Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Annual Report -- [x] Reg. S-K Item 405 28 172K
5: EX-10.10 Material Contract 10 57K
2: EX-10.2 Material Contract 1 7K
3: EX-10.7 Material Contract 6 37K
4: EX-10.9 Material Contract 5 27K
6: EX-21 Subsidiaries of the Registrant 1 8K
7: EX-23 Consent of Experts or Counsel 1 7K
8: EX-27 Exhibit 27 (FDS) 2 9K
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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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 (I.R.S. Employer
incorporation or organization) Identification No.)
2884 SAND HILL ROAD, SUITE 200, 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:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, Par Value $.001 per Share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
------------------------
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 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/
As of February 28, 1998, the aggregate market value of the Common Stock held
by non-affiliates of the registrant was approximately $3,780,000,000 based on
the closing sale price on that date. This amount excludes the market value of
8,110,689 shares of Common Stock held by registrant's directors and officers and
their affiliates.
As of February 28, 1998, there were outstanding 91,645,927 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 1998, 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.
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PART I
ITEM 1. BUSINESS
Robert Half International Inc. is the world's largest specialized provider
of temporary and regular personnel in the fields of accounting and finance. Its
divisions include ACCOUNTEMPS-Registered Trademark- and ROBERT
HALF-Registered Trademark-, providers of temporary and regular personnel,
respectively, in the fields of accounting and finance. The Company, utilizing
its experience as a specialized provider of temporary and permanent personnel,
has expanded into additional specialty fields. In 1991, the Company formed
OFFICETEAM-Registered Trademark- to provide skilled temporary administrative and
office personnel. In 1994, the Company established RHI
CONSULTING-Registered Trademark- to concentrate on providing temporary and
contract information technology professionals in positions ranging from PC
support technician to chief information officer. In 1992, the Company acquired
THE AFFILIATES-Registered Trademark-, which focuses on placing temporary and
regular employees in paralegal, legal administrative and other legal support
positions. In 1997, the Company established RHI MANAGEMENT
RESOURCES-REGISTERED TRADEMARK- to provide senior level project professionals
specializing in the accounting and finance fields.
The Company's business was originally founded in 1948. Prior to 1986, the
Company was primarily a franchisor of ACCOUNTEMPS and ROBERT HALF offices.
Beginning in 1986, the Company and its current management embarked on a strategy
of acquiring franchised locations and other local or regional independent
providers of specialized temporary service personnel. The Company has acquired
all but three of the ACCOUNTEMPS and ROBERT HALF franchises in 47 separate
transactions, and has acquired 18 other local or regional providers of
specialized temporary service personnel. Since 1986, the Company has
significantly expanded operations at many of the acquired locations and has
opened many new locations. The Company believes that direct ownership of offices
allows it to better monitor and protect the image of the ACCOUNTEMPS and ROBERT
HALF names, 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. The Company currently has more than 200
offices in 39 states and five foreign countries and placed approximately 160,000
employees on temporary assignment with clients in 1997.
ACCOUNTEMPS
The ACCOUNTEMPS temporary services division offers customers a reliable and
economical means of dealing with uneven or peak work loads for accounting, tax
and finance 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 increasingly 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 permanent employees are eliminated by the use of
ACCOUNTEMPS temporaries. The temporary workers are employees of ACCOUNTEMPS and
are paid by ACCOUNTEMPS only when working on customer assignments. The customer
pays a fixed rate only for hours worked.
ACCOUNTEMPS clients may fill their permanent employment needs by using an
ACCOUNTEMPS employee on a trial basis and, if so desired, "converting" the
temporary position to a permanent 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 permanent office and administrative personnel, ranging from
word processors to office managers, from approximately 190 locations in the
United States, Canada and Europe. OFFICETEAM operates in much the same fashion
as the ACCOUNTEMPS and ROBERT HALF divisions.
1
ROBERT HALF
The Company offers permanent placement services through its office network
under the name ROBERT HALF. The Company's ROBERT HALF division specializes in
placing accounting, financial, tax and banking personnel. Fees for successful
permanent placements are paid only by the employer and are generally a
percentage of the new employee's annual compensation. No fee for permanent
placement services is charged to employment candidates.
RHI CONSULTING
The Company's RHI CONSULTING division, which commenced operations in 1994,
specializes in providing information technology contract consultants and placing
regular employees in areas ranging from multiple platform systems integration to
end-user support, including specialists in programming, networking, systems
integration, database design and help desk support. RHI CONSULTING conducts its
activities from approximately 80 locations in the United States, Canada and
Europe.
THE AFFILIATES
In 1992, the Company acquired THE AFFILIATES, a small operation involving
only a limited number of offices, which places temporary and permanent employees
in paralegal, legal administrative and legal secretarial positions. The legal
profession's requirements (the need for confidentiality, accuracy and
reliability, a strong drive toward cost-effectiveness, and frequent peak
workload periods) are similar to the demands of the clients of the ACCOUNTEMPS
division.
RHI MANAGEMENT RESOURCES
The Company's RHI 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,
and senior financial analysts, for such tasks as financial systems conversions,
expansion into new markets, business process reengineering and post-merger
financial consolidation.
MARKETING AND RECRUITING
The Company markets its services to clients as well as employment
candidates. Local marketing and recruiting are generally conducted by each
office or related group of offices. Advertising directed to clients and
employment candidates consists primarily of yellow pages advertisements,
classified advertisements and radio. Direct marketing through mail and telephone
solicitation also constitutes a significant portion of the Company's total
advertising. National advertising conducted by the Company consists primarily of
print advertisements in national newspapers, magazines and certain trade
journals. Joint marketing arrangements have been entered into with Microsoft,
Lotus Development Corporation, Corel Corporation (publisher of WordPerfect),
Peachtree Software, Inc., Intuit and Computer Associates International, Inc. and
typically provide for cooperative advertising, joint mailings and similar
promotional activities. The Company also actively seeks endorsements and
affiliations with professional organizations in the business management, office
administration and professional secretarial fields. The Company also conducts
public relations activities designed to enhance public recognition of the
Company and its services. Local employees are encouraged to be active in civic
organizations and industry trade groups.
The Company owns many trademarks, service marks and tradenames, including
the ROBERT HALF-Registered Trademark-, ACCOUNTEMPS-Registered Trademark-,
OFFICETEAM-Registered Trademark-, THE AFFILIATES-Registered Trademark-, RHI
CONSULTING-Registered Trademark- and RHI MANAGEMENT
RESOURCES-REGISTERED TRADEMARK- marks, which are registered in the United States
and in a number of foreign countries.
ORGANIZATION
Management of the Company's operations is coordinated from its headquarters
in Menlo Park, California. The Company's headquarters provides support and
centralized services to its offices in the
2
administrative, marketing, accounting, training and legal areas, particularly as
it relates to the standardization of the operating procedures of its offices.
The Company has more than 200 offices in 39 states and five foreign countries.
Office managers are responsible for most activities of their offices, including
sales, local advertising and marketing and recruitment.
