10-K 1 rhi10k123115.htm 10-K 10-K





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 __________________________________________
Commission file number 1-10427
ROBERT HALF INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE
 
94-1648752
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
2884 Sand Hill Road, Menlo Park, California
 
94025
(Address of principal executive offices)
 
(Zip code)
Registrant’s telephone number, including area code:  (650) 234-6000
 __________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange
on which registered
Common Stock, Par Value $.001 per Share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None 
__________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   x    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ¨    No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (Check one):
Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company. ¨  Yes    x  No
As of June 30, 2015, the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $7,212,071,210 based on the closing sale price on that date. This amount excludes the market value of 4,552,507 shares of Common Stock directly or indirectly held by registrant’s directors and officers and their affiliates.
As of January 31, 2016, there were 131,156,828 outstanding shares of the registrant’s Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement to be mailed to stockholders in connection with the registrant’s annual meeting of stockholders, scheduled to be held in May 2016, are incorporated by reference in Part III of this report. Except as expressly incorporated by reference, the registrant’s Proxy Statement shall not be deemed to be part of this report.







PART I
Item 1. Business
Robert Half International Inc. (the “Company”) provides specialized staffing and risk consulting services through such divisions as Accountemps®, Robert Half® Finance & Accounting, OfficeTeam®, Robert Half® Technology, Robert Half® Management Resources, Robert Half® Legal, The Creative Group®, and Protiviti®. The Company, through its Accountemps, Robert Half Finance & Accounting, and Robert Half 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. Robert Half Technology provides information technology professionals. Robert Half Legal 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 interactive media, design, and marketing fields. Protiviti, which began operations in 2002, is a global business consulting and internal audit firm. Protiviti, which primarily employs professionals specializing in risk, advisory and transactional services, is a wholly owned subsidiary of the Company.
The Company’s business was originally founded in 1948. Prior to 1986, the Company was primarily a franchisor, under the names Accountemps and Robert Half (now called Robert Half Finance & Accounting), of offices providing temporary and full-time professionals in the fields of accounting and finance. Beginning in 1986, the Company and its current management embarked on a strategy of acquiring franchised locations. All of the franchises have been acquired. 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. Since 1986, the Company has significantly expanded operations at many of the acquired locations, opened many new locations and acquired other local or regional providers of specialized temporary service personnel. The Company has also expanded the scope of its services by launching the new product lines OfficeTeam, Robert Half Technology, Robert Half Management Resources, Robert Half Legal and The Creative Group.
In 2002, the Company hired more than 700 professionals who had been affiliated with the internal audit and business and technology risk consulting practice of Arthur Andersen LLP, including more than 50 individuals who had been partners of that firm. These professionals formed the base of the Company’s Protiviti Inc. subsidiary. Protiviti® has enabled the Company to enter the market for business consulting and internal audit services, which market the Company believes offers synergies with its traditional lines of business.
Accountemps
The Accountemps temporary services division offers customers a reliable and economical means of dealing with uneven or peak workloads for accounting, finance, and bookkeeping 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 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 regular employees are eliminated by the use of Accountemps temporaries. The temporary workers are employees of Accountemps and are paid by Accountemps. The customer pays a fixed rate only for hours worked.
Accountemps clients may fill their regular employment needs by using an Accountemps employee on a trial basis and, if so desired, “converting” the temporary position to a regular 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 full-time office and administrative personnel, ranging from executive and administrative assistants to receptionists and customer service representatives. OfficeTeam operates in much the same fashion as the Accountemps division.
Robert Half Finance & Accounting
Established in 1948, the Company’s first division and specialized recruitment pioneer Robert Half Finance & Accounting specializes in the placement of full-time accounting, financial, tax and accounting operations personnel. Fees for successful

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placements are paid only by the employer and are generally a percentage of the new employee’s annual compensation. No fee for placement services is charged to employment candidates.
Robert Half Technology
The Company’s Robert Half Technology division, which commenced operations in 1994, specializes in providing information technology contract consultants and placing full-time employees in areas ranging from multiple platform systems integration to end-user support, including specialists in web development, networking, application development, systems integration, database design, security and business continuity, and desktop support.
Robert Half Legal
Since 1992, the Company has been placing temporary and full-time employees in attorney, paralegal, legal administrative and legal secretarial positions through its Robert Half Legal division. The legal profession’s requirements (the need for confidentiality, accuracy and reliability, a strong drive toward cost-effectiveness, and frequent peak caseload periods) are similar to the demands of the clients of the Accountemps division. Robert Half Legal offers a full suite of legal staffing and consulting services to help organizations manage constantly changing workloads and access expertise across in-demand legal practice areas.
Robert Half Management Resources
The Company’s Robert Half 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, senior financial analysts, internal auditors, and business systems analysts for such tasks as financial systems conversions, expansion into new markets, business process reengineering, business systems performance improvement, and post-merger financial consolidation.
The Creative Group
The Creative Group division commenced operations in 1999 and specializes in identifying for its clients creative professionals in the areas of interactive media, design, marketing, advertising and public relations. The division places freelance and project consultants in a variety of positions such as creative directors, graphics designers, web content developers, web designers, media buyers, brand managers, and public relations specialists.
Protiviti
Protiviti is a global consulting firm that helps companies solve problems in finance, technology, operations, governance, risk and internal audit. Through its risk management and internal audit heritage, Protiviti has gained unique perspectives on the challenges faced by its clients. Protiviti uses these perspectives not only to solve regulatory, risk and compliance problems, but also to help clients become more effective and productive. Protiviti provides solutions to its clients in areas such as business performance improvement, internal audit and financial advisory, IT consulting, restructuring and litigation, risk and compliance, and transaction services.
Marketing and Recruiting
The Company markets its staffing 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 of radio, digital, search engine marketing, social media, websites, job boards, and trade shows. Direct marketing through e-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, streaming audio, digital display, search engine marketing, social media amplification, and advertisements in national digital and print news publications, websites, social media sites, and trade publications. Additionally, the Company has expanded its use of job boards and aggregators in all aspects of sales and recruitment. Joint marketing arrangements have been entered into with major software manufacturers and typically provide for development of proprietary skills tests, cooperative advertising, joint e-mail campaigns, and similar promotional activities. The Company also actively seeks endorsements and affiliations with professional organizations in the business management, technology, office administration, and professional secretarial fields. In addition, the Company conducts public relations activities designed to enhance public recognition of the Company and its services. This includes outreach to journalists, bloggers and social media influencers, and the distribution of thought leadership via print, video, corporate-maintained social media sites and other online properties. Robert Half staffing and recruiting professionals are encouraged to be active in civic organizations and industry trade groups in their local communities.

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Protiviti markets its business consulting and internal audit services to a variety of clients in a range of industries. Industry and competency teams conduct targeted marketing efforts, both locally and nationally, including print advertising and branded speaking events, with support from Protiviti management. National advertising conducted by Protiviti consists primarily of print advertisements in national newspapers, magazines and selected trade journals. Protiviti has programs to share its insights with clients on current corporate governance and risk management issues. It conducts public relations activities, such as distributing press releases, white papers, case studies and newsletters, designed to enhance recognition for the Protiviti brand, establish its expertise in key issues surrounding its business and promote its services. Protiviti plans to expand both the services and value added content on the Protiviti.com website and increase traffic through targeted Internet advertising. Local employees are encouraged to be active in relevant social media communities, civic organizations and industry trade groups.
The Company and its subsidiaries own many trademarks, service marks and tradenames, including the Robert Half® Finance & Accounting, Accountemps®, OfficeTeam®, Robert Half® Technology, Robert Half® Management Resources, Robert Half® Legal, The Creative Group® and Protiviti® marks, which are registered in the United States and in a number of foreign countries.
Organization
Management of the Company’s staffing operations is coordinated from its headquarters facilities in Menlo Park and San Ramon, California. The Company’s headquarters provides support and centralized services to its offices in the administrative, marketing, public relations, accounting, training and legal areas, particularly as it relates to the standardization of the operating procedures of its offices. As of December 31, 2015, the Company conducted its staffing services operations through 332 offices in 42 states, the District of Columbia and 17 foreign countries. Office managers are responsible for most activities of their offices, including sales, local advertising and marketing and recruitment.
The day-to-day operations of Protiviti are managed by a chief executive officer and a senior management team with operational and administrative support provided by individuals located in San Ramon and Menlo Park, California. As of December 31, 2015, Protiviti had 56 offices in 23 states and 11 foreign countries.
Competition
The Company’s staffing services face competition in attracting clients as well as skilled specialized employment candidates. The staffing business is 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 staffing business 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.
Protiviti faces competition in its efforts to attract clients and win proposal presentations. The risk consulting and internal audit businesses are highly competitive. In addition, the changing regulatory environment is increasing opportunities for non-attestation audit and risk consulting services. The principal competitors of Protiviti remain the “big four” accounting firms. Significant competitive factors include reputation, technology, tools, project methodologies, price of services and depth of skills of personnel. Protiviti believes its competitive strengths lie in its unique ability to couple the deep skills and proven methodologies of its “big four” heritage with the customer focus and attention of a smaller organization.

Employees
The Company has approximately 16,100 full-time employees, including approximately 3,300 engaged directly in Protiviti operations. In addition, the Company placed approximately 220,000 temporary employees on assignments with clients during 2015. Employees placed by the Company on assignment with clients 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 access to voluntary health insurance coverage to interested temporary employees.
Other Information
The Company’s current business constitutes three business segments. (See Note M 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 staffing services operations are generally more active in the first and fourth quarters of a calendar year. Protiviti is generally more active in the third and fourth quarters of a calendar year. Order backlog is not a material aspect of the Company’s staffing services

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business. While backlog is of greater importance to Protiviti, the Company does not believe, based upon the length of time of the average Protiviti engagement, that backlog is a material aspect of the Protiviti business. No material portion of the Company’s business is subject to government contracts.
Information about foreign operations is contained in Note M of Notes to Consolidated Financial Statements in Item 8. The Company does not have export sales.
Available Information
The Company’s Internet address is www.roberthalf.com. The Company makes available, free of charge, through its website, its Annual Reports on Form 10-K, proxy statements for its annual meetings of stockholders, its Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and any amendments to those reports, as soon as is reasonably practicable after such reports are filed with or furnished to the Securities and Exchange Commission. Also available on the Company’s website are its Corporate Governance Guidelines, its Code of Business Conduct and Ethics, and the charters for its Audit Committee, Compensation Committee and Nominating and Governance Committee, each of which is available in print to any stockholder who makes a request to Robert Half International Inc., 2884 Sand Hill Road, Menlo Park, CA 94025, Attn: Corporate Secretary. The Company’s Code of Business Conduct and Ethics is the Code of Ethics required by Item 406 of Securities and Exchange Commission Regulation S-K. The Company intends to satisfy any disclosure obligations under Item 5.05 of Form 8-K regarding any amendment or waiver relating to its Code of Business Conduct and Ethics by posting such information on its website.
Item 1A.    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:
The global economic downturn may continue to harm the Company’s business and financial condition.    Many of the Company’s markets, particularly in Europe, are currently experiencing a prolonged economic downturn characterized by high unemployment, limited availability of credit and decreased consumer and business spending. Given the nature of the Company’s business, financial results could be significantly harmed should this downturn continue for an extended period of time or intensify. In the past, the Company’s business has suffered during periods of high unemployment as demand for staffing services tends to significantly decrease during such periods. The impact of this downturn on the Company’s business could be further dramatized given the severe impact it has had and may continue to have on the global labor markets.
Any reduction in global economic activity may harm the Company’s business.    The demand for the Company’s services, in particular its staffing 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.
The Company’s business depends on a strong reputation and anything that harms its reputation will likely harm its results.    As a provider of temporary and permanent staffing solutions as well as consultant services, the Company’s reputation is dependent upon the performance of the employees it places with its clients and the services rendered by its consultants. The Company depends on its reputation and name recognition to secure engagements and to hire qualified employees and consultants. If the Company’s clients become dissatisfied with the performance of those employees or consultants or if any of those employees or consultants engage in or are believed to have engaged in conduct that is harmful to the Company’s clients, the Company’s ability to maintain or expand its client base may be harmed.
The Company and certain subsidiaries are defendants in several lawsuits that could cause the Company to incur substantial liabilities.    The Company and certain subsidiaries are defendants in several actual or asserted class and representative action lawsuits brought by or on behalf of the Company’s current and former employees alleging violations of federal and state law with respect to certain wage and hour related matters, as well as claims challenging the Company’s compliance with the Fair Credit Reporting Act. The various claims made in one or more of such lawsuits include, among other things, the misclassification of certain employees as exempt employees under applicable law, failure to comply with wage statement requirements, failure to compensate certain employees for time spent performing activities related to the interviewing process, and other related wage and hour violations. Such suits seek, as applicable, unspecified amounts for unpaid overtime compensation, penalties, and other damages, as well as attorneys’ fees. It is not possible to predict the outcome of these lawsuits. However, these lawsuits may consume substantial amounts of the Company’s financial and managerial resources and might result in adverse publicity, regardless of the ultimate outcome of the lawsuits. In addition, the Company and its subsidiaries may become subject to similar lawsuits in the same or other jurisdictions. An unfavorable outcome with respect to

