1
================================================================================
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 June 30, 1997.
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
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 X No
--- ---
Number of shares outstanding of each of the issuer's classes of common
stock, as of August 6, 1997: 13,448,498 shares.
2
TABLE OF CONTENTS
PART I
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART II
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . 23
Item 5. Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3
ADMINISTAFF, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
DECEMBER 31, JUNE 30,
1996 1997
-------- --------
(UNAUDITED)
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 13,360 $ 29,009
Marketable securities. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 22,140
Accounts receivable:
Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,490 1,429
Unbilled receivables . . . . . . . . . . . . . . . . . . . . . . . . . 12,742 17,751
Related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439 285
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344 619
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,668 974
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . -- 55
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 33,043 72,262
Property and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 817 817
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . 6,564 6,763
Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,093 4,113
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . 3,767 4,978
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 761 817
-------- --------
15,002 17,488
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . (3,359) (4,154)
-------- --------
Total property and equipment . . . . . . . . . . . . . . . . . . . . 11,643 13,334
Other assets:
Notes receivable from employees . . . . . . . . . . . . . . . . . . . . . 1,135 1,220
Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . 282 18
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749 901
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,524 1,544
-------- --------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . 3,690 3,683
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,376 $ 89,279
======== ========
- 3 -
4
ADMINISTAFF, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, JUNE 30,
1996 1997
--------- ---------
(UNAUDITED)
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 594 $ 1,153
Payroll taxes and other payroll deductions payable . . . . . . . . . . . 10,099 7,544
Accrued worksite employee payroll expense . . . . . . . . . . . . . . . 13,385 18,004
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 2,662 1,917
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 266 805
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . 491 --
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 917 --
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 28,414 29,423
Noncurrent liabilities:
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 2,558 2,558
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,112 --
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . -- 147
--------- ---------
Total noncurrent liabilities . . . . . . . . . . . . . . . . . . . 6,670 2,705
Commitments and contingencies
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 138
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 5,706 50,608
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,479 8,406
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . -- (1,999)
Unrealized loss on marketable securities . . . . . . . . . . . . . . . . -- (2)
--------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 13,292 57,151
--------- ---------
Total liabilities and stockholders' equity . . . . . . . . . . . . $ 48,376 $ 89,279
========= =========
See accompanying notes.
- 4 -
5
ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1997 1996 1997
--------- --------- --------- ---------
Revenues . . . . . . . . . . . . . . . . . . . . . . . $ 209,726 $ 274,792 $ 404,062 $ 536,992
Direct costs:
Salaries and wages of worksite employees . . . . . . 170,678 226,044 328,731 441,703
Benefits and payroll taxes . . . . . . . . . . . . . 30,397 37,102 60,491 74,853
--------- --------- --------- ---------
Gross profit . . . . . . . . . . . . . . . . . . . . . 8,651 11,646 14,840 20,436
Operating expenses:
Salaries, wages and payroll taxes . . . . . . . . . 3,416 4,419 6,932 8,617
General and administrative expenses . . . . . . . . 1,946 3,976 3,952 6,586
Commissions . . . . . . . . . . . . . . . . . . . . 1,007 1,145 1,926 2,169
Advertising . . . . . . . . . . . . . . . . . . . . 855 894 1,604 1,669
Depreciation and amortization . . . . . . . . . . . 378 462 679 923
--------- --------- --------- ---------
7,602 10,896 15,093 19,964
--------- --------- --------- ---------
Operating income (loss) . . . . . . . . . . . . . . . . 1,049 750 (253) 472
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . 140 788 269 1,378
Interest expense . . . . . . . . . . . . . . . . . . (289) (19) (550) (340)
Other, net . . . . . . . . . . . . . . . . . . . . . 6 (9) 6 (12)
--------- --------- --------- ---------
(143) 760 (275) 1,026
--------- --------- --------- ---------
Income (loss) before income
tax expense (benefit) . . . . . . . . . . . . . . . . 906 1,510 (528) 1,498
Income tax expense (benefit) . . . . . . . . . . . . . 354 576 (171) 571
--------- --------- --------- ---------
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 552 $ 934 $ (357) $ 927
========= ========= ========= =========
Net income (loss) per share of common stock . . . . . . $ 0.05 $ 0.07 $ (0.03) $ 0.07
========= ========= ========= =========
Weighted average common shares outstanding . . . . . . 10,962 14,105 10,900 13,292
========= ========= ========= =========
See accompanying notes.
