EX-99.1 2 h17198exv99w1.htm PRESS RELEASE ISSUED ON AUGUST 2, 2004 exv99w1
 

Exhibit 99.1

ADMINISTAFF ANNOUNCES SECOND QUARTER RESULTS

HOUSTON – August 2, 2004 – Administaff, Inc. (NYSE: ASF), the nation’s leading Professional Employer Organization (PEO), today announced results for the second quarter and six months ended June 30, 2004. From its continuing operations, the company reported second quarter net income and diluted earnings per share of $2.8 million and $0.10, versus $1.9 million and $0.07 in the 2003 period.

Revenues for the second quarter of 2004 increased 6.2% over the 2003 period to $233 million. During the quarter, the company experienced a 3.3%, or $32, increase in revenues per worksite employee per month to $1,005, and a 2.8% increase in the average number of worksite employees paid per month compared to the 2003 period.

“We are pleased to see our unit growth rate increase 3.2% sequentially over the first quarter,” said Paul J. Sarvadi, Administaff chairman and chief executive officer. “As we continue to improve sales and client retention results, we are on track to reach our goal of double-digit year-over-year unit growth by year end.”

Gross profit increased 3.7% over the second quarter of 2003 to $48.5 million. The average gross profit per worksite employee per month increased 1.0%, or $2, to $210 in the 2004 period. These results included a $2.3 million, or $10 per worksite employee per month, reduction in payroll tax expense resulting from a settlement agreement with the state of California related to a fourth quarter 2003 state unemployment tax assessment.

Operating expenses for the quarter remained flat with the 2003 period at $44.0 million. On a per worksite employee basis, operating expenses decreased 3.1% to $190 per month in the 2004 period from $196 per month in the 2003 period, primarily due to a 2.8% increase in the average number of worksite employees paid per month.

Operating income for the second quarter of 2004 increased 63.8% to $4.5 million, with an average operating income per worksite employee of $20 per month compared to $12 in the 2003 period.

Year-to-Date Results

For the six months ended June 30, 2004 the company reported net income and diluted earnings per share of $12.0 million and $0.44 from its continuing operations, versus a net loss and diluted net loss per share of $2.2 million and $0.08 for the same period in 2003.

Year-to-date revenues increased to $484.9 million, or 9.0% over the 2003 period. This increase was due to an 8.7%, or $85, increase in revenue per worksite employee per month and a 0.3% increase in the average number of worksite employees paid per month.

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Gross profit for the six months ended June 30, 2004 increased 19.1% to $98.6 million. The average gross profit per worksite employee per month increased 18.7%, or $34, to $216 in the 2004 period. In addition to the $2.3 million reduction in payroll tax expense for the second quarter referenced above, these results reflect a contractual change with clients enabling the company to invoice its comprehensive service fee at a higher rate earlier in the year, which more closely reflects the pattern of employer-related payroll tax costs.

Year-to-date operating expenses were flat compared with the 2003 period. Operating expenses per worksite employee per month were $191 in both the 2004 and 2003 periods. The resulting operating income for the six months ended June 30, 2004 was $11.7 million compared to an operating loss of $3.8 million in the 2003 period.

“We have continued to maintain a strong working capital position, while repurchasing $8.3 million of shares during the first half of the year,” said Douglas S. Sharp, vice president of finance and chief financial officer. “Capital expenditures for the year have been held to $2.7 million as we continue to focus our efforts on managing costs and benefiting from our prior investments in technology and other infrastructure.”

Business Outlook

The company’s current outlook for the balance of 2004 is as follows:

                         
    Third Quarter
  Fourth Quarter
  Full Year
Average worksite employees paid per month
    79,000–80,000       81,000–82,000       78,000–78,500  
Gross profit per worksite employee per month
  $196 – $200     $204 – $208     $208 – $210  
Operating expenses (in millions)
  $42.5 – $43.5     $43.5 – $44.5     $173.0 – $175.0  
Diluted weighted average common shares outstanding
    26,800,000       26,800,000       27,200,000  

Prior to 2004, the company’s earnings pattern included losses in the first quarter, followed by improved profitability in subsequent quarters throughout the year. This pattern was due to the effects of employment-related taxes that 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. In the first quarter of 2004, substantially all clients were invoiced using the company’s new pricing and billing system. Beginning in 2004, the historical earnings pattern will only apply to new clients enrolled after January of each year.

Administaff will be hosting a conference call today at 10 a.m. EDT to discuss these results, give guidance for the remainder of 2004, and answer questions from investment analysts. To listen in, call 800-901-5213 and use passcode 63392845. The call will also be webcast at www.administaff.com. To access the webcast, click on the Investor Relations section of the website and select “Live Webcast.” The conference call script will be available at the same

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website later today. A replay of the conference call will be available at 888-286-8010, passcode 33806037, for two weeks after the call. The webcast will be archived for one year.

Administaff is a leading personnel management company that serves as a full-service human resources department for small and medium-sized businesses throughout the United States. The company operates 38 sales offices in 21 major markets. For additional information, visit Administaff’s Web site at www.administaff.com.