COMPETITION
The Company faces competition in its efforts to attract clients as well as
high-quality specialized employment candidates. The temporary and permanent
placement businesses are 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 temporary and permanent
placement businesses 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.
EMPLOYEES
The Company has approximately 4,300 full-time staff employees. The Company's
offices placed approximately 160,000 employees on temporary assignments with
clients during 1997. Temporary employees placed by the Company 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 voluntary health insurance coverage to interested
temporary employees.
OTHER INFORMATION
The Company's current business constitutes a single business segment. (See
Item 8. Financial Statements and Supplementary Data for financial information
about the Company.)
The Company is not dependent upon a single customer or a limited number of
customers. The Company's operations are generally more active in the first and
fourth quarters of a calendar year. Order backlog is not a material aspect of
the Company's business and no material portion of the Company's business is
subject to government contracts. The Company does not have any material
expenditures for research and development. Compliance with federal, state or
local environmental protection laws has no material effect on the capital
expenditures, earnings or competitive position of the Company.
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.
ITEM 2. PROPERTIES
The Company's headquarters is located in Menlo Park, California. Placement
activities are conducted through more than 200 offices located in the United
States, Canada, the United Kingdom, Belgium, France and the Netherlands. All of
the offices are leased.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings other
than routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year covered by this report.
3
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed for trading on the New York Stock
Exchange under the symbol "RHI". On December 31, 1997, there were approximately
2,300 holders of record of the Common Stock.
Following is a list by fiscal quarters of the sales prices of the stock as
quoted on the New York Stock Exchange, adjusted, as appropriate, to reflect the
two-for-one stock split effected in the form of a stock dividend in June 1996
and the three-for-two stock split effected in the form of a stock dividend in
September 1997:
[Download Table]
SALES PRICES
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1997 HIGH LOW
-------------------------------- -------- ---------
4th Quarter..................... $43.06 $33.00
3rd Quarter..................... $42.67 $31.33
2nd Quarter..................... $31.50 $23.00
1st Quarter..................... $29.83 $22.25
SALES PRICES
--------------------
1996 HIGH LOW
-------------------------------- -------- ---------
4th Quarter..................... $27.67 $21.75
3rd Quarter..................... $26.83 $16.08
2nd Quarter..................... $20.29 $16.25
1st Quarter..................... $16.58 $13.00
No cash dividends were paid in 1997 or 1996. The Company, as it deems
appropriate, may continue to retain all earnings for use in its business or may
consider paying a dividend in the future.
4
ITEM 6. SELECTED FINANCIAL DATA
Following is a table of selected financial data of the Company for the last
five years:
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ---------- ---------- ---------- ----------
(IN THOUSANDS)
INCOME STATEMENT DATA:
Net service revenues............................... $ 1,302,876 $ 898,635 $ 628,526 $ 446,328 $ 306,166
Direct costs of services, consisting of payroll,
payroll taxes and insurance costs for temporary
employees......................................... 785,546 545,343 384,449 273,327 188,292
------------ ---------- ---------- ---------- ----------
Gross margin....................................... 517,330 353,292 244,077 173,001 117,874
Selling, general and administrative expenses....... 357,766 246,485 170,684 121,640 88,074
Amortization of intangible assets.................. 4,926 5,405 4,767 4,584 4,251
Interest (income) expense.......................... (4,190) (2,243) (463) 1,570 3,992
------------ ---------- ---------- ---------- ----------
Income before income taxes......................... 158,828 103,645 69,089 45,207 21,557
Provision for income taxes......................... 65,131 42,543 28,791 19,090 9,834
------------ ---------- ---------- ---------- ----------
Net income......................................... $ 93,697 $ 61,102 $ 40,298 $ 26,117 $ 11,723
------------ ---------- ---------- ---------- ----------
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[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
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1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NET INCOME PER SHARE:
BASIC.............................................. $ 1.03 $ .69 $ .47 $ .32 $ .16
DILUTED............................................ $ 1.00 $ .67 $ .46 $ .31 $ .16
SHARES:
BASIC.............................................. 90,668 88,267 85,479 82,095 72,927
DILUTED............................................ 93,999 91,522 88,488 85,051 75,313
[Enlarge/Download Table]
DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Intangible assets, net............................... $ 177,425 $ 174,663 $ 155,441 $ 152,824 $ 152,156
Total assets......................................... $ 561,367 $ 416,012 $ 301,140 $ 227,761 $ 204,598
Debt financing....................................... $ 8,157 $ 6,611 $ 5,725 $ 4,214 $ 32,740
Stockholders' equity................................. $ 418,800 $ 308,445 $ 227,930 $ 176,995 $ 133,602
All shares and per share amounts have been restated to retroactively reflect
the three-for-two stock split effected in the form of a stock dividend in
September 1997 and the two-for-one stock splits effected in the form of a stock
dividend in both June 1996 and August 1994.
5
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1997
Temporary services revenues were $1.2 billion, $829 million and $577 million
for the years ended December 31, 1997, 1996 and 1995, respectively, increasing
by 45% during 1997 and 44% during 1996. The increase in revenues during these
periods reflected in part revenues generated from the Company's OFFICETEAM, RHI
CONSULTING, and RHI MANAGEMENT RESOURCES divisions, which were started in 1991,
1994 and 1997, respectively. Permanent placement revenues were $100 million, $70
million and $52 million for the years ended December 31, 1997, 1996 and 1995,
respectively, increasing by 43% during 1997 and 35% during 1996. Overall revenue
increases reflect continued improvement in demand for the Company's services,
which the Company believes is a result of increased acceptance in the use of
professional staffing services. Revenues from companies acquired during 1997,
1996 and 1995 were not material.
The Company currently has more than 200 offices in 39 states and five
foreign countries. Domestic operations represented 90% of revenues for the years
ended December 31, 1997, 1996 and 1995. Foreign operations represented 10% of
revenues for the years ended December 31, 1997, 1996 and 1995.
Gross margin dollars from the Company's temporary services represent
revenues less direct costs of services, which consist of payroll, payroll taxes
and insurance costs for temporary employees. Gross margin dollars from permanent
placement services are equal to revenues, as there are no direct costs
associated with such revenues. Gross margin dollars for the Company's temporary
services were $417 million, $283 million and $192 million for the years ended
December 31, 1997, 1996 and 1995, respectively, increasing by 47% in both 1997
and 1996. Gross margin amounts equaled 35% of revenues for temporary services
for the year ended December 31, 1997, and 34% for the year ended December 31,
1996, and 33% for the year ended December 31, 1995, which the Company believes
reflects its ability to adjust billing rates and wage rates to underlying market
conditions. Gross margin dollars for the Company's permanent placement division
were $100 million, $70 million and $52 million for each of the years ended
December 31, 1997, 1996 and 1995, respectively, increasing by 43% and 35% in
1997 and 1996, respectively.
Selling, general and administrative expenses were $358 million during 1997,
compared to $246 million in 1996 and $171 million in 1995. Selling, general and
administrative expenses as a percentage of revenues were 28% for the year ended
December 31, 1997, and 27% in both of the years ended December 31, 1996 and
1995. Selling, general and administrative expenses consist primarily of staff
compensation, advertising, and occupancy costs, most of which generally follow
changes in revenues.