- 5 -
6
ADMINISTAFF, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
(UNAUDITED)
COMMON STOCK UNREALIZED
ISSUED ADDITIONAL LOSS ON
----------------- PAID-IN RETAINED TREASURY MARKETABLE
SHARES AMOUNT CAPITAL EARNINGS STOCK SECURITIES TOTAL
------- ------ -------- -------- ------- ---------- --------
Balance at December 31, 1996 10,726 $ 107 $ 5,706 $ 7,479 $ -- $ -- $ 13,292
Issuance of common stock through
initial public offering, net of
offering costs of $5,584 3,000 30 45,386 -- -- -- 45,416
Purchase of treasury stock, at cost -- -- -- -- (1,999) -- (1,999)
Repurchase of common stock
purchase warrants -- -- (542) -- -- -- (542)
Exercise of common stock
purchase warrants 70 1 47 -- -- -- 48
Exercise of stock options 1 -- 11 -- -- -- 11
Change in unrealized loss
on marketable securities -- -- -- -- -- (2) (2)
Net income -- -- -- 927 -- -- 927
------ ----- -------- ------- ------- ------- --------
Balance at June 30, 1997 13,797 $ 138 $ 50,608 $ 8,406 $(1,999) $ (2) $ 57,151
------ ----- -------- ------- ------- ------- --------
====== ======== ========= ======== ========= ========= ========
See accompanying notes.
- 6 -
7
ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
1996 1997
------ -------
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (357) $ 927
Adjustments to reconcile net income (loss) to net cash
provided by operating activities :
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 795 1,211
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 386 (825)
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 1,545
Loss (gain) on disposal of assets . . . . . . . . . . . . . . . . . . (6) 12
Changes is operating assets and liabilities:
Accounts receivable and unbilled revenues . . . . . . . . . . . . . . (1,921) (4,614)
Workers' compensation deposits . . . . . . . . . . . . . . . . . . . 845 --
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,788 (298)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 (20)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . (662) 559
Payroll taxes and other payroll deductions payable . . . . . . . . . (1,966) (2,555)
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . 3,458 3,874
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 1,060 539
------ -------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . 3,918 (572)
------ -------
Net cash provided by operating activities . . . . . . . . . . . . 3,561 355
Cash flows from investing activities:
Marketable securities:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (31,656)
Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 9,477
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . (3,131) (2,621)
Proceeds from disposal of assets . . . . . . . . . . . . . . . . . . . . . 5 8
Increases in intangible assets . . . . . . . . . . . . . . . . . . . . . . (98) (152)
------ -------
Net cash used in investing activities . . . . . . . . . . . . . . (3,214) (24,944)
- 7 -
8
ADMINISTAFF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
1996 1997
---------- -----------
Cash flows from financing activities:
Long-term debt and short-term borrowings:
Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,500 $ --
Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,020) (4,603)
Proceeds from the issuance of common stock . . . . . . . . . . . . . . . -- 47,430
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . -- (1,999)
Repurchase of common stock purchase warrants . . . . . . . . . . . . . . -- (542)
Prepaid expenses - initial public offering costs . . . . . . . . . . . . (298) (22)
Proceeds from the exercise of stock options . . . . . . . . . . . . . . -- 11
Proceeds from the exercise of common stock
purchase warrants . . . . . . . . . . . . . . . . . . . . . . . . . . -- 48
Loans to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . (333) (85)
---------- -----------
Net cash provided by financing activities . . . . . . . . . . . . 849 40,238
---------- -----------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . 1,196 15,649
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . 6,460 13,360
---------- -----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ 7,656 $ 29,009
========== ===========
See accompanying notes.
- 8 -
9
ADMINISTAFF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
1. BASIS OF PRESENTATION
Administaff, Inc. (the Company) is a professional employer organization
(PEO) that provides a comprehensive Personnel Management System which
encompasses a broad range of services, including benefits and payroll
administration, medical and workers' compensation programs, personnel records
management, liability management, recruiting and selection, performance
management, and training and development services to small to medium sized
businesses in several strategically selected markets. The Company operates
primarily in the State of Texas.
The consolidated financial statements include the accounts of Administaff,
Inc., 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 consolidated balance sheet at December 31, 1996 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
June 30,1997 and the consolidated statements of operations, cash flows and
stockholders' equity for the interim periods ended June 30, 1997 and 1996 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 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 the individual 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.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying consolidated
financial statements should be read in conjunction with the Company's audited
consolidated financial statements for the year ended December 31, 1996.
- 9 -
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
2. PER SHARE INFORMATION
Per share amounts have been computed based on the weighted average number
of common shares and common stock equivalents outstanding during the respective
periods. Common stock equivalent shares consist of the incremental shares
issuable upon the exercise of stock options and warrants (using the treasury
stock or if-converted method where applicable).
For the three months and six months ended June 30, 1996, shares for which
options were granted subsequent to September 1994 (twelve months prior to the
Company's initial filing on Form S-1 of an initial public offering) are
considered outstanding for purposes of the income (loss) per share calculation.
Common stock equivalent shares from stock options and warrants granted prior to
September 1994 have been excluded from the computation for the six months ended
June 30, 1996 as their effect is antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of common stock equivalents will be excluded. The impact of
Statement No. 128 on primary and fully diluted loss per share is not expected
to be material for the three months and six months ended June 30, 1997 and June
30, 1996.
