Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
RHI > SEC Filings for RHI > Form 10-Q on 2-Aug-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/


2-Aug-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. Other than updates to estimates used in the Company's goodwill impairment assessment and in the valuation of stock grants subject to market conditions discussed below, there were no material changes to these critical accounting policies during the six months ended June 30, 2013.

Goodwill Impairment. The Company assesses the impairment of goodwill annually in the second quarter, or more often if events or changes in circumstances indicate that the carrying value may not be recoverable in accordance with Financial Accounting Standards Board ("FASB") authoritative guidance. The Company completed its annual goodwill impairment analysis as of June 30, 2013, and determined that no adjustment to the carrying value of goodwill was required.

The Company follows FASB authoritative guidance utilizing a two-step approach for determining goodwill impairment. In the first step the Company determines the fair value of each reporting unit utilizing a present


value technique derived from a discounted cash flow methodology. For purposes of this assessment the Company's reporting units are its lines of business. The fair value of the reporting unit is then compared to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and no further testing is performed. The second step under the FASB guidance is contingent upon the results of the first step. To the extent a reporting unit's carrying value exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the Company must perform a second more detailed impairment assessment. The second step involves allocating the reporting unit's fair value to its net assets in order to determine the implied fair value of the reporting unit's goodwill as of the assessment date. The implied fair value of the reporting unit's goodwill is then compared to the carrying amount of goodwill to quantify an impairment charge as of the assessment date.

The Company's reporting units are Accountemps, Robert Half Finance & Accounting, OfficeTeam, Robert Half Technology, Robert Half Management Resources and Protiviti, which had goodwill balances at June 30, 2013, of $127.3 million, $26.5 million, $0.0 million, $7.1 million, $0.0 million and $39.6 million, respectively, totaling $200.5 million. There were no changes to the Company's reporting units or to the allocations of goodwill by reporting unit through June 30, 2013.

The goodwill impairment assessment is based upon a discounted cash flow analysis. The estimate of future cash flows is based upon, among other things, a discount rate and certain assumptions about expected future operating performance. The discount rate for all reporting units was determined by management based on estimates of risk free interest rates, beta and market risk premiums. The discount rate used was compared to the rate published in various third party research reports, which indicated that the rate was within a range of reasonableness. The primary assumptions related to future operating performance include revenue growth rates and profitability levels. In addition, the impairment assessment requires that management make certain judgments in allocating shared assets and liabilities to the balance sheets of the reporting units. Solely for purposes of establishing inputs for the fair value calculations described above related to its annual goodwill impairment testing, the Company made the following assumptions. The Company assumed that year-to-date trends through the date of the most recent assessment would continue for all reporting units through 2013, using unique assumptions for each reporting unit. In addition, the Company applied profitability assumptions consistent with each reporting unit's historical trends at various revenue levels and, for years 2015 and beyond, used a 5% growth factor to calculate the terminal value at the end of ten years for each unit. This rate is comparable to the Company's most recent ten-year annual compound revenue growth rate. In its most recent calculation, the Company used a 10.5% discount rate, which is slightly higher than the 10.0% discount rate used for the Company's test during the second quarter of 2012. This increase in discount rate is attributable primarily to an increase in the risk free rate, partially offset by a decrease in the equity market risk premium.

In order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test, the Company applied hypothetical decreases to the fair values of each reporting unit. The Company determined that hypothetical decreases in fair value of at least 70% would be required before any reporting unit would have a carrying value in excess of its fair value.

Given the current economic environment and the uncertainties regarding the impact on the Company's business, there can be no assurance that the Company's estimates and assumptions made for purposes of the Company's goodwill impairment testing will prove to be accurate predictions of the future. If the Company's assumptions regarding forecasted revenue or profitability growth rates of certain reporting units are not achieved, the Company may be required to recognize goodwill impairment charges in future periods. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

Stock-based Compensation. Under various stock plans, officers, employees and outside directors have received or may receive grants of restricted stock, stock units, stock appreciation rights or options to purchase common stock.


