ADMINISTAFF, INC. ANNOUNCES RECORD FOURTH QUARTER AND ANNUAL RESULTS

HOUSTON, TX – February 24, 1998 – Administaff, Inc., a leading Professional Employer Organization (PEO), today announced record results for the fourth quarter and year ended December 31, 1997. For the fourth quarter, the Company reported net income of $3.6 million, or $0.25 per share (diluted), versus $2.0 million, or $0.17 per share (diluted), for the fourth quarter of 1996. For the year ended December 31, 1997, the Company reported net income of $7.4 million, or $0.53 per share (diluted), versus $2.6 million, or $0.24 per share (diluted) in 1996.

Richard G. Rawson, Executive Vice President of Administration and Chief Financial Officer, said, ``We are extremely pleased with our accomplishments for 1997. In addition to the successful completion of our initial public offering, we achieved record revenues and earnings, and met or exceeded each of our financial benchmarks.''

For the fourth quarter and year ended December 31, 1997, revenues were $374 million and $1.2 billion, respectively, representing a 41.5% and 34.9% increase over the comparable 1996 periods. These increases are due primarily to growth in the number of worksite employees paid and higher revenue per worksite employee. Gross profit margin increased to 4.5% in the fourth quarter of 1997 compared to 4.4% in the fourth quarter of 1996. This increase resulted primarily from lower benefits and workers' compensation costs as a percentage of revenues during the 1997 period. Gross profit margin remained relatively unchanged at 4.2% for the year ended December 31, 1997 versus 1996. Operating expenses as a percentage of revenue were 3.2% in the fourth quarters of 1997 and 1996, and 3.5% for the years ended December 31, 1997 and 1996. As a result, operating income for the fourth quarter of 1997 increased 52.2% to $5.0 million. For the year ended December 31, 1997, operating income rose 44.3% to $9.3 million.

``1997 was a landmark year for Administaff,'' commented Paul J. Sarvadi, President and Chief Executive Officer. ``We successfully broadened nationwide awareness of the Administaff brand and surpassed our strategic growth objectives. These successes, combined with our newly formed marketing partnership with American Express, provide us with unique opportunities to further penetrate our target market.''

The Company generated net interest income of $767,000 and $2.6 million during the fourth quarter and year ended December 31, 1997, respectively, versus net interest income of $33,000 in the fourth quarter of 1996 and net interest expense of $263,000 for the year ended December 31, 1996. The 1997 results are attributable to investment of the net proceeds from the Company's initial public offering completed in January 1997.

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 largest in the first quarter and then decline over the course of the year. The fourth quarter 1997 results reflect the effects of this pattern.

Administaff is one of the nation's leading Professional Employer Organizations, providing 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, liability management, employee recruiting and selection, performance management, and training and development services to small and medium-sized businesses. The Company has 19 offices in 12 major markets and serves clients and worksite employees throughout the United States.

 

                     Three months ended               Year ended
                          December 31,                December 31,
                        1997     1996   Change      1997      1996    Change
    Operating results:
      Revenues      $374,010  $264,344  41.5% $1,213,620   $899,596    34.9%
      Gross profit    16,805    11,731  43.3%     51,269     37,856    35.4%
      Operating income 4,953     3,254  52.2%       9,346(a)  6,477    44.3%
      Net income       3,589     1,989  80.4%       7,439(a)  2,603(b)185.8%
      Net income per share:
        Basic          $0.26     $O.19  36.8%       $0.56(a)  $0.24(b)133.3%
        Diluted        $0.25     $0.17  47.1%       $0.53(a)  $0.24(b)120.8%
    Weighted average
      common shares
      outstanding:
      Basic           13,798    10,726     –     13,298     10,726       –
      Diluted         14,169    11,603     –     13,922     11,595       –
 

• (a) Excluding the effects of a second quarter 1997 bad debt charge, operating income, net income and basic and diluted net income per share would have been $10.7 million, $8.3 million, $0.62 and $0.59, respectively, for the year ended December 31, 1997.
• (b) Excluding the effects of a non-recurring third quarter 1996 charge related to 401(k) Plan compliance, net income and basic and diluted net income per share would have been $3.8 million, $0.35, and $0.34, respectively, for the year ended December 31, 1996.

     Statistical data:
      Monthly revenue per
        worksite employee  $3,679  $3,301   11.5%   $3,492    $3,166   10.3%
      Monthly payroll cost
        per worksite
        employee            3,012   2,676   12.6%    2,855     2,562   11.4%
      Monthly gross
        markup per
        worksite employee     667     625    6.7%      637       604    5.5%
      Average number of
        worksite employees
        paid per month     29,265  23,776   23.1%   26,907    22,234   21.0%
        during period

                                        December 31,         December 31,
                                          1997                   1996
    Balance Sheet Data:
      Working capital                    $46,611                  $4,629
      Total assets                       109,455                  48,376
      Total debt                                      –        4,603
      Total stockholders' equity        63,763                  13,292
 

NOTE: The statements contained in this press release which are not historical facts are forward-looking statements that involve a number of risks and uncertainties. Therefore, the actual results of future events described in such forward-looking statements could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially include regulatory and tax developments, competitive activities and increases in direct costs and operating expense, which are described in further detail in the Company's filings with the Securities and Exchange Commission.