SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
For the transition period from to .
Commission file number 1-10427
ROBERT HALF INTERNATIONAL INC. (Exact name of registrant as specified in its charter)
Registrant's telephone number, including area code: (650) 234-6000
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) had been subject to such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of September 30, 2001:
175,382,503 shares of $.001 par value Common Stock
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in thousands, except share amounts)
The accompanying Notes to Consolidated Financial Statements arean integral part of these financial statements.
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ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME(in thousands, except per share amounts)
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Unaudited)
Note A—Summary of Significant Accounting Policies
Nature of Operations. Robert Half International Inc. (the "Company") provides specialized staffing services through such divisions as Accountemps®, Robert Half®, OfficeTeam®, RHI Consulting®, RHI Management Resources®, The Affiliates®, and The Creative Group®. The Company, through its Accountemps, Robert Half, and RHI Management Resources divisions, is the world's largest specialized provider of temporary, full-time, and project professionals in the fields of accounting and finance. OfficeTeam specializes in highly skilled temporary administrative support personnel. RHI Consulting provides information technology professionals. The Affiliates provides temporary, project, and full-time staffing of attorneys and specialized support personnel within law firms and corporate legal departments. The Creative Groupprovides project staffing in the advertising, marketing, and web design fields. Revenues are predominantly from temporary services. The Company operates in the United States, Canada, Europe, Australia, and New Zealand. The Company is a Delaware corporation.
Principles of Consolidation. The Consolidated Financial Statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany balances have been eliminated. Certain reclassifications have been made to the 2000 financial statements to conform to the 2001 presentation.
Revenue Recognition. Temporary and consultant staffing services revenues are recognized when the services are rendered by the Company's temporary employees. Permanent placement staffing revenues are recognized when employment candidates accept offers of permanent employment. Allowances are established to estimate losses due to placed candidates not remaining employed for the Company's guarantee period, typically 90 days.
Cash and Cash Equivalents. The Company considers all highly liquid investments with a maturity of three months or less as cash equivalents.
Intangible Assets. Intangible assets primarily consist of the cost of acquired companies in excess of the fair market value of their net tangible assets at acquisition date, which are being amortized on a straight-line basis over a period of 40 years. The carrying value of intangible assets is periodically reviewed by the Company and impairments are recognized when the expected future operating cash flows derived from such intangible assets are less than their carrying value. Based upon its most recent analysis, the Company believes that no material impairment of intangible assets existed at September 30, 2001.
Income Taxes. Deferred taxes are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rates.
Foreign Currency Translation. The results of operations of the Company's foreign subsidiaries are translated at the monthly average exchange rates prevailing during the period. The financial position of the Company's foreign subsidiaries is translated at the current exchange rates at the end of the period, and the related translation adjustments are recorded as a component of comprehensive income within Stockholders' Equity. Gains and losses resulting from foreign currency transactions are included in the Consolidated Statements of Income.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported
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amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Property and Equipment. Property and equipment are recorded at cost. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the life of the related asset or the life of the lease.
Advertising Costs. The Company expenses all advertising costs as incurred.
Note B—Net Income Per Share
The calculation of net income per share for the three and nine months ended September 30, 2001 and 2000 is reflected in the following table (in thousands, except per share amounts):
Note C—Business Segments
The Company has two reportable segments: temporary and consultant staffing, and permanent placement staffing. The temporary and consultant staffing segment provides specialized personnel in the accounting and finance, administrative and office, information technology, legal, advertising, marketing, and web design fields. The permanent placement staffing segment provides full-time personnel in the accounting, finance, and information technology fields.
The accounting policies of the segments are the same as those described in Note A: Summary of Significant Accounting Policies. The Company evaluates performance based on profit or loss from operations before interest expense, intangible amortization expense, and income taxes.
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The following table provides a reconciliation of revenue and operating profit by reportable segment to consolidated results (in thousands):
Note D—New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. Under SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. The Company will adopt SFAS No. 142 on January 1, 2002, resulting in the discontinuance of the amortization of certain intangible assets currently amortized over 40 years. Upon adoption of SFAS No. 142, the Company expects to stop recording amortization expense of approximately $1.3 million per quarter. The methods used for evaluating and measuring impairment of certain intangible assets will change. While the Company has not applied the new impairment analysis, it is not expected to have a material effect on the financial statements.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Certain information contained in Management's Discussion and Analysis and in other parts of this report may be deemed forward-looking statements regarding events and financial trends that may affect the Company's future operating results or financial positions. These statements may be identified by words such as "estimate", "forecast", "project", "plan", "intend", "believe", "expect", "anticipate", or variations or negatives thereof or by similar or comparable words or phrases. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. These risks and uncertainties include, but are not limited to, the following: changes in levels of unemployment and other economic conditions in the U.S. or foreign countries where the Company does business, or in particular regions or industries; reduction in the supply of qualified candidates for temporary employment or the Company's ability to attract qualified candidates; the entry of new competitors into the marketplace or expansion by existing competitors; the ability of the Company to maintain existing client relationships and attract new clients in the context of changing economic or competitive conditions; the impact of competitive pressures, including any change in the demand for the Company's services, on the Company's ability to maintain its profit margins; the possibility of the Company incurring liability for the activities of its temporary employees or for events impacting its temporary employees on clients' premises; the success of the Company in attracting, training and retaining qualified management personnel and other staff employees; and whether governments will impose additional regulations or licensing requirements on personnel services businesses in particular or on employer/employee relationships in general. Because long-term contracts are not a significant part of the Company's business, future results cannot be reliably predicted by considering past trends or extrapolating past results.