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these lawsuits and any future lawsuits could, individually or in the aggregate, cause the Company to incur substantial liabilities that may have a material adverse effect upon the Company’s business, financial condition or results of operations. In addition, an unfavorable outcome in one or more of these cases could cause the Company to change its compensation plans for its employees, which could have a material adverse effect upon the Company’s business.
The Company faces risks in operating internationally.    The Company depends on operations in international markets, including Europe, for a significant portion of its business. The European market has been experiencing on-going economic uncertainty which has adversely affected, and may continue to adversely affect, the Company’s operations in Europe. To the extent that these adverse economic conditions in Europe continue or worsen, demand for the Company’s services may decline, which could significantly harm its business and results of operations. In addition, these international operations are subject to a number of risks, including general political and economic conditions in those foreign countries, the burden of complying with various foreign laws and technical standards and unpredictable changes in foreign regulations, U.S. legal requirements governing U.S. companies operating in foreign countries, legal and cultural differences in the conduct of business, potential adverse tax consequences and difficulty in staffing and managing international operations. In addition, the Company’s business may be affected by foreign currency exchange fluctuations. In particular, the Company is subject to risk in translating its results in foreign currencies into the U.S. dollar. If the value of the U.S. dollar strengthens relative to other currencies, the Company’s reported income from these operations could decrease. The value of the U.S. dollar has recently strengthened considerably against a number of major foreign currencies, and a continuation or extension of this strength relative to these other currencies could adversely impact the Company’s reported income from its international markets and cause its revenue in such markets, when translated into U.S. dollars, to decline.
Government regulations may result in prohibition or restriction of certain types of employment services or the imposition of additional licensing or tax requirements that may reduce the Company’s future earnings.    In many jurisdictions in which the Company operates, the employment services industry is heavily regulated. For example, governmental regulations in some countries restrict the length of contracts and the industries in which the Company’s employees may be used. In other countries, special taxes, fees or costs are imposed in connection with the use of its employees. Additionally, trade unions in some countries have used the political process to target the industry, in an effort to increase the regulatory burden and expense associated with offering or utilizing temporary staffing solutions.
The countries in which we operate may, among other things:
create additional regulations that prohibit or restrict the types of employment services that the Company currently provides;
require new or additional benefits be paid to the Company’s employees;
require the Company to obtain additional licensing to provide employment services; or
increase taxes, such as sales or value-added taxes, payable by the providers of temporary workers.
Any future regulations may have a material adverse effect on the Company’s business and financial results because they may make it more difficult or expensive for the Company to continue to provide employment services. Additionally, as the Company expands existing service offerings, adds new service offerings, or enters new markets, it may become subject to additional restrictions and regulations which may impede its business, increase costs and impact profitability.
The Company may be unable to find sufficient candidates for its staffing business.    The Company’s staffing services business consists of the placement of individuals seeking employment. There can be no assurance that candidates for employment will continue to seek employment through the Company. Candidates generally seek temporary or regular positions through multiple sources, including the Company and its competitors. Any shortage of candidates could materially adversely affect the Company.
The Company operates in a highly competitive business and may be unable to retain clients or market share.    The staffing 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.
The Company may incur 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, harassment or failure to protect confidential personal information. While such claims have not historically had a material

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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, or allegations of misuse of client confidential information. In many cases, the Company has agreed to indemnify its clients in respect of these types of claims. 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 sufficient 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.
The Company is dependent on its management personnel and employees and a failure to attract and retain such personnel could harm its business.    The Company is engaged in the 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.
The Company’s business is subject to extensive government regulation and a failure to comply with regulations could harm its business.    The Company’s business is subject to regulation or licensing in many states in the U.S. 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. In addition, 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, or judicial or administrative proceedings related to such regulation, could materially adversely affect the Company. In addition, to the extent that government regulation imposes increased costs upon the Company, such as unemployment insurance taxes, there can be no assurance that such costs will not adversely impact the Company’s profit margins. Further, lawsuits or other proceedings related to the Company’s compliance with government regulations or licensing requirements could materially adversely affect the Company.  For example, the Company is currently named as a defendant in litigation challenging its compliance with the Fair Credit Reporting Act.  It is not possible to predict the outcome of such litigation; however, such litigation or any future lawsuits or proceedings related to the Company’s compliance with government regulation or licensing requirements could consume substantial amounts of the Company’s financial and managerial resources and might result in adverse publicity, regardless of the ultimate outcome of any such lawsuits or other proceedings.  An unfavorable outcome with respect to such litigation or any future lawsuits or proceedings could, individually or in the aggregate, cause the Company to incur substantial liabilities that may have a material adverse effect upon the Company’s business, financial condition or results of operations.
Health care reform could increase the costs of the Company’s temporary staffing operations.    In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (the “PPACA”) was signed into law in the United States. The PPACA imposed new mandates on individuals and employers, requiring most individuals to have health insurance and, beginning in 2015, assessing penalties on large employers that do not offer health insurance that meets certain coverage, value, or affordability standards. Beginning 2015, the Company has redesigned its employee benefits to offer health insurance coverage to its temporary candidates in a way that it believes meets the requirements of the PPACA’s employer mandate. Providing such additional health insurance benefits and an increase in the number of employees who elect to participate in the Company’s health plans may significantly increase the Company’s health care-related costs as compared to historical periods. While the Company is attempting to recover these costs from its customers, there can be no assurance that it will be successfully able to do so, and any difficulties it encounters in recovering such costs will cause its financial results to suffer.
In addition, because the regulations governing the PPACA’s employer mandate are new and subject to interpretation, it is possible that despite the Company’s efforts, the Company may incur liability in the form of penalties, fines, or damages if:
the health plans offered to temporary candidates are subsequently found not to meet minimum essential coverage, affordability or minimum value standards;
the Company’s method for determining eligibility for coverage is found inadequate; or
the Company’s clients seek indemnification for health care claims by candidates working on client assignments.
The cost of any such penalties, fines, or damages could have a material adverse effect on the Company’s financial and operating results.

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The Company’s computer and communications hardware and software systems are vulnerable to damage and interruption.    The Company’s ability to manage its operations successfully is critical to its success and largely depends upon the efficient and uninterrupted operation of its computer and communications hardware and software systems, some of which are managed by third-party vendors. The Company’s primary computer systems and operations are vulnerable to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, catastrophic events and errors in usage by the Company’s employees and those of the Company’s vendors. In particular, the Company’s employees or vendors may have access or exposure to personally identifiable or otherwise confidential information and customer data and systems, the misuse of which could result in legal liability. Cyber-attacks, including attacks motivated by grievances against the business services industry in general or against the Company in particular, may disable or damage its systems. It is possible that the Company’s security controls or those of its third-party vendors over personal and other data and other practices it follows may not prevent the improper access to or disclosure of personally identifiable or otherwise confidential information.  Such disclosure or damage to the Company’s systems could harm its reputation and subject it to government sanctions and liability under its contracts and laws that protect personal data and confidential information, resulting in increased costs or loss of revenue. The potential risk of security breaches and cyber-attacks may increase as the Company introduces new service offerings.
Failure to maintain adequate financial and management processes and controls could lead to errors in the Company’s financial reporting.    Failure to maintain adequate financial and management processes and controls could lead to errors in the Company’s financial reporting. If the Company’s management is unable to certify the effectiveness of its internal controls or if its independent registered public accounting firm cannot render an opinion on the effectiveness of its internal control over financial reporting, or if material weaknesses in the Company’s internal controls are identified, the Company could be subject to regulatory scrutiny and a loss of public confidence. In addition, if the Company does not maintain adequate financial and management personnel, processes and controls, it may not be able to accurately report its financial performance on a timely basis, which could cause its stock price to fall.
The Company’s results of operations and ability to grow could be materially negatively affected if it cannot successfully keep pace with technological changes in the development and implementation of its services.    The Company’s success depends on its ability to keep pace with rapid technological changes in the development and implementation of its services. The Company’s business is reliant on a variety of technologies, including those which support hiring and tracking, order management, billing, and client data analytics. If the Company does not sufficiently invest in new technology and industry developments, appropriately implement new technologies, or evolve its business at sufficient speed and scale in response to such developments, or if it does not make the right strategic investments to respond to these developments, the Company’s services, results of operations, and ability to develop and maintain its business could be negatively affected.
The demand for the Company’s services related to Sarbanes-Oxley or other regulatory compliance may decline.    The operations of both the staffing services business and Protiviti include services related to Sarbanes-Oxley and other regulatory compliance. There can be no assurance that there will be ongoing demand for these services. For example, the Jumpstart Our Business Startup (“JOBS”) Act signed into law in April of 2012 allows most companies going public in the U.S. to defer implementation of some of the provisions of Sarbanes-Oxley for up to five years after their initial public offering. Similarly there are a number of proposals currently being considered by the U.S. Congress to further delay or, in some cases, remove the requirements of Sarbanes-Oxley for a number of public companies. These or other similar delays or modifications of the Sarbanes Oxley requirements could decrease demand for Protiviti’s services.
Long-term contracts do not comprise a significant portion of the Company’s revenue.    Because long-term contracts are not a significant part of the Company’s staffing services business, future results cannot be reliably predicted by considering past trends or extrapolating past results. Additionally, the Company’s clients will frequently enter into non-exclusive arrangements with several firms, which the client is generally able to terminate on short notice and without penalty. The nature of these arrangements further exacerbates the difficulty in predicting our future results.
Protiviti may be unable to attract and retain key personnel.    Protiviti is a services business, and is dependent upon its ability to attract and retain qualified, skilled personnel. While Protiviti has retained its key personnel to date, there can be no assurance that it will continue to be able to do so.
Protiviti operates in a highly competitive business and faces competitors who are significantly larger and have more established reputations.    Protiviti operates in a highly competitive business. As with the Company’s staffing services business, the barriers to entry are quite low. There are many competitors, some of which have greater resources than Protiviti and many of which have been in operation far longer than Protiviti. In particular, Protiviti faces competition from the “big four” accounting firms, which have been in operation for a considerable period of time and have established reputations and client bases. Because the principal factors upon which competition is based are reputation, technology, tools, project methodologies,

