSUED PAID-IN TREASURY COMPREHENSIVE RETAINED
SHARES AMOUNT CAPITAL STOCK INCOME EARNINGS TOTAL
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 .......... 14,860 $ 149 $ 64,293 $ (1,968) $ 342 $ 24,041 $ 86,857
Purchase of treasury stock,
at cost .......................... -- -- -- (12,330) -- -- (12,330)
Sale of common stock put warrant ... -- -- 119 -- -- -- 119
Exercise of stock options .......... 4 -- 47 -- -- -- 47
Other .............................. -- -- 34 14 -- -- 48
Change in unrealized gain on
marketable securities ............ -- -- -- -- (342) -- (342)
Net loss ........................... -- -- -- -- -- (543) (543)
--------
Comprehensive loss.................. (885)
-------- -------- -------- -------- -------- -------- --------
Balance at June 30, 1999 .............. 14,864 $ 149 $ 64,493 $(14,284) $ -- $ 23,498 $ 73,856
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
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<PAGE> 7
ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................... $ 1,421 $ (543)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization ........................... 1,817 3,145
Bad debt expense ........................................ 303 314
Deferred income taxes ................................... 353 889
Gain on the disposition of assets ....................... (25) (82)
Changes in operating assets and liabilities:
Accounts receivable .................................... (10,537) (12,295)
Prepaid expenses ....................................... 802 (3,583)
Other assets ........................................... (48) 152
Accounts payable ....................................... (177) (182)
Payroll taxes and other payroll deductions payable ..... (7,717) (10,934)
Accrued worksite employee payroll expense .............. 10,035 18,426
Other accrued liabilities .............................. (133) 2,444
Income taxes payable/receivable ........................ (736) (1,398)
-------- --------
Total adjustments .................................... (6,063) (3,104)
-------- --------
Net cash used in operating activities ................ (4,642) (3,647)
Cash flows from investing activities:
Marketable securities:
Purchases ................................................ (22,493) (8,560)
Proceeds from dispositions ............................... 7,753 27,587
Property and equipment:
Purchases ................................................ (4,295) (5,556)
Proceeds from dispositions ............................... 44 47
Investment in intangible assets ............................. (898) (2,439)
-------- --------
Net cash provided by (used in) investing activities ... (19,889) 11,079
</TABLE>
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<PAGE> 8
ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1999
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from the sale of units consisting of common
stock and common stock purchase warrants ................. $ 17,593 $ --
Purchase of treasury stock .................................. (6,101) (12,330)
Proceeds from the sale of common stock put warrant .......... -- 119
Proceeds from the exercise of stock options ................. 674 47
Proceeds from the exercise of common stock
purchase warrants ........................................ 635 --
Loans to employees .......................................... (40) 154
Other ....................................................... 24 48
-------- --------
Net cash provided by (used in) financing activities ... 12,785 (11,962)
-------- --------
Net decrease in cash and cash equivalents ...................... (11,746) (4,530)
Cash and cash equivalents at beginning of period ............... 40,561 23,521
-------- --------
Cash and cash equivalents at end of period ..................... $ 28,815 $ 18,991
======== ========
</TABLE>
See accompanying notes.
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<PAGE> 9
ADMINISTAFF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
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. For the six
months ended June 30, 1998 and 1999, revenues from the Company's Texas markets
represented 73% and 65% of the Company's total revenues, respectively.
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 accompanying consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements for the
year ended December 31, 1998. The consolidated balance sheet at December 31,
1998, 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 June 30, 1999, and the consolidated statements of
operations, cash flows and stockholders' equity for the interim periods ended
June 30, 1999 and 1998, 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.
