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, 2022 2021 ASSETS Cash and cash equivalents $ 658,626 $ 619,001 Accounts receivable, net 1,018,287 984,691 Employee deferred compensation trust assets 432,734 494,991 Other current assets 175,465 169,864 Total current assets 2,285,112 2,268,547 Property and equipment, net 109,687 93,403 Right-of-use assets 201,998 228,793 Other intangible assets, net 5,317 3,334 Goodwill 237,810 222,855 Noncurrent deferred income taxes 124,564 135,427 Total assets $ 2,964,488 $ 2,952,359 LIABILITIES Accounts payable and accrued expenses $ 168,163 $ 183,796 Accrued payroll and benefit costs 472,310 540,183 Employee deferred compensation plan obligations 474,111 535,276 Income taxes payable 15,535 15,631 Current operating lease liabilities 86,083 83,787 Total current liabilities 1,216,202 1,358,673 Noncurrent operating lease liabilities 151,768 181,291 Other liabilities 27,960 31,344 Total liabilities 1,395,930 1,571,308 Commitments and Contingencies (Note K) 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 107,698,498 and 110,685,989 shares 108 111 Additional paid-in capital 1,293,565 1,235,903 Accumulated other comprehensive income (loss) ( 43,623 ) ( 22,622 ) Retained earnings 318,508 167,659 Total stockholders’ equity 1,568,558 1,381,051 Total liabilities and stockholders’ equity $ 2,964,488 $ 2,952,359 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 26 ROBERT HALF INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Year Ended December 31, 2022 2021 2020 Service revenues $ 7,238,142 $ 6,461,444 $ 5,109,000 Costs of services 4,144,093 3,765,416 3,096,389 Gross margin 3,094,049 2,696,028 2,012,611 Selling, general and administrative expenses 2,117,296 1,951,282 1,666,041 (Income) loss from investments held in employee deferred compensation trusts 86,139 ( 61,078 ) ( 75,188 ) Amortization of intangible assets 1,667 2,241 1,219 Interest income, net ( 8,008 ) ( 197 ) ( 1,343 ) Income before income taxes 896,955 803,780 421,882 Provision for income taxes 239,036 205,154 115,606 Net income $ 657,919 $ 598,626 $ 306,276 Net income per share: Basic $ 6.08 $ 5.42 $ 2.72 Diluted $ 6.03 $ 5.36 $ 2.70 Shares: Basic 108,214 110,482 112,729 Diluted 109,171 111,718 113,318 Dividends declared per share $ 1.72 $ 1.52 $ 1.36 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 27 ROBERT HALF INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Year Ended December 31, 2022 2021 2020 COMPREHENSIVE INCOME (LOSS): Net income $ 657,919 $ 598,626 $ 306,276 Other comprehensive income (loss): Foreign currency translation adjustments, net of tax ( 25,274 ) ( 18,702 ) 18,973 Foreign defined benefit plan adjustments, net of tax 4,273 812 ( 3,719 ) Total other comprehensive income (loss) ( 21,001 ) ( 17,890 ) 15,254 Total comprehensive income (loss) $ 636,918 $ 580,736 $ 321,530 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 28 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, 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 Net income — — — — 598,626 598,626 Other comprehensive income (loss) — — — ( 17,890 ) — ( 17,890 ) Dividends declared ($ 1.52 per share) — — — — ( 170,679 ) ( 170,679 ) Net issuances of restricted stock 701 1 ( 1 ) — — — Stock-based compensation — — 55,932 — — 55,932 Repurchases of common stock ( 3,143 ) ( 3 ) — — ( 290,224 ) ( 290,227 ) Balance at December 31, 2021 110,686 $ 111 $ 1,235,903 $ ( 22,622 ) $ 167,659 $ 1,381,051 Net income — — — — 657,919 657,919 Other comprehensive income (loss) — — — ( 21,001 ) — ( 21,001 ) Dividends declared ($ 1.72 per share) — — — — ( 189,266 ) ( 189,266 ) Net issuances of restricted stock 693 1 ( 1 ) — — — Stock-based compensation — — 57,663 — — 57,663 Repurchases of common stock ( 3,681 ) ( 4 ) — — ( 317,804 ) ( 317,808 ) Balance at December 31, 2022 107,698 $ 108 $ 1,293,565 $ ( 43,623 ) $ 318,508 $ 1,568,558 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 29 ROBERT HALF INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2022 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 657,919 $ 598,626 $ 306,276 Adjustments to reconcile net income to net cash provided by operating activities: Allowance for credit losses 8,771 9,464 4,200 Depreciation 47,398 52,210 62,281 Amortization of cloud computing implementation costs 28,925 28,023 18,399 Amortization of intangible assets 1,667 2,241 1,219 Realized and unrealized (gains) losses from investments held in employee deferred compensation trusts 98,776 ( 37,359 ) ( 66,866 ) Stock-based compensation 57,663 55,932 52,486 Deferred income taxes 10,810 ( 21,133 ) ( 13,146 ) Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable ( 65,626 ) ( 292,628 ) 127,740 Capitalized cloud computing implementation costs ( 40,357 ) ( 31,240 ) ( 33,178 ) Accounts payable and accrued expenses 3,735 52,610 1,098 Accrued payroll and benefit cost ( 58,067 ) 99,005 119,231 Employee deferred compensation plan obligations ( 61,165 ) 100,058 13,923 