Robert Half(RHI) - 2020 Q4 - Annual Report

PART I Business Overview Robert Half International Inc. provides specialized staffing and risk consulting services globally, emphasizing quality control, human capital management, and diverse professional placements - Robert Half International Inc. provides specialized staffing and risk consulting services through divisions like Accountemps, Robert Half Finance & Accounting, OfficeTeam, Robert Half Technology, Robert Half Management Resources, Robert Half Legal, The Creative Group, and Protiviti[9] - Protiviti, a wholly owned subsidiary, is a global business consulting and internal audit firm specializing in risk, advisory, and transactional services, formed in 2002 from over 700 professionals from Arthur Andersen LLP[9][10] - As of December 31, 2020, the Company conducted staffing services through 326 offices in 42 states, D.C., and 17 foreign countries, while Protiviti had 62 offices in 23 states and 12 foreign countries[23][24] - The Company had approximately 13,000 full-time internal staff (5,000 in Protiviti) and placed about 150,500 engagement professionals on assignments in 2020, a decrease from 16,000 internal staff (4,500 in Protiviti) and 205,600 placements in 2019[27] - The company is committed to diversity and inclusion, with 55% of its global workforce and 46% of managerial roles held by females as of June 30, 2020. Approximately 30% of the U.S. workforce was from underrepresented groups[28][29][30] Risk Factors The Company faces economic downturns, international operational complexities, intense competition, recruitment challenges, legal liabilities, technological changes, and cybersecurity threats - Demand for the Company's services is highly dependent on global economic activity and employment levels, making it vulnerable to economic downturns, as seen with the COVID-19 pandemic[37][42][43] - Operating internationally exposes the Company to risks such as political and economic instability, compliance with foreign laws, adverse tax consequences, and foreign currency exchange fluctuations[39] - The staffing business is highly competitive with low barriers to entry, and the Company faces competition in attracting both clients and skilled candidates, particularly when unemployment is low[25][49][50] - The Company is dependent on its management and employees, and failure to attract and retain such personnel could harm its business[52] - Technological advances like AI, machine learning, and automation impact the Company's services and client needs, requiring continuous investment to remain competitive[53][54] - The Company is a defendant in several class action lawsuits alleging wage and hour violations and Fair Credit Reporting Act non-compliance, which could result in substantial liabilities and adverse publicity[61][62] - The Company's computer and communications systems are vulnerable to damage, interruption, and cyber-attacks, which could lead to legal liability, reputational harm, and increased costs[68][69] Unresolved Staff Comments The Company has no unresolved staff comments to report Properties The Company's headquarters are in Menlo Park and San Ramon, California, with 326 leased staffing offices and 62 leased Protiviti offices globally as of December 31, 2020 - Company headquarters are in Menlo Park and San Ramon, California[78] - As of December 31, 2020, staffing services operated through 326 leased offices in 42 states, D.C., and 17 foreign countries[78] - As of December 31, 2020, Protiviti had 62 leased offices in 23 states and 12 foreign countries[78] Legal Proceedings The Company is involved in two significant class action lawsuits in California concerning wage and hour violations and employee misclassification, with outcomes currently unpredictable - Plaintiff Jessica Gentry filed a class action lawsuit in California alleging denial of compensation for interview time and inaccurate wage statements, seeking unspecified damages and penalties[80] - Plaintiff Shari Dorff filed a class action lawsuit in California alleging misclassification of salaried recruiters as exempt, failure to provide meal/rest breaks, untimely wage payments, and improper denial of expense reimbursement, seeking unspecified damages and penalties[81] - The Company believes it has meritorious defenses and intends to vigorously defend against these litigations; the outcome and potential loss range are not feasible to predict, so no amounts are recorded in financial statements[80][81] Mine Safety Disclosure This item is not applicable to the Company PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company's Common Stock trades on the NYSE under 'RHI', with 1,225 holders of record as of January 31, 2021, and significant share repurchases in Q4 2020 - The Company's Common Stock is listed on the New York Stock