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<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
2. NET INCOME (LOSS) PER SHARE
The numerator used in the calculations of both basic and diluted net
income (loss) per share for all periods presented was net income (loss). The
denominator for each period presented was determined as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic net income (loss) per share -
weighted average shares outstanding ..................... 14,476 13,649 14,249 13,979
Effect of dilutive securities:
Common stock purchase warrants -
treasury stock method ................................. 10 -- 14 --
Common stock options - treasury stock method ............ 338 24 343 --
------ ------ ------ ------
348 24 357 --
------ ------ ------ ------
Diluted net income (loss) per share - weighted average
shares outstanding plus effect of dilutive securities ... 14,824 13,673 14,606 13,979
====== ====== ====== ======
</TABLE>
3. STOCKHOLDERS' EQUITY
In January 1999, the Company's Board of Directors (the 'Board')
authorized a program to repurchase up to one million shares of the Company's
outstanding common stock. In May 1999, the Board authorized the repurchase of up
to one million additional shares under the repurchase program. The purchases are
to be made from time to time in the open market or directly from stockholders at
prevailing market prices based on market conditions or other factors. As of June
30, 1999, the Company had repurchased 875,000 shares on the open market at a
total cost of approximately $12.3 million. Subsequent to June 30, 1999, the
Company repurchased 144,600 shares from affiliates of Mr. Lang Gerhard, a
greater than 10% shareholder, in a private transaction for approximately $2.3
million.
4. MARKETABLE SECURITIES
At June 30, 1999, 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.
5. 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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<PAGE> 11
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. Copies 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.
The Company does not know whether the IRS National Office will address
the Technical Advice Request independently of the Industry Issue. 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 for its failure to withhold applicable taxes with
respect to certain contributions and trust earnings. Further, the Company would
be
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<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED)
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 the record keeper reported to the Company that the 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 the 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 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 that would bring the plan into compliance with the
nondiscrimination tests.
The Company has recorded an accrual for its estimate of the cost of
corrective measures and penalties for all of the affected plan years. The
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, 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. This 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 the amount accrued. There has been no
change in the amounts of the accrual or the amount recoverable from the record
keeper
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<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED)
subsequent to December 31, 1998. 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> 14
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 1998
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 JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE
30, 1999.
The following table presents certain information related to the
Company's results of operations for the three months ended June 30, 1998 and
1999 expressed on a dollar per worksite employee per month basis.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------- %
1998 1999 CHANGE CHANGE
------- ------- ------ ------
($ PER WORKSITE EMPLOYEE PER MONTH)
<S> <C> <C> <C> <C>
Revenues:
Fee revenue ............................... $ 3,708 $ 3,983 $ 275 7.4%
Bonus revenue ............................. 162 181 19 11.7%
Other revenue ............................. 7 8 1 14.3%
------- ------- -------
3,877 4,172 295 7.6%
Direct costs:
Fee payroll of worksite employees ......... 3,043 3,280 237 7.8%
Bonus payroll of worksite employees ....... 162 181 19 11.7%
Benefits and payroll taxes ................ 502 536 34 6.8%
Other direct costs ........................ 9 11 2 22.2%
------- ------- -------
3,716 4,008 292 7.9%
------- ------- -------
Gross profit ................................. 161 164 3 1.9%
Operating expenses:
Salaries, wages and payroll taxes ......... 62 73 11 17.7%
General and administrative expenses ....... 40 43 3 7.5%
Commissions ............................... 15 12 (3) (20.0)%
Advertising ............................... 10 8 (2) (20.0)%
Depreciation and amortization ............. 8 13 5 62.5%
------- ------- -------
135 149 14 10.4%
------- ------- -------
Operating income ............................. 26 15 (11) (42.3)%
Other income ................................. 9 5 (4) (44.4)%
------- ------- -------
Income before income taxes ................... 35 20 (15) (42.9)%
Income tax expense ........................... 14 7 (7) (50.0)%
------- ------- -------
Net income ................................... $ 21 $ 13 $ (8) (38.1)%
======= ======= =======
Monthly gross markup per worksite employee ... $ 665 $ 703 $ 38 5.7%
======= ======= =======
Average number of worksite employees
paid per month during period .............. 33,848 40,401 6,553 19.4%
======= ======= =======
</TABLE>
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<PAGE> 15
REVENUES
The Company's revenues for the three months ended June 30, 1999,
increased 28.5% over the same period in 1998 due to a 19.4% increase in worksite
employees paid accompanied by a 7.4% increase in fee revenue per worksite
employee. The Company's continued expansion of its sales force through new
market and sales office openings was the primary factor contributing to the
increase in the number of worksite employees paid. Revenues from markets opened
prior to 1993 (the commencement of the Company's national expansion plan)
increased 13.2% over the second quarter of 1998, while revenues from markets
opened after 1993 increased 50.9%. Revenues from the state of Texas represented
64% of the Company's total revenues and Houston, the Company's original market,
represented 38% of the total. Revenues for the Texas markets as a whole and the
Houston market both increased 12% over 1998.