The Company recognizes compensation expense equal to the grant-date fair value for all stock-based payment awards that are expected to vest. This expense is recorded on a straight-line basis over the requisite service period of the entire award, unless the awards are subject to performance conditions, in which case the Company recognizes compensation expense over the requisite service period of each separate vesting tranche. The Company determines the grant-date fair value of its restricted stock and stock unit awards using the fair market value on the grant date, unless the awards are subject to market conditions, in which case the Company utilizes a binomial-lattice model (e.g., Monte Carlo simulation model). The Monte Carlo simulation model utilizes multiple input variables to determine the stock-based compensation expense.

No stock appreciation rights have been granted under the Company's existing stock plans.

The Company has not granted any options to purchase common stock since 2006.

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 348 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 June 30, 2013 and 2012

Revenues. The Company's revenues were $1.1 billion for the three months ended June 30, 2013 compared to $1.0 billion for the three months ended June 30, 2012. Revenues from foreign operations represented 24% of total revenues for the three months ended June 30, 2013, compared to 26% for the three months ended June 30, 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 June 30, 2013, revenues for the Company's temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit segments was up 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 $842 million for the three months ended June 30, 2013, increasing by 1.6% compared to revenues of $829 million for the three months ended June 30, 2012. On a same-day, constant-currency basis, temporary and consultant staffing services revenues increased 0.9% for the second quarter of 2013 compared to the second quarter of 2012. In the U.S., revenues in the second quarter of 2013 increased 4.0%, or 3.3% on a same-day basis, compared to the second quarter of 2012. For the Company's international operations, 2013 second quarter revenues decreased 5.8% and on a same-day, constant-currency basis decreased 6.2%, compared to the second quarter of 2012.

Permanent placement staffing revenues were $90 million for the three months ended June 30, 2013, increasing by 1.4% compared to revenues of $89 million for the three months ended June 30, 2012. On a same-day, constant-currency basis, permanent placement revenues increased 1.2% for the second quarter of 2013 compared to the second quarter of 2012. In the U.S., revenues for the second quarter of 2013 increased 10.3%, or 9.6% on a same-day basis, compared to the second quarter of 2012. For the Company's international operations, revenues for the second quarter of 2013 decreased 10.8% and on a same-day, constant-currency basis decreased 10.1%, compared to the second 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 June 30, 2013, is presented in the following table:

                                                          United
                                             Global       States        International
   Temporary and consultant staffing
   As Reported                                   1.6 %        4.0 %               -5.8 %
   Billing Days Impact                          -0.8 %       -0.7 %               -0.7 %
   Currency Impact                               0.1 %         -                   0.3 %

   Same Billing Days and Constant Currency       0.9 %        3.3 %               -6.2 %

   Permanent placement staffing
   As Reported                                   1.4 %       10.3 %              -10.8 %
   Billing Days Impact                          -0.7 %       -0.7 %               -0.6 %
   Currency Impact                               0.5 %         -                   1.3 %

   Same Billing Days and Constant Currency       1.2 %        9.6 %              -10.1 %


Risk consulting and internal audit services revenues were $131 million for the three months ended June 30, 2013, increasing by 18.7% compared to revenues of $110 million for the three months ended June 30, 2012. In the U.S., revenues in the second quarter of 2013 increased 23.3% compared to the second 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 4.2% compared to the second quarter of 2012.

Gross Margin. The Company's gross margin dollars were $432 million for the three months ended June 30, 2013, increasing by 4% compared to $415 million for the three months ended June 30, 2012. In the second quarter of 2013, gross margin dollars increased for all three of the Company's reportable segments compared to the second 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 $304 million for the three months ended June 30, 2013, compared to $297 million for the three months ended June 30, 2012. As a percentage of revenues, gross margin for temporary and consultant staffing services was 36.1% in the second quarter of 2013, up from 35.8% in the second 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 $90 million for the three months ended June 30, 2013, compared to $89 million for the three months ended June 30, 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 $38 million for the three months ended June 30, 2013, increasing by 28% compared to $29 million for the three months ended June 30, 2012. As a percentage of revenues, gross margin for risk consulting and internal audit services was 28.6% in the second quarter of 2013, up from 26.4% in the second 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 $331 million for the three months ended June 30, 2013, down 3.5% from $343 million for the three months ended June 30, 2012. As a percentage of revenues, the Company's selling, general and administrative expenses were 31.2% for the second quarter of 2013, down from 33.4% for the second quarter of 2012. The decrease in Q2 2013 selling, general and administrative expenses was primarily due to a $19 million, or 1.8% of revenues, charge in the second quarter of 2012 related to a litigation settlement disclosed in the Company's July 5, 2012, Form 8-K. 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 $228 million for the three months ended June 30, 2013, down 7.2% from $245 million for the three months ended June 30, 2012. As a percentage of revenues, selling, general and administrative expenses for temporary and consultant staffing services were 27.1% in the second quarter of 2013, down from 29.6% in the second quarter of 2012. For the second quarter of 2013 compared to the second quarter of 2012, the decrease in selling, general and administrative expenses is primarily due to the previously mentioned litigation settlement.


