- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2001 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, 2001: 175,376,537 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, 2001 2000 ----------- ------------ (UNAUDITED) <S> <C> <C> ASSETS: Cash and cash equivalents................................... $221,747 $239,192 Accounts receivable, less allowances of $17,164 and $17,207................................................... 391,621 390,369 Other current assets........................................ 47,441 42,049 -------- -------- Total current assets.................................... 660,809 671,610 Intangible assets, less accumulated amortization of $71,278 and $69,290............................................... 165,140 168,050 Property and equipment, less accumulated depreciation of $133,552 and $118,940..................................... 141,728 131,369 -------- -------- Total assets............................................ $967,677 $971,029 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable and accrued expenses....................... $ 37,254 $ 51,073 Accrued payroll costs....................................... 176,875 182,241 Income taxes payable........................................ 16,329 2,619 Current portion of notes payable and other indebtedness..... 1,164 1,223 -------- -------- Total current liabilities............................... 231,622 237,156 Notes payable and other indebtedness, less current portion................................................... 2,526 2,541 Deferred income taxes and other liabilities................. 11,597 12,793 -------- -------- Total liabilities....................................... 245,745 252,490 Commitments and Contingencies STOCKHOLDERS' EQUITY: Common stock, $.001 par value authorized 260,000,000 shares; issued and outstanding 174,350,647 and 176,050,349 shares.................................................... 174 176 Capital surplus............................................. 426,888 406,471 Deferred compensation....................................... (68,885) (72,870) Accumulated other comprehensive income...................... (6,207) (4,192) Retained earnings........................................... 369,962 388,954 -------- -------- Total stockholders' equity.............................. 721,932 718,539 -------- -------- Total liabilities and stockholders' equity.............. $967,677 $971,029 ======== ======== </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, ------------------- 2001 2000 -------- -------- (UNAUDITED) <S> <C> <C> Net service revenues........................................ $719,273 $632,846 Direct costs of services, consisting of payroll, payroll taxes and insurance costs for temporary employees......... 408,287 361,797 -------- -------- Gross margin................................................ 310,986 271,049 Selling, general and administrative expenses................ 234,984 200,944 Amortization of intangible assets........................... 1,336 1,253 Interest income, net........................................ (2,411) (1,456) -------- -------- Income before income taxes.................................. 77,077 70,308 Provision for income taxes.................................. 29,520 26,928 -------- -------- Net income.................................................. $ 47,557 $ 43,380 ======== ======== Basic net income per share.................................. $ .27 $ .24 Diluted net income per share................................ $ .26 $ .24 </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 2000. 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, ------------------- 2001 2000 -------- -------- (UNAUDITED) <S> <C> <C> COMMON STOCK--SHARES: Balance at beginning of period............................ 176,050 176,148 Issuances of restricted stock............................. 113 1,162 Repurchases of common stock............................... (2,636) (488) Exercises of stock options................................ 824 632 -------- -------- Balance at end of period................................ 174,351 177,454 ======== ======== COMMON STOCK--PAR VALUE: Balance at beginning of period............................ $ 176 $ 176 Issuances of restricted stock............................. -- 1 Repurchases of common stock............................... (3) -- Exercises of stock options................................ 1 -- -------- -------- Balance at end of period................................ $ 174 $ 177 ======== ======== CAPITAL SURPLUS: Balance at beginning of period............................ $406,471 $303,005 Issuances of restricted stock--excess over par value...... 3,844 35,712 Exercises of stock options--excess over par value......... 8,919 2,831 Impact of equity incentive plans.......................... 7,654 374 -------- -------- Balance at end of period................................ $426,888 $341,922 ======== ======== DEFERRED COMPENSATION: Balance at beginning of period............................ $(72,870) $(54,127) Issuances of restricted stock............................. (3,844) (35,713) Amortization of deferred compensation..................... 7,829 7,779 -------- -------- Balance at end of period................................ $(68,885) $(82,061) ======== ======== ACCUMULATED OTHER COMPREHENSIVE INCOME: Balance at beginning of period............................ $ (4,192) $ (2,420) Translation adjustments................................... (2,015) (772) -------- -------- Balance at end of period................................ $ (6,207) $ (3,192) ======== ======== RETAINED EARNINGS: Balance at beginning of period............................ $388,954 $329,469 Repurchases of common stock--excess over par value........ (66,549) (7,943) Net income................................................ 47,557 43,380 -------- -------- Balance at end of period................................ $369,962 $364,906 ======== ======== COMPREHENSIVE INCOME: Net income................................................ $ 47,557 $ 43,380 Translation adjustments................................... (2,015) (772) -------- -------- Total comprehensive income.............................. $ 45,542 $ 42,608 ======== ======== </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 2000. 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, ------------------- 2001 2000 -------- -------- (UNAUDITED) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................ $ 47,557 $ 43,380 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets..................... 1,336 1,253 Depreciation expense.................................. 15,220 12,177 Provision for deferred income taxes................... (3,620) (6,086) Tax impact of equity incentive plans.................. 7,654 374 Changes in assets and liabilities, net of effects of acquisitions: Increase in accounts receivable....................... (1,252) (29,847) Increase (decrease) in accounts payable, accrued expenses and accrued payroll costs.................. (18,823) 24,852 Increase in income taxes payable...................... 13,710 18,551 Change in other assets, net of change in other liabilities......................................... 4,618 7,985 -------- -------- Total adjustments....................................... 18,843 29,259 -------- -------- Net cash and cash equivalents provided by operating activities.............................................. 66,400 72,639 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................... (26,139) (13,452) -------- -------- Net cash and cash equivalents used in investing activities.............................................. (26,139) (13,452) CASH FLOWS FROM FINANCING ACTIVITIES: Repurchases of common stock and common stock equivalents............................................. (66,552) (7,943) Principal payments on notes payable and other indebtedness............................................ (74) (542) Proceeds and capital impact of equity incentive plans..... 8,920 2,831 -------- -------- Net cash and cash equivalents used in financing activities.............................................. (57,706) (5,654) -------- -------- Net increase (decrease) in cash and cash equivalents........ (17,445) 53,533 Cash and cash equivalents at beginning of period............ 239,192 151,074 -------- -------- Cash and cash equivalents at end of period.................. $221,747 $204,607 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest................................................ $ 75 $ 89 Income taxes............................................ $ 11,679 $ 10,367 </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, 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-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-Registered Trademark-. 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 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, 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 there was no material impairment of intangible assets at March 31, 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 5
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 months ended March 31, 2001 and 2000 is reflected in the following table (in thousands, except per share amounts): <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------- 2001 2000 -------- -------- (UNAUDITED) <S> <C> <C> Net Income.............................................. $ 47,557 $ 43,380 Basic: Weighted average shares............................... 175,142 177,132 ======== ======== Diluted: Weighted average shares............................... 175,142 177,132 Common stock equivalents--stock options............... 6,906 5,826 -------- -------- Diluted shares........................................ 182,048 182,958 ======== ======== Net Income Per Share: Basic................................................. $ .27 $ .24 Diluted............................................... $ .26 $ .24 </TABLE> All shares and 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 2000. 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. 6
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) NOTE C--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, ------------------- 2001 2000 -------- -------- (UNAUDITED) <S> <C> <C> Net service revenues Temporary and consultant staffing..................... $654,233 $574,745 Permanent placement staffing.......................... 65,040 58,101 -------- -------- $719,273 $632,846 ======== ======== Operating income Temporary and consultant staffing..................... $ 62,764 $ 54,156 Permanent placement staffing.......................... 13,238 15,949 -------- -------- 76,002 70,105 Amortization of intangible assets....................... 1,336 1,253 Interest income, net.................................... (2,411) (1,456) -------- -------- Income before income taxes.............................. $ 77,077 $ 70,308 ======== ======== </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. These 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. 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 ENDED MARCH 31, 2001 AND 2000. Temporary and consultant staffing revenues were $654 million and $575 million for the three months ended March 31, 2001 and 2000, respectively, increasing by 14% during the three months ended March 31, 2001 compared to the same period in 2000. Permanent placement staffing revenues were $65 million and $58 million for the three months ended March 31, 2001 and 2000, respectively, increasing by 12% during the three months ended March 31, 2001 compared to the same period in 2000. Overall revenue increases reflect continued demand for the Company's services, which the Company believes is a result of increased acceptance in the use of professional staffing services. As of March 31, 2001, the Company had 330 offices in 40 states and the District of Columbia and ten foreign countries. Revenues from domestic operations represented 87% and 89% of revenues for the three months ended March 31, 2001 and 2000, respectively. Revenues from foreign operations represented 13% and 11% of revenues for the three months ended March 31, 2001 and 2000, respectively. 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 $246 million and $213 million for the three months ended March 31, 2001 and 2000, respectively, increasing by 16% in 2001. Gross margin amounts equaled 38% and 37% of revenues for temporary and consultant staffing services for the three months ended March 31, 2001 and 2000, respectively, which the Company believes reflect its ability to adjust billing rates and wage rates to underlying market conditions. Gross margin dollars for the Company's permanent placement staffing division were $65 million and $58 million for the three months ended March 31, 2001 and 2000, respectively, increasing by 12% for the three months ended March 31, 2001. Selling, general and administrative expenses were $235 million for the three months ended March 31, 2001, compared to $201 million for the three months ended March 31, 2000. Selling, general and administrative expenses as a percentage of revenues were 33% and 32% for the three months ended 8
March 31, 2001 and 2000, respectively. Selling, general and administrative expenses consist primarily of staff compensation, advertising, depreciation and occupancy costs. The increase in 2001 relates primarily to additional field staff and ongoing technology investments. The Company allocates the excess of cost over the fair market value of acquired 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 March 31, 2001. Net intangible assets represented 17% of total assets and 23% of total stockholders' equity at March 31, 2001. Interest income for the three months ended March 31, 2001 and 2000 was $2.7 million and $1.8 million, respectively. Interest expense for both the three months ended March 31, 2001 and 2000 was $.3 million. The increase in interest income is primarily attributable to increased balances in interest bearing cash and cash equivalents. The provision for income taxes was 38% for both the three months ended March 31, 2001 and 2000, respectively. LIQUIDITY AND CAPITAL RESOURCES The change in the Company's liquidity during the three months ended March 31, 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. In April 2001, the Company authorized the repurchase, from time to time, of up to 10 million shares of the Company's common stock on the open market or in privately negotiated transactions, depending on market conditions. This 10-million-share authorization is in addition to the 200,000 shares remaining under the existing repurchase program. During the three months ended March 31, 2001, the Company repurchased approximately 2.1 million shares of common stock on the open market, bringing the total shares repurchased under the authorization to 17.8 million. All shares have been restated to retroactively reflect the two-for-one stock split effected in the form of a stock dividend in June 2000. Repurchases of the securities have been funded with cash generated from operations. For the three months ended March 31, 2001, the Company generated $66 million from operations, used $26 million in investing activities and used $58 million in financing activities. The Company's working capital at March 31, 2001, included $222 million in cash and cash equivalents. In addition at March 31, 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 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, 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. 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. None (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 8, 2001 11