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price of services and depth of skills of personnel, there can be no assurance that Protiviti will be successful in attracting and retaining clients or be able to maintain the technology, personnel and other requirements to successfully compete.
Protiviti’s operations could subject it to liability.    The business of Protiviti consists of providing business consulting and internal audit services. Liability could be incurred or litigation could be instituted against the Company or Protiviti for claims related to these activities or to prior transactions or activities. There can be no assurance that such liability or litigation will not have a material adverse impact on Protiviti or the Company.
Item 1B.    Unresolved Staff Comments.
Not applicable.
Item 2.    Properties
The Company’s headquarters operations are located in Menlo Park and San Ramon, California. As of December 31, 2015, placement activities were conducted through 332 offices located in the United States, Canada, the United Kingdom, Belgium, Brazil, France, the Netherlands, Germany, Luxembourg, Switzerland, Japan, China, Singapore, Australia, New Zealand, Austria, the United Arab Emirates, and Chile. As of December 31, 2015, Protiviti had 56 offices in the United States, Canada, Australia, China, France, Germany, Italy, the Netherlands, Japan, Singapore, India and the United Kingdom. All of the offices are leased.
Item 3.    Legal Proceedings
On April 23, 2010, Plaintiffs David Opalinski and James McCabe, on behalf of themselves and a putative class of similarly situated Staffing Managers, filed a Complaint in the United States District Court for the District of New Jersey naming the Company and one of its subsidiaries as Defendants. The Complaint alleges that salaried Staffing Managers located throughout the U.S. have been misclassified as exempt from the Fair Labor Standards Act’s overtime pay requirements. Plaintiffs seek an unspecified amount for unpaid overtime on behalf of themselves and the class they purport to represent. Plaintiffs also seek an unspecified amount for statutory penalties, attorneys’ fees and other damages. On October 6, 2011, the Court granted the Company’s motion to compel arbitration of the Plaintiffs’ allegations. At this stage, it is not feasible to predict the outcome of or a range of loss, should a loss occur, from these allegations and, accordingly, no amounts have been provided in the Company’s Financial Statements. The Company believes it has meritorious defenses to the allegations, and the Company intends to continue to vigorously defend against the allegations.
On March 13, 2014, Plaintiff Leonor Rodriguez, on her own behalf and on behalf of a putative class of allegedly similarly situated individuals, filed a complaint against the Company in the Superior Court of California, San Diego County. The complaint alleges that a putative class of current and former employees of the Company working in California since March 13, 2011 were denied compensation for the time they spent interviewing with clients of the Company as well as performing activities related to the interview process. Rodriguez seeks recovery on her own behalf and on behalf of the putative class in an unspecified amount for this allegedly unpaid compensation. Rodriguez also seeks recovery of an unspecified amount for the alleged failure of the Company to provide her and the putative class with accurate wage statements. Rodriguez also seeks an unspecified amount of other damages, attorneys’ fees, and statutory penalties, including but not limited to statutory penalties on behalf of herself and other allegedly “aggrieved employees” as defined by California’s Labor Code Private Attorney General Act (“PAGA”). On October 10, 2014, the Court granted a motion by the Company to compel all of Rodriguez’s claims, except the PAGA claim, to individual arbitration. At this stage of the litigation, it is not feasible to predict the outcome of or a range of loss, should a loss occur, from this proceeding and, accordingly, no amounts have been provided in the Company’s Financial Statements. The Company believes it has meritorious defenses to the allegations and the Company intends to continue to vigorously defend against the litigation.
On March 23, 2015, Plaintiff Jessica Gentry, on her own behalf and on behalf of a putative class of allegedly similarly situated individuals, filed a complaint against the Company in the Superior Court of California, San Francisco County, which was subsequently amended on October 23, 2015. The complaint, which was filed by the same plaintiffs’ law firm that brought the Rodriguez matter described above, alleges claims similar to those alleged in Rodriguez. Specifically, the complaint alleges that a putative class of current and former employees of the Company working in California since March 13, 2010 were denied compensation for the time they spent interviewing “for temporary and permanent employment opportunities” as well as performing activities related to the interview process. Gentry seeks recovery on her own behalf and on behalf of the putative class in an unspecified amount for this allegedly unpaid compensation. Gentry also seeks recovery of an unspecified amount for the alleged failure of the Company to provide her and the putative class with accurate wage statements. Gentry also seeks an unspecified amount of other damages, attorneys’ fees, and statutory penalties, including penalties for allegedly not paying all wages due upon separation to former employees and statutory penalties on behalf of herself and other allegedly “aggrieved employees” as defined by PAGA. On January 4, 2016, the Court denied a motion by the Company to compel all of Gentry’s

8








claims, except the PAGA claim, to individual arbitration. At this stage of the litigation, it is not feasible to predict the outcome of or a range of loss, should a loss occur, from this proceeding and, accordingly, no amounts have been provided in the Company’s Financial Statements. The Company believes it has meritorious defenses to the allegations and the Company intends to continue to vigorously defend against the litigation.
The Company is involved in a number of other lawsuits arising in the ordinary course of business. While management does not expect any of these other matters to have a material adverse effect on the Company’s results of operations, financial position or cash flows, litigation is subject to certain inherent uncertainties.
Item 4.    Mine Safety Disclosure
Not applicable.

9








PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Price, Dividends and Related Matters
The Company’s Common Stock is listed for trading on the New York Stock Exchange under the symbol “RHI”. On January 31, 2016, there were 1,303 holders of record of the Common Stock.
Following is a list by fiscal quarters of the sales prices of the stock:
 
 
 
Sales Prices
2015
 
High
 
Low
4th Quarter
 
$
54.01

 
$
44.95

3rd Quarter
 
$
58.00

 
$
49.18

2nd Quarter
 
$
60.54

 
$
54.58

1st Quarter
 
$
63.27

 
$
55.60

 
 
 
Sales Prices
2014
 
High
 
Low
4th Quarter
 
$
59.45

 
$
45.30

3rd Quarter
 
$
53.08

 
$
46.98

2nd Quarter
 
$
48.13

 
$
39.57

1st Quarter
 
$
43.06

 
$
38.62

Cash dividends of $.20 per share were declared and paid in each quarter of 2015. Cash dividends of $.18 per share were declared and paid in each quarter of 2014.
Issuer Purchases of Equity Securities
 
 
 
Total
Number of
Shares
Purchased
 
 
 
Average
Price Paid
per Share
 
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans
 
Maximum
Number of
Shares that May
Yet Be
Purchased
Under Publicly
Announced
Plans (b)
October 1, 2015 to October 31, 2015
 

 
 
 

 

 
11,823,541

November 1, 2015 to November 30, 2015
 
100,000

 
  
 
$
50.90

 
100,000

 
11,723,541

December 1, 2015 to December 31, 2015
 
1,590,345

 
(a)
 
$
47.22

 
1,310,947

 
10,412,594

Total October 1, 2015 to December 31, 2015
 
1,690,345

 
  
 
 
 
1,410,947

 
 
 
(a)
Includes 279,398 shares repurchased in connection with employee stock plans, whereby Company shares were tendered by employees for the payment of applicable withholding taxes and/or exercise price.
(b)
Commencing in October 1997, the Company’s Board of Directors has, at various times, authorized the repurchase, from time to time, of the Company’s common stock on the open market or in privately negotiated transactions depending on market conditions. Since plan inception, a total of 108,000,000 shares have been authorized for repurchase of which 97,587,406 shares have been repurchased as of December 31, 2015.
The remainder of the information required by this item is incorporated by reference to Part III, Item 12 of this Form 10-K.


10








Stock Performance Graph
The following graph compares, through December 31, 2015, the cumulative total return of the Company’s Common Stock, an index of certain publicly traded employment services companies, and the S&P 500. The graph assumes the investment of $100 at the beginning of the period depicted in the chart and reinvestment of all dividends. The information presented in the graph was obtained by the Company from outside sources it considers to be reliable but has not been independently verified by the Company.
 
(a)
This index represents the cumulative total return of the Company and the following corporations providing temporary or permanent employment services: CDI Corp.; Kelly Services, Inc.; Kforce Inc.; ManpowerGroup; and Resources Connection Inc.

11









Item 6. Selected Financial Data
The selected five-year financial data presented below should be read in conjunction with the information contained in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Company’s Consolidated Financial Statements and the Notes thereto contained in Item 8. Financial Statements and Supplementary Data.
 
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
(in thousands)
Income Statement Data:
 
 
 
 
 
 
 
 
 
 
Net service revenues
 
$
5,094,933

 
$
4,695,014

 
$
4,245,895

 
$
4,111,213

 
$
3,776,976

Direct costs of services, consisting of
payroll, payroll taxes, benefit costs and
reimbursable expenses
 
2,980,462

 
2,772,098

 
2,522,803

 
2,462,153

 
2,287,374

Gross margin
 
2,114,471

 
1,922,916

 
1,723,092

 
1,649,060

 
1,489,602

Selling, general and administrative expenses
 
1,533,799

 
1,425,734

 
1,324,815

 
1,305,614

 
1,240,184

Amortization of intangible assets
 
192

 
557

 
1,700

 
398

 
153

Interest income, net
 
(550
)
 
(724
)
 
(1,002
)
 
(1,197
)
 
(951
)
Income before income taxes
 
581,030

 
497,349

 
397,579

 
344,245

 
250,216

Provision for income taxes
 
223,234

 
191,421

 
145,384

 
134,303

 
100,294

Net income
 
$
357,796

 
$
305,928

 
$
252,195

 
$
209,942

 
$
149,922

Net income available to common stockholders—diluted
 
$
357,796

 
$
305,928

 
$
252,192

 
$
208,867

 
$
147,772

 
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
(in thousands, except per share amounts)
Net Income Per Share:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
2.72

 
$
2.28

 
$
1.85

 
$
1.51

 
$
1.05

Diluted
 
$
2.69

 
$
2.26

 
$
1.83

 
$
1.50

 
$
1.04

Shares:
 
 
 
 
 
 
 
 
 
 
Basic
 
131,749

 
134,358

 
136,153

 
138,201

 
140,479

Diluted
 
132,930

 
135,541

 
137,589

 
139,409

 
141,790

Cash Dividends Declared Per Share
 
$
.80

 
$
.72

 
$
.64

 
$
.60

 
$
.56

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
(in thousands)
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
1,702,960

 
$
1,647,267

 
$
1,490,271

 
$
1,381,271

 
$
1,311,836

Notes payable and other indebtedness, less
current portion
 
$
1,007

 
$
1,159

 
$
1,300

 
$
1,428

 
$
1,545

Stockholders’ equity
 
$
1,003,781

 
$
979,858

 
$
919,643

 
$
842,011

 
$
800,505


12









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”, “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. Further information regarding these and other risks and uncertainties is contained in Item 1A. “Risk Factors.”

Executive Overview

Demand for the Company’s temporary and permanent staffing services and risk consulting and internal audit services is
largely dependent upon general economic and labor trends both domestically and abroad. Correspondingly, financial results for the year ended December 31, 2015 were positively impacted by improved global economic conditions, largely driven by improvements in the United States with more modest growth in the non-U.S. markets we serve. Annual net service revenues reached $5.09 billion in 2015, an increase of 9% from the prior year. Full-year 2015 net income increased 17% to $358 million and diluted net income per share increased 19% to $2.69. All three of the Company's operating segments experienced strong revenue growth, led by Protiviti which increased 22% in 2015 on a same-day, constant-currency basis compared to the last year.

We believe that the Company is well positioned to benefit from the current macroeconomic environment. The United States economic backdrop during 2015 was generally favorable for the Company as real gross domestic product (GDP) grew 2.4%, while the unemployment rate declined from 5.6% in December 2014 to 5.0% in December 2015. In the United States 2.7 million jobs were added over the course of the year in 2015. A number of professional occupations are nearing full employment, which is placing pressure on the supply of available talent and increasing our value to clients. The secular demand for temporary staffing is also ongoing. The use of flexible workers matched an all-time high during 2015, and temporary employees represented 2.06% of the U.S. workforce as of December 31, 2015.



13








Protiviti has successfully diversified its service offerings, built a loyal and growing client base, and is seeing steady demand in all of its major consulting solutions. Protiviti serves its clients in areas such as internal audit and financial advisory services, risk and compliance, and information technology consulting, among others.

We monitor various economic indicators and business trends in all of the countries in which we operate to anticipate
demand for the Company’s services. We evaluate these trends to determine the appropriate level of investment, including
personnel, which will best position the Company for success in the current and future global macroeconomic environment. The
Company’s investments in headcount are typically structured to proactively support and align with expected revenue growth
trends. As such, particularly during the second half of 2015, we added headcount in all of the Company’s lines of business.

We have limited visibility into future revenues not only due to the dependence on macroeconomic conditions noted
above, but also because of the relatively short duration of the Company’s client engagements. Accordingly, we typically assess
headcount and other investments on at least a quarterly basis.

