- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 MARCH 31, 1998 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 94025 SUITE 200 (zip-code) MENLO PARK, CALIFORNIA (Address of principal executive offices) 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 March 31, 1998: 91,983,511 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, 1998 1997 ----------- ------------ <S> <C> <C> (UNAUDITED) ASSETS: Cash and cash equivalents................................................................. $ 158,432 $ 131,349 Accounts receivable, less allowances of $7,859 and $7,164................................. 205,551 186,899 Other current assets...................................................................... 18,049 15,757 ----------- ------------ Total current assets.................................................................. 382,032 334,005 Intangible assets, less accumulated amortization of $47,780 and $46,001................... 175,599 177,425 Property and equipment, less accumulated depreciation of $33,861 and $29,962.............. 60,686 49,937 ----------- ------------ Total assets.......................................................................... $ 618,317 $ 561,367 ----------- ------------ ----------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable and accrued expenses..................................................... $ 26,193 $ 20,285 Accrued payroll costs..................................................................... 107,703 95,925 Income taxes payable...................................................................... (487) 2,258 Current portion of notes payable and other indebtedness................................... 1,294 3,627 ----------- ------------ Total current liabilities............................................................. 134,703 122,095 Notes payable and other indebtedness, less current portion................................ 4,267 4,530 Deferred income taxes..................................................................... 18,244 15,942 ----------- ------------ Total liabilities..................................................................... 157,214 142,567 Commitments and Contingencies STOCKHOLDERS' EQUITY: Common stock, $.001 par value authorized 160,000,000 shares; issued and outstanding 91,948,627 and 91,208,029 shares......................................................... 92 91 Capital surplus........................................................................... 226,680 196,888 Deferred compensation..................................................................... (51,082) (44,276) Accumulated other comprehensive income.................................................... (1,388) (1,347) Retained earnings......................................................................... 286,801 267,444 ----------- ------------ Total stockholders' equity............................................................ 461,103 418,800 ----------- ------------ Total liabilities and stockholders' equity............................................ $ 618,317 $ 561,367 ----------- ------------ ----------- ------------ </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, ---------------------- 1998 1997 ---------- ---------- (UNAUDITED) <S> <C> <C> Net service revenues...................................................................... $ 401,296 $ 283,023 Direct costs of services, consisting of payroll, payroll taxes and insurance costs for temporary employees...................................................................... 240,325 171,129 ---------- ---------- Gross margin.............................................................................. 160,971 111,894 Selling, general and administrative expenses.............................................. 111,970 77,641 Amortization of intangible assets......................................................... 1,233 1,225 Interest income........................................................................... (1,174) (749) ---------- ---------- Income before income taxes................................................................ 48,942 33,777 Provision for income taxes................................................................ 19,892 13,857 ---------- ---------- Net income................................................................................ $ 29,050 $ 19,920 ---------- ---------- ---------- ---------- Basic net income per share................................................................ $ .32 $ .22 Diluted net income per share.............................................................. $ .31 $ .21 </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. 2
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ---------------------- 1998 1997 ---------- ---------- (UNAUDITED) <S> <C> <C> COMMON STOCK--SHARES: Balance at beginning of period.......................................................... 91,208 89,622 Issuances of restricted stock........................................................... 281 491 Repurchases of common stock............................................................. (237) (234) Exercises of stock options.............................................................. 697 416 Issuance of common stock for acquisition................................................ -- 14 ---------- ---------- Balance at end of period.............................................................. 91,949 90,309 ---------- ---------- ---------- ---------- COMMON STOCK--PAR VALUE: Balance at beginning of period.......................................................... $ 91 $ 90 Issuances of restricted stock........................................................... -- -- Exercises of stock options.............................................................. 1 -- ---------- ---------- Balance at end of period.............................................................. $ 92 $ 90 ---------- ---------- ---------- ---------- CAPITAL SURPLUS: Balance at beginning of period.......................................................... $ 196,888 $ 140,443 Issuances of restricted stock--excess over par value.................................... 