- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q --------------- (MARK ONE) <TABLE> <C> <S> /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 </TABLE> FOR THE TRANSITION PERIOD FROM TO . ------------------------ COMMISSION FILE NUMBER 1-10427 ROBERT HALF INTERNATIONAL INC. (Exact name of registrant as specified in its charter) <TABLE> <S> <C> DELAWARE 94-1648752 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2884 SAND HILL ROAD 94025 SUITE 200 (zip-code) MENLO PARK, CALIFORNIA (Address of principal executive offices) </TABLE> Registrant's telephone number, including area code: (415) 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, 1996: 59,489,478 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) ASSETS: <TABLE> <CAPTION> SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ <S> <C> <C> (UNAUDITED) Cash and cash equivalents........................................................... $ 71,011 $ 41,346 Accounts receivable, less allowances of $3,809 and $3,067........................... 112,058 84,955 Other current assets................................................................ 11,165 7,349 ------------- ------------ Total current assets............................................................ 194,234 133,650 Intangible assets, less accumulated amortization of $37,072 and $33,071............. 159,611 155,441 Other assets........................................................................ 20,935 12,049 ------------- ------------ Total assets.................................................................... $ 374,780 $ 301,140 ------------- ------------ ------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable and accrued expenses............................................... $ 14,205 $ 12,631 Accrued payroll costs............................................................... 53,761 33,853 Income taxes payable................................................................ (979) 5,157 Current portion of notes payable and other indebtedness............................. 2,114 4,239 ------------- ------------ Total current liabilities....................................................... 69,101 55,880 Notes payable and other indebtedness, less current portion.......................... 2,604 1,486 Deferred income taxes............................................................... 16,261 15,844 ------------- ------------ Total liabilities............................................................... 87,966 73,210 STOCKHOLDERS' EQUITY: Common stock, $.001 par value authorized 100,000,000 shares; issued and outstanding 59,602,468 and 57,784,622 shares.................................................. 60 58 Capital surplus..................................................................... 138,372 99,768 Deferred compensation............................................................... (29,272) (9,642) Accumulated translation adjustments................................................. (213) 51 Retained earnings................................................................... 177,867 137,695 ------------- ------------ Total stockholders' equity...................................................... 286,814 227,930 ------------- ------------ Total liabilities and stockholders' equity...................................... $ 374,780 $ 301,140 ------------- ------------ ------------- ------------ </TABLE> All shares and amounts have been restated to retroactively reflect the two-for-one stock split effected in the form of a stock dividend in June 1996. The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 1
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> Net service revenues............................................. $ 232,950 $ 159,303 $ 639,838 $ 452,612 Direct costs of services, consisting of payroll, payroll taxes and insurance costs for temporary employees.................... 141,162 97,107 387,487 276,645 ---------- ---------- ---------- ---------- Gross margin..................................................... 91,788 62,196 252,351 175,967 Selling, general and administrative expenses..................... 63,983 43,358 176,133 123,251 Amortization of intangible assets................................ 1,356 1,190 4,025 3,496 Interest income.................................................. (609) (217) (1,577) (200) ---------- ---------- ---------- ---------- Income before income taxes....................................... 27,058 17,865 73,770 49,420 Provision for income taxes....................................... 11,112 7,402 30,361 20,603 ---------- ---------- ---------- ---------- Net income....................................................... $ 15,946 $ 10,463 $ 43,409 $ 28,817 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income per share............................................. $ .26 $ .18 $ .71 $ .49 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- </TABLE> All per share amounts have been restated to retroactively reflect the two-for-one stock split effected in the form of a stock dividend in June 1996. The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 2
