ROBERT HALF INC. 10-K

Item 8. Financial Statements and Supplementary Data ROBERT HALF INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in thousands, except share amounts) December 31, 2020 2019 ASSETS Cash and cash equivalents $ 574,426 $ 270,478 Accounts receivable, net 714,163 832,797 Employee deferred compensation trust assets 406,634 398,442 Other current assets 147,515 127,132 Total current assets 1,842,738 1,628,849 Property and equipment, net 109,817 128,385 Right-of-use assets 262,688 241,029 Other intangible assets, net 5,594 1,752 Goodwill 223,055 210,364 Noncurrent deferred income taxes 113,532 101,029 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 Income taxes payable 4,015 1,623 Notes payable, current 239 218 Current operating lease liabilities 78,604 71,408 Total current liabilities 1,046,626 940,692 Notes payable, less current portion — 239 Noncurrent operating lease liabilities 223,869 201,961 Other liabilities 81,640 24,833 Total liabilities 1,352,135 1,167,725 Commitments and Contingencies (Note L) STOCKHOLDERS’ EQUITY Preferred stock, $ 0.001 par value; authorized 5,000,000 shares; none issued — — Common stock, $ 0.001 par value; authorized 260,000,000 shares; issued and outstanding 113,127,501 and 115,120,404 shares 113 115 Additional paid-in capital 1,179,972 1,127,487 Accumulated other comprehensive income (loss) ( 4,732 ) ( 19,986 ) Retained earnings 29,936 36,067 Total stockholders’ equity 1,205,289 1,143,683 Total liabilities and stockholders’ equity $ 2,557,424 $ 2,311,408 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 27 ROBERT HALF INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Year Ended December 31, 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 (which is completely offset by related costs and expenses - Notes A & I) ( 75,188 ) ( 54,917 ) 11,486 Amortization of intangible assets 1,219 1,361 1,705 Interest income, net ( 1,343 ) ( 5,125 ) ( 4,382 ) 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 Diluted $ 2.70 $ 3.90 $ 3.57 Shares: Basic 112,729 115,656 120,513 Diluted 113,318 116,411 121,602 Dividends declared per share $ 1.36 $ 1.24 $ 1.12 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 28 ROBERT HALF INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Year Ended December 31, 2020 2019 2018 COMPREHENSIVE INCOME (LOSS): 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 ) 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 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 29 ROBERT HALF INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (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, 2017 124,261 $ 124 $ 1,064,601 $ 3,507 $ 37,033 $ 1,105,265 Net income — — — — 434,288 434,288 Other comprehensive income (loss) — — — ( 19,616 ) — ( 19,616 ) Dividends declared ($ 1.12 per share) — — ( 30,365 ) — ( 106,459 ) ( 136,824 ) Net issuances of restricted stock 666 1 ( 1 ) — — — Stock-based compensation — — 44,953 — — 44,953 Repurchases of common stock ( 5,849 ) ( 6 ) — — ( 364,862 ) ( 364,868 ) Balance at December 31, 2018 119,078 $ 119 $ 1,079,188 $ ( 16,109 ) $ — $ 1,063,198 Net income — — — — 454,433 454,433 Other comprehensive income (loss) — — — ( 3,877 ) — ( 3,877 ) Dividends declared ($ 1.24 per share) — — — — ( 145,726 ) ( 145,726 ) Net issuances of restricted stock 647 1 ( 1 ) — — — Stock-based compensation — — 48,300 — — 48,300 Repurchases of common stock ( 4,605 ) ( 5 ) — — ( 272,640 ) ( 272,645 ) Balance at December 31, 2019 115,120 $ 115 $ 1,127,487 $ ( 19,986 ) $ 36,067 $ 1,143,683 Net income — — — — 306,276 306,276 Adoption of accounting pronouncement ( 558 ) ( 558 ) Other comprehensive income (loss) — — — 15,254 — 15,254 Dividends declared ($ 1.36 per share) — — — — ( 156,045 ) ( 156,045 ) Net issuances of restricted stock 879 1 ( 1 ) — — — Stock-based compensation — — 52,486 — — 52,486 Repurchases of common stock ( 2,871 ) ( 3 ) — — ( 155,804 ) ( 155,807 ) Balance at December 31, 2020 113,128 $ 113 $ 1,179,972 $ ( 4,732 ) $ 29,936 $ 1,205,289 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 30 ROBERT HALF INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2020 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 306,276 $ 454,433 $ 434,288 Adjustments to reconcile net income to net cash provided by operating activities: Allowance for credit losses 4,200 9,868 11,914 Depreciation 62,281 64,264 64,244 Amortization of cloud computing implementation costs 18,399 3,624 — Amortization of intangible assets 1,219 1,361 1,705 Realized and unrealized (gains) losses from investments held in employee deferred compensation trusts ( 66,866 ) ( 44,492 ) 22,343 Stock-based compensation 52,486 48,300 44,953 Deferred income taxes ( 13,146 ) ( 9,473 ) ( 15,885 ) Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable 127,740 ( 48,461 ) ( 86,217 ) Capitalized cloud computing implementation costs ( 33,178 ) ( 30,338 ) — Accounts payable and accrued expenses 1,098 ( 9,204 ) 32,428 Accrued payroll and benefit costs 119,231 17,705 13,845 Employee deferred compensation plan obligations 13,923 87,670 21,099 Income taxes payable 182 ( 18,798 ) 28,900 Other assets and liabilities, net 2,683 ( 6,830 ) ( 1,295 ) Net cash flows provided by operating activities 596,528 519,629 572,322 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 33,377 ) ( 59,464 ) ( 42,484 ) Investments in employee deferred compensation trusts ( 64,351 ) ( 71,432 ) ( 69,716 ) Proceeds from employee deferred compensation trust redemptions 123,025 28,758 23,691 Payments for acquisitions, net of cash acquired ( 15,836 ) — — Net cash flows provided by (used in) investing activities 9,461 ( 102,138 ) ( 88,509 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of notes payable ( 218 ) ( 200 ) ( 183 ) Repurchases of common stock ( 159,172 ) ( 277,535 ) ( 353,509 ) Dividends paid ( 155,935 ) ( 145,631 ) ( 136,423 ) Net cash flows used in financing activities ( 315,325 ) ( 423,366 ) ( 490,115 ) Effect of exchange rate fluctuations 13,284 ( 226 ) ( 11,872 ) Change in cash and cash equivalents 303,948 ( 6,101 ) ( 18,174 ) Cash and cash equivalents at beginning of period 270,478 276,579 294,753 Cash and cash equivalents at end of period $ 574,426 $ 270,478 $ 276,579 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 577 $ 232 $ 233 Income taxes, net of refunds $ 128,321 $ 191,522 $ 137,147 Non-cash items: Stock repurchases awaiting settlement $ 3,104 $ 6,469 $ 11,359 Fund exchanges within employee deferred compensation trusts $ 208,055 $ 41,648 $ 79,300 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A— Summary of Significant Accounting Policies Nature of Operations. Robert Half International Inc. (the “Company”) provides specialized staffing and risk consulting services through such divisions as Accountemps ® , Robert Half ® Finance & Accounting , OfficeTeam ® , Robert Half ® Technology , Robert Half ® Management Resources , Robert Half ® Legal , The Creative Group ® , and Protiviti ® . The Company, through its Accountemps , Robert Half Finance & Accounting , and Robert Half Management Resources divisions, is a specialized provider of contract, full-time, and senior-level project professionals in the fields of accounting and finance. OfficeTeam specializes in highly skilled contract administrative support professionals. Robert Half Technology provides project and full-time technology professionals. Robert Half Legal provides contract, project, and full-time staffing of lawyers, paralegals and legal support personnel. The Creative Group provides interactive, design, marketing, advertising and public relations professionals. Protiviti is a global consulting firm that helps companies solve problems in finance, technology, operations, data, analytics, governance, risk and internal audit. Revenues are predominantly derived from specialized staffing services. The Company operates in North America, South America, Europe, Asia and Australia. The Company is a Delaware corporation. Basis of Presentation. The Consolidated Financial Statements (“Financial Statements”) of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”). Certain reclassifications have been made to prior years’ consolidated financial statements to conform to the current 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. Such estimates include allowances for uncollectible accounts receivable, 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. Actual results and outcomes may differ from management’s estimates and assumptions. 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. 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, payroll taxes and benefit costs, as well as reimbursable expenses. Advertising Costs. The Company expenses all advertising costs as incurred. Advertising costs were $ 37.2 million, $ 54.3 million, and $ 52.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Income) loss from investments held in employee deferred compensation trusts . The Company has changed its Consolidated Statements of Operations to separately present (income) loss 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 remain in selling, general and administrative expenses or, in the case of risk consulting and internal audit services, costs of services. 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) loss 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, costs of services. Reclassifications have been made to prior year’s consolidated financial statements to conform to the current presentation. The following table presents the Company’s (income) loss from investments held in employee deferred compensation trusts (in thousands): Year Ended December 31, 2020 2019 2018 Dividend income $ ( 8,322 ) $ ( 10,425 ) $ ( 10,857 ) Realized and unrealized (gains) losses ( 66,866 ) ( 44,492 ) 22,343 $ ( 75,188 ) $ ( 54,917 ) $ 11,486 Comprehensive Income (Loss). Comprehensive income (loss) includes net income and certain other items that are recorded directly to stockholders’ equity. The Company’s only sources of other comprehensive income (loss) are foreign currency translation and foreign defined benefit plan adjustments. 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 employee deferred compensation plans are treated as investments and are included in employee deferred compensation trust assets on the Consolidated Statements 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 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 satisfy its obligations under its employee deferred compensation plans, which are carried at fair value based on quoted market prices in active markets for identical assets (level 1). 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 December 31, 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 $ 69,681 $ 69,681 — — Mutual funds - bond 27,282 27,282 — — Mutual funds - stock 234,667 234,667 — — Mutual funds - blend 75,004 75,004 — — $ 406,634 $ 406,634 — — 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. The following table sets forth the activity in the allowance for credit losses from December 31, 2019, through December 31, 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 4,200 Deductions ( 7,906 ) Other, including translation adjustments ( 120 ) Balance as of December 31, 2020 $ 19,617 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Property and Equipment . Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the following useful lives: Computer hardware 2 to 3 years Computer software 2 to 3 years Furniture and equipment 3 to 5 years Leasehold improvements Term of lease 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 assets. All other internal-use software development costs are capitalized and reported as a component of computer software within property and equipment on the Consolidated Statements of Financial Position. Capitalized internal-use software development costs were $ 40.6 million, $ 35.6 million, and $ 3.