- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 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 June 30, 1998: 92,145,575 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> JUNE 30, DECEMBER 31, 1998 1997 ----------- ------------ <S> <C> <C> (UNAUDITED) ASSETS: Cash and cash equivalents................................................................. $ 191,325 $ 131,349 Accounts receivable, less allowances of $8,426 and $7,164................................. 217,479 186,899 Other current assets...................................................................... 24,542 15,757 ----------- ------------ Total current assets.................................................................. 433,346 334,005 Intangible assets, less accumulated amortization of $49,566 and $46,001................... 173,747 177,425 Property and equipment, less accumulated depreciation of $38,353 and $29,962.............. 71,283 49,937 ----------- ------------ Total assets.......................................................................... $ 678,376 $ 561,367 ----------- ------------ ----------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable and accrued expenses..................................................... $ 22,130 $ 20,285 Accrued payroll costs..................................................................... 122,093 95,925 Income taxes payable...................................................................... 7,171 2,258 Current portion of notes payable and other indebtedness................................... 1,050 3,627 ----------- ------------ Total current liabilities............................................................. 152,444 122,095 Notes payable and other indebtedness, less current portion................................ 4,235 4,530 Deferred income taxes..................................................................... 20,123 15,942 ----------- ------------ Total liabilities..................................................................... 176,802 142,567 Commitments and Contingencies STOCKHOLDERS' EQUITY: Common stock, $.001 par value authorized 160,000,000 shares; issued and outstanding 92,159,116 and 91,208,029 shares......................................................... 92 91 Capital surplus........................................................................... 242,914 196,888 Deferred compensation..................................................................... (52,649) (44,276) Accumulated other comprehensive income.................................................... (1,551) (1,347) Retained earnings......................................................................... 312,768 267,444 ----------- ------------ Total stockholders' equity............................................................ 501,574 418,800 ----------- ------------ Total liabilities and stockholders' equity............................................ $ 678,376 $ 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 SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- (UNAUDITED) (UNAUDITED) <S> <C> <C> <C> <C> Net service revenues............................................. $ 442,153 $ 311,622 $ 843,449 $ 594,645 Direct costs of services, consisting of payroll, payroll taxes and insurance costs for temporary employees..................... 264,460 187,482 504,785 358,611 ---------- ---------- ---------- ---------- Gross margin..................................................... 177,693 124,140 338,664 236,034 Selling, general and administrative expenses..................... 123,555 86,229 235,525 163,870 Amortization of intangible assets................................ 1,230 1,235 2,463 2,460 Interest income.................................................. (1,518) (937) (2,692) (1,686) ---------- ---------- ---------- ---------- Income before income taxes....................................... 54,426 37,613 103,368 71,390 Provision for income taxes....................................... 22,146 15,403 42,038 29,260 ---------- ---------- ---------- ---------- Net income....................................................... $ 32,280 $ 22,210 $ 61,330 $ 42,130 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Basic net income per share....................................... $ .35 $ .25 $ .67 $ .47 Diluted net income per share..................................... $ .34 $ .24 $ .64 $ .45 </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> SIX MONTHS ENDED JUNE 30, ---------------------- 1998 1997 ---------- ---------- (UNAUDITED) <S> <C> <C> COMMON STOCK--SHARES: Balance at beginning of period.......................................................... 91,208 89,622 Issuances of restricted stock........................................................... 280 484 Repurchases of common stock............................................................. (354) (409) Exercises of stock options.............................................................. 1,025 995 Issuance of common stock for acquisition................................................ -- 14 ---------- ---------- Balance at end of period.............................................................. 92,159 90,706 ---------- ---------- ---------- ---------- COMMON STOCK--PAR VALUE: Balance at beginning of period.......................................................... $ 91 $ 90 Exercises of stock options.............................................................. 1 1 ---------- ---------- Balance at end of period.............................................................. $ 92 $ 91 ---------- ---------- ---------- ---------- CAPITAL SURPLUS: Balance at beginning of period.......................................................... $ 196,888 $ 140,473 Issuances of restricted stock--excess over par value.................................... 