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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | ||
![]() | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the quarterly period ended September 30, 2001. | ||
or | ||
![]() | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the transition period from to |
Commission File No. 1-13998
Administaff, Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 76-0479645 (I.R.S. Employer Identification No.) | |
19001 Crescent Springs Drive Kingwood, Texas (Address of principal executive offices) | 77339 (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 No
As of November 2, 2001, 27,596,469 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
Part I | ||||||||
Item 1. Financial Statements | ||||||||
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | ||||||||
PART II | ||||||||
ITEM 1. LEGAL PROCEEDINGS. |
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TABLE OF CONTENTS
Part I | ||||
Item 1. | Financial Statements | 3 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | ||
Part II | ||||
Item 1. | Legal Proceedings | 27 |
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ADMINISTAFF, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
September 30, | December 31, | ||||||||||
2001 | 2000 | ||||||||||
(Unaudited) | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 65,457 | $ | 69,733 | |||||||
Marketable securities | 42,548 | 38,953 | |||||||||
Accounts receivable: | |||||||||||
Trade | 330 | 7,311 | |||||||||
Unbilled | 70,747 | 57,084 | |||||||||
Other | 808 | 820 | |||||||||
Prepaid expenses | 3,275 | 6,785 | |||||||||
Deferred income tax benefit | 1,032 | 694 | |||||||||
Total current assets | 184,197 | 181,380 | |||||||||
Property and equipment: | |||||||||||
Land | 2,920 | 2,920 | |||||||||
Buildings and improvements | 16,972 | 14,047 | |||||||||
Computer hardware and software | 37,970 | 28,679 | |||||||||
Software development costs | 14,485 | 11,556 | |||||||||
Furniture and fixtures | 20,276 | 18,756 | |||||||||
Vehicles | 2,082 | 1,863 | |||||||||
Construction in progress | 4,260 | 195 | |||||||||
98,965 | 78,016 | ||||||||||
Accumulated depreciation | (37,385 | ) | (25,649 | ) | |||||||
Total property and equipment | 61,580 | 52,367 | |||||||||
Other assets: | |||||||||||
Notes receivable from employees | 694 | 994 | |||||||||
Other assets | 8,403 | 8,076 | |||||||||
Total other assets | 9,097 | 9,070 | |||||||||
Total assets | $ | 254,874 | $ | 242,817 | |||||||
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ADMINISTAFF, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
September 30, | December 31, | |||||||||
2001 | 2000 | |||||||||
(Unaudited) | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 4,709 | $ | 1,496 | ||||||
Payroll taxes and other payroll deductions payable | 34,194 | 57,919 | ||||||||
Accrued worksite employee payroll expense | 75,947 | 57,354 | ||||||||
Other accrued liabilities | 13,888 | 10,819 | ||||||||
Revolving line of credit | 4,000 | — | ||||||||
Income taxes payable | 5,312 | 2,613 | ||||||||
Total current liabilities | 138,050 | 130,201 | ||||||||
Noncurrent liabilities: | ||||||||||
Deferred income taxes | 5,506 | 7,106 | ||||||||
Total noncurrent liabilities | 5,506 | 7,106 | ||||||||
Commitments and contingencies | ||||||||||
Stockholders’ equity: | ||||||||||
Common stock | 307 | 304 | ||||||||
Additional paid-in capital | 88,646 | 75,378 | ||||||||
Treasury stock, at cost | (36,703 | ) | (20,643 | ) | ||||||
Accumulated other comprehensive income | 673 | 172 | ||||||||
Retained earnings | 58,395 | 50,299 | ||||||||
Total stockholders’ equity | 111,318 | 105,510 | ||||||||
Total liabilities and stockholders’ equity | $ | 254,874 | $ | 242,817 | ||||||
See accompanying notes.
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ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2001 | 2000 | 2001 | 2000 | ||||||||||||||
Revenues | $ | 1,085,944 | $ | 962,039 | $ | 3,174,139 | $ | 2,582,034 | |||||||||
Direct costs: | |||||||||||||||||
Salaries and wages of worksite employees | 903,136 | 804,525 | 2,645,237 | 2,156,446 | |||||||||||||
Benefits and payroll taxes | 133,487 | 117,447 | 410,213 | 333,474 | |||||||||||||
Gross profit | 49,321 | 40,067 | 118,689 | 92,114 | |||||||||||||
Operating expenses: | |||||||||||||||||
Salaries, wages and payroll taxes | 17,035 | 13,905 | 50,017 | 38,256 | |||||||||||||
General and administrative expenses | 10,950 | 9,022 | 33,866 | 25,612 | |||||||||||||
Commissions | 2,534 | 2,331 | 8,581 | 6,708 | |||||||||||||
Advertising | 1,213 | 1,249 | 4,520 | 3,681 | |||||||||||||
Depreciation and amortization | 4,298 | 2,987 | 12,138 | 8,503 | |||||||||||||
36,030 | 29,494 | 109,122 | 82,760 | ||||||||||||||
Operating income | 13,291 | 10,573 | 9,567 | 9,354 | |||||||||||||
Other income (expense): | |||||||||||||||||
Interest income | 928 | 1,107 | 3,287 | 2,837 | |||||||||||||
Other, net | 85 | (3 | ) | 527 | 4 | ||||||||||||
1,013 | 1,104 | 3,814 | 2,841 | ||||||||||||||
Income before income taxes | 14,304 | 11,677 | 13,381 | 12,195 | |||||||||||||
Income tax expense | 5,645 | 4,262 | 5,285 | 4,451 | |||||||||||||
Net income | $ | 8,659 | $ | 7,415 | $ | 8,096 | $ | 7,744 | |||||||||
Basic net income per share of common stock | $ | 0.32 | $ | 0.27 | $ | 0.29 | $ | 0.29 | |||||||||
Diluted net income per share of common stock | $ | 0.30 | $ | 0.25 | $ | 0.28 | $ | 0.27 | |||||||||
See accompanying notes.