The increase in fee revenue per worksite employee of $275, or 7.4%,
directly relates to the increase in payroll cost per worksite employee of $237,
or 7.8%. This increase reflects (i) wage inflation within the Company's existing
worksite employee base; (ii) the net addition of clients with worksite employees
that have a higher average base pay than the existing client base; and (iii) the
penetration of markets with generally higher wage levels, such as San Francisco
and Washington, D.C.
GROSS PROFIT
Gross profit for the second quarter of 1999 increased 22.0% over the
second quarter of 1998, primarily due to the 19.4% increase in the number of
worksite employees paid. Gross profit per worksite employee increased from $161
per month in the 1998 period to $164 per month in the 1999 period. The Company's
pricing objectives attempt to maintain or improve the gross profit per worksite
employee by matching or exceeding changes in the overall cost of its primary
direct costs with increases in the gross markup per worksite employee.
Approximately $19 of the $38 increase in gross markup per employee was
the result of increased service fees designed to match the increased payroll tax
expense associated with the higher average payroll cost per worksite employee.
The remaining increase in gross markup per employee was related to other
increases in the Company's comprehensive service fees, which were designed to
match or exceed known trends in the Company's primary direct costs, including a
change in the method used to calculate service fees for clients who experience
turnover within their workforce. The Company expects that this change will
continue to increase the gross markup per worksite employee compared to 1998 for
the remainder of 1999.
Payroll taxes increased $19 per worksite employee over the second
quarter of 1998, primarily due to the increased average payroll per worksite
employee. The overall cost of payroll taxes as a percentage of payroll cost was
7.5% in both periods.
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<PAGE> 16
The cost of health insurance and related employee benefits increased
$12 per worksite employee over the second quarter of 1998 due to a 4.8% increase
in the cost per covered employee and a slight increase in the percentage of
worksite employees covered under the Company's health insurance plans from 66.1%
in the 1998 period to 66.8% in the 1999 period.
Workers' compensation costs increased $1 per worksite employee per
month over the second quarter of 1998, and declined from 1.3% of payroll cost in
the 1998 period to 1.2% in the 1999 period.
Gross profit, measured as a percentage of revenue, declined from 4.1%
in the 1998 period to 3.9% in the 1999 period. This decline was due primarily to
the increase in average payroll cost per worksite employee, which had a
corresponding effect on revenue, thus decreasing the gross profit margin.
OPERATING EXPENSES
Operating expenses increased 32.1% over the second quarter of 1998
compared to an increase in revenue and gross profit of 28.5% and 22.0%,
respectively. The overall increase in operating expenses was the result of the
19.4% growth in worksite employees paid by the Company and the continuing
investment in sales, service and technology infrastructure. Operating expenses
per worksite employee were $149 in the 1999 period versus $135 for the 1998
period.
Salaries, wages and payroll taxes of corporate and sales staff
increased from $62 per worksite employee in the 1998 period to $73 per worksite
employee in the 1999 period. This increase was the result of a 26.8% increase in
corporate and sales staff, combined with a 10.2% increase in the average payroll
cost per employee.
General and administrative expenses increased $3 per worksite employee
over the second quarter of 1998. The increase resulted from higher rent expense
due to recent openings of sales offices in St. Louis, San Francisco and New York
and the new Dallas operations center and maintenance fees on recently acquired
hardware and software associated with the Company's Internet development and
national technology platform.
Depreciation and amortization expense increased $5 per worksite
employee as a result of the increased capital expenditures placed in service in
1998 and 1999, including (i) the implementation of a national technology
infrastructure; (ii) the opening of new sales offices; (iii) the expansion of
the Dallas operations center; and (iv) the expansion of corporate headquarters.
Commissions expense was slightly lower per worksite employee versus the
second quarter of 1998 due to lower sales agency commissions. Advertising costs
also declined slightly per worksite employee as the Company was able to increase
its advertising coverage while incurring lower rates for much of its radio
advertising. In addition, the Company utilized resources available
-16-
<PAGE> 17
through its marketing agreement with American Express to generate leads and
appointments for its sales representatives.
NET INCOME
Interest and other income decreased 33.3% from the second quarter of
1998 to the second quarter of 1999 due to a lower level of cash and marketable
securities resulting from the repurchase of shares of the Company's common stock
under the repurchase program approved by the Company's Board of Directors in
January 1999.