Capital expenditures in 2015 totaled $75 million, approximately 70% of which represented investments in software initiatives and technology infrastructure, both of which are important to the Company’s future growth opportunities. Major software initiatives include upgrades to enterprise resource planning applications and the continued implementation of a global, cloud-based customer relationship management application. Infrastructure and computer hardware initiatives in 2015 have focused on delivering mobile technology to the Company's professional staff, upgrading data networks, and enhancing video capabilities and telecommunication systems. Our investments in these and other technology initiatives are expected to continue in 2016. Capital expenditures also included amounts spent on tenant improvements and furniture and equipment in the Company's leased offices. The Company will have more lease expirations in 2016 than in 2015, so we expect higher capital expenditures related to tenant improvements. We currently expect that 2016 capital expenditures will range from $90 million to $100 million.
Critical Accounting Policies and Estimates
As described below, the Company’s most critical accounting policies and estimates are those that involve subjective decisions or assessments.
Accounts Receivable Allowances.    The Company maintains allowances for estimated losses resulting from (i) the inability of its customers to make required payments, (ii) temporary placement sales adjustments, and (iii) permanent placement candidates not remaining with the client through the 90-day guarantee period, commonly referred to as “fall offs”. The Company establishes these allowances based on its review of customers’ credit profiles, historical loss statistics and current trends. The adequacy of these allowances is reviewed each reporting period. Historically, the Company’s actual losses and credits have been consistent with these allowances. As a percentage of gross accounts receivable, the Company’s accounts receivable allowances totaled 4.7% and 4.4% as of December 31, 2015 and 2014, respectively. As of December 31, 2015, a five-percentage point deviation in the Company’s accounts receivable allowances balance would have resulted in an increase or decrease in the allowance of $1.8 million. Although future results cannot always be predicted by extrapolating past results, management believes that it is reasonably likely that future results will be consistent with historical trends and experience. However, if the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, or if unexpected events or significant future changes in trends were to occur, additional allowances may be required.
Income Tax Assets and Liabilities.    In establishing its deferred income tax assets and liabilities, the Company makes judgments and interpretations based on the enacted tax laws and published tax guidance that are applicable to its operations. Deferred tax assets and liabilities are measured and recorded using current enacted tax rates, which the Company expects will apply to taxable income in the years in which those temporary differences are recovered or settled. The likelihood of a material change in the Company’s expected realization of these assets is dependent on future taxable income, its ability to use foreign tax credit carryforwards and carrybacks, final U.S. and foreign tax settlements, and the effectiveness of its tax planning in the various relevant jurisdictions.
The Company also evaluates the need for valuation allowances to reduce the deferred tax assets to realizable amounts. Management evaluates all positive and negative evidence and uses judgment regarding past and future events, including operating results, to help determine when it is more likely than not that all or some portion of the deferred tax assets may not be realized. When appropriate, a valuation allowance is recorded against deferred tax assets to offset future tax benefits that may

14








not be realized. Valuation allowances of $26.3 million and $29.6 million were recorded as of December 31, 2015 and 2014, respectively. The valuation allowances recorded related primarily to net operating losses in certain foreign operations. If such losses are ultimately utilized to offset future operating income, the Company will recognize a tax benefit up to the full amount of the related valuation reserve.
While management believes that its judgments and interpretations regarding income taxes are appropriate, significant differences in actual experience may materially affect the future financial results of the Company.
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, 2015, and determined that no adjustment to the carrying value of goodwill was required. There were no events or changes in circumstances since the annual goodwill impairment assessment that caused the Company to perform an interim impairment assessment.
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 December 31, 2015, of $126.1 million, $26.3 million, $0.0 million, $7.0 million, $0.0 million and $49.2 million, respectively, totaling $208.6 million. There were no changes to the Company’s reporting units or to the allocations of goodwill by reporting unit for the year ended December 31, 2015.
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 last assessment would continue for all reporting units through 2015, 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 2017 and beyond, used a 5% growth factor. This rate is comparable to the Company’s most recent ten-year annual compound revenue growth rate. The future cash flows used to calculate fair value go out a total of 10 years with a terminal value calculation at the end of the 10 year period. In its most recent calculation, the Company used a 10.0% discount rate, which is slightly lower than the 10.2% discount rate used for the Company’s test during the second quarter of 2014. This decrease in discount rate is primarily attributable to slight decreases in the risk free rate and 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 74% 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

15








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.
Workers’ Compensation.    Except for states which require participation in state-operated insurance funds, the Company retains the economic burden for the first $0.5 million per occurrence in workers’ compensation claims. Workers’ compensation includes ongoing healthcare and indemnity coverage for claims and may be paid over numerous years following the date of injury. Claims in excess of $0.5 million are insured. Workers’ compensation expense includes the insurance premiums for claims in excess of $0.5 million, claims administration fees charged by the Company’s workers’ compensation administrator, premiums paid to state-operated insurance funds, and an estimate for the Company’s liability for Incurred But Not Reported (“IBNR”) claims and for the ongoing development of existing claims. Total workers’ compensation expense was $4.6 million, $5.7 million and $7.0 million, representing 0.11%, 0.16% and 0.22% of applicable U.S. revenue for the years ended December 31, 2015, 2014 and 2013, respectively.
The reserves for IBNR claims and for the ongoing development of existing claims in each reporting period include estimates. The Company has established reserves for workers’ compensation claims using loss development rates which are estimated using periodic third party actuarial valuations based upon historical loss statistics which include the Company’s historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. While management believes that its assumptions and estimates are appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Company’s future results. Based on the Company’s results for the year ended December 31, 2015, a five-percentage point deviation in the Company’s estimated loss development rates would have resulted in an increase or decrease in the reserve of $0.2 million.
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 of its stock on the grant date, unless the awards are subject to market conditions, in which case the Company utilizes a binomial-lattice model (i.e., Monte Carlo simulation model). The Monte Carlo simulation model utilizes multiple input variables to determine the stock-based compensation expense. For grants with market conditions made in the year ended December 31, 2015, the Company utilized an historical volatility of 23.70%, a 0% dividend yield and a risk-free interest rate of 0.84%. The historical volatility was based on the most recent 2.76-year period for the Company and the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest rate is equal to the yield, as of the measurement date, of the zero-coupon U.S. Treasury bill that is commensurate with the remaining performance measurement period.
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.
For the years ended December 31, 2015, 2014 and 2013, compensation expense related to restricted stock and stock units was $41.3 million, $40.8 million and $38.9 million, respectively, of which $11.1 million, $11.7 million and $9.9 million was related to grants made in 2015, 2014 and 2013, respectively. Based on the Company’s results for the year ended December 31, 2015, a one-percentage point deviation in the estimated forfeiture rates would have resulted in a $0.4 million increase or decrease in compensation expense related to restricted stock and stock units.
Recent Accounting Pronouncements
See Note B—“New Accounting Pronouncements” to the Company’s Consolidated Financial Statements included under Part II—Item 8 of this report.
Results of Operations
Demand for the Company’s temporary and permanent staffing services and risk consulting and internal audit services is largely dependent upon general economic and labor market conditions both domestically and abroad. Correspondingly, results

16








of operations were positively impacted by improved global economic conditions during 2015. Because of the inherent difficulty in predicting economic trends and the absence of material long-term contracts in any of the Company's business units, future demand for the Company’s services cannot be forecast with certainty. We believe the Company is well positioned to benefit in the current United States macroeconomic environment. We are making investments in people and infrastructure to support business expansion, and are confident in the ability of the Company's field and corporate leadership teams to grow the business.
The Company’s temporary and permanent staffing services business has 332 offices in 42 states, the District of Columbia and 17 foreign countries, while Protiviti has 56 offices in 23 states and 11 foreign countries.
Non-GAAP Financial Measures
The financial results of the Company are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the rules of the SEC. 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 reportable 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 then calculates a global, weighted-average number of billing days for each reporting period based upon input from all countries and all 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.
Refer to Item 7a. "Quantitative and Qualitative Disclosures About Market Risk" for further discussion of the impact of foreign currency exchange rates on the Company's results of operations and financial condition.
Years ended December 31, 2015 and 2014
Revenues.    The Company’s revenues were $5.09 billion for the year ended December 31, 2015, increasing by 8.5% compared to $4.70 billion for the year ended December 31, 2014. Revenues from foreign operations represented 19% and 23% of total revenues for the years ended December 31, 2015 and 2014, 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 2015, revenues for all three of the Company’s reportable segments were up compared to 2014. Results were strongest domestically with demand also improving in several other countries, most notably within Europe. Risk consulting and internal audit services continued to post strong growth rates. Contributing factors for each reportable segment are discussed below in further detail.
Temporary and consultant staffing services revenues were $3.93 billion for the year ended December 31, 2015, increasing by 6.9% compared to revenues of $3.68 billion for the year ended December 31, 2014. Key drivers of temporary and consultant staffing services revenues include average hourly bill rates and the number of hours worked by the Company’s temporary employees on client engagements. On a same-day, constant-currency basis, temporary and consultant staffing services revenues increased 10.3% for 2015, compared to 2014, due primarily to an increase in temporary hours worked by the Company's

17








temporary employees and inclusive of a 4.5% increase in average bill rates. In the U.S., 2015 revenues increased 11.5% on an as reported basis and 11.4% on a same-day basis, compared to 2014. For the Company’s international operations, 2015 revenues decreased 8.9% on an as reported basis and increased 6.4% on a same-day, constant-currency basis, compared to 2014.
Permanent placement staffing revenues were $421 million for the year ended December 31, 2015, increasing by 6.8% compared to revenues of $395 million for the year ended December 31, 2014. Key drivers of permanent placement staffing revenues consist of the number of candidate placements and average fees earned per placement. On a same-day, constant-currency basis, permanent placement revenues increased 11.7% for 2015 compared to 2014. In the U.S., 2015 revenues increased 15.5% on an as reported basis and 15.4% on a same-day basis, compared to 2014. For the Company’s international operations, 2015 revenues decreased 9.3% on an as reported basis, and on a same-day, constant-currency basis increased 4.9%, compared to 2014, driven primarily by an increase in number of placements. 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.
Risk consulting and internal audit services revenues were $743 million for the year ended December 31, 2015, increasing by 19.0% compared to revenues of $624 million for the year ended December 31, 2014. Key drivers of risk consulting and internal audit services revenues are the billable hours worked by consultants on client engagements and average hourly bill rates. On a same-day, constant-currency basis, risk consulting and internal audit services revenues increased 21.8% for 2015 compared to 2014, due primarily to an increase in billable hours worked. In the U.S., 2015 revenues increased 22.3% on an as reported basis, or 22.5% on a same-day basis, compared to 2014. For the Company’s international operations, 2015 revenues increased 4.0% on an as reported basis, and on a same-day, constant-currency basis increased 18.7%, compared to 2014.
A reconciliation of the non-GAAP year-over-year revenue growth rates to the as reported year-over-year revenue growth rates for the year ended December 31, 2015, is presented in the following table:
 
 
Global
 
United States
 
International
Temporary and consultant staffing
 
 
 
 
 
 
 
 
 
 
 
As Reported
 
6.9
 %
 
 
 
11.5
 %
 
 
 
-8.9
 %
 
Billing Days Impact
 
0.0
 %
 
 
 
-0.1
 %
 
 
 
-0.1
 %
 
Currency Impact
 
3.4
 %
 
 
 

 
 
 
15.4
 %
 
Same Billing Days and Constant Currency
 
10.3
 %
 
 
 
11.4
 %
 
 
 
6.4
 %
 
Permanent placement staffing
 
 
 
 
 
 
 
 
 
 
 
As Reported
 
6.8
 %
 
 
 
15.5
 %
 
 
 
-9.3
 %
 
Billing Days Impact
 
-0.1
 %
 
 
 
-0.1
 %
 
 
 
0.0
 %
 
Currency Impact
 
5.0
 %
 
 
 

 
 
 
14.2
 %
 
Same Billing Days and Constant Currency
 
11.7
 %
 
 
 
15.4
 %
 
 
 
4.9
 %
 
Risk consulting and internal audit services
 
 
 
 
 
 
 
 
 
 
 
As Reported
 
19.0
 %
 
 
 
22.3
 %
 
 
 
4.0
 %
 
Billing Days Impact
 
0.1
 %
 
 
 
0.2
 %
 
 
 
0.2
 %
 
Currency Impact
 
2.7
 %
 
 
 

 
 
 
14.5
 %
 
Same Billing Days and Constant Currency
 
21.8
 %
 
 
 
22.5
 %
 
 
 