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ADMINISTAFF, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2001
(in thousands)
(Unaudited)
Accumulated | |||||||||||||||||||||||||||||
Common Stock | Additional | Other | |||||||||||||||||||||||||||
Issued | Paid-In | Treasury | Comprehensive | Retained | |||||||||||||||||||||||||
Shares | Amount | Capital | Stock | Income | Earnings | Total | |||||||||||||||||||||||
Balance at December 31, 2000 | 30,435 | $ | 304 | $ | 75,378 | $ | (20,643 | ) | $ | 172 | $ | 50,299 | $ | 105,510 | |||||||||||||||
Purchase of treasury stock | — | — | — | (21,566 | ) | — | — | (21,566 | ) | ||||||||||||||||||||
Exercise of common stock purchase warrants | — | — | 10,520 | 5,480 | — | — | 16,000 | ||||||||||||||||||||||
Exercise of stock options | 269 | 3 | 2,713 | — | — | — | 2,716 | ||||||||||||||||||||||
Other | — | — | 35 | 26 | — | — | 61 | ||||||||||||||||||||||
Change in unrealized gain on marketable securities | — | — | — | — | 501 | — | 501 | ||||||||||||||||||||||
Net income | — | — | — | — | — | 8,096 | 8,096 | ||||||||||||||||||||||
Comprehensive income | 8,597 | ||||||||||||||||||||||||||||
Balance at September 30, 2001 | 30,704 | $ | 307 | $ | 88,646 | $ | (36,703 | ) | $ | 673 | $ | 58,395 | $ | 111,318 | |||||||||||||||
See accompanying notes.
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ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended | ||||||||||||
September 30, | ||||||||||||
2001 | 2000 | |||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 8,096 | $ | 7,744 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 12,210 | 8,558 | ||||||||||
Bad debt expense | 1,798 | 1,306 | ||||||||||
Deferred income taxes | (1,938 | ) | 1,643 | |||||||||
Loss (gain) on the disposition of assets | (95 | ) | 46 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (8,468 | ) | (22,631 | ) | ||||||||
Prepaid expenses | 3,510 | 572 | ||||||||||
Other assets | 570 | 698 | ||||||||||
Accounts payable | 3,212 | 426 | ||||||||||
Payroll taxes and other payroll deductions payable | (23,725 | ) | 14,322 | |||||||||
Accrued worksite employee payroll expense | 20,279 | 20,234 | ||||||||||
Other accrued liabilities | 1,384 | 3,469 | ||||||||||
Income taxes payable/receivable | 2,699 | 1,222 | ||||||||||
Total adjustments | 11,436 | 29,865 | ||||||||||
Net cash provided by operating activities | 19,532 | 37,609 | ||||||||||
Cash flows from investing activities: | ||||||||||||
Marketable securities: | ||||||||||||
Purchases | (49,432 | ) | (17,240 | ) | ||||||||
Proceeds from maturities | 37,505 | 13,404 | ||||||||||
Proceeds from dispositions | 8,817 | 2,012 | ||||||||||
Property and equipment: | ||||||||||||
Purchases | (14,383 | ) | (9,376 | ) | ||||||||
Construction in progress | (4,260 | ) | — | |||||||||
Investment in software development costs | (2,931 | ) | (4,002 | ) | ||||||||
Proceeds from dispositions | 303 | 147 | ||||||||||
Investment in other companies | (638 | ) | (5,634 | ) | ||||||||
Net cash used in investing activities | (25,019 | ) | (20,689 | ) |
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ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
(Unaudited)
Nine Months Ended | ||||||||||
September 30, | ||||||||||
2001 | 2000 | |||||||||
Cash flows from financing activities: | ||||||||||
Purchase of treasury stock | $ | (21,566 | ) | $ | — | |||||
Proceeds from the exercise of common stock purchase warrants | 16,000 | — | ||||||||
Borrowings under revolving line of credit | 4,000 | — | ||||||||
Proceeds from the exercise of stock options | 2,716 | 4,721 | ||||||||
Proceeds from the sale of common stock put warrant | — | 125 | ||||||||
Other | 61 | 27 | ||||||||
Net cash provided by financing activities | 1,211 | 4,873 | ||||||||
Net increase (decrease) in cash and cash equivalents | (4,276 | ) | 21,793 | |||||||
Cash and cash equivalents at beginning of period | 69,733 | 25,451 | ||||||||
Cash and cash equivalents at end of period | $ | 65,457 | $ | 47,244 | ||||||
See accompanying notes.
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ADMINISTAFF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2001
1. Basis of Presentation
Administaff, Inc. (“the Company”) is a professional employer organization (“PEO”) that provides a comprehensive Personnel Management System that encompasses a broad range of services, including benefits and payroll administration, medical and workers’ compensation insurance programs, personnel records management, employer liability management, employee recruiting and selection, performance management, and training and development services to small and medium-sized businesses in strategically selected markets. For the nine months ended September 30, 2001 and 2000, revenues from the Company’s Texas markets represented 45.4% and 50.8% of the Company’s total revenues, respectively.