The Company allocates the excess of cost over the fair market value of the
net tangible assets first to identifiable intangible assets, if any, and then to
goodwill. Although management believes that goodwill has an unlimited life, the
Company amortizes these costs over 40 years. Management believes that its
strategy of making acquisitions of established companies in established markets
and maintaining its presence in these markets preserves the goodwill for an
indeterminate period. The carrying value of intangible assets is periodically
reviewed by the Company and impairments are recognized when the expected future
operating cash flows derived from such intangible assets is less than their
carrying value. Based upon its most recent analysis, the Company believes that
no material impairment of intangible assets existed at December 31, 1997.
Intangible assets represented 32% of total assets and 42% of total stockholders'
equity at December 31, 1997.
Interest income for the years ended December 31, 1997, 1996 and 1995 was
$5,139,000, $2,948,000 and $1,237,000, respectively. Interest expense for the
years ended December 31, 1997, 1996 and 1995 was $949,000, $705,000 and
$774,000, respectively. These changes primarily reflect an increase in cash and
cash equivalents.
The provision for income taxes was 41% for both the years ended December 31,
1997 and 1996, and 42% for the year ended December 31, 1995.
6
LIQUIDITY AND CAPITAL RESOURCES
The change in the Company's liquidity during the past three years is the net
effect of funds generated by operations and the funds used for the staffing
services acquisitions, capital expenditures and principal payments on
outstanding notes payable. In October 1997, the Company authorized the
repurchase, from time to time, of up to four million shares of the Company's
common stock on the open market or in privately negotiated transactions,
depending on market conditions. The Company has repurchased approximately
100,000 shares on the open market pursuant to this program. For additional
information regarding the Company's stock repurchase program, see Note F of the
Notes to Consolidated Financial Statements. Repurchases of the securities have
been funded with cash generated from operations. For the year ended December 31,
1997, the Company generated $82 million from operations, used $35.3 million in
investing activities and provided $4.5 million by financing activities.
The Company's working capital at December 31, 1997, included $131 million in
cash and cash equivalents. In addition at December 31, 1997, the Company had
available $71.4 million of its $80 million bank revolving line of credit. The
Company's working capital requirements consist primarily of the financing of
accounts receivable. While there can be no assurances in this regard, the
Company expects that internally generated cash plus the bank revolving line of
credit will be sufficient to support the working capital needs of the Company,
the Company's fixed payments, and other obligations on both a short and long
term basis. As of December 31, 1997, the Company had no material capital
commitments.
In 1997, the Company initiated a number of major system projects to replace
core systems. Management expects these new systems to be in place before Year
2000 and to resolve any major existing Year 2000 issues. The Company expects to
spend in excess of $40 million on these projects.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk sensitive instruments do not subject the Company
to material market risk exposures.
7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
[Enlarge/Download Table]
DECEMBER 31,
----------------------
1997 1996
---------- ----------
ASSETS:
Cash and cash equivalents................................................................. $ 131,349 $ 80,181
Accounts receivable, less allowances of $7,164 and $4,016................................. 186,899 125,383
Other current assets...................................................................... 15,757 9,066
---------- ----------
Total current assets.................................................................... 334,005 214,630
Intangible assets, less accumulated amortization of $46,001 and $39,461................... 177,425 174,663
Property and equipment, less accumulated depreciation of $29,962 and $18,252.............. 49,937 26,719
---------- ----------
Total assets............................................................................ $ 561,367 $ 416,012
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accrued expenses..................................................... $ 20,285 $ 15,049
Accrued payroll costs..................................................................... 95,925 66,087
Income taxes payable...................................................................... 2,258 3,883
Current portion of notes payable and other indebtedness................................... 3,627 1,542
---------- ----------
Total current liabilities............................................................... 122,095 86,561
Notes payable and other indebtedness, less current portion................................ 4,530 5,069
Deferred income taxes..................................................................... 15,942 15,937
---------- ----------
Total liabilities....................................................................... 142,567 107,567
---------- ----------
Commitments and Contingencies
STOCKHOLDERS' EQUITY:
Common Stock, $.001 par value authorized 160,000,000 shares; issued and outstanding
91,208,029 and 89,621,932 shares........................................................ 91 90
Capital surplus........................................................................... 196,888 140,443
Deferred compensation..................................................................... (44,276) (26,802)
Accumulated translation adjustments....................................................... (1,347) 23
Retained earnings......................................................................... 267,444 194,691
---------- ----------
Total stockholders' equity.............................................................. 418,800 308,445
---------- ----------
Total liabilities and stockholders' equity.............................................. $ 561,367 $ 416,012
---------- ----------
---------- ----------
All shares and amounts have been restated to retroactively reflect the
three-for-two stock
split effected in the form of a stock dividend in September 1997 and the
two-for-one
stock split effected in the form of a stock dividend in June 1996.
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
8
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
------------ ---------- ----------
Net service revenues....................................................... $ 1,302,876 $ 898,635 $ 628,526
Direct costs of services, consisting of payroll, payroll taxes and
insurance costs for temporary employees.................................. 785,546 545,343 384,449
------------ ---------- ----------
Gross margin............................................................... 517,330 353,292 244,077
Selling, general and administrative expenses............................... 357,766 246,485 170,684
Amortization of intangible assets.......................................... 4,926 5,405 4,767
Interest income............................................................ (4,190) (2,243) (463)
------------ ---------- ----------
Income before income taxes................................................. 158,828 103,645 69,089
Provision for income taxes................................................. 65,131 42,543 28,791
------------ ---------- ----------
Net income................................................................. $ 93,697 $ 61,102 $ 40,298
------------ ---------- ----------
------------ ---------- ----------
Basic net income per share................................................. $ 1.03 $ .69 $ .47
Diluted net income per share............................................... $ 1.00 $ .67 $ .46
All per share amounts have been restated to retroactively reflect the
three-for-two stock
split effected in the form of a stock dividend in September 1997 and the
two-for-one
stock split effected in the form of a stock dividend in June 1996.
