ROBERT HALF INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS ROBERT HALF INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (in thousands, except share amounts) September 30, 2020 December 31, 2019 ASSETS Cash and cash equivalents $ 587,000 $ 270,478 Accounts receivable, net 690,259 832,797 Other current assets 576,422 525,574 Total current assets 1,853,681 1,628,849 Property and equipment, net 117,695 128,385 Right-of-use assets 259,927 241,029 Other intangible assets, net 783 1,752 Goodwill 210,203 210,364 Noncurrent deferred income taxes 120,803 101,029 Total assets $ 2,563,092 $ 2,311,408 LIABILITIES Accounts payable and accrued expenses $ 132,651 $ 123,841 Accrued payroll and benefit costs 827,748 743,602 Income taxes payable 15,583 1,623 Notes payable, current 233 218 Current operating lease liabilities 76,570 71,408 Total current liabilities 1,052,785 940,692 Notes payable, less current portion 62 239 Noncurrent operating lease liabilities 223,136 201,961 Other liabilities 93,080 24,833 Total liabilities 1,369,063 1,167,725 Commitments and Contingencies (Note I) STOCKHOLDERS’ EQUITY Preferred stock, $ .001 par value; authorized 5,000,000 shares; none issued — — Common stock, $ .001 par value; authorized 260,000,000 shares; issued and outstanding 114,180,036 shares and 115,120,404 shares 114 115 Additional paid-in capital 1,167,109 1,127,487 Accumulated other comprehensive income (loss) ( 15,996 ) ( 19,986 ) Retained earnings 42,802 36,067 Total stockholders’ equity 1,194,029 1,143,683 Total liabilities and stockholders’ equity $ 2,563,092 $ 2,311,408 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 2 ROBERT HALF INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Service revenues $ 1,189,897 $ 1,552,132 $ 3,804,914 $ 4,537,047 Costs of services 722,551 905,854 2,306,630 2,648,779 Gross margin 467,346 646,278 1,498,284 1,888,268 Selling, general and administrative expenses 390,799 484,837 1,240,879 1,454,374 Income from investments held in employee deferred compensation trusts (which is completely offset by related costs and expenses -Notes A and H) ( 26,095 ) ( 1,450 ) ( 34,630 ) ( 34,628 ) Amortization of intangible assets 334 339 1,002 1,022 Interest income, net ( 202 ) ( 1,230 ) ( 1,264 ) ( 3,768 ) Income before income taxes 102,510 163,782 292,297 471,268 Provision for income taxes 26,761 46,601 80,437 129,677 Net income $ 75,749 $ 117,181 $ 211,860 $ 341,591 Net income per share: Basic $ .67 $ 1.02 $ 1.88 $ 2.94 Diluted $ .67 $ 1.01 $ 1.87 $ 2.92 Shares: Basic 112,809 115,181 112,953 116,203 Diluted 113,355 115,868 113,444 116,934 Dividends declared per share $ .34 $ .31 $ 1.02 $ .93 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 3 ROBERT HALF INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 COMPREHENSIVE INCOME (LOSS): Net income $ 75,749 $ 117,181 $ 211,860 $ 341,591 Other comprehensive income (loss): Foreign currency translation adjustments, net of tax 11,156 ( 10,011 ) 3,990 ( 9,762 ) Total comprehensive income (loss) $ 86,905 $ 107,170 $ 215,850 $ 331,829 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 4 ROBERT HALF INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (in thousands, except per share amounts) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Shares Par Value Balance at December 31, 2019 115,120 $ 115 $ 1,127,487 $ ( 19,986 ) $ 36,067 $ 1,143,683 Net income — — — — 89,915 89,915 Adoption of accounting pronouncement — — — — ( 558 ) ( 558 ) Other comprehensive income (loss) — — — ( 13,700 ) — ( 13,700 ) Dividends declared ($ .34 per share) — — — — ( 39,441 ) ( 39,441 ) Net issuances of restricted stock 745 1 ( 1 ) — — — Stock-based compensation — — 13,525 — — 13,525 Repurchases of common stock ( 1,263 ) ( 1 ) — — ( 63,498 ) ( 63,499 ) Balance at March 31, 2020 114,602 $ 115 $ 1,141,011 $ ( 33,686 ) $ 22,485 $ 1,129,925 Net income — — — — 46,196 46,196 Other comprehensive income (loss) — — — 6,534 — 6,534 Dividends declared ($ .34 per share) — — — — ( 38,975 ) ( 38,975 ) Net issuances of restricted stock 33 — — — — — Stock-based compensation — — 13,035 — — 13,035 Repurchases of common stock 0 0 — — ( 9 ) ( 9 ) Balance at June 30, 2020 114,635 $ 115 $ 1,154,046 $ ( 27,152 ) $ 29,697 $ 1,156,706 Net income — — — — 75,749 75,749 Other comprehensive income (loss) — — — 11,156 — 11,156 Dividends declared ($ .34 per share) — — — — ( 38,969 ) ( 38,969 ) Net issuances of restricted stock ( 2 ) — — — — — Stock-based compensation — — 13,063 — — 13,063 Repurchases of common stock ( 453 ) ( 1 ) — — ( 23,675 ) ( 23,676 ) Balance at September 30, 2020 114,180 $ 114 $ 1,167,109 $ ( 15,996 ) $ 42,802 $ 1,194,029 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 5 ROBERT HALF INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)-(Continued) (in thousands, except per share amounts) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Shares Par Value Balance at December 31, 2018 119,078 $ 119 $ 1,079,188 $ ( 16,109 ) $ — $ 1,063,198 Net income — — — — 109,798 109,798 Other comprehensive income (loss) — — — ( 1,897 ) — ( 1,897 ) Dividends declared ($ .31 per share) — — — — ( 36,998 ) ( 36,998 ) Net issuances of restricted stock 281 — — — — — Stock-based compensation — — 11,244 — — 11,244 Repurchases of common stock ( 1,038 ) ( 1 ) — — ( 68,315 ) ( 68,316 ) Balance at March 31, 2019 118,321 $ 118 $ 1,090,432 $ ( 18,006 ) $ 4,485 $ 1,077,029 Net income — — — — 114,612 114,612 Other comprehensive