The consolidated financial statements include the accounts of the Company 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, 2000. The consolidated balance sheet at December 31, 2000, 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, 2001, and the consolidated statements of operations, cash flows and stockholders’ equity for the interim periods ended September 30, 2001 and 2000, 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 highest in the first quarter and then decline over the course of the year.
Certain prior year amounts have been reclassified to conform with current year presentation.
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2. Stockholders’ Equity
On February 28, 2001, American Express Travel Related Services Company, Inc. (“American Express”) exercised warrants to purchase 800,000 shares of common stock at $20 per share. The shares were issued from treasury stock held by the Company. On March 12, 2001, the Company repurchased 800,000 shares of common stock from American Express for $19.6 million.
On February 9, 2001, the Company’s Board of Directors authorized the repurchase of an additional 1,000,000 shares of common stock under the Company’s existing repurchase program. Of the 5,000,000 shares authorized for repurchase as of September 30, 2001, the Company has repurchased 3,242,000 shares at a total cost of approximately $40.3 million, including the 800,000 shares repurchased from American Express and 100,000 shares repurchased in the open market during 2001 for $2.0 million.
On October 16, 2000, the Company effected a two-for-one stock split of its common stock in the form of a 100% stock dividend. All share and per share amounts presented in these financial statements have been retroactively restated to reflect this change in the Company’s capital structure.
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:
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2001 | 2000 | 2001 | 2000 | ||||||||||||||
Basic net income per share — weighted average shares outstanding | 27,480 | 27,295 | 27,448 | 27,099 | |||||||||||||
Effect of dilutive securities: | |||||||||||||||||
Common stock purchase warrants — treasury stock method | 76 | 773 | 50 | 313 | |||||||||||||
Common stock options — treasury stock method | 1,376 | 1,712 | 1,203 | 1,300 | |||||||||||||
1,452 | 2,485 | 1,253 | 1,613 | ||||||||||||||
Diluted net income per share — weighted average shares outstanding plus effect of dilutive securities | 28,932 | 29,780 | 28,701 | 28,712 | |||||||||||||
Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect | 3,338 | 1,130 | 3,973 | 2,720 | |||||||||||||
4. Marketable Securities
At September 30, 2001, 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
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classified as available-for-sale, and as a result, are reported at fair value. Unrealized gains and losses are reported as a component of accumulated other comprehensive income in stockholders’ equity.
5. Other Assets
As of September 30, 2001, the Company had investments in two early stage private companies totaling $6.3 million. The Company evaluates these investments for impairment each quarter. In late October 2001, the Company was informed that the lead investor of one of these companies would no longer participate in future funding of that company. While another primary investor indicated that they would take over as lead investor, that investor has subsequently indicated during November 2001 that it is reevaluating its position, and it has given no assurances as to whether it will continue funding the enterprise. The early stage company is in the process of evaluating its alternatives, which could include finding additional capital sources to continue its business model, reorganizing or liquidating the company. If the early stage company is unable to raise sufficient additional capital to continue as a going concern, the Company’s $3.9 million investment in that enterprise could become impaired and the Company could incur a non-cash charge to write off all or a portion of its investment.
6. Revolving Credit Agreement
On May 25, 2001, the Company entered into a $21 million revolving credit agreement that expires on November 30, 2002. At the option of the Company, amounts borrowed under the agreement accrue interest at the bank’s prime rate or LIBOR plus 0.45% as determined at the time of the borrowing. The revolving line of credit is 100% secured by cash and marketable securities held in custody by the bank.
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.
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 (the “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.
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The primary outstanding issue from these audits involves the Company’s rights under the Internal Revenue Code (the “Code”) as a co-employer of its worksite employees, including officers and owners of client companies. In conjunction with the 1993 401(k) plan year audit, the IRS Houston District has sought technical advice (the “Technical Advice Request”) from the IRS National Office about whether worksite employee participation in the 401(k) plan violates the exclusive benefit rule under the Code because they are not employees of the Company. The Technical Advice Request contains the conclusions of the IRS Houston District that the 401(k) plan should be disqualified because it covers worksite employees who are not employees of the Company. The Company’s response to the Technical Advice Request refutes the conclusions of the IRS Houston District. With respect to the Market Segment Group study, the Company understands that the issue of whether a PEO and a client company may be treated as co-employers for certain federal tax purposes (the “Industry Issue”) has been referred to the IRS National Office.
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 subsequent to a final conclusion by the IRS) 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 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 would also 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 would not have a material adverse effect on the Company’s consolidated financial position or results of operations.
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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 2000 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, 2001 Compared to Three Months Ended September 30, 2000.
The following table presents certain information related to the Company’s results of operations for the three months ended September 30, 2001 and 2000.
