- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . ------------------------ COMMISSION FILE NUMBER 1-10427 ROBERT HALF INTERNATIONAL INC. (Exact name of registrant as specified in its charter) DELAWARE 94-1648752 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2884 SAND HILL ROAD SUITE 200 MENLO PARK, CALIFORNIA (Address of principal executive 94025 offices) (zip-code) 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, 1997: 90,957,694 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) <TABLE> <CAPTION> SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ <S> <C> <C> (UNAUDITED) ASSETS: Cash and cash equivalents........................................................... $ 130,795 $ 80,181 Accounts receivable, less allowances of $6,425 and $4,016........................... 173,030 125,383 Other current assets................................................................ 17,658 12,184 ------------- ------------ Total current assets............................................................ 321,483 217,748 Intangible assets, less accumulated amortization of $44,364 and $39,461............. 173,420 174,663 Other assets........................................................................ 42,246 23,601 ------------- ------------ Total assets.................................................................... $ 537,149 $ 416,012 ------------- ------------ ------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable and accrued expenses............................................... $ 21,262 $ 15,049 Accrued payroll costs............................................................... 90,665 66,087 Income taxes payable................................................................ 7,842 3,883 Current portion of notes payable and other indebtedness............................. 3,594 1,542 ------------- ------------ Total current liabilities....................................................... 123,363 86,561 Notes payable and other indebtedness, less current portion.......................... 4,829 5,069 Deferred income taxes............................................................... 15,994 15,937 ------------- ------------ Total liabilities............................................................... 144,186 107,567 Stockholders' Equity: Common stock, $.001 par value authorized 160,000,000 shares; issued and outstanding 90,969,384 and 89,622,256 shares.................................................. 91 90 Capital surplus..................................................................... 178,757 140,443 Deferred compensation............................................................... (35,332) (26,802) Accumulated translation adjustments................................................. (1,079) 23 Retained earnings................................................................... 250,526 194,691 ------------- ------------ Total stockholders' equity...................................................... 392,963 308,445 ------------- ------------ Total liabilities and stockholders' equity...................................... $ 537,149 $ 416,012 ------------- ------------ ------------- ------------ </TABLE> All shares and amounts have been restated to retroactively reflect the three-for-two stock split effected in the form of a stock dividend in September 1997. 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, ---------------------- ---------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> Net service revenues............................................. $ 339,754 $ 232,950 $ 934,399 $ 639,838 Direct costs of services, consisting of payroll, payroll taxes and insurance costs for temporary employees.................... 204,554 141,162 563,165 387,487 ---------- ---------- ---------- ---------- Gross margin..................................................... 135,200 91,788 371,234 252,351 Selling, general and administrative expenses..................... 93,411 63,983 257,281 176,133 Amortization of intangible assets................................ 1,233 1,356 3,693 4,025 Interest income.................................................. (1,154) (609) (2,840) (1,577) ---------- ---------- ---------- ---------- Income before income taxes....................................... 41,710 27,058 113,100 73,770 Provision for income taxes....................................... 17,079 11,112 46,339 30,361 ---------- ---------- ---------- ---------- Net income....................................................... $ 24,631 $ 15,946 $ 66,761 $ 43,409 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income per share............................................. $ .26 $ .17 $ .71 $ .47 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- </TABLE> All per share amounts have been restated to retroactively reflect the three-for-two stock split effected in the form of a stock dividend in September 1997. 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, ---------------------- 1997 1996 ---------- ---------- (UNAUDITED) <S> <C> <C> COMMON STOCK--SHARES: Balance at beginning of period.......................................................... 89,622 86,677 Issuance of restricted stock............................................................ 483 955 Repurchases of common stock............................................................. (413) (263) Exercises of stock options.............................................................. 1,263 1,492 Issuance of common stock for acquisitions............................................... 14 544 ---------- ---------- Balance at end of period.............................................................. 90,969 89,405 ---------- ---------- ---------- ---------- COMMON STOCK--PAR VALUE: Balance at beginning of period.......................................................... $ 90 $ 87 Issuance of restricted stock............................................................ -- 1 Exercises of stock options.............................................................. 1 1 ---------- ---------- Balance at end of period.............................................................. $ 91 $ 89 ---------- ---------- ---------- ---------- CAPITAL SURPLUS: Balance at beginning of period.......................................................... $ 140,443 $ 99,739 Issuance of restricted stock--excess over par value..................................... 17,251 24,335 Exercises of stock options--excess over par value....................................... 4,885 3,577 Issuance of common stock for acquisition................................................ 400 -- Tax benefits from exercises of stock options and restricted stock vesting............... 15,778 10,692 ---------- ---------- Balance at end of period.............................................................. $ 178,757 $ 138,343 ---------- ---------- ---------- ---------- DEFERRED COMPENSATION: Balance at beginning of period.......................................................... $ (26,802) $ (9,642) Issuance of restricted stock............................................................ (17,251) (24,336) Amortization of deferred compensation................................................... 8,721 4,706 ---------- ---------- Balance at end of period.............................................................. $ (35,332) $ (29,272) ---------- ---------- ---------- ---------- ACCUMULATED TRANSLATION ADJUSTMENTS: Balance at beginning of period.......................................................... $ 23 $ 51 Translation adjustments................................................................. (1,102) (264) ---------- ---------- Balance at end of period.............................................................. $ (1,079) $ (213) ---------- ---------- ---------- ---------- RETAINED EARNINGS: Balance at beginning of period.......................................................... $ 194,691 $ 137,695 Issuance of common stock for acquisition................................................ -- 1,285 Repurchases of common stock--excess over par value...................................... (10,926) (4,522) Net income.............................................................................. 66,761 43,409 ---------- ---------- Balance at end of period.............................................................. $ 250,526 $ 177,867 ---------- ---------- ---------- ---------- </TABLE> All shares and amounts have been restated to retroactively reflect the three-for-two stock split effected in the form of a stock dividend in September 1997. 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, ---------------------- 1997 1996 ---------- ---------- (UNAUDITED) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................................................ $ 66,761 $ 43,409 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets....................................................... 3,693 4,025 Depreciation expense.................................................................... 8,995 4,396 Deferred income taxes................................................................... (4,946) (1,128) Changes in assets and liabilities, net of effects of acquisitions: Increase in accounts receivable....................................................... (47,158) (25,530) Increase in accounts payable, accrued expenses and accrued payroll costs.............. 29,900 20,934 Increase (decrease) in income taxes payable........................................... 3,959 (6,136) Change in other assets, net of change in other liabilities............................ 9,014 (2,081) ---------- ---------- Total adjustments..................................................................... 3,457 (5,520) ---------- ---------- Net cash and cash equivalents provided by operating activities............................ 70,218 37,889 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, net of cash acquired...................................................... (3,338) (1,038) Capital expenditures.................................................................... (24,550) (13,302) ---------- ---------- Net cash and cash equivalents used in investing activities................................ (27,888) (14,340) CASH FLOWS FROM FINANCING ACTIVITIES: Repurchases of common stock or common stock equivalents................................. (10,926) (4,522) Principal payments on notes payable and other indebtedness.............................. (1,454) (3,632) Proceeds and tax benefits from exercise of stock options and restricted stock vesting... 20,664 14,270 ---------- ---------- Net cash and cash equivalents provided by financing activities............................ 8,284 6,116 ---------- ---------- Net increase in cash and cash equivalents................................................. 50,614 29,665 Cash and cash equivalents at beginning of period.......................................... 80,181 41,346 ---------- ---------- Cash and cash equivalents at end of period................................................ $ 130,795 $ 71,011 ---------- ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest................................................................................ $ 348 $ 434 Income taxes............................................................................ $ 29,805 $ 25,923 Acquisitions: Fair value of assets acquired-- Intangible assets..................................................................... $ 4,079 $ 4,155 Other................................................................................. 499 1,713 Liabilities incurred-- Notes payable and contracts........................................................... (536) (2,625) Other................................................................................. (304) (920) Common stock issued..................................................................... (400) (1,285) ---------- ---------- Cash paid, net of cash acquired......................................................... $ 3,338 $ 1,038 ---------- ---------- ---------- ---------- </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, 1997 (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-, RHI CONSULTING-REGISTERED TRADEMARK- and RHI MANAGEMENT RESOURCES-REGISTERED TRADEMARK-. The Company, through its Accountemps, Robert Half, and RHI Management Resources 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. RHI Consulting provides contract information technology professionals. RHI Management Resources places senior-level accounting and financial professionals on longer term, more complex projects lasting for several months to a year or longer. 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. All significant intercompany balances have been eliminated. Certain reclassifications have been made to the 1996 financial statements to conform to the 1997 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, 1997, and 1996 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, 1996. 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 existed at September 30, 1997. 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. 5
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1997 (UNAUDITED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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' 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 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--NEW ACCOUNTING PRONOUNCEMENTS In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting No. 128 (SFAS No. 128), Earnings Per Share. SFAS No. 128 requires the disclosure of basic net income per share and modifies existing guidance for computing fully diluted net income per share. Under the new standard, basic net income per share is computed as net income divided by weighted average shares, excluding the dilutive effects of stock options and other potentially dilutive securities. The effective date of SFAS No. 128 is December 15, 1997 and early adoption is not permitted. The Company intends to adopt SFAS No. 128 during the quarter and year ended December 31, 1997. The Company does not expect this pronouncement to have a material impact on net income per share. NOTE C--STOCK SPLIT In September 1997, the Company effected a three-for-two 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 three-for-two stock split. NOTE D--SUBSEQUENT EVENT In October 1997, the Company authorized the repurchase, from time to time, of up to four million shares of the Company's common stock on the open market or in privately negotiated transactions, depending on market conditions. 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, 1997 AND 1996 Temporary services revenues were $313 million and $215 million for the three months ended September 30, 1997 and 1996, respectively, increasing by 46% during the three months ended September 30, 1997 compared to the same period in 1996. Temporary services revenues were $861 million and $589 million for the nine months ended September 30, 1997 and 1996, respectively, increasing by 46% during the nine months ended September 30, 1997 compared to the same period in 1996. Permanent placement revenues were $27 million and $18 million for the three months ended September 30, 1997 and 1996, respectively, increasing by 50% during the three months ended September 30, 1997 compared to the same period in 1996. Permanent placement revenues were $73 million and $51 million for the nine months ended September 30, 1997 and 1996, respectively, increasing by 43% during the nine months ended September 30, 1997 compared to the same period in 1996. 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, 1997 were not material. The Company currently has more than 200 offices in 39 states and five foreign countries. Domestic operations represented 90% of revenues for both the three and nine months ended September 30, 1997 and 91% of revenues for both the three and nine months ended September 30, 1996. Foreign operations represented 10% of revenues for both the three and nine months ended September 30, 1997 and 9% of revenues for both the three and nine months ended September 30, 1996. Gross margin dollars from the Company's temporary 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 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 $108 million and $298 million for the three and nine months ended September 30, 1997, respectively, compared to $74 million and $201 million for the comparable periods in 1996, increasing by 46% and 48% for the three and nine months ended September 30, 1997, respectively. Gross margin amounts equaled 35% of revenues for temporary services for both the three and nine months ended September 30, 1997, compared to 34% of temporary service revenues for both the three and nine months ended September 30, 1996, 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 $27 million and $73 million for the three and nine months ended September 30, 1997, respectively, compared to $18 million and $51 million for the comparable periods in 1996, increasing by 50% and 43% for the three and nine months ended September 30, 1997, respectively. Selling, general and administrative expenses were $93 million and $257 million for the three and nine months ended September 30, 1997, respectively, compared to $64 million and $176 million during the three and nine months ended September 30, 1996, respectively. Selling, general and administrative expenses as a percentage of revenues were 27% and 28% for the three and nine months ended September 30, 1997, respectively, compared to 27% and 28% for the three and nine months ended September 30, 1996, respectively. Selling, general and administrative expenses consist primarily of staff compensation, advertising, and occupancy costs, most of which generally follow changes in revenues. 7
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 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, 1997. Intangible assets represented 32% of total assets and 44% of total stockholders' equity at September 30, 1997. Interest income for the three months ended September 30, 1997 and 1996 was $1,443,000 and $783,000, respectively, while interest expense for the three months ended September 30, 1997 and 1996 was $289,000 and $174,000, respectively. Interest income for the nine months ended September 30, 1997 and 1996 was $3,540,000 and $2,006,000, respectively, while interest expense for the nine months ended September 30, 1997 and 1996 was $700,000 and $429,000, respectively. These changes primarily reflect an increase in cash and cash equivalents. The provision for income taxes was 41% for all periods presented. LIQUIDITY AND CAPITAL RESOURCES The change in the Company's liquidity during nine months ended September 30, 1997 is the net effect of funds generated by operations and the funds used for the staffing services acquisitions, capital expenditures and principal payments on outstanding notes payable. For the nine months ended September 30, 1997, the Company generated $70.2 million from operations, used $27.9 million in investing activities and provided $8.3 million by financing activities. The Company's working capital at September 30, 1997 included $130.8 million in cash and cash equivalents. In addition at September 30, 1997, the Company had available $71.4 million of its $80 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, 1997, the Company had no material capital commitments. In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 128, Earnings Per Share. SFAS No. 128 requires the disclosure of basic net income per share and modifies existing guidance for computing fully diluted net income per share. Under the new standard, basic net income per share is computed as net income divided by weighted average shares, excluding the dilutive effects of stock options and other potentially dilutive securities. The effective date of SFAS No. 128 is December 15, 1997 and early adoption is not permitted. The Company intends to adopt SFAS No. 128 during the quarter and year ended December 31, 1997 and does not expect this pronouncement to have a material impact on net income per share. In September 1997, the Company effected a three-for-two 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 three-for-two stock split. 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. EXHIBIT - ------------- ------------------------------------------------------------------------------------------- <C> <S> 10.1 1985 Stock Option Plan. 10.2 StockPlus Plan. 10.3 Outside Directors' Option Plan. 10.4 1989 Restricted Stock Plan. 11 Computation of Per Share Earnings. 27 Financial Data Schedule. </TABLE> (b) The registrant filed no current report on 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 10, 1997 10
INDEX TO EXHIBITS <TABLE> <CAPTION> EXHIBIT NO. PAGE - ------------- --------- <C> <S> <C> 10.1 1985 Stock Option Plan........................................................................ 10.2 StockPlus Plan................................................................................ 10.3 Outside Directors' Option Plan................................................................ 10.4 1989 Restricted Stock Plan.................................................................... 11 Computation of Per Share Earnings............................................................. 27 Financial Data Schedule....................................................................... </TABLE>