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Item 7. Management’s Discussion and Analysis

2022-02-14 compared with 2021-02-12 · 176 added, 219 removed, 133 unchanged (75% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain information contained in Management’s Discussion and Analysis and in other parts of this report may be deemed forward-looking statements regarding events and financial trends that may affect the Company’s future operating results or financial positions.

Certain information contained in Management’s Discussion and Analysis and in other parts of this report may be deemed forward-looking statements regarding events and financial trends that may affect the future operating results or financial positions of Robert Half International Inc.

(the "Company").

These statements may be identified by words such as “estimate,” “forecast,” “project,” “plan,” “intend,” “believe,” “expect,” “anticipate,” or variations or negatives thereof or by similar or comparable words or phrases.

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the impact of fluctuations in foreign currency exchange rates;

the possibility that the additional costs the Company will incur as a result of health care reform legislation may adversely affect the Company’s profit margins or the demand for the Company’s services;

the possibility that the additional costs the Company will incur as a result of health care or other reform legislation may adversely affect the Company’s profit margins or the demand for the Company’s services;

the possibility that the Company’s computer and communications hardware and software systems could be damaged or their service interrupted or the Company could experience a cybersecurity breach;

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Additionally, with respect to Protiviti, other risks and uncertainties include the fact that future success will depend on its ability to retain employees and attract clients;

there can be no assurance that there will be ongoing demand for Sarbanes-Oxley or other regulatory compliance services;

there can be no assurance that there will be ongoing demand for broad based consulting, regulatory compliance, technology services, public sector or other high demand advisory services;

failure to produce projected revenues could adversely affect financial results;

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Executive Overview

The Company’s financial results during 2020 were affected by the economic crisis resulting from the COVID-19 pandemic, primarily in the Company’s staffing business.

Annual service revenues reached $5.11 billion in 2020, a decrease of 15.9% from the prior year.

Full-year 2020 net income decreased to $306 million and diluted net income per share decreased to $2.70.

Both the temporary and consultant staffing segment and the permanent placement staffing segment experienced revenue declines, while revenue in the risk consulting and internal audit services segment increased 11.8% in 2020 compared to last year.

Demand for the Company’s contract and consulting staffing, permanent placement staffing, and risk consulting and internal audit services is largely dependent upon general economic and labor trends both domestically and abroad.

Although COVID-19 continues to impact the global economy, the Company has prioritized the health and safety of its employees, and a majority of global staffing and Protiviti employees continue working remotely.

The Company has maintained full operations even where physical locations have remained closed.

We believe that the Company is well positioned to participate fully as broader economic growth returns.

Despite continued general economic declines, there is still strong competition for skilled talent, which increases the Company’s value to clients.

The extent of the economic disruption on the Company’s operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S.

government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain and cannot be predicted.

Given the magnitude of the COVID-19 impact on the Company’s business, we have worked to effectively manage our costs and pursue revenue-generation opportunities.

Protiviti continued its record of multi-year double-digit revenue growth, with particular strength in its technology consulting practice, and it continues to benefit fro m multiple solutions offerings and pipeline, including particularly robust growth from the blended solutions with the Company’s temporary and consultant staffing operations.

The United States economic backdrop during 2020 was one of uncertainty as real gross domestic product (“GDP”) decreased 3.5% compared with an increase of 2.3% in 2019.

The unemployment rate increased from 3.5% in December 2019, to a peak of 14.7% during April 2020, ending with 6.7% in December 2020.

The Company achieved record levels of service revenues and net income during 2021 due to a broad-based, global acceleration in demand for its staffing and business consulting services.

Annual service revenues reached $6.46 billion in 2021, increasing 26.5% from the prior year.

Full-year 2021 net income increased 95.5% to $599 million and diluted net income per share increased 98.5% to $5.36.

The future of work increasingly includes flexible, hybrid and fully remote models and the Company can deliver deeper skills and more price-point choices to its clients by expanding candidate searches beyond local markets while leveraging its global office network and advanced AI-driven technologies.

The expanded acceptance of remote work creates significant opportunity for the Company.

It brings together the Company's numerous strengths, including its global brand, global office network, global candidate database, and advanced AI-driven technologies and data analytics at the scale needed to excel at out-of-market recruitment and placements.

This strengthens the Company's competitive position significantly since its traditionally toughest competitors, local and regional staffing firms, generally do not have these capabilities.

Protiviti continues to be a strong differentiator for the Company, with multiple years of consecutive growth and a highly diversified client base and suite of solution offerings.

Growth remains strong across internal audit, technology consulting, risk and compliance consulting, and business performance improvement.

Technology consulting is the largest solution group with particular strength in cybersecurity and privacy solutions as well as enterprise applications and data analytics.

The Company continues to see positive results in the collaboration between Protiviti and staffing, which pairs Protiviti's world-class consulting talent with staffing's deep operational resources to provide a cost-effective solution to clients' skills and scalability needs.

Protiviti has also benefited from project work in the public sector resulting from various governmental stimulus programs.

Demand for the Company’s temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services is largely dependent upon general economic and labor trends both domestically and abroad.

The United States economic backdrop during 2021 was conducive to growth for the Company as real gross domestic product (“GDP”) increased 5.7% in 2021, compared to a decrease of 3.5% in 2020, while the unemployment rate declined from 6.7% in December 2020 to 3.9% in December 2021.

In the United States, the number of job openings exceeded the number of hires at the end of December 2021, creating competition for skilled talent that increases the Company's value to clients.

labor market remains robust, with significant demand due to talent shortages across professional disciplines.

We monitor various economic indicators and business trends in all of the countries in which we operate to anticipate demand for the Company’s services.

We evaluate these trends to determine the appropriate level of investment, including personnel, which will best position the Company for success in the current and future global macroeconomic environmen t.

The Company’s investments in headcount are typically structured to proactively support and align with expected revenue growth trends and productivity metrics.

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Accordingly, we typically assess headcount and other investments on at least a quarterly basis.

As such, during 2020, we decreased headcount in our staffing lines of business but increased headcount in the Protiviti line of business when compar ed to prior year-end levels.

We are focused on the productivity levels of tenured staff and believe we have aligned staffing levels to drive increased profitability.