Exchange under the symbol 'RHI'[87] - As of January 31, 2021, there were 1,225 holders of record of the Common Stock[87] Issuer Purchases of Equity Securities (Q4 2020) | Period | Total Number of Shares Purchased | Average Price Paid Per Share ($) | Number of Shares Purchased as Part of Publicly Announced Plans | Maximum Number of Shares that May Yet Be Purchased Under Publicly Announced Plans | |---|---|---|---|---| | Oct 1, 2020 to Oct 31, 2020 | 248,680 | $49.79 | 248,680 | 10,773,102 | | Nov 1, 2020 to Nov 30, 2020 | 250,000 | $58.02 | 250,000 | 10,523,102 | | Dec 1, 2020 to Dec 31, 2020 | 657,183 | $63.51 | 575,146 | 9,947,956 | | Total Q4 2020 | 1,155,863 | | 1,073,826 | | Equity Compensation Plan Information (as of Dec 31, 2020) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (A) | Weighted average exercise price of outstanding options, warrants and rights (B) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column A) (C) | |---|---|---|---| | Equity compensation plans approved by security holders | — | — | 4,297,266 | | Equity compensation plans not approved by security holders | — | — | — | | Total | — | — | 4,297,266 | Selected Financial Data The Company's five-year financial data shows a significant decline in 2020 service revenues and net income due to COVID-19, reversing prior growth, while assets and equity grew Selected Income Statement Data (2016-2020, in thousands) | Income Statement Data | 2020 | 2019 | 2018 | 2017 | 2016 | |---|---|---|---|---|---| | Service revenues | $5,109,000 | $6,074,432 | $5,800,271 | $5,266,789 | $5,250,399 | | Net income | $306,276 | $454,433 | $434,288 | $290,584 | $343,389 | | Diluted Net Income Per Share ($) | $2.70 | $3.90 | $3.57 | $2.33 | $2.67 | | Dividends Declared Per Share ($) | $1.36 | $1.24 | $1.12 | $0.96 | $0.88 | Selected Balance Sheet Data (2016-2020, in thousands) | Balance Sheet Data | 2020 | 2019 | 2018 | 2017 | 2016 | |---|---|---|---|---|---| | Total assets | $2,557,424 | $2,311,408 | $1,903,097 | $1,867,454 | $1,777,971 | | Stockholders' equity | $1,205,289 | $1,143,683 | $1,063,198 | $1,105,265 | $1,086,599 | - The Company changed its Consolidated Statements of Operations to separately present (income) loss from investments held in employee deferred compensation trusts, which has no net cost impact on the Company's pre-tax or after-tax income or cash flow[94] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights the significant impact of the COVID-19 pandemic on 2020 financial results, with revenue declines in staffing offset by Protiviti's growth, alongside cost management and technology investments - Annual service revenues decreased by 15.9% to $5.11 billion in 2020 due to the COVID-19 pandemic, with net income falling to $306 million and diluted EPS to $2.70[96] - The temporary and consultant staffing segment and permanent placement staffing segment experienced revenue declines, while the risk consulting and internal audit services segment (Protiviti) increased revenue by 11.8% in 2020[96] - The Company decreased headcount in staffing lines of business but increased headcount in Protiviti in 2020, aligning staffing levels with expected revenue growth and productivity[101] - Capital expenditures in 2020 totaled $67 million, with approximately 71% invested in software initiatives and technology infrastructure, including $33 million for cloud computing implementations[102] - The Company's most critical accounting policies involve subjective decisions and assessments related to service revenues (recognized upon delivery) and income taxes (judgments on enacted tax laws and deferred tax asset realization)[103][104][105] Executive Overview The Company's 2020 financial performance was severely impacted by the COVID-19 pandemic, leading to a 15.9% decline in service revenues, though Protiviti achieved double-digit growth - Annual service revenues decreased by 15.9% to $5.11 billion in 2020, with net income falling to $306 million and diluted net income per share to $2.70, primarily due to the COVID-19 pandemic[96] - Protiviti continued its multi-year double-digit revenue growth, showing particular strength in technology consulting and benefiting from blended solutions with staffing operations[99] - The U.S. unemployment rate increased from 3.5% in December 2019 to a peak of 14.7% in April 2020, ending at 6.7% in December 2020, reflecting the economic uncertainty[100] - The Company transitioned a majority of its global staffing and Protiviti employees to remote work, maintaining full operations even where physical locations were closed[97] Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment in revenue recognition across segments and income tax accounting, including deferred tax assets and valuation allowances - Revenues are recognized when promised goods or services are