UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities |
Exchange Act of 1934
For the quarterly period ended March 31, 2009.
or
o | 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 | 76-0479645 | |||
(State or other jurisdiction of | (I.R.S. Employer | |||
incorporation or organization) | Identification No.) |
19001 Crescent Springs Drive | ||||
Kingwood, Texas | 77339 | |||
(Address of principal executive offices) | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code): (281) 358-8986
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer þ
Accelerated filer o Non-accelerated filer o Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of April 29, 2009, 25,456,654 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
TABLE OF CONTENTS
Part I | ||
Item 1. | Financial Statements | 3 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 26 |
Item 4. | Controls and Procedures | 26 |
Part II | ||
Item 1. | Legal Proceedings | 27 |
Item 1a. | Risk Factors | 27 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 28 |
Item 6. | Exhibits | 29 |
PART I
ITEM 1. FINANCIAL STATEMENTS
ADMINISTAFF, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
March 31, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 196,583 | $ | 252,190 | ||||
Restricted cash | 35,103 | 36,466 | ||||||
Marketable securities | — | 225 | ||||||
Accounts receivable, net: | ||||||||
Trade | 1,158 | 4,908 | ||||||
Unbilled | 168,098 | 116,173 | ||||||
Other | 2,674 | 4,012 | ||||||
Prepaid insurance | 18,985 | 28,911 | ||||||
Other current assets | 10,401 | 6,735 | ||||||
Total current assets | 433,002 | 449,620 | ||||||
Property and equipment: | ||||||||
Land | 3,260 | 3,260 | ||||||
Buildings and improvements | 63,912 | 63,016 | ||||||
Computer hardware and software | 67,666 | 67,198 | ||||||
Software development costs | 23,580 | 23,162 | ||||||
Furniture and fixtures | 35,557 | 35,307 | ||||||
Aircraft | 31,523 | 31,548 | ||||||
225,498 | 223,491 | |||||||
Accumulated depreciation and amortization | (137,762 | ) | (134,152 | ) | ||||
Total property and equipment, net | 87,736 | 89,339 | ||||||
Other assets: | ||||||||
Prepaid health insurance | 9,000 | 9,000 | ||||||
Deposits – health insurance | 2,785 | 2,585 | ||||||
Deposits – workers’ compensation | 60,560 | 56,435 | ||||||
Goodwill and other intangible assets, net | 8,492 | 8,595 | ||||||
Other assets | 1,387 | 1,266 | ||||||
Total other assets | 82,224 | 77,881 | ||||||
Total assets | $ | 602,962 | $ | 616,840 |
- 3 - -
ADMINISTAFF, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
March 31, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,213 | $ | 3,007 | ||||
Payroll taxes and other payroll deductions payable | 106,938 | 123,666 | ||||||
Accrued worksite employee payroll cost | 150,240 | 129,954 | ||||||
Accrued health insurance costs | 7,405 | 14,715 | ||||||
Accrued workers’ compensation costs | 36,676 | 38,028 | ||||||
Accrued corporate payroll and commissions | 10,754 | 25,692 | ||||||
Other accrued liabilities | 11,554 | 9,495 | ||||||
Capital lease obligations | 373 | 537 | ||||||
Income tax payable | 1,435 | 4,157 | ||||||
Deferred income taxes | 1,494 | 1,956 | ||||||
Total current liabilities | 328,082 | 351,207 | ||||||
Noncurrent liabilities: | ||||||||
Accrued workers’ compensation costs | 49,042 | 46,589 | ||||||
Deferred income taxes | 11,341 | 10,565 | ||||||
Total noncurrent liabilities | 60,383 | 57,154 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock | 309 | 309 | ||||||
Additional paid-in capital | 138,984 | 139,415 | ||||||
Treasury stock, at cost | (146,361 | ) | (147,952 | ) | ||||
Retained earnings | 221,565 | 216,707 | ||||||
Total stockholders’ equity | 214,497 | 208,479 | ||||||
Total liabilities and stockholders’ equity | $ | 602,962 | $ | 616,840 |
See accompanying notes.
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ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2009 | 2008 | |||||||
Revenues (gross billings of $2.558 billion and $2.554 billion less worksite employee payroll cost of $2.096 billion and $2.098 billion, respectively) | $ | 461,979 | $ | 456,066 | ||||
Direct costs: | ||||||||
Payroll taxes, benefits and workers’ compensation costs | 378,418 | 369,459 | ||||||
Gross profit | 83,561 | 86,607 | ||||||
Operating expenses: | ||||||||
Salaries, wages and payroll taxes | 38,652 | 36,979 | ||||||
Stock-based compensation | 2,786 | 2,385 | ||||||
General and administrative expenses | 17,772 | 18,739 | ||||||
Commissions | 3,273 | 3,094 | ||||||
Advertising | 3,986 | 3,778 | ||||||
Depreciation and amortization | 4,195 | 3,646 | ||||||
70,664 | 68,621 | |||||||
Operating income | 12,897 | 17,986 | ||||||
Interest income | 579 | 2,474 | ||||||
Income before income tax expense | 13,476 | 20,460 | ||||||
Income tax expense | 5,310 | 7,304 | ||||||
Net income | $ | 8,166 | $ | 13,156 | ||||
Basic net income per share of common stock | $ | 0.33 | $ | 0.52 | ||||
Diluted net income per share of common stock | $ | 0.33 | $ | 0.51 |
See accompanying notes.
