Robert Half International Inc. — FY2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. The filing also presents unaudited fourth-quarter results. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Business context
Robert Half provides specialized temporary, project and permanent staffing, alongside risk consulting and internal audit services through Protiviti. Its three reportable segments are temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services. Approximately 29% of 2010 revenue came from foreign operations. Management said demand is substantially influenced by economic and labor-market conditions, and long-term contracts are not significant.
Financial performance and liquidity
| Metric | FY2010 | FY2009 | Change / context |
|---|---|---|---|
| Net service revenues | $3,175.1 | $3,036.5 | Up 5% |
| Gross margin | $1,194.0 | $1,103.7 | Up 8%; 37.6% of revenue versus 36.3% |
| SG&A | $1,079.0 | $1,036.9 | Up 4%; 34.0% of revenue versus 34.1% |
| Operating income | $115.0 | $66.8 | Up 72%; operating margin 3.6% versus 2.2% |
| Income before taxes | $115.2 | $66.8 | Up from prior year |
| Net income | $66.1 | $37.3 | Up 77% |
| Diluted EPS | $0.44 | $0.24 | Up from prior year |
| Operating cash flow | $175.9 | $240.2 | Down; working capital used $12 million |
| Cash and cash equivalents at year-end | $315.1 | $365.8 | Down $50.7 million |
- Segment revenue: Temporary and consultant staffing $2,568.3 million, up 4%; permanent placement $221.2 million, up 22%; risk consulting and internal audit $385.6 million, up 1% (flat on a constant-currency basis).
- Segment operating results: Temporary and consultant staffing earned $108.4 million, essentially maintaining its 4.2% margin; permanent placement returned to $17.5 million of income from a $7.0 million loss; risk consulting narrowed its operating loss to $10.9 million from $30.8 million.
- Fourth quarter: Revenue was $851.6 million versus $737.4 million a year earlier; net income was $24.8 million versus $13.5 million; diluted EPS was $0.17 versus $0.09.
- Liquidity and debt: Current assets were $971.9 million and current liabilities $408.5 million at year-end (current ratio approximately 2.4x). Notes payable and other indebtedness totaled $1.8 million. Operating lease obligations were $442.9 million, including $98.7 million due in 2011.
- Capital returns: Cash dividends paid were $76.6 million; declared dividends were $0.52 per share for 2010. The company used $155.5 million for share repurchases, including employee-plan share tenders, and had authorization to repurchase approximately 11.4 million additional shares at year-end. A $0.14 quarterly dividend was announced for March 2011 payment.
Material changes versus comparable periods
Results improved from the recession-affected 2009, when revenue fell 34% and operating income fell 84% versus 2008. In 2010, staffing revenue recovered, led by permanent placement, and Protiviti’s gross margin percentage improved to 25.2% from 20.8%, primarily from higher utilization and lower compensation costs. However, 2010 operating cash flow declined from 2009, and revenue and net income remained well below 2008 levels ($4,600.6 million and $250.2 million, respectively).
Outlook, risks and unusual items
- Management expected overall results to remain affected by macroeconomic conditions in 2011, but did not provide quantified earnings or revenue guidance. It noted that economic and labor-market trends are difficult to forecast and that limited long-term contracts constrain visibility.
- Key business risks include economic weakness and unemployment, competition and pricing pressure, candidate availability, international and currency exposure, and the ability to retain skilled employees and clients.
- Three wage-and-hour class or representative actions allege employee misclassification and/or meal and rest-period violations. Outcomes and loss ranges were not estimable; no amounts were accrued for these cases. The company said it intended to defend them.
- Health-care reform could raise temporary-staffing costs. Other exposures include workplace and consulting-service liability, regulatory compliance, systems interruption, and potential declines in demand for Sarbanes-Oxley-related services.
- Goodwill was approximately $189.8 million. The 2010 annual impairment test found no impairment, but future charges could arise if revenue or profitability assumptions are not met. The recorded deferred-tax valuation allowance increased to $31.0 million from $21.2 million, primarily related to foreign operating losses.
- Gross unrecognized tax benefits were $12.5 million; $2.0 million was classified as current. The company also had a $35 million uncommitted letter-of-credit facility, with $22 million used, that was scheduled to expire August 31, 2011; management intended to renew it.
- Management and the independent auditor reported effective internal control over financial reporting as of December 31, 2010. The auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether staffing demand and permanent-placement growth continued after year-end, and whether Protiviti returned to operating profitability.
- Cash conversion and working-capital trends, given operating cash flow declined while accounts receivable increased.
- Potential outcomes and financial exposure from the wage-and-hour litigation, for which the filing provides no estimable loss range.
- The sustainability of share repurchases and dividend payments relative to cash generation and lease commitments.
- Progress in renewing the letter-of-credit facility and developments in tax uncertainties, foreign operations, and goodwill assumptions.