Three months ended | ||||||||||||
September 30, | ||||||||||||
% | ||||||||||||
2001 | 2000 | Change | ||||||||||
(in thousands, except per share and statistical data) | ||||||||||||
Revenues | $ | 1,085,944 | $ | 962,039 | 12.9 | % | ||||||
Gross profit | 49,321 | 40,067 | 23.1 | % | ||||||||
Operating expenses | 36,030 | 29,494 | 22.2 | % | ||||||||
Operating income | 13,291 | 10,573 | 25.7 | % | ||||||||
Other income | 1,013 | 1,104 | (8.2 | )% | ||||||||
Net income | 8,659 | 7,415 | 16.8 | % | ||||||||
Diluted net income per share of common stock | 0.30 | 0.25 | 20.0 | % | ||||||||
Statistical Data: | ||||||||||||
Average number of worksite employees paid per month | 70,835 | 65,722 | 7.8 | % | ||||||||
Fee revenue per worksite employee per month | $ | 4,886 | $ | 4,655 | 5.0 | % | ||||||
Fee payroll cost per worksite employee per month | 4,033 | 3,865 | 4.3 | % | ||||||||
Gross markup per worksite employee per month | 853 | 790 | 8.0 | % | ||||||||
Gross profit per worksite employee per month | 232 | 203 | 14.3 | % | ||||||||
Operating expenses per worksite employee per month | 170 | 150 | 13.3 | % | ||||||||
Operating income per worksite employee per month | 63 | 54 | 16.7 | % | ||||||||
Net income per worksite employee per month | 41 | 38 | 7.9 | % |
Revenues
The Company’s revenues for the three months ended September 30, 2001 increased 12.9% over the same period in 2000 due to a 7.8% increase in the average number of worksite employees paid per month, accompanied by a 5.0% increase in fee revenue per worksite employee per month.
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 average number of worksite employees paid. Throughout 2001, the Company’s unit growth rate has been slowed by softness in
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U.S. economic conditions. These conditions have impacted all three of the Company’s sources of paid worksite employees: new client sales, client retention and the net change in existing clients through new hires and terminations. In the third quarter, the net change in existing clients was impacted the most as terminations within the existing client base exceeded new hires by approximately 750 worksite employees per month during the 2001 period. New client sales were impacted modestly as a continued investment in new sales representatives offset a reduction in the Company’s ability to close sales due to uncertainty in the direction of the economy. Client retention in the third quarter of 2001 returned to the levels experienced during the 2000 period.
The 5.0% increase in fee revenue per worksite employee per month directly related to the 4.3% increase in fee payroll cost per worksite employee per month, reflecting (i) compensation increases within the Company’s existing worksite employee base; (ii) the continued penetration of markets with generally higher wage levels, such as San Francisco, New York and Washington, D.C.; and (iii) the addition of clients with worksite employees that have a higher average base pay than the existing client base. During the third quarter of 2001, fee payroll cost per worksite employee per month grew at a lower rate than it had in recent quarters, as weakness in economic conditions resulted in lower compensation increases within the Company’s existing worksite employee base.
By region, the Company’s revenue growth over the third quarter of 2000 and revenue distribution for the quarter ended September 30, 2001 were as follows:
% of | ||||||||
Revenue | Total | |||||||
Growth | Revenues | |||||||
Northeast | 29.6 | % | 11.5 | % | ||||
Southeast | 10.1 | % | 10.1 | % | ||||
Central | 25.6 | % | 13.9 | % | ||||
Southwest | 1.6 | % | 43.9 | % | ||||
West | 26.8 | % | 20.6 | % |
Gross Profit
Gross profit for the third quarter of 2001 increased 23.1% over the third quarter of 2000, primarily due to the 7.8% increase in the average number of worksite employees paid per month accompanied by a 14.3% increase in gross profit per worksite employee per month. Gross profit per worksite employee increased to $232 per month in the 2001 period from $203 per month in the 2000 period. The Company’s pricing objectives attempt to maintain or improve the gross profit per worksite employee by matching or exceeding changes in its primary direct costs with increases in the gross markup per worksite employee.
Gross markup per worksite employee per month increased 8.0% to $853 in the 2001 period versus $790 in the 2000 period. Approximately 21% of the $63 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
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increase in gross markup per employee was the result of 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.
The Company’s primary direct costs, which include payroll taxes, benefits and workers’ compensation expenses, increased 5.8% to $619 per worksite employee per month in the 2001 period versus $584 in the 2000 period. Payroll taxes increased $1 per worksite employee per month over the third quarter of 2000, primarily due to the increased average payroll cost per worksite employee. The overall cost of payroll taxes as a percentage of payroll cost decreased to 6.82% in the 2001 period from 7.08% in the 2000 period. This decrease was the result of an increased bonus payroll cost per worksite employee in the first half of the year and the Company’s lower growth rate, which allowed a larger proportion of the Company’s worksite employees to meet their state unemployment tax limits earlier in 2001 compared to the 2000 period. The cost of health insurance and related employee benefits increased $61 per worksite employee per month over the third quarter of 2000 due to a 21.7% 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 to 71.1% in the 2001 period from 69.6% in the 2000 period. See “Other Matters — Health Insurance Costs” on page 23 for a discussion of trends in the Company’s health insurance costs. Workers’ compensation costs decreased $28 per worksite employee per month over the third quarter of 2000, and decreased to 0.45% of fee payroll cost in the 2001 period from 1.19% in the 2000 period. During the negotiations of its workers’ compensation insurance policy for the period beginning October 1, 2001, the Company negotiated a one-time $6.7 million credit related to the policy period ended September 30, 2001 based on the Company’s claims history during that three year policy period.
Gross profit, measured as a percentage of revenue, increased to 4.54% in the 2001 period from 4.16% in the 2000 period. This increase was due to the decrease in the effective payroll tax rate and an increase in gross markup per worksite employee per month which exceeded the increase in fee payroll cost per worksite employee per month.
