Continuing a Record-Setting Trend   During 1999, Administaff posted revenues of $2.3 billion, a 34 percent increase over 1998. Our net income rose to $9.4 million, and diluted earnings per share climbed to $0.68. We also increased the average monthly number of paid worksite employees to 42,479, a 22 percent increase over the previous year, and started 2000 with over 48,000 worksite employees, compared to approximately 38,000 at the start of 1999.

Growth   During 1999, we continued our national expansion plan toward a goal of 90 offices in 40 major markets by opening a second San Francisco office and two sales offices in New York City. We now have a total of 25 offices in 15 of our targeted markets. In the third quarter, we also opened our third service center. This newest center, which is based in Atlanta, is already serving over 500 Administaff clients. For 2000, we intend to continue our plan of opening approximately one new sales office per quarter.

During 1999, the Company opened a new service center in Atlanta, two new sales offices in New York City and a second San Francisco sales office.  With these additions, Administaff has 25 sales offices and three service centers in 15 major markets.

A recent survey by Watson Wyatt Worldwide revealed that companies which viewed their people strategy as a significant source of competitive advantage reported more than twice the shareholder return of companies that did not. The same survey revealed that almost half of the companies responding do not have a formal strategy for recruiting, and even more employers do not have a formal strategy for retaining employees once they have been successfully recruited. Administaff is perfectly positioned to help businesses turn these challenges into a competitive advantage.

Primary Goals    As we move into the new millennium, the convergence of our business momentum, increasing client base and technological innovations are helping us achieve our four primary goals:
• To be the recognized industry leader.
• To serve the top 10 percent of the small business community.
• To be a delivery channel to the best small businesses.
• To balance growth and profitability.

Capitalizing On Our Strengths
Administaff's Basic Business Model   We have proven the business model surrounding our core PEO services. That model consists of growth through the systematic expansion of our sales force by opening new sales offices in new geographic markets, and service through a high tech/high touch approach that combines personalized service with the latest available technology. This model has produced consistent and rewarding financial results for several years, while allowing the Company to continue to invest in improvements and enhancements to our business. Over the past five years, revenues have tripled, growing at an average annual compound rate of 33 percent. This growth has come almost entirely from adding clients through direct sales and helping them grow their businesses, rather than from business acquisitions.

Quest for Service Excellence   As an organization of dedicated people, Administaff is committed to providing the highest quality PEO services to our target market. We are continuing to develop Administaff Assistant, our Internet-based service delivery platform, to simplify the transactional components of our service. At the same time, we expect that further enhancements to Administaff Assistant will allow our service professionals to focus more on the high-touch interpersonal communications that are essential for building strong business relationships.

Commitment to Strong Business Relationships   Our commitment to clients is also focused on building relationships with five distinct groups within our client companies -- client owners, payroll contacts, managers and supervisors, employees, and employees' families. We are committed to adding features to our Personnel Management System, Administaff Assistant, and other eBusiness initiatives to increase the overall value to those groups, resulting in stronger relationships with our clients and worksite employees. We believe this will increase client retention and enhance the attractiveness of the Company's core PEO services.

Integrating High Tech With High Touch   Two years ago we began developing and implementing a technology strategy that would make it easier and more convenient for clients to conduct routine transactions with the Company. The Internet continues to provide the perfect interface for these transactions in a manner that can improve efficiency and lower costs.

Deploying An eBusiness Stategy
Our eBusiness objective is to establish an online community that will create a shared advantage for Administaff, our network of best-of-class providers, our clients, employees, and employees' families.

Administaff Assistant   Our first eBusiness initiative was Administaff Assistant, our eService delivery platform. In 1999, we deployed the first phase of web-based payroll submission and web delivery of standardized reports. We expect to add significant functionality to Administaff Assistant in 2000, including web-based training for clients and employees, online forms submission, online recruiting and enrollment, online job descriptions, online employee handbooks, online time and attendance records, the ability to personalize information for individuals, and further enhancements to our web payroll module.

Our eCommerce Portal   The second component of our eBusiness strategy, scheduled for release near the end of the first quarter of 2000, is the launch of our multi-purpose eCommerce portal. One of the primary goals for this site is to provide clients with business solutions from a best-of-class provider network. We believe there are a number of business providers that recognize Administaff's base of small business clients as a well-defined, attractive target market for their services. We have already announced several alliances and expect to form additional relationships with premier providers to bring our clients additional leverage in buying the products and services necessary for success. Besides providing added value to our clients, we anticipate many of these alliances will have the potential to produce additional sources of revenue for Administaff.