18.7
 %
 
Gross Margin.    The Company’s gross margin dollars were $2.11 billion for the year ended December 31, 2015, up 10.0% from $1.92 billion for the year ended December 31, 2014. For 2015 compared to 2014, gross margin dollars for all three of the Company’s reportable segments increased. Gross margin dollars as a percentage of revenues increased for both the Company’s temporary and consultant staffing services segment and the risk consulting and internal audit services segment 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 benefit costs for temporary employees, and reimbursable expenses. The
key drivers of gross margin are: i) pay/bill spreads, which represent the differential between wages paid to temporary
employees and amounts billed to clients; ii) fringe costs, which are primarily composed of payroll taxes and benefit costs for

18








temporary and consultant staffing employees; and iii) conversion revenues, which are earned when a temporary position
converts to a permanent position with the Company's client. Gross margin dollars for the Company’s temporary and consultant staffing services division were $1.46 billion for the year ended December 31, 2015, up 8.8% from $1.35 billion for the year ended December 31, 2014. As a percentage of revenues, gross margin dollars for temporary and consultant staffing services were 37.2% in 2015, up from 36.6% in 2014. This year-over-year improvement in gross margin percentage of 0.6% was primarily attributable to higher pay/bill spreads and lower fringe costs driven by lower state unemployment insurance expenses in 2015 compared to 2014.
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 $421 million for the year ended December 31, 2015, up 6.7% from $394 million for the year ended December 31, 2014. Because reimbursable expenses for permanent placement staffing services are de minimis, the increase in gross margin dollars is substantially explained by the increase in 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, benefit costs and reimbursable expenses. The primary drivers of
risk consulting and internal audit services gross margin are: i) the relative composition of and number of professional staff and
their respective pay and bill rates; and ii) staff utilization, which is the relationship of time spent on client engagements in
proportion to the total time available for the Company’s risk consulting and internal audit services staff. Gross margin dollars for the Company’s risk consulting and internal audit division were $230 million for the year ended December 31, 2015, up 25.6% from $183 million for the year ended December 31, 2014. As a percentage of revenues, gross margin dollars for risk consulting and internal audit services were 31.0% in 2015, up from 29.4% in 2014. The improvement in 2015 compared to 2014 was due to a better alignment of the mix of professional staff relative to client demand.
Selling, General and Administrative Expenses.    The Company’s selling, general and administrative expenses consist primarily of staff compensation, advertising, depreciation and occupancy costs. The Company’s selling, general and administrative expenses were $1.53 billion for the year ended December 31, 2015, up 7.6% from $1.43 billion for the year ended December 31, 2014. As a percentage of revenues, the Company’s selling, general and administrative expenses were 30.1% for 2015, down from 30.4% for 2014. In 2015, selling, general and administrative expenses increased for all three of the Company’s reportable segments compared to 2014. As percentage of revenue, selling, general and administrative expenses for the Company’s permanent placement staffing and risk consulting and internal audit services divisions decreased in 2015 compared to 2014, however for the temporary and consulting staffing division, selling, general and administrative expenses increased as a percentage of revenue. Contributing factors for 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 $1.06 billion for the year ended December 31, 2015, up 7.8% from $987 million for the year ended December 31, 2014. As a percentage of revenues, selling, general and administrative expenses for temporary and consultant staffing services were 27.1% in 2015, up from 26.8% in 2014. For 2015 compared to 2014, the increase in selling, general and administrative expenses as a percentage of revenue is primarily due to an increase in field compensation expense and variable overhead, partially offset by a decrease in admin compensation and fixed overhead.
Selling, general and administrative expenses for the Company’s permanent placement staffing division were $336 million for the year ended December 31, 2015, up 6.2% from $316 million for the year ended December 31, 2014. As a percentage of revenues, selling, general and administrative expenses for permanent placement staffing services were 79.7% in 2015, down from 80.1% in 2014. For 2015 compared to 2014, decreases in fixed overhead and variable 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 risk consulting and internal audit services division were $134 million for the year ended December 31, 2015, up 9.3% from $123 million for the year ended December 31, 2014. As a percentage of revenues, selling, general and administrative expenses for risk consulting and internal audit services were 18.1% in 2015, down from 19.7% in 2014. For 2015 compared to 2014, improved leverage of general and administrative expenses, as a result of higher revenue, drove the overall decrease as a percentage of revenues.
Operating Income.    The Company’s total operating income was $581 million, or 11.4% of revenues, for the year ended December 31, 2015, up 16.8% from $497 million, or 10.6% of revenues, for the year ended December 31, 2014. For the Company’s temporary and consultant staffing services division, operating income was $400 million, or 10.2% of applicable revenues, up 11.5% from $359 million, or 9.8% of applicable revenues, in 2014. For the Company’s permanent placement

19








staffing division, operating income was $85 million, or 20.2% of applicable revenues, up 8.5% from operating income of $78 million, or 19.9% of applicable revenues, in 2014. For the Company’s risk consulting and internal audit services division, operating income was $96 million, or 12.9% of applicable revenues, up 58.9% from operating income of $60 million, or 9.7% of applicable revenues, in 2014.
Provision for income taxes.    The provision for income taxes was relatively consistent at 38.4% and 38.5% for the years ended December 31, 2015 and 2014, respectively.
Years ended December 31, 2014 and 2013
Revenues. The Company’s revenues were $4.70 billion for the year ended December 31, 2014, increasing by 10.6% compared to $4.25 billion for the year ended December 31, 2013. Revenues from foreign operations represented 23% and 24% of total revenues for the years ended December 31, 2014 and 2013, 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 2014, revenues for all three of the Company’s reportable segments were up compared to 2013. Results were strongest domestically with broad-based revenue expansion across the Company’s staffing and consulting operations. Contributing factors for each reportable segment are discussed below in further detail.

Temporary and consultant staffing services revenues were $3.68 billion for the year ended December 31, 2014, increasing by 9.1% compared to revenues of $3.37 billion for the year ended December 31, 2013. Key drivers of temporary and consultant staffing services revenues include average hourly bill rates and hours worked by the Company's temporary employees on client engagements. On a same-day, constant-currency basis, temporary and consultant staffing services revenues increased 9.5% for 2014 compared to 2013, due primarily to an increase in temporary hours worked by the Company's temporary employees and inclusive of a 3.2% increase in average bill rates. In the U.S., 2014 revenues increased 10.6% on both an as reported and a same-day basis, compared to 2013. For the Company’s international operations, 2014 revenues increased 4.2% and on a same-day, constant-currency basis increased 5.9%, compared to 2013.

Permanent placement staffing revenues were $395 million for the year ended December 31, 2014, increasing by 13.5%
compared to revenues of $348 million for the year ended December 31, 2013. Key drivers of permanent placement staffing revenues consist of number of candidate placements and average fees earned per placement. On a same-day, constant-currency basis, permanent placement revenues increased 14.3% for 2014 compared to 2013. In the U.S., 2014 revenues increased 17.8% on both an as reported and same-day basis, compared to 2013, driven primarily by an increase in number of placements. 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, 2014 revenues increased 6.3%, and on a same-day, constant-currency basis increased 8.5%, compared to 2013.

Risk consulting and internal audit services revenues were $624 million for the year ended December 31, 2014, increasing by 18.1% compared to revenues of $528 million for the year ended December 31, 2013. Key drivers of risk consulting and internal audit services revenues are the billable hours worked by consultants on client engagements and average
hourly bill rates. On a same-day, constant-currency basis, risk consulting and internal audit services revenues increased 17.5% for 2014 compared to 2013, due primarily to an increase in billable hours worked. In the U.S., 2014 revenues increased 21.9%, or 21.0% on a same-day basis, compared to 2013. For the Company’s international operations, 2014 revenues increased 3.8% and on a same-day, constant-currency basis increased 4.1%, compared to 2013.

20








A reconciliation of the non-GAAP year-over-year revenue growth rates to the as reported year-over-year revenue growth rates for the year ended December 31, 2014, is presented in the following table:
 
Global
 
United States
 
International
Temporary and consultant staffing
 
 
 
 
 
 
 
 
 
 
 
As Reported
 
9.1
 %
 
 
 
10.6
 %
 
 
 
4.2
 %
 
Billing Days Impact
 
0.0
 %
 
 
 
0.0
 %
 
 
 
0.0
 %
 
Currency Impact
 
0.4
 %
 
 
 

 
 
 
1.7
 %
 
Same Billing Days and Constant Currency
 
9.5
 %
 
 
 
10.6
 %
 
 
 
5.9
 %
 
Permanent placement staffing
 
 
 
 
 
 
 
 
 
 
 
As Reported
 
13.5
 %
 
 
 
17.8
 %
 
 
 
6.3
 %
 
Billing Days Impact
 
0.0
 %
 
 
 
0.0
 %
 
 
 
0.0
 %
 
Currency Impact
 
0.8
 %
 
 
 

 
 
 
2.2
 %
 
Same Billing Days and Constant Currency
 
14.3
 %
 
 
 
17.8
 %
 
 
 
8.5
 %
 
Risk consulting and internal audit services
 
 
 
 
 
 
 
 
 
 
 
As Reported
 
18.1
 %
 
 
 
21.9
 %
 
 
 
3.8
 %
 
Billing Days Impact
 
-0.8
 %
 
 
 
-0.9
 %
 
 
 
-0.8
 %
 
Currency Impact
 
0.2
 %
 
 
 

 
 
 
1.1
 %
 
Same Billing Days and Constant Currency
 
17.5
 %
 
 
 
21.0
 %
 
 
 
4.1
 %
 

Gross Margin.    The Company’s gross margin dollars were $1.92 billion for the year ended December 31, 2014, up
11.6% from $1.72 billion for the year ended December 31, 2013. For 2014 compared to 2013, gross margin dollars for all three
of the Company’s reportable segments increased. Gross margin dollars as a percentage of revenues increased for both the Company’s temporary and consultant staffing services segment and the risk consulting and internal audit services segment 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 benefit costs for temporary employees, and reimbursable expenses.The key drivers of gross margin are: i) pay/bill spreads, which represent the differential between wages paid to temporary employees and amounts billed to clients; ii) fringe costs, which are primarily composed of payroll taxes and benefit costs for
temporary and consultant staffing employees; and iii) conversion revenues, which are earned when a temporary position converts to a permanent position with the Company's client. Gross margin dollars for the Company’s temporary and consultant staffing services division were $1.35 billion for the year ended December 31, 2014 , up 10.2% from $1.22 billion for the year ended December 31, 2013. As a percentage of revenues, gross margin dollars for temporary and consultant staffing services were 36.6% in 2014, up from 36.2% in 2013. This year-over-year improvement in gross margin percentage of 0.4% was primarily attributable to lower fringe costs driven by lower state unemployment insurance expenses in 2014 compared to 2013.

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 $394 million for the year ended December 31, 2014, up 13.5% from $348 million for the year ended December 31, 2013. Because reimbursable expenses for permanent placement staffing services are de minimis, the increase in gross margin dollars is substantially explained by the increase in
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, benefit costs and reimbursable expenses. The primary drivers of
risk consulting and internal audit services gross margin are: i) the relative composition of and number of professional staff and
their respective pay and bill rates; and ii) staff utilization, which is the relationship of time spent on client engagements in
proportion to the total time available for the Company’s risk consulting and internal audit services staff. Gross margin dollars for the Company’s risk consulting and internal audit division were $183 million for the year ended December 31, 2014, up 18.5% from $155 million for the year ended December 31, 2013. As a percentage of revenues, gross margin dollars for risk consulting and internal audit services were 29.4% in 2014, up from 29.3% in 2013. The increase in 2014 gross margin

21








percentage was primarily the result of higher staff utilization rates. The slight improvement in 2014 was due to a better alignment of the mix of professional staff relative to client demand.