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. Leases. The Company determines if a contractual arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and noncurrent operating lease liabilities on the Company’s Consolidated Statements of Financial Position. The Company does not currently have finance leases. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The lease payments included in the present value are fixed lease payments and index-based variable lease payments. As most of the Company’s leases do not provide an implicit rate, the Company estimates its collateralized incremental borrowing rate, based on information available at the commencement date, in determining the present value of lease payments. The Company applies the portfolio approach in applying discount rates to its classes of leases. The operating lease ROU assets include any payments made before the commencement date and exclude lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not currently have subleases. The Company does not currently have residual value guarantees or restrictive covenants in its leases. The Company has contracts with lease and non-lease components, which are accounted for on a combined basis. 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 useful lives, typically ranging from two to five years . Goodwill is not amortized, but is tested at least annually for impairment. The Company completed its annual goodwill impairment assessment as of June 30 in each of the years ended December 31, 2020, 2019, and 2018, and determined that no adjustment to the carrying value of goodwill was required. There were no events or changes in circumstances during the six months ended December 31, 2020, that caused the Company to perform an interim impairment assessment. Income Taxes . The Company’s operations are subject to U.S. federal, state and local, and foreign income taxes. In establishing its deferred income tax assets and liabilities and its provision for income taxes, the Company makes judgments and interpretations based on the enacted tax laws that are applicable to its operations in various jurisdictions. Deferred tax assets and liabilities are measured and recorded using current enacted tax rates, which the Company expects will apply to taxable income in the years in which those temporary differences are recovered or settled. The likelihood of a material change in the Company’s expected realization of its deferred tax assets is dependent on future taxable income and the effectiveness of its tax planning strategies in the various relevant jurisdictions. The Company also evaluates the need for valuation allowances to reduce the deferred tax assets to realizable amounts. Management evaluates all positive and negative evidence and uses judgment regarding past and future events, including operating results, to help determine when it is more likely than not that all or some portion of the deferred tax assets may not be realized. When appropriate, a valuation allowance is recorded against deferred tax assets to offset future tax benefits that may not be realized. Valuation allowances of $ 24.1 million and $ 21.6 million were recorded as of December 31, 2020 and 2019, respectively. The valuation allowances recorded related primarily to net operating losses in certain foreign operations. If such losses are ultimately utilized to offset future segment income, the Company will recognize a tax benefit up to the full amount of the valuation reserve. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Workers’ Compensation . Except for states which require participation in state-operated insurance funds, the Company retains the economic burden for the first $ 0.5 million per occurrence in workers’ compensation claims. Workers’ compensation includes the ongoing medical and indemnity costs for claims filed, which may be paid over numerous years following the date of injury. Claims in excess of $ 0.5 million are insured. Workers’ compensation expense includes the insurance premiums for claims in excess of $ 0.5 million, claims administration fees charged by the Company’s workers’ compensation administrator, premiums paid to state-operated insurance funds, and an estimate for the Company’s liability for Incurred But Not Reported (“IBNR”) claims and for the ongoing development of existing claims. The reserves for IBNR claims and for the ongoing development of existing claims in each reporting period includes estimates. The Company has established reserves for workers’ compensation claims using loss development rates which are estimated using periodic third party actuarial valuations based upon historical loss statistics which include the Company’s historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. While management believes that its assumptions and estimates are appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Company’s future results. Foreign Currency Translation. The reporting currency of the Company and its subsidiaries is the U.S. dollar. The functional currency of the Company’s foreign subsidiaries is their local currency. The results of operations of the Company’s foreign subsidiaries are translated at the monthly average exchange rates prevailing during the period. The financial position of the Company’s foreign subsidiaries is translated at the current exchange rates at the end of the period, and the related translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within Stockholders’ Equity. Gains and losses resulting from foreign currency transactions are included as a component of selling, general and administrative expenses in the Consolidated Statements of Operations, and have not been material for all periods presented. Stock-based Compensation . Under various stock plans, officers, employees and outside directors have received or may receive grants of restricted stock, stock units, stock appreciation rights or options to purchase common stock. The Company recognizes compensation expense equal to the grant-date fair value for all stock-based payment awards that are expected to vest. This expense is recorded on a straight-line basis over the requisite service period of the entire award, unless the awards are subject to performance conditions, in which case the Company recognizes compensation expense over the requisite service period of each separate vesting tranche. The Company determines the grant-date fair value of its restricted stock and stock unit awards using the fair market value of its stock on the grant date, unless the awards are subject to market conditions, in which case the Company utilizes a binomial-lattice model (i.e., Monte Carlo simulation model). The Monte Carlo simulation model utilizes multiple input variables to determine the stock-based compensation expense. No stock appreciation rights have been granted under the Company’s existing stock plans. The Company has not granted any options to purchase common stock since 2006. 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 was effective for interim and annual reporting periods beginning after December 15, 2019. The Company 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 was effective for the Company for fiscal years beginning after December 15, 2019, although early adoption was permitted. The Company adopted the new guidance prospectively as of January 1, 2020, and the impact of adoption was not material to its financial statements. 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 application of this guidance did not have a material impact on the Company's financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted None 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 on the 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. 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 contract 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. 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 revenues disaggregated by line of business (in thousands): Year Ended December 31, 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 (a) ( 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 (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 December 31, 2020, aggregate transaction price allocated to the performance obligations that were unsatisfied for contracts with an expected duration of greater than one year was $ 134.9 million. Of this amount, $ 123.6 million is expected to be recognized within the next twelve months . As of December 31, 2019, aggregate transaction price allocated to the performance obligations that were unsatisfied for contracts with an expected duration of greater than one year was $ 81.7 million. 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 Consolidated Statements of Financial Position. The following table sets forth the activity in contract liabilities from January 1, 2018 through December 31, 2020 (in thousands): Contract Liabilities Balance as of January 1, 2018 $ 9,003 Payments in advance of satisfaction of performance obligations 12,170 Revenue recognized ( 10,542 ) Other, including translation adjustments 2,366 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 25,614 Revenue recognized ( 20,687 ) Other, including translation adjustments 377 Balance as of December 31, 2020 $ 18,252 Note D— Other Current Assets Other current assets consisted of the following (in thousands): December 31, 2020 2019 Prepaid expenses $ 97,674 $ 84,364 Other 49,841 42,768 Other current assets $ 147,515 $ 127,132 Note E— Property and Equipment, Net Property and equipment consisted of the following (in thousands): December 31, 2020 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 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 1 month to 9 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 expense was $ 81.5 million and $ 77.7 million for the years ended December 31, 2020, and 2019, respectively. Rental expense, primarily for offices premises, was $ 89.4 million for the year ended December 31, 2018. Supplemental cash flow information related to leases consisted of the following (in thousands): Year Ended December 31, 2020 2019 Cash paid for operating lease liabilities $ 84,569 $ 78,152 Right-of-use assets obtained in exchange for new operating lease liabilities 37,786 32,170 Supplemental balance sheet information related to leases consisted of the following: December 31, 2020 2019 Weighted average remaining lease term for operating leases 4.5 years 4.8 years Weighted average discount rate for operating leases 2.6 % 3.0 % Future minimum lease payments under non-cancellable leases as of December 31, 2020, were as follows (in thousands): 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 (a) $ 302,473 (a) Includes current portion of $ 78.6 million for operating leases. As of December 31, 2020, the Company had no material future minimum lease obligations that had not yet commenced. 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note G— Goodwill The following table sets forth the activity in goodwill from December 31, 2018, through December 31, 2020 (in thousands): Goodwill Temporary and consultant staffing Permanent placement staffing Risk consulting and internal audit services Total Balance as of December 31, 2018 $ 134,067 $ 26,058 $ 49,833 $ 209,958 Foreign currency translation adjustments 143 39 224 406 Balance as of December 31, 2019 $ 134,210 $ 26,097 $ 50,057 $ 210,364 Acquisitions (a) — — 12,199 12,199 Foreign currency translation adjustments 301 83 108 492 Balance as of December 31, 2020 $ 134,511 $ 26,180 $ 62,364 $ 223,055 (a) In December 2020 the Company, through its wholly owned subsidiary Protiviti, acquired Identropy, Inc., an independent security consulting firm specializing in advisory, implementation and managed services for identity, access management and access governance solutions. As part of the acquisition, the Company recorded goodwill of $ 12.2 million within its risk consulting and internal audit services segment. Note H— Accrued Payroll and Benefit Costs Accrued payroll and benefit costs consisted of the following (in thousands): December 31, 2020 2019 Payroll and benefits 311,169 280,918 Payroll taxes 67,712 21,831 Workers’ compensation 18,996 19,655 Accrued payroll and benefit costs $ 397,877 $ 322,404 The Company, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, deferred paying $ 102.2 million of applicable payroll taxes as of December 31, 2020, of which $ 51.1 million is expected to be paid during the next 12 months and is included in accrued payroll and benefit costs and the remaining $ 51.1 million is included in other liabilities on the Consolidated Statements of Financial Position. Note I— Employee Deferred Compensation Plan Obligations 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 this plan 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 $ 406.6 million and $ 398.4 million as of December 31, 2020 and 2019, respectively. The Company holds these assets to satisfy the Company’s liabilities under its employee deferred compensation plans. The liability value for the nonqualified plans was $ 435.1 million and $ 421.2 million as of December 31, 2020 and 2019, respectively. Deferred compensation plan and other benefits related to the Company’s executive chairman was $ 91.8 million as of December 31, 2019, and was included in the liability value for the nonqualified plans. The Company paid out the full balance of this plan during the year ended December 31, 2020. 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the Company’s compensation expense related to its qualified defined contribution plans and nonqualified plans (in thousands): Year Ended December 31, 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 ) $ 117,280 $ 81,039 $ 12,698 The Company has statutory defined contribution plans and defined benefit plans outside the U.S., which are not material. Note J— Notes Payable The Company has a promissory note payable with a balance of $ 0.2 million at December 31, 2020, and $ 0.5 million at December 31, 2019, which bears interest at a fixed interest rate of 9.0 % per annum and will mature in October 2021. The Company has an uncommitted letter of credit facility (the “facility”) of up to $ 35.0 million, which is available to cover the issuance of debt support standby letters of credit. The Company had used $ 17.0 million in debt support standby letters of credit as of December 31, 2020, and $ 16.8 million as of December 31, 2019. Of the debt support standby letters of credit outstanding, $ 16.8 million as of December 31, 2020, and $ 16.3 million as of December 31, 2019, satisfies workers’ compensation insurer’s collateral requirements. There is a service fee of 1.5 % on the used portion of the facility. The facility is subject to certain financial covenants and expires on August 31, 2021. The Company was in compliance with these covenants as of December 31, 2020. The Company intends to renew this facility prior to its August 31, 2021 expiration. 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 December 31, 2020. There were no borrowings under the 364 -Day Credit Agreement as of December 31, 2020. Note K— Income Taxes The provision for income taxes for the years ended December 31, 2020, 2019 and 2018, consisted of the following (in thousands): Year Ended December 31, 2020 2019 2018 Current: Federal $ 79,926 $ 107,699 $ 99,830 State 27,401 39,028 38,356 Foreign 20,018 33,227 35,007 Deferred: Federal and state ( 9,089 ) ( 9,959 ) ( 15,849 ) Foreign ( 2,650 ) 1,087 ( 30 ) $ 115,606 $ 171,082 $ 157,314 Income before the provision for income taxes for the years ended December 31, 2020, 2019 and 2018, consisted of the following (in thousands): Year Ended December 31, 2020 2019 2018 Domestic $ 378,876 $ 545,695 $ 485,489 Foreign 43,006 79,820 106,113 $ 421,882 $ 625,515 $ 591,602 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The income taxes shown above varied from the statutory federal income tax rates for these periods as follows: Year Ended December 31, 2020 2019 2018 Federal U.S. income tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal tax benefit 4.9 4.9 4.7 Permanent book/tax differences 0.3 0.5 0.2 Compensation book/tax differences 1.3 0.6 0.4 Non-U.S. income taxed at different rates, net of foreign tax credits 1.7 2.1 2.0 Federal tax credits ( 1.5 ) ( 1.4 ) ( 1.7 ) Tax impact of uncertain tax positions 0.1 0.2 0.8 Tax effects of TCJA — — 0.4 Other, net ( 0.4 ) ( 0.5 ) ( 1.2 ) Effective tax rate 27.4 % 27.4 % 26.6 % The deferred portion of the tax (benefit) provision consisted of the following (in thousands): Year Ended December 31, 2020 2019 2018 Accrued expenses, deducted for tax when paid $ ( 19,115 ) $ ( 17,797 ) $ ( 21,884 ) Capitalized costs for books, deducted for tax 1,904 3,246 ( 4,832 ) Depreciation 6,732 3,526 10,071 Other, net ( 1,260 ) 2,153 766 $ ( 11,739 ) $ ( 8,872 ) $ ( 15,879 ) 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The components of the deferred income tax amounts at December 31, 2020 and 2019, were as follows (in thousands): December 31, 2020 2019 Deferred Income Tax Assets Employee deferred compensation and other benefit obligations $ 102,478 $ 105,096 Deferred Payroll Taxes (CARES Act) 27,086 — Credits and net operating loss carryforwards 30,651 25,130 Stock-based compensation 3,637 7,805 Allowance for credit losses 5,272 7,944 Workers’ compensation 3,774 3,929 Operating lease liabilities 59,249 51,932 Other 13,361 10,256 Total deferred income tax assets 245,508 212,092 Deferred Income Tax Liabilities Amortization of intangible assets ( 24,163 ) ( 22,009 ) Property and equipment basis differences ( 25,555 ) ( 16,981 ) Right-of-use assets ( 49,833 ) ( 44,448 ) Other ( 8,922 ) ( 7,278 ) Total deferred income tax liabilities ( 108,473 ) ( 90,716 ) Valuation allowance ( 24,132 ) ( 21,618 ) Total deferred income tax assets, net $ 112,903 $ 99,758 Credits and net operating loss carryforwards primarily include tax-effected net operating losses in foreign countries of $ 27.6 million that expire in 2021 and later; and California enterprise zone tax credits of $ 2.2 million that expire in 2023. Of the $ 2.2 million of California enterprise zone tax credits, the Company expects that it will utilize $ 0.7 million of these credits prior to expiration. Valuation allowances of $ 22.6 million have been maintained against net operating loss carryforwards and other deferred items in foreign countries. In addition, a valuation allowance of $ 1.5 million has been maintained against California enterprise zone tax credits. As of December 31, 2020, the Company’s consolidated financial statements provide for any related U.S. tax liability on earnings of foreign subsidiaries that may be repatriated. The following table reconciles the total amounts of gross unrecognized tax benefits from January 1, 2018 to December 31, 2020 (in thousands): December 31, 2020 2019 2018 Balance at beginning of period $ 9,354 $ 8,418 $ 2,886 Gross increases—tax positions in prior years 220 — 3,259 Gross decreases—tax positions in prior years — ( 760 ) ( 8 ) Gross increases—tax positions in current year 1,678 1,703 2,284 Settlements — ( 4 ) — Lapse of statute of limitations ( 1,467 ) ( 3 ) ( 3 ) Balance at end of period $ 9,785 $ 9,354 $ 8,418 The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is $ 9.8 million, $ 9.3 million and $ 8.3 million or the years ended December 31, 2020, 2019 and 2018, respectively. 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. The total amount of interest and penalties accrued as of December 31, 2020 was $ 0.5 million, including less than $ 0.1 million increase recorded in income tax expense during the year. The total amount of interest and penalties accrued as of December 31, 2019 was $ 0.5 million, including a $ 0.2 million increase recorded in income tax expense during the year. The total amount of interest and penalties accrued as of December 31, 2018, was $ 0.3 million. The Company does not believe it is reasonably possible that the settlement of tax uncertainties will occur within the next twelve months. The Company’s major income tax jurisdictions are the United States, Australia, Belgium, Canada, France, Germany and the United Kingdom. For U.S. federal income tax, the Company remains subject to examination for 2017 and subsequent years. For major U.S. states, with few exceptions, the Company remains subject to examination for 2016 and subsequent years. Generally, for foreign countries, the Company remains subject to examination for 2013 and subsequent years. Note L— 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. 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note M— Stockholders’ Equity Stock Repurchase Program. As of December 31, 2020, the Company is authorized to repurchase, from time to time, up to 9.9 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 years ended December 31, 2020, 2019 and 2018, are reflected in the following table (in thousands): Year Ended December 31, 2020 2019 2018 Common stock repurchased (in shares) 2,505 4,253 5,614 Common stock repurchased $ 138,408 $ 250,154 $ 351,194 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 employee stock plan repurchases made during the years ended December 31, 2020, 2019 and 2018, are reflected in the following table (in thousands): Year Ended December 31, 2020 2019 2018 Repurchases related to employee stock plans (in shares) 366 352 235 Repurchases related to employee stock plans $ 17,399 $ 22,491 $ 13,674 The repurchased shares are held in treasury and are presented as if constructively retired. Treasury stock is accounted for using the cost method. Treasury stock activity for each of the three years ended December 31, 2020, 2019 and 2018 (consisting of purchase of shares for the treasury) is presented in the Consolidated Statements of Stockholders’ Equity. Dividends. The Company’s Board of Directors may at their discretion declare and pay cash dividends upon the shares of the Company’s stock either out of the Company’s retained earnings or additional paid-in capital. The dividends declared per share were $ 1.36 , $ 1.24 , and $ 1.12 during the years ended December 31, 2020, 2019 and 2018, respectively. 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. Note N— Stock Plans Under various stock plans, officers, employees, and outside directors have received or may receive grants of restricted stock, stock units, stock appreciation rights or options to purchase common stock. Grants have been made at the discretion of the Committees of the Board of Directors. Grants generally vest either on a straight-line basis over four years or on a cliff basis over three years . Shares offered under the plan are authorized but unissued shares. Recipients of restricted stock do not pay any cash consideration to the Company for the shares and have the right to vote all shares subject to such grant. Restricted stock grants contain forfeitable rights to dividends. Dividends for these grants are accrued on the dividend payment dates but are not paid until the shares vest, and dividends accrued for shares that ultimately do not vest are forfeited. Recipients of stock units do not pay any cash consideration for the units, do not have the right to vote, and do not receive dividends with respect to such units. During the year ended December 31, 2020, the Company granted performance shares to its executives in the form of restricted stock. The shares granted contain (1) a performance condition based on Return on Invested Capital (“ROIC”), and (2) a market condition based on Total Shareholder Return (“TSR”). The ROIC performance condition and the TSR market condition measure the Company’s performance against a peer group. Shares will be delivered at the end of a three year vesting, TSR and ROIC performance period based on the Company’s actual performance compared to the peer group. The ROIC performance condition is calculated first and has a range of possible outcomes of zero percent ( 0 %) to one hundred fifty percent ( 150 %). The TSR condition is considered a modifier of the ROIC performance condition. The range for the TSR condition is seventy-five percent ( 75 %) to one hundred twenty-five percent ( 125 %). The result calculated by multiplying the ROIC percentage by the TSR percentage is used to calculate the actual number of shares earned. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 26.44 %, a 0 % dividend yield, and a risk-free interest rate of 1.42 %. The historical volatility was based on the most recent 2.88-year period for the Company and the components of the peer group. The stock price movements have been modeled such that the dividends are 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) incorporated in the returns of each company’s stock, therefore the Monte Carlo simulation reflects a 0 % dividend yield for each stock. The use of a 0 % dividend yield is mathematically equivalent to including the dividends in the calculation of TSR. The risk-free interest rate is equal to the yield, as of the valuation date, of the zero-coupon U.S. Treasury bill that is commensurate with the remaining performance period. Unrecognized compensation cost is expected to be recognized over the next four years . Total unrecognized compensation cost, net of estimated forfeitures, for restricted stock and stock units was $ 73.9 million, $ 71.6 million, and $ 65.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. The following table reflects activity under all stock plans from December 31, 2017 through December 31, 2020, and the weighted average exercise prices (in thousands, except per share amounts): Non-Executive Officer Time Based Awards Performance Based Awards with Market Conditions Performance Based Awards without Market Conditions Total Awards with Performance Condition Number of Shares/ Units Weighted Average Grant Date Fair Value Number of Shares/ Units Weighted Average Grant Date Fair Value Number of Shares/ Units Weighted Average Grant Date Fair Value Number of Shares/ Units Weighted Average Grant Date Fair Value Outstanding, December 31, 2017 1,160 $ 45.75 616 $ 56.76 330 $ 47.45 946 $ 53.51 Granted 533 $ 57.16 — — 278 $ 56.83 278 $ 56.83 Restrictions lapsed ( 568 ) $ 47.62 ( 129 ) $ 71.86 — — ( 129 ) $ 71.86 Forfeited ( 40 ) $ 49.10 ( 129 ) $ 71.86 — — ( 129 ) $ 71.86 Outstanding, December 31, 2018 1,085 $ 50.24 358 $ 45.93 608 $ 51.74 966 $ 49.58 Granted 434 $ 66.66 236 $ 74.01 — — 236 $ 74.01 Restrictions lapsed ( 557 ) $ 50.29 ( 338 ) $ 45.93 — — ( 338 ) $ 45.93 Forfeited ( 15 ) $ 53.85 ( 20 ) $ 45.93 — — ( 20 ) $ 45.93 Outstanding, December 31, 2019 947 $ 57.67 236 $ 74.01 608 $ 51.74 844 $ 57.97 Granted 625 $ 54.92 223 $ 66.86 70 $ 47.45 293 $ 62.22 Restrictions lapsed ( 526 ) $ 54.57 — — ( 400 ) $ 47.45 ( 400 ) $ 47.45 Forfeited ( 26 ) $ 58.37 — — — — — — Outstanding, December 31, 2020 1,020 $ 57.57 459 $ 70.53 278 $ 56.83 737 $ 65.36 The total fair value of shares vested was $ 46.2 million, $ 57.0 million, and $ 40.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. At December 31, 2020, the total number of available shares to grant under the plans (consisting of either restricted stock, stock units, stock appreciation rights or options to purchase common stock) was approximately 4.3 million. 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note O— Net Income Per Share The calculation of net income per share for the three years ended December 31, 2020, 2019 and 2018, are reflected in the following table (in thousands, except per share amounts): Year Ended December 31, 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 112,729 115,656 120,513 Dilutive effect of potential common shares 589 755 1,089 Diluted weighted average shares 113,318 116,411 121,602 Net income per share: Basic $ 2.72 $ 3.93 $ 3.60 Diluted $ 2.70 $ 3.90 $ 3.57 Potential common shares include the dilutive effect of unvested performance-based restricted stock, restricted stock which contains forfeitable rights to dividends, and stock units. Note P— 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. The Company evaluates performance based on income from operations before net interest income, intangible amortization expense, and income taxes. 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table provides a reconciliation of service revenues and segment income by reportable segment to consolidated results (in thousands): Year Ended December 31, 2020 2019 2018 Service revenues 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 $ 5,109,000 $ 6,074,432 $ 5,800,271 Segment income Temporary and consultant staffing $ 237,279 $ 410,153 $ 404,800 Permanent placement staffing 28,799 83,885 90,801 Risk consulting and internal audit services 155,680 127,713 93,324 Combined segment income 421,758 621,751 588,925 Amortization of intangible assets 1,219 1,361 1,705 Interest income, net ( 1,343 ) ( 5,125 ) ( 4,382 ) Income before income taxes $ 421,882 $ 625,515 $ 591,602 Service revenues presented above are shown net of eliminations of intersegment revenues. Intersegment revenues between temporary and consultant staffing segment and risk consulting and internal audit services segment were $ 240.0 million $ 172.4 million and $ 132.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. Assets by reportable segment are not presented as the Company does not allocate assets to its reportable segments, nor is such information used by management for purposes of assessing performance or allocating resources. The Company operates internationally, with operations in North America, South America, Europe, Asia and Australia. The following tables represent revenues and long-lived assets by geographic location (in thousands): Year Ended December 31, 2020 2019 2018 Service revenues (a) Domestic $ 3,984,742 $ 4,708,715 $ 4,433,767 Foreign (b) 1,124,258 1,365,717 1,366,504 $ 5,109,000 $ 6,074,432 $ 5,800,271 December 31, 2020 2019 2018 Property and equipment, net Domestic $ 88,117 $ 99,365 $ 96,169 Foreign 21,700 29,020 29,007 $ 109,817 $ 128,385 $ 125,176 (a) There were no customers that accounted for more than 10% of the Company’s total service revenues in any year presented. (b) No individual country represented more than 10% of revenues in any year presented. 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note Q— Quarterly Financial Data (Unaudited) The following tabulation shows certain quarterly financial data for 2020 and 2019 (in thousands, except per share amounts): Quarter 2020 One Two Three Four 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 $ .79 $ .41 $ .67 $ .84 Diluted net income per share $ .79 $ .41 $ .67 $ .84 Quarter 2019 One Two Three Four 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 $ .94 $ .98 $ 1.02 $ .99 Diluted net income per share $ .93 $ .98 $ 1.01 $ .98 Note R— Subsequent Events On February 11, 2021, the Company announced the following: Quarterly dividend per share $ .38 Declaration date February 11, 2021 Record date February 25, 2021 Payment date March 15, 2021 50 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Robert Half International Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the consolidated financial statements, including the related notes, as listed in the index appearing under Item 15(a)(1), and the financial statement schedule listed in the index appearing under Item 15(a)(2), of Robert Half International Inc. and its subsidiaries (the “Company”) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 51 Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Income taxes As described in Notes A and K to the consolidated financial statements, the Company’s operations are subject to U.S. federal, state and local, and foreign income taxes. In establishing its deferred income tax assets and liabilities and its provision for income taxes, management makes judgments and interpretations based on the enacted tax laws that are applicable to its operations in various jurisdictions. Deferred tax assets and liabilities are measured and recorded using current enacted tax rates, which management expects will apply to taxable income in the years in which those temporary differences are recovered or settled. Management also evaluates the need for valuation allowances to reduce the deferred tax assets to realizable amounts. In determining the realizability of its deferred tax assets, management evaluates all positive and negative evidence and uses judgment regarding past and future events, including operating results, to help determine when it is more likely than not that all or some portion of the deferred tax assets may not be realized. As disclosed by management, the likelihood of a material change in the Company’s expected realization of its deferred tax assets is dependent on future taxable income and the effectiveness of its tax planning strategies in the various relevant jurisdictions. The Company recorded a provision for income taxes of $115.6 million for the year ended December 31, 2020 and net deferred income tax assets of $112.9 million including a valuation allowance of $24.1 million as of December 31, 2020. The principal considerations for our determination that performing procedures relating to income taxes is a critical audit matter are the significant judgment and estimation by management when assessing current enacted tax laws and published tax guidance as it relates to determining the provision for income taxes as well as in assessing the realizability of its deferred income tax assets, specifically related to evaluating positive and negative evidence regarding past and future events, including operating results. This resulted in significant audit effort, judgment, and subjectivity in performing procedures and evaluating audit evidence over income taxes. The audit effort involved the use of professionals with specialized skill and knowledge to assist in performing procedures and evaluating the audit evidence obtained from these procedures. 52 Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to income taxes, including management’s controls over the application of current enacted tax laws and published tax guidance and their impact to the current year provision, the establishment of deferred tax assets and liabilities, and the evaluation of the realizability of deferred tax assets. These procedures included (i) testing the provision for income taxes and the application of current enacted tax laws and published tax guidance, including the effective tax rate reconciliation, return to provision adjustments, and permanent and temporary differences, (ii) testing the underlying data used in establishing and measuring deferred tax assets and liabilities, and (iii) evaluating management’s assessment of the realizability of deferred tax assets by evaluating factors used in management’s assessment of positive and negative evidence regarding past and future events, including operating results and the related expected utilization of deferred tax assets. Professionals with specialized skill and knowledge were used to assist in the evaluation of the calculations, including application of relevant tax laws and published tax guidance. /s/ PricewaterhouseCoopers LLP San Francisco, California February 12, 2021 We have served as the Company’s auditor since 2002. 53 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 54