3. INITIAL PUBLIC OFFERING
The Company completed an initial public offering in January 1997. The net
proceeds to the Company from the sale of the 3,000,000 shares offered by the
Company (after deducting underwriting discounts and commissions of $3.6
million) were $47.4 million. In addition, during the registration process, the
Company incurred $2.0 million in legal, accounting, printing and other costs,
which were offset against the proceeds of the offering as a component of
additional paid-in capital. The Company utilized approximately $7.1 million of
the proceeds as follows: (i) $4.6 million to repay certain subordinated notes
and other secured notes comprising all of the company's outstanding
indebtedness at the time the offering was completed, (ii) approximately $2.0
million to exercise its option to repurchase 348,945 shares of Common Stock
from one of its stockholders, which is now held in treasury by the Company, and
(iii) approximately $0.5 million to exercise its option to repurchase 173,609
warrants to purchase shares of Common Stock from the subordinated noteholder.
Of the remaining proceeds, the Company currently expects to allocate
approximately $12.0 million to support expansion of the Company's operations,
including the opening of sales offices in new geographic markets as well as in
established markets and, as favorable opportunities arise, expansion of the
Company's client base in new or existing markets through acquisitions of
existing PEO offices. The balance of the proceeds will be used for working
capital purposes. Pending the application of such funds, the Company has
invested the net proceeds of the offering in diversified, highly-liquid,
investment grade, interest-bearing instruments.
- 10 -
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
4. MARKETABLE SECURITIES
At June 30, 1997, the Company's marketable securities consisted of debt
securities issued by corporate and governmental entities, with contractual
maturities ranging from 91 days to 18 months from the date of purchase. All of
the Company's investments in marketable securities are classified as
available-for-sale and are carried at fair market value with unrealized gains
and losses recorded as a component of stockholders' equity.
5. ALLOWANCE FOR DOUBTFUL ACCOUNTS
During the second quarter of 1997 the Company recorded a $1.3 million
reserve for the potential uncollectibility of an account receivable from a
significant former customer. This reserve resulted from the customer's
inability to pay the invoices related to a single payroll period in April 1997.
The Company attempted to collect the amounts due or obtain a secured position
on the amount owed by the customer; however, the Company was unable to collect
the amounts or obtain such a position. In late June 1997, the customer filed
for bankruptcy protection and the Company subsequently learned that the
customer's ability to pay the amounts owed had become severely impaired,
resulting in the recording of the reserve. The Company intends to aggressively
pursue all avenues of collection through the bankruptcy proceedings. Prior to
the second quarter of 1997, the allowance for doubtful accounts and bad debt
expense were not material to the Company's financial position or results of
operations.
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.
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 would be applicable
to other years as well. In addition, the IRS has established an Employee
Leasing 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. One issue that has arisen from these audits is
whether a PEO can be a co-employer of worksite employees, including officers
and owners of client companies, for various purposes under the Internal Revenue
Code of 1986, as amended (the "Code"), including participation in the PEO's
401(k) plan. With respect to the 401(k) Plan audit, the IRS Houston District
has sought technical advice (the "Technical Advice Request") from the IRS
National Office about (1) whether participation in the 401(k) Plan by worksite
employees, including officers of client companies, violates the exclusive
- 11 -
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
benefit rule under the Code because they are not employees of the Company, and
(2) whether the 401(k) Plan's failure to satisfy a nondiscrimination test
relating to contributions should result in disqualification of the 401(k) Plan
because the Company has failed to provide evidence that it satisfies an
alternative nondiscrimination test. A copy of the Technical Advice Request and
the Company's response have been sent to the IRS National Office for review.
The Technical Advice Request contains the conclusions of the IRS Houston
District with respect to the 1993 plan year that the 401(k) Plan should be
disqualified because it (1) covers worksite employees who are not employees of
the Company, and (2) failed a nondiscrimination test applicable to
contributions and the Company has not furnished evidence that the 401(k) Plan
satisfies an alternative test. The Company's response to the Technical Advice
Request refutes the conclusions of the IRS Houston District. The Company also
understands that, with respect to the Market Segment study, the issue of
whether a PEO and a client company may be treated as co-employers of worksite
employees for certain federal tax purposes (the "Industry Issue") is being
referred to the IRS National Office.