income (loss) — — — 2,146 — 2,146 Dividends declared ($ .31 per share) — — — — ( 36,597 ) ( 36,597 ) Net issuances of restricted stock 271 1 ( 1 ) — — — Stock-based compensation — — 11,670 — — 11,670 Repurchases of common stock ( 1,031 ) ( 1 ) — — ( 59,632 ) ( 59,633 ) Balance at June 30, 2019 117,561 $ 118 $ 1,102,101 $ ( 15,860 ) $ 22,868 $ 1,109,227 Net income — — — — 117,181 117,181 Other comprehensive income (loss) — — — ( 10,011 ) — ( 10,011 ) Dividends declared ($ .31 per share) — — — — ( 36,235 ) ( 36,235 ) Net issuances of restricted stock ( 3 ) — — — — — Stock-based compensation — — 11,889 — — 11,889 Repurchases of common stock ( 1,461 ) ( 2 ) — — ( 80,219 ) ( 80,221 ) Balance at September 30, 2019 116,097 $ 116 $ 1,113,990 $ ( 25,871 ) $ 23,595 $ 1,111,830 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 6 ROBERT HALF INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Nine Months Ended September 30, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 211,860 $ 341,591 Adjustments to reconcile net income to net cash provided by operating activities: Allowance for credit losses 4,579 6,501 Depreciation 47,097 48,485 Amortization of cloud computing implementation costs 12,631 1,660 Amortization of intangible assets 1,002 1,022 Realized and unrealized gain from investments held in employee deferred compensation trusts ( 32,743 ) ( 31,034 ) Stock-based compensation 39,623 34,803 Deferred income taxes ( 20,021 ) ( 9,685 ) Changes in operating assets and liabilities: Accounts receivable 138,350 ( 72,288 ) Capitalized cloud computing implementation costs ( 26,121 ) ( 20,872 ) Accounts payable and accrued expenses 9,030 ( 7,537 ) Accrued payroll and benefit cost 152,007 138,200 Income taxes payable 15,284 ( 6,734 ) Other assets and liabilities, net 12,063 14,894 Net cash flows provided by operating activities 564,641 439,006 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 28,878 ) ( 45,138 ) Investments in employee deferred compensation trusts ( 48,205 ) ( 52,367 ) Proceeds from employee deferred compensation trust redemptions 33,651 23,976 Net cash flows used in investing activities ( 43,432 ) ( 73,529 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of notes payable ( 162 ) ( 148 ) Repurchases of common stock ( 91,013 ) ( 214,047 ) Dividends paid ( 117,301 ) ( 109,702 ) Net cash flows used in financing activities ( 208,476 ) ( 323,897 ) Effect of exchange rate fluctuations 3,789 ( 5,418 ) Change in cash and cash equivalents 316,522 36,162 Cash and cash equivalents at beginning of period 270,478 276,579 Cash and cash equivalents at end of period $ 587,000 $ 312,741 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Non-cash items: Stock repurchases awaiting settlement $ 2,640 $ 5,482 Fund exchanges within employee deferred compensation trusts $ 182,616 $ 30,054 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 7 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) September 30, 2020 Note A— Summary of Significant Accounting Policies Nature of Operations . Robert Half International Inc. (the “Company”) provides specialized staffing and risk consulting services through such divisions as Accountemps ® , Robert Half ® Finance & Accounting , OfficeTeam ® , Robert Half ® Technology , Robert Half ® Management Resources , Robert Half ® Legal , The Creative Group ® , and Protiviti ® . The Company, through its Accountemps , Robert Half Finance & Accounting , and Robert Half Management Resources divisions, is a specialized provider of temporary, full-time, and senior-level project professionals in the fields of accounting and finance. OfficeTeam specializes in highly skilled temporary administrative support professionals. Robert Half Technology provides project and full-time technology professionals. Robert Half Legal provides temporary, project, and full-time staffing of lawyers, paralegals and legal support personnel. The Creative Group provides creative, digital, marketing, advertising and public relations professionals. Protiviti is a global consulting firm that helps companies solve problems in finance, technology, operations, data, analytics, governance, risk and internal audit, and is a wholly-owned subsidiary of the Company. Revenues are predominantly derived from specialized staffing services. The Company operates in North America, South America, Europe, Asia and Australia. The Company is a Delaware corporation. Basis of Presentation. The unaudited Condensed Consolidated Financial Statements (“Financial Statements”) of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”). The comparative year-end Condensed Consolidated Statement of Financial Position data presented was derived from audited financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the financial position and results of operations for the periods presented have been included. These Financial Statements should be read in conjunction with the audited Consolidated Financial Statements of the Company for the year ended December 31, 2019, included in its Annual Report on Form 10-K. The results of operations for any interim period are not necessarily indicative of, nor comparable to, the results of operations for a full year. Certain reclassifications have been made to prior year’s condensed consolidated financial statements to conform to the 2020 presentation. Principles of Consolidation. The Financial Statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As