- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 JUNE 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 June 30, 1997: 60,467,906 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> DECEMBER 31, 1996 JUNE 30, ------------ 1997 ----------- (UNAUDITED) <S> <C> <C> ASSETS: Cash and cash equivalents............................................................. $ 106,431 $ 80,181 Accounts receivable, less allowances of $5,629 and $4,016............................. 154,579 125,383 Other current assets.................................................................. 15,769 12,184 ----------- ------------ Total current assets.............................................................. 276,779 217,748 Intangible assets, less accumulated amortization of $42,713 and $39,461............... 175,114 174,663 Other assets.......................................................................... 37,678 23,601 ----------- ------------ Total assets...................................................................... $ 489,571 $ 416,012 ----------- ------------ ----------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable and accrued expenses................................................. $ 18,585 $ 15,049 Accrued payroll costs................................................................. 80,409 66,087 Income taxes payable.................................................................. 4,470 3,883 Current portion of notes payable and other indebtedness............................... 2,997 1,542 ----------- ------------ Total current liabilities......................................................... 106,461 86,561 Notes payable and other indebtedness, less current portion............................ 5,377 5,069 Deferred income taxes................................................................. 15,992 15,937 ----------- ------------ Total liabilities................................................................. 127,830 107,567 STOCKHOLDERS' EQUITY: Common stock, $.001 par value authorized 100,000,000 shares; issued and outstanding 60,471,284 and 59,748,171 shares.................................................... 60 60 Capital surplus....................................................................... 171,623 140,473 Deferred compensation................................................................. (35,164) (26,802) Accumulated translation adjustments................................................... (833) 23 Retained earnings..................................................................... 226,055 194,691 ----------- ------------ Total stockholders' equity........................................................ 361,741 308,445 ----------- ------------ Total liabilities and stockholders' equity........................................ $ 489,571 $ 416,012 ----------- ------------ ----------- ------------ </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 SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> Net service revenues............................................. $ 311,622 $ 210,649 $ 594,645 $ 406,888 Direct costs of services, consisting of payroll, payroll taxes and insurance costs for temporary employees.................... 187,482 126,728 358,611 246,325 ---------- ---------- ---------- ---------- Gross margin..................................................... 124,140 83,921 236,034 160,563 Selling, general and administrative expenses..................... 86,229 58,906 163,870 112,150 Amortization of intangible assets................................ 1,235 1,361 2,460 2,669 Interest income.................................................. (937) (580) (1,686) (968) ---------- ---------- ---------- ---------- Income before income taxes....................................... 37,613 24,234 71,390 46,712 Provision for income taxes....................................... 15,403 10,010 29,260 19,249 ---------- ---------- ---------- ---------- Net income....................................................... $ 22,210 $ 14,224 $ 42,130 $ 27,463 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income per share............................................. $ .35 $ .23 $ .67 $ .45 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- </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> SIX MONTHS ENDED JUNE 30, ---------------------- 1997 1996 ---------- ---------- (UNAUDITED) <S> <C> <C> COMMON STOCK--SHARES: Balance at beginning of period.......................................................... 59,748 57,784 Issuance of restricted stock............................................................ 323 635 Repurchases of common stock............................................................. (272) (90) Exercise of stock options............................................................... 663 425 Issuance of common stock for acquisition................................................ 9 -- ---------- ---------- Balance at end of period.............................................................. 60,471 58,754 ---------- ---------- ---------- ---------- COMMON STOCK--PAR VALUE: Balance at beginning of period.......................................................... $ 60 $ 58 Exercises of stock options.............................................................. 0 1 ---------- ---------- Balance at end of period.............................................................. $ 60 $ 59 ---------- ---------- ---------- ---------- CAPITAL SURPLUS: Balance at beginning of period.......................................................... $ 140,473 $ 99,768 Issuance of common stock for acquisition................................................ 400 -- Issuance of restricted stock--excess over par value..................................... 14,014 18,899 Exercises of stock options--excess over par value....................................... 3,928 1,805 Tax benefits from exercises of stock options and restricted stock vesting............... 