Capital expenditures, including $33 million related to cloud computing implementations, in 2020 totaled $67 million, approximately 71% of which represented investments in software initiatives and technology infrastructure, both of which are important to the Company’s future growth opportunities.

Capital expenditures for cloud computing implementation costs are included in cash flows from operating activities on the Company’s Consolidated Statements of Cash Flows.

Capital expenditures also included amounts spent on tenant improvements and furniture and equipment in the Company’s leased offices.

We currently expect that 2021 capitalized expenditures will range from $85 million to $95 million, of which $50 million to $60 million relates to software initiatives and technology infrastructure, including capitalized costs relating to the implementation of cloud computing arrangements.

During 2021, the Company increased headcount across all segments, when compared to prior year-end levels.

Critical Accounting Policies and Estimates

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The valuation allowances recorded relate 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 related valuation reserve.

If such losses are ultimately utilized to offset future operating income, the Company will recognize a tax benefit up to the full amount of the related valuation reserve.

While management believes that its judgments and interpretations regarding income taxes are appropriate, significant differences in actual experience may materially affect the future financial results of the Company.

Recent Accounting Pronouncements

See Note B—“New Accounting Pronouncements” to the Company’s Consolidated Financial Statements included under

Part II—Item 8 of this report.

See Note B—"New Accounting Pronouncements" to the Company’s Consolidated Financial Statements included under Part II—Item 8 of this report.

Results of Operations

The Company analyzes its operating results for three reportable segments:

temporary and consultant staffing, permanent placement staffing and risk consulting and internal audit services.

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 internal audit, technology consulting, risk and compliance consulting, and business performance improvement services.

Demand for the Company’s temporary and consultant staffing, permanent placement staffing and risk consulting and internal audit services is largely dependent upon general economic and labor market conditions both domestically and abroad.

Because of the inherent difficulty in predicting economic trends, future demand for the Company’s services cannot be forecast

with certainty.

The Company’s investments in technology have allowed its internal staff to remain fully functional while working remotely during this pandemic.

While uncertainty remains in the overall economic environment, we enter 2021 with renewed optimism about the Company’s positioning for future growth.

We have retained our key staff and they are committed to driving our success as the backbone of our enterprise.

Our technology investments have facilitated remote working models internally and, with the Company's advanced AI-driven capabilities, are providing clients with real-time choices of candidates from outside their local market area.

Owing to its diversified solution offerings, Protiviti continues its record of multi-year double-digit revenue growth.

The collaboration between Protiviti and staffing is at an all-time high.

Because of the inherent difficulty in predicting economic trends, future demand for the Company’s services cannot be forecast with certainty.

Results for the full year 2021 show that the recovery from the recent economic downturn has surpassed pre-pandemic levels and continues with strong momentum and continued broad-based demand for the Company's staffing and business consulting services.

The Company will continue to invest in its people, its technology, its brands and its business model to strengthen the ability to connect people to meaningful and exciting new work and provide clients with the talent and deep subject matter expertise they need to confidently compete and grow.

The Company’s temporary and permanent staffing business conducts placement activities through 321 offices in 42 states, the District of Columbia and 17 foreign countries, while Protiviti has 64 offices in 24 states and 12 foreign countries.

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.

However, the value of the related investment trust assets also

changes by an equal and offsetting amount, leaving no net cost to the Company.

Under the new presentation, changes in the Company’s employee deferred compensation obligations remain in selling, general and administrative expenses or, in the case of risk consulting and internal audit services, costs of services.

However, the offsetting changes in the investment trust assets will be presented separately below selling, general and administrative expenses.

This does not change the previously reported levels of pre-tax or after-tax income or cash flow.

Under the new presentation, we replaced the discussion of consolidated operating income with the non-GAAP measure of combined segment income.

This is calculated as consolidated income before income taxes adjusted for net interest income and amortization of intangible assets, and is equal to the sum of segment income.

Non-GAAP Financial Measures

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To help readers understand the Company’s financial performance, the Company supplements its GAAP financial results with the following non-GAAP measures:

as adjusted revenue growth rates and combined segment income.

Variations in the Company’s financial results include the impact of changes in foreign currency exchange rates, billing days, and certain intercompany adjustments.

as adjusted revenue growth rates;

adjusted gross margin;

adjusted selling, general and administrative expense;

segment income and combined segment income.

Variations in the Company’s financial results include the impact of changes in foreign currency exchange rates and billing days.

The Company provides “as adjusted” revenue growth calculations to remove the impact of these items.

These calculations show the year-over-year revenue growth rates for the Company’s reportable segments on both a reported basis and also on an as adjusted basis for global, U.S.

and international operations.

These calculations show the year-over-year revenue growth rates for the Company’s lines of business on both a reported basis and also on an as adjusted basis for global, U.S., and international operations.

The Company has provided this data because it focuses on the Company’s revenue growth rates attributable to operating activities and aids in evaluating revenue trends over time.

The Company expresses year-over-year revenue changes as calculated percentages using the same number of billing days and constant currency exchange rates.

In order to calculate constant currency revenue growth rates, as reported amounts are retranslated using foreign currency

exchange rates from the prior year’s comparable period.

Management then calculates a global, weighted-average number of

billing days for each reporting period based upon input from all countries and all lines of business.

In order to remove the

fluctuations caused by comparable periods having different billing days, the Company calculates same billing day revenue

growth rates by dividing each comparative period’s reported revenues by the calculated number of billing days for that period

to arrive at a per billing day amount.

In order to calculate constant currency revenue growth rates, as reported amounts are retranslated using foreign currency exchange rates from the prior year’s comparable period.

Management then calculates a global, weighted-average number of billing days for each reporting period based upon input from all countries and all lines of business.

In order to remove the fluctuations caused by comparable periods having different billing days, the Company calculates same billing day revenue growth rates by dividing each comparative period’s reported revenues by the calculated number of billing days for that period to arrive at a per billing day amount.

Same billing day growth rates are then calculated based upon the per billing day amounts.

The term “as adjusted” means that the impact of different billing days and constant currency fluctuations are removed from the

revenue growth rate calculation.