of September 30, 2020, such estimates include allowances for credit losses, variable consideration, workers’ compensation losses, income and other taxes, and assumptions used in the Company’s goodwill impairment assessment and in the valuation of stock grants subject to market conditions. We are continuing to monitor the efforts to mitigate the spread of coronavirus (“COVID-19”), including uncertainty around the duration and extent of the stay-at-home orders and the effect on the Company’s results of operations, financial condition, and liquidity. In light of the ongoing economic disruption, we continue to face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply the Company’s significant accounting policies. As the situation continues to develop, we may make changes to these estimates and judgments over time, which could result in meaningful impacts to the Company’s financial statements in future periods. Actual results and outcomes may differ from management’s estimates and assumptions. Service Revenues. The Company derives its revenues from three segments: temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services. Revenues are recognized when promised goods or services are delivered to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. See Note C for further discussion of the revenue recognition accounting policy. 8 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2020 Costs of Services. Direct costs of temporary and consultant staffing consist of payroll, payroll taxes and benefit costs for the Company’s engagement professionals, as well as reimbursable expenses. Direct costs of permanent placement staffing services consist of reimbursable expenses. Risk consulting and internal audit direct costs of services include professional staff payroll, contract labor payroll, payroll taxes and benefit costs, as well as reimbursable expenses. Advertising Costs. The Company expenses all advertising costs as incurred . Advertising costs were $ 7.7 million and $ 28.9 million for the three and nine months ended September 30, 2020, respectively, and $ 13.6 million and $ 41.4 million for the three and nine months ended September 30, 2019, respectively. Income from investments held in employee deferred compensation trusts . The Company has changed its Condensed Consolidated Statements of Operations to separately present income from investments held in employee deferred compensation trusts. Under the Company’s employee deferred compensation plans, employees direct the investment of their account balances, and the Company invests amounts held in the associated investment trusts consistent with these directions. As realized and unrealized investment gains and losses occur, the Company’s deferred compensation obligation to employees changes accordingly. Changes in the Company’s deferred compensation obligations will continue to be included in selling, general and administrative expenses or, in the case of risk consulting and internal audit services, direct cost. The value of the related investment trust assets also changes by an equal and offsetting amount, leaving no net cost to the Company. The Company’s income from investments held in employee deferred compensation trusts consists primarily of unrealized and realized gains and losses and dividend income from trust investments. Such amounts were previously presented as a component of selling, general and administrative expenses, or, in the case of risk consulting and internal audit services, direct cost. Reclassifications have been made to prior year’s condensed consolidated financial statements to conform to the 2020 presentation. The following table presents the Company’s income from investments held in employee deferred compensation trusts (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Dividend income $ 443 $ 732 $ 1,887 $ 3,594 Realized and unrealized gain 25,652 718 32,743 31,034 $ 26,095 $ 1,450 $ 34,630 $ 34,628 Cash and Cash Equivalents . The Company considers all highly liquid investments with a maturity at the date of purchase of three months or less as cash equivalents. This includes money market funds that meet the requirements to be treated as cash equivalents. However, money market funds held in investment trusts that are being used as investments to satisfy the Company’s obligations under its deferred compensation plans are treated as investments and recorded within other current assets on the unaudited Condensed Consolidated Statement of Financial Position. Fair Value of Financial Instruments. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market to measure fair value, summarized as follows: Level 1: observable inputs for identical assets or liabilities, such as quoted prices in active markets Level 2: inputs other than the quoted prices in active markets that are observable either directly or indirectly Level 3: unobservable inputs in which there is little or no market data, which requires management’s best estimates and assumptions that market participants would use in pricing the asset or liability 9 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2020 The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value because of their short-term nature. The Company holds mutual funds and money market funds to help satisfy its obligations under its deferred compensation plans, which are carried at fair value based on quoted market prices in active markets