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS) <TABLE> <CAPTION> NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1996 1995 ---------- ---------- (UNAUDITED) <S> <C> <C> COMMON STOCK--SHARES: Balance at beginning of period.......................................................... 57,784 56,304 Issuance of restricted stock, net....................................................... 636 296 Issuance of common stock for acquisitions............................................... 362 -- Repurchases of common stock............................................................. (175) (194) Exercises of stock options.............................................................. 995 774 ---------- ---------- Balance at end of period.............................................................. 59,602 57,180 ---------- ---------- ---------- ---------- COMMON STOCK--PAR VALUE: Balance at beginning of period.......................................................... $ 58 $ 56 Issuance of restricted stock, net....................................................... 1 -- Exercises of stock options.............................................................. 1 1 ---------- ---------- Balance at end of period.............................................................. $ 60 $ 57 ---------- ---------- ---------- ---------- CAPITAL SURPLUS: Balance at beginning of period.......................................................... $ 99,768 $ 82,655 Issuance of restricted stock, net--excess over par value................................ 24,335 3,290 Exercises of stock options--excess over par value....................................... 3,577 2,498 Tax benefits from exercises of stock options............................................ 10,692 2,444 ---------- ---------- Balance at end of period.............................................................. $ 138,372 $ 90,887 ---------- ---------- ---------- ---------- DEFERRED COMPENSATION: Balance at beginning of period.......................................................... $ (9,642) $ (5,533) Issuance of restricted stock, net....................................................... (24,336) (3,290) Amortization of deferred compensation................................................... 4,706 1,973 ---------- ---------- Balance at end of period.............................................................. $ (29,272) $ (6,850) ---------- ---------- ---------- ---------- ACCUMULATED TRANSLATION ADJUSTMENTS: Balance at beginning of period.......................................................... $ 51 $ (541) Translation adjustments................................................................. (264) 722 ---------- ---------- Balance at end of period.............................................................. $ (213) $ 181 ---------- ---------- ---------- ---------- RETAINED EARNINGS: Balance at beginning of period.......................................................... $ 137,695 $ 100,386 Issuance of common stock for acquisition................................................ 1,285 -- Repurchases of common stock--excess over par value...................................... (4,522) (1,884) Net income.............................................................................. 43,409 28,817 ---------- ---------- Balance at end of period.............................................................. $ 177,867 $ 127,319 ---------- ---------- ---------- ---------- </TABLE> All shares and amounts have been restated to retroactively reflect the two-for-one stock split effected in the form of a stock dividend in June 1996. The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 3
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) <TABLE> <CAPTION> NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1996 1995 ---------- ---------- (UNAUDITED) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................................................ $ 43,409 $ 28,817 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets....................................................... 4,025 3,496 Depreciation expense.................................................................... 4,396 2,489 Deferred income taxes................................................................... (1,128) 1,069 Changes in assets and liabilities, net of effects of acquisitions: Increase in accounts receivable....................................................... (25,530) (19,252) Increase in accounts payable, accrued expenses and accrued payroll costs.............. 20,934 13,520 Increase (decrease) in income taxes payable........................................... (6,136) 2,182 Change in other assets, net of change in other liabilities............................ (2,081) 1,987 ---------- ---------- Total adjustments..................................................................... (5,520) 5,491 ---------- ---------- Net cash and cash equivalents provided by operating activities............................ 37,889 34,308 CASH FLOWS USED IN INVESTING ACTIVITIES: Acquisitions, net of cash acquired...................................................... (1,038) (1,024) Capital expenditures.................................................................... (13,302) (5,957) ---------- ---------- Cash and cash equivalents used in investing activities.................................... (14,340) (6,981) CASH FLOWS USED IN FINANCING ACTIVITIES: Repurchases of common stock or common stock equivalents................................. (4,522) (1,884) Principal payments on notes payable and other indebtedness.............................. (3,632) (1,292) Proceeds and tax benefits from exercise of stock options................................ 14,270 4,943 ---------- ---------- Net cash and cash equivalents provided by financing activities............................ 6,116 1,767 ---------- ---------- Net decrease in cash and cash equivalents................................................. 29,665 29,094 Cash and cash equivalents at beginning of period.......................................... 41,346 2,638 ---------- ---------- Cash and cash equivalents at end of period................................................ $ 71,011 $ 31,732 ---------- ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest................................................................................ $ 434 $ 384 Income taxes............................................................................ $ 25,923 $ 6,393 Acquisitions: Assets acquired-- Intangible assets..................................................................... $ 4,155 $ 4,697 Other................................................................................. 1,713 753 Liabilities incurred-- Notes payable and contracts........................................................... (2,625) (2,800) Other................................................................................. (920) (1,626) Common stock issued..................................................................... (1,285) -- ---------- ---------- Cash paid, net of cash acquired......................................................... $ 1,038 $ 1,024 ---------- ---------- ---------- ---------- </TABLE> The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 4