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
9
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
COMMON STOCK--SHARES:
Balance at beginning of period................................................ 89,622 86,677 84,456
Issuances of restricted stock................................................. 802 989 702
Repurchases of common stock................................................... (676) (296) (342)
Exercises of stock options.................................................... 1,446 1,709 1,861
Issuance of common stock for acquisitions..................................... 14 543 --
--------- --------- ---------
Balance at end of period.................................................... 91,208 89,622 86,677
--------- --------- ---------
--------- --------- ---------
COMMON STOCK--PAR VALUE:
Balance at beginning of period................................................ $ 90 $ 87 $ 84
Issuances of restricted stock................................................. 1 1 1
Repurchases of common stock................................................... (1) -- --
Exercises of stock options.................................................... 1 2 2
--------- --------- ---------
Balance at end of period.................................................... $ 91 $ 90 $ 87
--------- --------- ---------
--------- --------- ---------
CAPITAL SURPLUS:
Balance at beginning of period................................................ $ 140,443 $ 99,739 $ 82,598
Issuances of restricted stock--excess over par value.......................... 29,189 24,019 6,886
Exercises of stock options--excess over par value............................. 5,755 4,119 3,817
Issuance of common stock for acquisition...................................... 400 -- --
Tax benefits from exercises of stock options and restricted stock vesting..... 21,101 12,566 6,438
--------- --------- ---------
Balance at end of period.................................................... $ 196,888 $ 140,443 $ 99,739
--------- --------- ---------
--------- --------- ---------
DEFERRED COMPENSATION:
Balance at beginning of period................................................ $ (26,802) $ (9,642) $ (5,533)
Issuances of restricted stock................................................. (29,190) (24,020) (6,887)
Amortization of deferred compensation......................................... 11,716 6,860 2,778
--------- --------- ---------
Balance at end of period.................................................... $ (44,276) $ (26,802) $ (9,642)
--------- --------- ---------
--------- --------- ---------
ACCUMULATED TRANSLATION ADJUSTMENTS:
Balance at beginning of period................................................ $ 23 $ 51 $ (541)
Translation adjustments....................................................... (1,370) (28) 592
--------- --------- ---------
Balance at end of period.................................................... $ (1,347) $ 23 $ 51
--------- --------- ---------
--------- --------- ---------
RETAINED EARNINGS:
Balance at beginning of period................................................ $ 194,691 $ 137,695 $ 100,386
Repurchases of common stock--excess over par value............................ (20,944) (5,391) (2,989)
Issuance of common stock for acquisition...................................... -- 1,285 --
Net income.................................................................... 93,697 61,102 40,298
--------- --------- ---------
Balance at end of period.................................................... $ 267,444 $ 194,691 $ 137,695
--------- --------- ---------
--------- --------- ---------
All shares and amounts have been restated to retroactively reflect the
three-for-two stock
split effected in the form of a stock dividend in September 1997 and the
two-for-one
stock split effected in the form of a stock dividend in June 1996.
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
10
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................. $ 93,697 $ 61,102 $ 40,298
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of intangible assets...................................... 4,926 5,405 4,767
Depreciation expense................................................... 12,726 6,457 3,564
Provision for deferred income taxes.................................... (5,135) (1,702) (683)
Changes in assets and liabilities, net of effects of acquisitions:
Increase in accounts receivable........................................ (61,027) (38,565) (24,289)
Increase in accounts payable, accrued expenses and accrued payroll
costs................................................................ 27,878 17,893 15,106
Increase (decrease) in income taxes payable............................ (1,625) (1,274) 2,976
Change in other assets, net of change in other liabilities............. 10,517 5,109 432
---------- ---------- ----------
Total adjustments........................................................ (11,740) (6,677) 1,873
---------- ---------- ----------
Net cash and cash equivalents provided by operating activities............. 81,957 54,425 42,171
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired......................................... (3,338) (4,620) (1,024)
Capital expenditures....................................................... (31,958) (18,027) (8,417)
---------- ---------- ----------
Net cash and cash equivalents used in investing activities................. (35,296) (22,647) (9,441)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of common stock and common stock equivalents................... (20,945) (5,391) (2,989)
Principal payments on notes payable and other indebtedness................. (1,405) (4,239) (1,289)
Proceeds and tax benefits from exercises of stock options and restricted
stock vesting............................................................ 26,857 16,687 10,256
---------- ---------- ----------
Net cash and cash equivalents provided by financing activities............. 4,507 7,057 5,978
---------- ---------- ----------
Net increase in cash and cash equivalents.................................. 51,168 38,835 38,708
Cash and cash equivalents at beginning of period........................... 80,181 41,346 2,638
---------- ---------- ----------
Cash and cash equivalents at end of period................................. $ 131,349 $ 80,181 $ 41,346
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................................. $ 476 $ 521 $ 405
Income taxes............................................................. $ 50,340 $ 32,163 $ 21,853
Acquisitions:
Assets acquired--
Intangible assets...................................................... $ 4,079 $ 9,932 $ 4,697
Other.................................................................. 499 2,180 753
Liabilities incurred--
Notes payable and contracts............................................ (536) (5,125) (2,800)
Other.................................................................. (304) (1,082) (1,626)
Common stock issued...................................................... (400) (1,285) --
---------- ---------- ----------
Cash paid, net of cash acquired.......................................... $ 3,338 $ 4,620 $ 1,024
---------- ---------- ----------
---------- ---------- ----------
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. Robert Half International Inc. (the "Company")
provides specialized staffing services through such divisions as ACCOUNTEMPS,
ROBERT HALF, OFFICETEAM, RHI CONSULTING and RHI MANAGEMENT RESOURCES. The
Company, through its ACCOUNTEMPS, ROBERT HALF and RHI 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 skilled temporary administrative personnel. RHI CONSULTING
provides contract information technology professionals. RHI MANAGEMENT RESOURCES
places senior-level accounting and financial professionals on longer term, more
complex projects lasting for several months to a year or longer. Revenues are
predominantly from temporary services. The Company operates in the United
States, Canada and Europe. The Company is a Delaware corporation.
PRINCIPLES OF CONSOLIDATION. The Consolidated Financial Statements include
the accounts of the Company and its subsidiaries, all of which are wholly-owned.
All significant intercompany balances have been eliminated. Certain
reclassifications have been made to the 1996 and 1995 financial statements to
conform to the 1997 presentation.
REVENUE RECOGNITION. Temporary services revenues are recognized when the
services are rendered by the Company's temporary employees. Permanent placement
revenues are recognized when employment candidates accept offers of permanent
employment. Allowances are established to estimate losses due to placed
candidates not remaining employed for the Company's guarantee period, typically
90 days.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments with a maturity of three months or less as cash equivalents.
INTANGIBLE ASSETS. Intangible assets primarily consist of the cost of
acquired companies in excess of the fair market value of their net tangible
assets at acquisition date, which are being amortized on a straight-line basis
over a period of 40 years. The carrying value of intangible assets is
periodically reviewed by the Company and impairments are recognized when the
expected future operating cash flows derived from such intangible assets are
less than their carrying value. Based upon its most recent analysis, the Company
believes that no material impairment of intangible assets existed at December
31, 1997.
INCOME TAXES. Deferred taxes are computed based on the difference between
the financial statement and income tax bases of assets and liabilities using the
enacted marginal tax rates.
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 part of
Stockholders' Equity. Gains and losses resulting from foreign currency
transactions are included in the Consolidated Statements of Income.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles 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.
PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost.
Depreciation expense is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the shorter of the life of the related asset or the life of the lease.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--ACQUISITIONS
In July 1986, the Company acquired all of the outstanding stock of Robert
Half Incorporated, the franchisor of the ACCOUNTEMPS and ROBERT HALF operations.
Subsequently, in 65 separate transactions the Company acquired all of the
outstanding stock of certain corporations operating ACCOUNTEMPS and ROBERT HALF
franchised offices in the United States, the United Kingdom and Canada as well
as other staffing services businesses. The Company has paid approximately $210
million in cash, stock, notes and other indebtedness in these acquisitions,
excluding transaction costs and cash acquired.