for identical assets (level 1) and recorded within other current assets on the unaudited Condensed Consolidated Statement of Financial Position. The following table sets forth the composition of the underlying assets which comprise the Company’s deferred compensation trust assets (in thousands): Fair Value Measurements Using Balance at September 30, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Money market funds $ 151,171 $ 151,171 — — Mutual funds - bond 26,717 26,717 — — Mutual funds - stock 202,707 202,707 — — Mutual funds - blend 65,144 65,144 — — $ 445,739 $ 445,739 — — Fair Value Measurements Using Balance at December 31, 2019 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Money market funds $ 141,295 $ 141,295 — — Mutual funds - bond 28,451 28,451 — — Mutual funds - stock 170,469 170,469 — — Mutual funds - blend 58,227 58,227 — — $ 398,442 $ 398,442 — — Certain items such as goodwill and other intangible assets are recognized or disclosed at fair value on a non-recurring basis. The Company determines the fair value of these items using level 3 inputs. There are inherent limitations when estimating the fair value of financial instruments, and the fair values reported are not necessarily indicative of the amounts that would be realized in current market transactions. Allowance for Credit Losses. The Company is exposed to credit losses resulting from the inability of its customers to make required payments. The Company establishes an allowance for these potential credit losses based on its review of customers’ credit profiles, historical loss statistics, prepayments, recoveries, current business conditions and macro-economic trends. The Company considers risk characteristics of trade receivables based on asset type, size, term, and geographical locations to evaluate trade receivables on a collective basis. The Company applies credit loss estimates to these pooled receivables to determine expected credit losses. 10 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2020 The following table sets forth the activity in the allowance for credit losses from December 31, 2019, through September 30, 2020 (in thousands): Allowance for Credit Losses Balance as of December 31, 2019 $ 22,885 Adoption of accounting pronouncement 558 Balance as of January 1, 2020 $ 23,443 Charges to expense 4,579 Deductions ( 6,308 ) Other, including translation adjustments ( 496 ) Balance as of September 30, 2020 $ 21,218 Goodwill and Intangible Assets . Goodwill and intangible assets primarily consist of the cost of acquired companies in excess of the fair market value of their net tangible assets at the date of acquisition. Identifiable intangible assets are amortized over their lives, typically ranging from two to five years . Goodwill is not amortized, but is tested at least annually for impairment, or on an as needed interim basis. Internal-use Software. The Company capitalizes direct costs incurred in the development of internal-use software. Cloud computing implementation costs incurred in hosting arrangements are capitalized and reported as a component of other current assets. All other internal-use software development costs are capitalized and reported as a component of computer software within property and equipment on the unaudited Condensed Consolidated Statement of Financial Position. Capitalized internal-use software development costs were $ 8.8 million and $ 31.7 million for the three and nine months ended September 30, 2020, respectively, and $ 11.4 million and $ 24.3 million for the three and nine months ended September 30, 2019, respectively. Note B— New Accounting Pronouncements Recently Adopted Accounting Pronouncements Current Expected Credit Losses Model. In June 2016, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2019. The Company has adopted the new guidance prospectively as of January 1, 2020, and the impact of adoption was not material to its financial statements. Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued authoritative guidance to simplify the goodwill impairment testing process. The new standard eliminates Step 2 of the goodwill impairment test. If a company determines in Step 1 of the goodwill impairment test that the carrying value of goodwill is greater than the fair value, an impairment in that amount should be recorded to the income statement, rather than proceeding to Step 2. The new guidance is effective for the Company for fiscal years beginning after December 15, 2019, although early adoption is permitted. The Company has adopted the new guidance prospectively as of January 1, 2020, and the impact of adoption was not material to its financial statements. 