Item 1. Business
Robert Half International Inc. is the world's largest specialized provider of temporary and permanent personnel in the fields of accounting and finance. Its divisions include Accountemps® and Robert Half®, providers of temporary and permanent personnel, respectively, in the fields of accounting and finance. The Company, utilizing its experience as a specialized provider of temporary and permanent personnel, has expanded into additional specialty fields. In 1991, the Company formed OfficeTeam® to provide skilled temporary administrative and office personnel. In 1994, the Company established RHI Consulting® to concentrate on providing temporary and contract information technology professionals in positions ranging from PC support technician to chief information officer. In 1992, the Company acquired The Affiliates®, which focuses on placing temporary and regular employees in paralegal, legal administrative and other legal support positions. In 1997, the Company established RHI Management Resources® to provide senior level project professionals specializing in the accounting and finance fields. The Creative Group® provides project staffing in the advertising, marketing and web design fields.
The Company's business was originally founded in 1948. Prior to 1986, the Company was primarily a franchisor of Accountemps and Robert Half offices. Beginning in 1986, the Company and its current management embarked on a strategy of acquiring franchised locations. Only two of the Accountemps and Robert Half franchises remain outstanding. The Company has also acquired other local or regional providers of specialized temporary service personnel. Since 1986, the Company has significantly expanded operations at many of the acquired locations and has opened many new locations. The Company believes that direct ownership of offices allows it to better monitor and protect the image of its tradenames, promotes a more consistent and higher level of quality and service throughout its network of offices and improves profitability by centralizing many of its administrative functions. The Company currently has more than 330 offices in 41 states and the District of Columbia and ten foreign countries and placed approximately 215,000 employees on temporary assignment with clients in 2001.
Accountemps
The Accountemps temporary services division offers customers a reliable and economical means of dealing with uneven or peak work loads for accounting, tax and finance personnel caused by such predictable events as vacations, taking inventories, tax work, month-end activities and special projects and such unpredictable events as illness and emergencies. Businesses increasingly view the use of temporary employees as a means of controlling personnel costs and converting such costs from fixed to variable. The cost and inconvenience to clients of hiring and firing permanent employees are eliminated by the use of Accountemps temporaries. The temporary workers are employees of Accountemps and are paid by Accountemps only when working on customer assignments. The customer pays a fixed rate only for hours worked.
Accountemps clients may fill their permanent employment needs by using an Accountemps employee on a trial basis and, if so desired, "converting" the temporary position to a permanent position. The client typically pays a one-time fee for such conversions.
OfficeTeam
The Company's OfficeTeam division, which commenced operations in 1991, places temporary and permanent office and administrative personnel, ranging from word processors to office managers. OfficeTeam operates in much the same fashion as the Accountemps and Robert Half divisions.
Robert Half
The Company offers permanent placement services through its office network under the name Robert Half. The Company's Robert Half division specializes in placing accounting, financial, tax and banking personnel. Fees for successful permanent placements are paid only by the employer and are generally a percentage of the new employee's annual compensation. No fee for permanent placement services is charged to employment candidates.
RHI Consulting
The Company's RHI Consulting division, which commenced operations in 1994, specializes in providing information technology contract consultants and placing regular employees in areas ranging
from multiple platform systems integration to end-user support, including specialists in programming, networking, systems integration, database design and help desk support.
The Affiliates
Since 1992, the Company has been placing temporary and permanent employees in attorney, paralegal, legal administrative and legal secretarial positions through its The Affiliates division. The legal profession's requirements (the need for confidentiality, accuracy and reliability, a strong drive toward cost-effectiveness, and frequent peak workload periods) are similar to the demands of the clients of the Accountemps division.
RHI Management Resources
The Company's RHI Management Resources division, which commenced operations in 1997, specializes in providing senior level project professionals in the accounting and finance fields, including chief financial officers, controllers, and senior financial analysts, for such tasks as financial systems conversions, expansion into new markets, business process reengineering and post-merger financial consolidation.
The Creative Group
The Creative Group division, the Company's newest division, commenced operations in 1999 and serves clients in the areas of advertising, marketing and web design and places project consultants in a variety of positions such as creative directors, graphics designers, web content developers, web designers, media buyers, and public relations specialists.