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (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-Registered Trademark-, Robert Half-Registered Trademark-, OfficeTeam-Registered Trademark- and RHI Consulting-Registered Trademark-. The Company, through its Accountemps and Robert Half divisions, is the world's largest specialized provider of temporary and permanent personnel in the fields of accounting and finance. OfficeTeam specializes in skilled temporary administrative personnel and RHI Consulting provides contract information technology professionals. Revenues are predominantly from temporary services. The Company operates in the United States, Canada and Europe. 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. The company is a Delaware corporation. All significant intercompany balances have been eliminated. Certain reclassifications have been made to the 1995 financial statements to conform to the 1996 presentation. INTERIM FINANCIAL INFORMATION. The Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and, in management's opinion, include all adjustments necessary for a fair statement of results for such interim periods. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules or regulations; however, the Company believes that the disclosures made are adequate to make the information presented not misleading. The interim results for the three and nine months ended September 30, 1996, and 1995 are not necessarily indicative of results for the full year. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. REVENUE RECOGNITION. Temporary service revenues are recognized when the services are rendered by the Company's temporary employees. Permanent placement revenues are recognized when employment candidates accept offers of permanent employment. Reserves are established to estimate losses due to placed candidates not remaining in employment for the Company's guarantee period, typically 90 days. CASH AND CASH EQUIVALENTS. For purposes of the Consolidated Statements of Cash Flows, the Company classifies all highly-liquid investments with a maturity of three months or less as cash equivalents. INTANGIBLE ASSETS. Intangible assets represent the cost of acquired companies in excess of the fair market value of their net tangible assets at the acquisition date, and 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 exist at September 30, 1996. 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 rate. FOREIGN CURRENCY TRANSLATION. Foreign income statement items are translated at the monthly average exchange rates prevailing during the period. Foreign balance sheets are translated at the current exchange rates at the end of the period, and the related translation adjustments are recorded as part of Stockholders' 5
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996 (UNAUDITED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 comformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported 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. NOTE B--STOCK SPLIT In June 1996, the Company effected a two-for-one stock split in the form of a stock dividend. All share and per share amounts in the financial statements have been restated to retroactively reflect the two-for-one stock split. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR EACH OF THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 Temporary services revenues were $215 million and $146 million for the three months ended September 30, 1996 and 1995, respectively, increasing by 47% during the three months ended September 30, 1996 compared to the same period in 1995. Temporary services revenues were $589 million and $414 million for the nine months ended September 30, 1996 and 1995, respectively, increasing by 42% during the nine months ended September 30, 1996 compared to the same period in 1995. Permanent placement revenues were $18 million and $13 million for the three months ended September 30, 1996 and 1995, respectively, increasing by 38% during the three months ended September 30, 1996 compared to the same period in 1995. Permanent placement revenues were $51 million and $38 million for the nine months ended September 30, 1996 and 1995, respectively, increasing by 34% during the nine months ended September 30, 1996 compared to the same period in 1995. Overall revenue increases reflect continued improvement in demand for the Company's services, which the Company believes is a result of increased acceptance in the use of professional staffing services. Revenues from companies acquired during the nine months ended September 30, 1996 were not material. The Company currently has more than 190 offices in 36 states and five foreign countries. Domestic operations represented 91% of revenues for both the three and nine months ended September 30, 1996, and 90% of revenues for both the three and nine months ended September 30, 1995. Foreign operations represented 9% of revenues for both the three and nine months ended September 30, 1996, and 10% of revenues for both the three and nine months ended September 30, 1995. Gross margin dollars from the Company's temporary services represent revenues less direct costs of services, which consists of payroll, payroll taxes and insurance costs for temporary employees. Gross margin dollars