11,249 9,893 Exercises of stock options--excess over par value....................................... 4,321 1,658 Issuance of common stock for acquisition................................................ -- 400 Tax benefits from exercises of stock options and restricted stock vesting............... 14,222 6,402 ---------- ---------- Balance at end of period.............................................................. $ 226,680 $ 158,796 ---------- ---------- ---------- ---------- DEFERRED COMPENSATION: Balance at beginning of period.......................................................... $ (44,276) $ (26,802) Issuances of restricted stock........................................................... (11,249) (9,893) Amortization of deferred compensation................................................... 4,443 2,773 ---------- ---------- Balance at end of period.............................................................. $ (51,082) $ (33,922) ---------- ---------- ---------- ---------- ACCUMULATED OTHER COMPREHENSIVE INCOME: Balance at beginning of period.......................................................... $ (1,347) $ 23 Translation adjustments................................................................. (41) (674) ---------- ---------- Balance at end of period.............................................................. $ (1,388) $ (651) ---------- ---------- ---------- ---------- RETAINED EARNINGS: Balance at beginning of period.......................................................... $ 267,444 $ 194,691 Repurchases of common stock--excess over par value...................................... (9,693) (5,962) Net income.............................................................................. 29,050 19,920 ---------- ---------- Balance at end of period.............................................................. $ 286,801 $ 208,649 ---------- ---------- ---------- ---------- COMPREHENSIVE INCOME: Net income.............................................................................. $ 29,050 $ 19,920 Translation adjustments................................................................. (41) (674) ---------- ---------- Total comprehensive income............................................................ $ 29,009 $ 19,246 ---------- ---------- ---------- ---------- </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> THREE MONTHS ENDED MARCH 31, --------------------- 1998 1997 ---------- --------- (UNAUDITED) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................................................... $ 29,050 $ 19,920 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets.................................................... 1,233 1,225 Depreciation expense................................................................. 3,980 2,560 Provision for deferred income taxes.................................................. 3,044 (604) Changes in assets and liabilities, net of effects of acquisitions: Increase in accounts receivable...................................................... (18,652) (16,087) Increase in accounts payable, accrued expenses and accrued payroll costs............. 18,591 8,197 Increase (decrease) in income taxes payable.......................................... (2,745) 2,481 Change in other assets, net of change in other liabilities........................... 2,153 1,933 ---------- --------- Total adjustments...................................................................... 7,604 (295) ---------- --------- Net cash and cash equivalents provided by operating activities........................... 36,654 19,625 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, net of cash acquired....................................................... -- (3,267) Capital expenditures..................................................................... (16,141) (9,869) ---------- --------- Net cash and cash equivalents used in investing activities............................... (16,141) (13,136) CASH FLOWS FROM FINANCING ACTIVITIES: Repurchases of common stock.............................................................. (9,693) (5,962) Principal payments on notes payable and other indebtedness............................... (2,281) (1,150) Proceeds and tax benefits from exercises of stock options and restricted stock vesting... 18,544 8,060 ---------- --------- Net cash and cash equivalents provided by financing activities........................... 6,570 948 ---------- --------- Net increase in cash and cash equivalents................................................ 27,083 7,437 Cash and cash equivalents at beginning of period......................................... 131,349 80,181 ---------- --------- Cash and cash equivalents at end of period............................................... $ 158,432 $ 87,618 ---------- --------- ---------- --------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest............................................................................... $ 96 $ 124 Income taxes........................................................................... $ 5,028 $ 5,132 Acquisitions: Assets acquired-- Intangible assets.................................................................... $ -- $ 4,010 Other................................................................................ -- 475 Liabilities incurred-- Notes payable and contracts.......................................................... -- (536) Other................................................................................ -- (282) Common stock issued.................................................................... -- (400) ---------- --------- Cash paid, net of cash acquired........................................................ $ -- $ 3,267 ---------- --------- ---------- --------- </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, 1998 (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, full-time, and project professionals 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 1997 financial statements to conform to the 1998 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, 1998, and 1997 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, 1997. 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, 1998. 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. 5