Whether the National Office will address the Technical Advice Request
independently of the Industry Issue is unclear. 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 after
the conclusion by the IRS is finalized) would not have a material adverse
effect on its financial position or results of operations, as the Company could
continue to make available comparable benefit programs to its client companies
at comparable costs to the Company. However, if the IRS National Office adopts
the conclusions of the IRS Houston District set forth in the Technical Advice
Request and any such conclusions were applied retroactively to disqualify the
401(k) Plan for 1993 and subsequent years, employees' vested account balances
under the 401(k) Plan would become taxable, the Company would lose its tax
deductions to the extent its matching contributions were not vested, the 401(k)
Plan's trust would become a taxable trust and the Company would be subject to
liability with respect to its failure to withhold applicable taxes with respect
to certain contributions and trust earnings. Further, the Company would be
subject to liability, including penalties, with respect to its cafeteria plan
for the failure to withhold and pay taxes applicable to salary deferral
contributions by employees, including worksite employees. In such a scenario,
the Company also would 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 will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
In addition to the 401(k) Plan audit and Market Segment Study, the Company
notified the IRS of certain operational issues concerning nondiscrimination
test results for certain prior plan years.
- 12 -
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
In 1991 the Company engaged a third party vendor to be the 401(k) Plan's record
keeper and to perform certain required annual nondiscrimination tests for the
401(k) Plan. Each year such record keeper reported to the Company that such
nondiscrimination tests had been satisfied. However, in August 1996 the 401(k)
Plan's record keeper advised the Company that certain of these tests had been
performed incorrectly for prior years and, in fact, that the 401(k) Plan had
failed certain tests for the 1993, 1994 and 1995 plan years. The Company has
subsequently determined that the 401(k) Plan also failed a nondiscrimination
test for 1991 and 1992, closed years for tax purposes. At the time the Company
received such notice, the period in which the Company could voluntarily "cure"
this operational defect had lapsed for all such years except 1995.
With respect to the 1995 plan year, the Company has caused the 401(k) Plan
to refund the required excess contributions and earnings thereon to the
affected employees. In connection with this correction, the Company paid
approximately $47,000 for an excise tax applicable to this plan year. With
respect to all other plan years, the Company has proposed a corrective action
to the IRS under which the Company would make additional contributions to
certain plan participants which bring the plan into compliance with the
nondiscrimination tests.
During 1996, the Company recorded an accrual for its estimate of the cost
of corrective measures and penalties for all of the affected plan years, which
accrual is reflected in Other accrued liabilities - noncurrent on the
Consolidated Balance Sheet. The Company calculated its estimates based on its
understanding of the resolution of similar issues with the IRS. Separate
calculations were made to determine the Company's estimate of both the cost of
corrective measures and penalties for each plan year. In addition, at the same
time, the Company recorded an asset for an amount recoverable from the 401(k)
Plan's record keeper should the Company ultimately be required to pay the
amount accrued for such corrective measures and penalties, which amount is
reflected in Other assets on the Consolidated Balance Sheet. The amount of the
accrual is the Company's estimate of the cost of corrective measures and
practices, although no assurance can be given that the actual amount that the
Company may be ultimately required to pay will not substantially exceed the
amount accrued. There has been no change in the amounts of the accrual or the
amount recoverable from the record keeper subsequent to December 31, 1996.
Based on its understanding of the settlement experience of other companies with
the IRS, the Company does not believe the ultimate resolution of this 401(k)
Plan matter will have a material adverse effect on the Company's financial
condition or results of operations.
- 13 -
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30,
1997.
The following table presents certain information related to the Company's
results of operations for the three months ended June 30, 1996 and 1997.
THREE MONTHS ENDED
JUNE 30,
-------------------------
1996 1997 CHANGE
--------- -------- ------
(OPERATING RESULTS IN THOUSANDS)
OPERATING RESULTS:
Revenues . . . . . . . . . . . . . . . . . . . . . . . $ 209,726 $ 274,792 31.0%
Gross profit . . . . . . . . . . . . . . . . . . . . . 8,651 11,646 34.6%
Gross profit margin . . . . . . . . . . . . . . . . . 4.1% 4.2%
Operating income . . . . . . . . . . . . . . . . . . . 1,049 750 (28.5%)
STATISTICAL DATA:
Monthly revenue per worksite employee . . . . . . . . 3,127 3,423 9.5%
Monthly payroll cost per worksite employee . . . . . . 2,529 2,797 10.6%
Monthly gross markup per worksite employee . . . . . . 598 626 4.7%
Average number of worksite employees paid
per month during period . . . . . . . . . . . . . . 21,535 25,731 19.5%
REVENUES
The Company's revenues for the three months ended June 30, 1997 increased
31.0% over the same period in 1996 due to an increase in worksite employees
paid accompanied by an increase in the revenue per employee. The Company's
expansion of its sales force through new market and sales office openings over
the past three years is the primary factor contributing to the increased number
of worksite employees. The Company's new markets (defined as markets opened
after September 1993 - the commencement of the Company's national expansion
plan) contributed approximately $96 million of the Company's total revenues
for the second quarter of 1997 versus approximately $52 million during the same
period of 1996.