Income taxes payable 2,596 3,587 182 Other assets and liabilities, net ( 9,295 ) ( 16,260 ) 2,683 Net cash flows provided by operating activities 683,750 603,136 596,528 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 61,120 ) ( 36,611 ) ( 33,377 ) Investments in employee deferred compensation trusts ( 67,388 ) ( 85,432 ) ( 64,351 ) Proceeds from employee deferred compensation trust redemptions 30,869 34,434 123,025 Payments for acquisitions, net of cash acquired ( 18,984 ) — ( 15,836 ) Net cash flows (used in) provided by investing activities ( 116,623 ) ( 87,609 ) 9,461 CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of notes payable — ( 239 ) ( 218 ) Repurchases of common stock ( 319,897 ) ( 287,738 ) ( 159,172 ) Dividends paid ( 189,286 ) ( 170,612 ) ( 155,935 ) Net cash flows used in financing activities ( 509,183 ) ( 458,589 ) ( 315,325 ) Effect of exchange rate fluctuations ( 18,319 ) ( 12,363 ) 13,284 Change in cash and cash equivalents 39,625 44,575 303,948 Cash and cash equivalents at beginning of period 619,001 574,426 270,478 Cash and cash equivalents at end of period $ 658,626 $ 619,001 $ 574,426 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 368 $ 548 $ 577 Income taxes, net of refunds $ 217,927 $ 219,726 $ 128,321 Non-cash items: Stock repurchases awaiting settlement $ 3,504 $ 5,593 $ 3,104 Fund exchanges within employee deferred compensation trusts $ 103,003 $ 116,815 $ 208,055 Contingent consideration related to acquisition $ 1,300 $ — $ — The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A—Summary of Significant Accounting Policies Nature of Operations. Robert Half International Inc. (the “Company”) is a specialized talent solutions and business consulting firm that connects opportunities at great companies with highly skilled job seekers. Robert Half ® offers contract talent solutions and permanent placement talent solutions for finance and accounting, technology, marketing and creative, legal, administrative, and customer support roles. Robert Half is also the parent company of Protiviti ® , a global consulting firm that provides internal audit, risk, business, and technology consulting solutions. During 2022 the Company unified its family of Robert Half brands to focus on its key brand, Robert Half. This simplifies the Company’s go-to-market brand structure for clients and candidates, provides leverage for greater brand awareness, and allows future flexibility to expand the Company’s existing functional specializations. In connection with this process, the Company’s current financial statement disclosures reflect new names for its reportable segments, including contract talent solutions (formerly temporary and consultant staffing), permanent placement talent solutions (formerly permanent placement staffing) and Protiviti (formerly risk consulting and internal audit services). What was previously referred to as staffing operations is now referred to as talent solutions. The presentation of contract talent solutions includes functional specializations rather than the previously branded divisions. The functional specializations are: finance and accounting, which combines the former Accountemps ® and Robert Half ® Management Resources divisions; administrative and customer support, which consists of the former OfficeTeam ® ; and technology, which includes the former Robert Half ® Technology . 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 2022 presentation. Principles of Consolidation. The Financial Statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As of December 31, 2022, such estimates include allowances for credit losses, variable consideration, workers’ compensation losses, accrued medical expenses, 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. Service Revenues. The Company derives its revenues from three segments: contract talent solutions, permanent placement talent solutions, and Protiviti. 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— “ Revenue Recognition ” for further discussion of the revenue recognition accounting policy. Costs of Services. Direct costs of contract talent solutions consist of payroll, payroll taxes, and benefit costs for the Company’s engagement professionals, as well as reimbursable expenses. Direct costs of permanent placement talent solutions consist of reimbursable expenses. Protiviti 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 $ 55.6 million, $ 49.3 million and $ 37.2 million for the years ended December 31, 2022, 2021, and 2020, respectively. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (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 and adjustments are recorded in selling, general and administrative expenses or, in the case of Protiviti, 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 and is presented separately on the Consolidated Statements of Operations. The following table presents the Company’s (income) loss from investments held in employee deferred compensation trusts (in thousands): Year Ended December 31, 2022 2021 2020 Dividend income $ ( 12,637 ) $ ( 23,719 ) $ ( 8,322 ) Realized and unrealized (gains) losses 98,776 ( 37,359 ) ( 66,866 ) (Income) loss from investments held in employee deferred compensation trusts $ 86,139 $ ( 61,078 ) $ ( 75,188 ) 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, net accounts receivable, and 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). 32 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, 2022 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 $ 77,730 $ 77,730 — — Mutual funds - bond 31,096 31,096 — — Mutual funds - stock 245,908 245,908 — — Mutual funds - blend 78,000 78,000 — — $ 432,734 $ 432,734 — — Fair Value Measurements Using Balance at December 31, 2021 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 $ 66,700 $ 66,700 — — Mutual funds - bond 30,750 30,750 — — Mutual funds - stock 303,277 303,277 — — Mutual funds - blend 94,264 94,264 — — $ 494,991 $ 494,991 — — 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, age of customer receivable balances, current business conditions and macro-economic trends. The Company considers risk characteristics of trade receivables based on asset type 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. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table sets forth the activity in the allowance for credit losses from December 31, 2020, through December 31, 2022 (in thousands): Allowance for Credit Losses Balance as of December 31, 2020 $ 19,617 Charges to expense 9,464 Deductions ( 6,827 ) Other, including translation adjustments ( 724 ) Balance as of December 31, 2021 $ 21,530 Charges to expense 8,771 Deductions ( 7,091 ) Other, including translation adjustments ( 649 ) Balance as of December 31, 2022 $ 22,561 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 5 years Furniture and equipment 3 to 5 years Leasehold improvements Term of lease Internal-use Software. The Company develops and implements software for internal use to enhance the performance and capabilities of the operating technology infrastructure. Direct costs incurred for the development of internal-use software are capitalized from the time when the completion of the internal-use software is considered probable until the software is ready for use. All other preliminary and planning stage costs are expensed as incurred. Cloud computing implementation costs incurred in hosting arrangements are capitalized and reported as a component of other current assets, while all other capitalized internal-use software development costs are reported as a component of computer software within property and equipment on the Consolidated Statements of Financial Position. Capitalized software costs are amortized using the straight-line method over the estimated useful life of the software, ranging from two to five years . 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 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 possession date (generally, this is 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 fixed management fees. The operating lease ROU assets include any payments made before the commencement date and exclude lease incentives. 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. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not have any material 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. 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Goodwill and Intangible Assets . Goodwill and intangible assets primarily consist of the cost of acquired companies in excess of the fair market value of their net tangible assets at the date of acquisition. Identifiable intangible assets are amortized over their lives, typically ranging from two to five years . Goodwill is not amortized, but is tested at least annually for impairment. The Company completed its annual goodwill impairment assessment during the second quarter in each of the years ended December 31, 2022, 2021 and 2020, 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, 2022, that caused the Company to perform an interim impairment assessment. Income Taxes . The Company’s operations are subject to U.S. federal, state, 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 $ 23.6 million and $ 24.2 million were recorded as of December 31, 2022, and 2021, respectively. The valuation allowances recorded related primarily to net operating losses in certain international 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. 