These acquisitions were primarily accounted for as purchases, and the excess
of cost of the acquired companies in excess of the fair market value of the net
tangible assets acquired is being amortized over 40 years using the
straight-line method. Results of operations of the acquired companies are
included in the Consolidated Statements of Income from the dates of acquisition.
The acquisitions made during 1997, 1996 and 1995 had no material pro forma
impact on the results of operations.
NOTE C--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 $8,157,000 at December 31, 1997 and $6,611,000 at December 31, 1996.
At December 31, 1997, $4,825,000 of the notes was secured by a standby letter of
credit (see Note D). The following table shows the schedule of maturities for
notes payable and other indebtedness at December 31, 1997 (in thousands):
[Download Table]
1998................................................................ $ 3,627
1999................................................................ 1,032
2000................................................................ 901
2001................................................................ 56
2002................................................................ 61
Thereafter.......................................................... 2,480
---------
$ 8,157
---------
---------
At December 31, 1997, generally the notes carried fixed rates and the
weighted average interest rate for the above was approximately 7.0%, 6.9% and
7.3% for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE D--BANK LOAN (REVOLVING CREDIT)
The bank loan is an unsecured credit facility which provides a line of
credit of up to $80,000,000, which is available to fund the Company's general
business and working capital needs, including acquisitions and the purchase of
the Company's common stock, and to cover the issuance of debt support standby
letters of credit up to $15,000,000.
As of December 31, 1997 and 1996, the Company had no borrowings on the line
of credit outstanding and had used $8,583,000 and $8,683,000 in debt support
standby letters of credit, respectively. There is a commitment fee on the unused
portion of the entire credit facility of .09%. The loan is subject to certain
financial covenants which also affect the interest rates charged. The final
maturity date for the credit facility is August 31, 2002.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E--ACCRUED PAYROLL COSTS
Accrued payroll costs consisted of the following (in thousands):
[Enlarge/Download Table]
YEARS ENDED DECEMBER
31,
--------------------
1997 1996
--------- ---------
Payroll and bonuses..................................................... $ 36,493 $ 28,374
Employee benefits and workers' compensation............................. 42,042 30,126
Payroll taxes........................................................... 17,390 7,587
--------- ---------
$ 95,925 $ 66,087
--------- ---------
--------- ---------
NOTE F--STOCKHOLDERS' EQUITY
STOCK SPLITS--In August 1997, the Company effected a three-for-two stock
split in the form of a stock dividend. In June 1996, the Company effected a
two-for-one stock split in the form of a stock dividend. All shares and per
share amounts have been retroactively restated in the financial statements to
reflect these stock splits.
STOCK REPURCHASE PROGRAM--In October 1997, the Company's Board of Directors
authorized the repurchase, from time to time, of up to four million shares of
the Company's common stock on the open market or in privately negotiated
transactions, depending on market conditions. During 1997, the Company
repurchased approximately 100,000 shares of common stock for a total cost of
$3.4 million.
NOTE G--INCOME TAXES
The provision for income taxes for the years ended December 31, 1997, 1996
and 1995 consisted of the following (in thousands):
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Current:
Federal.................................................... $ 53,973 $ 34,392 $ 22,061
State...................................................... 12,261 7,457 4,728
Foreign.................................................... 4,032 2,396 2,685
Deferred--principally domestic............................... (5,135) (1,702) (683)
--------- --------- ---------
$ 65,131 $ 42,543 $ 28,791
--------- --------- ---------
--------- --------- ---------
The income taxes shown above varied from the statutory federal income tax
rates for these periods as follows:
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
---- ---- ----
Federal U.S. income tax rate................................ 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit.............. 4.6 4.5 4.5
Amortization of intangible assets........................... .8 1.0 1.5
Other, net.................................................. .6 .5 .7
---- ---- ----
Effective tax rate.......................................... 41.0% 41.0% 41.7%
---- ---- ----
---- ---- ----
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G--INCOME TAXES (CONTINUED)
The deferred portion of the tax provisions consisted of the following (in
thousands):
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Amortization of franchise rights............................... $ 66 $ 691 $ 1,650
Accrued expenses, deducted for tax when paid................... (5,511) (2,468) (2,068)
Other, net..................................................... 310 75 (265)
--------- --------- ---------
$ (5,135) $ (1,702) $ (683)
--------- --------- ---------
--------- --------- ---------
The net deferred income tax liability shown on the balance sheet is
comprised of the following (in thousands):
[Enlarge/Download Table]
DECEMBER 31,
--------------------
1997 1996
--------- ---------
Deferred income tax assets.............................................. $ (4,836) $ (2,536)
Deferred income tax liabilities......................................... 20,778 18,473
--------- ---------
$ 15,942 $ 15,937
--------- ---------
--------- ---------
No valuation allowances against deferred tax assets were required for the
years ended December 31, 1997 and 1996.
The components of the net deferred income tax liability at December 31, 1997
and 1996, were as follows (in thousands):
[Enlarge/Download Table]
DECEMBER 31,
--------------------
1997 1996
--------- ---------
Amortization of intangible assets....................................... $ 17,026 $ 16,954
Foreign taxes........................................................... 0 151
Other, net.............................................................. (1,084) (1,168)
--------- ---------
$ 15,942 $ 15,937
--------- ---------
--------- ---------
NOTE H--COMMITMENTS
Rental expense, primarily for office premises, amounted to $19,594,000,
$13,315,000 and $11,027,000 for the years ended December 31, 1997, 1996 and
1995, respectively. The approximate minimum rental commitments for 1998 and
thereafter under non-cancelable leases in effect at December 31, 1997, were as
follows (in thousands):
[Download Table]
1998............................................................... $ 22,184
1999............................................................... 21,986
2000............................................................... 19,460
2001............................................................... 17,375
2002............................................................... 12,303
Thereafter......................................................... 26,229
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--STOCK PLANS
Under various stock plans, officers, employees and outside directors may
receive grants of restricted stock or options to purchase common stock. Grants
are made at the discretion of the Compensation Committee of the Board of
Directors. Grants vest between four and seven years.
Options granted under the plans have exercise prices ranging from 85% to
100% of the fair market value of the Company's common stock at the date of
grant, consist of both incentive stock options and nonstatutory stock options
under the Internal Revenue Code, and generally have a term of ten years.
Recipients of restricted stock do not pay any cash consideration to the
Company for the shares, have the right to vote all shares subject to such grant,
and receive all dividends with respect to such shares, whether or not the shares
have vested. Compensation expense is recognized on a straight-line basis over
the vesting period. Vesting is accelerated upon the death or disability of the
recipients.
