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RHI > SEC Filings for RHI > Form 10-Q on 6-May-2013All Recent SEC Filings

Show all filings for HALF ROBERT INTERNATIONAL INC /DE/ | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for HALF ROBERT INTERNATIONAL INC /DE/


6-May-2013

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain information contained in Management's Discussion and Analysis and in other parts of this report may be deemed forward-looking statements regarding events and financial trends that may affect the Company's future operating results or financial positions. These statements may be identified by words such as "estimate", "forecast", "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: the global financial and economic situation; changes in levels of unemployment and other economic conditions in the United States or foreign countries where the Company does business, or in particular regions or industries; reduction in the supply of candidates for temporary employment or the Company's ability to attract 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 margins; the possibility of the Company incurring liability for its activities, including the activities of its temporary employees, or for events impacting its temporary employees on clients' premises; the possibility that adverse publicity could impact the Company's ability to attract and retain clients and candidates; the success of the Company in attracting, training, and retaining qualified management personnel and other staff employees; the Company's ability to comply with governmental regulations affecting personnel services businesses in particular or employer/employee relationships in general; whether there will be ongoing demand for Sarbanes-Oxley or other regulatory compliance services; the Company's reliance on short-term contracts for a significant percentage of its business; litigation relating to prior or current transactions or activities, including litigation that may be disclosed from time to time in the Company's SEC filings; the ability of the Company to manage its international operations and comply with foreign laws and regulations; the impact of fluctuations in foreign currency exchange rates; the possibility that the additional costs the Company will incur as a result of health care reform legislation may adversely affect the Company's profit margins or the demand for the Company's services; the possibility that the Company's computer and communications hardware and software systems could be damaged or their service interrupted; and the possibility that the Company may fail to maintain adequate financial and management controls and as a result suffer errors in its financial reporting. Additionally, with respect to Protiviti, other risks and uncertainties include the fact that future success will depend on its ability to retain employees and attract clients; there can be no assurance that there will be ongoing demand for Sarbanes-Oxley or other regulatory compliance services; failure to produce projected revenues could adversely affect financial results; and there is the possibility of involvement in litigation relating to prior or current transactions or activities. 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 and Estimates

The Company's most critical accounting policies and estimates are those that involve subjective decisions or assessments and are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. There were no material changes to these critical accounting policies during the three months ended March 31, 2013.

Recent Accounting Pronouncements

See Note B-"New Accounting Pronouncements" to the Company's Condensed Consolidated Financial Statements included under Part I-Item 1 of this report.


Results of Operations

Demand for the Company's temporary and permanent placement staffing services and risk consulting and internal audit services is largely dependent upon general economic and labor market conditions both domestically and abroad. Because of the inherent difficulty in predicting economic trends and the absence of material long-term contracts in any of our business units, future demand for the Company's services cannot be forecasted with certainty. We expect total Company results to continue to be impacted by general macroeconomic conditions in 2013.

The Company's temporary and permanent placement staffing services business has 346 offices in 42 states, the District of Columbia and 19 foreign countries, while Protiviti has 60 offices in 23 states and 12 foreign countries.

Non-GAAP Financial Measures

To help readers understand the Company's financial performance, the Company supplements its GAAP financial results with revenue growth rates derived from non-GAAP revenue amounts. Variations in the Company's financial results include the impact of changes in foreign currency exchange rates and billing days. The Company provides "same billing days and constant currency" revenue growth calculations to remove the impact of these items. These calculations show the year-over-year revenue growth rates for the Company's temporary and consultant staffing and permanent placement staffing segments on both a reported basis and also on a same day, constant-currency basis for global, U.S. and international operations. The Company has provided this data because management believes it better reflects the Company's actual revenue growth rates and aids in evaluating revenue trends over time. The Company expresses year-over-year revenue changes as calculated percentages using the same number of billing days and constant currency exchange rates.