The increase in revenue per employee of 9.5% directly relates to the
increase in payroll cost per employee of 10.6%. This increase reflects the
continuing effects of the net addition, through the Company's sales efforts, of
clients with worksite employees that have a higher average base pay than the
existing client base. The average payroll cost per worksite employee increased
3.2% versus the first quarter of 1997, reflecting the effects of this trend.
- 14 -
15
GROSS PROFIT MARGIN
The Company's gross profit margin increased to 4.2% for the second
quarter of 1997 versus 4.1% for the second quarter of 1996. This slight
improvement reflects the Company's success in matching changes in the risk
sensitivity of its employee base with changes in its direct cost structure.
The continued addition of higher wage, less risk sensitive worksite
employees resulted in a decrease in markup per employee as a percent of revenue
from 19.1% in the second quarter of 1996 to 18.3% in the second quarter of
1997. The Company generally charges lower overall rates as a percentage of
gross payroll on higher wage, less risk sensitive employees, while attempting
to match the lower overall rates charged on these employees with reductions in
the cost of providing employee benefits and workers' compensation coverage as a
percent of revenue or payroll cost.
The cost of providing employee benefits, which includes workers'
compensation costs and benefit plan premiums, was lower in the second quarter
of 1997 than in the second quarter of 1996. Workers' compensation costs
decreased from 2.1% of payroll cost in the second quarter of 1996 to 1.6% of
payroll cost in the second quarter of 1997. This reduction was due to the rate
on the Company's fixed premium policy in effect during the 1997 period being
lower than the rate in place during the second quarter of 1996. Benefit plan
premiums declined from 6.5% of revenue in the second quarter of 1996 to 5.9% of
revenue in the second quarter of 1997. The lower costs relative to revenue and
payroll cost in both worker's compensation and benefit plan premiums reflect
the reduced risk sensitivity of the current composition of the Company's client
base as compared to the 1996 period. Employment related taxes as a percent of
payroll cost were slightly lower than in the 1996 period.
OPERATING EXPENSES
Operating expenses increased as a percent of revenue from 3.6% in the
second quarter of 1996 to 4.0% in the second quarter of 1997. This increase is
due to a $1.3 million charge to bad debt expense related to the potential
uncollectibility of a significant account receivable. Excluding the effects of
the bad debt charge, operating expenses decreased to 3.5% of revenue in the
second quarter of 1997. Total operating expenses increased 43.3% due to the
bad debt charge, increased compensation related costs (salaries, wages and
payroll taxes and commissions) which increased at a lower rate than the
increase in revenues, and increased depreciation and amortization expense.
Advertising expenses were only slightly higher than the 1996 period.
The factors noted above include the effects of continued significant
operating expenses in new markets. Operating expenses incurred directly in new
markets (which include salaries, payroll taxes, recruiting and training costs
of newly hired sales associates, advertising and public relations costs and
general office expenses) totaled $2.0 million in the second quarter of 1997
versus $1.6 million during the second quarter of 1996.
- 15 -
16
During the second quarter of 1997 the Company recorded a $1.3 million
(approximately $800,000 after tax) reserve for the potential uncollectibility
of an account receivable from a significant former customer. This reserve
resulted from the customer's inability to pay the invoices related to a single
payroll period in April 1997. The Company attempted to collect the amounts due
or obtain a secured position on the amount owed by the customer; however, the
Company was unable to collect the amounts or obtain such a position. In late
June 1997, the customer filed for bankruptcy protection and the Company
subsequently learned that the customer's ability to pay the amounts owed had
become severely impaired, resulting in the recording of the reserve. The
Company intends to aggressively pursue all avenues of collection through the
bankruptcy proceedings.
Depreciation and amortization expense increased 22.2% versus the second
quarter of 1996. This increase is primarily due to capital expenditures
related to the opening of new sales offices and increases in corporate service
capacity. Depreciation on the Company's new corporate facility is included in
both periods.
NET INCOME
Interest income increased significantly over the second quarter of 1996
due to proceeds from the Company's initial public offering received in early
February 1997. Interest expense decreased $270,000 due to the repayment of the
Company's outstanding indebtedness with a portion of the initial public
offering proceeds.
The Company's provision for income taxes differs from the U.S. statutory
rate of 34% due primarily to state income taxes in both periods. The effective
income tax rate is slightly lower in the second quarter of 1997 versus the
second quarter of 1996 due to a higher level of tax-exempt interest income.
As a result of the 31.0% increase in revenues, the 34.6% increase in
gross profit and the increase in net interest income, partially offset by the
effects of the bad debt charge, the Company's net income for the three months
ended June 30, 1997 increased to $934,000, or $0.07 per share, versus $552,000,
or $0.05 per share, for the three months ended June 30, 1996. 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
the individual 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. The second quarter 1997 results reflect
the effects of this pattern and the Company expects remaining 1997 results will
be consistent with this pattern.
- 16 -
17
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30,
1997.
The following table presents certain information related to the Company's
results of operations for the six months ended June 30, 1996 and 1997.
SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1997 CHANGE
--------- -------- ------
(OPERATING RESULTS IN THOUSANDS)
OPERATING RESULTS:
Revenues . . . . . . . . . . . . . . . . . . . . . . . $ 404,062 $ 536,992 32.9%
Gross profit . . . . . . . . . . . . . . . . . . . . . 14,840 20,436 37.7%
Gross profit margin . . . . . . . . . . . . . . . . . 3.7% 3.8%
Operating income (loss) . . . . . . . . . . . . . . . (253) 472 --
STATISTICAL DATA:
Monthly revenue per worksite employee . . . . . . . . 3,095 3,375 9.0%
Monthly payroll cost per worksite employee . . . . . . 2,500 2,754 10.2%
Monthly gross markup per worksite employee . . . . . . 595 621 4.4%
Average number of worksite employees paid
per month during period . . . . . . . . . . . . . . 20,919 25,379 21.3%
REVENUES
The Company's revenues for the six months ended June 30, 1997 increased
32.9% over the same period in 1996 due to an increase in worksite employees
paid accompanied by an increase in the revenue per employee. The Company's
expansion of its sales force through new market and sales office openings over
the past three years is the primary factor contributing to the increased number
of worksite employees. The Company's new markets (defined as markets opened
after September 1993 - the commencement of the Company's national expansion
plan) contributed approximately $182 million of the Company's total revenues
for the first six months of 1997 versus approximately $99 million during the
same period of 1996. The Company added to its sales force in the Houston market
in January 1997 and entered the Los Angeles market with two sales office
openings during the second quarter and early third quarter of 1997 and expects
continued growth in the number of worksite employees during the remainder of
1997 versus 1996 due to the effect of sales in existing markets and the
Company's national expansion plan.
The increase in revenue per employee of 9.0% directly relates to the
increase in payroll cost per employee of 10.2%. This increase reflects the
continuing effects of the net addition, through the Company's sales efforts, of
clients with worksite employees that have a higher average base pay than the
existing client base.
- 17 -
18
GROSS PROFIT MARGIN
The Company's gross profit margin increased to 3.8% for the first six
months of 1997 versus 3.7% for the first six months of 1996. This slight
improvement reflects the Company's success in matching changes in the risk
sensitivity of its employee base with changes in its direct cost structure.
The continued addition of higher wage, less risk sensitive worksite
employees resulted in a decrease in markup per employee as a percent of revenue
from 19.2% in the first six months of 1996 to 18.4% in the first six months of
1997. The Company generally charges lower overall rates as a percentage of
gross payroll on higher wage, less risk sensitive employees, while attempting
to match the lower overall rates charged on these employees with reductions in
the cost of providing employee benefits and workers' compensation coverage as a
percent of revenue or payroll cost.
The cost of providing employee benefits, which includes workers'
compensation costs and benefit plan premiums, was lower in the first six months
of 1997 than in the first six months of 1996. Workers' compensation costs
decreased from 2.3% of payroll cost in the first six months of 1996 to 1.8% of
payroll cost in the first six months of 1997. This reduction was due to the
rate on the Company's fixed premium policy in effect during the 1997 period
being lower than the rate in place during the first six months of 1996.
Benefit plan premiums declined from 6.6% of revenue in the first six months of
1996 to 5.9% of revenue in the first six months of 1997. The lower costs
relative to revenue and payroll cost in both worker's compensation and benefit
plan premiums reflect the reduced risk sensitivity of the current composition
of the Company's client base as compared to the 1996 period.
Employment related taxes as a percent of payroll cost declined slightly
from 8.0% during the first six months of 1996 to 7.9% during the 1997 period.
This reduction reflects a net decrease in the weighted average state
unemployment tax rates paid by the Company as compared to the same period in
1996.
OPERATING EXPENSES
Operating expenses were comparable as a percent of revenue at 3.7% in the
first half of both years; however, the first half of 1997 includes the effects
of the bad debt charge. Excluding the effects of this charge, operating
expenses for the first half of 1997 were approximately 3.5% of revenue. Total
operating expenses increased 32.3% due to the bad debt charge, increased
compensation related costs (salaries, wages and payroll taxes and commissions)
which increased at a lower rate than the increase in revenues, increased other
general and administrative expenses, which increased in proportion with the
Company's revenue growth, and increased depreciation and amortization expense.
Advertising expenses were only slightly higher than the 1996 period.
The factors noted above include the effects of continued significant
operating expenses in new markets. Operating expenses incurred directly in new
markets (which include salaries, payroll taxes, recruiting and training costs
of newly hired sales associates, advertising and public relations costs and
- 18 -
19
general office expenses) totaled $3.8 million in the first six months of 1997
versus $3.0 million during the first six months of 1996.