The Company accounts for these plans under APB Opinion 25. Therefore, no
compensation cost has been recognized for its stock option plans. Had
compensation cost for the stock options granted subsequent to January 1, 1995,
been based on the estimated fair value at the award dates, as prescribed by
Statement of Financial Accounting Standards No. 123, the Company's pro forma net
income and net income per share would have been as follows:
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
------------- ------------- -------------
Net Income
As Reported................................................. $ 93,697 $ 61,102 $ 40,298
Pro forma................................................... $ 90,212 $ 59,666 $ 40,174
Net Income Per Share
Basic
As Reported............................................... $ 1.03 $ .69 $ .47
Pro forma................................................. $ .99 $ .68 $ .47
Diluted
As Reported............................................... $ 1.00 $ .67 $ .46
Pro forma................................................. $ .97 $ .66 $ .46
The pro forma amounts do not include amounts for stock options granted
before January 1, 1995. Therefore, the pro forma amounts may not be
representative of the disclosed effects on pro forma net income and net income
per share for future years.
The fair value of each option is estimated, as of the grant date, using the
Black-Scholes option pricing model with the following assumptions used for
grants in 1997, 1996 and 1995, respectively: no dividend yield for any year;
expected volatility of 32% to 34%; risk-free interest rates of 5.7% to 6.9%,
5.3% to 6.7% and 5.4% to 7.9%; and expected lives of 5.5 to 7.3 years for all
three years.
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--STOCK PLANS (CONTINUED)
The following table reflects activity under all stock plans from January 1,
1995 through December 31, 1997, and the weighted average exercise prices:
[Enlarge/Download Table]
STOCK OPTION PLANS
----------------------
WEIGHTED
AVERAGE
RESTRICTED NUMBER OF PRICE
STOCK PLANS SHARES PER SHARE
------------- ---------- ----------
Outstanding, January 1, 1995.................................. 1,757,474 9,399,183 $ 3.70
Granted..................................................... 745,176 2,071,893 $ 12.67
Exercised................................................... -- (1,861,221) $ 2.05
Restrictions lapsed......................................... (563,313) -- --
Forfeited................................................... (42,846) (542,007) $ 4.79
------------- ---------- ----------
Outstanding, December 31, 1995................................ 1,896,491 9,067,848 $ 6.04
Granted..................................................... 998,492 1,689,644 $ 20.94
Exercised................................................... -- (1,708,532) $ 2.41
Restrictions lapsed......................................... (412,329) -- --
Forfeited................................................... (9,099) (387,429) $ 9.33
------------- ---------- ----------
Outstanding, December 31, 1996................................ 2,473,555 8,661,531 $ 9.53
Granted..................................................... 847,469 1,944,656 $ 29.68
Exercised................................................... -- (1,446,404) $ 3.98
Restrictions lapsed......................................... (859,399) -- --
Forfeited................................................... (45,578) (515,537) $ 15.29
------------- ---------- ----------
Outstanding, December 31, 1997................................ 2,416,047 8,644,246 $ 14.52
------------- ---------- ----------
------------- ---------- ----------
The following table summarizes information about options outstanding as of
December 31, 1997:
[Enlarge/Download Table]
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ------------------------------
NUMBER NUMBER
OUTSTANDING AS WEIGHTED WEIGHTED EXERCISABLE AS WEIGHTED
OF AVERAGE AVERAGE OF AVERAGE
DECEMBER 31, REMAINING EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1997 CONTRACTUAL LIFE PRICE 1997 PRICE
----------------------------------------- ---------------- ------------------- ------------- --------------- -------------
$1.44 to $4.21........................... 1,848,332 4.81 $ 2.90 1,848,332 $ 2.90
$5.00 to $8.00........................... 1,862,215 6.80 $ 6.95 1,172,598 $ 7.08
$8.58 to $19.46.......................... 2,456,571 8.01 $ 15.24 641,417 $ 14.26
$20.21 to $37.50......................... 1,916,216 9.09 $ 24.74 229,866 $ 22.43
$38.58 to $41.44......................... 560,912 9.81 $ 39.98 -- --
---------------- --- ------ --------------- ------
8,644,246 7.42 $ 14.52 3,892,213 $ 7.18
---------------- --- ------ --------------- ------
---------------- --- ------ --------------- ------
At December 31, 1997, the total number of available shares to grant under
the plans (consisting of either restricted stock or options) was 1,137,850.
NOTE J--PREFERRED SHARE PURCHASE RIGHTS
Pursuant to the Company's stockholder rights agreement, each share of common
stock carries one right to purchase .0067 shares of preferred stock. The rights
become exercisable in certain limited circumstances involving a potential
business combination transaction or an acquisition of shares of the Company and
are exercisable at a price of $66.67 per right, subject to adjustment. Following
certain other events after the rights become exercisable, each right entitles
its holder to purchase for $66.67 an amount
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J--PREFERRED SHARE PURCHASE RIGHTS (CONTINUED)
of common stock of the Company, or, in certain circumstances, securities of the
acquiror, having a then-current market value of twice the exercise price of the
right. The rights are redeemable and may be amended at the Company's option
before they become exercisable. Until a right is exercised, the holder of a
right has no rights as a stockholder of the Company. The rights expire on July
23, 2000.
NOTE K--NET INCOME PER SHARE
In 1997, the Company adopted Statement of Financial Accounting Standard No.
128 (SFAS No. 128), "Earnings Per Share". Under SFAS No. 128, basic net income
per share is computed as net income divided by weighted average shares,
excluding the dilutive effects of stock options and other potentially dilutive
securities. The calculation of net income per share in compliance with SFAS No.
128 for the three years ended December 31, 1997 is reflected in the following
table:
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Net Income................................................... $ 93,697 $ 61,102 $ 40,298
Basic:
Weighted average shares.................................... 90,668 88,267 85,479
--------- --------- ---------
--------- --------- ---------
Diluted:
Weighted average shares.................................... 90,668 88,267 85,479
Common stock equivalents--stock options.................... 3,331 3,255 3,009
--------- --------- ---------
Diluted shares............................................. 93,999 91,522 88,488
--------- --------- ---------
--------- --------- ---------
Net Income Per Share:
Basic...................................................... $ 1.03 $ .69 $ .47
Diluted.................................................... $ 1.00 $ .67 $ .46
As a result of adopting SFAS No. 128 in 1997, the Company's reported net
income per share for 1996 and 1995 have been restated. The effect of this
accounting change on previously reported net income per share data is as
follows:
[Enlarge/Download Table]
1996 1995
--------- ---------
Primary net income per share as reported........................................ $ .67 $ .45
Effect of SFAS No. 128.......................................................... .02 .02
--- ---
Basic net income per share as restated.......................................... $ .69 $ .47
--- ---
--- ---
Fully diluted net income per share as reported.................................. $ .67 $ .45
Effect of SFAS No. 128.......................................................... -- .01
--- ---
Diluted net income per share as restated........................................ $ .67 $ .46
--- ---
--- ---
In 1997, the Financial Accounting Standards Board adopted SFAS No. 130
"Reporting Comprehensive Income", which requires disclosure of comprehensive
income. This statement becomes effective in 1998. The Company does not expect
the impact of adopting this statement to be significant.