delivered to customers, reflecting the consideration the Company expects to be entitled to[104] - The Company makes judgments and interpretations based on enacted tax laws to establish deferred income tax assets and liabilities and its provision for income taxes[105] - Valuation allowances of $24.1 million and $21.6 million were recorded as of December 31, 2020 and 2019, respectively, primarily for net operating losses in certain foreign operations[106] Recent Accounting Pronouncements The Company adopted new accounting guidance in 2020 for credit losses, goodwill impairment, and reference rate reform, none of which had a material financial impact - The Company adopted the Current Expected Credit Losses Model (ASC 326) as of January 1, 2020, with an immaterial impact on financial statements[213] - The Company adopted guidance simplifying the goodwill impairment testing process as of January 1, 2020, with an immaterial impact on financial statements[214] - The Company applied ASU 2020-04, 'Reference Rate Reform,' which provides optional guidance for contracts and hedging relationships affected by LIBOR discontinuation, with an immaterial impact[215] Results of Operations In 2020, total revenues decreased by 15.9% to $5.11 billion due to staffing declines, while risk consulting grew by 11.8%, leading to a 32.6% drop in net income before taxes - The Company's revenues were $5.11 billion for the year ended December 31, 2020, decreasing by 15.9% compared to $6.07 billion in 2019, primarily due to global economic disruptions from COVID-19[119] Revenue Performance by Segment (2020 vs. 2019, in millions) | Segment | 2020 Revenue | 2019 Revenue | YoY Change (%) | As Adjusted YoY Change (%) | |---|---|---|---|---| | Temporary and consultant staffing | $3,480 | $4,410 | -21.2% | -21.5% | | Permanent placement staffing | $370 | $533 | -30.6% | -30.9% | | Risk consulting and internal audit services | $1,260 | $1,130 | +11.8% | +11.0% | Gross Margin and SG&A (2020 vs. 2019, in billions) | Metric | 2020 | 2019 | YoY Change (%) | |---|---|---|---| | Gross margin dollars | $2.01 | $2.53 | -20.3% | | Selling, general and administrative expenses | $1.67 | $1.96 | -14.9% | Income Before Income Taxes and Combined Segment Income (2020 vs. 2019, in millions) | Metric | 2020 | 2019 | YoY Change (%) | |---|---|---|---| | Income before income taxes | $422 | $626 | -32.6% | | Combined segment income | $422 | $622 | -32.2% | | Provision for income taxes | $115.6 | $171.1 | -32.4% | - The Company uses non-GAAP measures like 'as adjusted' revenue growth rates (removing foreign currency and billing day impacts) and 'combined segment income' (income before income taxes adjusted for net interest income and amortization of intangible assets) to evaluate financial performance[112][113][115] Liquidity and Capital Resources In 2020, the Company generated $597 million in operating cash flow, increasing cash to $574 million, while using $315 million for financing activities including stock repurchases and dividends Cash and Cash Equivalents (2020 vs. 2019, in millions) | Metric | December 31, 2020 | December 31, 2019 | |---|---|---| | Cash and cash equivalents | $574 | $270 | Cash Flow Activities (2020 vs. 2019, in millions) | Activity | 2020 | 2019 | |---|---|---| | Net cash provided by operating activities | $597 | $520 | | Net cash provided by (used in) investing activities | $9 | ($102) | | Net cash used in financing activities | ($315) | ($423) | - In 2020, the Company repurchased approximately 2.5 million shares of common stock for $138 million and paid $156 million in dividends to stockholders[151][152] - As of December 31, 2020, the Company was authorized to repurchase up to 9.9 million additional shares of common stock[152] - The Company entered into a new $100 million unsecured revolving credit facility in May 2020, with no borrowings outstanding as of December 31, 2020[155] Contractual Obligations (as of Dec 31, 2020, in thousands) | Contractual Obligations | 2021 | 2022 and 2023 | 2024 and 2025 | Thereafter | Total | |---|---|---|---|---|---| | Debt obligations | $252 | $— | $— | $— | $252 | | Operating lease obligations | $78,303 | $122,061 | $73,582 | $28,727 | $302,673 | | Purchase obligations | $80,161 | $23,892 | $4,049 | $7,233 | $115,335 | | Other liabilities | $1,436 | $1,162 | $2,813 | $13,518 | $18,929 | | Total | $160,152 | $147,115 | $80,444 | $49,478 | $437,189 | Quantitative and Qualitative Disclosures About Market Risk The Company faces market risks primarily from foreign currency fluctuations, with 22% of 2020 revenues from outside the U.S., though the net income impact was immaterial - Approximately 22% of the Company's revenues in 2020 were generated outside the United States, exposing it to foreign currency fluctuations[161] - In 2020, currency exchange