Selling, General and Administrative Expenses. The Company’s selling, general and administrative expenses consist
primarily of staff compensation, advertising, depreciation and occupancy costs. The Company’s selling, general and
administrative expenses were $1.43 billion for the year ended December 31, 2014, up 7.6% from $1.32 billion for the year
ended December 31, 2013. As a percentage of revenues, the Company’s selling, general and administrative expenses were
30.4% for 2014, down from 31.2% for 2013. In 2014, selling, general and administrative expenses increased for all three of the
Company’s reportable segments compared to 2013. As percentage of revenue, selling, general and administrative expenses for
all three of the Company’s reportable segments decreased in 2014 compared to 2013. Contributing factors for 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
$987 million for the year ended December 31, 2014, up 7.3% from $920 million for the year ended December 31, 2013. As a
percentage of revenues, selling, general and administrative expenses for temporary and consultant staffing services were 26.8%
in 2014, down from 27.3% in 2013. For 2014 compared to 2013, the decrease in selling, general and administrative expenses as
a percentage of revenue is primarily due to an improvement in leverage resulting from higher revenue in 2014 .

Selling, general and administrative expenses for the Company’s permanent placement staffing division were $316 million for the year ended December 31, 2014, up 7.8% from $293 million for the year ended December 31, 2013. As a percentage of revenues, selling, general and administrative expenses for permanent placement staffing services were 80.1% in 2014, down from 84.3% in 2013. For 2014 compared to 2013, decreases in field compensation, administrative compensation and fixed overhead drove the overall decrease as a percentage of revenues.

Selling, general and administrative expenses for the Company’s risk consulting and internal audit services division were
$123 million for the year ended December 31, 2014, up 9.8% from $112 million for the year ended December 31, 2013. As a
percentage of revenues, selling, general and administrative expenses for risk consulting and internal audit services were 19.7%
in 2014, down from 21.2% in 2013. For 2014 compared to 2013, improved leverage in general and administrative expenses, as
a result of higher revenue, drove the overall decrease as a percentage of revenues.

Operating Income. The Company’s total operating income was $497 million, or 10.6% of revenues, for the year ended
December 31, 2014, up 24.8% from $398 million, or 9.4% of revenues, for the year ended December 31, 2013. For the
Company’s temporary and consultant staffing services division, operating income was $359 million, or 9.8% of applicable
revenues, up 19.0% from $301 million, or 8.9% of applicable revenues, in 2013. For the Company’s permanent placement
staffing division, operating income was $78 million, or 19.9% of applicable revenues, up 44.0% from operating income of $54 million, or 15.6% of applicable revenues, in 2013. For the Company’s risk consulting and internal audit services division,
operating income was $60 million, or 9.7% of applicable revenues, up 41.2% from operating income of $43 million, or 8.1% of
applicable revenues, in 2013.

Provision for income taxes. The provision for income taxes was 38.5% and 36.6% for the years ended December 31,
2014 and 2013, respectively. The 2014 increase is primarily due to fewer available foreign tax benefits and a decrease in federal
tax credits.
Liquidity and Capital Resources
The change in the Company’s liquidity during the years ended December 31, 2015, 2014 and 2013, 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, $287 million and $276 million at December 31, 2015, 2014 and 2013, respectively. Operating activities provided $438 million during the year ended December 31, 2015, offset by $118 million and $369 million of net cash used in investing activities and financing activities, respectively. Operating activities provided $341 million during the year ended December 31, 2014, offset by $89 million and $230 million of net cash used in investing activities and financing activities, respectively. Operating activities provided $309 million during the year ended December 31, 2013, offset by $98 million and $220 million of net cash used in investing activities and financing activities, respectively.

22








Operating activities—Net cash provided by operating activities for the year ended December 31, 2015, was $438 million. This was composed of net income of $358 million adjusted upward for non-cash items of $89 million, offset by net cash used in changes in working capital of $9 million. Net cash provided by operating activities for the year ended December 31, 2014, was composed of net income of $306 million adjusted for non-cash items of $90 million, offset by net cash used in changes in working capital of $55 million. Net cash provided by operating activities for the year ended December 31, 2013, was composed of net income of $252 million adjusted for non-cash items of $74 million, and net cash provided by changes in working capital of $17 million.
Investing activities—Cash used in investing activities for the year ended December 31, 2015, was $118 million. This was composed of capital expenditures of $75 million, deposits to trusts for employee deferred compensation plans of $28 million, and payment for an acquisition, net of cash acquired, of $15 million. Cash used in investing activities for the year ended December 31, 2014, was $89 million. This was primarily composed of capital expenditures of $63 million and deposits to trusts for employee deferred compensation plans of $26 million. Cash used in investing activities for the year ended December 31, 2013, was $98 million. This was primarily composed of capital expenditures of $54 million and deposits to trusts for employee deferred compensation plans of $44 million.
Financing activities—Cash used in financing activities for the year ended December 31, 2015, was $369 million. This included repurchases of $271 million in common stock and $108 million in cash dividends to stockholders, offset by the proceeds of $2 million from exercises of stock options and the excess tax benefits from stock-based compensation of $9 million. Cash used in financing activities for the year ended December 31, 2014, was $230 million. This included repurchases of $154 million in common stock and $97 million in cash dividends to stockholders, offset by the proceeds of $14 million from exercises of stock options and the excess tax benefits from stock-based compensation of $7 million. Cash used in financing activities for the year ended December 31, 2013, was $220 million. This included repurchases of $168 million in common stock, $89 million in cash dividends to stockholders and $4 million of payments of notes payable and other indebtedness, offset by proceeds of $33 million from exercises of stock options and the excess tax benefits from stock-based compensation of $8 million.
As of December 31, 2015, the Company is authorized to repurchase, from time to time, up to 10.4 million additional shares of the Company’s common stock on the open market or in privately negotiated transactions, depending on market conditions. During the years ended December 31, 2015, 2014 and 2013, the Company repurchased approximately 4.3 million shares, 3.3 million shares and 3.3 million shares of common stock on the open market for a total cost of $228 million, $162 million and $118 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 years ended December 31, 2015, 2014 and 2013, such repurchases totaled approximately 0.5 million shares, 0.5 million shares and 1.2 million shares at a cost of $25 million, $22 million and $44 million, respectively. Repurchases of shares have been funded with cash generated from operations.
The Company’s working capital at December 31, 2015, 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-term and long-term basis.
On February 11, 2016, the Company announced a quarterly dividend of $.22 per share to be paid to all shareholders of record on February 25, 2016. The dividend will be paid on March 15, 2016.
The Company’s cash flows generated from operations are also the primary source for funding various contractual obligations. The table below summarizes the Company’s major commitments as of December 31, 2015 (in thousands):
 
 
 
Payments due by period
Contractual Obligations
 
2016
 
2017
and 2018
 
2019
and 2020
 
Thereafter
 
Total
Long-term debt obligations
 
$
252

 
$
505

 
$
505

 
$
252

 
$
1,514

Operating lease obligations
 
88,177

 
131,364

 
80,431

 
81,437

 
381,409

Purchase obligations
 
42,044

 
28,772

 
2,840

 

 
73,656

Other liabilities
 
1,062

 
1,853

 
669

 
6,493

 
10,077

Total
 
$
131,535

 
$
162,494

 
$
84,445

 
$
88,182

 
$
466,656


23








Long-term debt obligations consist of promissory notes and related interest as well as other forms of indebtedness issued in connection with certain acquisitions and other payment obligations. Operating lease obligations consist of minimum rental commitments for 2016 and thereafter under non-cancelable leases in effect at December 31, 2015. Purchase obligations consist of purchase commitments primarily related to telecom service agreements, software licenses and subscriptions, and computer hardware and software maintenance agreements. Other liabilities consist of asset retirement and deferred compensation obligations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
          
Because a portion of the Company’s net revenues are derived from its operations outside the U.S. and are denominated in
local currencies, the Company is exposed to the impact of foreign currency fluctuations. The Company’s exposure to foreign currency exchange rates relates primarily to the Company’s foreign subsidiaries. Exchange rates impact the U.S. dollar value of the Company’s reported revenues, expenses, earnings, assets and liabilities.
For the year ended December 31, 2015, approximately 19% of the Company’s revenues were generated outside of the United States. These operations transact business in their functional currency, which is the same as their local currency. As a result, fluctuations in the value of foreign currencies against the U.S. dollar, particularly the Canadian dollar, British pound, Euro, and Australian dollar have an impact on the Company’s reported results. Under GAAP, revenues and expenses denominated in foreign currencies are translated into U.S. dollars at the monthly average exchange rates prevailing during the period. Consequently, as the value of the U.S. dollar changes relative to the currencies of the Company’s non-U.S. markets, the Company’s reported results vary.

During 2015, the U.S. dollar fluctuated, but generally strengthened, against the primary currencies in which the Company conducts business. Currency exchange rates had the effect of decreasing reported net service revenues by $162 million, or 3.5%, in 2015 compared to prior year. The general strengthening of the U.S. dollar also affected the reported level of expenses incurred in the Company's foreign operations. Because substantially all of the Company's foreign operations generated revenues and incurred expenses within the same country and currency, the favorable effect of lower reported operating expenses largely offset the decline in reported revenues. Reported net income was $6.6 million, or 2.2%, lower in the year ended December 31, 2015 compared to prior year due to the effect of currency exchange rates.

For the month ended January 31, 2016, the U.S. dollar strengthened against the Euro, British Pound, Canadian Dollar, and Australian dollar. If currency exchange rates were to remain at January 2016 levels throughout 2016, the Company’s 2016 full-year reported revenues would be impacted unfavorably, mostly offset by a favorable impact to operating expenses. Thus, the impact to reported net income would likely be immaterial.

Fluctuations in currency exchange rates impact the U.S. dollar amount of the Company’s stockholders’ equity. The assets and liabilities of the Company’s non-U.S. subsidiaries are translated into U.S. dollars at the exchange rates in effect at period end. The resulting translation adjustments are recorded in stockholders’ equity as a component of accumulated other comprehensive income. Although currency fluctuations impact the Company’s reported results and shareholders’ equity, such fluctuations generally do not affect cash flow or result in actual economic gains or losses. The Company generally has few cross-border transfers of funds, except for transfers to the U.S. for payment of intercompany loans, working capital loans made between the U.S. and the Company’s foreign subsidiaries, and dividends from the Company’s foreign subsidiaries.



24








Item 8. Financial Statements and Supplementary Data
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands, except share amounts)

 
 
 
December 31,
 
 
2015
 
2014
ASSETS
 
 
 
 
Cash and cash equivalents
 
$
224,577

 
$
287,119

Accounts receivable, less allowances of $35,087 and $30,544
 
704,640

 
657,676

Current deferred income taxes
 
145,684

 
133,151

Other current assets
 
268,780

 
245,337

Total current assets
 
1,343,681

 
1,323,283

Goodwill
 
208,579

 
199,488

Other intangible assets, net
 
4,508

 

Property and equipment, net
 
142,906

 
121,754

Other assets
 
3,286

 
2,742

Total assets
 
$
1,702,960

 
$
1,647,267

LIABILITIES
 
 
 
 
Accounts payable and accrued expenses
 
$
148,108

 
$
175,107

Accrued payroll and benefit costs
 
504,782

 
448,115

Income taxes payable
 
2,506

 

Current portion of notes payable and other indebtedness
 
153

 
140

Total current liabilities
 
655,549

 
623,362

Notes payable and other indebtedness, less current portion
 
1,007

 
1,159

Other liabilities
 
42,623

 
42,888

Total liabilities
 
699,179

 
667,409

Commitments and Contingencies (Note I)
 

 

STOCKHOLDERS’ EQUITY
 
 
 
 
Preferred stock, $.001 par value authorized 5,000,000 shares; issued and outstanding
zero shares
 

 

Common stock, $.001 par value authorized 260,000,000 shares; issued and
outstanding 131,156,064 and 135,134,064 shares
 
131

 
135

Capital surplus
 
979,477

 
928,157

Accumulated other comprehensive (loss) income
 
(10,294
)
 
14,730

Retained earnings
 
34,467

 
36,836

Total stockholders’ equity
 
1,003,781

 
979,858

Total liabilities and stockholders’ equity
 
$
1,702,960

 
$
1,647,267



The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.