(Note: The statements contained in this press release that are not historical facts are forward-looking statements that involve a number of risks and uncertainties. Therefore, the actual results of 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) changes in general economic conditions; (ii) regulatory and tax developments, including possible adverse application of various federal, state and local regulations; (iii) changes in Administaff’s direct costs and operating expenses, including, but not limited to, increases in health insurance and workers’ compensation premiums and underlying claims trends, 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 Administaff’s operations; (iv) the estimated costs and effectiveness of capital projects and investments in technology and infrastructure; (v) the effectiveness of Administaff’s sales and marketing efforts, including the company’s marketing arrangements with other companies; (vi) the effectiveness of Administaff’s retirement services operation; (vii) changes in the competitive environment in the Professional Employer Organization industry; (viii) Administaff’s liability for worksite employee payroll and benefits costs; and (ix) an adverse final judgment or settlement of claims against Administaff. These factors are described in further detail in Administaff’s filings with the Securities and Exchange Commission.)

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Administaff, Inc.
Summary Financial Information
(in thousands, except per share amounts and statistical data)

                 
    June 30,   December 31,
    2004
  2003
    (unaudited)        
Assets
               
Cash and cash equivalents
  $ 75,902     $ 104,728  
Restricted cash
    10,975       4,584  
Marketable securities
    27,307       23,989  
Accounts receivable
    90,239       61,744  
Prepaid insurance
    10,546       22,554  
Other current assets
    2,621       7,468  
Deferred income taxes
    1,990       3,423  
 
   
 
     
 
 
Total current assets
    219,580       228,490  
Property and equipment
    161,726       160,993  
Accumulated depreciation
    (89,536 )     (82,224 )
 
   
 
     
 
 
Net property and equipment
    72,190       78,769  
Deposits
    56,897       39,909  
Other assets
    579       903  
 
   
 
     
 
 
Total assets
  $ 349,246     $ 348,071  
 
   
 
     
 
 
Liabilities and Stockholders’ Equity
               
Accounts payable
  $ 1,332     $ 4,319  
Payroll taxes and other payroll deductions payable
    45,281       65,310  
Accrued worksite employee payroll cost
    86,392       65,503  
Accrued health insurance costs
    654       6,559  
Accrued workers’ compensation costs
    12,185       5,489  
Other accrued liabilities
    13,796       15,898  
Income taxes payable
    271       7,520  
Current portion of long-term debt
    1,889       1,860  
 
   
 
     
 
 
Total current liabilities
    161,800       172,458  
Long-term debt
    39,548       40,502  
Accrued workers’ compensation costs
    15,915       7,417  
Deferred income taxes
    4,619       5,060  
 
   
 
     
 
 
Total noncurrent liabilities
    60,082       52,979  
Stockholders’ equity:
               
Common stock
    309       309  
Additional paid-in capital
    101,489       101,681  
Treasury stock, cost
    (55,789 )     (48,795 )
Accumulated other comprehensive income, net of tax
    (133 )      
Retained earnings
    81,488       69,439  
 
   
 
     
 
 
Total stockholders’ equity
    127,364       122,634  
 
   
 
     
 
 
Total liabilities and stockholders’ equity
  $ 349,246     $ 348,071  
 
   
 
     
 
 
Working Capital
  $ 57,780     $ 56,032  

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Administaff, Inc.
Summary Financial Information (continued)
(in thousands, except per share amounts and statistical data)
(Unaudited)

                                                 
    Three months ended           Six months ended    
    June 30,
          June 30,
   
    2004
  2003
  Change
  2004
  2003
  Change
Operating results:
                                               
Revenues (gross billings of $1.254 billion, $1.161 billion, $2.538 billion and $2.357 billion, less worksite employee payroll cost of $1.021 billion, $942 million, $2.053 billion and $1.913 billion, respectively)
  $ 232,892     $ 219,226       6.2 %   $ 484,939     $ 444,746       9.0 %
Direct costs:
                                               
Payroll taxes, benefits and workers’ compensation costs
    184,347       172,404       6.9 %     386,360       361,943       6.7 %
 
   
 
     
 
             
 
     
 
         
Gross profit
    48,545       46,822       3.7 %     98,579       82,803       19.1 %
Operating expenses:
                                               
Salaries, wages and payroll taxes
    21,083       20,603       2.3 %     43,382       40,947       5.9 %
General and administrative expenses
    12,916       13,720       (5.9 )%     24,681       25,424       (2.9 )%
Commissions
    2,778       2,656       4.6 %     5,322       5,542       (4.0 )%
Advertising
    2,699       1,787       51.0 %     4,408       3,997       10.3 %
Depreciation and amortization
    4,570       5,309       (13.9 )%     9,121       10,714       (14.9 )%
 
   
 
     
 
             
 
     
 
         
 
    44,046       44,075             86,914       86,624       0.3 %
 
   
 
     
 
             
 
     
 