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ADMINISTAFF, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED MARCH 31, 2009
(in thousands)
(Unaudited)
Common Stock Issued | Additional Paid-In | Treasury | Retained | |||||||||||||||||||||
Shares | Amount | Capital | Stock | Earnings | Total | |||||||||||||||||||
Balance at December 31, 2008 | 30,839 | $ | 309 | $ | 139,415 | $ | (147,952 | ) | $ | 216,707 | $ | 208,479 | ||||||||||||
Purchase of treasury stock, at cost | ― | ― | ― | (1,498 | ) | ― | (1,498 | ) | ||||||||||||||||
Exercise of stock options | ― | ― | (343 | ) | 669 | ― | 326 | |||||||||||||||||
Income tax benefit from stock- based compensation, net | ― | ― | (642 | ) | — | ― | (642 | ) | ||||||||||||||||
Stock-based compensation expense | — | — | 581 | 2,205 | — | 2,786 | ||||||||||||||||||
Other | ― | ― | (27 | ) | 215 | ― | 188 | |||||||||||||||||
Dividends paid | — | — | — | — | (3,308 | ) | (3,308 | ) | ||||||||||||||||
Net income | ― | ― | ― | ― | 8,166 | 8,166 | ||||||||||||||||||
Comprehensive income | — | — | — | — | — | 8,166 | ||||||||||||||||||
Balance at March 31, 2009 | 30,839 | $ | 309 | $ | 138,984 | $ | (146,361 | ) | $ | 221,565 | $ | 214,497 |
See accompanying notes.
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ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2009 | 2008 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 8,166 | $ | 13,156 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | 4,178 | 3,657 | ||||||
Stock-based compensation | 2,786 | 2,385 | ||||||
Deferred income taxes | 314 | 2,149 | ||||||
Changes in operating assets and liabilities: | ||||||||
Restricted cash | 1,363 | 519 | ||||||
Accounts receivable | (46,837 | ) | (24,665 | ) | ||||
Prepaid insurance | 9,926 | 10,123 | ||||||
Other current assets | (3,666 | ) | (1,596 | ) | ||||
Other assets | (4,445 | ) | (6,971 | ) | ||||
Accounts payable | (1,794 | ) | (779 | ) | ||||
Payroll taxes and other payroll deductions payable | (16,728 | ) | (2,802 | ) | ||||
Accrued worksite employee payroll expense | 20,286 | 27,237 | ||||||
Accrued health insurance costs | (7,310 | ) | (15,303 | ) | ||||
Accrued workers’ compensation costs | 1,101 | 2,607 | ||||||
Accrued corporate payroll, commissions and other accrued liabilities | (12,879 | ) | (10,300 | ) | ||||
Income taxes payable/receivable | (3,406 | ) | 4,922 | |||||
Total adjustments | (57,111 | ) | (8,817 | ) | ||||
Net cash (used in) provided by operating activities | (48,945 | ) | 4,339 | |||||
Cash flows from investing activities: | ||||||||
Marketable securities: | ||||||||
Proceeds from dispositions | 225 | 41,097 | ||||||
Property and equipment | (2,473 | ) | (4,748 | ) | ||||
Net cash (used in) provided by investing activities | (2,248 | ) | 36,349 |
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ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2009 | 2008 | |||||||
Cash flows from financing activities: | ||||||||
Purchase of treasury stock | $ | (1,498 | ) | $ | (15,038 | ) | ||
Dividends paid | (3,308 | ) | (2,888 | ) | ||||
Other | 392 | 756 | ||||||
Net cash used in financing activities | (4,414 | ) | (17,170 | ) | ||||
Net (decrease) increase in cash and cash equivalents | (55,607 | ) | 23,518 | |||||
Cash and cash equivalents at beginning of period | 252,190 | 135,793 | ||||||
Cash and cash equivalents at end of period | $ | 196,583 | $ | 159,311 |
See accompanying notes.
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ADMINISTAFF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
1. Basis of Presentation
Administaff, Inc. (“Administaff” or the “Company”) is a professional employer organization (“PEO”). As a PEO, the Company provides a bundled comprehensive service for its clients in the area of personnel management. The Company provides its comprehensive service through its Personnel Management System, which encompasses a broad range of human resource functions, including payroll and benefits administration, health and workers’ compensation insurance programs, personnel records management, employer liability management, employee recruiting and selection, employee performance management, and employee training and development. For both the three months ended March 31, 2009 and March 31, 2008, revenues from the Company’s Texas markets represented 30% of the Company’s total revenues.
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 accounting principles generally accepted in the United States 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, 2008. The Consolidated Balance Sheet at December 31, 2008 has been derived from the audited financial statements at that date, but does not include all of the information or footnotes required by accounting principles generally accepted in the United States for complete financial statements. The Company’s Consolidated Balance Sheet at March 31, 2009, and the Consolidated Statements of Operations, Cash Flows and Stockholders’ Equity for the periods ended March 31, 2009 and 2008, 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.
- 9 - -
2. Accounting Policies
Health Insurance Costs
The Company provides group health insurance coverage to its worksite employees through a national network of carriers including UnitedHealthcare (“United”), PacifiCare, Kaiser Permanente, Blue Cross and Blue Shield of Georgia, Blue Shield of California, Hawaii Medical Service Association and Tufts, all of which provide fully insured policies or service contracts.
The policy with United provides the majority of the Company’s health insurance coverage. As a result of certain contractual terms, the Company has accounted for this plan since its inception using a partially self-funded insurance accounting model. Accordingly, Administaff records the costs of the United Plan, including an estimate of the incurred claims, taxes and administrative fees (collectively the “Plan Costs”) as benefits expense in the Consolidated Statements of Operations. The estimated incurred claims are based upon: (i) the level of claims processed during the quarter; (ii) recent claim development patterns under the plan, to estimate a completion rate; and (iii) the number of participants in the plan. Each reporting period, changes in the estimated ultimate costs resulting from claim trends, plan design and migration, participant demographics and other factors are incorporated into the benefits costs.