from permanent placement services are equal to revenues, as there are no direct costs associated with such revenues. Gross margin dollars for the Company's temporary services were $74 million and $202 million for the three and nine months ended September 30, 1996, respectively, compared to $49 million and $138 million for the comparable periods in 1995, increasing by 51% and 46% for the three and nine months ended September 30, 1996, respectively. Gross margin amounts equaled 34% of revenues for temporary services for both the three and nine months ended September 30, 1996, compared to 34% and 33% of temporary service revenues for the three and nine months ended September 30, 1995, respectively, which the Company believes reflects its ability to adjust billing rates and wage rates to underlying market conditions. Gross margin dollars for the Company's permanent placement division were $18 million and $51 million for the three and nine months ended September 30, 1996, respectively, compared to $13 million and $38 million for the comparable periods in 1995, increasing by 38% and 34% for the three and nine months ended September 30, 1996, respectively. Selling, general and administrative expenses were $64 million and $176 million for the three and nine months ended September 30, 1996, respectively, compared to approximately $43 million and $123 million during the three and nine months ended September 30, 1995, respectively. Selling, general and administrative expenses as a percentage of revenues were 27% and 28% for the three and nine months ended September 30, 1996, respectively, compared to 27% for the same periods in 1995. Selling, general and administrative expenses consist primarily of staff compensation, advertising and occupancy costs, most of which generally follow changes in revenues. 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 strategy of making 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 7
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, 1996. Intangible assets represented 43% of total assets and 56% of total stockholders' equity at September 30, 1996. Interest income for the three months ended September 30, 1996 and 1995 was $783,000 and $381,000, respectively, while interest expense for the three months ended September 30, 1996 and 1995 was $174,000 and $164,000, respectively. Interest income for the nine months ended September 30, 1996 and 1995 was $2,006,000 and $739,000, respectively, while interest expense for the nine months ended September 30, 1996 and 1995 was $429,000 and $539,000, respectively. These changes reflect an increase in cash and cash equivalents and a decrease in outstanding indebtedness. The provision for income taxes for both the three and nine months ended September 30, 1996 was 41% compared to 41% for the three months ended September 30, 1995 and 42% for the nine months ended September 30, 1995. The decrease for the nine months ended September 30, 1996 compared to the nine months ended September 30, 1995 is the result of a smaller percentage of non-deductible intangible expenses relative to income. LIQUIDITY AND CAPITAL RESOURCES The change in the Company's liquidity during nine months ended September 30, 1996 is the net effect of funds generated by operations and the funds used for the personnel services acquisitions, capital expenditures and principal payments on outstanding notes payable. For the nine months ended September 30, 1996, the Company generated $37.9 million from operations, used $14.3 million in investing activities and provided $6.1 million by financing activities. The Company's working capital at September 30, 1996 included $71.0 million in cash and cash equivalents. In addition at September 30, 1996, the Company had available $68.8 million of its $75 million bank revolving line of credit. The Company's working capital requirements consist primarily of the 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, 1996, the Company had no material capital commitments. The Company's revolving bank line has scheduled reductions in availability through 2001 when the agreement terminates. In June 1996, the company effected a two-for-one stock split in the form of a stock dividend. All share and per share amounts in the financial statements have been restated to retroactively reflect the two-for-one stock split. In 1996, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". The adoption of SFAS No. 121 did not have a material impact upon the Company's financial statements. 8
PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. <TABLE> <CAPTION> EXHIBIT NO. - ------------- <S> <C> 3.1 Restated Certificate of Incorporation. 4.1 Restated Certificate of Incorporation (filed as Exhibit 3.1). 10.1 Outside Directors' Option Plan. 10.2 1989 Restricted Stock Plan. 10.3 StockPlus Plan. 10.4 1993 Incentive Plan. 10.5 1985 Stock Option Plan. 11 Computation of Per Share Earnings. 27 Financial Data Schedules. </TABLE> (b) The registrant filed no current report of Form 8-K during the quarter covered by this report. 9
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. ROBERT HALF INTERNATIONAL INC. (Registrant) By /s/ M. KEITH WADDELL ------------------------------------ M. Keith Waddell, SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER (PRINCIPAL FINANCIAL OFFICER AND DULY AUTHORIZED SIGNATORY) Date: November 13, 1996 10
INDEX TO EXHIBITS <TABLE> <CAPTION> SEQUENTIALLY NUMBER EXHIBIT NUMBERED PAGE - ------------- --------------------------------------------------------------------------- ------------------- <S> <C> <C> 3.1 Restated Certificate of Incorporation. 4.1 Restated Certificate of Incorporation (filed as Exhibit 3.1). 10.1 Outside Directors' Option Plan. 10.2 1989 Restricted Stock Plan. 10.3 StockPlus Plan. 10.4 1993 Incentive Plan. 10.5 1985 Stock Option Plan. 11 Computation of Per Share Earnings. 27 Financial Data Schedules. </TABLE>