In order to calculate constant currency revenue growth rates, as reported amounts are retranslated using foreign currency exchange rates from the prior year's comparable period. Management calculates a global, weighted-average number of billing days for each reporting period based upon input from all countries and all staffing lines of business. In order to remove the fluctuations caused by comparable periods having different billing days, the Company calculates same billing day revenue growth rates by dividing each comparative period's reported revenues by the calculated number of billing days for that period, to arrive at a per billing day amount. Same billing day growth rates are then calculated based upon the per billing day amounts. The term "same billing days and constant currency" means that the impact of different billing days has been removed from the constant currency calculation.

The non-GAAP financial measures provided herein may not provide information that is directly comparable to that provided by other companies in the Company's industry, as other companies may calculate such financial results differently. The Company's non-GAAP financial measures are not measurements of financial performance under GAAP, and should not be considered as alternatives to actual revenue growth derived from revenue amounts presented in accordance with GAAP. The Company does not consider these non-GAAP financial measures to be a substitute for, or superior to, the information provided by GAAP financial results. A reconciliation of the same-day, constant-currency revenue growth rates to the reported revenue growth rates is provided herein.

Three months ended March 31, 2013 and 2012

Revenues. The Company's revenues were $1.0 billion for both the three months ended March 31, 2013 and 2012. Revenues from foreign operations represented 25% of total revenues for the three months ended March 31, 2013, compared to 28% for the three months ended March 31, 2012. The Company analyzes its revenues for three reportable segments: temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services. For the three months ended March 31, 2013, revenues for the Company's temporary and consultant staffing segment was down compared to the same period in 2012. Revenues for the Company's risk consulting and internal audit and permanent placement staffing segments were up for the three months ended March 31, 2013 compared to the same period in 2012. Results were strongest domestically, with growth rates


outside the United States impacted by weaker economies in several countries, most notably within Europe. Contributing factors for each reportable segment are discussed below in further detail.

Temporary and consultant staffing services revenues were $824 million for the three months ended March 31, 2013, decreasing by 0.8% compared to revenues of $830 million for the three months ended March 31, 2012. On a same-day, constant-currency basis, temporary and consultant staffing services revenues increased 1.8% for the first quarter of 2013 compared to the first quarter of 2012. In the U.S., revenues in the first quarter of 2013 increased 2.9%, or 5.5% on a same-day basis, compared to the first quarter of 2012. For the Company's international operations, 2013 first quarter revenues decreased 10.7% and on a same-day, constant-currency basis decreased 8.2%, compared to the first quarter of 2012.

Permanent placement staffing revenues were $83 million for both the three months ended March 31, 2013 and 2012. On a same-day, constant-currency basis, permanent placement revenues increased 4.0% for the first quarter of 2013 compared to the first quarter of 2012. In the U.S., revenues for the first quarter of 2013 increased 14.9%, or 17.8% on a same-day basis, compared to the first quarter of 2012. For the Company's international operations, revenues for the first quarter of 2013 decreased 16.6%, and on a same-day, constant-currency basis decreased 12.7%, compared to the first quarter of 2012. Historically, demand for permanent placement services is even more sensitive to economic and labor market conditions than demand for temporary and consulting staffing services and this is expected to continue.

A reconciliation of the non-GAAP year-over-year revenue growth rates to the as reported year-over-year revenue growth rates for the three months ended March 31, 2013, is presented in the following table:

                                                          United
                                             Global       States        International
   Temporary and consultant staffing
   As Reported                                  -0.8 %        2.9 %              -10.7 %
   Billing Days Impact                           2.5 %        2.6 %                2.2 %
   Currency Impact                               0.1 %         -                   0.3 %

   Same Billing Days and Constant Currency       1.8 %        5.5 %               -8.2 %

   Permanent placement staffing
   As Reported                                   0.6 %       14.9 %              -16.6 %
   Billing Days Impact                           2.6 %        2.9 %                2.1 %
   Currency Impact                               0.8 %         -                   1.8 %

   Same Billing Days and Constant Currency       4.0 %       17.8 %              -12.7 %

Risk consulting and internal audit services revenues were $117 million for the three months ended March 31, 2013, increasing by 13.6% compared to revenues of $103 million for the three months ended March 31, 2012. In the U.S., revenues in the first quarter of 2013 increased 16.6% compared to the first quarter of 2012. Contributing to the U.S. increase was strong demand for consulting solutions including regulatory risk and compliance as well as information technology application controls and security. The Company's risk consulting and internal audit services revenues from international operations increased 4.3% compared to the first quarter of 2012.