Operating Expenses
The following table presents certain information related to the Company’s operating expenses for the three months ended September 30, 2001 and 2000.
Three months ended September 30, | Three months ended September 30, | |||||||||||||||||||||||
2001 | 2000 | % change | 2001 | 2000 | % change | |||||||||||||||||||
(in thousands) | (per worksite employee per month) | |||||||||||||||||||||||
Salaries, wages and payroll taxes | $ | 17,035 | $ | 13,905 | 22.5 | % | $ | 80 | $ | 71 | 12.7 | % | ||||||||||||
General and administrative expenses | 10,950 | 9,022 | 21.4 | % | 52 | 46 | 13.0 | % | ||||||||||||||||
Commissions | 2,534 | 2,331 | (8.7 | )% | 12 | 12 | — | |||||||||||||||||
Advertising | 1,213 | 1,249 | (2.9 | )% | 6 | 6 | — | |||||||||||||||||
Depreciation and amortization | 4,298 | 2,987 | 43.9 | % | 20 | 15 | 33.3 | % | ||||||||||||||||
Total operating expenses | $ | 36,030 | $ | 29,494 | 22.2 | % | $ | 170 | $ | 150 | 13.3 | % | ||||||||||||
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Operating expenses increased 22.2% over the third quarter of 2000 to $36 million. Operating expense per worksite employee increased 13.3% to $170 per month in the 2001 period versus $150 in the 2000 period. During the third quarter of 2001, the Company’s operating expenses continued to be impacted by strategic initiatives undertaken in 2001. The Company continued its national sales expansion in 2001 with the opening of two new sales markets (Boston and San Diego), the opening of three new sales offices in existing markets and a change in its sales compensation plan. As a result of these initiatives, the Company’s average number of trained sales representatives for the third quarter of 2001 increased 45% over the 2000 period. In addition, the Company continued its technology initiatives with the enhancement of its Employee Service Center (formerly known as Administaff Assistant), including additional web payroll, online enrollment, and online learning functionality.
Salaries, wages and payroll taxes of corporate and sales staff increased to $80 per worksite employee per month in the 2001 period from $71 in the 2000 period. This increase was primarily due to a 30% increase in sales personnel, a 16% increase in service personnel in the Company’s service centers, a 81% increase in service personnel located in the Company’s sales markets and a 18% increase in corporate personnel.
General and administrative expenses increased to $52 per worksite employee per month from $46 in the third quarter of 2000. The increase primarily resulted from increased data communications, rent and legal expenses.
Depreciation and amortization expense increased $5 per worksite employee per month over the 2000 period as a result of the increased capital assets placed in service in 2001 and late 2000, including (i) the implementation of the fifth generation of the Company’s proprietary PEO information system; (ii) the implementation and enhancement of certain components of the Employee Service Center (formerly known as Administaff Assistant), such as web payroll and web reporting capabilities, which included both internal software development costs and externally purchased software and hardware; (iii) the opening of new sales offices; (iv) the relocation of the Houston service center; and (v) the expansion of corporate headquarters.
Commissions expense and advertising costs remained constant on a per worksite employee basis versus the third quarter of 2000.
Net Income
Other income decreased 8.2% primarily as a result of reduced interest rates on the Company’s marketable security investments.
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 2001 period increased to 39.5% versus the effective rate of 36.5% during the 2000 period. This increase was a result of (i) a 1% increase in the federal rate to 35%; (ii) an increase in the
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Company’s effective state income tax rate due to a broader geographic distribution of revenue into states with higher income tax rates such as California, New York and Illinois; and (iii) a reduction in tax-exempt interest income.
Operating income and net income per worksite employee per month increased to $63 and $41 in the 2001 period, versus $54 and $38 in the 2000 period. The Company’s net income and diluted net income per share for the quarter ended September 30, 2001 increased to $8.7 million and $0.30, versus $7.4 million and $0.25 for the quarter ended September 30, 2000.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000.
The following table presents certain information related to the Company’s results of operations for the nine months ended September 30, 2001 and 2000.
Nine months ended | |||||||||||||
September 30, | |||||||||||||
% | |||||||||||||
2001 | 2000 | Change | |||||||||||
(in thousands, except per share and statistical data) | |||||||||||||
Revenues | $ | 3,174,139 | $ | 2,582,034 | 22.9 | % | |||||||
Gross profit | 118,689 | 92,114 | 28.9 | % | |||||||||
Operating expenses | 109,122 | 82,760 | 31.9 | % | |||||||||
Operating income | 9,567 | 9,354 | 2.3 | % | |||||||||
Other income | 3,814 | 2,841 | 34.2 | % | |||||||||
Net income | 8,096 | 7,744 | 4.5 | % | |||||||||
Diluted net income per share of common stock | 0.28 | 0.27 | 3.7 | % | |||||||||
Statistical Data: | |||||||||||||
Average number of worksite employees paid per month | 68,724 | 60,184 | 14.2 | % | |||||||||
Fee revenue per worksite employee per month | $ | 4,852 | $ | 4,526 | 7.2 | % | |||||||
Fee payroll cost per worksite employee per month | 4,005 | 3,750 | 6.8 | % | |||||||||
Gross markup per worksite employee per month | 847 | 776 | 9.1 | % | |||||||||
Gross profit per worksite employee per month | 192 | 170 | 12.9 | % | |||||||||
Operating expenses per worksite employee per month | 176 | 153 | 15.0 | % | |||||||||
Operating income per worksite employee per month | 15 | 17 | (11.8 | )% | |||||||||
Net income per worksite employee per month | 13 | 14 | (7.1 | )% |
Revenues
The Company’s revenues for the nine months ended September 30, 2001 increased 22.9% over the same period in 2000 due to a 14.2% increase in the average number of worksite employees paid per month, accompanied by a 7.2% increase in fee revenue per worksite employee per month.
