羅致恆富 (RHI) 2002 Q4 法說會逐字稿

)) OPERATOR: Earnings conference call. All participants will be in listen-only mode until the question-and-answer session of the call. At that time, if you have a question, press * 1 on your touchtone phone. At the request of Robert Half International, today's call is being recorded for instant replay purposes. I would like to introduce Mr. Max Messmer, Chairman and Chief Executive Officer. Sir, you may begin when ready.

)) MAX MESSMER: Thank you and good afternoon, everyone. With me today is Keith Waddell, our Vice Chairman and Chief Financial Officer. As you know, today we released fourth quarter 2002 earnings results. On this call, we will review the results and offer general guidance as to our expectations for the first quarter of 2003 revenues and earnings.

Before we get started, I would like to remind everyone pursuant to regulation FD, our presentation contains predictions and forward-looking statements that represent our current judgment on what the future holds. These include words such as forecast, estimate, project, expect, believe and similar expressions. While we believe the remarks to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. We described some risks and uncertainties in today's press release and in our form 10-K and other filings with the SEC. We do not undertake any obligation to update the statements made in this conference call.

Now, let's review the fourth quarter. Revenues for the quarter were $479 million, down 6% from the fourth quarter of last year. On sequential basis, revenues were up 2% from the third quarter, after adjusting for the two fewer billing days in the fourth quarter. Earnings per share were negative 4 cents compare wide 7 cents for the fourth quarter of 2001 and negative 2 cents for the third quarter of 2002. Our Staffing operations had earnings of 2 cents per share for the third quarter and our Protiviti subsidiary had negative earnings of 6 cents per share. While fourth quarter revenues were within the range of guidance provided last quarter, earnings were slightly lower. Businesses remain conservative in our hiring activity, which has impacted demand for our services.

After tax cash flow from operations was positive $33 million for the quarter, despite the negative earnings of $7 million. We continue to be pleased with the company's ability to generate strong cash flow in both good and bad economic conditions. This was particularly evident for the full year 2002, when even though earnings were $2 million for the year, after including start-up losses for Protiviti, we still generated 156 million dollars in after-tax cash flow from operations. This was a result of disciplined working capital management, as well as large noncash depreciation charges related primarily to technology investments made during the last few years.

We ended the quarter with $317 million in cash and equivalent to the bank, our preferred use of excess cash continues to be repurchase of our shares. In October of 2002, our Board of Directors authorized repurchase of up to additional 10 million shares of common stock. This was in addition to the 1.9 million shares that remained under the previous authorization. During the fourth quarter we repurchased 795,000 shares of common stock, leaving 11.1 million shares available under the share repurchase program.

Keith will provide detailed overview of fourth quarter results.

)) KEITH WADDELL: Thank you, Max. I would like to remind everybody a copy of today's press release, including a breakdown of divisional revenue is available at www.rhii.com which is our website. As Max indicated, total revenues were $479 million for the quarter, down 6% from last year. There were 62 billing days in the quarter. The same as Q4 last year and down 2 days from Q3 2002. (inaudible) revenues for the quarter of 206 million, down 11% from last year and up 1% on same-day sequential basis. Accountemps, our largest staffing division, and has 327 offices worldwide. This division represents 43% of total revenues.

OfficeTeam has fourth quarter revenues of $127 million, down 3% from last year and up 7% on a same-day sequential basis. OfficeTeam is our high-end administrative staffing division and began operations in 1991. It has 312 offices and accounts for 27% of total revenues. (inaudible) technology had revenues of $53 million for the quarter, down 16% from 2001 and roughly flat on a same-day sequential basis.

This division was launched in '94 and specializes in placing IT professionals in a consulting and full-time basis. It has 103 locations worldwide and comprises 11% of revenues. Robert Half Management Resources division had fourth quarter revenues of $53 million, down 7% from last year, and up 2% on a same-day sequential basis. This division accounts for 11% of revenues and specializes in placing senior level accounting and finance individuals on a project basis. It was introduced in 1997 and operates in 92 offices worldwide. Our Permanent Placement Division, Robert Hatch Accounting reported revenue for the quarter of 23 million, down 23% from last year, and down 7% sequentially. This business was established in 1948, and operates in 327 offices worldwide. It accounts for 5% of total revenues.