25







ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
Net service revenues
 
$
5,094,933

 
$
4,695,014

 
$
4,245,895

Direct costs of services, consisting of payroll, payroll taxes, benefit
costs and reimbursable expenses
 
2,980,462

 
2,772,098

 
2,522,803

Gross margin
 
2,114,471

 
1,922,916

 
1,723,092

Selling, general and administrative expenses
 
1,533,799

 
1,425,734

 
1,324,815

Amortization of intangible assets
 
192

 
557

 
1,700

Interest income, net
 
(550
)
 
(724
)
 
(1,002
)
Income before income taxes
 
581,030

 
497,349

 
397,579

Provision for income taxes
 
223,234

 
191,421

 
145,384

Net income
 
$
357,796

 
$
305,928

 
$
252,195

Net income available to common stockholders—diluted
 
$
357,796

 
$
305,928

 
$
252,192

Net income per share (Note L):
 
 
 
 
 
 
Basic
 
$
2.72

 
$
2.28

 
$
1.85

Diluted
 
$
2.69

 
$
2.26

 
$
1.83

Shares:
 
 
 
 
 
 
Basic
 
131,749

 
134,358

 
136,153

Diluted
 
132,930

 
135,541

 
137,589

Cash dividends declared per share
 
$
.80

 
$
.72

 
$
.64



The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.

26







ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
 
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
COMPREHENSIVE INCOME:
 
 
 
 
 
 
Net income
 
$
357,796

 
$
305,928

 
$
252,195

Foreign currency translation adjustments, net of tax
 
(25,024
)
 
(23,341
)
 
(5,708
)
Total comprehensive income
 
$
332,772

 
$
282,587

 
$
246,487



The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.

27







ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)
 
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
COMMON STOCK—SHARES:
 
 
 
 
 
 
Balance at beginning of period
 
135,134

 
137,466

 
139,439

Net issuances of restricted stock
 
785

 
938

 
1,091

Repurchases of common stock
 
(4,817
)
 
(3,798
)
 
(4,461
)
Exercises of stock options
 
54

 
528

 
1,397

Balance at end of period
 
131,156

 
135,134

 
137,466

COMMON STOCK—PAR VALUE:
 
 
 
 
 
 
Balance at beginning of period
 
$
135

 
$
137

 
$
139

Net issuances of restricted stock
 
1

 
1

 
1

Repurchases of common stock
 
(5
)
 
(4
)
 
(4
)
Exercises of stock options
 

 
1

 
1

Balance at end of period
 
$
131

 
$
135

 
$
137

CAPITAL SURPLUS:
 
 
 
 
 
 
Balance at beginning of period
 
$
928,157

 
$
868,120

 
$
798,093

Net issuances of restricted stock at par value
 
(1
)
 
(1
)
 
(1
)
Cash dividends ($.64 per share)
 

 

 
(12,256
)
Stock-based compensation expense
 
41,292

 
40,821

 
38,867

Exercises of stock options—excess over par value
 
1,529

 
14,323

 
33,285

Tax impact of equity incentive plans
 
8,500

 
4,894

 
10,132

Balance at end of period
 
$
979,477

 
$
928,157

 
$
868,120

ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME:
 
 
 
 
 
 
Balance at beginning of period
 
$
14,730

 
$
38,071

 
$
43,779

Foreign currency translation adjustments, net of tax
 
(25,024
)
 
(23,341
)
 
(5,708
)
Balance at end of period
 
$
(10,294
)
 
$
14,730

 
$
38,071

RETAINED EARNINGS:
 
 
 
 
 
 
Balance at beginning of period
 
$
36,836

 
$
13,315

 
$

Net income
 
357,796

 
305,928

 
252,195

Repurchases of common stock—excess over par value
 
(252,916
)
 
(183,969
)
 
(162,029
)
Cash dividends ($.80 per share, $.72 per share and $.64 per share)
 
(107,249
)
 
(98,438
)
 
(76,851
)
Balance at end of period
 
$
34,467

 
$
36,836

 
$
13,315



The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.

28







ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
Net income
 
$
357,796

 
$
305,928

 
$
252,195

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 
 
 
Amortization of intangible assets
 
192

 
557

 
1,700

Depreciation expense
 
53,273

 
49,124

 
47,072

Stock-based compensation expense—restricted stock and stock
units
 
41,292

 
40,821

 
38,867

Excess tax benefits from stock-based compensation
 
(8,762
)
 
(7,174
)
 
(8,103
)
Deferred income taxes
 
(8,579
)
 
(3,643
)
 
(13,259
)
Provision for doubtful accounts
 
12,005

 
9,825

 
7,467

Changes in assets and liabilities, net of effects of acquisitions:
 

 
 
 
 
Increase in accounts receivable
 
(75,745
)
 
(134,917
)
 
(47,699
)
Increase in accounts payable, accrued expenses, accrued payroll and benefit
costs
 
60,232

 
71,740

 
38,356

Increase (decrease) in income taxes payable
 
19,948

 
16,359

 
(11,927
)
Change in other assets, net of change in other liabilities
 
(13,416
)
 
(7,922
)
 
4,548

Net cash flows provided by operating activities
 
438,236

 
340,698

 
309,217

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
Payments for acquisitions, net of cash acquired
 
(14,668
)
 

 

Capital expenditures
 
(75,057
)
 
(62,830
)
 
(53,725
)
Payments to trusts for employee deferred compensation plans
 
(28,225
)
 
(25,811
)
 
(44,052
)
Net cash flows used in investing activities
 
(117,950
)
 
(88,641
)
 
(97,777
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
Repurchases of common stock
 
(271,138
)
 
(153,821
)
 
(167,975
)
Cash dividends paid
 
(107,561
)
 
(97,604
)
 
(89,187
)
Decrease in notes payable and other indebtedness
 
(140
)
 
(128
)
 
(4,496
)
Excess tax benefits from stock-based compensation
 
8,762

 
7,174

 
8,103

Proceeds from exercises of stock options
 
1,529

 
14,324

 
33,285

Net cash flows used in financing activities
 
(368,548
)
 
(230,055
)
 
(220,270
)
Effect of exchange rate changes on cash and cash equivalents
 
(14,280
)
 
(10,647
)
 
(3,041
)
Net (decrease) increase in cash and cash equivalents
 
(62,542
)
 
11,355

 
(11,871
)
Cash and cash equivalents at beginning of period
 
287,119

 
275,764

 
287,635

Cash and cash equivalents at end of period
 
$
224,577

 
$
287,119

 
$
275,764

 
 
 
 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 
 
 
 
 
 
Cash paid during the year for:
 
 
 
 
 
 
Interest
 
$
285

 
$
330

 
$
315

Income taxes, net of refunds
 
$
212,668

 
$
178,375

 
$
168,407

Non-cash items:
 
 
 
 
 
 
Stock repurchases awaiting settlement
 
$
11,935

 
$
30,152

 
$



The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.

29







NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A—Summary of Significant Accounting Policies
Nature of Operations.    Robert Half International Inc. (the “Company”) provides specialized staffing and risk consulting services through such divisions as Accountemps®, Robert Half® Finance & Accounting, OfficeTeam®, Robert Half® Technology, Robert Half® Management Resources, Robert Half® Legal, The Creative Group®, and Protiviti®. The Company, through its Accountemps, Robert Half Finance & Accounting, and Robert Half Management Resources divisions, is a specialized provider of temporary, full-time, and senior-level project professionals in the fields of accounting and finance. OfficeTeam specializes in highly skilled temporary administrative support professionals. Robert Half Technology provides project and full-time technology professionals. Robert Half Legal provides temporary, project, and full-time staffing of lawyers, paralegals and legal support personnel. The Creative Group provides interactive, design, marketing, advertising and public relations professionals. Protiviti is a global consulting firm that helps companies solve problems in finance, technology, operations, governance, risk and internal audit, and is a wholly owned subsidiary of the Company. Revenues are predominantly derived from specialized staffing services. The Company operates in North America, South America, Europe, Asia and Australia. The Company is a Delaware corporation.
Basis of Presentation.    The Consolidated Financial Statements (“Financial Statements”) of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”).
Principles of Consolidation.    The Financial Statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All intercompany balances have been eliminated.
Use of Estimates. The preparation of financial statements in conformity with GAAP 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, 2015, such estimates included allowances for uncollectible accounts receivable, workers’ compensation losses and income and other taxes. Management estimates are also utilized in the Company’s goodwill impairment assessment and in the valuation of stock grants subject to market conditions.
Revenue Recognition.    The Company derives its revenues from three segments: temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services. Net service revenues as presented on the Consolidated Statements of Operations represent services rendered to customers less sales adjustments and allowances. Reimbursements, including those related to travel and out-of-pocket expenses, are also included in net service revenues, and equivalent amounts of reimbursable expenses are included in direct costs of services. The Company records revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified employees, (ii) has the discretion to select the employees and establish their price and duties and (iii) bears the risk for services that are not fully paid for by customers.
Temporary and consultant staffing revenues—Temporary and consultant staffing revenues are recognized when the services are rendered by the Company’s temporary employees. Employees placed on temporary assignment by the Company are the Company’s legal employees while they are working on assignments. The Company pays all related costs of employment, including workers’ compensation insurance, state and federal unemployment taxes, social security and certain fringe benefits. The Company assumes the risk of acceptability of its employees to its customers.
Permanent placement staffing revenues—Permanent placement staffing revenues are recognized when employment candidates accept offers of permanent employment. The Company has a substantial history of estimating the effect of permanent placement candidates who do not remain with its clients through the 90-day guarantee period. Allowances are established to estimate these losses. Fees to clients are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement services are charged to employment candidates.
Risk consulting and internal audit revenues—Risk consulting and internal audit services are generally provided on a time-and-material basis or fixed-fee basis. Revenues earned under time-and-material arrangements are recognized as services are provided. Revenues on fixed-fee arrangements are recognized using a proportional performance method as hours are incurred relative to total estimated hours for the engagement. The Company periodically evaluates the need to provide for any losses on these projects, and losses are recognized when it is probable that a loss will be incurred.
Costs of Services.    Direct costs of temporary and consultant staffing services consist of payroll, payroll taxes and benefit costs for the Company’s temporary employees, as well as reimbursable expenses. Direct costs of permanent placement staffing

30






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note A—Summary of Significant Accounting Policies (continued)


services consist of reimbursable expenses. Risk consulting and internal audit costs of services include professional staff payroll, payroll taxes and benefit costs, as well as reimbursable expenses.
Advertising Costs.    The Company expenses all advertising costs as incurred. Advertising costs for the years ended December 31, 2015, 2014 and 2013, are reflected in the following table (in thousands):
 
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
Advertising Costs
 
$
44,015

 
$
42,335

 
$
38,845

Comprehensive Income.    Comprehensive income includes net income and certain other items that are recorded directly to Stockholders’ Equity. The Company’s only source of other comprehensive income is foreign currency translation adjustments.
Fair Value of Financial Instruments.    The Company does not have any financial instruments which require re-measurement to fair value. The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses represent fair value based upon their short-term nature.
Cash and Cash Equivalents.    The Company considers all highly liquid investments with a maturity at the date of purchase of three months or less as cash equivalents.
Goodwill and Intangible Assets.    Goodwill and intangible assets primarily consist of the cost of acquired companies in excess of the fair market value of their net tangible assets at the date of acquisition. Identifiable intangible assets are amortized over their lives, typically ranging from two to five years. Goodwill is not amortized, but is tested at least annually for impairment. The Company completed its annual goodwill impairment analysis as of June 30 in each of the three years ended December 31, 2015, and determined that no adjustment to the carrying value of goodwill was required. There were no events or changes in circumstances during the six months ended December 31, 2015 that caused the Company to perform an interim impairment assessment.
Income Tax Assets and Liabilities.    In establishing its deferred income tax assets and liabilities, the Company makes judgments and interpretations based on the enacted tax laws and published tax guidance that are applicable to its operations. Deferred tax assets and liabilities are measured and recorded using current enacted tax rates, which the Company expects will apply to taxable income in the years in which those temporary differences are recovered or settled. The likelihood of a material change in the Company’s expected realization of these assets is dependent on future taxable income, its ability to use foreign tax credit carryforwards and carrybacks, final U.S. and foreign tax settlements, and the effectiveness of its tax planning strategies in the various relevant jurisdictions.
The Company also evaluates the need for valuation allowances to reduce the deferred tax assets to realizable amounts. Management evaluates all positive and negative evidence and uses judgment regarding past and future events, including operating results, to help determine when it is more likely than not that all or some portion of the deferred tax assets may not be realized. When appropriate, a valuation allowance is recorded against deferred tax assets to offset future tax benefits that may not be realized. Valuation allowances of $26.3 million and $29.6 million were recorded as of December 31, 2015 and 2014, respectively. The valuation allowances recorded related primarily to net operating losses in certain foreign operations. If such losses are ultimately utilized to offset future operating income, the Company will recognize a tax benefit up to the full amount of the valuation reserve.
Workers’ Compensation.    Except for states which require participation in state-operated insurance funds, the Company retains the economic burden for the first $0.5 million per occurrence in workers’ compensation claims. Workers’ compensation includes ongoing healthcare and indemnity coverage for claims and may be paid over numerous years following the date of injury. Claims in excess of $0.5 million are insured. Workers’ compensation expense includes the insurance premiums for claims in excess of $0.5 million, claims administration fees charged by the Company’s workers’ compensation administrator, premiums paid to state-operated insurance funds, and an estimate for the Company’s liability for Incurred But Not Reported (“IBNR”) claims and for the ongoing development of existing claims.