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 average number of worksite employees paid. Throughout 2001, the Company’s unit growth rate has been slowed by softness in
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U.S. economic conditions. These conditions have impacted all three of the Company’s sources of paid worksite employees: new client sales, client retention and the net change in existing clients through new hires and terminations. The net change in existing clients has been impacted the most as terminations within the existing client base have exceeded new hires throughout the year, compared to strong gains in this area during 2000. In addition, client retention has declined slightly due primarily to an increase in the number of clients experiencing financial difficulties and/or seeking lower cost alternatives. Finally, new client sales have been impacted modestly as a continued investment in new sales representatives has partially offset a reduction in the Company’s ability to close sales due to uncertainty in the direction of the economy.
The 7.2% increase in fee revenue per worksite employee per month directly related to the 6.8% increase in fee payroll cost per worksite employee per month, reflecting (i) compensation increases within the Company’s existing worksite employee base; (ii) the continued penetration of markets with generally higher wage levels, such as San Francisco, New York and Washington, D.C.; and (iii) the addition of clients with worksite employees that have a higher average base pay than the existing client base. Throughout 2001, the growth in fee payroll cost per worksite employee per month has slowed compared to the growth rates experienced in 2000, as weakness in economic conditions has resulted in lower compensation increases within the Company’s existing worksite employee base.
By region, the Company’s revenue growth over the first nine months of 2000 and revenue distribution for the nine months ended September 30, 2001 were as follows:
% of | |||||||||
Revenue | Total | ||||||||
Growth | Revenues | ||||||||
Northeast | 55.5 | % | 11.4 | % | |||||
Southeast | 10.6 | % | 9.8 | % | |||||
Central | 37.8 | % | 13.5 | % | |||||
Southwest | 9.8 | % | 45.4 | % | |||||
West | 42.5 | % | 19.9 | % |
Gross Profit
Gross profit for the first nine months of 2001 increased 28.9% over the first nine months of 2000, primarily due to the 14.2% increase in the average number of worksite employees paid per month accompanied by a 12.9% increase in gross profit per worksite employee per month. Gross profit per worksite employee increased to $192 per month in the 2001 period from $170 per month in the 2000 period. The Company’s pricing objectives attempt to maintain or improve the gross profit per worksite employee by matching or exceeding changes in its primary direct costs with increases in the gross markup per worksite employee.
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Gross markup per worksite employee per month increased 9.1% to $847 in the 2001 period versus $776 in the 2000 period. Approximately 29% of the $71 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 the result of 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.
The Company’s primary direct costs, which include payroll taxes, benefits and workers’ compensation expenses, increased 7.9% to $652 per worksite employee per month in the 2001 period versus $604 in the 2000 period. Payroll taxes increased $16 per worksite employee per month over the first nine months of 2000, primarily due to the increased average payroll cost per worksite employee. The overall cost of payroll taxes as a percentage of payroll cost decreased to 7.6% in the 2001 period from 7.8% in the 2000 period. This decrease was the result of an increase in bonus payroll cost per worksite employee and the Company’s lower growth rate, which allowed a larger portion of the Company’s worksite employees to meet their state unemployment tax limits earlier in 2001 compared to the 2000 period. The cost of health insurance and related employee benefits increased $39 per worksite employee over the first nine months of 2000 due to a 10.8% 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 to 71.9% in the 2001 period from 68.9% in the 2000 period. See “Other Matters — Health Insurance Costs” on page 23 for a discussion of trends in the Company’s health insurance costs. Workers’ compensation costs decreased $6 per worksite employee per month over the first nine months of 2000, and decreased to 0.98% of fee payroll cost in the 2001 period from 1.21% in the 2000 period. During the negotiations of its workers’ compensation insurance policy for the period beginning October 1, 2001, the Company negotiated a one-time $6.7 million credit related to the policy period ended September 30, 2001 based on the Company’s claims history during that three year policy period.
Gross profit, measured as a percentage of revenue, increased to 3.74% in the 2001 period from 3.57% in the 2000 period due to the decrease in the effective payroll tax rate and an increase in gross markup per worksite employee per month which exceeded the increase in fee payroll cost per worksite employee per month.
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Operating Expenses
The following table presents certain information related to the Company’s operating expenses for the nine months ended September 30, 2001 and 2000.
