- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q <TABLE> <C> <S> (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 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: (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 April 30, 2000: 88,789,250 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> MARCH 31, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) <S> <C> <C> ASSETS: Cash and cash equivalents................................... $204,607 $151,074 Accounts receivable, less allowances of $15,381 and $13,424................................................... 339,125 309,278 Other current assets........................................ 30,312 30,187 -------- -------- Total current assets.................................... 574,044 490,539 Intangible assets, less accumulated amortization of $62,951 and $60,889............................................... 173,519 175,747 Property and equipment, less accumulated depreciation of $94,243 and $82,413....................................... 111,563 110,902 -------- -------- Total assets............................................ $859,126 $777,188 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable and accrued expenses....................... $ 32,830 $ 29,835 Accrued payroll costs....................................... 167,267 145,410 Income taxes payable........................................ 18,615 64 Current portion of notes payable and other indebtedness..... 54 898 -------- -------- Total current liabilities............................... 218,766 176,207 Notes payable and other indebtedness, less current portion................................................... 2,584 2,597 Deferred income taxes....................................... 16,024 22,281 -------- -------- Total liabilities....................................... 237,374 201,085 Commitments and Contingencies STOCKHOLDERS' EQUITY: Common stock, $.001 par value authorized 260,000,000 shares; issued and outstanding 88,727,278 and 88,073,937 shares... 89 88 Capital surplus............................................. 342,010 303,093 Deferred compensation....................................... (82,061) (54,127) Accumulated other comprehensive income...................... (3,192) (2,420) Retained earnings........................................... 364,906 329,469 -------- -------- Total stockholders' equity.............................. 621,752 576,103 -------- -------- Total liabilities and stockholders' equity.............. $859,126 $777,188 ======== ======== </TABLE> 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 MARCH 31, ------------------- 2000 1999 -------- -------- (UNAUDITED) <S> <C> <C> Net service revenues........................................ $632,846 $484,988 Direct costs of services, consisting of payroll, payroll taxes and insurance costs for temporary employees......... 361,797 287,093 -------- -------- Gross margin................................................ 271,049 197,895 Selling, general and administrative expenses................ 200,944 138,990 Amortization of intangible assets........................... 1,253 1,229 Interest income, net........................................ (1,456) (1,307) -------- -------- Income before income taxes.................................. 70,308 58,983 Provision for income taxes.................................. 26,928 23,673 -------- -------- Net income.................................................. $ 43,380 $ 35,310 ======== ======== Basic net income per share.................................. $ .49 $ .39 Diluted net income per share................................ $ .47 $ .38 </TABLE> 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> THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- (UNAUDITED) <S> <C> <C> COMMON STOCK--SHARES: Balance at beginning of period............................ 88,074 91,225 Issuances of restricted stock............................. 581 245 Repurchases of common stock............................... (244) (466) Exercises of stock options................................ 316 148 -------- -------- Balance at end of period................................ 88,727 91,152 ======== ======== COMMON STOCK--PAR VALUE: Balance at beginning of period............................ $ 88 $ 91 Issuances of restricted stock............................. 1 -- -------- -------- Balance at end of period................................ $ 89 $ 91 ======== ======== CAPITAL SURPLUS: Balance at beginning of period............................ $303,093 $270,609 Issuances of restricted stock--excess over par value...... 35,712 7,166 Exercises of stock options--excess over par value......... 2,831 1,080 Capital impact of equity incentive plans.................. 374 7,561 -------- -------- Balance at end of period................................ $342,010 $286,416 ======== ======== DEFERRED COMPENSATION: Balance at beginning of period............................ $(54,127) $(56,790) Issuances of restricted stock............................. (35,713) (7,166) Amortization of deferred compensation..................... 7,779 5,730 -------- -------- Balance at end of period................................ $(82,061) $(58,226) ======== ======== ACCUMULATED OTHER COMPREHENSIVE INCOME: Balance at beginning of period............................ $ (2,420) $ (1,244) Translation adjustments................................... (772) (929) -------- -------- Balance at end of period................................ $ (3,192) $ (2,173) ======== ======== RETAINED EARNINGS: Balance at beginning of period............................ $329,469 $309,804 Repurchases of common stock--excess over par value........ (7,943) (17,836) Net income................................................ 43,380 35,310 -------- -------- Balance at end of period................................ $364,906 $327,278 ======== ======== COMPREHENSIVE INCOME: Net income................................................ $ 43,380 $ 35,310 Translation adjustments................................... (772) (929) -------- -------- Total comprehensive income.............................. $ 42,608 $ 34,381 ======== ======== </TABLE> 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> THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- (UNAUDITED) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................ $ 43,380 $ 35,310 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets..................... 1,253 1,229 Depreciation expense.................................. 12,177 6,736 Provision for deferred income taxes................... (6,086) 480 Changes in assets and liabilities, net of effects of acquisitions: Increase in accounts receivable....................... (29,847) (14,834) Increase (decrease) in accounts payable, accrued expenses and accrued payroll costs.................. 24,852 (2,409) Increase in income taxes payable...................... 18,551 4,401 Change in other assets, net of change in other liabilities......................................... 7,985 4,475 -------- -------- Total adjustments....................................... 28,885 78 -------- -------- Net cash and cash equivalents provided by operating activities.............................................. 72,265 35,388 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................... (13,452) (15,951) -------- -------- Net cash and cash equivalents used in investing activities.............................................. (13,452) (15,951) CASH FLOWS FROM FINANCING ACTIVITIES: Repurchases of common stock and common stock equivalents............................................. (7,943) (17,836) Principal payments on notes payable and other indebtedness............................................ (542) 20 Proceeds and capital impact of equity incentive plans..... 3,205 8,641 -------- -------- Net cash and cash equivalents used in financing activities.............................................. (5,280) (9,175) -------- -------- Net increase in cash and cash equivalents................... 53,533 10,262 Cash and cash equivalents at beginning of period............ 151,074 166,060 -------- -------- Cash and cash equivalents at end of period.................. $204,607 $176,322 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest................................................ $ 89 $ 92 Income taxes............................................ $ 10,367 $ 11,318 </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 MARCH 31, 2000 (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-, RHI MANAGEMENT RESOURCES-Registered Trademark-, THE AFFILIATES-Registered Trademark- and THE CREATIVE GROUP-SM-. 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 contract 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 GROUP provides 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, and Australia. 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 1999 financial statements to conform to the 2000 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 months ended March 31, 2000, and 1999 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, 1999. REVENUE RECOGNITION. Temporary services 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. 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 March 31, 2000. 5
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2000 (UNAUDITED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 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. NOTE B--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. 6
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2000 (UNAUDITED) NOTE B--BUSINESS SEGMENTS (CONTINUED) The following table provides a reconciliation of revenue and operating profit by reportable segment to consolidated results (in thousands): <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- (UNAUDITED) <S> <C> <C> Net service revenues Temporary and consultant staffing..................... $574,745 $449,123 Permanent placement staffing.......................... 58,101 35,865 -------- -------- $632,846 $484,988 ======== ======== Operating income Temporary and consultant staffing..................... $ 54,156 $ 50,290 Permanent placement staffing.......................... 15,949 8,615 -------- -------- 70,105 58,905 Amortization of intangible assets....................... 1,253 1,229 Interest income, net.................................... (1,456) (1,307) -------- -------- Income before income taxes.............................. $ 70,308 $ 58,983 ======== ======== </TABLE> NOTE C--SUBSEQUENT EVENT On May 4, 2000, the Company declared a two-for-one stock split in the form of a 100 percent stock dividend on its common stock. The record date for determining those stockholders entitled to receive the stock dividend will be May 19, 2000, and the payment date for the stock dividend will be June 12, 2000. A pro forma restatement of the Company's earnings per share is provided in the following table: <TABLE> <CAPTION> AS REPORTED PRO FORMA THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, MARCH 31, ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- <S> <C> <C> <C> <C> Net income per share: Basic..................................................... $0.49 $0.39 $0.24 $0.19 Diluted................................................... $0.47 $0.38 $0.24 $0.19 </TABLE> 7
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. Such statements may be identified by words such as "estimate", "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. Such risks and uncertainties include, but are not limited to, the following: changes in general or local economic conditions or in the economic condition of any industry, the availability of qualified staff employees and temporary candidates, government regulation of the personnel services industry, general regulations relating to employers and employees, liability risks associated with the operation of a personnel services business and competitive conditions in the personnel services industry. In addition, it should be noted that, because long-term contracts are not a significant portion 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 ENDED MARCH 31, 2000 AND 1999. Temporary services revenues were $575 million and $449 million for the three months ended March 31, 2000 and 1999, respectively, increasing by 28% during the three months ended March 31, 2000 compared to the same period in 1999. The increase in revenues during these periods reflected in part revenues generated from the Company's OFFICETEAM, RHI CONSULTING, and RHI MANAGEMENT RESOURCES divisions, which were started in 1991, 1994 and 1997, respectively. Permanent placement revenues were $58 million and $36 million for the three months ended March 31, 2000 and 1999, respectively, increasing by 62% during the three months ended March 31, 2000 compared to the same period in 1999. 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. The Company currently has more than 270 offices in 40 states and seven foreign countries. Domestic operations represented 89% and 88% of revenues for the three months ended March 31, 2000 and 1999, respectively. Foreign operations represented 11% and 12% of revenues for the three months ended March 31, 2000 and 1999, respectively. 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 $213 million and $162 million for the three months ended March 31, 2000 and 1999, respectively, increasing by 31% in 2000. Gross margin amounts equaled 37% and 36% of revenues for temporary services for the three months ended March 31, 2000 and 1999, 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 $58 million and $36 million for the three months ended March 31, 2000 and 1999, respectively, increasing by 62% for the three months ended March 31, 2000. Selling, general and administrative expenses were $201 million for the three months ended March 31, 2000 compared to $139 million for the three months ended March 31, 1999. Selling, general and administrative expenses as a percentage of revenues were 32% and 29% for the three months ended March 31, 2000 and 1999, respectively. Selling, general and administrative expenses consist primarily of staff compensation, advertising, depreciation and occupancy costs. The increase in 2000 relates primarily to various candidate initiatives including those related to the internet. 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 8
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 March 31, 2000. Intangible assets represented 20% of total assets and 28% of total stockholders' equity at March 31, 2000. Interest income for the three months ended March 31, 2000 and 1999 was $1,756,000 and $1,538,000, respectively. Interest expense for the three months ended March 31, 2000 and 1999 was $300,000 and $231,000, respectively. The provision for income taxes was 38% and 40% for the three months ended March 31, 2000 and 1999, respectively. This decrease reflects the impact of various state tax planning initiatives undertaken during 1999. LIQUIDITY AND CAPITAL RESOURCES The change in the Company's liquidity during the three months ended March 31, 2000 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 March 31, 2000, the Company has authorized the repurchase, from time to time, of up to nine million shares of the Company's common stock on the open market or in privately negotiated transactions, depending on market conditions. During the three months ended March 31, 2000, the Company did not repurchase shares of common stock on the open market. Since 1997, the Company has repurchased approximately 5,907,000 shares on the open market pursuant to this program. Repurchases of the securities have been funded with cash generated from operations. For the three months ended March 31, 2000, the Company generated $72 million from operations, used $13 million in investing activities and used $5 million in financing activities. The Company's working capital at March 31, 2000, included $205 million in cash and cash equivalents. In addition at March 31, 2000, 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 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 March 31, 2000, 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. 9
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 Equity Incentive Plan. 10.2 Annual Performance Bonus 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. 10
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) /s/ M. KEITH WADDELL -------------------------------------- M. Keith Waddell VICE CHAIRMAN, CHIEF FINANCIAL OFFICER AND TREASURER (PRINCIPAL FINANCIAL OFFICER AND DULY AUTHORIZED SIGNATORY) Date: May 11, 2000 11