Marketing and Recruiting
The Company markets its services to clients as well as employment candidates. Local marketing and recruiting are generally conducted by each office or related group of offices. Local advertising directed to clients and employment candidates consists primarily of yellow pages advertisements, classified advertisements, websites, trade shows and advertising on the Internet. Direct marketing through e-mail, regular mail and telephone solicitation also constitutes a significant portion of the Company's total advertising. National advertising conducted by the Company consists primarily of radio, television, print advertisements in national newspapers, magazines and certain trade journals. The Company has initiated programs to take advantage of the Internet as a resource for recruiting candidates and filling client orders. Recent Internet initiatives include forging traffic building alliances with leading Internet career search sites. The Company plans to expand its use of the Internet in all aspects of sales and recruitment. Joint marketing arrangements have been entered into with Microsoft, Peachtree Software and Intuit and typically provide for cooperative advertising, joint mailings and similar promotional activities. The Company also actively seeks endorsements and affiliations with professional organizations in the business management, office administration and professional secretarial fields. The Company also conducts public relations activities designed to enhance public recognition of the Company and its services. Local employees are encouraged to be active in civic organizations and industry trade groups.
The Company owns many trademarks, service marks and tradenames, including the Robert Half®, Accountemps®, OfficeTeam®, The Affiliates®, RHI Consulting®, RHI Management Resources® and The Creative Group® marks, which are registered in the United States and in a number of foreign countries.
Organization
Management of the Company's operations is coordinated from its headquarters facilities in Menlo Park and Pleasanton, California. The Company's headquarters provides support and centralized services to its offices in the administrative, marketing, accounting, training and legal areas, particularly as it relates to the standardization of the operating procedures of its offices. The Company has more than 330 offices in 41 states and the District of Columbia and ten foreign countries. Office managers are responsible for most activities of their offices, including sales, local advertising and marketing and recruitment.
Competition
The Company faces competition in its efforts to attract clients as well as high-quality specialized employment candidates. The temporary and permanent placement businesses are highly competitive, with
a number of firms offering services similar to those provided by the Company on a national, regional or local basis. In many areas the local companies are the strongest competitors. The most significant competitive factors in the temporary and permanent placement businesses are price and the reliability of service, both of which are often a function of the availability and quality of personnel. The Company believes it derives a competitive advantage from its long experience with and commitment to the specialized employment market, its national presence, and its various marketing activities.
Employees
The Company has approximately 6,300 full-time staff employees. The Company's offices placed approximately 215,000 employees on temporary assignments with clients during 2001. Temporary employees placed by the Company are the Company's employees for all purposes while they are working on assignments. The Company pays the related costs of employment, such as workers' compensation insurance, state and federal unemployment taxes, social security and certain fringe benefits. The Company provides voluntary health insurance coverage to interested temporary employees.
Other Information
The Company's current business constitutes two business segments. (See Note L of Notes to Consolidated Financial Statement in Item 8. Financial Statements and Supplementary Data for financial information about the Company's segments.)
The Company is not dependent upon a single customer or a limited number of customers. The Company's operations are generally more active in the first and fourth quarters of a calendar year. Order backlog is not a material aspect of the Company's business and no material portion of the Company's business is subject to government contracts.
Information about foreign operations is contained in Note L of Notes to Consolidated Financial Statements in Item 8. The Company does not have export sales.
Risk Factors
The Company's business prospects are subject to various risks and uncertainties that impact its business. The most important of these risks and uncertainties are as follows:
Business Highly Dependent Upon the State of the Economy. The demand for the Company's services is highly dependent upon the state of the economy and upon the staffing needs of the Company's clients. Any variation in the economic condition or unemployment levels of the U.S. or of any of the foreign countries in which the Company does business, or in the economic condition of any region of any of the foregoing, or in any specific industry may severely reduce the demand for the Company's services and thereby significantly decrease the Company's revenues and profits.
Availability of Candidates. The Company's business consists of the placement of individuals seeking temporary and permanent employment. There can be no assurance that qualified candidates for employment will continue to seek temporary employment through the Company. Qualified candidates generally seek temporary or permanent positions through multiple sources, including the Company and its competitors. Any shortage of qualified candidates could materially adversely affect the Company.
Highly Competitive Business. The personnel services business is highly competitive and, because it is a service business, the barriers to entry are quite low. There are many competitors, some of which have greater resources than the Company, and new competitors are entering the market all the time. In addition, long-term contracts form a negligible portion of the Company's revenue. Therefore, there can be no assurance that the Company will be able to retain clients or market share in the future. Nor can there be any assurance that the Company will, in light of competitive pressures, be able to remain profitable or, if profitable, maintain its current profit margins.
Potential Liability to Employees and Clients. The Company's temporary services business entails employing individuals on a temporary basis and placing such individuals in clients' workplaces. The Company's ability to control the workplace environment is limited. As the employer of record of its temporary employees, the Company incurs a risk of liability to its temporary employees for various workplace events, including claims of physical injury, discrimination or harassment. While such claims have not historically had a material adverse effect upon the Company, there can be no assurance that such claims in the future will not result in adverse publicity or have a material adverse effect upon the Company.
The Company also incurs a risk of liability to its clients resulting from allegations of errors, omissions or theft by its temporary employees. The Company maintains insurance with respect to many of such claims. While such claims have not historically had a material adverse effect upon the Company, there can be no assurance that the Company will continue to be able to obtain insurance at a cost that does not have a material adverse effect upon the Company or that such claims (whether by reason of the Company not having insurance or by reason of such claims being outside the scope of the Company's insurance) will not have a material adverse effect upon the Company.
Dependence Upon Personnel. The Company is engaged in the personnel services business. As such, its success or failure is highly dependent upon the performance of its management personnel and employees, rather than upon technology or upon tangible assets (of which the Company has few). There can be no assurance that the Company will be able to attract and retain the personnel that are essential to its success.
Government Regulation of the Personnel Services Business. The Company's business is subject to regulation or licensing in many states and in certain foreign countries. While the Company has had no material difficulty complying with regulations in the past, there can be no assurance that the Company will be able to continue to obtain all necessary licenses or approvals or that the cost of compliance will not prove to be material. Any inability of the Company to comply with government regulation or licensing requirements could materially adversely affect the Company.
Government Regulation of the Workplace. The Company's temporary services business entails employing individuals on a temporary basis and placing such individuals in clients' workplaces. Increased government regulation of the workplace or of the employer-employee relationship could materially adversely affect the Company.
Reliance on Short-Term Contracts. 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.
Item 2.
Item 2. Properties
The Company's headquarters operations are located in Menlo Park and Pleasanton, California. Placement activities are conducted through more than 330 offices located in the United States, Canada, the United Kingdom, Belgium, France, the Netherlands, Germany, the Czech Republic, Ireland, Australia and New Zealand. All of the offices are leased.
Item 3.
Item 3. Legal Proceedings
The Company is not a party to any material pending legal proceedings other than routine litigation incidental to its business.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year covered by this report.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is listed for trading on the New York Stock Exchange under the symbol "RHI". On December 31, 2001, there were approximately 2,220 holders of record of the Common Stock.
Following is a list by fiscal quarters of the sales prices of the stock, adjusted, as appropriate, to reflect the two-for-one stock split effected in the form of a stock dividend in June 2000:
No cash dividends were paid in 2001 or 2000. The Company, as it deems appropriate, may continue to retain all earnings for use in its business or may consider paying a dividend in the future.
Item 6.
Item 6. Selected Financial Data
Following is a table of selected financial data of the Company for the last five years:
Item 7.
Item 7. 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.
Critical Accounting Policies
In response to the SEC's Release No. 33-8040, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies," we identified the Company's most critical accounting policies to be those that involve subjective decisions, assessments or estimates. These are described in Note A to the consolidated financial statements.
The Company has a long history of issuing stock options to employees and directors as an integral part of its compensation programs. Generally accepted accounting principles allow alternative methods of accounting for these plans. The Company has chosen to account for its stock option plans under APB opinion 25. Accordingly, no compensation expense related to stock options is included in determining net income and net income per share in the consolidated financial statements. The alternative method of accounting for stock options is prescribed by Statement of Financial Accounting Standards No. 123. Note I to the consolidated financial statements sets forth calculations of pro forma net income and net income per share computed in accordance with this alternative method.
Results of Operations for the Three Years Ended December 31, 2001
Temporary and consultant staffing revenues were $2.26 billion, $2.45 billion and $1.92 billion for the years ended December 31, 2001, 2000 and 1999, respectively, decreasing by 8% during 2001 and increasing by 28% during 2000. Permanent placement staffing revenues were $189 million, $252 million and $159 million for the years ended December 31, 2001, 2000 and 1999, respectively, decreasing by 25% during 2001 and increasing by 58% during 2000. Overall 2001 revenue results were adversely impacted by the ongoing recession in the United States, which is also expected to negatively impact 2002 revenue results.
As of December 31, 2001, the Company had more than 330 offices in 41 states and the District of Columbia and 10 foreign countries. Revenues from domestic operations represented 85%, 89% and 88% of revenues for the years ended December 31, 2001, 2000 and 1999, respectively. Revenues from foreign operations represented 15%, 11% and 12% of revenues for the years ended December 31, 2001, 2000 and 1999, 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 $828 million, $908 million and $703 million for the years ended December 31, 2001, 2000 and 1999, respectively, decreasing by 9% in 2001 and increasing by 29% in 2000. Gross margin amounts equaled 37% of revenues for temporary and consultant staffing services for the three years ended December 31, 2001, 2000, and 1999, 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 staffing division were $189 million, $252 million and $159 million for the years ended December 31, 2001, 2000 and 1999, respectively, decreasing by 25% and increasing by 58% in 2001 and 2000, respectively.
Selling, general and administrative expenses consist primarily of staff compensation, advertising, depreciation and occupancy costs. Selling, general and administrative expenses were $823 million during 2001, compared to $864 million in 2000 and $628 million in 1999. The decrease in 2001 primarily reflects lower staff compensation costs, which were partially offset by increases in depreciation and occupancy costs. Selling, general and administrative expenses as a percentage of revenues were 34% for the year ended December 31, 2001, and 32% for the year ended December 31, 2000 and 30% for the year ended December 31, 1999. The percentage increase in 2001 was due to the negative leverage from fixed operating expenses including depreciation and occupancy costs.
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 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 there was no material impairment of intangible assets at December 31, 2001. Net intangible assets represented 16% of total assets and 20% of total stockholders' equity at December 31, 2001.
The Company will adopt SFAS No. 142, Goodwill and Other Intangible Assets, on January 1, 2002, resulting in the discontinuance of the amortization of certain intangible assets currently amortized over 40 years. Upon adoption of SFAS No. 142, the Company expects to stop recording amortization expense, net of income tax effects, of approximately $4.6 million per year. The methods used for evaluating and measuring impairment of certain intangible assets will change. While the Company has not completed the new impairment analysis, it is not expected to have a material effect on the financial statements.
Interest income for the years ended December 31, 2001, 2000 and 1999 was $9.3 million, $11.3 million and $6.8 million, respectively. Higher average cash balances in 2001 were more than offset by lower interest rates earned during the year. Interest expense for the years ended December 31, 2001, 2000 and 1999 was $.8 million, $.9 million and $.7 million, respectively.
The provision for income taxes was 38% for both the years ended December 31, 2001 and 2000 and 40% for the year ended December 31, 1999. The decrease for years 2001 and 2000 reflects the impact of various state tax planning initiatives undertaken during 1999.
Liquidity and Capital Resources
The change in the Company's liquidity during the past three years is the net effect of funds generated by operations and the funds used for the staffing services acquisitions, capital expenditures, repurchases of common stock, and principal payments on outstanding notes payable. As of December 31, 2001, the Company has authorized the repurchase, from time to time, of up to 8 million additional shares of the Company's common stock on the open market or in privately negotiated transactions, depending on market conditions. During the year ended December 31, 2001, the Company repurchased approximately 4.3 million shares of common stock on the open market bringing the total shares repurchased under this and previous authorizations to approximately 20 million shares. Repurchases of the securities have been funded with cash generated from operations. For the year ended December 31, 2001, the Company generated $276 million in cash from operations, used $85 million in investing activities and used $83 million in financing activities.
The Company's working capital at December 31, 2001, included $347 million in cash and cash equivalents. In addition, at December 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 December 31, 2001, the Company had no material capital commitments.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk sensitive instruments do not subject the Company to material market risk exposures.
Item 8.
Item 8. Financial Statements and Supplementary Data
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands, except share amounts)
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, Robert Half, OfficeTeam, RHI Consulting, RHI Management Resources, The Affiliates and The Creative Group. 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 and consultant staffing 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 and 1999 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 December 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.
Stock Option Plans. The Company accounts for its stock option plans under APB Opinion 25. Accordingly, no compensation expense related to stock options is included in determining net income and net income per share in the consolidated financial statements. See Note I for the disclosure of the Company's pro forma net income and net income per share had compensation costs for these plans been recorded in the consolidated financial statements as prescribed by Statement of Financial Standards No. 123.
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. As of December 31, 2001, such estimates included accounts receivable allowances of $14.4 million and workers' compensation accruals of $14.8 million, both of which were determined using historical loss statistics, which could differ materially from actual losses.
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, primarily two to five years. 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-New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. Under SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. The Company will adopt SFAS No. 142 on January 1, 2002 resulting in the discontinuance of the amortization of certain intangible assets currently amortized over 40 years. Upon adoption of SFAS No. 142, the Company expects to stop recording amortization expense, net of income tax effects, of approximately $4.6 million per year. The methods used for evaluating and measuring impairment of certain intangible assets will change. While the Company has not completed the new impairment analysis, it is not expected to have a material effect on the financial statements.
Note C-Notes Payable and Other Indebtedness
The Company issued promissory notes as well as other forms of indebtedness in connection with certain acquisitions and other payment obligations. These are due in varying installments, carry varying interest rates and, in aggregate, amounted to $2.7 million at December 31, 2001 and $3.8 million at December 31, 2000. At December 31, 2001, $2.3 million of the notes were secured by a standby letter of credit (see Note D). The following table shows the schedule of maturities for notes payable and other indebtedness at December 31, 2001 (in thousands):
At December 31, 2001, the notes carried fixed rates and the weighted average interest rate for the above was approximately 8.2%, 8.3% and 8.1% for the years ended December 31, 2001, 2000 and 1999, respectively.
Note D-Bank Loan (Revolving Credit)
The Company has an unsecured credit facility which provides a line of credit of up to $80 million, which is available to fund the Company's general business and working capital needs, including acquisitions and the purchase of the Company's common stock, and to cover the issuance of debt support standby letters of credit up to $15 million.
As of December 31, 2001 and 2000, the Company had no borrowings on the line of credit outstanding and had used $5.1 million and $5.2 million in debt support standby letters of credit, respectively. There is a commitment fee on the unused portion of the entire credit facility of .09%. The loan is subject to certain financial covenants which also affect the interest rates charged. The final maturity date for the credit facility is August 31, 2002.
Note E-Accrued Payroll Costs
Accrued payroll costs consisted of the following (in thousands):
Note F-Stockholders' Equity
Stock Repurchase Program-As of December 31, 2001, the Company's Board of Directors has authorized the repurchase, from time to time, of up to 8 million additional shares of the Company's common stock on the open market or in privately negotiated transactions, depending on market conditions. During the year ended December 31, 2001, the Company repurchased approximately 4.3 million shares on the open market for a total cost of $99 million. Since 1997, the Company has repurchased approximately 20 million shares of common stock on the open market pursuant to this program. Additional stock repurchases were made in connection with employee stock plans, whereby Company shares were tendered by employees for the payment of applicable withholding taxes. During the year ended December 31, 2001, such repurchases totaled approximately 800,000 shares at a cost of $20 million.
Note G-Income Taxes
The provision for income taxes for the years ended December 31, 2001, 2000 and 1999 consisted of the following (in thousands):
Income before the provision for income taxes for the years ended December 31, 2001, 2000 and 1999 consisted of the following (in thousands):
The income taxes shown above varied from the statutory federal income tax rates for these periods as follows:
The deferred portion of the tax provisions consisted of the following (in thousands):
The deferred income tax amounts included on the balance sheet are comprised of the following (in thousands):
No valuation allowances against deferred tax assets were required for the years ended December 31, 2001 and 2000.
The components of the deferred income tax amounts at December 31, 2001 and 2000, were as follows (in thousands):
Note H-Commitments
Rental expense, primarily for office premises, amounted to $62.8 million, $47.4 million and $37.4 million for the years ended December 31, 2001, 2000 and 1999, respectively. The approximate
minimum rental commitments for 2002 and thereafter under non-cancelable leases in effect at December 31, 2001, were as follows (in thousands):
Note I-Stock Plans
Under various stock plans, officers, employees and outside directors may receive grants of restricted stock or options to purchase common stock. Grants are made at the discretion of the Stock Plan Committee of the Board of Directors. Grants generally vest between two and seven years.