Additionally, since the plan’s inception, under the terms of the contract, United establishes cash funding rates 90 days in advance of the beginning of a reporting quarter. If the Plan Costs for a reporting quarter are greater than the premiums paid and owed to United, a deficit in the plan would be incurred and the Company would accrue a liability for the excess costs on its Consolidated Balance Sheet. On the other hand, if the Plan Costs for the reporting quarter are less than the premiums paid and owed to United, a surplus in the plan would be incurred and the Company would record an asset for the excess premiums on its Consolidated Balance Sheet. The terms of the arrangement require the Company to maintain an accumulated cash surplus in the plan of $9.0 million, which is reported as long-term prepaid insurance. As of March 31, 2009, Plan Costs were less than the net premiums paid and owed to United by $24.9 million. As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $15.9 million balance is included in prepaid insurance, a current asset, on the Company’s Consolidated Balance Sheet. The premiums owed to United at March 31, 2009, were $3.8 million, which is included in accrued health insurance costs, a current liability on the Company’s Consolidated Balance Sheet.
Workers’ Compensation Costs
Since October 1, 2007, the Company’s workers’ compensation coverage has been provided through its arrangement with ACE Group of Companies (“ACE”). Under the Company’s arrangement with ACE (the “ACE Program”), the Company bears the economic burden for the first $1 million layer of claims per occurrence. ACE bears the economic burden for all claims in excess of such first $1 million layer. The ACE Program is a fully insured policy whereby ACE has the responsibility to pay all claims incurred under the policy regardless of whether the Company satisfies its responsibilities. The Company’s coverage from September 1, 2003 through September 30, 2007 was provided through selected member insurance companies of American International Group, Inc. (the “AIG Program”). The AIG Program coverage and structure was consistent with the ACE Program.
- 10 - -
Because the Company bears the economic burden of the first $1 million layer of claims per occurrence, such claims, which are the primary component of the Company’s workers’ compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing healthcare and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment.
The Company employs a third party actuary to estimate its loss development rate, which is primarily based upon the nature of worksite employees’ job responsibilities, the location of worksite employees, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into the Company’s workers’ compensation claims cost estimates. During the three months ended March 31, 2009 and 2008, Administaff reduced accrued workers’ compensation costs by $2.5 million and $2.6 million, respectively, for changes in estimated losses related to prior reporting periods. Workers’ compensation cost estimates are discounted to present value at a rate based upon the U.S. Treasury rates that correspond with the weighted average estimated claim payout period (the average discount rate utilized in 2009 and 2008 was 1.5% and 2.5%, respectively) and are accreted over the estimated claim payment period and included as a component of direct costs in the Company’s Consolidated Statements of Operations.
The following table provides the activity and balances related to incurred but not reported workers’ compensation claims for the three months ended March 31, 2009 and 2008 (in thousands):
2009 | 2008 | |||||||
Beginning balance | $ | 83,055 | $ | 74,433 | ||||
Accrued claims | 9,336 | 9,635 | ||||||
Present value discount | (507 | ) | (856 | ) | ||||
Paid claims | (7,739 | ) | (6,492 | ) | ||||
Ending balance | $ | 84,145 | $ | 76,720 | ||||
Current portion of accrued claims | $ | 35,103 | $ | 34,729 | ||||
Long-term portion of accrued claims | 49,042 | 41,991 | ||||||
$ | 84,145 | $ | 76,720 |
- 11 - -
At the beginning of each policy period, the insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim funds”). The level of claim funds is primarily based upon anticipated worksite employee payroll levels and expected workers’ compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as restricted cash, a short-term asset, while the remainder of claim funds are included in deposits, a long-term asset in the Company’s Consolidated Balance Sheets. As of March 31, 2009, the Company had restricted cash of $35.1 million and deposits of $60.6 million.
3. | Cash Equivalents |
On January 1, 2008, the Company adopted SFAS No. 157 “Fair Value Measurements” (“SFAS 157”), for financial assets and liabilities. This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value measurement disclosures are grouped into three levels based on valuation factors:
· | Level 1 - quoted prices in active markets using identical assets; |
· | Level 2 - significant other observable inputs, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other observable inputs, and |
· | Level 3 - significant unobservable inputs. |
As of March 31, 2009, the Company had level 1 investments of $205.2 million held in money market funds.
The Company’s overnight holdings fluctuate based on the timing of the client’s payroll processing cycle. Included in the cash and cash equivalents balance as of March 31, 2009, and December 31, 2008, are $95.1 million and $108.8 million in withholdings associated with federal and state income taxes, employment taxes and other payroll deductions; as well as $16.3 million and $49.3 million in client prepayments, respectively. Please read “Cash Flows from Operating Activities – Timing of Client Payments/Payrolls,” on page 23 for additional information.
- 12 - -
4. | Stockholders’ Equity |
The Company’s Board of Directors (the “Board”) has authorized a program to repurchase up to 12,500,000 shares of the Company’s outstanding common stock. The Company has repurchased 12,088,868 shares under this program at a total cost of approximately $237.7 million. No shares were repurchased under the repurchase program during the three months ended March 31, 2009. However, 68,023 shares were withheld during the first quarter of 2009 to satisfy tax withholding obligations for the vesting of restricted stock awards. These purchases are not subject to the repurchase program. As of March 31, 2009, the Company had the authorization to repurchase an additional 411,132 shares.
The Board declared a quarterly dividend of $0.13 per share of common stock in the first quarter of 2009 and a dividend of $0.11 per share of common stock in the first quarter of 2008, resulting in a total of $3.3 million and $2.9 million in dividend payments paid by the Company, respectively.