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 (UNAUDITED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 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. PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost. Depreciation expense is computed using the straight-line method over the estmated 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--NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income", which defines the concept of "comprehensive income" and establishes reporting requirements effective for financial statements beginning in the first quarter of 1998. The adoption of SFAS No. 130 does not affect the Company's earnings, liquidity, or capital resources. Currently, foreign currency translation adjustments is the only "comprehensive income" item relevant to the Company. The Company has adopted SFAS No. 130 and "comprehensive income" is presented in the Consolidated Statements of Stockholders' Equity. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR EACH OF THE THREE MONTHS MARCH 31, 1998 AND 1997. Temporary services revenues were $371 million and $261 million for the three months ended March 31, 1998 and 1997, respectively, increasing by 42% during the three months ended March 31, 1998 compared to the same period in 1997. 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 $30 million and $22 million for the three months ended March 31, 1998 and 1997, respectively, increasing by 36% during the three months ended March 31, 1998 compared to the same period in 1997. 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 200 offices in 39 states and five foreign countries. Domestic operations represented 90% and 91% of revenues for the three months ended March 31, 1998 and 1997, respectively. Foreign operations represented 10% and 9% of revenues for the three months ended March 31, 1998 and 1997, 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 $131 million and $90 million for the three months ended March 31, 1998 and 1997, respectively, increasing by 46% in 1998. Gross margin amounts equaled 35% and 34% of revenues for temporary services for the three months ended March 31, 1998 and 1997, 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 $30 million and $22 million for the three months ended March 31, 1998 and 1997, respectively, increasing by 36% for the three months ended March 31, 1998. Selling, general and administrative expenses were $112 million for the three months ended March 31, 1998 compared to $78 million for the three months ended March 31, 1997. Selling, general and administrative expenses as a percentage of revenues were 28% and 27% for the three months ended March 31, 1998 and 1997, respectively. Selling, general and administrative expenses consist primarily of staff compensation, advertising and occupancy costs, most of which generally follow changes in revenues. The Company allocates the excess of cost over the fair market value of the net tangible assets first to identifiable intangible assets, if any, and then to goodwill. Although management believes that goodwill has an unlimited life, the Company amortizes these costs over 40 years. Management believes that its strategy of making acquisitions of established companies in established markets and maintaining its presence in these markets preserves the goodwill for an indeterminate period. The carrying value of intangible assets is 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, 1998. Intangible assets represented 28% of total assets and 38% of total stockholders' equity at March 31, 1998. Interest income for the three months ended March 31, 1998 and 1997 was $1,450,000 and $949,000, respectively. Interest expense for the three months ended March 31, 1998 and 1997 was $276,000 and $200,000, respectively. The change in interest income reflects an increase in cash and cash equivalents. The provision for income taxes was 41% for both the three months ended March 31, 1998 and 1997. 7
LIQUIDITY AND CAPITAL RESOURCES The change in the Company's liquidity during the three months ended March 31, 1998 is the net effect of funds generated by operations and the funds used for capital expenditures and principal payments on outstanding notes payable. For the three months ended March 31, 1998, the Company generated $36.7 million from operations, used $16.1 million in investing activities and provided $6.6 million by financing activities. The Company's working capital at March 31, 1998, included $158.4 million in cash and cash equivalents. In addition at March 31, 1998, the Company had available $73.8 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, 1998, the Company had no material capital commitments. In 1997, the Company initiated a number of major system projects to replace core systems. Management expects these new systems to be in place before Year 2000 and to resolve any major existing Year 2000 issues. The Company expects to spend in excess of $40 million on these projects. The Company will adopt SOP 98-1, "Accounting for the Costs of Computer Software Developed for Internal Use", which requires the capitalization of certain costs related to the development of software for internal use in fiscal year 1999. The Company believes that the adoption of this standard will not have a material impact on its financial results. ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risk sensitive instruments do not subject the the Company to material market risk exposures. 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> 11 Computation of Per Share Earnings. 27.1 Financial Data Schedule. 27.2 Restated Financial Data Schedule. 27.3 Restated 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) /s/ M. KEITH WADDELL -------------------------------------- M. Keith Waddell VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER (PRINCIPAL FINANCIAL OFFICER AND DULY AUTHORIZED SIGNATORY) Date: May 12, 1998 10