11 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2020 Recently Issued Accounting Pronouncements Not Yet Adopted Reference Rate Reform. In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company believes this guidance will not have a material impact on its financial statements. Note C— Revenue Recognition The Company derives its revenues from three segments: temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services. Revenues are recognized when promised goods or services are delivered to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Service revenues as presented in the unaudited Condensed Consolidated Statements of Operations represent services rendered to customers less variable consideration, such as sales adjustments and allowances. Reimbursements, including those related to travel and out-of-pocket expenses, are also included in service revenues and equivalent amounts of reimbursable expenses are included in costs of services. Temporary and consultant staffing revenues. Temporary and consultant staffing revenues from contracts with customers are recognized in the amount to which the Company has a right to invoice, when the services are rendered by the Company’s engagement professionals. The substantial majority of engagement professionals placed on assignment by the Company are the Company’s legal employees while they are working on assignments. The Company pays all related costs of employment, including workers’ compensation insurance, state and federal unemployment taxes, social security and certain fringe benefits. The Company assumes the risk of acceptability of its employees to its customers. The Company records temporary and consultant staffing revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified employees, (ii) has the discretion to select the employees and establish their price and duties and (iii) bears the risk for services that are not fully paid for by customers. Fees paid to Time Management or Vendor Management service providers selected by clients are recorded as a reduction of revenues, as the Company is not the primary obligor with respect to those services. Permanent placement staffing revenues. Permanent placement staffing revenues from contracts with customers are primarily recognized when employment candidates accept offers of permanent employment. The Company has a substantial history of estimating the financial impact of permanent placement candidates who do not remain with its clients through the 90 -day guarantee period. These amounts are established based primarily on historical data and are recorded as liabilities. Fees to clients are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement services are charged to employment candidates. 12 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2020 Risk consulting and internal audit services revenues. Risk consulting and internal audit services are generally provided on a time-and-material basis or fixed-fee basis. Revenues earned under time-and-material arrangements and fixed-fee arrangements are recognized using a proportional performance method. Revenue is measured using cost incurred relative to total estimated cost for the engagement to measure progress towards satisfying the Company’s performance obligations. Cost incurred represents work performed and thereby best depicts the transfer of control to the customer. Risk consulting and internal audit services generally contain one or more performance obligation(s) which are satisfied over a period of time. Revenues are recognized over time as the performance obligations are satisfied, because the services provided do not have any alternative use to the Company, and contracts generally include language giving the Company an enforceable right to payment for services provided to date. The Company periodically evaluates the need to provide for any losses on these projects, and losses are recognized when it is probable that a loss will be incurred. The following table presents the Company’s service revenues disaggregated by line of business (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Accountemps $ 351,598 $ 501,905 $ 1,173,024 $ 1,486,571 OfficeTeam 173,685 267,023 549,963 781,607 Robert Half Technology 161,007 195,630 519,687 567,517 Robert Half Management Resources 154,917 200,421 531,826 591,660 Elimination of intersegment revenues (a) ( 59,816 ) ( 46,518 ) ( 147,603 ) ( 121,555 ) Temporary and consulting staffing 781,391 1,118,461 2,626,897 3,305,800 Permanent placement staffing 87,203 134,582 278,722 407,038 Risk consulting and internal audit services 321,303 299,089 899,295 824,209 Service revenues $ 1,189,897 $ 1,552,132 $ 3,804,914 $ 4,537,047 (a) Service revenues for Accountemps, OfficeTeam, Robert Half Technology and Robert Half Management Resources include intersegment revenues, which represent revenues from services provided to the Company’s risk consulting and internal audit services segment in connection with the Company’s blended business solutions. Intersegment revenues for each line of business are aggregated and then eliminated as a single line. Payment terms in the Company’s contracts vary by the type and location of the Company’s customer and the services offered. The term between invoicing and when payment is due is not significant. Contracts with multiple performance obligations are recognized as performance obligations are delivered, and contract value is allocated based on relative stand-alone selling values of the services and products in the arrangement. As of September 30, 2020, aggregate transaction price allocated to the performance obligations that are unsatisfied for contracts with an expected duration of greater than one year was $ 108.2 million. Of this amount, $ 99.5 million is expected to be recognized within the next twelve months . As of September 30, 2019, aggregate transaction price allocated to the performance obligations that are unsatisfied for contracts with an expected duration of greater than one year was $ 76.9 million. 13 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2020 Contract liabilities are recorded when cash payments are received or due in advance of performance and are reflected in accounts payable and accrued expenses on the unaudited Condensed Consolidated Statement of Financial Position. The following table sets forth the activity in contract liabilities from December 31, 2018, through September 30, 2020 (in thousands): Contract Liabilities Balance as of December 31, 2018 $ 12,997 Payments in advance of satisfaction of performance obligations 13,030 Revenue recognized ( 12,072 ) Other, including translation adjustments ( 1,007 ) Balance as of December 31, 2019 $ 12,948 Payments in advance of satisfaction of performance obligations 14,505 Revenue recognized ( 15,333 ) Other, including translation adjustments 399 Balance as of September 30, 2020 $ 12,519 Note D— Other Current Assets Other current assets consisted of the following (in thousands): September 30, 2020 December 31, 2019 Deferred compensation trust assets $ 445,739 $ 398,442 Prepaid expenses 83,731 84,364 Other 46,952 42,768 Other current assets $ 576,422 $ 525,574 Deferred compensation trust assets were $ 445.7 million and $ 398.4 million as of September 30, 2020, and December 31, 2019, respectively. These assets include publicly traded mutual funds and money market funds used to satisfy the Company’s liabilities under its deferred compensation plans. Note E— Property and Equipment, Net Property and equipment consisted of the following (in thousands): September 30, 2020 December 31, 2019 Computer hardware $ 156,579 $ 164,547 Computer software 247,164 291,681 Furniture and equipment 90,991 88,136 Leasehold improvements 161,729 150,644 Property and equipment, cost 656,463 695,008 Accumulated depreciation ( 538,768 ) ( 566,623 ) Property and equipment, net $ 117,695 $ 128,385 14 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2020 Note F— Leases The Company has operating leases for corporate and field offices, and certain equipment. The Company’s leases have remaining lease terms of less than 1 year to 10 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year. Operating lease expenses were $ 20.6 million and $ 60.5 million for the three and nine months ended September 30, 2020, respectively, $ 19.7 million and $ 57.3 million for the three and nine months ended September 30, 2019, respectively. Supplemental cash flow information related to leases consisted of the following (in thousands): Nine Months Ended September 30, 2020 2019 Cash paid for operating lease liabilities $ 62,873 $ 57,912 Right-of-use assets obtained in exchange for new operating lease liabilities $ 34,530 $ 25,137 Supplemental balance sheet information related to leases consisted of the following: September 30, 2020 December 31, 2019 Weighted average remaining lease term for operating leases 4.7 years 4.8 years Weighted average discount rate for operating leases 2.7 % 3.0 % Future minimum lease payments under non-cancellable leases as of September 30, 2020, were as follows (in thousands): 2020 (excluding the nine months ended September 30, 2020) $ 21,126 2021 80,205 2022 65,237 2023 54,750 2024 44,236 Thereafter 53,806 Less: Imputed interest ( 19,654 ) Present value of operating lease liabilities (a) $ 299,706 (a) Includes current portion of $ 76.6 million for operating leases. As of September 30, 2020, the Company had no material future minimum lease obligations that had not yet commenced. 15 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2020 Note G— Goodwill The following table sets forth the activity in goodwill from December 31, 2019, through September 30, 2020 (in thousands): Goodwill Temporary and consultant staffing Permanent placement staffing Risk consulting and internal audit services Total Balance as of December 31, 2019 $ 134,210 $ 26,097 $ 50,057 $ 210,364 Foreign currency translation adjustments ( 29 ) ( 7 ) ( 125 ) ( 161 ) Balance as of September 30, 2020 $ 134,181 $ 26,090 $ 49,932 $ 210,203 Note H— Accrued Payroll and Benefit Costs Accrued payroll and benefit costs consisted of the following (in thousands): September 30, 2020 December 31, 2019 Employee deferred compensation plans $ 465,299 $ 421,198 Payroll and benefits 314,299 280,918 Payroll taxes 26,273 21,831 Workers’ compensation 21,877 19,655 Accrued payroll and benefit costs $ 827,748 $ 743,602 The Company, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, deferred paying $ 68.3 million of applicable payroll taxes as of September 30, 2020, which is included in other liabilities in the unaudited Condensed Consolidated Statements of Financial Position. The Company provides various qualified defined contribution 401(k) plans covering eligible employees. The plans offer a savings feature with the Company matching employee contributions. Assets of these plans are held by an independent trustee for the sole benefit of participating employees. Nonqualified plans are provided for employees not eligible for the qualified plans. These plans include provisions for salary deferrals and Company matching and discretionary contributions . The asset value of the nonqualified plans was $ 445.7 million and $ 398.4 million as of September 30, 2020, and December 31, 2019, respectively, and are included in other current assets in the unaudited Condensed Consolidated Statements of Financial Position. The Company holds these assets to satisfy the Company’s liabilities under its deferred compensation plans. The liability value for the nonqualified plans was $ 465.3 million and $ 421.2 million as of September 30, 2020, and December 31, 2019, respectively, and is included in accrued payroll and benefit costs in the unaudited Condensed Consolidated Statements of Financial Position. Deferred compensation plan and other benefits related to the Company’s executive chairman were $ 88.6 million and $ 91.8 million as of September 30, 2020, and December 31, 2019, respectively, and are included in the liability value for the nonqualified plans. 16 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2020 The following table presents the Company’s compensation expense related to its qualified defined contribution plans and nonqualified plans (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Contribution expense $ 9,753 $ 6,943 $ 28,111 $ 19,362 Deferred compensation expense related to changes in the fair value of trust assets 26,095 1,450 34,630 34,628 $ 35,848 $ 8,393 $ 62,741 $ 53,990 The Company has statutory defined contribution plans and defined benefit plans outside the U.S., which are not material. Note I— Commitments and Contingencies On March 23, 2015, Plaintiff Jessica Gentry, on her own behalf and on behalf of a putative class of allegedly similarly situated individuals, filed a complaint against the Company in the Superior Court of California, San Francisco County, which was subsequently amended on October 23, 2015. The complaint alleges that a putative class of current and former employees of the Company working in California since March 13, 2010 were denied compensation for the time they spent interviewing “for temporary and permanent employment opportunities” as well as performing activities related to the interview process. Gentry seeks recovery on her own behalf and on behalf of the putative class in an unspecified amount for this allegedly unpaid compensation. Gentry also seeks recovery of an unspecified amount for the alleged failure of the Company to provide her and the putative class with accurate wage statements. Gentry also seeks an unspecified amount of other damages, attorneys’ fees, and statutory penalties, including penalties for allegedly not paying all wages due upon separation to former employees and statutory penalties on behalf of herself and other allegedly “aggrieved employees” as defined by California’s Labor Code Private Attorney General Act (“PAGA”). On January 4, 2016, the Court denied a motion by the Company to compel all of Gentry’s claims, except the PAGA claim, to individual arbitration. At this stage of the litigation, it is not feasible to predict the outcome of or a range of loss, should a loss occur, from this proceeding and, accordingly, no amounts have been provided in the Company’s Financial Statements. The Company believes it has meritorious defenses to the allegations and the Company intends to continue to vigorously defend against the litigation. On April 6, 2018, Plaintiff Shari Dorff, on her own behalf and on behalf of a putative class of allegedly similarly situated individuals, filed a complaint against the Company in the Superior Court of California, County of Los Angeles. In addition to certain claims individual to Plaintiff Dorff, the complaint alleges that salaried recruiters based in California have been misclassified as exempt employees and seeks an unspecified amount for: unpaid wages resulting from such alleged misclassification; alleged failure to provide a reasonable opportunity to take meal periods and rest breaks; alleged failure to pay wages on a timely basis both during employment and upon separation; alleged failure to comply with California requirements regarding wage statements and record-keeping; and alleged improper denial of expense reimbursement. Plaintiff Dorff also seeks an unspecified amount of other damages, attorneys’ fees, and penalties, including but not limited to statutory penalties on behalf of herself and other allegedly “aggrieved employees” as defined by PAGA. At this stage of the litigation, it is not feasible to predict the outcome of or a range of loss, should a loss occur, from this proceeding and, accordingly, no amounts have been provided in the Company’s Financial Statements. The Company believes it has meritorious defenses to the allegations and the Company intends to continue to vigorously defend against the litigation. The Company is involved in a number of other lawsuits arising in the ordinary course of business. While management does not expect any of these other matters to have a material adverse effect on the Company’s results of operations, financial position or cash flows, litigation is subject to certain inherent uncertainties. Legal costs associated with the resolution of claims, lawsuits and other contingencies are expensed as incurred. 17 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2020 In May 2020, the Company entered into a new $ 100 million unsecured revolving credit facility (the “ 364 -Day Credit Agreement”). Borrowings under the 364 -Day Credit Agreement will bear interest in accordance with the terms of the borrowing, which typically will be calculated according to the LIBOR plus an applicable margin. The 364 -Day Credit Agreement is subject to certain financial covenants and the Company was in compliance with these covenants as of September 30, 2020. There were no borrowings under the 364 -Day Credit Agreement as of September 30, 2020. Note J— Stockholders’ Equity Stock Repurchase Program. As of September 30, 2020, the Company is authorized to repurchase, from time to time, up to 1.0 million additional shares of the Company’s common stock on the open market or in privately negotiated transactions, depending on market conditions. The number and the cost of common stock shares repurchased during the nine months ended September 30, 2020 and 2019, are reflected in the following table (in thousands): Nine Months Ended September 30, 2020 2019 Common stock repurchased (in shares) 1,432 3,266 Common stock repurchased $ 74,981 $ 191,048 Additional stock repurchases were made in connection with employee stock plans, whereby Company shares were tendered by employees for the payment of applicable statutory withholding taxes. The number and the cost of repurchases related to employee stock plans made during the nine months ended September 30, 2020 and 2019, are reflected in the following table (in thousands): Nine Months Ended September 30, 2020 2019 Repurchases related to employee stock plans (in shares) 284 264 Repurchases related to employee stock plans $ 12,203 $ 17,122 The repurchased shares are held in treasury and are presented as if constructively retired. Treasury stock is accounted for using the cost method. Repurchase activity for the three and nine months ended September 30, 2020 and 2019, is presented in the unaudited Condensed Consolidated Statements of Stockholders’ Equity. Repurchases of shares and issuances of dividends are applied first to the extent of retained earnings and any remaining amounts are applied to additional paid-in capital. 18 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2020 Note K— Net Income Per Share The calculation of net income per share for the three and nine months ended September 30, 2020 and 2019, is reflected in the following table (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net income $ 75,749 $ 117,181 $ 211,860 $ 341,591 Basic: Weighted average shares 112,809 115,181 112,953 116,203 Diluted: Weighted average shares 112,809 115,181 112,953 116,203 Dilutive effect of potential common shares 546 687 491 731 Diluted weighted average shares 113,355 115,868 113,444 116,934 Net income per share: Basic $ .67 $ 1.02 $ 1.88 $ 2.94 Diluted $ .67 $ 1.01 $ 1.87 $ 2.92 Note L— Business Segments The Company has three reportable segments: temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services. Operating segments are defined as components of the Company for which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The temporary and consultant staffing segment provides specialized staffing in the accounting and finance, administrative and office, information technology, legal, advertising, marketing and web design fields. The permanent placement staffing segment provides full-time personnel in the accounting, finance, administrative and office, and information technology fields. The risk consulting and internal audit services segment provides business and technology risk consulting and internal audit services. The accounting policies of the segments are set forth in Note A—“Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The Company evaluates performance based on income before net interest income, intangible assets amortization expense, and income taxes. 19 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2020 The following table provides a reconciliation of service revenues and segment income by reportable segment to consolidated results for the three and nine months ended September 30, 2020 and 2019 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Service revenues Temporary and consultant staffing $ 781,391 $ 1,118,461 $ 2,626,897 $ 3,305,800 Permanent placement staffing 87,203 134,582 278,722 407,038 Risk consulting and internal audit services 321,303 299,089 899,295 824,209 $ 1,189,897 $ 1,552,132 $ 3,804,914 $ 4,537,047 Segment income Temporary and consultant staffing $ 43,779 $ 101,428 $ 165,933 $ 312,684 Permanent placement staffing 10,128 21,817 20,791 68,718 Risk consulting and internal audit services 48,735 39,646 105,311 87,120 Combined segment income 102,642 162,891 292,035 468,522 Amortization of intangible assets 334 339 1,002 1,022 Interest income, net ( 202 ) ( 1,230 ) ( 1,264 ) ( 3,768 ) Income before income taxes $ 102,510 $ 163,782 $ 292,297 $ 471,268 Service revenues presented above are shown net of eliminations of intersegment revenues. Intersegment revenues between temporary and consulting staffing segment and risk consulting and internal audit services segment were $ 59.8 million and $ 147.6 million for the three and nine months ended September 30, 2020, respectively, and $ 46.5 million and $ 121.6 million for the three and nine months ended September 30, 2019, respectively. Note M— Subsequent Events On October 29, 2020, the Company authorized the repurchase, from time to time, of up to an additional 10 million shares of the Company’s common stock on the open market or in privately negotiated transactions, depending on market conditions. The authorization is in addition to the approximately 1.0 million shares remaining under the existing repurchase program. There is no guarantee as to whether, when, or how many shares the Company will repurchase, and the Company may discontinue the repurchase program at any time. On October 29, 2020, the Company announced the following: Quarterly dividend per share $ .34 Declaration date October 29, 2020 Record date November 25, 2020 Payment date December 15, 2020 20