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tabulation shows certain quarterly financial data for 1997 and
1996 (in thousands, except per share amounts):
[Enlarge/Download Table]
QUARTER
---------------------------------------------- YEAR ENDED
1997 1 2 3 4 DECEMBER 31,
-------------------------------------------------- ---------- ---------- ---------- ---------- ------------
Net service revenues.............................. $ 283,023 $ 311,622 $ 339,754 $ 368,477 $1,302,876
Gross margin...................................... $ 111,894 $ 124,140 $ 135,200 $ 146,096 $ 517,330
Income before income taxes........................ $ 33,777 $ 37,613 $ 41,710 $ 45,728 $ 158,828
Net income........................................ $ 19,920 $ 22,210 $ 24,631 $ 26,936 $ 93,697
Basic net income per share........................ $ .22 $ .24 $ .27 $ .30 $ 1.03
Diluted net income per share...................... $ .21 $ .24 $ .26 $ .29 $ 1.00
QUARTER
---------------------------------------------- YEAR ENDED
1996 1 2 3 4 DECEMBER 31,
-------------------------------------------------- ---------- ---------- ---------- ---------- ------------
Net service revenues.............................. $ 196,239 $ 210,649 $ 232,950 $ 258,797 $ 898,635
Gross margin...................................... $ 76,642 $ 83,921 $ 91,788 $ 100,941 $ 353,292
Income before income taxes........................ $ 22,478 $ 24,234 $ 27,058 $ 29,875 $ 103,645
Net income........................................ $ 13,239 $ 14,224 $ 15,946 $ 17,693 $ 61,102
Basic net income per share........................ $ .15 $ .16 $ .18 $ .20 $ .69
Diluted net income per share...................... $ .15 $ .16 $ .17 $ .19 $ .67
NOTE M--SEGMENT REPORTING
Information about the Company's operations in different geographic locations
for each of the three years in the period ended December 31, 1997, is shown
below. The Company's areas of operations outside of the United States include
Canada, the United Kingdom, Belgium, France and the Netherlands. Revenues
represent total revenues from the respective geographic areas. Operating income
is revenues less operating costs and expenses pertaining to specific geographic
areas. Foreign operating income reflects charges for U.S. management fees and
amortization of intangible assets of $1,538,000, $1,533,000 and $992,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. Domestic operating
income reflects charges for amortization of intangibles of $4,466,000,
$4,935,000 and $4,307,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Identifiable assets are those assets used in the geographic areas
and are after elimination of intercompany balances.
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
------------ ---------- ----------
(IN THOUSANDS)
Revenues
Domestic............................................. $ 1,176,888 $ 812,751 $ 564,564
Foreign.............................................. 125,988 85,884 63,962
------------ ---------- ----------
$ 1,302,876 $ 898,635 $ 628,526
------------ ---------- ----------
------------ ---------- ----------
Operating Income
Domestic............................................. $ 144,393 $ 94,260 $ 63,861
Foreign.............................................. 10,245 7,142 4,765
------------ ---------- ----------
$ 154,638 $ 101,402 $ 68,626
------------ ---------- ----------
------------ ---------- ----------
Assets
Domestic............................................. $ 505,702 $ 375,576 $ 267,487
Foreign.............................................. 55,665 40,436 33,653
------------ ---------- ----------
$ 561,367 $ 416,012 $ 301,140
------------ ---------- ----------
------------ ---------- ----------
19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors
of Robert Half International Inc.:
We have audited the accompanying consolidated statements of financial
position of Robert Half International Inc. (a Delaware corporation) and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Robert Half International
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
January 22, 1998
20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Items 10 through 13 of Part III is incorporated
by reference from the registrant's Proxy Statement, under the captions
"NOMINATION AND ELECTION OF DIRECTORS," "BENEFICIAL STOCK OWNERSHIP,"
"COMPENSATION OF DIRECTORS," "COMPENSATION OF EXECUTIVE OFFICERS" AND
"COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION AND CERTAIN
TRANSACTIONS," which Proxy Statement will be mailed to stockholders in
connection with the registrant's annual meeting of stockholders which is
scheduled to be held in May 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries are included in Item 8 of this report:
Consolidated statements of financial position at December 31, 1997 and
1996.
Consolidated statements of income for the years ended December 31, 1997,
1996 and 1995.
Consolidated statements of stockholders' equity for the years ended
December 31, 1997, 1996 and 1995.
Consolidated statements of cash flows for the years ended December 31,
1997, 1996 and 1995.
Notes to consolidated financial statements.
Report of independent public accountants.
Selected quarterly financial data for the years ended December 31, 1997 and
1996 are set forth in Note L--Quarterly Financial Data (Unaudited) included
in Item 8 of this report.
2. FINANCIAL STATEMENT SCHEDULES
Schedules I through V have been omitted as they are not applicable.
3. EXHIBITS
[Download Table]
EXHIBIT
NO. EXHIBIT
------- ---------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation, incorporated by reference to Exhibit
3.1 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1997.
3.2 By-Laws, incorporated by reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
4.1 Indenture dated as of October 1, 1972, as amended, between IDS Realty Trust
and First National Bank of Minneapolis, incorporated by reference to
Exhibits 6(t) and 6(v) to the Form S-14 Registration Statement of the
Registrant (formerly known as Boothe Interim Corporation) filed with the
Securities and Exchange Commission on December 31, 1979.
4.2 Restated Certificate of Incorporation of Registrant (filed as Exhibit 3.1).
4.3 Rights Agreement, dated as of July 23, 1990, between the Registrant and The
Chase Manhattan Bank (formerly Manufacturers Hanover Trust Company of
California), as amended and restated effective April 30, 1997, incorporated
by reference to Exhibit 1 to Registrant's Form 8-A/A Amendment No. 4 filed
on May 1, 1997.
21
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EXHIBIT
NO. EXHIBIT
------- ---------------------------------------------------------------------------
10.1 Credit Agreement dated as of November 1, 1993, among the Registrant,
NationsBank of North Carolina, N.A. and Bank of America National Trust and
Savings Association, as amended, incorporated by reference to (i) Exhibit
10 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1993, (ii) Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1995, (iii)
Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, and (iv) Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997.
*10.2 Employment Agreement dated as of October 2, 1985, between the Registrant
and Harold M. Messmer, Jr. The Twelfth Amendment to the Employment
Agreement is filed with this Annual Report on Form 10-K for the fiscal year
ended December 31, 1997. The original Employment Agreement and the first
eleven amendments thereto are incorporated by reference to (i) Exhibit
10.(c) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1985, (ii) Exhibit 10.2(b) to Registrant's Registration
Statement on Form S-1 (No. 33-15171), (iii) Exhibit 10.2(c) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1987, (iv) Exhibit 10.2(d) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1988, (v) Exhibit 28.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1990, (vi) Exhibit 10.8 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1991, (vii) Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1993, (viii) Exhibit 10.7 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, (ix) Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1995, (x) Exhibit 10.7 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995 and (xi) Exhibit 10.2 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
*10.3 Key Executive Retirement Plan--Level II, as amended, incorporated by
reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
*10.4 Restated Retirement Agreement between the Registrant and Harold M. Messmer,
Jr., incorporated by reference to Exhibit 10.4 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
*10.5 1985 Stock Option Plan, as amended, incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1997.