Gross Margin. The Company's gross margin dollars were $410 million for the three months ended March 31, 2013, increasing by 2% compared to $402 million for the three months ended March 31, 2012. In the first quarter of 2013, gross margin dollars increased for all three of the Company's reportable segments compared to the first quarter of 2012. Gross margin as a percentage of revenues increased for the Company's temporary and consultant staffing services and risk consulting and internal audit services segments on a year-over-year basis. Contributing factors for each reportable segment are discussed below in further detail.

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,


and reimbursable expenses. Gross margin dollars for the Company's temporary and consultant staffing services division were $297 million for the three months ended March 31, 2013, compared to $295 million for the three months ended March 31, 2012. As a percentage of revenues, gross margin for temporary and consultant staffing services was 36.1% in the first quarter of 2013, up from 35.6% in the first quarter of 2012. The higher temporary and consultant gross margin percentage is due primarily to lower fringe benefit costs and higher pay/bill spreads in the United States. Pay/bill spreads represent the differential between wages paid to temporary employees and amounts billed to clients.

Gross margin dollars from permanent placement staffing services represent revenues less reimbursable expenses. Gross margin dollars for the Company's permanent placement staffing division were $83 million for both the three months ended March 31, 2013 and 2012. Because reimbursable expenses for permanent placement staffing services are de minimis, gross margin dollars are substantially explained by revenues previously discussed.

Gross margin dollars for risk consulting and internal audit services represent revenues less direct costs of services, which consist primarily of professional staff payroll, payroll taxes, insurance costs and reimbursable expenses. Gross margin dollars for the Company's risk consulting and internal audit division were $30 million for the three months ended March 31, 2013, increasing by 26% compared to $24 million for the three months ended March 31, 2012. As a percentage of revenues, gross margin for risk consulting and internal audit services was 25.7% in the first quarter of 2013, up from 23.1% in the first quarter of 2012. The year-over-year margin increase expressed as a percentage of revenues is primarily due to an increase in staff utilization levels.

Selling, General and Administrative Expenses. The Company's selling, general and administrative expenses were $321 million for the three months ended March 31, 2013, decreasing slightly compared to $322 million for the three months ended March 31, 2012. As a percentage of revenues, the Company's selling, general and administrative expenses were 31.3% for the first quarter of 2013, down from 31.7% for the first quarter of 2012. Contributing factors related to each reportable segment are discussed below in further detail.

Selling, general and administrative expenses for the Company's temporary and consultant staffing services division were $224 million for the three months ended March 31, 2013, down 1% from $226 million for the three months ended March 31, 2012. As a percentage of revenues, selling, general and administrative expenses for temporary and consultant staffing services were 27.2% in the first quarter of 2013, down from 27.3% in the first quarter of 2012. For the first quarter of 2013 compared to the first quarter of 2012, decreases in variable overhead, administrative compensation and fixed overhead, partially offset by an increase in field compensation, drove the overall decrease as a percentage of revenues.

Selling, general and administrative expenses for the Company's permanent placement staffing division were $71 million for the three months ended March 31, 2013, increasing by 2% compared to $70 million for the three months ended March 31, 2012. As a percentage of revenues, selling, general and administrative expenses for permanent placement staffing services were 84.9% in the first quarter of 2013, up from 83.9% in the first quarter of 2012. For the first quarter of 2013 compared to the first quarter of 2012, an increase in field compensation drove the overall increase as a percentage of revenues.

Selling, general and administrative expenses for the Company's risk consulting and internal audit services division were $26 million for both the three months ended March 31, 2013 and 2012. As a percentage of revenues, selling, general and administrative expenses for risk consulting and internal audit services were 22.5% in the first quarter of 2013, down from 25.4% in the first quarter of 2012. For the first quarter of 2013 compared to the first quarter of 2012, the decrease in selling, general and administrative expenses as a percentage of revenue is primarily due to higher operating leverage obtained by higher revenues.