The Company's provision for income taxes differed from the U.S.
statutory rate of 34% primarily due to state income taxes and tax exempt
interest income. The effective income tax rate for the 1999 period was
consistent with the 1998 period.
Operating income and net income per worksite employee were $15 and $13
in the 1999 period, versus $26 and $21 in the 1998 period. The Company's net
income and diluted net income per share for the quarter ended June 30, 1999,
decreased to $1.5 million and $0.11, versus $2.2 million and $0.15 for the
quarter ended June 30, 1998.
-17-
<PAGE> 18
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30,
1999.
The following table presents certain information related to the
Company's results of operations for the six months ended June 30, 1998 and 1999
expressed on a dollar per worksite employee per month basis.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------- %
1998 1999 CHANGE CHANGE
-------- -------- -------- --------
($ PER WORKSITE EMPLOYEE PER MONTH)
<S> <C> <C> <C> <C>
Revenues:
Fee revenue ............................... $ 3,675 $ 3,955 $ 280 7.6%
Bonus revenue ............................. 174 190 16 9.2%
Other revenue ............................. 7 7 -- --
-------- -------- --------
3,856 4,152 296 7.7%
Direct costs:
Fee payroll of worksite employees ......... 3,014 3,257 243 8.1%
Bonus payroll of worksite employees ....... 174 190 16 9.2%
Benefits and payroll taxes ................ 519 554 35 6.7%
Other direct costs ........................ 9 9 -- --
-------- -------- --------
3,716 4,010 294 7.9%
-------- -------- --------
Gross profit ................................. 140 142 2 1.4%
Operating expenses:
Salaries, wages and payroll taxes ......... 64 74 10 15.6%
General and administrative expenses ....... 41 44 3 7.3%
Commissions ............................... 15 13 (2) (13.3)%
Advertising ............................... 9 8 (1) (11.1)%
Depreciation and amortization ............. 8 12 4 50.0%
-------- -------- --------
137 151 14 10.2%
-------- -------- --------
Operating income (loss) ...................... 3 (9) (12) (400.0)%
Other income ................................. 9 6 (3) (33.3)%
-------- -------- --------
Income (loss) before income taxes ............ 12 (3) (15) (125.0)%
Income tax expense (benefit) ................. 5 (1) (6) (120.0)%
-------- -------- --------
Net income (loss) ............................ $ 7 $ (2) $ (9) (128.6)%
======== ======== ========
Monthly gross markup per worksite employee ... $ 661 $ 698 $ 37 5.6%
======== ======== ========
Average number of worksite employees
paid per month during period .............. 32,680 39,396 6,716 20.6%
======== ======== ========
</TABLE>
REVENUES
The Company's revenues for the six months ended June 30, 1999,
increased 29.8% over the same period in 1998 due to a 20.6% increase in worksite
employees paid accompanied by a 7.6% increase in fee revenue per worksite
employee. The Company's continued expansion of its sales force through new
market and sales office openings was the primary factor contributing to the
increase in the number of worksite employees paid. Revenues from markets opened
prior to 1993 (the commencement of the Company's national expansion plan)
increased 15.6% over the first six
-18-
<PAGE> 19
months of 1998, while revenues from markets opened after 1993 increased 51.0%.
Revenues from the state of Texas represented 65% of the Company's total revenues
and Houston, the Company's original market, represented 40% of the total.
Revenues for the Texas markets as a whole and the Houston market both increased
16% over 1998.
The increase in fee revenue per worksite employee of $280, or 7.6%,
directly relates to the increase in payroll cost per worksite employee of $243,
or 8.1%. This increase reflects (i) wage inflation within the Company's existing
worksite employee base; (ii) the net addition of clients with worksite employees
that have a higher average base pay than the existing client base; and (iii) the
penetration of markets with generally higher wage levels, such as San Francisco
and Washington, D.C.
GROSS PROFIT
Gross profit for the first six months of 1999 increased 21.7% over the
first six months of 1998, primarily due to the 20.6% increase in the number of
worksite employees paid. Gross profit per worksite employee increased from $140
per month in the 1998 period to $142 per month in the 1999 period. The Company's
pricing objectives attempt to maintain or improve the gross profit per worksite
employee by matching or exceeding changes in the overall cost of its primary
direct costs with increases in the gross markup per worksite employee.
Approximately $20 of the $37 increase in gross markup per employee was
the result of increased service fees designed to match the increased payroll tax
expense associated with the higher average payroll cost per worksite employee.
The remaining increase in gross markup per employee was related to other
increases in the Company's comprehensive service fees, which were designed to
match or exceed known trends in the Company's primary direct costs.
Payroll taxes increased $20 per worksite employee over the first six
months of 1998, primarily due to the increased average payroll per worksite
employee. The overall cost of payroll taxes as a percentage of payroll cost was
8.1% in both periods.
The cost of health insurance and related employee benefits increased
$14 per worksite employee over the first six months of 1998 due to a 5.4%
increase in the cost per covered employee and a slight increase in the
percentage of worksite employees covered under the Company's health insurance
plans from 66.6% in the 1998 period to 67.2% in the 1999 period.
Workers' compensation costs increased $1 per worksite employee per
month, and declined from 1.3% of payroll cost in the 1998 period to 1.2% in the
1999 period.
Gross profit, measured as a percentage of revenue, declined from 3.6%
in the 1998 period to 3.4% in the 1999 period. This decline was due primarily to
the increase in average payroll cost per worksite employee, which had a
corresponding effect on revenue, thus decreasing the gross profit margin.
-19-
<PAGE> 20
OPERATING EXPENSES
Operating expenses increased 32.7% over the first six months of 1998
compared to an increase in revenue and gross profit of 29.8% and 21.7%,
respectively. The overall increase in operating expenses was the result of the
20.6% growth in worksite employees paid by the Company and the continuing
investment in sales, service and technology infrastructure. Operating expenses
per worksite employee were $151 in the 1999 period versus $137 for the 1998
period.
Salaries, wages and payroll taxes of corporate and sales staff
increased from $64 per worksite employee in the 1998 period to $74 per worksite
employee in the 1999 period. This increase was the result of a 31.9% increase in
corporate and sales staff, combined with a 6.4% increase in the average payroll
cost per employee.
General and administrative expenses increased $3 per worksite employee
over the first six months of 1998. The increase resulted from (i) higher rent
expense due to recent openings of sales offices in St. Louis, San Francisco and
New York and the new Dallas operations center; (ii) higher legal and accounting
fees related to corporate activities such as the ongoing 401(k) plan audit and
corporate entity changes; and (iii) maintenance fees on recently acquired
hardware and software associated with the Company's Internet development and
national technology platform.
Depreciation and amortization expense increased $4 per worksite
employee as a result of the increased capital expenditures placed in service in
1998 and 1999, including (i) the implementation of a national technology
infrastructure; (ii) the opening of new sales offices; (iii) the expansion of
the Dallas operations center; and (iv) the expansion of corporate headquarters.
Commissions expense was slightly lower per worksite employee versus the
first six months of 1998 due to lower sales agency commissions. Advertising
costs also declined slightly per worksite employee as the Company was able to
increase its advertising coverage while incurring lower rates for much of its
radio advertising. In addition, the Company utilized resources available through
its marketing agreement with American Express to generate leads and appointments
for its sales representatives.
NET INCOME
Interest and other income decreased 19.0% from the first six months of
1998 to the first six months of 1999 due to a lower level of cash and marketable
securities resulting from the repurchase of shares of the Company's common stock
under the repurchase program approved by the Company's Board of Directors in
January 1999.
The Company's provision for income taxes differed from the U.S.
statutory rate of 34% primarily due to state income taxes and tax exempt
interest income. The effective income tax rate for the 1999 period was
consistent with the 1998 period.
-20-
<PAGE> 21
Operating loss and net loss per worksite employee were $9 and $2 in the
1999 period, versus operating income and net income per worksite employee of $3
and $7 in the 1998 period. The Company's net loss and diluted net loss per share
for the six months ended June 30, 1999, were $543,000 and $0.04, versus net
income and diluted net income per share of $1.4 million and $0.10 for the six
months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company periodically evaluates its liquidity requirements, capital
needs and availability of resources in view of, among other things, expansion
plans, debt service requirements 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 on
hand, marketable securities and cash flows from operations will be adequate to
meet its short-term liquidity requirements. The Company will rely on these same
sources, as well as public and private debt and equity financing, to meet its
long-term liquidity and capital needs.
The Company had $49.2 million in cash and cash equivalents and
marketable securities at June 30, 1999, of which approximately $15.7 million was
payable in early July 1999 for withheld federal and state income taxes,
employment taxes 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, service and technology infrastructure, capital expenditures
and the Company's stock repurchase program. At June 30, 1999, the Company had
working capital of $35.7 million compared to $52.5 million at December 31, 1998.
The decrease in working capital was due primarily to the use of $12.3 million to
repurchase shares of the Company's common stock and capital expenditures of $8.0
million, including investments in intangible assets. These decreases were
partially offset by the generation of $3.7 million of net income adjusted for
non-cash items. As of June 30, 1999, the Company had no long-term debt.
CASH FLOWS FROM OPERATING ACTIVITIES
The Company's net cash used in operating activities improved slightly
from the first six months of 1998 to the first six months of 1999 primarily due
to an increase in customer prepayments of unbilled accounts receivable,
partially offset by larger payroll tax payments and a prepayment of
approximately $2.9 million of workers' compensation insurance premiums.
CASH FLOWS FROM INVESTING ACTIVITIES
Net sales of marketable securities during the first six months of 1999
represent funds used to repurchase shares of the Company's common stock and
replenish cash used to purchase property and equipment.
-21-
<PAGE> 22
Capital expenditures during the 1999 period primarily consist of
computer and telecommunications equipment, building improvements and furniture
and fixtures at the Company's headquarters, Dallas operations center, and New
York and San Antonio sales offices.
Investments in intangible assets during the 1999 period primarily
represent capitalized software development costs related to the Company's
Internet service delivery platform, Administaff Assistant, and enhancements to
the Company's proprietary professional employer information system.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows from financing activities during the 1999 period primarily
include the repurchase of 875,000 shares of the Company's common stock under the
stock repurchase program approved by the Company's Board of Directors in January
1999.
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, sales 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. In
October 1998, the 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.
During 1999, the Company has been developing further enhancements to
its PEO information system, including significant components that interface with
its Administaff Assistant Internet service delivery platform. These enhancements
are scheduled for deployment during the third quarter of 1999. As part of the
deployment process, the Company is incorporating Year 2000 testing into the
normal testing processes associated with the deployment of major enhancements of
-22-
<PAGE> 23
this nature. These tests represent a comprehensive test of the critical
functionality of the PEO information system including the core processes of
payroll processing, electronic funds transfers and dissemination of benefits
information. In addition to this testing, the Company intends to perform
system-wide testing of the overall system operating environment subsequent to
the deployment of these enhancements and prior to November 15, 1999. The Company
believes that required modifications, if any, could 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. With regard to third-party
hardware and software vendors, the Company has confirmed Year 2000 compliance
with the vendors for all of the components defined as critical to ongoing
operations. With regard to financial institutions, the Company has received
periodic reports from its vendors on their Year 2000 compliance efforts. The
Company believes that each of these financial institutions is preparing for the
Year 2000 in accordance with milestones established by federal banking
regulatory authorities. With regard to benefits providers, the Company has
reviewed documentation that indicates that its vendors believe their
mission-critical systems are Year 2000 compliant. The Company will test
significant data interfaces with its financial institutions and benefits
providers in conjunction with the testing of its proprietary PEO information
system.
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, have been and will continue to 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.
-23-
<PAGE> 24
The Company's Year 2000 plans, as discussed above, represent an ongoing
process that 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 actions discussed herein will have the
anticipated results or that the Company's financial condition or results of
operations will not be 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.
SEASONALITY, INFLATION AND QUARTERLY FLUCTUATIONS
Historically, the Company's earnings pattern includes 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.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND THE MARKET PRICE OF COMMON STOCK
The statements contained in this Quarterly Report on Form 10-Q that 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
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
-24-
<PAGE> 25
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. The Company
believes that its pending legal proceedings would not have a material adverse
effect on its financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
An Annual Meeting of Stockholders of the Company was held on May 4,
1999. At the Meeting, holders of 12,574,169 shares of common stock were present
in person or by proxy, which constituted a quorum thereof. The vote of
stockholders in respect of the three proposals voted on at the Meeting, all of
which were approved, is set forth below:
1. Election of Class I Directors with terms expiring at the
Annual Meeting of Stockholders in 2002.