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 include 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. Accrued Medical Expenses. The Company offers several medical plans to its employees and retains the economic burden for the first $ 1.0 million per claimant per year in medical claims. Claims in excess of $ 1.0 million per year per claimant are insured. Medical expense includes the insurance premiums for claims in excess of $ 1.0 million, claims administration fees, prescription fees and reimbursements, and an estimate for the Company’s liability for IBNR claims and for the ongoing development of existing claims. Medical expenses are presented as a component of selling, general and administrative expenses, or in the case of risk consulting and internal audit services, costs of services in the Consolidated Statements of Operations. The reserves for IBNR claims and for the ongoing development of existing claims in each reporting period include estimates. The Company has established reserves for medical claims using rates which are estimated using periodic third-party actuarial valuations based upon historical loss statistics which include the Company’s historical claims data, and an estimate of future claim 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. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Foreign Currency Translation. The reporting currency of the Company and its subsidiaries is the U.S. dollar. The functional currency of the Company’s international subsidiaries is their local currency. The results of operations of the Company’s international subsidiaries are translated at the monthly average exchange rates prevailing during the period. The financial position of the Company’s international 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. 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 fair value. 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. Note B—New Accounting Pronouncements Recently Adopted Accounting Pronouncements Government Assistance. In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” to increase the transparency of government assistance, including the disclosure of the types of assistance an entity receives, an entity’s method of accounting for government assistance and the effect of the assistance on an entity’s financial statements. This standard is effective for annual periods beginning after December 15, 2021. The amendments should be applied either (1) prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application or (2) retrospectively to those transactions. The Company adopted this ASU in January 2022. The adoption of this guidance did not have a material impact on its financial statements. Business Combinations. In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers, as if it had originated the contracts. After the amendments are adopted, it is expected that an acquirer will generally recognize and measure acquired contract assets and contract liabilities in a manner consistent with how the acquiree recognized and measured them in its pre-acquisition financial statements. The ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this ASU during the fourth quarter of 2022. The adoption of this guidance did not have a material impact on its financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted None. 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note C—Revenue Recognition The Company derives its revenues from three segments: contract talent solutions, permanent placement talent solutions, and Protiviti. 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. Contract talent solutions revenues. Contract talent solutions 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 contract talent solutions revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified employees, (ii) has the discretion to select the employees and establish their price and duties, and (iii) bears the risk for services that are not fully paid for by customers. Fees paid to time management or vendor management service providers selected by clients are recorded as a reduction of revenues, as the Company is not the primary obligor with respect to those services. Permanent placement talent solutions revenues. Permanent placement talent solutions revenues from contracts with customers are primarily recognized when employment candidates accept offers of permanent employment. The Company has a substantial history of estimating the financial impact of permanent placement candidates who do not remain with its clients through the 90 -day guarantee period. These amounts are established based primarily on historical data and are recorded as liabilities. Fees to clients are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement talent solutions services are charged to employment candidates. Protiviti revenues. Protiviti's consulting 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. Protiviti’s consulting 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. 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the Company’s revenues disaggregated by functional specialization and segments (in thousands): Year Ended December 31, 2022 2021 2020 Contract talent solutions Finance and accounting $ 3,185,183 $ 2,764,897 $ 2,256,966 Administration and customer support 1,042,634 1,058,906 764,947 Technology 857,261 795,319 695,418 Elimination of intersegment revenues (a) ( 552,231 ) ( 580,379 ) ( 239,996 ) Total contract talent solutions 4,532,847 4,038,743 3,477,335 Permanent placement talent solutions 725,155 569,921 370,109 Protiviti 1,980,140 1,852,780 1,261,556 Total service revenues $ 7,238,142 $ 6,461,444 $ 5,109,000 (a) Service revenues for finance and accounting, administrative and customer support, and technology include intersegment revenues, which represent revenues from services provided to the Company’s Protiviti segment in connection with the Company’s blended business solutions. Intersegment revenues for each functional specialization 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, 2022, aggregate transaction price allocated to the performance obligations that were unsatisfied for contracts with an expected duration of greater than one year was $ 152.6 million. Of this amount, $ 138.4 million is expected to be recognized within the next twelve months . As of December 31, 2021, aggregate transaction price allocated to the performance obligations that were unsatisfied for contracts with an expected duration of greater than one year was $ 111.9 million. 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 December 31, 2020, through December 31, 2022 (in thousands): Contract Liabilities Balance as of December 31, 2020 $ 18,252 Payments in advance of satisfaction of performance obligations 27,341 Revenue recognized ( 20,372 ) Other, including translation adjustments 380 Balance as of December 31, 2021 $ 25,601 Payments in advance of satisfaction of performance obligations 43,830 Revenue recognized ( 47,056 ) Other, including translation adjustments ( 392 ) Balance as of December 31, 2022 $ 21,983 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note D—Other Current Assets Other current assets consisted of the following (in thousands): December 31, 2022 2021 Prepaid expenses $ 69,394 $ 69,526 Unamortized cloud computing implementation costs 56,108 44,692 Other 49,963 55,646 Other current assets $ 175,465 $ 169,864 Note E—Property and Equipment, Net Property and equipment consisted of the following (in thousands): December 31, 2022 2021 Computer hardware $ 160,028 $ 157,408 Computer software 219,863 246,013 Furniture and equipment 96,601 93,144 Leasehold improvements 171,893 165,153 Property and equipment, cost 648,385 661,718 Accumulated depreciation ( 538,698 ) ( 568,315 ) Property and equipment, net $ 109,687 $ 93,403 Note F—Leases The Company has operating leases for corporate and field offices, and certain equipment. The Company’s leases have remaining lease terms of less than 1 year to 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 $ 89.3 million, $ 86.6 million and $ 81.5 million for the years ended December 31, 2022, 2021 and 2020, respectively. Supplemental cash flow information related to leases consisted of the following (in thousands): Year Ended December 31, 2022 2021 2020 Cash paid for operating lease liabilities $ 93,302 $ 91,253 $ 84,569 Right-of-use assets obtained in exchange for new operating lease liabilities $ 63,622 $ 51,471 $ 102,007 Supplemental balance sheet information related to leases consisted of the following: Year Ended December 31, 2022 2021 2020 Weighted average remaining lease term for operating leases 3.5 years 3.9 years 4.5 years Weighted average discount rate for operating leases 2.2 % 2.3 % 2.6 % 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Future minimum lease payments under non-cancelable leases as of December 31, 2022, were as follows (in thousands): 2023 $ 90,452 2024 67,170 2025 41,260 2026 27,153 2027 14,182 Thereafter 7,189 Less: Imputed interest ( 9,555 ) Present value of operating lease liabilities (a) $ 237,851 (a) Includes current portion of $ 86.1 million for operating leases. As of December 31, 2022, the Company had additional future minimum lease obligations totaling $ 4.1 million under executed operating lease contracts that had not yet commenced. These operating leases include agreements for corporate and field office facilities with lease terms of 1 to 6 years. Note G—Goodwill The following table sets forth the activity in goodwill from December 31, 2020, through December 31, 2022 (in thousands): Goodwill Contract talent solutions Permanent placement talent solutions Protiviti Total Balance as of December 31, 2020 $ 134,511 $ 26,180 $ 62,364 $ 223,055 Foreign currency translation adjustments 73 9 ( 282 ) ( 200 ) Balance as of December 31, 2021 $ 134,584 $ 26,189 $ 62,082 $ 222,855 Acquisition (a) — — 15,892 15,892 Foreign currency translation adjustments ( 466 ) ( 91 ) ( 380 ) ( 937 ) Balance as of December 31, 2022 $ 134,118 $ 26,098 $ 77,594 $ 237,810 (a) In December 2022, the Company, through its wholly owned subsidiary Protiviti, acquired R2integrated (“R2i”), a digital experience agency specializing in digital solutions that integrate and accelerate customer experiences to drive impact for brands. In connection with the acquisition, the Company recorded goodwill of $ 15.9 million within its Protiviti segment. Note H—Accrued Payroll and Benefit Costs Accrued payroll and benefit costs consisted of the following (in thousands): December 31, 2022 2021 Payroll and benefits $ 423,439 $ 449,246 Payroll taxes 33,559 74,117 Workers’ compensation 15,312 16,820 Accrued payroll and benefit costs $ 472,310 $ 540,183 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note I—Employee Deferred Compensation Plans 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 on a discretionary basis, including those not eligible for the qualified plans. These plans include provisions for salary deferrals and discretionary contributions. The asset value of the nonqualified plans was $ 432.7 million and $ 495.0 million as of December 31, 2022, and December 31, 2021, respectively. The Company holds these assets to satisfy the Company’s liabilities under its deferred compensation plans. The liability value for the nonqualified plans was $ 474.1 million and $ 535.3 million as of December 31, 2022, and December 31, 2021, respectively. 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, 2022 2021 2020 Contribution expense $ 50,406 $ 47,119 $ 42,092 Increase (decrease) in employee deferred compensation expense related to changes in the fair value of trust assets ( 86,139 ) 61,078 75,188 $ ( 35,733 ) $ 108,197 $ 117,280 The Company has statutory defined contribution plans and defined benefit plans outside the U.S., which are not material. Note J—Income Taxes The provision for income taxes for the years ended December 31, 2022, 2021 and 2020, consisted of the following (in thousands): Year Ended December 31, 2022 2021 2020 Current: Federal $ 137,483 $ 137,862 $ 79,926 State 47,032 47,226 27,401 Foreign 40,204 41,464 20,018 Deferred: Federal and state 13,542 ( 22,515 ) ( 9,089 ) Foreign 775 1,117 ( 2,650 ) $ 239,036 $ 205,154 $ 115,606 Income before the provision for income taxes for the years ended December 31, 2022, 2021 and 2020, consisted of the following (in thousands): Year Ended December 31, 2022 2021 2020 Domestic $ 780,624 $ 676,445 $ 378,876 Foreign 116,331 127,335 43,006 $ 896,955 $ 803,780 $ 421,882 41 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, 2022 2021 2020 Federal U.S. income tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal tax benefit 4.7 4.5 4.9 Permanent book/tax differences 0.3 ( 0.4 ) 0.3 Compensation book/tax differences 0.7 0.7 1.3 Non-U.S. income taxed at different rates, net of foreign tax credits 1.7 1.9 1.7 Federal tax credits ( 1.0 ) ( 1.6 ) ( 1.5 ) Tax impact of uncertain tax positions 0.1 0.3 0.1 Other, net ( 0.9 ) ( 0.9 ) ( 0.4 ) Effective tax rate 26.6 % 25.5 % 27.4 % The deferred portion of the tax provision (benefit) consisted of the following (in thousands): Year Ended December 31, 2022 2021 2020 Accrued expenses, deducted for tax when paid $ 41,953 $ ( 32,741 ) $ ( 33,997 ) Internal-use software and capitalized costs ( 7,930 ) 462 1,904 Depreciation 4,608 ( 2,286 ) 6,732 Unrealized gains (losses) from investments held in employee deferred compensation trusts ( 26,009 ) 8,167 14,882 Other, net 1,695 5,000 ( 1,260 ) $ 14,317 $ ( 21,398 ) $ ( 11,739 ) 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The components of the deferred income tax amounts at December 31, 2022 and 2021, were as follows (in thousands): December 31, 2022 2021 Deferred income tax assets Employee deferred compensation and other benefit obligations $ 137,501 $ 155,064 Deferred revenues, foreign royalties and management fees 3,528 16,034 Deferred payroll taxes (CARES Act) — 13,355 Credits and net operating loss carryforwards 24,782 24,811 Stock-based compensation 5,262 3,843 Allowance for credit losses 6,765 6,557 Workers’ compensation 3,207 3,623 Operating lease liabilities 46,145 52,614 Other 17,542 18,565 Total deferred income tax assets 244,732 294,466 Deferred income tax liabilities Amortization of intangible assets ( 20,465 ) ( 24,391 ) Property and equipment basis differences ( 19,756 ) ( 23,305 ) Unrealized gains from investments held in employee deferred compensation trusts ( 7,992 ) ( 34,001 ) Right-of-use assets ( 37,618 ) ( 43,986 ) Other ( 12,104 ) ( 10,549 ) Total deferred income tax liabilities ( 97,935 ) ( 136,232 ) Valuation allowance ( 23,571 ) ( 24,198 ) Total deferred income tax assets, net $ 123,226 $ 134,036 Credits and net operating loss carryforwards primarily include tax-effected net operating losses in foreign countries of $ 23.1 million that expire in 2023 and later, and California enterprise zone tax credits of $ 1.6 million that expire in 2023. Of the $ 1.6 million of California enterprise zone tax credits, the Company expects that it will utilize $ 0.2 million of these credits prior to expiration. Valuation allowances of $ 22.2 million have been maintained against net operating loss carryforwards and other deferred items in foreign countries. In addition, a valuation allowance of $ 1.4 million has been maintained against California enterprise zone tax credits. As of December 31, 2022, the Company’s consolidated financial statements provide for any related U.S. tax liability on earnings of international subsidiaries that may be repatriated. The following table reconciles the total amounts of gross unrecognized tax benefits from January 1, 2020 to December 31, 2022 (in thousands): December 31, 2022 2021 2020 Balance at beginning of period $ 11,264 $ 9,785 $ 9,354 Gross increases—tax positions in prior years 1,528 3 220 Gross decreases—tax positions in prior years ( 7 ) 0 0 Gross increases—tax positions in current year 1,533 3,370 1,678 Lapse of statute of limitations ( 2,058 ) ( 1,894 ) ( 1,467 ) Balance at end of period $ 12,260 $ 11,264 $ 9,785 The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is $ 12.3 million, $ 11.3 million and $ 9.8 million for 2022, 2021 and 2020, respectively. 43 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, 2022, is $ 0.6 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, 2021, was $ 0.4 million, including a $ 0.1 million decrease recorded in income tax expense during the year. The total amount of interest and penalties accrued as of December 31, 2020, was $ 0.5 million, including less than a $ 0.1 million increase recorded in income tax expense during the year. 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 2019 and subsequent years. For major U.S. states, with few exceptions, the Company remains subject to examination for 2018 and subsequent years. Generally, for foreign countries, the Company remains subject to examination for 2015 and subsequent years. Note K—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. 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 $ 14.1 million and $ 18.0 million in debt support standby letters of credit as of December 31, 2022 and 2021, respectively. Of the debt support standby letters of credit outstanding, as of December 31, 2022 and 2021, $ 14.1 million and $ 18.0 million, respectively, satisfied workers’ compensation insurer’s collateral requirements. There is a service fee of 1.2 % on the used portion of the facility. The facility is subject to certain financial covenants and expires on August 31, 2023. The Company was in compliance with these covenants as of December 31, 2022. The Company intends to renew this facility prior to its August 31, 2023, expiration. The Company has an unsecured revolving credit facility (the “Credit Agreement”) of $ 100 million, which matures in 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, 2022. There were no borrowings under the Credit Agreement as of December 31, 2022 or December 31, 2021. Note L—Stockholders' Equity Stock Repurchase Program. As of December 31, 2022, the Company is authorized to repurchase, from time to time, up to 3.8 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, 2022, 2021 and 2020, are reflected in the following table (in thousands): Year Ended December 31, 2022 2021 2020 Common stock repurchased (in shares) 3,319 2,796 2,505 Common stock repurchased $ 280,130 $ 260,410 $ 138,408 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, 2022, 2021 and 2020, are reflected in the following table (in thousands): Year Ended December 31, 2022 2021 2020 Repurchases related to employee stock plans (in shares) 362 347 366 Repurchases related to employee stock plans $ 37,678 $ 29,817 $ 17,399 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, 2022, 2021 and 2020 (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 $ 1.72 , $ 1.52 and $ 1.36 during the years ended December 31, 2022, 2021 and 2020, 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 M—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 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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, 2022, 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 36.7 %, a 0 % dividend yield, and a risk-free interest rate of 2.3 %. The historical volatility was based on the most recent 2.78 -year period for the Company and the components of the peer group. The stock price movements have been modeled such that the dividends are 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 $ 85.4 million, $ 75.3 million and $ 73.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. The following table reflects activity under all stock plans from December 31, 2019 through December 31, 2022, 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, 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 Granted 507 $ 76.49 167 $ 88.77 70 $ 56.83 237 $ 79.40 Restrictions lapsed ( 530 ) $ 60.10 — — ( 348 ) $ 56.83 ( 348 ) $ 56.83 Forfeited ( 46 ) $ 65.40 — — — — — — Outstanding, December 31, 2021 951 $ 65.85 626 $ 75.41 — — 626 $ 75.41 Granted 410 $ 116.01 320 $ 96.20 — — 320 $ 96.20 Restrictions lapsed ( 425 ) $ 64.27 ( 442 ) $ 74.01 — — ( 442 ) $ 74.01 Forfeited ( 28 ) $ 80.78 — — — — — — Outstanding, December 31, 2022 908 $ 88.74 504 $ 89.84 — — 504 $ 89.84 The total fair value of shares vested was $ 87.8 million, $ 78.0 million and $ 46.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. At December 31, 2022, 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 3.6 million. 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note N—Net Income Per Share The calculation of net income per share for the three years ended December 31, 2022, 2021 and 2020, are reflected in the following table (in thousands, except per share amounts): Year Ended December 31, 2022 2021 2020 Net income $ 657,919 $ 598,626 $ 306,276 Basic: Weighted average shares 108,214 110,482 112,729 Diluted: Weighted average shares 108,214 110,482 112,729 Dilutive effect of potential common shares 957 1,236 589 Diluted weighted average shares 109,171 111,718 113,318 Net income per share: Basic $ 6.08 $ 5.42 $ 2.72 Diluted $ 6.03 $ 5.36 $ 2.70 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 O—Business Segments The Company has three reportable segments: contract talent solutions, permanent placement talent solutions, and Protiviti. 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 contract talent solutions and permanent placement talent solutions segments provide specialized engagement professionals and full-time personnel, respectively, for finance and accounting, technology, marketing and creative, legal, administrative, and customer support roles. The Protiviti 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 before net interest income, intangible assets amortization expense and income taxes. 47 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, 2022 2021 2020 Service revenues Contract talent solutions $ 4,532,847 $ 4,038,743 $ 3,477,335 Permanent placement talent solutions 725,155 569,921 370,109 Protiviti 1,980,140 1,852,780 1,261,556 $ 7,238,142 $ 6,461,444 $ 5,109,000 Segment income Contract talent solutions $ 492,281 $ 393,872 $ 237,279 Permanent placement talent solutions 127,622 106,465 28,799 Protiviti 270,711 305,487 155,680 Combined segment income 890,614 805,824 421,758 Amortization of intangible assets 1,667 2,241 1,219 Interest income, net ( 8,008 ) ( 197 ) ( 1,343 ) Income before income taxes $ 896,955 $ 803,780 $ 421,882 Service revenues presented above are shown net of eliminations of intersegment revenues. Intersegment revenues between contract talent solutions segment and Protiviti segment were $ 552.2 million, $ 580.4 million and $ 240.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. Revenue and direct costs related to the intersegment activity are reflected in the Protiviti segment, including the costs of candidate payroll, fringe benefits and incremental recruiter compensation. 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, 2022 2021 2020 Service revenues (a) Domestic $ 5,712,330 $ 5,006,525 $ 3,984,742 Foreign (b) 1,525,812 1,454,919 1,124,258 $ 7,238,142 $ 6,461,444 $ 5,109,000 December 31, 2022 2021 Property and equipment, net Domestic $ 90,388 $ 76,757 Foreign 19,299 16,646 $ 109,687 $ 93,403 (a) No customer accounted for more than 10% of the Company’s total service revenues in any year presented. (b) No country represented more than 10% of revenues in any year presented. 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note P—Subsequent Events On February 9, 2023, the Company authorized the repurchase, from time to time, of up to an additional 10.0 million shares of the Company’s common stock on the open market or in privately negotiated transactions, depending on market conditions. The authorization is in addition to the approximately 3.8 million shares remaining under the existing repurchase program. There is no guarantee as to whether, when, or how many shares the Company will repurchase, and the Company may discontinue the repurchase program at any time. On February 9, 2023, the Company announced the following: Quarterly dividend per share $ 0.48 Declaration date February 9, 2023 Record date February 24, 2023 Payment date March 15, 2023 49 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 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, 2022, 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. 50 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 J 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 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 $239.0 million for the year ended December 31, 2022 and net deferred income tax assets of $123.2 million including a valuation allowance of $23.6 million as of December 31, 2022. 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. 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 also included, among others, (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 51 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 10, 2023 We have served as the Company’s auditor since 2002. 52 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.