Insperity (NSP) 8-K Administaff Announces Second Quarter Results

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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