Results of Operations for Each of the Three Months and Nine Months Ended September 30, 2001 and 2000
Temporary and consultant staffing services revenues were $535 million and $623 million for the three months ended September 30, 2001 and 2000, respectively, decreasing by 14% during the three months ended September 30, 2001 compared to the same period in 2000. Temporary and consultant staffing services revenues were $1.8 billion for both the nine months ended September 30, 2001 and 2000. Permanent placement staffing revenues were $40 million and $66 million for the three months ended September 30, 2001 and 2000, respectively, decreasing by 39% during the three months ended September 30, 2001 compared to the same period in 2000. Permanent placement staffing revenues were $159 million and $190 million for the nine months ended September 30, 2001 and 2000, respectively, decreasing by 16% during the nine months ended September 30, 2001 compared to the same period in 2000. Results were impacted by the weakening economy.
As of September 30, 2001, the Company had more than 330 offices in 41 states and the District of Columbia and ten foreign countries. Revenues from domestic operations represented 84% and 86% of revenues for the three and nine months ended September 30, 2001, respectively, and 89% of revenues for both the three and nine months ended September 30, 2000. Revenues from foreign operations represented 16% and 14% of revenues for the three and nine months ended September 30, 2001, respectively, and 11% of revenues for both the three and nine months ended September 30, 2000.
Gross margin dollars from the Company's temporary and consultant staffing services represent revenues less direct costs of services, which consist of payroll, payroll taxes and insurance costs for temporary employees. Gross margin dollars from permanent placement staffing services are equal to revenues, as there are no direct costs associated with such revenues. Gross margin dollars for the Company's temporary and consultant staffing services were $191 million and $655 million for the three and nine months ended September 30, 2001, respectively, compared to $230 million and $667 million for the comparable periods in 2000, decreasing by 17% for the three months ended September 30, 2001, and decreasing by 2% for the nine months ended September 30, 2001. Gross margin amounts equaled 36% and 37% of revenues for temporary and consultant staffing services for the three and nine months ended
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September 30, 2001, respectively, compared to 37% of temporary and consultant staffing service revenues for both the three and nine months ended September 30, 2000, which the Company believes reflects its ability to adjust billing rates and wage rates to underlying market conditions. Gross margin amounts for the three months ended September 30, 2001 were impacted by lower temporary-to-permanent conversion fees. Gross margin dollars for the Company's permanent placement staffing division were $40 million and $159 million for the three and nine months ended September 30, 2001, respectively, compared to $66 million and $190 million for the comparable periods in 2000, decreasing by 39% and 16% for the three and nine months ended September 30, 2001, respectively.
Selling, general and administrative expenses were $194 million and $641 million for the three and nine months ended September 30, 2001, respectively, compared to $220 million and $636 million during the three and nine months ended September 30, 2000, respectively. The decrease in the three months ended September 30, 2001 primarily reflects lower compensation costs due to lower revenues. Selling, general and administrative expenses as a percentage of revenues were 34% and 33% for the three and nine months ended September 30, 2001, respectively, compared to 32% for both the three and nine months ended September 30, 2000. Selling, general and administrative expenses consist primarily of staff compensation, advertising, depreciation, and occupancy costs.
The Company allocates the excess of cost over the fair market value of the net tangible assets first to identifiable intangible assets, if any, and then to goodwill. Although management believes that goodwill has an unlimited life, the Company amortizes these costs over 40 years. Management believes that its previous acquisitions of established companies in established markets and maintaining its presence in these markets preserves the goodwill for an indeterminate period. The carrying value of intangible assets is periodically reviewed by the Company and impairments are recognized when the expected future operating cash flows derived from such intangible assets is less than their carrying value. Based upon its most recent analysis, the Company believes that no material impairment of intangible assets existed at September 30, 2001. Net intangible assets represented 16% of total assets and 21% of total stockholders' equity at September 30, 2001.
Interest income for the three months ended September 30, 2001 and 2000 was $2.4 million and $3.3 million respectively. Interest expense for both the three months ended September 30, 2001 and 2000 was $.2 million. Interest income for the nine months ended September 30, 2001 and 2000 was $7.5 million and $7.7 million respectively, while interest expense for the nine months ended September 30, 2001 and 2000 was $.6 million and $.7 million, respectively.
The provision for income taxes was 38% for both the three and nine months ended September 30, 2001, and 38% for both the three and nine months ended September 30, 2000.
Liquidity and Capital Resources
The change in the Company's liquidity during the nine months ended September 30, 2001 is the net effect of funds generated by operations and the funds used for capital expenditures, repurchases of common stock, and principal payments on outstanding notes payable. As of September 30, 2001, the Company has authorized the repurchase, from time to time, of up to 28 million shares of the Company's common stock on the open market or in privately negotiated transactions, depending on market conditions. During the nine months ended September 30, 2001, the Company repurchased approximately 4.2 million shares of common stock on the open market bringing the total shares repurchased under the authorization to 19.9 million. Repurchases of the securities have been funded with cash generated from operations. For the nine months ended September 30, 2001, the Company generated $224 million from operations, used $74 million in investing activities and used $88 million in financing activities.
The Company's working capital at September 30, 2001, included $301 million in cash and cash equivalents. In addition at September 30, 2001, the Company had available $75 million of its $80 million bank revolving line of credit. The Company's working capital requirements consist primarily of the
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financing of accounts receivable. While there can be no assurances in this regard, the Company expects that internally generated cash plus the bank revolving line of credit will be sufficient to support the working capital needs of the Company, the Company's fixed payments, and other obligations on both a short and long-term basis. As of September 30, 2001, the Company had no material capital commitments.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk sensitive instruments do not subject the Company to material market risk exposures.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(b) The registrant filed no current report on Form 8-K during the quarter covered by this report.
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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.
Date: November 7, 2001
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