31






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note A—Summary of Significant Accounting Policies (continued)


The reserves for IBNR claims and for the ongoing development of existing claims in each reporting period includes estimates. The Company has established reserves for workers’ compensation claims using loss development rates which are estimated using periodic third party actuarial valuations based upon historical loss statistics which include the Company’s historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. While management believes that its assumptions and estimates are appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Company’s future results.
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 accumulated other comprehensive income within Stockholders’ Equity. Gains and losses resulting from foreign currency transactions are included as a component of selling, general and administrative expenses in the Consolidated Statements of Operations, and have not been material for all periods presented.
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 of its stock on the grant date, unless the awards are subject to market conditions, in which case the Company utilizes a binomial-lattice model (i.e., 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.
Property and Equipment.    Property and equipment are recorded at cost. Depreciation expense is computed using the straight-line method over the following useful lives:
Computer hardware
2 to 3 years
Computer software
2 to 5 years
Furniture and equipment
5 years
Leasehold improvements
Term of lease,
5 years maximum
Internal-use Software.    The Company capitalizes direct costs incurred in the development of internal-use software. Amounts capitalized are reported as a component of computer software within property and equipment. Internal-use software development costs capitalized for the years ended December 31, 2015, 2014 and 2013, are reflected in the following table (in thousands):
 
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
Internal-use software development costs
 
$
31,964

 
$
24,367

 
$
13,027


32






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note B—New Accounting Pronouncements
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. In April 2014, the Financial Accounting Standards Board ("FASB") issued authoritative guidance in regards to the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The amendments in the authoritative guidance were effective in the first quarter of 2015. The adoption of this guidance did not have a material impact on the Company's Financial Statements.
Revenue from Contracts with Customers. In May 2014, the FASB issued authoritative guidance that provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance.  The new guidance requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued a decision to delay the effective date by one year.  The new guidance is effective for annual and interim periods beginning after December 15, 2017. Public entities are not permitted to adopt the standard earlier than the original effective date (that is, no earlier than 2017 for calendar year-end entities). The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. The Company is in the process of evaluating the impact of adoption of this guidance on its Financial Statements. 

Customer's Accounting for Fees Paid in a Cloud Computing Arrangement.  In April 2015, the FASB issued authoritative guidance designed to assist customers in their determination of whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. This guidance is effective for annual and interim periods beginning after December 15, 2015. The Company does not expect the adoption of this guidance to have a material impact to its Financial Statements. 

Business Combinations. In September 2015, the FASB issued authoritative guidance that eliminates the requirement to restate prior period financial statements for measurement period adjustments following a business combination. The new guidance requires that an acquirer record in the same period’s financial statements the effects of the cumulative impact of adjustments including the impact on prior periods. The prior period impact of the adjustments should be presented separately on the face of the income statement or disclosed in the notes. The new guidance is effective for annual and interim periods beginning after December 15, 2015 for public business entities. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. The Company does not expect the adoption of this guidance to have a material impact on its Financial Statements.
Balance Sheet Classification of Deferred Taxes. In November 2015, the FASB issued authoritative guidance which changes how deferred taxes are classified on a company's balance sheet. The new guidance eliminates the current requirement for companies to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, companies will be required to classify all deferred tax assets and liabilities as noncurrent. The new guidance is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period. The guidance may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively (i.e., by reclassifying the comparative balance sheet). If applied prospectively, entities are required to include a statement that prior periods were not retrospectively adjusted. If applied retrospectively, entities are also required to include quantitative information about the effects of the change on prior periods. The Company is in the process of evaluating the impact of adoption of this guidance on its Financial Statements.


33






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note C—Other Current Assets
Other current assets consisted of the following (in thousands):
 
 
 
December 31,
 
 
2015
 
2014
Deposits in trusts for employee deferred compensation plans
 
$
198,256

 
$
172,237

Other
 
70,524

 
73,100

 
 
$
268,780

 
$
245,337


Note D—Goodwill
The following table sets forth the activity in goodwill from December 31, 2013, through December 31, 2015 (in thousands):
 
 
Goodwill
  
Temporary and consultant staffing
 
Permanent placement staffing
 
Risk consulting and internal audit services
 
 Total
Balance as of December 31, 2013
$
134,692

 
$
26,574

 
$
39,567

 
$
200,833

Acquisitions

 

 

 

Foreign currency translation adjustments
(728
)
 
(124
)
 
(493
)
 
(1,345
)
Balance as of December 31, 2014
$
133,964

 
$
26,450

 
$
39,074

 
$
199,488

Acquisitions

 

 
10,988

 
10,988

Foreign currency translation adjustments
(791
)
 
(199
)
 
(907
)
 
(1,897
)
Balance as of December 31, 2015
$
133,173

 
$
26,251

 
$
49,155

 
$
208,579


In November 2015 the Company, through its wholly owned subsidiary Protiviti, acquired certain assets of Decision First Technologies, a company specializing in business intelligence solutions. As part of the asset acquisition, the Company recorded goodwill of $11 million within its risk consulting and internal audit services segment.

Note E—Property and Equipment, Net
Property and equipment consisted of the following (in thousands):
 
 
 
December 31,
 
 
2015
 
2014
Computer hardware
 
$
162,346

 
$
159,309

Computer software
 
339,634

 
312,968

Furniture and equipment
 
96,536

 
105,262

Leasehold improvements
 
118,491

 
113,782

Other
 
9,560

 
9,045

Property and equipment, cost
 
726,567

 
700,366

Accumulated depreciation
 
(583,661
)
 
(578,612
)
Property and equipment, net
 
$
142,906

 
$
121,754

           
 

34






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note F—Accrued Payroll and Benefit Costs
Accrued payroll and benefit costs consisted of the following (in thousands):
 
 
 
December 31,
 
 
2015
 
2014
Payroll and benefits
 
$
240,793

 
$
213,962

Employee deferred compensation plans
 
212,220

 
181,709

Workers’ compensation
 
25,834

 
26,127

Payroll taxes
 
25,935

 
26,317

Accrued payroll and benefit costs
 
$
504,782

 
$
448,115

Included in employee deferred compensation plans is the following (in thousands):
 
 
December 31,
 
 
2015
 
2014
Deferred compensation plan and other benefits related to the
Company’s Chief Executive Officer
 
$
81,874

 
$
79,060

Note G—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 $1.2 million at December 31, 2015, and $1.3 million at December 31, 2014. At December 31, 2015, $1.2 million of the notes were collateralized by a standby letter of credit. The following table shows the schedule of maturities for notes payable and other indebtedness at December 31, 2015 (in thousands):
 
2016
$
153

2017
167

2018
183

2019
200

2020
218

Thereafter
239

 
$
1,160

At December 31, 2015, the notes carried fixed rates and the weighted average interest rate for the above was 9.0% for each of the years ended December 31, 2015, 2014 and 2013.
The Company has an uncommitted letter of credit facility (the “facility”) of up to $35.0 million, which is available to cover the issuance of debt support standby letters of credit. The Company had used $13.5 million in debt support standby letters of credit as of December 31, 2015 and $16.6 million as of December 31, 2014. Of the debt support standby letters of credit outstanding, $12.3 million as of December 31, 2015 and $15.3 million as of December 31, 2014, satisfies workers’ compensation insurer’s collateral requirements. There is a service fee of 1.125% on the used portion of the facility. The facility is subject to certain financial covenants and expires on August 31, 2016. The Company intends to renew this facility prior to its August 31, 2016 expiration.

35






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note H—Income Taxes
The provision (benefit) for income taxes for the years ended December 31, 2015, 2014 and 2013, consisted of the following (in thousands):
 
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
Current:
 
 
 
 
 
 
Federal
 
$
181,640

 
$
146,633

 
$
114,687

State
 
36,281

 
33,054

 
27,358

Foreign
 
13,892

 
15,377

 
16,598

Deferred:
 
 
 
 
 
 
Federal and state
 
(8,398
)
 
(4,626
)
 
(7,759
)
Foreign
 
(181
)
 
983

 
(5,500
)
 
 
$
223,234

 
$
191,421

 
$
145,384

Income before the provision for income taxes for the years ended December 31, 2015, 2014 and 2013, consisted of the following (in thousands):
 
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
Domestic
 
$
520,263

 
$
449,834

 
$
357,382

Foreign
 
60,767

 
47,515

 
40,197

 
 
$
581,030

 
$
497,349

 
$
397,579


The income taxes shown above varied from the statutory federal income tax rates for these periods as follows:
 
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
Federal U.S. income tax rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of federal tax benefit
 
4.2

 
4.2

 
4.3

Non-deductible expenses
 
0.5

 
0.6

 
0.7

Non-U.S. income taxed at different rates, net of foreign tax
credits
 
0.1

 
(0.2
)
 
(1.0
)
Federal tax credits
 
(0.6
)
 
(0.6
)
 
(1.3
)
Tax impact of uncertain tax positions
 
(0.2
)
 
(0.1
)
 
0.1

Valuation allowance release, net
 
(0.5
)
 
(0.3
)
 
(1.0
)
Other, net
 
(0.1
)
 
(0.1
)
 
(0.2
)
Effective tax rate
 
38.4
 %
 
38.5
 %
 
36.6
 %

36






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note H—Income Taxes (continued)

The deferred portion of the tax provision (benefit) consisted of the following (in thousands):
 
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
Amortization of franchise rights
 
$
514

 
$
514

 
$
514

Amortization of other intangibles
 
1,590

 
1,241

 
621

Accrued expenses, deducted for tax when paid
 
(17,664
)
 
(14,221
)
 
(11,190
)
Capitalized costs for books, deducted for tax
 
5,315

 
8,809

 
3,019

Depreciation
 
(5,932
)
 
(4,147
)
 
(2,597
)
Federal impact of unrecognized tax benefits
 
1,058

 
44

 
(274
)
Foreign tax credit carryforwards
 
3,636

 
(186
)
 
(3,449
)
Other, net
 
2,904

 
4,303

 
97

 
 
$
(8,579
)
 
$
(3,643
)
 
$
(13,259
)
The deferred income tax amounts included on the Consolidated Statements of Financial Position are composed of the following (in thousands):
 
 
 
December 31,
 
 
2015
 
2014
Current deferred income tax assets, net
 
$
145,684

 
$
133,151

Long-term deferred income tax liabilities, net
 
(29,139
)
 
(26,807
)
 
 
$
116,545

 
$
106,344

The components of the deferred income tax amounts at December 31, 2015 and 2014, were as follows (in thousands):
 
 
 
December 31,
 
 
2015
 
2014
Deferred Income Tax Assets
 
 
 
 
Provision for bad debts
 
$
11,092

 
$
9,210

Deferred compensation and other benefit obligations
 
96,948

 
83,065

Workers’ compensation
 
8,206

 
9,138

Stock-based compensation
 
15,814

 
14,572

Credits and net operating loss carryforwards
 
35,499

 
39,309

Other
 
23,885

 
25,316

Total deferred income tax assets
 
191,444

 
180,610

Deferred Income Tax Liabilities
 
 
 
 
Amortization of intangible assets
 
(26,960
)
 
(25,060
)
Property and equipment basis differences
 
(11,890
)
 
(12,384