         
Operating income (loss)
    4,499       2,747       63.8 %     11,665       (3,821 )     405.3 %
Other income (expense):
                                               
Interest income
    648       263       146.4 %     1,014       578       75.4 %
Interest expense
    (522 )     (552 )     5.4 %     (1,049 )     (1,120 )     6.3 %
Other, net
    22       450       (95.1 )%     8,286       458        
 
   
 
     
 
             
 
     
 
         
Income (loss) before income taxes
    4,647       2,908       59.8 %     19,916       (3,905 )     610.0 %
Income tax expense (benefit)
    1,836       968       89.7 %     7,867       (1,723 )     556.6 %
 
   
 
     
 
             
 
     
 
         
Net income (loss) from continuing operations
  $ 2,811     $ 1,940       44.9 %   $ 12,049     $ (2,182 )     652.2 %
 
   
 
     
 
             
 
     
 
         
Discontinued operations:
                                               
Loss from operations of discontinued division
          (373 )                 (769 )      
Income tax expense (benefit)
          (146 )                 (303 )      
 
   
 
     
 
             
 
     
 
         
Net loss from discontinued operations
          (227 )                 (466 )      
Net income (loss)
  $ 2,811     $ 1,713       64.1 %   $ 12,049     $ (2,648 )     555.0 %
 
   
 
     
 
             
 
     
 
         
Diluted net income (loss) per share of common stock:
                                               
Income (loss) from continuing operations
  $ 0.10     $ 0.07       42.9 %   $ 0.44     $ (0.08 )     650.0 %
Income (loss) from discontinued operations
  $     $ (0.01 )         $     $ (0.02 )      
 
   
 
     
 
             
 
     
 
         
Diluted net income (loss) per share
  $ 0.10     $ 0.06       66.7 %   $ 0.44     $ (0.10 )     540.0 %
 
   
 
     
 
             
 
     
 
         
Diluted weighted average common shares outstanding
    27,312       26,814               27,450       27,000          

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Administaff, Inc.
Summary Financial Information (continued)
(in thousands, except per share amounts and statistical data)
(Unaudited)

                                                 
    Three months ended           Six months ended    
    June 30,
          June 30,
   
    2004
  2003
  Change
  2004
  2003
  Change
Statistical data:
                                               
Average number of worksite employees paid per month
    77,209       75,103       2.8 %     76,001       75,764       0.3 %
Revenues per worksite employee per month (1)
  $ 1,005     $ 973       3.3 %   $ 1,063     $ 978       8.7 %
Gross profit per worksite employee per month
    210       208       1.0 %     216       182       18.7 %
Operating expenses per worksite employee per month
    190       196       (3.1 )%     191       191        
Operating income (loss) per worksite employee per month
    20       12       66.7 %     25       (9 )     377.8 %
Net income (loss) per worksite employee per month
    12       8       50.0 %     26       (6 )     533.3 %

(1)   Gross billings of $5,413, $5,152, $5,566 and $5,186 per worksite employee per month, less payroll cost of $4,408, $4,179, $4,503 and $4,207 per worksite employee per month, respectively.

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Administaff, Inc.
Summary Financial Information (continued)
(in thousands, except per share amounts and statistical data)
(Unaudited)

                                                 
    Three months ended           Six months ended    
    June 30,
          June 30,
   
    2004
  2003
  Change
  2004
  2003
  Change
GAAP to non-GAAP reconciliation:
                                               
Payroll cost (GAAP)
  $ 1,020,997     $ 941,632       8.4 %   $ 2,053,287     $ 1,912,601       7.4 %
Less: Bonus payroll cost
    52,099       48,768       6.8 %     149,270       119,214       25.2 %
 
   
 
     
 
             
 
     
 
         
Non-bonus payroll cost
  $ 968,898     $ 892,864       8.5 %   $ 1,904,017     $ 1,793,387       6.2 %
 
   
 
     
 
             
 
     
 
         
Payroll cost per worksite employee (GAAP)
  $ 4,408     $ 4,179       5.5 %   $ 4,503     $ 4,207       7.0 %
Less: Bonus payroll cost per worksite employee
    225       216       4.2 %     327       262       24.8 %
 
   
 
     
 
             
 
     
 
         
Non-bonus payroll cost per worksite employee
  $ 4,183     $ 3,963       5.6 %   $ 4,176     $ 3,945       5.9 %
 
   
 
     
 
             
 
     
 
         

Non-bonus payroll cost is a non-GAAP financial measure that excludes the impact of bonus payrolls paid to the company’s worksite employees. Bonus payroll cost varies from period to period, but has no direct impact to the company’s ultimate workers’ compensation costs under the current program effective September 1, 2003. As a result, Administaff management refers to non-bonus payroll cost in analyzing, reporting and forecasting the company’s workers’ compensation costs. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles (“GAAP”) and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Administaff includes these non-GAAP financial measures in this press release because the company believes they are useful to investors in allowing for greater transparency related to the costs incurred under the company’s current workers’ compensation program. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this press release to their most directly comparable GAAP financial measures as provided in the table above.

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