Providing Administaff Content for Other Web Sites    A third element of our eBusiness strategy calls for us to exchange content with other Internet sites and service providers used by our target market. We believe that providing content for selected sites will further extend the Administaff brand, position us as the human resource solution for small business, and accelerate the sales process.

The Role of Luminant Worldwide in Our eBusiness Strategy   In November 1999, we announced a strategic alliance with Luminant Worldwide Corporation, a leading provider of Internet and electronic commerce solutions. Luminant will provide Administaff with a broad range of eBusiness consulting services, including strategic planning, development, and implementation of our eService and eCommerce initiatives. Luminant is also a rapidly growing Administaff client that will assist us in refining our service model for clients with more than 500 employees.

Current Alliance Partners
In addition to our three-year strategic alliance with Luminant, Administaff has entered into strategic or marketing alliances with seven other companies to date. They include:

American Express   Over the course of 1999, we increased the efficiency of our alliance with American Express to account for 26 percent of our new clients. We are now in a position to leverage this channel for new business even further and expect to extend our relationship to include American Express products and services within our eCommerce portal.

IBM   In January 2000, we announced the establishment of an eBusiness relationship with IBM to give small businesses access to the very latest eBusiness services and consulting via the Web. Under the terms of our agreement, IBM Global Services will collaborate in the construction and management of our eCommerce portal. We will also be working with IBM Global Services and the IBM Global Small Business Unit to jointly market IBM's Small Business WebConnections^TM and other eBusiness services to our clients. The relationship with IBM represents a significant step in the expansion of our eBusiness strategy, and will expedite and enhance the process of developing our new best-of-class provider network.

Aon Enterprise Insurance Services, Inc.   In January 2000, we also announced the signing of a letter of intent for the formation of a strategic alliance with Aon Enterprise Insurance Services, Inc., a subsidiary of Aon Corporation. Through this alliance, Aon will offer an array of property and casualty insurance products to Administaff clients through a customized web site and its new state-of-the-art Client Service Center. Through Aon Enterprise, Administaff clients will have access to expedited insurance underwriting and economies that provide added value to small business owners.

Forrester Research    In January 2000, we announced an alliance with Forrester Research, the premier source of research and analysis on the global Internet economy. This alliance will provide Administaff's client companies access to Forrester's Baseline Research and Baseline Forecast products, as well as Forrester PowerRankings^TM   -- unbiased rankings of the leading eCommerce sites -- through the Administaff eCommerce portal. As the Internet becomes an increasingly important tool for our clients, they will be able to benefit from the unparalleled research Forrester provides.

works.com    In February 2000, we announced an alliance with works.com, a leading Internet business purchasing service, to provide Administaff clients and worksite employees with direct access to works.com's state-of-the-art online purchasing management system. Administaff will create a co-branded entry page on our eCommerce portal through which our clients can link directly to works.com to automate the purchasing of over 30,000 business products and receive volume discounts on the products they use the most. This alliance will provide a new solution to help Administaff clients streamline the purchasing process, improve cost control, and save valuable time and money.

Accompany    Also in February 2000, we announced an alliance with Accompany, a leader in group buying on the Internet, to provide Administaff clients and worksite employees with Accompany's networked buying service for purchasing business and personal products. This alliance calls for us to promote and provide access to Accompany's Get It Together Network^SM, while Accompany will promote key features of Administaff's personnel management services on its web site. Accompany's innovative service is a perfect fit for our growing base of small and medium-sized businesses and worksite employees, allowing a sizeable group of buyers to work together to purchase the products they want at discounted prices.

Dell    Since forming our alliance with Dell in April 1998, several hundred Administaff clients have taken advantage of Dell's Preferred Purchasing agreement through Administaff. This agreement allows Administaff clients and worksite employees to purchase select Dell products at discounted prices.

Momentum Going Into 2000
We have entered 2000 with solid business momentum, critical mass in the size of our client base, and the technological resources required to continue meeting our goals. I believe we are uniquely positioned to help small businesses leverage their productivity and profitability in our dynamic economy. I am confident that the support and dedication of Administaff's Board of Directors, management, employees, suppliers, and alliance partners will help us continue that record of success as we strive to set the standard for serving others.