5. | 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 | ||||||||
March 31, | ||||||||
2009 | 2008 | |||||||
Basic net income per share – weighted average shares outstanding | 24,561 | 25,442 | ||||||
Effect of dilutive securities – treasury stock method: | ||||||||
Common stock options | 126 | 293 | ||||||
Restricted stock awards | 157 | 21 | ||||||
283 | 314 | |||||||
Diluted net income per share – weighted average shares outstanding plus effect of dilutive securities | 24,844 | 25,756 | ||||||
Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect | 699 | 883 |
- 13 - -
6. | 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.
- 14 - -
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion in conjunction with our 2008 annual report on Form 10-K, as well as our consolidated financial statements and notes thereto included in this quarterly report on Form 10-Q.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those related to health and workers’ compensation insurance claims experience, client bad debts, income taxes, property and equipment, goodwill and other intangibles, and contingent liabilities. We base these estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
We believe the following accounting policies are critical and/or require significant judgments and estimates used in the preparation of our Consolidated Financial Statements:
· | Benefits costs – We provide group health insurance coverage to our worksite employees through a national network of carriers including UnitedHealthcare (“United”), PacifiCare, Kaiser Permanente, Blue Cross and Blue Shield of Georgia, Blue Shield of California, Hawaii Medical Service Association and Tufts, all of which provide fully insured policies or service contracts. |
The health insurance contract with United provides the majority of our health insurance coverage. As a result of certain contractual terms, we have accounted for this plan since its inception using a partially self-funded insurance accounting model. Accordingly, we record the costs of the United plan, including an estimate of the incurred claims, taxes and administrative fees (collectively the “Plan Costs”), as benefits expense in the Consolidated Statements of Operations. The estimated incurred claims are based upon: (i) the level of claims processed during the quarter; (ii) recent claim development patterns under the plan, to estimate a completion rate; and (iii) the number of participants in the plan. Each reporting period, changes in the estimated ultimate costs resulting from claim trends, plan design and migration, participant demographics and other factors are incorporated into the benefits costs.
- 15 - -
Additionally, since the plan’s inception, under the terms of the contract, United establishes cash funding rates 90 days in advance of the beginning of a reporting quarter. If the Plan Costs for a reporting quarter are greater than the premiums paid and owed to United, a deficit in the plan would be incurred and we would accrue a liability for the excess costs on our Consolidated Balance Sheet. On the other hand, if the Plan Costs for the reporting quarter are less than the premiums paid and owed to United, a surplus in the plan would be incurred and we would record an asset for the excess premiums on our Consolidated Balance Sheet. The terms of the arrangement require us to maintain an accumulated cash surplus in the plan of $9.0 million, which is reported as long-term prepaid insurance. As of March 31, 2009, Plan Costs were less than the premiums paid and owed to United by $24.9 million. As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $15.9 million balance is included in prepaid insurance, a current asset, on our Consolidated Balance Sheet. The premiums owed to United at March 31, 2009, were $3.8 million, which is included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheet.
· | Workers’ compensation costs – Since October 1, 2007, our workers’ compensation coverage has been provided through our arrangement with ACE Group of Companies (“ACE”). Under our arrangement with ACE (the “ACE Program”), we bear the economic burden for the first $1 million layer of claims per occurrence. ACE bears the economic burden for all claims in excess of such first $1 million layer. The ACE Program is a fully insured policy whereby ACE has the responsibility to pay all claims incurred under the policy regardless of whether we satisfy our responsibilities. Our coverage from September 1, 2003 through September 30, 2007 was provided through selected member insurance companies of American International Group, Inc. (the “AIG Program”). The AIG Program coverage and structure was consistent with the ACE Program. |
Because we bear the economic burden of the first $1 million layer of claims per occurrence, such claims, which are the primary component of our workers’ compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing healthcare and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment.
We employ a third party actuary to estimate our loss development rate, which is primarily based upon the nature of worksite employees’ job responsibilities, the location of worksite employees, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into the Company’s workers’ compensation claims cost estimates. During the three months ended March 31, 2009 and 2008, Administaff reduced accrued workers’ compensation costs by $2.5 million and $2.6 million, respectively, for changes in estimated losses related to prior reporting periods. Workers’ compensation cost estimates are discounted to present value at a rate based upon the U.S. Treasury rates that correspond with the weighted average estimated claim payout period (the average discount rate utilized in 2009 and 2008 was 1.5% and 2.5%, respectively) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Operations.
- 16 - -
· | Contingent liabilities – We accrue and disclose contingent liabilities in our Consolidated Financial Statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, Accounting for Contingencies. SFAS No. 5 requires accrual of contingent liabilities that are considered probable to occur and that can be reasonably estimated. For contingent liabilities that are considered reasonably possible to occur, financial statement disclosure is required, including the range of possible loss if it can be reasonably determined. From time to time we disclose in our financial statements issues that we believe are reasonably possible to occur, although we cannot determine the range of possible loss in all cases. As issues develop, we evaluate the probability of future loss and the potential range of such losses. If such evaluation were to determine that a loss was probable and the loss could be reasonably estimated, we would be required to accrue our estimated loss, which would reduce net income in the period that such determination was made. |
· | Deferred taxes – We have recorded a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, our ability to realize our deferred tax assets could change from our current estimates. If we determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to reduce the valuation allowance would increase net income in the period that such determination is made. Likewise, should we determine that we will not be able to realize all or part of our net deferred tax assets in the future, an adjustment to increase the valuation allowance would reduce net income in the period such determination is made. |
· | Allowance for doubtful accounts – We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to pay their comprehensive service fees. We believe that the success of our business is heavily dependent on our ability to collect these comprehensive service fees for several reasons, including: |
· | the fact that we are at risk for the payment of our direct costs and worksite employee payroll costs regardless of whether our clients pay their comprehensive service fees; |
· | the large volume and dollar amount of transactions we process; and |
· | the periodic and recurring nature of payroll, upon which the comprehensive service fees are based. |
To mitigate this risk, we have established very tight credit policies. We generally require our clients to pay their comprehensive service fees no later than one day prior to the applicable payroll date. In addition, we maintain the right to terminate the Client Service Agreement and associated worksite employees or to require prepayment, letters of credit or other collateral if a client’s financial position deteriorates or if the client does not pay the comprehensive service fee. As a result of these efforts, losses related to customer nonpayment have historically been low as a percentage of revenues. However, if our clients’ financial condition were to deteriorate rapidly, resulting in nonpayment, our accounts receivable balances could grow and we could be required to provide for additional allowances, which would decrease net income in the period that such determination was made.
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· | Property and equipment – Our property and equipment relate primarily to our facilities and related improvements, furniture and fixtures, computer hardware and software and capitalized software development costs. These costs are depreciated or amortized over the estimated useful lives of the assets. If we determine that the useful lives of these assets will be shorter than we currently estimate, our depreciation and amortization expense could be accelerated, which would decrease net income in the periods of such a determination. In addition, we periodically evaluate these costs for impairment in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. If events or circumstances were to indicate that any of our long-lived assets might be impaired, we would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable asset. In addition, we may record an impairment loss, which would reduce net income, to the extent that the carrying value of the asset exceeded the fair value of the asset. Fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset. |
· | Goodwill and other intangibles – Our goodwill and intangible assets are subject to the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). In accordance with SFAS 142, goodwill is tested for impairment on an annual basis and between annual tests in certain circumstances, and written down when impaired. Furthermore, SFAS 142 requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite. Our purchased intangible assets are carried at cost less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, five to ten years. |
New Accounting Pronouncements
In September 2006, FASB Statement 157, “Fair Value Measurements” (“SFAS 157”) was issued. SFAS 157 establishes a framework for measuring fair value by providing a standard definition of fair value as it applies to assets and liabilities. SFAS 157, which does not require any new fair value measurements, clarifies the application of other accounting pronouncements that require or permit fair value measurements. Our effective date was initially January 1, 2008. However, the FASB has released FASB Staff Position No. SFAS 157-b, Effective Date of FASB Statement No. 157 (“SFAS 157-b”), which delayed the effective date of Statement 157 for all non-financial assets and non-financial liabilities until fiscal years beginning after November 15, 2008. Accordingly, we adopted SFAS 157 on January 1, 2008 for our financial assets and liabilities only. We adopted SFAS 157-b on January 1, 2009. The adoption did not have a material impact on our consolidated financial statements.
In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" (“EITF 03-6-1”). EITF 03-6-1 concludes that unvested restricted share awards that pay nonforfeitable cash dividends are participating securities and are subject to the two-class method of computing earnings per share. Our effective date for EITF 03-6-1 was January 1, 2009. The adoption of EITF 03-6-1 did not have a material impact on our Consolidated Financial Statements.
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Results of Operations
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008.
The following table presents certain information related to Administaff’s results of operations for the three months ended March 31, 2009 and 2008.
Three months ended March 31, | ||||||||||||
2009 | 2008 | % Change | ||||||||||
(in thousands, except per share and statistical data) | ||||||||||||
Revenues (gross billings of $2.558 billion and $2.554 billion, less worksite employee payroll cost of $2.096 billion and $2.098 billion, respectively) | $ | 461,979 | $ | 456,066 | 1.3 | % | ||||||
Gross profit | 83,561 | 86,607 | (3.5 | )% | ||||||||
Operating expenses | 70,664 | 68,621 | 3.0 | % | ||||||||
Operating income | 12,897 | 17,986 | (28.3 | )% | ||||||||
Other income | 579 | 2,474 | (76.6 | )% | ||||||||
Net income | 8,166 | 13,156 | (37.9 | )% | ||||||||
Diluted net income per share of common stock | 0.33 | 0.51 | (35.3 | )% | ||||||||
Statistical Data: | ||||||||||||
Average number of worksite employees paid per month | 111,742 | 113,541 | (1.6 | )% | ||||||||
Revenues per worksite employee per month (1) | $ | 1,378 | $ | 1,339 | 2.9 | % | ||||||
Gross profit per worksite employee per month | 249 | 254 | (2.0 | )% | ||||||||
Operating expenses per worksite employee per month | 211 | 201 | 5.0 | % | ||||||||
Operating income per worksite employee per month | 38 | 53 | (28.3 | )% | ||||||||
Net income per worksite employee per month | 24 | 39 | (38.5 | )% |
(1) | Gross billings of $7,630 and $7,497 per worksite employee per month less payroll cost of $6,252 and $6,158 per worksite employee per month, respectively. |
Revenues
Our revenues for the first quarter of 2009 increased 1.3% over the 2008 period due to a 2.9%, or $39, increase in revenues per worksite employee per month, offset by a 1.6% decrease in the average number of worksite employees paid per month.
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By region, our revenue growth over the first quarter of 2008 and revenue distribution for the quarters ended March 31, 2009 and 2008 were as follows:
Three months ended March 31, | Three months ended March 31, | |||||||||||||||||||
2009 | 2008 | % Change | 2009 | 2008 | ||||||||||||||||
(in thousands) | (% of total revenues) | |||||||||||||||||||
Northeast | $ | 102,471 | $ | 97,002 | 5.6 | % | 22.2 | % | 21.3 | % | ||||||||||
Southeast | 50,146 | 47,720 | 5.1 | % | 10.9 | % | 10.4 | % | ||||||||||||
Central | 69,807 | 66,536 | 4.9 | % | 15.1 | % | 14.6 | % | ||||||||||||
Southwest | 146,175 | 148,844 | (1.8 | )% | 31.6 | % | 32.6 | % | ||||||||||||
West | 90,427 | 92,903 | (2.7 | )% | 19.6 | % | 20.4 | % | ||||||||||||
Other revenue | 2,953 | 3,061 | (3.5 | )% | 0.6 | % | 0.7 | % | ||||||||||||
Total revenue | $ | 461,979 | $ | 456,066 | 1.3 | % | 100.0 | % | 100.0 | % |
Our unit growth rate is affected by three primary sources – new client sales, client retention and the net change in existing clients through worksite employee new hires and layoffs. During the first quarter of 2009, our annual growth rate declined 1.6% as the net change in existing clients and new client sales declined as compared to the first quarter of 2008; while client retention improved slightly.
The decline in the U.S. economic activity and associated reductions in employment levels in the later half of 2008 and early 2009 have impacted the Company’s customer base and target market. In the first quarter, the Company’s average number of paid worksite employees declined 5.9% from the fourth quarter of 2008 to 111,742, as the net employee reductions within the existing client base and number of client terminations exceeded new client sales.
Gross Profit
Gross profit for the first quarter of 2009 decreased 3.5% to $83.6 million, compared to the first quarter of 2008. The average gross profit per worksite employee decreased 2.0% to $249 per month in the 2009 period from $254 per month in the 2008 period. Our pricing objectives attempt to maintain or improve the gross profit per worksite employee by increasing revenue per worksite employee to match or exceed changes in primary direct costs and operating expenses.
While our revenues increased 2.9% per worksite employee per month, our primary direct costs, which include payroll taxes, benefits and workers’ compensation expenses, increased 4.1% to $1,129 per worksite employee per month in the first quarter of 2009 versus $1,085 in the first quarter of 2008.
· | Benefits costs – The cost of group health insurance and related employee benefits increased $35 per worksite employee per month, or 4.9% on a cost per covered employee basis, compared to the first quarter of 2008. The percentage of worksite employees covered under our health insurance plans was 75.1% in the 2009 period compared to 73.6% in the 2008 period. Please read “Critical Accounting Policies and Estimates – Benefits Costs” on page 15 for a discussion of our accounting for health insurance costs. |
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· | Workers’ compensation costs – Workers’ compensation costs increased $1 per worksite employee per month compared to the first quarter of 2008. As a percentage of non-bonus payroll cost, workers’ compensation costs increased to 0.67% in the 2009 period from 0.66% in the 2008 period. During the 2009 period, the Company recorded reductions in workers’ compensation costs of $2.5 million, or 0.13% of non-bonus payroll costs, for changes in estimated losses related to prior reporting periods compared to $2.6 million, or 0.14% of non-bonus payroll costs, in the 2008 period. The 2009 period costs include the impact of a 1.5% discount rate used to accrue workers’ compensation loss claims, compared to a 2.5% discount rate used in the 2008 period. Please read “Critical Accounting Policies and Estimates – Workers’ Compensation Costs” on page 16 for a discussion of our accounting for workers’ compensation costs. |
· | Payroll tax costs – Payroll taxes increased $9, or 1.7%, per worksite employee per month, compared to the first quarter of 2008, due primarily to a 1.5% increase in average payroll cost per worksite employee per month. Payroll taxes as a percentage of payroll cost remained flat. |
Operating Expenses
The following table presents certain information related to the Company’s operating expenses for the three months ended March 31, 2009 and 2008.
Three months ended March 31, | Three months ended March 31, | |||||||||||||||||||||||
2009 | 2008 | % change | 2009 | 2008 | % change | |||||||||||||||||||
(in thousands) | (per worksite employee per month) | |||||||||||||||||||||||
Salaries, wages and payroll taxes | $ | 38,652 | $ | 36,979 | 4.5 | % | $ | 115 | $ | 108 | 6.5 | % | ||||||||||||
Stock-based compensation | 2,786 | 2,385 | 16.8 | % | 8 | 7 | 14.3 | % | ||||||||||||||||
General and administrative expenses | 17,772 | 18,739 | (5.2 | )% | 53 | 55 | (3.6 | )% | ||||||||||||||||
Commissions | 3,273 | 3,094 | 5.8 | % | 10 | 9 | 11.1 | % | ||||||||||||||||
Advertising | 3,986 | 3,778 | 5.5 | % | 12 | 11 | 9.1 | % | ||||||||||||||||
Depreciation and amortization | 4,195 | 3,646 | 15.1 | % | 13 | 11 | 18.2 | % | ||||||||||||||||
Total operating expenses | $ | 70,664 | $ | 68,621 | 3.0 | % | $ | 211 | $ | 201 | 5.0 | % |
Operating expenses increased 3.0% to $70.7 million compared to the first quarter of 2008. Operating expense per worksite employee increased to $211 per month in the 2009 period from $201 in the 2008 period. The components of operating expenses changed as follows:
· | Salaries, wages and payroll taxes of corporate and sales staff increased 4.5%, or $7, per worksite employee per month compared to the 2008 period. The increase is due to a 7.9% increase in corporate employees in mid to late 2008, primarily in sales and service. |
· | Stock-based compensation expense increased approximately $400,000 or $1 per worksite employee per month. The stock based compensation expense represents amortization of restricted stock awards granted to employees over the vesting period. |
· | General and administrative expenses decreased 5.2% or $2 per worksite employee per month compared to the first quarter of 2008, due to cost-saving initiatives implemented across the Company. |
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· | Commissions expense increased 5.8% or $1 per worksite employee per month compared to the 2008 period. |
· | Advertising costs increased 5.5% or $1 on a per worksite employee per month basis compared to the first quarter of 2008. |
· | Depreciation and amortization expense increased 15.1% or $2 per worksite employee per month compared to the 2008 period, due primarily to capital expenditures in the second half of 2008. |
Other Income (Expense)
Other income (expense) decreased from $2.5 million in the first quarter of 2008 to approximately $600,000 in the 2009 period due to the decline in interest rates.
Income Tax Expense
Our provision for income taxes differed from the U.S. statutory rate of 35% primarily due to state income taxes and non-deductible expenses.
Net Income
Operating and net income per worksite employee per month was $38 and $24 in the 2009 period, versus $53 and $39 in the 2008 period.
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Non-GAAP Financial Measures
Non-bonus payroll cost is a non-GAAP financial measure that excludes the impact of bonus payrolls paid to our worksite employees. Bonus payroll cost varies from period to period, but has no direct impact to our ultimate workers’ compensation costs under the current program. As a result, our management refers to non-bonus payroll cost in analyzing, reporting and forecasting our workers’ compensation costs. 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. We include these non-GAAP financial measures because we believe they are useful to investors in allowing for greater transparency related to the costs incurred under our current workers’ compensation program. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used to their most directly comparable GAAP financial measures as provided in the table below.
Three months ended March 31, | ||||||||||||
2009 | 2008 | % Change | ||||||||||
(in millions except per worksite employee data) | ||||||||||||
GAAP to non-GAAP reconciliation: | ||||||||||||
Payroll cost (GAAP) | $ | 2,095,754 | $ | 2,097,588 | (0.1 | )% | ||||||
Less: Bonus payroll cost | (215,872 | ) | (234,524 | ) | (8.0 | )% | ||||||
Non-bonus payroll cost | $ | 1,879,882 | $ | 1,863,064 | 0.9 | % | ||||||
Payroll cost per worksite employee (GAAP) | $ | 6,252 | $ | 6,158 | 1.5 | % | ||||||
Less: Bonus payroll cost per worksite employee | (644 | ) | (689 | ) | (6.5 | )% | ||||||
Non-bonus payroll cost per worksite employee | $ | 5,608 | $ | 5,469 | 2.5 | % |
Liquidity and Capital Resources
We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of, among other things, our expansion plans, debt service requirements and other operating cash needs. To meet short- and long-term liquidity requirements, including payment of direct and operating expenses and repaying debt, we rely primarily on cash from operations. However, we have in the past sought, and may in the future seek, to raise additional capital or take other steps to increase or manage our liquidity and capital resources. We had $196.6 million in cash and cash equivalents at March 31, 2009, of which approximately $95.1 million was payable in early April 2009 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $16.3 million were customer prepayments that were payable in April 2009. At March 31, 2009, we had working capital of $104.9 million compared to $98.4 million at December 31, 2008. We currently believe that our cash on hand and cash flows from operations will be adequate to meet our liquidity requirements for the remainder of 2009. We will rely on these same sources, as well as public and private debt or equity financing, to meet our longer-term liquidity and capital needs.
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Cash Flows From Operating Activities
Cash used in operating activities in 2009 was $48.9 million. Our primary source of cash from operations is the comprehensive service fee and payroll funding we collect from our clients. The level of cash and cash equivalents, and thus our reported cash flows from operating activities are significantly impacted by various external and internal factors, which are reflected in part by the changes in our balance sheet accounts. These include the following:
· | Timing of customer payments / payrolls – We typically collect our comprehensive service fee, along with the client’s payroll funding, from clients at least one day prior to the payment of worksite employee payrolls and associated payroll taxes. Therefore, the last business day of a reporting period has a substantial impact on our reporting of operating cash flows. For example, many worksite employees are paid on Fridays; therefore, operating cash flows decrease in the reporting periods that end on a Friday. In the period ended March 31, 2009, which ended on a Tuesday, client prepayments were $16.3 million and accrued worksite employee payroll was $150.2 million. In the period ended December 31, 2008, which was a Wednesday, client prepayments were $49.3 million and accrued worksite employee payroll was $130.0 million. |
· | Workers’ compensation plan funding – Under our workers’ compensation insurance arrangements, we make monthly payments to the carriers comprised of premium costs and funds to be set aside for payment of future claims (“claim funds”). These pre-determined amounts are stipulated in our agreements with the carriers, and are based primarily on anticipated worksite employee payroll levels and workers’ compensation loss rates during the policy year. Changes in payroll levels from those that were anticipated in the arrangements can result in changes in the amount of the cash payments, which will impact our reporting of operating cash flows. Our claim funds paid, based upon anticipated worksite employee payroll levels and workers’ compensation loss rates, were $10.2 million in 2009 and $7.7 million for the 2008 period. However, our estimate of workers’ compensation loss costs was $8.8 million in both 2009 and 2008. |
· | Medical plan funding – Our healthcare contract with United establishes participant cash funding rates 90 days in advance of the beginning of a reporting quarter. Therefore, changes in the participation level of the United plan have a direct impact on our operating cash flows. In addition, changes to the funding rates, which are solely determined by United based primarily upon recent claim history and anticipated cost trends, also have a significant impact on our operating cash flows. Since inception of the United plan, premiums owed and cash funded to United has exceeded Plan Costs, resulting in a $24.9 million surplus, $15.9 million of which is reflected as a current asset, and $9.0 million of which is reflected as a long-term asset on our Consolidated Balance Sheet at March 31, 2009. The premiums owed to United at March 31, 2009, were $3.8 million, which is included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets. |
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· | Operating results – Our net income has a significant impact on our operating cash flows. Our net income decreased 37.9% to $8.2 million in the three months ended March 31, 2009 compared to $13.2 million in 2008. Please read Results of Operations – Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008 on page 19. |
Cash Flows Used in Investing Activities
Cash flows used in investing activities were $2.2 million. We invested approximately $2.5 million in capital expenditures during the first three months of 2009.
Cash Flows Used in Financing Activities
Cash flows used in financing activities were $4.4 million, including $3.3 million in dividends and $1.5 million in stock repurchases.
Other Matters
The American Recovery and Reinvestment Act of 2009 (ARRA) was signed into law on February 17, 2009. ARRA provides a 65% subsidy for COBRA continuation coverage premiums for up to nine months for employees involuntarily terminated during the period from September 1, 2008, through December 31, 2009. Under ARRA, Administaff pays the 65% subsidy and then is reimbursed by the federal government through a credit against payroll taxes. The remaining 35% is paid by individual participants electing COBRA. Plan Costs include the net difference between the premiums collected and the associated cost of any COBRA claims. We anticipate that the subsidy of COBRA premiums mandated by ARRA will result in an increase in the number of individuals electing COBRA coverage under our health insurance plans. Depending on the number of participants electing COBRA and the resulting claim activity levels, ARRA has a potential to increase Plan Costs through September 30, 2010, the eligibility end date for the ARRA subsidy. Currently, we are unable to determine the ultimate impact of ARRA on Plan Costs.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are primarily exposed to market risks from fluctuations in interest rates and the effects of those fluctuations on the market values of our cash equivalent short-term investments. Our cash equivalent short-term investments consist primarily of overnight investments, which are not significantly exposed to interest rate risk, except to the extent that changes in interest rates will ultimately affect the amount of interest income earned on these investments.
We attempt to limit our exposure to interest rate risk primarily through diversification and low investment turnover. Our investment policy is designed to minimize after-tax interest income while preserving our principal investment.
ITEM 4. CONTROLS AND PROCEDURES.
In accordance with the Securities Exchange Act of 1934 Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2009.
There has been no change in our internal controls over financial reporting that occurred during the three months ended March 31, 2009, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
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PART II
ITEM 1. LEGAL PROCEEDINGS.
Please read Note 6 to financial statements, which is incorporated herein by reference.
ITEM 1a. RISK FACTORS
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 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,” “possibly,” “probably,” “goal,” “objective,” “target,” “assume,” “outlook,” “guidance,” “predicts,” “appears,” “indicator” 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 our stockholders and the public informed about our 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. We base the forward-looking statements on our current expectations, estimates and projections. These statements are not guarantees of future performance and involve risks and uncertainties that we cannot predict. In addition, we have 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 and possible adverse application of various federal, state and local regulations; (iii) the ability to secure competitive replacement contracts for health insurance and workers’ compensation contracts at expiration of current contracts; (iv) increases in health insurance costs and workers’ compensation rates and underlying claims trends, financial solvency of workers’ compensation carriers and other insurers, 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 our operations; (v) the effectiveness of our sales and marketing efforts; (vi) changes in the competitive environment in the PEO industry, including the entrance of new competitors and our ability to renew or replace client companies; (vii) our liability for worksite employee payroll and benefits costs; (viii) our liability for disclosure of sensitive or private information; and (ix) an adverse final judgment or settlement of claims against Administaff. These factors are discussed in detail in our 2008 annual report on Form 10-K under “Factors That May Affect Future Results and the Market Price of Common Stock” on page 38, and elsewhere in this report. Any of these factors, or a combination of such factors, could materially affect the results of our operations and whether forward-looking statements we make ultimately prove to be accurate.
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The following table provides information about purchases by Administaff during the three months ended March 31, 2009, of equity securities that are registered by Administaff pursuant to Section 12 of the Exchange Act:
Period | Total Number of Shares Purchased (1)(2) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program(2) | Maximum Number of Shares that May Yet be Purchased Under the Program (2) | ||||||||||||
01/01/2009 –01/31/2009 | — | $ | — | 12,088,868 | 411,132 | |||||||||||
02/01/2009 – 02/28/2009 | 41,483 | 23.66 | 12,088,868 | 411,132 | ||||||||||||
03/01/2009 – 03/31/2009 | 26,540 | 19.46 | 12,088,868 | 411,132 | ||||||||||||
Total | 68,023 | $ | 22.02 | 12,088,868 | 411,132 |
(1) | These shares were shares of restricted stock that were withheld to satisfy tax-withholding obligations arising in conjunction with the vesting of restricted stock. The required withholding is calculated using the closing sales price reported by the New York Stock Exchange as of the vesting date. |
(2) | Since 1999, our Board of Directors has approved the repurchase of up to an aggregate amount of 12,500,000 shares of Administaff common stock, of which 12,088,868 shares had been repurchased as of March 31, 2009. No shares were repurchased under the repurchase program during the three months ended March 31, 2009. Unless terminated earlier by resolution of the board of directors, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the repurchase program. |
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ITEM 6. EXHIBITS
(a) | List of exhibits. |
31.1 | * | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | * | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | * | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | * | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* Filed herewith.
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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: May 4, 2009 | By: | /s/ Douglas S. Sharp |
Douglas S. Sharp | ||
Senior Vice President of Finance, | ||
Chief Financial Officer and Treasurer | ||
(Principal Financial and Duly Authorized Officer) |
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