Combined segment income is defined as income before income taxes adjusted for net interest income and amortization of intangible assets, and is equal to the sum of segment income.

The Company provides combined segment income because it is

how the Company evaluates segment performance.

A reconciliation of combined segment income to reported income before

income taxes is provided herein.

The term “as adjusted” means that the impact of different billing days and currency fluctuations are removed from the revenue growth rate calculation.

The following measures:

adjusted gross margin;

adjusted selling, general and administrative expense;

and segment income include gains and losses on investments held to fund the Company’s obligations under employee deferred compensation plans.

The Company provides these measures because they are used by management to review its operational results.

Combined segment income is income before income taxes adjusted for interest income, net and amortization of intangible assets.

The Company provides combined segment income because it is how management evaluates segment performance.

The non-GAAP financial measures provided herein may not provide information that is directly comparable to that provided by other companies in the Company’s industry, as other companies may calculate such financial results differently.

The Company’s non-GAAP financial measures are not measurements of financial performance under GAAP, and should not be considered as alternatives to actual revenue growth derived from revenue amounts presented in accordance with GAAP.

The Company’s non-GAAP financial measures are not measurements of financial performance under GAAP and should not be considered as alternatives to amounts presented in accordance with GAAP.

The Company does not consider these non-GAAP financial measures to be a substitute for, or superior to, the information provided by GAAP financial results.

A reconciliation of the as adjusted revenue growth rates to the reported revenue growth rates is provided herein.

A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is provided on the following pages.

Refer to Item 7a.

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Years ended December 31, 2021 and 2020

The Company’s revenues were $5.11 billion for the year ended December 31, 2020, decreasing by 15.9% compared to $6.07 billion for the year ended December 31, 2019.

Revenues from foreign operations represented 22% of total revenues for both the years ended December 31, 2020 and 2019, respectively.

The Company analyzes its revenues for three reportable segments:

temporary and consultant staffing, permanent placement staffing and risk consulting and internal audit services.

In 2020 revenues for the two staffing segments of the Company were down whereas revenue was up for the Company's risk consulting and internal audit segment when compared to 2019.

The Company’s revenues for the year ended December 31, 2020 were adversely affected by the global stay-at-home orders, significant travel restrictions, and business closures which resulted in global economic disruptions.

Revenue declines were experienced both domestically and internationally.

Risk consulting and internal audit services continued to post strong growth rates.

Service Revenues.

The Company’s revenues were $6.46 billion for the year ended December 31, 2021, increasing by 26.5%, compared to $5.11 billion for the year ended December 31, 2020.

Revenues from U.S.

operations increased 25.6% to $5.01 billion (77.5% of total revenue) for the year ended December 31, 2021, compared to $3.98 billion (78.0% of total revenue) for the year ended December 31, 2020.

Revenues from foreign operations increased 29.4% to $1.45 billion (22.5% of total revenue) for the year ended December 31, 2021, compared to $1.12 billion (22.0% of total revenue) for the year ended December 31, 2020.

The economic recovery in the United States and abroad contributed to the increased broad-based demand for the Company’s staffing and business consulting services.

Contributing factors for each reportable segment are discussed below in further detail.

Temporary and consultant staffing revenues were $3.48 billion for the year ended December 31, 2020, decreasing by 21.2% compared to revenues of $4.41 billion for the year ended December 31, 2019.

Temporary and consultant staffing revenues were $4.04 billion for the year ended December 31, 2021, increasing by 16.1% compared to revenues of $3.48 billion for the year ended December 31, 2020.

Key drivers of temporary and consultant staffing revenues include average hourly bill rates and the number of hours worked by the Company’s engagement professionals on client engagements.

On an as adjusted basis, temporary and consultant staffing revenues decreased 21.5% for 2020, compared to 2019, due primarily to fewer hours worked by the Company’s engagement professionals, partially offset by a 6.4% increase in weighted average bill rates.

In the U.S., 2020 revenues decreased 21.4% on an as reported basis and 21.7% on an as adjusted basis, compared to 2019.

For the Company’s international operations, 2020 revenues decreased 20.4% on an as reported basis and decreased 20.6% on an as adjusted basis, compared to 2019.

Permanent placement staffing revenues were $370 million for the year ended December 31, 2020, decreasing by 30.6% compared to revenues of $533 million for the year ended December 31, 2019.

On an as adjusted basis, temporary and consultant staffing revenues increased 15.5% for 2021 compared to 2020, due primarily to an increase in the number of hours worked by the Company's engagement professionals and a 5.3% increase in weighted average bill rates, adjusted for changes in the mix of revenues by line of business, currency and country.

In the U.S., 2021 revenues increased 15.6% on an as reported basis, and increased 16.1% on an as adjusted basis, compared to 2020.

For the Company’s international operations, 2021 revenues increased 17.9% on an as reported basis, and increased 13.4% on an as adjusted basis, compared to 2020.

Permanent placement staffing revenues were $570 million for the year ended December 31, 2021, increasing by 54.0% compared to revenues of $370 million for the year ended December 31, 2020.

Key drivers of permanent placement staffing revenues consist of the number of candidate placements and average fees earned per placement .

On an as adjusted basis, permanent placement staffing revenues decreased 30.9% for 2020 compared to 2019, primarily driven by a decrease in number of placements.

In the U.S., 2020 revenues decreased 31.7% on an as reported basis and 32.0% on an as adjusted basis, compared to 2019.

For the Company’s international operations, 2020 revenues decreased 28.1% on an as reported basis, and decreased 28.3% on an as adjusted basis, compared to 2019.

On an as adjusted basis, permanent placement staffing revenues increased 52.6% for 2021 compared to 2020, driven by increases in the number of placements and average fees earned per placement.

In the U.S., 2021 revenues increased 55.2% on an as reported basis, and increased 55.8% on an as adjusted basis, compared to 2020.

For the Company’s international operations, 2021 revenues increased 51.3% on an as reported basis, and increased 45.7% on an as adjusted basis, compared to 2020.

Historically, demand for permanent placement services is even more sensitive to economic and labor market conditions than demand for temporary and consultant staffing and this is expected to continue.

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On an as adjusted basis, risk consulting and internal audit services revenues increased 46.2% for 2021 compared to 2020, driven primarily by an increase in billable hours.