Nine months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||
2001 | 2000 | % change | 2001 | 2000 | % change | ||||||||||||||||||||
(in thousands) | (per worksite employee per month) | ||||||||||||||||||||||||
Salaries, wages and payroll taxes | $ | 50,017 | $ | 38,256 | 30.7 | % | $ | 81 | $ | 71 | 14.1 | % | |||||||||||||
General and administrative expenses | 33,866 | 25,612 | 32.2 | % | 55 | 47 | 17.0 | % | |||||||||||||||||
Commissions | 8,581 | 6,708 | 27.9 | % | 14 | 12 | 16.7 | % | |||||||||||||||||
Advertising | 4,520 | 3,681 | 22.8 | % | 7 | 7 | — | ||||||||||||||||||
Depreciation and amortization | 12,138 | 8,503 | 42.7 | % | 19 | 16 | 18.8 | % | |||||||||||||||||
Total operating expenses | $ | 109,122 | $ | 82,760 | 31.9 | % | $ | 176 | $ | 153 | 15.0 | % | |||||||||||||
Operating expenses increased to $109 million, or 31.9% over the first nine months of 2000. Operating expenses per worksite employee increased 15.0% to $176 per month in the 2001 period versus $153 in the 2000 period. During the first nine months of 2001, the Company’s operating expenses continued to be impacted by several strategic initiatives, including its national sales expansion with the addition of new trained sales representatives, the continued expansion into new markets, and continued technology initiatives such as the enhancement of its Internet-based service delivery platform, Employee Service Center (formerly known as Administaff Assistant), and the enhancement of its eCommerce portal, My Marketplace (formerly known as bizzport.)
Salaries, wages and payroll taxes of corporate and sales staff increased to $81 per worksite employee per month in the 2001 period from $71 in the 2000 period. This increase was primarily due to a 29% increase in sales personnel, a 36% increase in service personnel in the Company’s service centers, a 92% increase in service personnel located in the Company’s sales markets and a 20% increase in corporate personnel.
General and administrative expenses increased to $55 per worksite employee per month from $47 in the first nine months of 2000. The increase primarily resulted from increased rent, data communication, and legal expenses.
Depreciation and amortization expense increased $3 per worksite employee per month over the 2000 period as a result of the increased capital assets placed in service in 2001 and late 2000, including (i) the implementation of the fifth generation of the Company’s proprietary PEO information system; (ii) the implementation and enhancement of certain components of Employee Service Center (formerly known as Administaff Assistant), primarily the web payroll and web reporting capabilities, which included both internal software developments costs and externally purchase software and hardware; (iii) the opening of new sales offices; (iv) the opening of the Houston service center; and (v) the expansion of corporate headquarters.
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Commissions expense increased $2 per worksite employee per month over the first nine months of 2000 due to a restructuring of the sales representative compensation plan effective January 1, 2001. Advertising costs remained constant on a per worksite employee basis versus the first nine months of 2000.
Net Income
Other income increased 34.2% to $3.8 million. Interest income increased 15.9% to $3.3 million in the first nine months of 2001, due to a higher level of cash and marketable securities early in 2001 resulting from the Company’s strong performance in the second half of 2000. The remaining increase was primarily the result of the receipt of approximately $400,000 of proceeds from the settlement of a short-swing profit violation by an outside shareholder.
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 2001 period increased to 39.5% versus the effective rate of 36.5% during the 2000 period. This increase was the result of (i) a 1% increase in the federal rate to 35%; (ii) an increase in the Company’s effective state income tax rate due to a broader geographic distribution of revenue into states with higher income tax rates such as California, New York and Illinois; and (iii) a decrease in tax-exempt interest income.
Operating income per worksite employee per month decreased to $15 in the 2001 period versus $17 in the 2000 period. Net income per worksite employee was $13 in the 2001 period compared to $14 in the 2000 period. The Company’s net income and diluted net income per share for the nine months ended September 30, 2001, were $8.1 million and $0.28, versus $7.7 and $0.27 for the nine months ended September 30, 2000.
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, cash flows from operations and its available revolving line of credit 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 $108 million in cash and cash equivalents and marketable securities at September 30, 2001, of which approximately $34.2 million was payable in October 2001 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
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Company’s sales, service and technology infrastructure, capital expenditures and the Company’s stock repurchase program. At September 30, 2001, the Company had working capital of $46.1 million compared to $51.2 million at December 31, 2000. This decline was primarily due to a $5.6 million net repurchase of treasury stock.
On May 25, 2001, the Company entered into a $21 million revolving credit agreement that expires on November 30, 2002. At the option of the Company, amounts borrowed under the agreement accrue interest at the bank’s prime rate of LIBOR plus 0.45% as determined at the time of the borrowing. The revolving line of credit is 100% secured by cash and marketable securities held in custody by the bank. The line of credit is being used to finance the construction of a new facility at the Company’s Kingwood, Texas headquarters. As of September 30, 2001, the Company had borrowed $4 million under its revolving line of credit and had no long-term debt.
Cash Flows From Operating Activities
The $18.1 million decrease in net cash provided by operating activities was primarily the result of the timing of payroll tax payments surrounding the December 31 and September 30 payroll periods of each period. The timing and amounts of such payments can vary significantly based on various factors, including the day of the week on which a period ends and the existence of holidays on or immediately following a period end. For the same reasons, the Company’s cash flows from operations were also affected by the timing of presentment of customer billings and the receipt of related customer payments.
Cash Flows From Investing Activities
The $4.3 million increase in net cash used by investing activities is primarily the result of increased capital expenditures in the 2001 period. Capital expenditures during the 2001 period primarily related to software development, hardware and software costs related to the enhancement of the Company’s proprietary professional employer information system, Employee Service Center (formerly known as Administaff Assistant) and My MarketPlace (formerly known as bizzport). In addition, capital expenditures included building improvements and furniture and fixtures at the Company’s sales offices and corporate headquarters to accommodate the Company’s expansion plans, including $4.3 million related to the construction of new facilities at the Company’s corporate headquarters.
Cash Flows From Financing Activities
The $3.7 million decrease in cash provided by financing activities was primarily a result of the repurchase of $21.6 million in treasury stock, partially offset by $16 million in proceeds from the exercise of common stock purchase warrants by American Express.