Our Protiviti subsidiary, which was established in May of 2002, had revenues of $17 million for the quarter. Protiviti offers businesses full outsourcing co-sourcing and consulting services in the area of audit and consulting and now has 26 locations and comprising 3% of revenue. While holiday impacted Q4 revenues were essentially flat with Q3, Protiviti was awarded significant number of new engagements during the quarter, which have positively impacted Q1 2003 revenues and beyond. We are very pleased with this traction gain during the quarter, as well as the high level of ongoing proposal activities. International revenues were 81 million for the quarter, down 8% from last year and down 3% sequentially.

We now operate in 56 offices and 10 countries outside of the United States, international operations account for 17% of total revenues. Turning to gross margin, temporary and consulting staffing gross margins were $154 million for the quarter, representing 35.1% of applicable revenue, compared to 35.9% of revenues for Q4 of 2001 and 35.3% of revenues for Q3 of 2002. The sequential decline in gross margins is result of lower conversion fees and slightly weaker pricing during the quarter. Overall staffing gross margins were $177 million for the quarter and 38.3% of staffing revenues, compared to 39.6% of revenues in Q4 2001 and 38.7% of revenues in Q3 of 2002. The sequential decline in overall staffing gross margins reflects lower temporary and consulting gross margins just discussed, as well as lower mix of permanent placement revenues which carry higher margins.

Gross margin for Protiviti subsidiary were negative 5.5 million for the quarter, this figures in line with our expectations and reflects fixed payroll cost not totally covered by revenues. Turning to sell general and administrative cost. Staffing SG&A cost for the quarter were $171 million, representing 37.1% of staffing revenues. This compares to 35.6% of revenues for Q4 2001, and 36.3% of revenues for Q3 2002. The sequential increase in staffing SG&A is driven primarily by additional 2.2 million in bad debt expenses, reflecting accounts receivable write-offs during the quarter. Now, withstanding the write-offs we reduced DSOs during the quarter, which we will discuss later. We have tens of thousands of accounts in our receivables which arrange well under $10,000 per account.

Protiviti SG&A cost were $9 million for the quarter and flat sequentially versus Q3. These costs consist of expenses for payroll, advertising and rent. Heavy advertising expenditures continued during fourth quarter and will remain relatively high throughout 2003. Infrastructure accomplishments during the included successful implementation of People Soft ESA for Protiviti and continued relocation of offices to permanent real estate. As of the end of the year, only two offices remained in the prior Anderson space.

Operating income from staffing divisions was $5 million for the quarter, temporary consulting division contributed $8 million of this amount, while current placement had negative operating income of 3 million. Protiviti had negative operating income of $15 million for the quarter, plus intangible of 2.7 million. Our cumulative investment in Protiviti through year-end is 44 million dollars, including up front costs, operating losses and capital expenditures. I strongly believe that our ultimate investment in Protiviti will provide solid, long-term returns.

Turning to the balance sheet. Cash and equivalents were 317 at end of the quarter, after funding 7 million in capital expenditures and extending 16 million for the repurchase of RHI stock during the quarter. Accounts receivable were $223 million at the end of the quarter, with five days outstanding of 43 days. This compares to 49 days at the end of Q4 last year and 45 days at the end of Q3 2002. We are delighted with the two-day collection cycle improvement during the quarter and the 6-day improvement achieved over the course of a year, particularly given the adverse economic environment. This improvement has been a major contributor to cash flow.

Turning to guidance, in accordance with regulation FD, at this time, we will offer general guidance for first quarter of 2003. As you know, we do not assist analysts with detailed models. Our guidance is based on the following business trends. On same-day sequential basis during the fourth quarter, temporary and consulting revenues were flat in October and November. And declined slightly in December. Placement revenues were up sequentially in October, then declined in both November and December. For the first two weeks of January, which are obviously impacted by the holidays, revenues from temporary and consulting businesses were down 3% versus December. For the first three weeks of January, revenues for our permanent placement division were down 20% sequentially versus December. Bear in mind, current revenues are often lumpy, particularly when measured over short periods of time.

Accordingly our guidance for Q1 2003 is as follows. Staffing revenues range of $460 million to $480 million. Protiviti revenues $18 million to $23 million. Staffing earnings per share $2 to $4 cents. Protiviti negative earnings per share, 4 to 6 cents. As you know, these estimates are subject to the risks mentioned in today's press release. Now, I will turn back to Max for additional comments.

)) MAX MESSMER: Thanks, Keith. Based on historical trends, by now we would have expected stronger recovery in the job market. An article in the journal earlier this week pointed out in each of the last nine recessions, employment began rising average of 16 months after the start of the recession. We are now 22 months into the current recession and revenues have remained relatively flat over the last several quarters. We have not seen the significant pick-up in hiring activity we would have expected.