17,939 14,014 Exercises of stock options--excess over par value....................................... 5,814 3,928 Issuance of common stock for acquisition................................................ -- 400 Tax benefits from exercises of stock options and restricted stock vesting............... 22,273 12,808 ---------- ---------- Balance at end of period.............................................................. $ 242,914 $ 171,623 ---------- ---------- ---------- ---------- DEFERRED COMPENSATION: Balance at beginning of period.......................................................... $ (44,276) $ (26,802) Issuances of restricted stock........................................................... (17,939) (14,014) Amortization of deferred compensation................................................... 9,566 5,652 ---------- ---------- Balance at end of period.............................................................. $ (52,649) $ (35,164) ---------- ---------- ---------- ---------- ACCUMULATED OTHER COMPREHENSIVE INCOME: Balance at beginning of period.......................................................... $ (1,347) $ 23 Translation adjustments................................................................. (204) (856) ---------- ---------- Balance at end of period.............................................................. $ (1,551) $ (833) ---------- ---------- ---------- ---------- RETAINED EARNINGS: Balance at beginning of period.......................................................... $ 267,444 $ 194,691 Repurchases of common stock--excess over par value...................................... (16,006) (10,766) Net income.............................................................................. 61,330 42,130 ---------- ---------- Balance at end of period.............................................................. $ 312,768 $ 226,055 ---------- ---------- ---------- ---------- COMPREHENSIVE INCOME: Net income.............................................................................. $ 61,330 $ 42,130 Translation adjustments................................................................. (204) (856) ---------- ---------- Total comprehensive income............................................................ $ 61,126 $ 41,274 ---------- ---------- ---------- ---------- </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> SIX MONTHS ENDED JUNE 30, ---------------------- 1998 1997 ---------- ---------- (UNAUDITED) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income.............................................................................. $ 61,330 $ 42,130 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets..................................................... 2,463 2,460 Depreciation expense.................................................................. 8,508 5,643 Provision for deferred income taxes................................................... 1,882 (2,015) Changes in assets and liabilities, net of effects of acquisitions: Increase in accounts receivable..................................................... (30,580) (28,708) Increase in accounts payable, accrued expenses and accrued payroll costs............ 28,918 16,968 Increase (decrease) in income taxes payable......................................... 4,913 587 Change in other assets, net of change in other liabilities.......................... 4,158 4,672 ---------- ---------- Total adjustments................................................................. 20,262 (393) ---------- ---------- Net cash and cash equivalents provided by operating activities.......................... 81,592 41,737 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, net of cash acquired...................................................... -- (3,338) Capital expenditures.................................................................... (31,456) (16,616) ---------- ---------- Net cash and cash equivalents used in investing activities.............................. (31,456) (19,954) CASH FLOWS FROM FINANCING ACTIVITIES: Repurchases of common stock............................................................. (16,006) (10,766) Principal payments on notes payable and other indebtedness.............................. (2,242) (1,503) Proceeds and tax benefits from exercises of stock options and restricted stock vesting............................................................................... 28,088 16,736 ---------- ---------- Net cash and cash equivalents provided by financing activities............................ 9,840 4,467 ---------- ---------- Net increase in cash and cash equivalents................................................. 59,976 26,250 Cash and cash equivalents at beginning of period.......................................... 131,349 80,181 ---------- ---------- Cash and cash equivalents at end of period................................................ $ 191,325 $ 106,431 ---------- ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest................................................................................ $ 171 $ 223 Income taxes............................................................................ $ 12,483 $ 17,910 Acquisitions: Assets acquired-- Intangible assets..................................................................... $ -- $ 4,079 Other................................................................................. -- 499 Liabilities incurred-- Notes payable and contracts........................................................... -- (536) Other................................................................................. -- (304) Common stock issued..................................................................... -- (400) ---------- ---------- Cash paid, net of cash acquired......................................................... $ -- $ 3,338 ---------- ---------- ---------- ---------- </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, 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 and six months ended June 30, 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 June 30, 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) JUNE 30, 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 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--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 AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 Temporary services revenues were $407 million and $288 million for the three months ended June 30, 1998 and 1997, respectively, increasing by 41% during the three months ended June 30, 1998 compared to the same period in 1997. Temporary services revenues were $778 million and $549 million for the six months ended June 30, 1998 and 1997, respectively, increasing by 42% during the six months ended June 30, 1998 compared to the same period in 1997. Permanent placement revenues were $35 million and $24 million for the three months ended June 30, 1998 and 1997, respectively, increasing by 46% during the three months ended June 30, 1998 compared to the same period in 1997. Permanent placement revenues were $65 million and $46 million for the six months ended June 30, 1998 and 1997, respectively, increasing by 41% during the six months ended June 30, 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 225 offices in 39 states and five foreign countries. Domestic operations represented 89% and 90% of revenues for the three and six months ended June 30, 1998, respectively, and 90% of revenues for both the three and six months ended June 30, 1997. Foreign operations represented 11% and 10% of revenues for the three and six months ended June 30, 1998, respectively, and 10% of revenues for both the three and six months ended June 30, 1997. 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 $143 million and $274 million for the three and six months ended June 30, 1998, respectively, compared to $100 million and $190 million for the comparable periods in 1997, increasing by 43% and 44% for the three and six months ended June 30, 1998, respectively. Gross margin amounts equaled 35% of revenues for temporary services for both the three and six months ended June 30, 1998, compared to 35% of temporary service revenues for both the three and six months ended June 30, 1997, 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 $35 million and $65 million for the three and six months ended June 30, 1998, respectively, compared to $24 million and $46 million for the comparable periods in 1997, increasing by 46% and 41% for the three and six months ended June 30, 1998, respectively. Selling, general and administrative expenses were $124 million and $236 million for the three and six months ended June 30, 1998, respectively, compared to $86 million and $164 million during the three and six months ended June 30, 1997, respectively. Selling, general and administrative expenses as a percentage of revenues were 28% in both the three and six months ended June 30, 1998 compared to 28% for both the three and six months ended June 30, 1997. 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 June 30, 1998. Intangible assets represented 26% of total assets and 35% of total stockholders' equity at June 30, 1998. 7
Interest income for the three months ended June 30, 1998 and 1997 was $1,828,000 and $1,148,000, respectively, while interest expense for the three months ended June 30, 1998 and 1997 was $310,000 and $211,000, respectively. Interest income for the six months ended June 30, 1998 and 1997 was $3,278,000 and $2,097,000, respectively, while interest expense for the six months ended June 30, 1998 and 1997 was $586,000 and $411,000, respectively. The change in interest income reflects an increase in cash and cash equivalents. The provision for income taxes was 41% for all periods presented. LIQUIDITY AND CAPITAL RESOURCES The change in the Company's liquidity during the six months ended June 30, 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 six months ended June 30, 1998, the Company generated $81.6 million from operations, used $31.5 million in investing activities and provided $9.8 million by financing activities. The Company's working capital at June 30, 1998, included $191.3 million in cash and cash equivalents. In addition at June 30, 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 June 30, 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 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 On May 6, 1998, registrant held its annual meeting of stockholders. The only matter presented to stockholders at the annual meeting was the election of two directors to Class III. The vote for director was as follows: <TABLE> <CAPTION> NOMINEE SHARES FOR SHARES WITHHELD - --------------------------------------------------------------- ------------ --------------- <S> <C> <C> Edward W. Gibbons.............................................. 80,244,170 525,832 Harold M. Messmer, Jr.......................................... 80,226,779 543,223 </TABLE> The continuing directors, whose terms of office did not expire at the meeting, are Andrew S. Berwick, Jr., Frederick P. Furth, Frederick A. Richman, Thomas J. Ryan and J. Stephen Schaub. 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> 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) /s/ M. KEITH WADDELL -------------------------------------- M. Keith Waddell SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER (PRINCIPAL FINANCIAL OFFICER AND DULY AUTHORIZED SIGNATORY) Date: August 5, 1998 10