Depreciation and amortization expense increased 36.0% versus the first
six months of 1996. This increase is primarily due to capital expenditures
related to a new corporate facility, placed into service in February 1996 and
affecting only part of the 1996 period, and capital expenditures related to the
opening of new sales offices and increases in corporate service capacity.
NET INCOME
Interest income increased significantly over the first six months of 1996
due to proceeds from the Company's initial public offering received in early
February 1997. Interest expense decreased $210,000 as reductions in interest
expense due to the repayment of the Company's outstanding indebtedness were
partially offset by the write off of deferred financing costs relating to the
repaid indebtedness.
The Company's provision for income taxes differs from the U.S. statutory
rate of 34% due primarily to state income taxes in the 1997 period. For the
six months ended June 30, 1996, the Company's provision for income tax benefit
was less than the U.S. statutory rate due to the effects of non-deductible
permanent differences.
As a result of the 32.9% increase in revenues, the 37.7% increase in
gross profit, the decrease in interest expense, and the increase in interest
income, partially offset by the effects of the bad debt charge, the Company's
net income for the six months ended June 30, 1997 increased to $927,000, or
$0.07 per share, versus a loss of $357,000, or a loss of $0.03 per share, for
the six months ended June 30, 1996.
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 including potential acquisitions, debt service requirements and other
operating cash needs. As a result of this process, the Company has sought in
the past, and may seek in the future, to raise additional capital or take other
steps to increase or manage its liquidity and capital resources. The Company
currently believes that its cash and marketable securities on hand, cash flows
from operations and available borrowing capacity under its Credit Agreement
will be adequate to meet its liquidity requirements through at least 1998. The
Company will rely on these same sources, as well as public and private debt and
equity financing, to meet its long-term liquidity needs.
The Company has $51.1 million in cash and cash equivalents and marketable
securities at June 30, 1997 which is available to the Company for general
corporate purposes, including, but not limited to, current working capital
requirements which may include acquisitions of existing PEO operations should
favorable acquisition opportunities arise, expenditures related to the
continued expansion
- 19 -
20
of the Company's sales force through the opening of new sales offices and
capital expenditures. The Company repaid all of its long-term debt during the
first quarter of 1997 utilizing the proceeds from its initial public offering
and has no long-term debt as of June 30, 1997. At June 30, 1997 the Company
had net working capital of $42.8 million which is significantly increased from
$4.6 million at December 31, 1996 due to the proceeds from the Company's
initial public offering.
CASH FLOWS FROM OPERATING ACTIVITIES
The Company's cash flows from operating activities for the first six
months of 1997 and 1996 decreased by $2.9 million due to a greater increase in
accounts receivable and unbilled receivables during the first six months of
1997 than the increase experienced during the first six months of 1996. In
addition, the timing of cash receipts for PEO service fees, the accrual of
unbilled receivables and accrued worksite employee payroll cost, and payments
of payroll taxes and payroll deductions at the end of reporting periods can
fluctuate significantly from period to period based on the timing of payroll
cycles and the due dates of payroll related obligations relative to the end of
the accounting period.
CASH FLOWS FROM INVESTING ACTIVITIES
Net purchases of marketable securities during the first six months of
1997 reflect the investment of a portion of the proceeds from the Company's
initial public offering in short-term, highly liquid marketable securities with
maturities greater than 90 days consisting primarily of debt securities issued
by corporate and governmental entities.
Capital expenditures during the first six months of 1997 were primarily
related to the opening of a new sales office in Houston in January 1997, the
opening of two new sales offices in the Los Angeles area in April and July
1997, and furniture, equipment, computer equipment and building improvements at
its corporate office facilities. Capital expenditures for the first six months
of 1996 consist primarily of costs to complete, furnish and equip a
Company-owned facility which was opened in February 1996.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows from financing activities during the first six months of 1997
consist primarily of items resulting from the completion of the Company's
initial public offering. Such offering was completed in January 1997. The net
proceeds to the Company from the offering (after deducting underwriting
discounts and commissions of $3.6 million) were $47.4 million. The Company
utilized approximately $7.1 million of the proceeds as follows: (i) $4.6
million to repay certain subordinated notes and other secured notes comprising
all of the Company's outstanding indebtedness at the time, (ii) approximately
$2.0 million to exercise its option to repurchase 348,945 shares of Common
Stock from one of its stockholders, which is now held in treasury by the
Company, and (iii) approximately $0.5 million to exercise its option to
repurchase 173,609 warrants to purchase shares of Common Stock from the
subordinated noteholder. Of the remaining proceeds, the Company currently
expects
- 20 -
21
to allocate approximately $12.0 million to support expansion of the Company's
operations, including the opening of sales offices in new geographic markets as
well as in established markets and, as favorable opportunities arise, expansion
of the Company's client base in new or existing markets through acquisitions of
existing PEO offices. The balance of the proceeds will be used for working
capital purposes. Pending the application of such funds, the Company has
invested the net proceeds of the offering in diversified, highly-liquid,
investment grade, interest-bearing instruments.