rates decreased reported service revenues by $1.6 million (less than 0.1%) and lowered reported net income by $0.9 million (0.2%), with the effect on revenues largely offset by decreased operating expenses[162] - The COVID-19 pandemic introduced significant uncertainty, impacting judgments and estimates for financial statements, with potential for meaningful impacts in future periods[159] - Fluctuations in currency exchange rates impact the U.S. dollar amount of stockholders' equity through translation adjustments, but generally do not affect cash flow or result in actual economic gains or losses[164] Financial Statements and Supplementary Data This section presents the Company's audited consolidated financial statements for 2020, 2019, and 2018, including detailed notes and the independent auditor's report confirming fair presentation and effective internal controls - The consolidated financial statements include the Statements of Financial Position, Operations, Comprehensive Income (Loss), Stockholders' Equity, and Cash Flows for the years ended December 31, 2020, 2019, and 2018[305] - PricewaterhouseCoopers LLP audited the consolidated financial statements and internal control over financial reporting, issuing an unqualified opinion on both for the period ended December 31, 2020[280][281] - A critical audit matter identified was related to income taxes, specifically management's significant judgment and estimation in assessing tax laws and the realizability of deferred income tax assets[289] Consolidated Statements of Financial Position As of December 31, 2020, total assets increased to $2.56 billion, driven by higher cash, while liabilities rose to $1.35 billion and stockholders' equity grew to $1.21 billion Consolidated Statements of Financial Position (in thousands) | ASSETS | December 31, 2020 | December 31, 2019 | |---|---|---| | Cash and cash equivalents | $574,426 | $270,478 | | Accounts receivable, net | $714,163 | $832,797 | | Employee deferred compensation trust assets | $406,634 | $398,442 | | Total current assets | $1,842,738 | $1,628,849 | | Property and equipment, net | $109,817 | $128,385 | | Goodwill | $223,055 | $210,364 | | Total assets | $2,557,424 | $2,311,408 | | LIABILITIES | | | | Accounts payable and accrued expenses | $130,770 | $123,841 | | Accrued payroll and benefit costs | $397,877 | $322,404 | | Employee deferred compensation plan obligations | $435,121 | $421,198 | | Total current liabilities | $1,046,626 | $940,692 | | Total liabilities | $1,352,135 | $1,167,725 | | STOCKHOLDERS' EQUITY | | | | Total stockholders' equity | $1,205,289 | $1,143,683 | | Total liabilities and stockholders' equity | $2,557,424 | $2,311,408 | Consolidated Statements of Operations In 2020, service revenues decreased to $5.11 billion, resulting in a gross margin of $2.01 billion and a significant decline in net income to $306.28 million, with diluted EPS at $2.70 Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | 2020 | 2019 | 2018 | |---|---|---|---| | Service revenues | $5,109,000 | $6,074,432 | $5,800,271 | | Costs of services | $3,096,389 | $3,549,303 | $3,389,259 | | Gross margin | $2,012,611 | $2,525,129 | $2,411,012 | | Selling, general and administrative expenses | $1,666,041 | $1,958,295 | $1,810,601 | | (Income) loss from investments held in employee deferred compensation trusts | ($75,188) | ($54,917) | $11,486 | | Income before income taxes | $421,882 | $625,515 | $591,602 | | Provision for income taxes | $115,606 | $171,082 | $157,314 | | Net income | $306,276 | $454,433 | $434,288 | | Net income per share: Basic ($) | $2.72 | $3.93 | $3.60 | | Net income per share: Diluted ($) | $2.70 | $3.90 | $3.57 | | Dividends declared per share ($) | $1.36 | $1.24 | $1.12 | Consolidated Statements of Comprehensive Income (Loss) In 2020, total comprehensive income was $321.53 million, including net income of $306.28 million and $15.25 million in other comprehensive income, primarily from foreign currency translation Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | 2020 | 2019 | 2018 | |---|---|---|---| | Net income | $306,276 | $454,433 | $434,288 | | Other comprehensive income (loss): Foreign currency translation adjustments, net of tax | $18,973 | ($1,553) | ($19,616) | | Other comprehensive income (loss): Foreign defined benefit plans, net of tax | ($3,719) | ($2,324) | $— | | Total other comprehensive income (loss) | $15,254 | ($3,877) | ($19,616) | | Total comprehensive income (loss) | $321,530 | $450,556 | $414,672 | Consolidated Statements of Stockholders' Equity As of December 31, 2020, total stockholders' equity increased to $1.21 billion, driven by net income and stock-based compensation, partially offset by dividends and stock repurchases Consolidated Statements of Stockholders' Equity (in thousands) | Metric | Balance at Dec 31, 2019 | Net income | Other comprehensive income (loss) | Dividends declared | Stock-based compensation | Repurchases of common stock | Balance at Dec 31, 2020 | |---|---|---|---|---|---|---|---| | Total Stockholders' Equity | $1,143,683 | $306,276 | $15,254 | ($156,045) | $52,486 | ($155,807) | $1,205,289 | - Dividends declared per share were $1.36 in 2020, an increase from $1.24 in 2019 and $1.12 in 2018[169] Consolidated Statements of Cash Flows In 2020, operating activities provided $596.53 million in cash, while investing activities provided $9.46 million, and financing activities used $315.33 million, leading to a cash increase of $303.95 million Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 2020 | 2019 | 2018 | |---|---|---|---| | Net cash flows provided by operating activities | $596,528 | $519,629 | $572,322 | | Net cash flows provided by (used in) investing activities | $9,461 | ($102,138) | ($88,509) | | Net cash flows used in financing activities | ($315,325) | ($423,366) | ($490,115) | | Change in cash and cash equivalents | $303,948 | ($6,101) | ($18,174) | | Cash and cash equivalents at end of period | $574,426 | $270,478 | $276,579 | - Cash paid for interest was $0.58 million in 2020, and income taxes (net of refunds) was $128.32 million[178] Notes to Consolidated Financial Statements These notes detail the Company's accounting policies, revenue recognition, impact of COVID-19, fair value measurements, and specific financial data, including recent accounting pronouncements and the acquisition of Identropy, Inc Note A—Summary of Significant Accounting Policies This note outlines the Company's core accounting principles, including revenue recognition, consolidation, use of estimates, fair value measurements, and policies for assets, liabilities, and income taxes - The Company's operations are subject to U.S. federal, state and local, and foreign income taxes, with deferred tax assets and liabilities measured using current enacted tax rates[202] - The Company changed its Consolidated Statements of Operations to separately present (income) loss from investments held in employee deferred compensation trusts, which is fully offset by related costs and expenses, resulting in no net cost[188] - The Company adopted the Current Expected Credit Losses Model (ASC 326) as of January 1, 2020, establishing allowances for potential credit losses based on customer credit profiles, historical data, and macroeconomic trends[195][319] - Goodwill is not amortized but tested at least annually for impairment; no impairment adjustment was required as of June 30, 2020[201] Note B—New Accounting Pronouncements In 2020, the Company adopted new accounting guidance for credit losses, goodwill impairment, and reference rate reform, all with an immaterial impact on financial statements - The Company adopted the Current Expected Credit Losses Model (ASC 326) on January 1, 2020, with an immaterial impact[213] - The Company adopted guidance simplifying the goodwill impairment testing process on January 1, 2020, with an immaterial impact[214] - The Company applied ASU 2020-04, 'Reference Rate Reform,' effective immediately, with an immaterial impact on its financial statements[215] Note C—Revenue Recognition Revenue is recognized across three segments: temporary staffing (gross basis), permanent placement (upon acceptance), and risk consulting (over time), with intersegment revenues eliminated - Revenues are derived from temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services, recognized when goods or services are delivered[216] - Temporary and consultant staffing revenue is recorded on a gross basis because the Company acts as a principal, bearing risks of hiring, pricing, and payment[218] - Permanent placement staffing revenues are recognized when candidates accept offers, with contract liabilities established for estimated guarantee period adjustments[220] Service Revenues by Line of Business (in thousands) | Line of Business | 2020 | 2019 | 2018 | |---|---|---|---| | Accountemps | $1,558,024 | $1,985,221 | $1,941,544 | | OfficeTeam | $764,947 | $1,040,755 | $1,065,427 | | Robert Half Technology | $695,418 | $765,831 | $717,166 | | Robert Half Management Resources | $698,942 | $792,757 | $738,810 | | Elimination of intersegment revenues | ($239,996) | ($172,439) | ($132,381) | | Temporary and consultant staffing | $3,477,335 | $4,412,125 | $4,330,566 | | Permanent placement staffing | $370,109 | $533,432 | $511,989 | | Risk consulting and internal audit services | $1,261,556 | $1,128,875 | $957,716 | | Service revenues | $5,109,000 | $6,074,432 | $5,800,271 | Note D—Other Current Assets Other current assets increased to $147.52 million as of December 31, 2020, from $127.13 million in 2019, primarily comprising prepaid expenses and other miscellaneous assets Other Current Assets (in thousands) | Category | December 31, 2020 | December 31, 2019 | |---|---|---| | Prepaid expenses | $97,674 | $84,364 | | Other | $49,841 | $42,768 | | Total other current assets | $147,515 | $127,132 | Note E—Property and Equipment, Net Net property and equipment decreased to $109.82 million as of December 31, 2020, from $128.39 million in 2019, due to accumulated depreciation exceeding new additions Property and Equipment, Net (in thousands) | Category | December 31, 2020 | December 31, 2019 | |---|---|---| | Computer hardware | $159,180 | $164,547 | | Computer software | $250,585 | $291,681 | | Furniture and equipment | $91,112 | $88,136 | | Leasehold improvements | $164,807 | $150,644 | | Property and equipment, cost | $665,684 | $695,008 | | Accumulated depreciation | ($555,867) | ($566,623) | | Property and equipment, net | $109,817 | $128,385 | Note F—Leases Operating lease expense was $81.5 million in 2020, with a weighted average remaining lease term of 4.5 years and total operating lease liabilities of $302.47 million as of December 31, 2020 - Operating lease expense was $81.5 million in 2020, compared to $77.7 million in 2019[231] - As of December 31, 2020, the weighted average remaining lease term for operating leases was 4.5 years, with a weighted average discount rate of 2.6%[232] Future Minimum Lease Payments (in thousands) | Year | Amount | |---|---| | 2021 | $84,849 | | 2022 | $71,119 | | 2023 | $59,211 | | 2024 | $47,478 | | 2025 | $29,173 | | Thereafter | $29,440 | | Less: Imputed interest | ($18,797) | | Present value of operating lease liabilities | $302,473 | Note G—Goodwill Goodwill increased to $223.06 million as of December 31, 2020, primarily due to Protiviti's acquisition of Identropy, Inc., adding $12.2 million to the risk consulting segment Goodwill Activity by Segment (in thousands) | Segment | Balance as of Dec 31, 2019 | Acquisitions | Foreign currency translation adjustments | Balance as of Dec 31, 2020 | |---|---|---|---|---| | Temporary and consultant staffing | $134,210 | $— | $301 | $134,511 | | Permanent placement staffing | $26,097 | $— | $83 | $26,180 | | Risk consulting and internal audit services | $50,057 | $12,199 | $108 | $62,364 | | Total Goodwill | $210,364 | $12,199 | $492 | $223,055 | - In December 2020, Protiviti acquired Identropy, Inc., a security consulting firm, resulting in $12.2 million in goodwill for the risk consulting and internal audit services segment[236] Note H—Accrued Payroll and Benefit Costs Accrued payroll and benefit costs increased to $397.88 million as of December 31, 2020, including $102.2 million in deferred payroll taxes under the CARES Act Accrued Payroll and Benefit Costs (in thousands) | Category | December 31, 2020 | December 31, 2019 | |---|---|---| | Payroll and benefits | $311,169 | $280,918 | | Payroll taxes | $67,712 | $21,831 | | Workers' compensation | $18,996 | $19,655 | | Total accrued payroll and benefit costs | $397,877 | $322,404 | - The Company deferred paying $102.2 million of applicable payroll taxes as of December 31, 2020, under the CARES Act[237] Note I—Employee Deferred Compensation Plan Obligations Employee deferred compensation plan obligations rose to $435.12 million as of December 31, 2020, with $406.63 million in assets, and compensation expense significantly increased due to positive market returns - The liability value for nonqualified deferred compensation plans was $435.1 million as of December 31, 2020, with $406.6 million in assets held to satisfy these liabilities[238][239] Employee Deferred Compensation Plan Expense (in thousands) | Category | 2020 | 2019 | 2018 | |---|---|---|---| | Contribution expense | $42,092 | $26,122 | $24,184 | | Employee deferred compensation expense (income) related to changes in the fair value of trust assets | $75,188 | $54,917 | ($11,486) | | Total compensation expense | $117,280 | $81,039 | $12,698 | Note J—Notes Payable The Company has a $0.2 million promissory note, a $35.0 million uncommitted letter of credit facility with $17.0 million utilized, and an undrawn $100 million unsecured revolving credit facility - A promissory note payable had a balance of $0.2 million at December 31, 2020, bearing 9.0% interest and maturing in October 2021[242] - The Company has an uncommitted letter of credit facility of up to $35.0 million, with $17.0 million used as of December 31, 2020, mainly for workers' compensation collateral[243] - A new $100 million unsecured revolving credit facility was entered into in May 2020, with no borrowings outstanding as of December 31, 2020[244] Note K—Income Taxes The 2020 provision for income taxes was $115.61 million, with an effective tax rate of 27.4%, and net deferred tax assets of $112.90 million, including a $24.13 million valuation allowance Provision for Income Taxes (in thousands) | Category | 2020 | 2019 | 2018 | |---|---|---|---| | Current: Federal | $79,926 | $107,699 | $99,830 | | Current: State | $27,401 | $39,028 | $38,356 | | Current: Foreign | $20,018 | $33,227 | $35,007 | | Deferred: Federal and state | ($9,089) | ($9,959) | ($15,849) | | Deferred: Foreign | ($2,650) | $1,087 | ($30) | | Total provision for income taxes | $115,606 | $171,082 | $157,314 | Income Before Provision for Income Taxes (in thousands) | Category | 2020 | 2019 | 2018 | |---|---|---|---| | Domestic | $378,876 | $545,695 | $485,489 | | Foreign | $43,006 | $79,820 | $106,113 | | Total income before income taxes | $421,882 | $625,515 | $591,602 | - The effective tax rate was 27.4% for both 2020 and 2019[246] - Total deferred income tax assets, net, were $112.9 million as of December 31, 2020, including a valuation allowance of $24.1 million primarily against foreign net operating losses[247] - Gross unrecognized tax benefits totaled $9.79 million as of December 31, 2020, which, if recognized, would impact the effective tax rate[248] Note L—Commitments and Contingencies The Company is involved in two significant class action lawsuits in California regarding wage and hour violations and employee misclassification, with unpredictable outcomes and no financial provisions made - The Company is a defendant in the Jessica Gentry class action lawsuit in California, alleging denial of compensation for interview time and inaccurate wage statements[253] - The Company is a defendant in the Shari Dorff class action lawsuit in California, alleging misclassification of salaried recruiters and various wage and hour violations[254] - The outcome of these lawsuits is not feasible to predict, and no amounts have been provided in the financial statements; the Company intends to vigorously defend against the allegations[253][254] Note M—Stockholders' Equity As of December 31, 2020, the Company was authorized to repurchase 9.9 million additional shares, having repurchased 2.51 million shares for $138.41 million in 2020, while dividends per share increased to $1.36 - As of December 31, 2020, the Company was authorized to repurchase up to 9.9 million additional shares of common stock[257] Common Stock Repurchases (in thousands, except shares) | Metric | 2020 | 2019 | 2018 | |---|---|---|---| | Common stock repurchased (in shares) | 2,505 | 4,253 | 5,614 | | Common stock repurchased (cost) | $138,408 | $250,154 | $351,194 | | Repurchases related to employee stock plans (in shares) | 366 | 352 | 235 | | Repurchases related to employee stock plans (cost) | $17,399 | $22,491 | $13,674 | - Dividends declared per share were $1.36 in 2020, $1.24 in 2019, and $1.12 in 2018[258] Note N—Stock Plans The Company grants restricted stock, stock units, and stock appreciation rights, with $73.9 million in unrecognized compensation cost and 4.3 million shares available for future grants as of December 31, 2020 - Grants generally vest on a straight-line basis over four years or on a cliff basis over three years[260] - In 2020, performance shares with Return on Invested Capital (ROIC) and Total Shareholder Return (TSR) conditions were granted to executives, valued using a Monte Carlo simulation[262] - Total unrecognized compensation cost, net of estimated forfeitures, was $73.9 million as of December 31, 2020[265] - Approximately 4.3 million shares were available for future grants under the stock plans as of December 31, 2020[266] Note O—Net Income Per Share For 2020, basic net income per share was $2.72 and diluted net income per share was $2.70, based on weighted average basic shares of 112.73 million and diluted shares of 113.32 million Net Income Per Share Calculation (in thousands, except per share amounts) | Metric | 2020 | 2019 | 2018 | |---|---|---|---| | Net income | $306,276 | $454,433 | $434,288 | | Basic weighted average shares | 112,729 | 115,656 | 120,513 | | Diluted weighted average shares | 113,318 | 116,411 | 121,602 | | Basic net income per share ($) | $2.72 | $3.93 | $3.60 | | Diluted net income per share ($) | $2.70 | $3.90 | $3.57 | - Potential common shares, including unvested performance-based restricted stock and stock units, contribute to the dilutive effect on net income per share[269] Note P—Business Segments The Company operates three segments: temporary and consultant staffing ($3.48 billion revenue), permanent placement staffing ($370.11 million revenue), and risk consulting and internal audit services ($1.26 billion revenue), with combined segment income of $421.76 million in 2020 - The Company has three reportable segments: temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services[269] Service Revenues and Segment Income by Reportable Segment (in thousands) | Segment | 2020 Service Revenues | 2020 Segment Income | |---|---|---| | Temporary and consultant staffing | $3,477,335 | $237,279 | | Permanent placement staffing | $370,109 | $28,799 | | Risk consulting and internal audit services | $1,261,556 | $155,680 | | Total Service Revenues | $5,109,000 | | | Combined Segment Income | | $421,758 | - Intersegment revenues between temporary/consultant staffing and risk consulting/internal audit services were $240.0 million in 2020[273] Service Revenues by Geographic Location (in thousands) | Geographic Location | 2020 Service Revenues | |---|---| | Domestic | $3,984,742 | | Foreign | $1,124,258 | | Total Service Revenues | $5,109,000 | Note Q—Quarterly Financial Data (Unaudited) Unaudited quarterly data for 2020 shows a significant decline in service revenues and net income in Q2 due to COVID-19, followed by a gradual recovery in Q3 and Q4 Quarterly Financial Data (2020, in thousands, except per share amounts) | Metric | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | |---|---|---|---|---| | Service revenues | $1,506,691 | $1,108,326 | $1,189,897 | $1,304,086 | | Gross margin | $614,388 | $416,535 | $467,346 | $514,342 | | Income before income taxes | $131,763 | $58,024 | $102,510 | $129,585 | | Net income | $89,915 | $46,196 | $75,749 | $94,416 | | Basic net income per share ($) | $0.79 | $0.41 | $0.67 | $0.84 | | Diluted net income per share ($) | $0.79 | $0.41 | $0.67 | $0.84 | Quarterly Financial Data (2019, in thousands, except per share amounts) | Metric | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | |---|---|---|---|---| | Service revenues | $1,468,530 | $1,516,385 | $1,552,132 | $1,537,385 | | Gross margin | $605,401 | $636,589 | $646,278 | $636,861 | | Income before income taxes | $147,383 | $160,103 | $163,782 | $154,247 | | Net income | $109,798 | $114,612 | $117,181 | $112,842 | | Basic net income per share ($) | $0.94 | $0.98 | $1.02 | $0.99 | | Diluted net income per share ($) | $0.93 | $0.98 | $1.01 | $0.98 | Note R—Subsequent Events On February 11, 2021, the Company announced a quarterly dividend of $0.38 per share, payable on March 15, 2021 Subsequent Dividend Announcement | Metric | Value | |---|---| | Quarterly dividend per share ($) | $0.38 | | Declaration date | February 11, 2021 | | Record date | February 25, 2021 | | Payment date | March 15, 2021 | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP issued an unqualified opinion on the Company's consolidated financial statements and internal controls, identifying income taxes as a critical audit matter - PricewaterhouseCoopers LLP provided an unqualified opinion on the Company's consolidated financial statements and the effectiveness of its internal control over financial reporting as of December 31, 2020[281] - Income taxes were identified as a critical audit matter due to the significant judgment and estimation required from management in applying tax laws and assessing the realizability of deferred income tax assets[289] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The Company reported no changes in or disagreements with accountants on accounting and financial disclosure Controls and Procedures Management concluded that the Company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes in Q4 - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of December 31, 2020[295] - No material changes in internal control over financial reporting occurred during the fourth quarter of 2020[296] - Management assessed and concluded that the Company maintained effective internal control over financial reporting as of December 31, 2020, based on COSO criteria[297] Other Information The Company reported no other information for this item PART III This section indicates that information required by Items 10 through 14 of Part III is incorporated by reference from Item 1 of this report and from the registrant's Proxy Statement - Information for Items 10-14 of Part III is incorporated by reference from Item 1 of this report and the registrant's Proxy Statement[302] - The Proxy Statement will be mailed to stockholders in connection with the annual meeting scheduled for May 2021[302] PART IV Exhibits and Financial Statement Schedules This section lists the consolidated financial statements, Schedule II, and a comprehensive list of exhibits, including corporate governance documents and compensation plans, many incorporated by reference - The consolidated financial statements and notes are included in Item 8 of this report[305] - Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2020, 2019, and 2018 is included[306] - A detailed list of exhibits, including corporate governance documents, employment agreements, compensation plans, and SEC certifications, is provided, with many incorporated by reference[308][309] Form 10-K Summary The Company does not provide a Form 10-K Summary