*10.6 Excise Tax Restoration Agreement dated November 5, 1996, incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
*10.7 Outside Directors' Option Plan, as amended.
*10.8 1989 Restricted Stock Plan, as amended, incorporated by reference to
Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1997.
*10.9 StockPlus Plan, as amended.
*10.10 1993 Incentive Plan, as amended.
*10.11 Deferred Compensation Plan, incorporated by reference to Exhibit 10.24 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989.
*10.12 Annual Performance Bonus Plan, incorporated by reference to Exhibit 10.5 to
the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1996.
*10.13 Form of Severance Agreement, incorporated by reference to (i) Exhibit 10.26
to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 and (ii) Exhibit 19.2 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1990.
22
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EXHIBIT
NO. EXHIBIT
------- ---------------------------------------------------------------------------
*10.14 Form of Indemnification Agreement for Directors of the Registrant,
incorporated by reference to (i) Exhibit 10.27 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989 and (ii)
Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
*10.15 Form of Indemnification Agreement for Executive Officers of Registrant,
incorporated by reference to Exhibit 10.28 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
*10.16 Senior Executive Retirement Plan, as amended, incorporated by reference to
Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
*10.17 Collateral Assignment of Split Dollar Insurance Agreement, incorporated by
reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
21 Subsidiaries of the Registrant.
23 Accountants' Consent
27 Financial Data Schedule.
------------------------
* Management contract or compensatory plan required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the fiscal quarter
ending December 31, 1997.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROBERT HALF INTERNATIONAL INC.
(Registrant)
Date: March 13, 1998 By: /S/ M. KEITH WADDELL
------------------------------------
M. Keith Waddell
Senior Vice President, Chief
Financial
Officer and Treasurer
(Principal Financial Officer)
24
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
[Download Table]
Date: March 13, 1998 By: /S/ HAROLD M. MESSMER, JR.
------------------------------------------
Harold M. Messmer, Jr.
Chairman of the Board, President,
Chief Executive Officer,
and a Director
(Principal Executive Officer)
Date: March 13, 1998 By: /S/ ANDREW S. BERWICK, JR.
------------------------------------------
Andrew S. Berwick, Jr., Director
Date: March 13, 1998 By: /S/ FREDERICK P. FURTH
------------------------------------------
Frederick P. Furth, Director
Date: March 13, 1998 By: /S/ EDWARD W. GIBBONS
------------------------------------------
Edward W. Gibbons, Director
Date: March 13, 1998 By: /S/ FREDERICK A. RICHMAN
------------------------------------------
Frederick A. Richman, Director
Date: March 13, 1998 By: /S/ THOMAS J. RYAN
------------------------------------------
Thomas J. Ryan, Director
Date: March 13, 1998 By: /S/ J. STEPHEN SCHAUB
------------------------------------------
J. Stephen Schaub, Director
Date: March 13, 1998 By: /S/ M. KEITH WADDELL
------------------------------------------
M. Keith Waddell
Senior Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
Date: March 13, 1998 By: /S/ BARBARA J. FORSBERG
------------------------------------------
Barbara J. Forsberg
Vice President and Controller
(Principal Accounting Officer)
25
EXHIBIT INDEX
[Download Table]
EXHIBIT
NO. EXHIBIT
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3.1 Restated Certificate of Incorporation, incorporated by reference to Exhibit
3.1 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1997.
3.2 By-Laws, incorporated by reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
4.1 Indenture dated as of October 1, 1972, as amended, between IDS Realty Trust
and First National Bank of Minneapolis, incorporated by reference to
Exhibits 6(t) and 6(v) to the Form S-14 Registration Statement of the
Registrant (formerly known as Boothe Interim Corporation) filed with the
Securities and Exchange Commission on December 31, 1979.
4.2 Restated Certificate of Incorporation of Registrant (filed as Exhibit 3.1).
4.3 Rights Agreement, dated as of July 23, 1990, between the Registrant and The
Chase Manhattan Bank (formerly Manufacturers Hanover Trust Company of
California), as amended and restated effective April 30, 1997, incorporated
by reference to Exhibit 1 to Registrant's Form 8-A/A Amendment No. 4 filed
on May 1, 1997.
10.1 Credit Agreement dated as of November 1, 1993, among the Registrant,
NationsBank of North Carolina, N.A. and Bank of America National Trust and
Savings Association, as amended, incorporated by reference to (i) Exhibit
10 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1993, (ii) Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1995, (iii)
Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, and (iv) Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997.
*10.2 Employment Agreement dated as of October 2, 1985, between the Registrant
and Harold M. Messmer, Jr. The Twelfth Amendment to the Employment
Agreement is filed with this Annual Report on Form 10-K for the fiscal year
ended December 31, 1997. The original Employment Agreement and the first
eleven amendments thereto are incorporated by reference to (i) Exhibit
10.(c) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1985, (ii) Exhibit 10.2(b) to Registrant's Registration
Statement on Form S-1 (No. 33-15171), (iii) Exhibit 10.2(c) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1987, (iv) Exhibit 10.2(d) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1988, (v) Exhibit 28.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1990, (vi) Exhibit 10.8 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1991, (vii) Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1993, (viii) Exhibit 10.7 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, (ix) Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1995, (x) Exhibit 10.7 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995 and (xi) Exhibit 10.2 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
*10.3 Key Executive Retirement Plan--Level II, as amended, incorporated by
reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
*10.4 Restated Retirement Agreement between the Registrant and Harold M. Messmer,
Jr., incorporated by reference to Exhibit 10.4 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
*10.5 1985 Stock Option Plan, as amended, incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1997.
*10.6 Excise Tax Restoration Agreement dated November 5, 1996, incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
*10.7 Outside Directors' Option Plan, as amended.
*10.8 1989 Restricted Stock Plan, as amended, incorporated by reference to
Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1997.
[Download Table]
EXHIBIT
NO. EXHIBIT
------- ---------------------------------------------------------------------------
*10.9 StockPlus Plan, as amended.
*10.10 1993 Incentive Plan, as amended.
*10.11 Deferred Compensation Plan, incorporated by reference to Exhibit 10.24 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989.
*10.12 Annual Performance Bonus Plan, incorporated by reference to Exhibit 10.5 to
the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1996.
*10.13 Form of Severance Agreement, incorporated by reference to (i) Exhibit 10.26
to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 and (ii) Exhibit 19.2 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1990.
*10.14 Form of Indemnification Agreement for Directors of the Registrant,
incorporated by reference to (i) Exhibit 10.27 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989 and (ii)
Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
*10.15 Form of Indemnification Agreement for Executive Officers of Registrant,
incorporated by reference to Exhibit 10.28 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
*10.16 Senior Executive Retirement Plan, as amended, incorporated by reference to
Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
*10.17 Collateral Assignment of Split Dollar Insurance Agreement, incorporated by
reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
21 Subsidiaries of the Registrant.
23 Accountants' Consent
27 Financial Data Schedule.
------------------------
* Management contract or compensatory plan required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K.
Dates Referenced Herein and Documents Incorporated by Reference
4 Subsequent Filings that Reference this Filing
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