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Other Matters
Health Insurance Costs
Effective January 1, 2002, the Company will replace it current health insurance carrier, Aetna U.S. Healthcare (“Aetna”), with a network of carriers including UnitedHealthcare, PacifiCare, Kaiser Permanente and Blue Cross and Blue Shield of Georgia. UnitedHealthcare will provide coverage for most of the country, PacifiCare and Kaiser Permanente will provide coverage in California and Blue Cross and Blue Shield will provide coverage in Georgia.
Among the factors leading to the replacement of Aetna were (i) Aetna’s failure to provide accurate and timely claims information, which is the primary factor affecting the Company’s overall health insurance rates and (ii) Aetna’s decision to disregard its contractual obligation to provide six month’s notice before increasing its rates. The structure of the Company’s contract with Aetna was specifically designed to accommodate Administaff’s need to actively monitor the trends in its health insurance plan, anticipate future rates, and actively manage the comprehensive service fees charged to Administaff clients to match the anticipated rates.
At a regularly scheduled quarterly meeting earlier this year, Aetna informed the Company that a wholesale step up in the cost of claims was occurring across their business due to an increase in both utilization and unit costs as a result of new contracts with healthcare providers at rates that were considerably less favorable than they had anticipated. In addition, they reported that the paid claims data previously provided to Administaff for several prior periods were in error. As a result, the Company determined that an independent third party audit was necessary to review the accuracy of Aetna’s claims payments and payment processes.
During July 2001, based on analysis of claims data provided by Aetna, the Company agreed to increased health insurance rates for the third and fourth quarters of 2001 such that premiums paid during that time period would be approximately $6 million higher than previously negotiated. The Company paid the new higher rates during July and August. However, in September 2001, Aetna demanded a second rate increase, retroactively for August and September and also for the fourth quarter of 2001. Aetna’s demand also included its perceived right to terminate the contract for non-payment if Administaff failed to agree to the new rates. The effect of the second rate increase compared to the originally negotiated rates was to increase third quarter premiums by $6 million and fourth quarter premiums by as much as $9 million. While the Company strongly disagreed with Aetna’s right to demand this rate increase, the Company reluctantly agreed to the second rate increase given the alternative of leaving 50,000 plan participants with no health insurance benefits.
During October 2001, the Company received the preliminary sample claims audit results. The Company believes that these results provide significant questions about the accuracy of the claims data provided by Aetna that were used as the basis for each of the rate increases. The Company believes that, based on incorrect claims information provided by Aetna and its lack of providing six months notice of a rate increase, Administaff has overpaid its health insurance
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premiums for the third quarter of 2001 and is not obligated to pay the higher rates demanded by Aetna for the fourth quarter. If the Company prevails in this dispute, the Company could receive a credit of up to $6 million related to premiums paid in the third quarter of 2001. If the Company is unsuccessful in this dispute, the Company could incur a charge of up to $9 million related to the higher demanded rates for the fourth quarter of 2001. During the fourth quarter, the Company will work diligently with Aetna to resolve the claims audit issues and their impact on insurance rates for which the Company is obligated under its contract with Aetna, however the Company cannot predict the either the timing or ultimate outcome of this dispute.
Investments in Other Companies
As of September 30, 2001, the Company had investments in two early stage private companies totaling $6.3 million. The Company evaluates these investments for impairment each quarter. In late October 2001, the Company was informed that the lead investor of one of these companies would no longer participate in future funding of that company. While another primary investor indicated that they would take over as lead investor, that investor has subsequently indicated during November 2001 that it is reevaluating its position, and it has given no assurances as to whether it will continue funding the enterprise. The early stage company is in the process of evaluating its alternatives, which could include finding additional capital sources to continue its business model, reorganizing or liquidating the company. If the early stage company is unable to raise sufficient additional capital to continue as a going concern, the Company’s $3.9 million investment in that enterprise could become impaired and the Company could incur a non-cash charge to write off all or a portion of its investment.
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 herein that are not historical facts are forward-looking statements within the meaning of the federal securities laws (Section 27A of the Securities Act of 1933 and
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Section 21E of the Securities Exchange Act of 1934). You can identify such forward-looking statements by the words “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “likely,” “goal,” and “assume,” and similar expressions. Forward-looking statements 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, unit growth, profit per worksite employee, pricing, operating expenses or other aspects of operating results. Administaff bases the forward-looking statements on its current expectations, estimates and projections. Administaff cautions you that these statements are not guarantees of future performance and involve risks, uncertainties and assumptions that Administaff cannot predict. In addition, Administaff has based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. 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) changes in general economic conditions; (ii) 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; (iii) 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 estimated costs and effectiveness of capital projects and investments in technology and infrastructure; (v) the Company’s ability to effectively implement its eBusiness strategy; (vi) the effectiveness of the Company’s sales and marketing efforts, including the Company’s marketing agreements with American Express and other companies; (vii) the potential for impairment of investments in other companies; and (viii) changes in the competitive environment in the PEO industry, including the entrance of new competitors and the Company’s ability to renew or replace client companies. These factors are discussed in detail in the Company’s 2000 annual report on Form 10-K. 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.
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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.
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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 14, 2001 | By: | /s/ Richard G. Rawson Richard G. Rawson Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Date: November 14, 2001 | By: | /s/ Douglas S. Sharp Douglas S. Sharp Vice President, Finance (Principal Accounting Officer) |
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