<TABLE>
<CAPTION>
Broker
For Abstain Non-Votes
---------- -------- ---------
<S> <C> <C> <C>
Linda Fayne Levinson 12,120,634 453,535 --
Michael W. Brown 12,120,634 453,535 --
</TABLE>
2. Approval of an amendment to the Company's 1997 Incentive Plan
to increase the number of shares of the Company's common stock
reserved for issuance under the Plan by 600,000 shares from a
total of 882,957 shares to a total of 1,482,957 shares.
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
---------- ------- ------- ---------
<S> <C> <C> <C>
11,970,277 600,644 3,248 --
</TABLE>
3. Ratification of Ernst & Young LLP as the Company's independent
auditors for the 1999 fiscal year.
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
---------- ------- ------- ---------
<S> <C> <C> <C> <C>
12,131,569 439,950 2,650 --
</TABLE>
-26-
<PAGE> 27
ITEM 5. OTHER INFORMATION.
RIGHTS AGREEMENT AMENDMENTS
On May 13, 1999, in response to the filing of a Schedule 13D indicating
the stock ownership in the Company of Mr. Lang Gerhard and his affiliates, the
Board of Directors of the Company approved Amendment No. 2 to the Rights
Agreement between the Company and Harris Trust and Savings Bank, as Rights
Agent. Amendment No. 2 amended the definition of "Exempt Person" under the
Rights Agreement to include, subject to certain limitations, Mr. Lang Gerhard
and his affiliates.
On July 22, 1999, in response to the filing of a Schedule 13D/A
indicating the increased stock ownership in the Company of Mr. Lang Gerhard and
his affiliates, the Board of Directors of the Company approved Amendment No. 3
to the Rights Agreement. Amendment No. 3 provided that Mr. Lang Gerhard and his
affiliates would continue to be an "Exempt Person" under the Rights Agreement
for the period up to and including August 2, 1999. Subsequent to the adoption of
Amendment No. 3, Mr. Lang Gerhard and his affiliates sold shares of common stock
of the Company back to the Company and on the open market, thereby reducing
their ownership in the Company to the number of shares owned at the time of the
adoption of Amendment No. 2 to the Rights Agreement.
On August 2, 1999, the Board of Directors of the Company approved
Amendment No. 4 to the Rights Agreement. Amendment No. 4 amended the definition
of "Exempt Person" under the Rights Agreement to allow for the increased
percentage ownership in the Company, subject to certain limitations, of Mr. Lang
Gerhard and his affiliates.
STOCKHOLDER PROPOSALS
Pursuant to the Company's Amended and Restated Bylaws, stockholder
proposals submitted for consideration at the Company's 2000 Annual Meeting of
Stockholders must be delivered to the Corporate Secretary, Administaff, Inc.,
19001 Crescent Springs Drive, Kingwood, Texas 77339, no later than November 30,
1999, but no earlier than October 31, 1999. 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 2000 Annual Meeting of Stockholders.
-27-
<PAGE> 28
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: August 13, 1999 By: /s/ Richard G. Rawson
-----------------------------------
Richard G. Rawson
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: August 13, 1999 By: /s/ Samuel G. Larson
----------------------
Samuel G. Larson
Vice President, Finance
(Principal Accounting Officer)
-28-
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------------------
<C> <S>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-1-1999
<PERIOD-END> JUN-30-1999
<CASH> 18,991
<SECURITIES> 30,176
<RECEIVABLES> 38,775
<ALLOWANCES> (744)
<INVENTORY> 0
<CURRENT-ASSETS> 96,074
<PP&E> 43,620
<DEPRECIATION> (9,791)
<TOTAL-ASSETS> 140,441
<CURRENT-LIABILITIES> 60,408
<BONDS> 0
0
0
<COMMON> 149
<OTHER-SE> 73,707
<TOTAL-LIABILITY-AND-EQUITY> 140,441
<SALES> 505,683
<TOTAL-REVENUES> 505,683
<CGS> 485,764
<TOTAL-COSTS> 485,764
<OTHER-EXPENSES> 17,514
<LOSS-PROVISION> 142
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,405
<INCOME-TAX> 890
<INCOME-CONTINUING> 1,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,515
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.11
</TABLE>