Operating Income. The Company's total operating income was $90 million, or 8.7% of revenues, for the three months ended March 31, 2013, increasing by 12% from $80 million, or 7.9% of revenues, for the three months ended March 31, 2012. For the Company's temporary and consultant staffing services division, operating income was $73 million, or 8.9% of applicable revenues, up from $69 million, or 8.3% of applicable revenues, in the first quarter of 2012. For the Company's permanent placement staffing division, operating income was $13 million, or 15.1% of applicable revenues, down from an operating income of $13 million, or 16.0% of applicable revenues, in the first quarter of 2012. For the Company's risk consulting and internal audit services division, operating income was $4 million, or 3.2% of applicable revenues, up from an operating loss of $2 million, or negative 2.3% of applicable revenues, in the first quarter of 2012.

Provision for income taxes. The provision for income taxes was 37% and 40%, as a percentage of income before income taxes, for the three months ended March 31, 2013 and 2012, respectively. The lower tax rate is primarily due to non-U.S. legal entity restructuring.

Liquidity and Capital Resources

The change in the Company's liquidity during the three months ended March 31, 2013 and 2012 is primarily the net effect of funds generated by operations and the funds used for capital expenditures, repurchases of common stock and payment of dividends.

Cash and cash equivalents were $225 million and $244 million at March 31, 2013 and 2012, respectively. Operating activities provided $28 million during the three months ended March 31, 2013, which was more than offset by $38 million and $49 million of net cash used in investing activities and financing activities, respectively. Operating activities provided $23 million during the three months ended March 31, 2012, which was more than offset by $12 million and $49 million of net cash used in investing activities and financing activities, respectively.

Operating activities-Net cash provided by operating activities for the three months ended March 31, 2013, was composed of net income of $56 million, adjusted for non-cash items of $18 million, and offset by changes in working capital of $46 million. Net cash provided by operating activities for the three months ended March 31, 2012, was comprised of net income of $48 million, adjusted for non-cash items of $20 million, and offset by changes in working capital of $45 million.

Investing activities-Net cash used in investing activities for the three months ended Mach 31, 2013, was $38 million. This was composed of capital expenditures of $8 million and deposits to trusts for employee benefits and retirement plans of $30 million. Net cash used in investing activities for the three months ended March 31, 2012, was $12 million. This was comprised of capital expenditures of $10 million and deposits to trusts for employee benefits and retirement plans of $2 million.

Financing activities-Net cash used in financing activities for the three months ended March 31, 2013, was $49 million. This included repurchases of $46 million in common stock, $22 million in cash dividends to stockholders and $2 million in notes payable and other indebtedness, offset by proceeds of $20 million from exercises of stock options and $1 million in excess tax benefits from stock-based compensation. Net cash used in financing activities for the three months ended March 31, 2012, was $49 million. This included repurchases of $56 million in common stock and $21 million in cash dividends to stockholders, offset by proceeds of $26 million from exercises of stock options and $2 million in excess tax benefits from stock-based compensation.

As of March 31, 2013 the Company is authorized to repurchase, from time to time, up to 10.6 million additional shares of the Company's common stock on the open market or in privately negotiated transactions, depending on market conditions. During the three months ended March 31, 2013 and 2012, the Company repurchased 0.8 million shares and 1.0 million shares of common stock on the open market for a total cost of $30 million and $29 million, respectively. Additional stock repurchases were made in connection with employee


stock plans, whereby Company shares were tendered by employees for the payment of exercise price and applicable statutory withholding taxes. During the three months ended March 31, 2013 and 2012, such repurchases totaled 0.5 million shares, at a cost of $16 million, and 1.0 million shares, at a cost of $27 million, respectively. Repurchases of shares have been funded with cash generated from operations.

The Company's working capital March 31, 2013, included $225 million in cash and cash equivalents. The Company expects that internally generated cash will be sufficient to support the working capital needs of the Company, the Company's fixed payments, dividends, and other obligations on both a short- and long-term basis.

On May 2, 2013, the Company announced a quarterly dividend of $.16 per share to be paid to all shareholders of record as of May 24, 2013. The dividend will be paid on June 14, 2013.

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