CREDIT AGREEMENT
In October 1995 the Company's wholly-owned subsidiary, Administaff of
Texas, Inc. ("Administaff of Texas"), entered into a $10 million revolving
credit agreement (the "Credit Agreement") with a bank. Such Credit Agreement
includes an agreement to issue standby letters of credit (in an amount not to
exceed a sublimit of $5,000,000). The Company is a guarantor under the Credit
Agreement. The Credit Agreement includes, among other covenants, a limitation
on the declaration and payment of dividends, a change of control provision and
other covenants customary in lending transactions of this type. At June 30,
1997 no borrowings were outstanding under the Credit Agreement. Borrowings
under the Credit Agreement bear interest at rates based on the bank's Corporate
Base Rate or LIBOR plus an applicable margin at the time of the borrowing.
OTHER MATTERS
During the third quarter of 1996, the Company recorded an accrual for its
estimate of the cost of corrective measures and penalties relating to the
401(k) Plan's failure to comply with certain nondiscrimination tests required
by the Code. See Note 6 of Notes to Consolidated Financial Statements. In
addition, during the third quarter of 1996, the Company recorded an asset for
an amount recoverable from the 401(k) Plan's record keeper should the Company
ultimately be required to pay the amount accrued for such corrective measures
and penalties. There has been no change in the amounts of the accrual or the
amount recoverable from the record keeper subsequent to December 31, 1996.
Based on its understanding of the settlement experience of other companies in
similar situations, the Company does not believe the ultimate resolution of
this 401(k) Plan matter will have a material adverse effect on the Company's
financial condition, results of operations or liquidity.
SEASONALITY, INFLATION AND QUARTERLY FLUCTUATIONS
The timing of the assessment of employment related taxes has a seasonal
effect on the Company's cash flows, with the Company generally having lower
cash flow from operations during the first six months of each year. As
individual worksite employees meet applicable wage limits for such taxes, the
Company's employment tax obligation declines which increases cash flows from
operations during the balance of the year.
The Company's operating results have historically fluctuated from quarter
to quarter. In addition, due to the timing of the assessment of employment
related taxes, the Company's gross profit
- 21 -
22
margin typically improves from quarter to quarter within each year with the
first quarter generally being the least favorable. Employment related taxes are
based on the cumulative earnings of individual employees up to a specified wage
level. 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 unemployment tax obligations has a substantial impact on
the Company's financial condition or results of operations during the first six
months of each year.
The Company believes the effects of inflation have not had a significant
impact on its results of operations or financial condition.
CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
The statements contained in this Quarterly Report on Form 10-Q which are
not historical facts are forward-looking statements that involve a number of
risks and uncertainties. In the normal course of business, the Company, in an
effort to help keep its stockholders and the public informed about its
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. All phases of the Company's operations are
subject to a number of uncertainties, risks and other influences. 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) changes in the competitive
environment in the PEO industry or new market entrants. 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.
- 22 -
23
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 that the
Company believes would not have a material adverse effect on its financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
An Annual Meeting of Stockholders of the Company was held on May 28,
1997. At the Meeting, holders of 12,274,366 shares of common stock were
present in person or by proxy, which constituted a quorum thereof. The vote of
stockholders in respect of the three proposals voted on at the Meeting, all of
which were approved, are set forth below:
1. Election of Class II Directors with terms expiring at the Annual
Meeting of Stockholders in 2000.
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
Paul J. Sarvadi 11,416,861 -- 857,505 --
Gerald M. McIntosh 11,417,861 -- 856,505 --
2. Amendment and restatement of the 1995 Administaff, Inc. Employee
Stock Option Plan, including an increase in the number of shares of
Common Stock reserved for issuance thereunder from 357,957 to
882,957 shares.
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
11,371,754 881,624 20,063 925
3. Ratification of Ernst & Young LLP as the Company's independent
auditors for the 1997 fiscal year.
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
12,267,775 2,176 2,915 1,500
ITEM 5. OTHER MATTERS.
Effective June 11, 1997, James W. Hammond resigned his position on the
Company's Board of Directors and his position as Senior Vice President of
Special Projects. Mr. Hammond continues to be an employee of the Company.
- 23 -
24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits
11.1 Statement Re: Computation of Per Share Income (Loss)
(b) Reports on Form 8-K
None
- 24 -
25
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: August 11, 1997 By: /s/ Richard G. Rawson
-----------------------------------
Richard G. Rawson
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: August 11, 1997 By: /s/ Samuel G. Larson
-------------------------------------
Samuel G. Larson
Vice President, Finance
(Principal Accounting Officer)
- 25 -
26
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
11.1 Statement Re: Computation of Per Share Income
(Loss) of Administaff, Inc.
27 Financial Data Schedule