12,808 4,885 ---------- ---------- Balance at end of period.............................................................. $ 171,623 $ 125,357 ---------- ---------- ---------- ---------- DEFERRED COMPENSATION: Balance at beginning of period.......................................................... $ (26,802) $ (9,642) Issuance of restricted stock............................................................ (14,014) (18,899) Amortization of deferred compensation................................................... 5,652 2,721 ---------- ---------- Balance at end of period.............................................................. $ (35,164) $ (25,820) ---------- ---------- ---------- ---------- ACCUMULATED TRANSLATION ADJUSTMENTS: Balance at beginning of period.......................................................... $ 23 $ 51 Translation adjustments................................................................. (856) (276) ---------- ---------- Balance at end of period.............................................................. $ (833) $ (225) ---------- ---------- ---------- ---------- RETAINED EARNINGS: Balance at beginning of period.......................................................... $ 194,691 $ 137,695 Repurchases of common stock--excess over par value...................................... (10,766) (2,485) Net income.............................................................................. 42,130 27,463 ---------- ---------- Balance at end of period.............................................................. $ 226,055 $ 162,673 ---------- ---------- ---------- ---------- </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> SIX MONTHS ENDED JUNE 30, ---------------------- 1997 1996 ---------- ---------- (UNAUDITED) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................................................ $ 42,130 $ 27,463 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets....................................................... 2,460 2,669 Depreciation expense.................................................................... 5,643 2,540 Deferred income taxes................................................................... (2,015) (1,513) Changes in assets and liabilities, net of effects of acquisitions: Increase in accounts receivable....................................................... (28,708) (17,033) Increase in accounts payable, accrued expenses and accrued payroll costs.............. 16,968 11,821 Increase (decrease) in income taxes payable........................................... 587 (2,090) Change in other assets, net of change in other liabilities............................ 4,672 (734) ---------- ---------- Total adjustments..................................................................... (393) (4,340) ---------- ---------- Net cash and cash equivalents provided by operating activities............................ 41,737 23,123 CASH FLOWS USED IN INVESTING ACTIVITIES: Acquisitions, net of cash acquired...................................................... (3,338) (1,725) Capital expenditures.................................................................... (16,616) (6,791) ---------- ---------- Cash and cash equivalents used in investing activities.................................... (19,954) (8,516) CASH FLOWS USED IN FINANCING ACTIVITIES: Repurchases of common stock or common stock equivalents................................. (10,766) (2,485) Principal payments on notes payable and other indebtedness.............................. (1,503) (3,632) Proceeds and tax benefits from exercise of stock options and restricted stock vesting... 16,736 6,691 ---------- ---------- Net cash and cash equivalents provided by financing activities............................ 4,467 574 ---------- ---------- Net increase in cash and cash equivalents................................................. 26,250 15,181 Cash and cash equivalents at beginning of period.......................................... 80,181 41,346 ---------- ---------- Cash and cash equivalents at end of period................................................ $ 106,431 $ 56,527 ---------- ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest................................................................................ $ 223 $ 332 Income taxes............................................................................ 17,910 17,055 Acquisitions: Fair value of assets acquired-- Intangible assets..................................................................... $ 4,079 $ 4,155 Other................................................................................. 499 445 Liabilities incurred-- Notes payable and contracts........................................................... (536) (2,625) Other................................................................................. (304) (250) Common stock issued..................................................................... (400) -- ---------- ---------- Cash paid, net of cash acquired......................................................... $ 3,338 $ 1,725 ---------- ---------- ---------- ---------- </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 JUNE 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- 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. 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 six months ended June 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 exist at June 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) JUNE 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. 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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 Temporary services revenues were $288 million and $194 million for the three months ended June 30, 1997 and 1996, respectively, increasing by 49% during the three months ended June 30, 1997 compared to the same period in 1996. Temporary services revenues were $549 million and $374 million for the six months ended June 30, 1997 and 1996, respectively, increasing by 47% during the six months ended June 30, 1997 compared to the same period in 1996. Permanent placement revenues were $24 million and $17 million for the three months ended June 30, 1997 and 1996, respectively, increasing by 41% during the three months ended June 30, 1997 compared to the same period in 1996. Permanent placement revenues were $46 million and $33 million for the six months ended June 30, 1997 and 1996, respectively, increasing by 39% during the six months ended June 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 six months ended June 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 six months ended June 30, 1997 and 91% and 90% of revenues for the three and six months ended June 30, 1996, respectively. Foreign operations represented 10% of revenues for both the three and six months ended June 30, 1997 and 9% and 10% of revenues for the three and six months ended June 30, 1996, respectively. 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 $100 million and $190 million for the three and six months ended June 30, 1997, respectively, compared to $67 million and $128 million for the comparable periods in 1996, increasing by 49% and 48% for the three and six months ended June 30, 1997, respectively. Gross margin amounts equaled 35% of revenues for temporary services for both the three and six months ended June 30, 1997, compared to 35% and 34% of temporary service revenues for the three and six months ended June 30, 1996, 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 $24 million and $46 million for the three and six months ended June 30, 1997, respectively, compared to $17 million and $33 million for the comparable periods in 1996, increasing by 41% and 39% for the three and six months ended June 30, 1997, respectively. Selling, general and administrative expenses were $86 million and $164 million for the three and six months ended June 30, 1997, respectively, compared to $59 million and $112 million during the three and six months ended June 30, 1996, respectively. Selling, general and administrative expenses as a percentage of revenues were 28% in both the three and six months ended June 30, 1997 compared to 28% for both the three and six months ended June 30, 1996. 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 June 30, 1997. Intangible assets represented 36% of total assets and 48% of total stockholders' equity at June 30, 1997. Interest income for the three months ended June 30, 1997 and 1996 was $1,148,000 and $679,000, respectively, while interest expense for the three months ended June 30, 1997 and 1996 was $211,000 and $99,000, respectively. Interest income for the six months ended June 30, 1997 and 1996 was $2,097,000 and $1,223,000, respectively, while interest expense for the six months ended June 30, 1997 and 1996 was $411,000 and $255,000, respectively. These changes primarily reflect an increase in cash and cash equivalents. The provision for income taxes for both the three and six months ended June 30, 1997 was 41% compared to 41% of income before taxes for the same periods in 1996. LIQUIDITY AND CAPITAL RESOURCES The change in the Company's liquidity during six months ended June 30, 1997 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 six months ended June 30, 1997, the Company generated $41.7 million from operations, used $20 million in investing activities and provided $4.5 million by financing activities. The Company's working capital at June 30, 1997 included $106.4 million in cash and cash equivalents. In addition at June 30, 1997, the Company had available $72.5 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 June 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. 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 On May 7, 1997, registrant held its annual meeting of stockholders. The two matters presented to stockholders at the annual meeting were the election of two directors to Class I and the approval of an amendment to the registrant's Restated Certificate of Incorporation increasing the number of authorized shares of Common Stock. The vote for director was as follows: <TABLE> <CAPTION> NOMINEE SHARES FOR SHARES WITHHELD - --------------------------------------------------------------- ------------ --------------- <S> <C> <C> Andrew S. Berwick, Jr.......................................... 50,148,416 153,741 Frederick P. Furth............................................. 49,963,136 339,021 </TABLE> The continuing directors, whose terms of office did not expire at the meeting, are Edward W. Gibbons, Harold M. Messmer, Jr., Frederick A. Richman, Thomas J. Ryan and J. Stephen Schaub. The amendment to the Restated Certificate of Incorporation was approved by the following vote: <TABLE> <S> <C> For: 48,315,850 Against: 1,874,155 Abstain: 112,152 </TABLE> No other matters were voted upon at the annual meeting. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. <TABLE> <CAPTION> EXHIBIT NO. EXHIBIT - ------------- ------------------------------------------------------------------------------------------- <C> <S> 3.1 Restated Certificate of Incorporation. 4.1 Restated Certificate of Incorporation (filed as Exhibit 3.1) 10.1 Third Amendment to Credit Agreement among the Registrant, NationsBank, N.A. and Bank of America National Trust and Savings Association. 10.2 1993 Incentive 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: August 7, 1997 10
EXHIBIT INDEX <TABLE> <CAPTION> SEQUENTIALLY EXHIBITS DESCRIPTION NUMBERED PAGE - ----------- ------------------------------------------------------------------------------------------- --------------- <C> <S> <C> 3.1 Restated Certificate of Incorporation. 4.1 Restated Certificate of Incorporation (filed as Exhibit 3.1) 10.1 Third Amendment to Credit Agreement among the Registrant, NationsBank, N.A. and Bank of America National Trust and Savings Association. 10.2 1993 Incentive Plan. 11 Computation of Per Share Earnings. 27 Financial Data Schedule. </TABLE>