Selling, general and administrative expenses for the Company's permanent placement staffing division were $75 million for the three months ended June 30, 2013, increasing by 5.8% compared to $71 million for the three months ended June 30, 2012. As a percentage of revenues, selling, general and administrative expenses for permanent placement staffing services were 82.8% in the second quarter of 2013, up from 79.4% in the second quarter of 2012. For the second quarter of 2013 compared to the second quarter of 2012, an increase in field compensation and variable overhead 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 $28 million for the three months ended June 30, 2013, increasing by 5.8% compared to $27 million for the three months ended June 30, 2012. As a percentage of revenues, selling, general and administrative expenses for risk consulting and internal audit services were 21.9% in the second quarter of 2013, down from 24.6% in the second quarter of 2012. For the second quarter of 2013 compared to the second 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 $101 million, or 9.5% of revenues, for the three months ended June 30, 2013, increasing by 40% from $72 million, or 7.0% of revenues, for the three months ended June 30, 2012. For the Company's temporary and consultant staffing services division, operating income was $77 million, or 9.1% of applicable revenues, up from $52 million, or 6.2% of applicable revenues, in the second quarter of 2012. For the Company's permanent placement staffing division, operating income was $15 million, or 17.1% of applicable revenues, down from an operating income of $18 million, or 20.6% of applicable revenues, in the second quarter of 2012. For the Company's risk consulting and internal audit services division, operating income was $9 million, or 6.7% of applicable revenues, up from an operating income of $2 million, or 1.8% of applicable revenues, in the second quarter of 2012.

Provision for income taxes. The provision for income taxes was 37% for both the three months ended June 30, 2013 and 2012.

Six months ended June 30, 2013 and 2012

Revenues. The Company's revenues were $2.1 billion for the six months ended June 30, 2013, increasing by 2% compared to $2.0 billion for the six months ended June 30, 2012. Revenues from foreign operations represented 25% and 27% of total revenues for the six months ended June 30, 2013 and 2012, respectively. The Company analyzes its revenues for three reportable segments: temporary and consultant staffing, permanent placement staffing and risk consulting and internal audit services. In the first half of 2013, revenues for all three of the Company's reportable segments were up compared to the first half of 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 $1.7 billion for the six months ended June 30, 2013, increasing by 0.4% compared to revenues of $1.6 billion for the six months ended June 30, 2012. On a same day, constant-currency basis, temporary and consultant staffing services revenues increased 1.4% for the first half of 2013 compared to the first half of 2012. In the U.S., revenues in the first half of 2013 increased 3.5%, or 4.4% on a same-day basis, compared to the first half of 2012. For the Company's international operations, revenues in the first half of 2013 decreased 8.3%, or 7.2% on a same-day, constant currency basis, compared to the first half of 2012.

Permanent placement revenues were $174 million for the six months ended June 30, 2013, increasing by 1.0% compared to revenues of $172 million for the six months ended June 30, 2012. On a same day, constant- currency basis, permanent placement revenues increased 2.6% for the first half of 2013 compared to the first half of 2012. In the U.S., revenues in the first half of 2013 increased 12.5%, or 13.5% on a same-day basis, compared


to the first half 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. For the Company's international operations, revenues in the first half of 2013 decreased 13.7%, or 11.4% on a same day, constant-currency basis, compared to the first half of 2012.

A reconciliation of the Non-GAAP year-over-year revenue growth rates to the As Reported year-over-year revenue growth rates for the six months ended June 30, 2013, is presented in the following table:

. . .
  Add RHI to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for RHI - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.