Options granted under the plans have exercise prices ranging from 85% to 100% of the fair market value of the Company's common stock at the date of grant and may consist of both incentive stock options and nonstatutory stock options under the Internal Revenue Code. The terms range from 27 months to 10 years.
Recipients of restricted stock do not pay any cash consideration to the Company for the shares, have the right to vote all shares subject to such grant, and receive all dividends with respect to such shares, whether or not the shares have vested. Compensation expense is recognized on a straight-line basis over the vesting period. Vesting is accelerated upon the death or disability of the recipients.
The Company accounts for these plans under APB Opinion 25, therefore, no compensation cost has been recognized for its stock option plans. Had compensation cost for the stock options granted subsequent to January 1, 1995, been based on the estimated fair value at the award dates, as prescribed by Statement of Financial Accounting Standards No. 123, the Company's pro forma net income and net income per share would have been as follows (in thousands, except per share amounts):
The pro forma amounts do not include amounts for stock options granted before January 1, 1995. Therefore, the pro forma amounts may not be representative of the disclosed effects on pro forma net income and net income per share for future years.
The fair value of each option is estimated, as of the grant date, using the Black-Scholes option pricing model with the following assumptions used for grants in 2001, 2000 and 1999: no dividend yield for any year; expected volatility of 49% to 56%; risk-free interest rates of 3.5% to 6.8%; and expected lives of 1.5 to 5.7 years.
Note I-Stock Plans (Continued)
The following table reflects activity under all stock plans from December 31, 1998 through December 31, 2001, and the weighted average exercise prices (in thousands, except per share amounts):
The following table summarizes information about options outstanding as of December 31, 2001 (in thousands, except number of years and per share amounts):
At December 31, 2001, the total number of available shares to grant under the plans (consisting of either restricted stock or options) was 8.2 million.
Note J-Net Income Per Share
The calculation of net income per share for the three years ended December 31, 2001 is reflected in the following table (in thousands, except per share amounts):
Note K-Quarterly Financial Data (Unaudited)
The following tabulation shows certain quarterly financial data for 2001 and 2000 (in thousands, except per share amounts):
Note L-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, administrative and office, 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.
The following table provides a reconciliation of revenue and operating profit by reportable segment to consolidated results (in thousands):
The Company does not report total assets by segment. The following table represents identifiable assets by business segment (in thousands):
The Company operates internationally, with operations in the United States, Canada, Europe, Australia, and New Zealand. The following tables represent revenues and long-lived assets by geographic location (in thousands):
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors
of Robert Half International Inc.:
We have audited the accompanying consolidated statements of financial position of Robert Half International Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Robert Half International Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
San Francisco, California
January 18, 2002
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
The information required by Items 10 through 13 of Part III is incorporated by reference from the registrant's Proxy Statement, under the captions "Nomination and Election of Directors," "Beneficial Stock Ownership," "Compensation of Directors," "Compensation of Executive Officers" and "Compensation Committee Interlocks and Insider Participation and Certain Transactions," which Proxy Statement will be mailed to stockholders in connection with the registrant's annual meeting of stockholders which is scheduled to be held in May 2002.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements The following consolidated financial statements of the Company and its subsidiaries are included in Item 8 of this report:
Consolidated statements of financial position at December 31, 2001 and 2000.
Consolidated statements of income for the years ended December 31, 2001, 2000 and 1999.
Consolidated statements of stockholders' equity for the years ended December 31, 2001, 2000 and 1999.
Consolidated statements of cash flows for the years ended December 31, 2001, 2000 and 1999.
Notes to consolidated financial statements.
Report of independent public accountants.
Selected quarterly financial data for the years ended December 31, 2001 and 2000 are set forth in Note K-Quarterly Financial Data (Unaudited) included in Item 8 of this report.
2. Financial Statement Schedules
Schedules I through V have been omitted as they are not applicable.
3. Exhibits
Exhibit No.
Exhibit
3.1
Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2001.
3.2
By-Laws, incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1999.
4.1
Indenture dated as of October 1, 1972, as amended, between IDS Realty Trust and First National Bank of Minneapolis, incorporated by reference to Exhibits 6(t) and 6(v) to the Form S-14 Registration Statement of the Registrant (formerly known as Boothe Interim Corporation) filed with the Securities and Exchange Commission on December 31, 1979.
4.2
Restated Certificate of Incorporation of Registrant (filed as Exhibit 3.1).
10.1
Credit Agreement dated as of November 1, 1993, among the Registrant, NationsBank of North Carolina, N.A. and Bank of America National Trust and Savings Association, as amended, incorporated by reference to (i) Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1993, (ii) Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995, (iii) Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and (iv) Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997.
*10.2
Employment Agreement between the Registrant and Harold M. Messmer, Jr., incorporated by reference to (i) Exhibit 10.(c) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985, (ii) Exhibit 10.2(b) to Registrant's Registration Statement on Form S-1 (No. 33-15171), (iii) Exhibit 10.2(c) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, (iv) Exhibit 10.2(d) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, (v) Exhibit 28.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1990, (vi) Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, (vii) Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1993, (viii) Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, (ix) Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1995, (x) Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, (xi) Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, (xii) Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, (xiii) Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and (xiv) Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
*10.3
Key Executive Retirement Plan-Level II, as amended, incorporated by reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
*10.4
Restated Retirement Agreement, as amended, between the Registrant and Harold M. Messmer, Jr. Amendment No. 1 is filed with this Annual Report on Form 10-K for the fiscal year ended December 31, 2001. The original Restated Retirement Agreement is incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
*10.5
Excise Tax Restoration Agreement dated November 5, 1996, incorporated by reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
*10.6
Outside Directors' Option Plan, as amended, incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2000.
*10.7
1989 Restricted Stock Plan, as amended, incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997.
*10.8
Equity Incentive Plan, as amended, incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2000.
*10.9
Deferred Compensation Plan, incorporated by reference to Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
*10.10
Annual Performance Bonus Plan, incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2000.
*10.11
Severance Agreement dated as of August 2, 2000, between Registrant and Paul F. Gentzkow, incorporated by reference to Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2000.
*10.12
Agreement dated as of July 31, 1995, between Registrant and Paul F. Gentzkow, incorporated by reference to Exhibit 10.6 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2000.
*10.13
Severance Agreement dated as of October 1, 1991, between Registrant and Paul F. Gentzkow, incorporated by reference to Exhibit 10.7 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2000.
*10.14
Form of Amended and Restated Severance Agreement, incorporated by reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
*10.15
Form of Change in Control Severance Agreement, incorporated by reference to Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
*10.16
Form of Indemnification Agreement for Directors of the Registrant, incorporated by reference to (i) Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 and (ii) Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.
*10.17
Form of Indemnification Agreement for Executive Officers of Registrant, incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2000.
*10.18
Senior Executive Retirement Plan, as amended, incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
*10.19
Collateral Assignment of Split Dollar Insurance Agreement, incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2000.
*10.20
Form of Part-Time Employment Agreement, incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2001.
Subsidiaries of the Registrant.
Accountant's Consent.
*Management contract or compensatory plan required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the fiscal quarter ending December 31, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Date: March 15, 2002
By:
/s/ M. KEITH WADDELL M. Keith Waddell
Vice Chairman, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 15, 2002
By:
/s/ HAROLD M. MESSMER, JR. Harold M. Messmer, Jr.
Chairman of the Board, President,
Chief Executive Officer,
and a Director
(Principal Executive Officer)
Date: March 15, 2002
By:
/s/ ANDREW S. BERWICK, JR. Andrew S. Berwick, Jr., Director
Date: March 15, 2002
By:
/s/ FREDERICK P. FURTH Frederick P. Furth, Director
Date: March 15, 2002
By:
/s/ EDWARD W. GIBBONS Edward W. Gibbons, Director
Date: March 15, 2002
By:
/s/ THOMAS J. RYAN Thomas J. Ryan, Director
Date: March 15, 2002
By:
/s/ J. STEPHEN SCHAUB J. Stephen Schaub, Director
Date: March 15, 2002
By:
/s/ M. KEITH WADDELL M. Keith Waddell
Vice Chairman, Chief Financial
Officer, Treasurer and a Director
(Principal Financial Officer and
Principal Accounting Officer)
DOCUMENTS INCORPORATED BY REFERENCE
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in thousands, except share amounts)
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts)
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES