Business Context and Reporting Period
Company: Robert Half International Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2008
Business Overview: The Company is the world's largest specialized provider of temporary, full-time, and project professionals in accounting and finance, as well as administrative support, IT, legal, and creative fields. It operates through three segments: Temporary and Consultant Staffing, Permanent Placement Staffing, and Risk Consulting and Internal Audit Services (Protiviti). As of December 31, 2008, the Company operated through more than 370 offices in 42 U.S. states and 20 foreign countries.
Key Financial Metrics
| Metric (in thousands) | 2008 | 2007 |
|---|---|---|
| Net Service Revenues | $4,600,554 | $4,645,666 |
| Gross Margin | $1,913,571 | $1,977,828 |
| Net Income | $250,181 | $296,212 |
| Diluted EPS | $1.63 | $1.81 |
| Cash and Cash Equivalents | $354,756 | $310,000 |
| Operating Cash Flow | $447,125 | $411,224 |
| Long-term Debt | $1,892 | $3,753 |
| Total Assets | $1,411,850 | $1,450,298 |
Margins: Gross margin for temporary and consultant staffing services remained at 37% of revenues. Gross margin for risk consulting services declined to 28% of revenues in 2008 from 32% in 2007.
Material Changes vs. Prior Period
- Revenue Decline: Net service revenues decreased 1% to $4.60 billion. On a constant-currency basis, temporary and consultant staffing revenues decreased 1%, permanent placement revenues decreased 5%, and risk consulting revenues decreased 2%. Management attributed these declines to weakening global macroeconomic conditions.
- Profitability: Net income decreased 16% to $250.2 million. Income before taxes dropped 15% to $419.3 million.
- Segment Performance: The Risk Consulting segment (Protiviti) saw a significant decline in operating income, dropping from $20.9 million in 2007 to $7.3 million in 2008, driven by difficult economic conditions and a higher mix of non-U.S. revenues.
- Stock Repurchases: The Company repurchased approximately 11 million shares of common stock in 2008 for a total cost of $245.5 million, compared to 13.8 million shares for $452.9 million in 2007.
- Dividends: Cash dividends declared per share increased to $0.44 in 2008 from $0.40 in 2007.
Outlook, Risks, and Contingencies
Outlook: Management expects total revenues to continue to be impacted by general macroeconomic conditions in 2009. The Company noted that the global financial crisis may harm its business, citing high unemployment and limited credit availability as primary risks.
Risks:
- Economic Sensitivity: Demand for staffing services is highly dependent on the state of the economy and unemployment levels.
- Foreign Currency: Approximately 29% of revenues were generated outside the U.S. in 2008. A stronger U.S. dollar negatively impacts reported income from foreign operations.
- Competition: The staffing business is highly competitive with low barriers to entry. Protiviti faces competition from the "big four" accounting firms.
Legal Contingencies: The Company is a defendant in several class-action lawsuits in California alleging wage and hour violations, including misclassification of employees as exempt.
- Laffitte v. Robert Half: Alleges misclassification of Account Executives and Staffing Managers. Litigation is stayed pending a California Supreme Court ruling.
- Tran v. Protiviti: Alleges misclassification of consultants. Two classes were certified for overtime pay claims in early 2009.
- Williamson v. Robert Half: Alleges failure to provide meal/rest periods. Stayed pending a California Supreme Court ruling.
- Green v. Robert Half: Alleges improper denial of expense reimbursement for temporary employees.
Investor Verification Checklist
- Accounts Receivable Allowances: Verify the adequacy of the allowance for doubtful accounts, which increased to 6.6% of gross receivables in 2008 (up from 4.6% in 2007) due to economic conditions.
- Legal Exposure: Monitor the status of the California Supreme Court rulings in Harris v. Superior Court and Brinker Restaurant Corp. v. Superior Court, as these may materially impact the outcome of pending wage and hour litigation.
- Protiviti Margins: Assess the sustainability of the Risk Consulting segment's margins, which dropped to 28% in 2008, and the impact of the global credit crisis on demand for risk consulting services.
- Foreign Currency Impact: Evaluate the sensitivity of future earnings to fluctuations in the U.S. dollar, given that nearly 30% of revenue is foreign-sourced.
- Stock Repurchase Authorization: Confirm the remaining capacity for share repurchases, which stood at approximately 9.8 million shares as of December 31, 2008.