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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 2000.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee required]
For the Transition Period from to
Commission File No. 1-13998
ADMINISTAFF, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0479645
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19001 Crescent Springs Drive 77339
Kingwood, Texas (Zip Code)
(Address of principal executive offices)
(Registrant's Telephone Number, Including Area Code): (281) 358-8986
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of May 4, 2000, 13,509,761 shares of the registrant's common stock, par
value $0.01 per share, were outstanding.
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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................................... 12
PART II
Item 1. Legal Proceedings........................................... 18
3
ADMINISTAFF, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
Current assets:
Cash and cash equivalents................................. $ 32,822 $ 25,451
Marketable securities..................................... 33,499 30,717
Accounts receivable:
Trade.................................................. 1,144 1,578
Unbilled............................................... 40,014 31,286
Other.................................................. 1,171 1,342
Prepaid expenses.......................................... 9,470 8,332
Income taxes receivable................................... 1,464 --
-------- --------
Total current assets.............................. 119,584 98,706
Property and equipment:
Land...................................................... 2,920 2,920
Buildings and improvements................................ 11,350 11,222
Computer hardware and software............................ 23,835 22,232
Software development costs................................ 8,084 6,951
Furniture and fixtures.................................... 14,311 13,886
Vehicles.................................................. 1,453 1,386
-------- --------
61,953 58,597
Accumulated depreciation.................................. (16,817) (14,223)
-------- --------
Total property and equipment...................... 45,136 44,374
Other assets:
Notes receivable from employees........................... 994 994
Other assets.............................................. 3,791 3,624
-------- --------
Total other assets................................ 4,785 4,618
-------- --------
Total assets...................................... $169,505 $147,698
======== ========
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ADMINISTAFF, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
Current liabilities:
Accounts payable.......................................... $ 2,264 $ 2,787
Payroll taxes and other payroll deductions payable........ 37,513 21,518
Accrued worksite employee payroll expense................. 37,501 31,367
Other accrued liabilities................................. 8,177 5,737
Deferred income taxes..................................... 275 141
Income taxes payable...................................... -- 1,364
-------- --------
Total current liabilities......................... 85,730 62,914
Deferred income taxes....................................... 4,870 4,316
Commitments and contingencies
Stockholders' equity:
Common stock.............................................. 150 149
Additional paid-in capital................................ 66,121 65,210
Treasury stock, at cost................................... (18,068) (18,072)
Accumulated other comprehensive loss...................... (226) (218)
Retained earnings......................................... 30,928 33,399
-------- --------
Total stockholders' equity........................ 78,905 80,468
-------- --------
Total liabilities and stockholders' equity........ $169,505 $147,698
======== ========
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,
-------------------
2000 1999
-------- --------
Revenues.................................................... $755,545 $475,853
Direct costs:
Salaries and wages of worksite employees.................. 629,937 395,092
Benefits and payroll taxes................................ 104,903 67,206
-------- --------
Gross profit.............................................. 20,705 13,555
Operating expenses:
Salaries, wages and payroll taxes......................... 12,068 8,783
General and administrative expenses....................... 7,562 5,085
Commissions............................................... 2,212 1,469
Advertising............................................... 930 919
Depreciation and amortization............................. 2,632 1,361
-------- --------
25,404 17,617
-------- --------
Operating loss.............................................. (4,699) (4,062)
Other income (expense):
Interest income........................................... 799 730
Other, net................................................ 9 66
-------- --------
808 796
-------- --------
Loss before income taxes.................................... (3,891) (3,266)
Income tax benefit.......................................... 1,420 1,208
-------- --------
Net loss.................................................... $ (2,471) $ (2,058)
======== ========
Basic and diluted net loss per share of common stock........ $ (0.18) $ (0.14)
======== ========
See accompanying notes.
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ADMINISTAFF, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
ISSUED PAID-IN TREASURY COMPREHENSIVE RETAINED
SHARES AMOUNT CAPITAL STOCK LOSS EARNINGS TOTAL
------ ------ ---------- -------- ------------- -------- -------
Balance at December 31, 1999... 14,909 $149 $65,210 $(18,072) $(218) $33,399 $80,468
Exercise of stock options.... 55 1 895 -- -- -- 896
Other........................ -- -- 16 4 -- -- 20
Change in unrealized loss on
marketable securities..... -- -- -- -- (8) -- (8)
Net loss..................... -- -- -- -- -- (2,471) (2,471)
-------
Comprehensive loss........... (2,479)
------ ---- ------- -------- ----- ------- -------
Balance at March 31, 2000...... 14,964 $150 $66,121 $(18,068) $(226) $30,928 $78,905
====== ==== ======= ======== ===== ======= =======
See accompanying notes.
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ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net loss.................................................. $(2,471) $(2,058)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 2,716 1,500
Bad debt expense....................................... 294 173
Deferred income taxes.................................. 688 296
Loss (gain) on the disposition of assets............... 5 (76)
Changes in operating assets and liabilities:
Accounts receivable.................................. (8,417) (8,986)
Prepaid expenses..................................... (1,138) (1,654)
Other assets......................................... (182) 168
Accounts payable..................................... (523) (1,699)
Payroll taxes and other payroll deductions payable... 15,995 (9,169)
Accrued worksite employee payroll expense............ 6,134 16,001
Other accrued liabilities............................ 2,440 1,206
Income taxes payable/receivable...................... (2,828) (1,578)
------- -------
Total adjustments................................. 15,184 (3,818)
------- -------
Net cash provided by (used in) operating
activities....................................... 12,713 (5,876)
Cash flows from investing activities:
Marketable securities:
Purchases.............................................. (4,666) (5,321)
Proceeds from dispositions............................. 1,787 18,144
Property and equipment:
Purchases.............................................. (2,272) (2,626)
Proceeds from dispositions............................. 26 25
Investment in software development costs.................. (1,133) (679)
------- -------
Net cash provided by (used in) investing
activities....................................... (6,258) 9,543
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ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- --------
Cash flows from financing activities:
Purchase of treasury stock................................ $ -- $(11,949)
Proceeds from the sale of common stock put warrant........ -- 119
Proceeds from the exercise of stock options............... 896 32
Loans to employees........................................ -- (20)
Other..................................................... 20 13
------- --------
Net cash provided by (used in) financing
activities....................................... 916 (11,805)
------- --------
Net increase (decrease) in cash and cash equivalents........ 7,371 (8,138)
Cash and cash equivalents at beginning of period............ 25,451 23,521
------- --------
Cash and cash equivalents at end of period.................. $32,822 $ 15,383
======= ========
See accompanying notes.
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ADMINISTAFF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
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
three months ended March 31, 2000 and 1999, revenues from the Company's Texas
markets represented 53% and 67% 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, 1999. The consolidated balance sheet at December 31,
1999, 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 March 31, 2000, and the consolidated statements of
operations, cash flows and stockholders' equity for the interim periods ended
March 31, 2000 and 1999, have been prepared by the Company without audit. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations and cash flows have been made. The results of operations
for the interim periods are not necessarily indicative of the operating results
for a full year or of future operations. Historically, the Company's earnings
pattern has included losses in the first quarter, followed by improved
profitability in subsequent quarters throughout the year. This pattern is due to
the effects of employment-related taxes which are based on each employee's
cumulative earnings up to specified wage levels, causing employment-related
taxes to be largest in the first quarter and then decline over the course of the
year.
Certain prior year amounts have been reclassified to conform with current
year presentation.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
2. NET LOSS PER SHARE
The numerator and denominator used in the calculations of both basic and
diluted net loss per share were net loss and the weighted averages shares
outstanding, respectively. The weighted average shares outstanding for the three
months ended March 31, 2000 and 1999, were 13,474,000 and 14,313,000,
respectively. For the three months ended March 31, 2000 and 1999, options and
common stock purchase warrants to purchase 3,151,000 and 2,780,000 shares of
common stock were excluded from the calculation of net loss per share because
their assumed exercise would have been anti-dilutive.
3. MARKETABLE SECURITIES
At March 31, 2000, the Company's marketable securities consisted of debt
securities issued by corporate and governmental entities, with contractual
maturities ranging from 91 days to five years from the date of purchase. All of
the Company's investments in marketable securities are classified as
available-for-sale, and as a result, are reported at fair value. Unrealized
gains and losses, net of tax, are reported as a component of accumulated other
comprehensive loss in stockholders' equity.
4. 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.
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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 may 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 1999 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 MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31,
1999.
The following table presents certain information related to the Company's
results of operations for the three months ended March 31, 2000 and 1999.
THREE MONTHS ENDED
MARCH 31,
------------------------- %
2000 1999 CHANGE
----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND
STATISTICAL DATA)
Revenues.................................................... $755,545 $475,853 58.8%
Gross profit................................................ 20,705 13,555 52.7%
Operating expenses.......................................... 25,404 17,617 44.2%
Operating loss.............................................. (4,699) (4,062) (15.7)%
Other income................................................ 808 796 1.5%
Net loss.................................................... (2,471) (2,058) (20.1)%
Diluted net loss per share of common stock.................. (0.18) (0.14) (28.6)%
STATISTICAL DATA:
Average number of worksite employees paid per month......... 53,897 38,392 40.4%
Fee revenue per worksite employee per month................. $ 4,387 $ 3,926 11.7%
Fee payroll cost per worksite employee per month............ 3,621 3,232 12.0%
Gross mark-up per worksite employee per month............... 766 694 10.4%
Gross profit per worksite employee per month................ 128 118 8.5%
Operating expenses per worksite employee per month.......... 157 153 2.6%
Operating loss per worksite employee per month.............. (29) (35) 17.1%
Net loss per worksite employee per month.................... (15) (18) 16.7%
REVENUES
The Company's revenues for the three months ended March 31, 2000 increased
58.8% over the same period in 1999 due to a 40.4% increase in the average number
of worksite employees paid per month, accompanied by an 11.7% 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. Revenues from markets opened prior to 1993 (the commencement of the
Company's national expansion plan) increased 26% over the first quarter of 1999,
while revenues from markets opened after 1993 increased 97%. For the three
months ended March 31, 2000, revenues from the state of
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Texas represented 53% of the Company's total revenues and Houston, the Company's
original market, represented 29% of the total.
The 11.7% increase in fee revenue per worksite employee per month directly
related to the 12.0% 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.; (iii)
the addition of clients with worksite employees that have a higher average base
pay than the existing client base; and (iv) the attrition of clients with
worksite employees that have a lower average base pay than the existing client
base.
GROSS PROFIT
Gross profit for the first quarter of 2000 increased 52.7% over the first
quarter of 1999, primarily due to the 40.4% increase in the average number of
worksite employees paid per month accompanied by an 8.5% increase in gross
profit per worksite employee per month. Gross profit per worksite employee
increased to $128 per month in the 2000 period from $118 per month in the 1999
period, reflecting effective execution of the Company's pricing strategy. 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 mark-up per worksite employee per month increased 10.4% to $766 in
the 2000 period versus $694 in the 1999 period. Approximately 43% of the $72
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, including approximately $4 per worksite
employee related to a change in the method used to calculate service fees for
clients who experience turnover within their workforce.
The Company's primary direct costs, which include payroll taxes, benefits
and workers' compensation expenses, increased 10.8% to $636 per worksite
employee per month in the 2000 period versus $574 in the 1999 period. Payroll
taxes increased $48 per worksite employee per month over the first quarter of
1999, primarily due to the increased average payroll cost per worksite employee.
The overall cost of payroll taxes as a percentage of payroll cost increased to
8.85% in the 2000 period from 8.67% in the 1999 period due to a slight increase
in the Company's weighted average state unemployment tax rate. The cost of
health insurance and related employee benefits increased $9 per worksite
employee over the first quarter of 1999 due to a 2.6% 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 68.3% in the 2000 period
from 67.6% in the 1999 period. Workers' compensation costs increased $5 per
worksite employee per month over the first quarter
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of 1999, and increased slightly to 1.22% of fee payroll cost in the 2000 period
from 1.20% in the 1999 period.
Gross profit, measured as a percentage of revenue, declined to 2.74% in the
2000 period from 2.85% in the 1999 period. This decline was due primarily to the
increase in average payroll cost per worksite employee. Because payroll cost is
the largest single component of both revenues and direct costs, an increase in
the average payroll cost per worksite employee creates a mathematical downward
pressure on the calculation of gross profit as a percentage of revenue.
OPERATING EXPENSES
The following table presents certain information related to the Company's
operating expenses for the three months ended March 31, 2000 and 1999.
THREE MONTHS ENDED MARCH 31, THREE MONTHS ENDED MARCH 31,
------------------------------ -----------------------------------
2000 1999 % CHANGE 2000 1999 % CHANGE
------- ------- -------- ------- ------- -----------
(IN THOUSANDS) (PER WORKSITE EMPLOYEE PER MONTH)
Salaries, wages and payroll
taxes.......................... $12,068 $ 8,783 37.4% $ 75 $ 76 (1.3)%
General and administrative
expenses....................... 7,562 5,085 48.7% 46 44 4.5%
Commissions...................... 2,212 1,469 50.6% 14 13 7.7%
Advertising...................... 930 919 1.2% 6 8 (25.0)%
Depreciation and amortization.... 2,632 1,361 93.4% 16 $ 12 33.3%
------- ------- ---- ----
Total operating
expenses............. $25,404 $17,617 44.2% $157 $153 2.6%
======= ======= ==== ====
Operating expenses increased 44.2% over the first quarter of 1999,
primarily due to the 40.4% growth in the average number of worksite employees
paid by the Company. Operating expenses per worksite employee increased 2.6% to
$157 per month in the 2000 period versus $153 in the 1999 period. During the
first quarter of 2000, the Company's operating expenses continued to be impacted
by several strategic initiatives, including its national sales and service
expansion, the enhancement of its proprietary professional employer information
system, the enhancement of its Internet-based service delivery platform,
Administaff Assistant, and the development of its new eCommerce portal,
bizzport.
Salaries, wages and payroll taxes of corporate and sales staff decreased to
$75 per worksite employee per month in the 2000 period from $76 in the 1999
period, as corporate and sales staff increased at a rate lower than the
Company's worksite employee growth.
General and administrative expenses increased $2 per worksite employee per
month over the first quarter of 1999, primarily due to increased consulting
expenses associated with the Company's technology initiatives.
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Depreciation and amortization expense increased $4 per worksite employee
per month over the 1999 period as a result of the increased capital assets
placed in service in 2000 and 1999, including (i) the implementation of a
national technology infrastructure; (ii) the implementation of certain new
components of Administaff Assistant, primarily the 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 opening of the Atlanta operations center; and (v) the
expansion of corporate headquarters.
Commissions expense was slightly higher per worksite employee versus the
first quarter of 1999 due to higher commissions paid under the Company's 1998
Marketing Agreement with American Express. Advertising costs declined $2 per
worksite employee as efficiency gains achieved under the American Express
Marketing Agreement allowed the Company to increase its volume of sales leads
and appointments with minimal changes in its advertising strategy.
NET LOSS
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 2000 period was consistent with the 1999
period.
Operating loss and net loss per worksite employee per month improved to $29
and $15 in the 2000 period, versus $35 and $18 in the 1999 period. The Company's
net loss and diluted net loss per share for the quarter ended March 31, 2000,
increased to $4.7 million and $0.18, versus $2.1 million and $0.14 for the
quarter ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company periodically evaluates its liquidity requirements, capital
needs and availability of resources in view of, among other things, expansion
plans, debt service requirements and other operating cash needs. As a result of
this process, the Company has, in the past, sought and may, in the future, seek
to raise additional capital or take other steps to increase or manage its
liquidity and capital resources. The Company currently believes that its cash on
hand, marketable securities and cash flows from operations will be adequate to
meet its short-term liquidity requirements. The Company will rely on these same
sources, as well as public and private debt and equity financing, to meet its
long-term liquidity and capital needs.
The Company had $66.3 million in cash and cash equivalents and marketable
securities at March 31, 2000, of which approximately $37.5 million was payable
in April 2000 for withheld federal and state income taxes, employment taxes and
other payroll deductions. The remainder is available to the Company for general
corporate purposes, including, but not limited to, current working capital
requirements, expenditures related to the continued expansion of the Company's
sales, service and technology infrastructure, capital expenditures and the
Company's stock repurchase program. At March 31, 2000, the Company had working
capital of $33.8 million
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compared to $35.8 million at December 31, 1999. As of March 31, 2000, the
Company had no long-term debt.
CASH FLOWS FROM OPERATING ACTIVITIES
The $18.6 million increase in net cash provided by operating activities was
primarily the result of the timing of payroll tax payments surrounding the
December 31 and March 31 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.
CASH FLOWS FROM INVESTING ACTIVITIES
Net purchases of marketable securities during the first three months of
2000 represented amounts not expected to be used in the Company's short-term
operations which were invested in longer-term, higher-yielding marketable
securities.
Capital expenditures during the 2000 period primarily related to software
development, hardware and software costs related to the enhancement of the
Company's proprietary professional employer information system, the enhancement
of Administaff Assistant and the initial development of bizzport. In addition,
capital expenditures included building improvements and furniture and fixtures
related to the expansion of corporate headquarters, service centers and sales
offices to accommodate the Company's growth.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows from financing activities during the 2000 period primarily
include proceeds from the exercise of employee stock options.
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 employees' 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.
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FACTORS THAT MAY AFFECT FUTURE RESULTS AND THE MARKET PRICE OF COMMON STOCK
The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts are forward-looking statements that involve a number of risks
and uncertainties. In the normal course of business, Administaff, Inc., in an
effort to help keep its stockholders and the public informed about the Company's
operations, may from time to time issue such forward-looking statements, either
orally or in writing. Generally, these statements relate to business plans or
strategies, projected or anticipated benefits or other consequences of such
plans or strategies, or projections involving anticipated revenues, earnings or
other aspects of operating results. 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)
regulatory and tax developments including the ongoing audit of the Company's
401(k) Plan and related compliance issues, and possible adverse application of
various federal, state and local regulations; (ii) changes in the Company's
direct costs and operating expenses including increases in health insurance
premiums, workers' compensation 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; (iv) the Company's
ability to effectively implement its eBusiness strategy; (v) the effectiveness
of the Company's sales and marketing efforts, including the Company's marketing
agreement with American Express; and (vi) 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. 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.
17
18
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.
18
19
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 15, 2000 By: /s/ RICHARD G. RAWSON
------------------------------------------
Richard G. Rawson
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: May 15, 2000 By: /s/ DOUGLAS S. SHARP
------------------------------------------
Douglas S. Sharp
Vice President, Finance
(Principal Accounting Officer)
19
20
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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27 -- Financial Data Schedule