In the U.S., 2020 revenues increased 15.4% on an as reported basis, or 14.9% on an as adjusted basis, compared to 2019.

For the Company’s international operations, 2020 revenues decreased 0.8% on an as reported basis, or decreased 2.3% on an as adjusted basis, compared to 2019.

In the U.S., 2021 revenues increased 45.1% on an as reported basis, and increased 45.6% on an as adjusted basis, compared to 2020.

For the Company’s international operations, 2021 revenues increased 54.0% on an as reported basis, and increased 48.6% on an as adjusted basis, compared to 2020.

A reconciliation of the non-GAAP year-over-year revenue growth rates to the as reported year-over-year revenue growth rates for the year ended December 31, 2021, is presented in the following table:

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Gross Margin .

The Company’s gross margin dollars were $2.01 billion for the year ended December 31, 2020, down 20.3% from $2.53 billion for the year ended December 31, 2019.

The Company’s gross margin dollars were $2.70 billion for the year ended December 31, 2021, up 34.0% from $2.01 billion for the year ended December 31, 2020.

Contributing factors for each reportable segment are discussed below in further detail.

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i) pay-bill spreads, which represent the differential between wages paid to engagement professionals and amounts billed to clients;

ii) fringe costs, which are primarily composed of payroll taxes and benefit costs for temporary and consultant staffing employees;

ii) fringe costs, which are primarily composed of payroll taxes and benefit costs;

and iii) conversion revenues, which are earned when a temporary position converts to a permanent position with the Company’s client.

Gross margin dollars for the Company’s temporary and consultant staffing division were $1.31 billion for the year ended December 31, 2020, down 21.7% from $1.68 billion for the year ended December 31, 2019.

As a percentage of revenues, gross margin dollars for temporary and consultant staffing were 37.8% in 2020, down from 38.0% in 2019.

This year-over-year decline in gross margin percentage was primarily attributable to lower conversion revenues.

Gross margin dollars for the Company’s temporary and consultant staffing division were $1.60 billion for the year ended December 31, 2021, up 21.8% from $1.31 billion for the year ended December 31, 2020.

As a percentage of revenues, gross margin dollars for temporary and consultant staffing were 39.6% in 2021, up from 37.8% in 2020.

This year-over-year improvement in gross margin percentage was primarily attributable to higher pay-bill spreads and higher conversion revenues.

Gross margin dollars for permanent placement staffing represent revenues less reimbursable expenses.

Gross margin dollars for the Company’s permanent placement staffing division were $369 million for the year ended December 31, 2020, down 30.6% from $532 million for the year ended December 31, 2019.

Because reimbursable expenses for permanent placement staffing are de minimis, gross margin dollars are substantially explained by the decline in revenues previously discussed.

Gross margin dollars for risk consulting and internal audit services represent revenues less costs of services, which consist primarily of professional staff payroll, payroll taxes, benefit costs and reimbursable expenses.

The primary drivers of risk consulting and internal audit services gross margin are:

i) the relative composition of and number of professional staff and their respective pay and bill rates;

and ii) staff utilization, which is the relationship of time spent on client engagements in proportion to the total time available for the Company’s risk consulting and internal audit services staff.

Gross margin dollars for the Company’s risk consulting and internal audit division were $330 million for the year ended December 31, 2020, up 4.8% from $315 million for the year ended December 31, 2019.

Impacting gross margin is employee deferred compensation expense related to changes in the fair value of participants’ accounts of $12 million and $6 million for the years ended December 31, 2020 and 2019, respectively.

Equal and offsetting amounts are included in income from investments held in employee deferred compensation trusts.

As a percentage of revenues, gross margin dollars for risk consulting and internal audit services were 26.2% in 2020, down from 27.9% in 2019.

The year-over-year decline in gross margin percentage was due primarily to a decline in staff utilization.

Selling, General and Administrative Expenses .

The Company’s selling, general and administrative expenses consist primarily of staff compensation, advertising, variable overhead, depreciation and occupancy costs.

The Company’s selling, general and administrative expenses were $1.67 billion for the year ended December 31, 2020, down 14.9% from $1.96 billion for the year ended December 31, 2019.

As a percentage of revenues, the Company’s selling, general and administrative expenses were 32.6% in 2020, up slightly from 32.2% in 2019.

Contributing factors for each reportable segment are discussed below in further detail.

Selling, general and administrative expenses for the Company’s temporary and consultant staffing division were $1.13 billion for the year ended December 31, 2020, decreasing by 13.6% from $1.31 billion for the year ended December 31, 2019.

This includes employee deferred compensation expense related to changes in the fair value of participants’ accounts of $57 million and $44 million for the years ended December 31, 2020 and 2019, respectively.

As a percentage of revenues, selling, general and administrative expenses for temporary and consultant staffing were 32.6% in 2020, up from 29.7% in 2019 due primarily to negative leverage as revenues decreased as a result of economic conditions during the year and an increase in employee deferred compensation expense related to changes in the fair value of participants’ accounts.

Selling, general and administrative expenses for the Company’s permanent placement staffing division were $347 million for the year ended December 31, 2020, decreasing by 23.6% from $454 million for the year ended December 31, 2019.

This includes employee deferred compensation expense related to changes in the fair value of participants’ accounts of $6 million and $5 million for the years ended December 31, 2020 and 2019, respectively.

As a percentage of revenues, selling, general and administrative expenses for permanent placement staffing services were 93.7% in 2020, up from 85.1% in 2019 due primarily to negative leverage as revenues decreased as a result of economic conditions during the year.

Selling, general and administrative expenses for the Company’s risk consulting and internal audit services division were $186 million for the year ended December 31, 2020, decreasing by 3.4% from $193 million for the year ended December 31, 2019.

As a percentage of revenues, selling, general and administrative expenses for risk consulting and internal audit services were 14.8% in 2020, down from 17.1% in 2019.

The decrease in selling, general and administrative expenses as a percentage of revenue is primarily due to positive operating leverage resulting from increased revenue.

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 employee deferred compensation obligation to employees changes accordingly.

Changes in the Company’s deferred

compensation obligations noted above remain in selling, general and administrative or in the case of the Company’s risk consulting and internal audit services division, costs of services.

The value of the related investment trust assets also changes by the equal and offsetting amount, leaving no net costs 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.

The Company’s income from investments held in employee deferred compensation trusts was $75 million and $55 million for the years ended December 31, 2020 and 2019, respectively.

The increase in income from trust investments was due to positive market returns in 2020.

Income before income taxes and Segment income.

The Company’s total income before income taxes was $422 million, or 8.3% of revenues, for the year ended December 31, 2020, down from $626 million, or 10.3% of revenues, for the year ended December 31, 2019.

Combined segment income was $422 million, or 8.3% of revenues, for the year ended December 31, 2020, down from $622 million, or 10.2% of revenues, for the year ended December 31, 2019.

The following table provides a reconciliation of the reported income before income taxes to the non-GAAP combined segment income for the years ended December 31, 2020 and 2019 (in thousands):

Year Ended December 31,

Income before income taxes $ 421,882 $ 625,515

Interest income, net (1,343) (5,125)

Amortization of intangible assets 1,219 1,361

Combined segment income $ 421,758 $ 621,751

For the Company’s temporary and consultant staffing division, segment income was $237 million, or 6.8% of applicable revenues, down from segment income of $410 million, or 9.3% of applicable revenues, in 2019.

For the Company’s permanent placement staffing division, segment income was $29 million, or 7.8% of applicable revenues, down from segment income of $84 million, or 15.7% of applicable revenues, in 2019.

For the Company’s risk consulting and internal audit services division, segment income was $156 million, or 12.3% of applicable revenues, up from segment income of $128 million, or 11.3% of applicable revenues, in 2019.

Provision for income taxes.

The provision for income taxes was 27.4% for both the years ended December 31, 2020 and 2019, respectively.

Years ended December 31, 2019 and 2018

A complete discussion of changes regarding our financial condition and results of operations for the year ended December 31, 2019, compared to the year ended December 31, 2018, can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 14, 2020, which is available free of charge on the SEC’s website at www.sec.gov and at www.roberthalf.com/investor-center.

Change in Presentation.

In 2020 the Company 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.

However, the value of the related investment trust assets also changes by an equal and offsetting amount, leaving no net cost to the Company.

However, the offsetting changes in the investment trust assets are presented separately below selling, general and administrative expenses.

This does not change the previously reported levels of pre-tax or after-tax income or cash flow.

Under the new presentation, we replaced the discussion of consolidated operating income with the non-GAAP measure of combined segment income.

This is calculated as consolidated income before income taxes adjusted for net interest income and amortization of intangible assets, and is equal to the sum of segment income.

Discussions regarding financial conditions and results of operations for the year ended December 31, 2019, compared to the year ended December 31, 2018, which were impacted by this change in presentation are presented herein.

Gross Margin.

The Company’s gross margin dollars were $2.53 billion for the year ended December 31, 2019, up 4.7% from $2.41 billion for the year ended December 31, 2018.

Contributing factors for each reportable segment are discussed below in further detail.

Gross margin dollars for the Company’s permanent placement staffing division were $569 million for the year ended December 31, 2021, up 54.0% from $369 million for the year ended December 31, 2020.

Because reimbursable expenses for permanent placement staffing services are de minimis, the increase in gross margin dollars is substantially explained by the increase in revenues previously discussed.

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Gross margin dollars for the Company’s risk consulting and internal audit division were $528 million for the year ended December 31, 2021, up 59.9% from $330 million for the year ended December 31, 2020.

Impacting gross margin is deferred compensation expense related to changes in the fair value of participants’ accounts of $6 million and ($1 million) for the years ended December 31, 2019 and 2018, respectively.

Equal and offsetting amounts are included in (income) loss from investments held in employee deferred compensation trusts.

As a percentage of revenues, gross margin dollars for risk consulting and internal audit services were 27.9% in 2019, down from 28.2% in 2018.

The year-over-year deterioration in gross margin percentage was due primarily to an increase in deferred compensation expense related to changes in the fair value of participants’ accounts partially offset by improved staff utilization.

As a percentage of revenues, reported gross margin dollars for risk consulting and internal audit services were 28.5% in 2021, up from 26.2% in 2020.

As a percentage of revenues, adjusted gross margin dollars for risk consulting and internal audit services were 29.0% in 2021, up from 27.1% in 2020.

The year-over-year increase in gross margin percentage was due to higher staff utilization rates and the relative composition of and number of professional staff and their respective pay and bill rates.

Selling, General and Administrative Expenses .

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The Company’s selling, general and administrative expenses were $1.95 billion for the year ended December 31, 2021, up 17.1% from $1.67 billion for the year ended December 31, 2020.

As a percentage of revenues, the Company’s selling, general and administrative expenses were 32.2% for the year ended December 31, 2019, and 31.2% for the year ended 2018.

As a percentage of revenues, reported selling, general and administrative expenses were 30.2% in 2021, down from 32.6% in 2020.

As a percentage of revenues, adjusted selling, general and administrative expenses were 29.4% in 2021, down from 31.4% in 2020.

Contributing factors for each reportable segment are discussed below in further detail.

Selling, general and administrative expenses for the Company’s temporary and consultant staffing division were $1.25 billion for the year ended December 31, 2021, increasing by 10.5% from $1.13 billion for the year ended December 31, 2020.

This includes deferred compensation expense related to changes in the fair value of participants’ accounts of $44 million and ($9 million) for the years ended December 31, 2019 and 2018, respectively.

Equal and offsetting amounts are included in (income) loss from investments held in employee deferred compensation trusts.

As a percentage of revenues, selling, general and administrative expenses for temporary and consultant staffing were 29.7% in 2019, up from 28.1% in 2018 due primarily to increased deferred compensation expense related to changes in the fair value of participants’ accounts and negative leverage resulting from the Company’s international operations.

As a percentage of revenues, reported selling, general and administrative expenses for temporary and consultant staffing were 31.0% in 2021, down from 32.6% in 2020.

As a percentage of revenues, adjusted selling, general and administrative expenses for temporary and consultant staffing were 29.8% in 2021, down from 30.9% in 2020, due primarily to positive leverage from an increase in revenues.

Selling, general and administrative expenses for the Company’s permanent placement staffing division were $468 million for the year ended December 31, 2021, increasing by 35.0% from $347 million for the year ended December 31, 2020.

This includes deferred compensation expense related to changes in the fair value of participants’ accounts of $5 million and ($1 million) for the years ended December 31, 2019 and 2018, respectively.

Equal and offsetting amounts are included in (income) loss from investments held in employee deferred compensation trusts.

As a percentage of revenues, selling, general and administrative expenses for permanent placement staffing services were 85.1% in 2019, up from 81.9% in 2018 due primarily to increased deferred compensation expense related to changes in the fair value of participants’ accounts and negative leverage resulting from the Company’s international operations.

(Income) loss from Investments Held in Employee Deferred Compensation Trusts.

As a percentage of revenues, reported selling, general and administrative expenses for permanent placement staffing services were 82.1% in 2021, down from 93.7% in 2020.

As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement staffing was 81.2% in 2021, down from 92.0% in 2020, due primarily to positive leverage from an increase in revenues.

Selling, general and administrative expenses for the Company’s risk consulting and internal audit services division were $232 million for the year ended December 31, 2021, increasing by 24.3% from $186 million for the year ended December 31, 2020.

As a percentage of revenues, selling, general and administrative expenses for risk consulting and internal audit services were 12.5% in 2021, down from 14.8% in 2020, due primarily to positive operating leverage resulting from increased revenue.

A reconciliation of the non-GAAP adjusted summary of operations to the reported summary of operations, for the years ended December 31, 2021 and 2020 is presented in the following table (in thousands):

Year Ended December 31, Relationships

2021 2020 2021 2020 2021 2020

Reported Adjustments Adjusted (1) Reported Adjustments Adjusted (1) Reported Adjusted

SERVICE REVENUES:

Accountemps $ 1,870,563 $ — $ 1,870,563 $ 1,558,024 $ — $ 1,558,024 29.0 % 30.5 % 29.0 % 30.5 %

OfficeTeam 1,058,906 — 1,058,906 764,947 — 764,947 16.4 % 15.0 % 16.4 % 15.0 %

Robert Half Technology 795,319 — 795,319 695,418 — 695,418 12.3 % 13.6 % 12.3 % 13.6 %

Robert Half Management Resources 894,334 — 894,334 698,942 — 698,942 13.8 % 13.7 % 13.8 % 13.7 %

Elimination of intersegment revenues (580,379) — (580,379) (239,996) — (239,996) (9.0 %) (4.7 %) (9.0 %) (4.7 %)

Temporary and consultant staffing 4,038,743 — 4,038,743 3,477,335 — 3,477,335 62.5 % 68.1 % 62.5 % 68.1 %

Permanent placement staffing 569,921 — 569,921 370,109 — 370,109 8.8 % 7.2 % 8.8 % 7.2 %

Protiviti 1,852,780 — 1,852,780 1,261,556 — 1,261,556 28.7 % 24.7 % 28.7 % 24.7 %

Total $ 6,461,444 $ — $ 6,461,444 $ 5,109,000 $ — $ 5,109,000 100.0 % 100.0 % 100.0 % 100.0 %

GROSS MARGIN:

Temporary and consultant staffing $ 1,598,716 $ — $ 1,598,716 $ 1,312,797 $ — $ 1,312,797 39.6 % 37.8 % 39.6 % 37.8 %

Permanent placement staffing 568,983 — 568,983 369,401 — 369,401 99.8 % 99.8 % 99.8 % 99.8 %

Protiviti 528,329 8,847 537,176 330,413 11,682 342,095 28.5 % 26.2 % 29.0 % 27.1 %

Total $ 2,696,028 $ 8,847 $ 2,704,875 $ 2,012,611 $ 11,682 $ 2,024,293 41.7 % 39.4 % 41.9 % 39.6 %

SELLING GENERAL AND

ADMINISTRATIVE EXPENSE:

Temporary and consultant staffing $ 1,251,565 $ (46,721) $ 1,204,844 $ 1,132,915 $ (57,397) $ 1,075,518 31.0 % 32.6 % 29.8 % 30.9 %

Permanent placement staffing 468,028 (5,510) 462,518 346,711 (6,109) 340,602 82.1 % 93.7 % 81.2 % 92.0 %

Protiviti 231,689 — 231,689 186,415 — 186,415 12.5 % 14.8 % 12.5 % 14.8 %

Total $ 1,951,282 $ (52,231) $ 1,899,051 $ 1,666,041 $ (63,506) $ 1,602,535 30.2 % 32.6 % 29.4 % 31.4 %

OPERATING/SEGMENT INCOME:

Temporary and consultant staffing $ 347,151 $ 46,721 $ 393,872 $ 179,882 $ 57,397 $ 237,279 8.6 % 5.2 % 9.8 % 6.8 %

Permanent placement staffing 100,955 5,510 106,465 22,690 6,109 28,799 17.7 % 6.1 % 18.7 % 7.8 %

Protiviti 296,640 8,847 305,487 143,998 11,682 155,680 16.0 % 11.4 % 16.5 % 12.3 %

Total $ 744,746 $ 61,078 $ 805,824 $ 346,570 $ 75,188 $ 421,758 11.5 % 6.8 % 12.5 % 8.3 %

Income from investments held in

employee deferred compensation trusts

(61,078) 61,078 — (75,188) 75,188 — (1.0 %) (1.5 %) — —

Amortization of intangible assets 2,241 — 2,241 1,219 — 1,219 0.1 % 0.0 % 0.1 % 0.0 %

Interest income, net (197) — (197) (1,343) — (1,343) 0.0 % 0.0 % 0.0 % 0.0 %

Income before income taxes $ 803,780 $ — $ 803,780 $ 421,882 $ — $ 421,882 12.4 % 8.3 % 12.4 % 8.3 %

(1) Changes in the Company’s deferred compensation obligations are included in selling, general and administrative expense or, in the case of Protiviti, costs of services, while the related investment income is presented separately.

The non-GAAP financial measures shown in the table above are adjusted to reclassify investment income from investments held in employee deferred compensation trusts to the same line item, which includes the corresponding change in obligation.

These adjustments have no impact to income before income taxes.

Income from Investments Held in Employee Deferred Compensation Trusts .

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.

The Company’s (income) loss from investments held in employee deferred compensation trusts was ($55 million) for the year ended December 31, 2019, and $11 million for the year ended December 31, 2018.

The higher 2019 income from trust investments was due to positive market returns in 2019.

As realized and unrealized investment gains and losses occur, the Company’s employee deferred compensation obligation to employees changes accordingly.

Changes in the Company’s deferred compensation obligations noted above remain in selling, general and administrative, or in the case of the Company’s risk consulting and internal audit services division, costs of services.

The value of the related investment trust assets also changes by the equal and offsetting amount, leaving no net costs 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.

The Company’s income from investments held in employee deferred compensation trusts was $61 million for the year ended December 31, 2021, down from $75 million for the year ended December 31, 2020.

The decrease in income from trust investments was due to lower market returns in 2021, when compared to 2020.

Income Before Income Taxes and Segment Income.

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Combined segment income was $806 million, or 12.5% of revenues, for the year ended December 31, 2021, up from $422 million, or 8.3% of revenues, for the year ended December 31, 2020.

The following table provides a reconciliation of the reported income before income taxes to the non-GAAP combined segment income for the years ended December 31, 2019 and 2018 (in thousands):

Year Ended December 31,

The following table provides a reconciliation of the non-GAAP combined segment income to reported income before income taxes for the years ended December 31, 2021 and 2020 (in thousands):

Income before income taxes $ 803,780 $ 421,882

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For the Company’s temporary and consultant staffing division, segment income was $394 million, or 9.8% of applicable revenues, for the year ended December 31, 2021, up from $237 million, or 6.8% of applicable revenues, for the year ended December 31, 2020.

For the Company’s permanent placement staffing division, segment income was $84 million, or 15.7% of applicable revenues for the year ended December 31, 2019, down from segment income of $91 million, or 17.7% of applicable revenues, for the year ended December 31, 2018.

For the Company’s risk consulting and internal audit services division, segment income was $128 million, or 11.3% of applicable revenues, for the year ended December 31, 2019, up from segment income of $93 million, or 9.7% of applicable revenues, for the year ended December 31, 2018.

For the Company’s permanent placement staffing division, segment income was $106 million, or 18.7% of applicable revenues, for the year ended December 31, 2021, up from segment income of $29 million, or 7.8% of applicable revenues, for the year ended December 31, 2020.

For the Company’s risk consulting and internal audit services division, segment income was $305 million, or 16.5% of applicable revenues, for the year ended December 31, 2021, compared to segment income of $156 million, or 12.3% of applicable revenues, for the year ended December 31, 2020.

Provision for income taxes .

The provision for income taxes was 25.5% and 27.4% for the years ended December 31, 2021 and 2020, respectively.

The lower tax rate for 2021 can be attributed to better coverage of non-deductible expenses due to higher income in 2021, as well as higher stock compensation deductions due to the rise in the Company's stock price.

Years ended December 31, 2020 and 2019

A discussion of changes regarding the Company's financial condition and results of operations for the year ended December 31, 2020, compared to the year ended December 31, 2019, can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 12, 2021, which is available free of charge on the SEC’s website at www.sec.gov and at www.roberthalf.com/investor-center.

Liquidity and Capital Resources

The change in the Company’s liquidity during the years ended December 31, 2020 and 2019, is primarily the net effect of funds generated by operations and the funds used for capital expenditures, investment in employee deferred

compensation trusts, net of redemptions from employee deferred compensation trusts, repurchases of common stock, and

payment of dividends.

The change in the Company’s liquidity during the years ended December 31, 2021 and 2020, is primarily the net effect of funds generated by operations and the funds used for capital expenditures, investment in employee deferred compensation trusts, net of redemptions from employee deferred compensation trusts, repurchases of common stock, and payment of dividends.

Cash and cash equivalents were $619 million and $574 million at December 31, 2021 and 2020, respectively.

Operating activities provided $597 million during the year ended December 31, 2020, in addition to $9 million generated from investing activities offset by $315 million of net cash used in financing activities.

Operating activities provided $603 million during the year ended December 31, 2021, offset by $88 million and $459 million of net cash used in investing activities and financing activities, respectively.

Operating and investing activities provided $597 million and $9 million, respectively, during the year ended December 31, 2020, offset by $315 million of net cash used in financing activities.

Operating activities—Net cash provided by operating activities for the year ended December 31, 2021 was $603 million.

This was composed of net income of $306 million adjusted upward for non-cash items and changes in working capital of $59 million and $232 million, respectively.

This was composed of net income of $599 million adjusted upward for non-cash items of $89 million, offset by net cash used in changes in working capital of $85 million.

Net cash provided by operating activities for the year ended December 31, 2020 was $597 million.

This was composed of net income of $454 million adjusted upward for non-cash items of $74 million offset by net cash used by changes in working capital of $8 million.

Investing activities—Net cash provided by investing activities for the year ended December 31, 2020, was $9 million.

This was composed of net income of $306 million, adjusted upward for non-cash items of $59 million, and net cash provided by changes in working capital of $232 million.

Investing activities—Cash used in investing activities for the year ended December 31, 2021, was $88 million.

This was composed of capital expenditures of $37 million and investments in employee deferred compensation trusts of $85 million, offset by proceeds from employee deferred compensation trust redemptions of $34 million.

Cash provided by investing activities for the year ended December 31, 2020 was $9 million.

This was composed of proceeds from employee deferred compensation trust redemptions of $123 million, largely offset by capital expenditures of $33 million, investments in employee deferred compensation trusts of $65 million, and $16 million cash paid for an acquisition.

Cash used in investing activities for the year ended December 31, 2019, was $102 million.

This was primarily composed of capital expenditures of $59 million and investments in employee deferred compensation plans of $72 million, offset by employee deferred compensation trust redemptions of $29 million.

Capital expenditures, including $31 million related to cloud computing implementations, in 2021, totaled $68 million, approximately 84% of which represented investments in software initiatives and technology infrastructure, both of which are important to the Company’s sustainability and future growth opportunities.

Capital expenditures for cloud computing arrangements are included in cash flows from operating activities on the Company’s Consolidated Statements of Cash Flows.

Capital expenditures included amounts spent on tenant improvements and furniture and equipment in the Company’s leased offices.

We currently expect that 2022 capitalized expenditures will range from $95 million to $105 million, of which $75 million to $80 million relates to software initiatives and technology infrastructure, including capitalized costs relating to the implementation of cloud computing arrangements.

Financing activities—Cash used in financing activities for the year ended December 31, 2021 was $459 million.

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As of December 31, 2021, the Company is authorized to repurchase, from time to time, up to 7.2 million additional shares of the Company’s common stock on the open market or in privately negotiated transactions, depending on market conditions.

During the years ended December 31, 2020 and 2019, the Company repurchased approximately 2.5 million shares and 4.3 million shares of common stock on the open market for a total cost of $138 million and $250 million, respectively.

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.

During the years ended December 31, 2020 and 2019, such repurchases totaled approximately 0.4 million shares and 0.4 million shares at a cost of $17 million and $22 million, respectively.

During the year ended December 31, 2021 and 2020, the Company repurchased 2.8 million shares, at a cost of $260 million, and 2.5 million shares, at a cost of $138 million, on the open market, respectively.

Additional stock repurchases were made in connection with employee stock plans, whereby Company shares were tendered by employees for the payment of exercise price and applicable statutory withholding taxes.

During the year ended December 31, 2021 and 2020, such repurchases totaled 0.3 million shares, at a cost of $30 million, and 0.4 million shares, at a cost of $17 million, respectively.

Repurchases of shares have been funded with cash generated from operations.

The Company’s working capital at December 31, 2020, included $574 million in cash and cash equivalents and $714

million in accounts receivable, both of which will be a significant source of ongoing liquidity and financial resilience.

The Company’s working capital as of December 31, 2021 included $619 million in cash and cash equivalents and $985 million in accounts receivable, both of which will be a significant source of ongoing liquidity and financial resilience.

The Company expects that internally generated cash will be sufficient to support the working capital needs of the Company, the Company’s fixed payments, dividends, and other obligations on both a short-term and long-term basis.

We have limited visibility into future cash flows as the Company’s revenues are dependent on macroeconomic conditions.

As a result of continued economic disruptions, we have continued to control costs during the year.

We have been focused on maintaining low travel and events costs, as well as managing headcount.

This cost management, coupled with a talented and driven team that is backed by our industry-leading technology, positions us to fully participate in the economic recovery.

In addition, the Company’s variable direct costs related to its temporary and consultant staffing business will largely fluctuate in relation to its revenues.

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.

On February 11, 2021, the Company announced a quarterly dividend of $.38 per share to be paid to all shareholders of record on February 25, 2021.

There is limited visibility into future cash flows as the Company’s revenues are dependent on macroeconomic conditions.

The Company’s variable direct costs related to its temporary and consultant staffing business will largely fluctuate in relation to its revenues.

In May 2021, the Company entered into an amendment to extend the maturity of its $100 million unsecured revolving credit facility (the “Credit Agreement”) to May 2024.

Borrowings under the Credit Agreement will bear interest in accordance with the terms of the borrowing, which typically will be calculated according to the LIBOR, or an alternative base rate, plus an applicable margin.

The Credit Agreement is subject to certain financial covenants and the Company was in compliance with these covenants as of December 31, 2021.

There were no borrowings under the Credit Agreement as of December 31, 2021 or December 31, 2020.

On February 10, 2022, the Company announced a quarterly dividend of $.43 per share to be paid to all shareholders of record as of February 25, 2022.

The dividend will be paid on March 15, 2022.

The Company’s cash flows generated from operations are also the primary source for funding various contractual obligations.

The table below summarizes the Company’s major commitments as of December 31, 2020 (in thousands):

Payments due by period

Contractual Obligations 2021 2022 and 2023 2024 and 2025 Thereafter Total

Debt obligations $ 252 $ — $ — $ — $ 252

Operating lease obligations 78,303 122,061 73,582 28,727 302,673

Material Cash Requirements from Contractual Obligations

As of December 31, 2021, the Company reported current and long-term operating lease liabilities of $83.8 million and $181.3 million, respectively.

These balances consist of the minimum rental commitments for 2022 and thereafter, discounted to reflect the Company’s cost of borrowing, under noncancelable lease contracts executed as of December 31, 2021.

The majority of these leases are for real estate.

In the event the Company vacates a location prior to the end of the lease term, the Company may be obliged to continue making lease payments.

For further information, see Note F— “Leases” to the Company’s Consolidated Financial Statements included under Part II—Item 8 of this report.

Purchase Obligations.

Other liabilities 1,436 1,162 2,813 13,518 18,929

Total $ 160,152 $ 147,115 $ 80,444 $ 49,478 $ 437,189

Debt obligations consist of promissory notes and related interest issued in connection with certain acquisitions and other payment obligations.

Operating lease obligations consist of undiscounted minimum rental commitments for 2021 and thereafter under non-cancelable lease contracts executed as of December 31, 2020.

Purchase obligations consist of purchase commitments primarily related to telecom service agreements, software subscriptions, and computer hardware and software maintenance agreements.

Other liabilities consist of asset retirement and deferred compensation obligations.

As of December 31, 2021, the Company incurred contractual purchase obligations of $127.9 million primarily related to software subscriptions, services, telecom service and software maintenance agreements.

Of this amount, $70.4 million is expected to be paid within the next twelve months.

These purchase obligations are incurred during the normal course of business.

Employee Deferred Compensation Plan.

As of December 31, 2021, the Company reported deferred compensation plan obligations of $535.3 million in its accompanying consolidated statements of financial position.

The balances are due to employees based upon elections they make at the time of deferring their funds.

The timing of these payments may change based upon factors including termination of the Company’s employment arrangement with a participant.

Assets of these plans are held by an independent trustee for the sole benefit of participating employees and consist of money market funds and mutual funds.

For further information, see Note I—“Employee Deferred Compensation Plan Obligations” to the Company’s Consolidated Financial Statements included under Part II—Item 8 of this report.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis