Administaff - ADMINISTAFF ACHIEVES RECORD FOURTH QUARTER AND ANNUAL RESULTS

ADMINISTAFF ACHIEVES RECORD FOURTH QUARTER AND ANNUAL RESULTS

Annual revenues increase 39% to $1.7 billion
Annual earnings increase 23% in spite of costly initiatives

HOUSTON, TX – Feb. 24, 1999 – Administaff, Inc. (NYSE: ASF), a leading Professional Employer Organization (PEO), today announced record results for the fourth quarter and year ended December 31, 1998. For the fourth quarter, the company reported net income and diluted earnings per share of $3.9 million and $0.27, versus $3.6 million and $0.25 for the fourth quarter of 1997. For the year ended December 31, 1998, the company reported net income and diluted earnings per share of $9.1 million and $0.62, versus $7.4 million and $0.53 in 1997.

"Our 1998 results represent a record year in terms of revenue, operating income and net income," said Richard G. Rawson, executive vice president of administration and chief financial officer. "This is especially significant in light of the strategic initiatives we embarked on this year, including the development of our Internet service platform, the capacity increase in our technology infrastructure, and our continuing sales and service expansion."

For the year ended December 31, 1998, revenues increased 38.7% to $1.7 billion, primarily due to a 29.4% increase in the number of worksite employees paid. Gross profit increased 33.8% to $68.6 million. The average gross profit per worksite employee per month was $164 in 1998, compared to $159 in 1997, as the company was able to successfully match changes within its direct costs with increases in its comprehensive service fees for the year. Operating expenses increased

36.9% over 1997, and increased $7 per worksite employee per month, due to higher corporate and sales staff levels, increased use of consultants for technology related projects, and increased depreciation expense, partially offset by lower bad debt expense. As a result, operating income increased 19.8% to $11.2 million. This increase in operating income, combined with a 33.4% increase in interest and other income, resulted in a 22.6% increase in net income to $9.1 million.

"The company has made significant progress since completing our initial public offering two years ago, with revenues nearly double and earnings more than triple our 1996 results. We intend to continue to execute and refine the strategies that have produced these results with a mindset toward maximizing shareholder value for the long term," commented Paul J. Sarvadi, president and chief executive officer.

Revenues for the fourth quarter of 1998 increased 32.5% to $496 million, primarily due to a 29.0% increase in the number of worksite employees paid. Gross profit increased 25.4% to $21.1 million, with an average monthly gross profit per worksite employee of $186 in the 1998 period compared to $191 in the 1997 period. The decline in gross profit per employee resulted from a lower contribution from year-end compensation and the corresponding effect on the average payroll per worksite employee, combined with an increase in benefits costs. The year-over-year increase in average payroll per worksite employee was 5.5% for the fourth quarter of 1998, down from 9.0% for the nine months ended September 30, 1998. Operating expenses increased 32.4% over the fourth quarter of 1997, and increased approximately $4 per worksite employee per month, due to increased consulting fees, depreciation expense and rent expense, partially offset by lower client acquisition costs in the form of advertising and commissions. As a result, operating income for the fourth quarter of 1998 increased 8.7% to $5.4 million.

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 1998 results reflect the effects of this pattern.

Administaff will be hosting a conference call today at 11:00 a.m. EST to discuss these results. To listen in, call 1-800-360-0001.

Administaff provides small- to medium-sized businesses with a comprehensive Personnel Management System that includes 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. The company currently has 23 offices in 14 major markets and serves clients and worksite employees throughout the United States. For additional information, visit the company’s web site at www.administaff.com.

(NOTE: The statements contained in this press release that are not historical facts are forward-looking statements that involve a number of risks and uncertainties. Therefore, the actual results of future events described in such forward-looking statements could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are: (i) regulatory and tax developments; (ii) changes in the company’s direct costs and operating expenses; (iii) the effectiveness of the company’s sales and marketing efforts, including its marketing agreement with American Express, American Express’ ability to set qualified appointments and the company’s ability to convert those appointments into sales; (iv) the estimated costs and effectiveness of capital projects and investments in technology and infrastructure; (v) changes in the competitive environment in the PEO industry; and (vi) the effectiveness and estimated costs of the company’s Year 2000 conversion and contingency plans. These factors are described in further detail in the company’s filings with the Securities and Exchange Commission.)