We are not macro economists, obviously, but we do remain optimistic about the long-term outlook for our company and our industry. It is cost effective to use qualified temporary professionals and as the economy improves, we do believe employers will seek temporary help to meet increasing work demands. We believe the company is well positioned to benefit for a number of reasons. The temporary services industry is less developed in the US than many other nations. The professional segments of the industry in which RHI is a recognized leader are less developed than the general temporary service industry as a whole. This presents an opportunity for significant growth in the future as more and more employers realize the economic benefits of using qualified project professionals for positions that do not really and truly require a full-time employee. We have a excellent opportunity to grow international operations, which already contributed approximately 17% of total revenues. We believe RHI has excellent field management team. They have managed successfully through good and back economic cycles. RHI management is supported by strong marketing and public relations programs and benefits from the solid brand equity we have built over the year in services.

Professional level staffing requires credibility and experience, which we have earned over 55 years of operations. We have maintained our extensive branch network and believe we are well positioned for future growth. In Protiviti we have additional growth opportunities in the area of internal audit and risk consulting. Protiviti we have additional growth opportunities in the areas of internal audit and technology risk consulting. Protiviti is already becoming recognized for expertise, helping businesses with the Sarbonese-Oxley, as well as corporate governance standards from the stock exchange and the SEC. As Keith noted earlier, we are pleased with the traction Protiviti gained during the quarter, particularly the significant number of new engagements and ongoing proposal activities. We believe the business is strong compliment to professional staffing services and already seen synergies with financial staffing divisions.

Robert Half International remains excellent financial condition. As noted earlier, we have no debt, strong cash position and are proud of our ability to generate strong cash flow, even in difficult economic climates. Based on our strong position, field management, established network, proven brand equity and state-of-the-art technology platforms, we believe we are well positioned to benefit as the economy improves and surely we believe it will. At this time, Keith and I will be happy to answer questions. We would like to allow as many people to participate as possible, so please limit yourself to one question and a single follow-up as needed. If you have additional questions, we will certainly try to return to you during the call.

)) OPERATOR: Thank you. Participants, if you would like to ask a question, signal by pressing * 1 on your telephone keypad. Your first question comes from Jeff Silver of (inaudible).

)) ANALYST: Good afternoon and thanks for the detailed information. Keith, you had mentioned about the slight pricing pressure in the business. Can you give more color on that? Also, if you are seeing pricing pressure in your current business?

)) KEITH WADDELL: Jeff, we are talking couple of pennies per hour, we are not talking large amounts at all. In fact, I think gross margin declined sequentially 23 basis points, including conversions, as well. So, it's pennies per hour, no more significant than that. There has been pricing pressure throughout the downturn as there is every downturn. That continues during the fourth quarter. But, there is not much change there.

)) ANALYST: Great. In terms of follow-up, one of the other companies in the space yesterday talked about increased cost, employment related cost such as employment insurance. I know you don't necessarily operate in the same sector as they do, but wonder if you could give color on that for your outlook for 2003?

)) MAX MESSMER: That is a factor in why if you look at earnings guidance, it is lower than guidance would otherwise get you to. It is in fact for that very reason. Workers Comp is not really a big deal for us. Unemployment in many states is merely a function of payroll. For California for 2003, they have been particularly onerous for how they assess unemployment. If you look at 2003, there is about 50 basis point impact on gross margins if we don't pass that through. Believe me, our field people are working very hard and our plan is to pass all of it through.

But, our guidance is somewhat conservative and assumes some dilution in gross margin for various reasons you mentioned.

)) ANALYST: Great. Thanks.

)) OPERATOR: Thank you. Our next question comes from Andrew Steinerman of Bear Stearns.

)) ANALYST: Good afternoon. I was hoping you could compare for us the (inaudible) in Accountemps and OfficeTeam and sequential growth and decline in Accountemps. They are hindered by the same holiday days disadvantage and why might we be seeing more strength at OfficeTeam at a time that is usually better for Accountemps?

)) MAX MESSMER: I think the cyclical story is manufacturing and administrative positions precede the professional level positions. So, I think one might argue that the cyclical story offset the seasonal story for the quarter. Clearly, with the Christmas and New Year's, there was a bigger holiday impact than our number of days would otherwise reflect.

)) ANALYST: Right. But, yet the same disadvantage at OfficeTeam, right?

)) MAX MESSMER: I think for a few quarters now OfficeTeam has done better in accounting. I think that is fairly classical that the administrative, light industrial goes first, administrative goes next and typically later participant in recovery is other professional skills. Actually don't see the OfficeTeam story in Q4 that different than it had been.

)) ANALYST: Right. Can you give me animal instincts of your feel, are they encouraged at Accountemps going forward?

)) MAX MESSMER: Again, in Q1, you would expect some seasonal demand and I say our field people are fairly motivated at the moment and fairly upbeat. As we have talked many times, it is kind of hard to take that to the bank. We have taken our Bob and I advertising campaign back on the road on national basis and I think there is excitement in the field offices about that fact. They are happy to see Bob and Accountemps back on the radio again in their market.

)) ANALYST: We look forward to hearing from Bob, too. Thank you.

)) OPERATOR: Thank you. Our next question comes from Randy Mill of Robert Baird and Company.

)) ANALYST: Yeah, want to talk little bit Protiviti and the pipeline needs to have filled out a little bit. On the cost side, should we expect direct cost to continue to drift down? I noticed you had slight sequential drop in that in the quarter?

)) KEITH WADDELL: Actually, they are probably going to drift up a little bit in the quarter with the holidays. You have got the staff taking time off, that time off gets charged and accrued to holiday pay. Therefore, benefited the quarter. That won't be the to the same extent in the first quarter. So, direct cost of Protiviti will be up a bit.

)) ANALYST: There aren't any actions that have been taken?

)) MAX MESSMER: No, if you look at our staff, directors and professional staff is one person different in the fourth quarter than it was in the third.

)) ANALYST: Okay. And follow-up. You have got some project-driven business like management resources or technology business. How is the pipeline of projects look for January? Often you get a fresh new set of projects kicking off, are you encouraged by what you are seeing in January in those areas?

)) MAX MESSMER: Anecdotally, the field is encouraged there. I would again say it is anecdotal and I don't want to read too much in that. You would certainly rather they be upbeat than not.

)) ANALYST: Were those two in the staff you gave in January, were those two areas more encouraging than the others?

)) MAX MESSMER: I am not sure there were huge swings in the divisions. Those numbers I gave, remember they included Thursday, Friday after the first.

)) ANALYST: Right.

)) MAX MESSMER: Which were particularly soft across the board.

)) ANALYST: Okay. Thank you very much.

)) OPERATOR: Next we have Greg Capelly from CFSB.

)) ANALYST: Greg and Josh. I want to quickly ask on technology infrastructure you talked a lot about front office roll-ups and when you will be finished. I think it was sometime in the middle of the first quarter. What does that mean for capex this year? Also, could you clarify, did you say 2.2 million in addition you wrote off, just curious if you made any adjustments to your allowance of your reserve during the quarter?

)) KEITH WADDELL: 2.2 was the adjustment. We took a hard look at receivables during the quarter and made the appropriate adjustments, some of which was made to the reserve that was written off. So, I guess the last thing we wanted to do was carry anything into 2003. As to technology spending in capex, we ended this year with capex that was about 37 million dollars less than capex in the prior year. We are getting closer to a maintenance level of capex.

Our estimate for next year at this time would be between 40 and 50 million in capex versus the 48 of the year that just ended. That is down significantly from where it was in the prior year. As to the technology rollout, we did say that we were going to rollout to a pilot region in the country during the quarter. We did that and did that successfully. That group is very happy with the new functionality that is provided by that. And we will take 2003 to kind of progressively roll that out to the rest of the country.

)) ANALYST: Okay. Appreciate it. Thanks a lot.

)) OPERATOR: Okay. Next we have Chris Butech of Morgan Stanley.

)) ANALYST: Thanks. Hi. You talked about response in Andrew's question about the seasonal driver and I want to follow-up on the third one, which is secular driver. Various issues surrounding Sarbonese-Oxley and the broader issues for the legislation to be put in place. I guess we have been hearing in the last month the secular driver might have more of a positive net impact than demand for your service. It sounds like that is not the case. Can you elaborate a little bit more on that?

)) MAX MESSMER: Certainly we will start with Protiviti that is most directly impacted. That is definitely the case. Some of the traction and increased proposal activity and frankly some of the wins they have gotten in the last couple of weeks have been related to Sarbonese-Oxley 404. There is a huge amount of work that has to happen in corporate America in calendar year 2003 because for the first time external auditors have to attest to companies internal control environment. That requires documentation that virtually every company in America doesn't have to the degree they need to have it to support the external audit at that station. We are already finding in Protiviti and to some extent Management Resources, that companies are beginning to recognize as their year-end audits tell off that they have got to get going so that they are not going to be caught short come the end of next year when that external audit report has to be issued.

)) ANALYST: What timeframe would you expect the incremental demand to play out, not a couple months?

)) MAX MESSMER: We are already seeing it start. Most companies want to get through their external audit. That is kind of coming to the tailend of that. Then, I think they will begin to start addressing this documentation, this controlled documentation issue that my guess is will occur throughout 2003.

)) ANALYST: (inaudible) by the Protiviti business as opposed to the others. How much if any positive impact are you feeling with Accountemps and how would you compare that to the seasonal pick-up, which is more relevant right now?

)) MAX MESSMER: You know, it is really hard to say. A lot of seasonal pick-up relates to year-end work. And that is occurring as it has always occurred. This whole Sarbonese-Oxley control documentation, again, it is early in that game because companies focused principally on year-end at this point. We are already seeing companies, sizable companies, addressing and engaging us and others to deal with that.

)) ANALYST: Okay.

)) OPERATOR: Thank you. Next, we have Brett Sackokeeny of Deutsche Bank.

)) ANALYST: Hi, just want to ask a question vis-a-vis, marked share gain. Obviously the only proxy we have for management resource business is resources and their numbers were obviously pretty decent. I guess if you look at the business and look at competitive landscape, do you think you have seen share losses in the last quarter? Thanks.

)) MAX MESSMER: I will make a few comments. The whole Sarbonese-Oxley 404 corporate governance initiative is primarily for larger companies. And to some extent, management resource and its focus on middle market companies is not going to participate as much in that. That said, we certainly don't think within management resources sweet spot they have lost any market share. In fact, we did have sequential same-day growth Q4 versus Q3.

The other point I would make is that resources connection is actually a piece of our Accountemps and a piece of management resources and a piece of our Protiviti. It is not apples and apples just to compare resources to resources connection.

)) ANALYST: Okay. Just one quick filing question. Can you give us first quarter gross margin expectation for Protiviti?

)) KEITH WADDELL: First quarter, cost will go up modestly, material cost will go up modestly. We gave revenue projection.

)) ANALYST: Okay. So, a good piece of that, but not all of that, good piece of the revenue for Protiviti will fall through to gross margin, but not all of it because Q4 payroll got charged. Got it. Thank you.

)) OPERATOR: Thank you. Our next question comes from Martin Nichols, Banc of America Securities.

)) ANALYST: Thanks. Going deeper into Protiviti, as well. Can you maybe comment if you take into account the traction you indicated in the business recently and the fact you still got a pretty material gap between the cost base of the business and the revenue base, whether or not a break even target for that business in the middle part of this year, which is what you guys initially talked about, is realistic to you?

)) MAX MESSMER: I guess our position is we are not giving guidance on anything past this quarter. Having said that, we just told you that our cumulative investment to date in Protiviti is 44 million dollars and I feel very good that ultimately, until we get Protiviti to break-even the investment necessary to get to that point will be an investment that we can earn solid return on for a long period of time.

It is somewhat unfortunate we are having to run the investment in Protiviti through the P&L. I can't imagine a more accountable environment. That said, at the end of the day, it is investment spending in our minds and you are seeing every quarter how much more we invested in Protiviti.

)) ANALYST: Okay. Can you also comment on as a follow-up to that, you mentioned in the last quarter you are feeling as though many of the companies sort of said Protiviti was pitching or suffering from I think you described it as "Big Four itis," and they were gravitating toward the big four accounting firms. Is that mitigating at all or are you finding the branding exercise is getting easier as you focus on Sarbonese-Oxley more?

)) MAX MESSMER: I guess I can tell you I am happy to report that we have gone head-to-head with the Big 4 and beaten the Big 4. My sense is there is less Big 4-itis today than 90 days ago. It is still an issue with some points. We are not winning all proposals, but certainly winning a larger percentage than we were. Our pitch is that you get the advantages of the Big 4 with the Big 4 background in peticrews and technology tools that former Anderson employees brought with them, as well as you get the focus of a boutique. You will be more important to us and get more focus from us and more attention from us than you will one of a gazillion clients of the Big 4. To many that resonates.

)) ANALYST: One final housekeeping question. Looks like you opened an office in the quarter for OfficeTeam firm, are you looking to pick up opening new offices all this year in anticipation of better market?

)) MAX MESSMER: I would say that we've kept our office network in tact. Therefore, we feel good that we have got a lot of market coverage for that reason. But, plans are for a few satellites, if anything. As an example, Tamechula, California was where we opened during the quarter and added couple of satellites in the UK and Belgium. In Protiviti the additional was Paris that we announced on the last call.

)) ANALYST: Great. Thank you.

)) MAX MESSMER: I would like to say something that Keith said about Protiviti. If you think back a few months ago in response to your earlier question. There was in many quarters I think, hysteria and paranoia about Arthur Anderson and all the bad things Anderson did. We did our best to explain to clients none of those transgressions so to speak, had anything to do with the internal auditor risk portion of Anderson. Clients were concerned about Anderson and the name was tainted. More and more problems have come out about the Big 4, most recently with KP&G, sensitivity to Anderson has diminished greatly. We felt Anderson was a great firm that made mistakes. We look at internal audit and we tend to some justification, say to clients that there may only be a Big 4 external audit, but Big 5 in internal audit. And we now have Anderson team, but also have many people from the other Big 4 firms who have joined us. I felt like we have won big accounts recently. We have gone head-to-head. The environment is significantly different today than it was 3 or 4 months ago in terms of the Protiviti action going on and reaction to clients.

)) ANALYST: Thanks. Thank you very much.

)) OPERATOR: Thank you. Our next question comes from Adam Waldo.

)) ANALYST: Good afternoon. How are you? Couple of questions on strategy, if I may. You think about 2003 and the current operating environment both with respect to core business and interprets engagement of Protiviti. How should we think about your thought process with respect to staffing levels and office networks? I think you said earlier your plans were to basically keep the office network in tact. Should we think of the staff based in a similar way?

)) MAX MESSMER: I think so. Again, we worked hard to keep our best staff on our staff. And we feel like we are well positioned there with greater demand. We currently have room to add to staff. We have capacity for many more people than we currently employed. So, we feel like we are fairly well positioned if demand dictates, to accommodate more staff, which we are happy to do at that time.

)) ANALYST: Assuming the core business doesn't materially improve over the next couple of quarters given the uncertainty in employment environment, and assuming Protiviti taps profitability that you outlined given the rate of new proposal wins in fourth quarter. Are comfortable with consensus at the EPS line of 35 cents?

)) MAX MESSMER: I think you know and I think we had this conversation a few times in a row, we had a policy for quite? Number of quarters for only talking one quarter out. We haven't commented a year out and haven't for sometime.

)) ANALYST: Okay. Fair enough. With respect to share repurchases, if I sort of estimate where you bought back stock on average basis in the quarter, probably high teens again, much like you did in third quarter, is that fair?

)) KEITH WADDELL: There is little bit of (inaudible) in that the cash flow statement includes about 3 and-a-half million dollars for shares purchased at the end of last quarter, but paid for in this quarter. Take 3 and-a-half million dollars out of the number and you will find we paid roughly 16. It isn't rocket science.

)) ANALYST: Okay. Is your thought process around buyback point changing with current operating conditions? Finally, what effective interest rate were you earning on surplus cash in the quarter?

)) KEITH WADDELL: Effective interest rate was about 1.8 or 1.9%. Thought process is one that constantly gets reviewed and evaluated and isn't a static process. We don't have a magic number. It is relative to other opportunities, what we see in the business environment.

)) ANALYST: Thanks very much.

)) MAX MESSMER: If I could comment. Your question raised a question in my mind. Obviously your view of the future has a lot to do with how you handle the matters you inquired about. I am sure it is obvious to everyone Keith and I are optimistic about long-term prospects and trying to manage the business in a way that is geared to long term. I recognize the past does not always exact indicator of the future, but we believe and it is the ability of the business to come back strongly. We believe we deal with a small percentage of our target client base. We believe the business can be multiples of current size. We believe that -- we hope relatively quickly, get back to operating levels we were at a few years ago. If you believe what we do and we could obviously be wrong, the decisions we are making make sense in building long-term stockholder value. If we are wrong, obviously, you will be able to draw your own conclusion as time goes on. We feel we are well positioned. The network is in tact, the team is in tact. We have great brand name and are in a position to come back quickly. We don't think it will rain forever. We think the sun will come out again. We think we will be in the inside position to benefit from that and expect to grow rapidly. We know what we did last time out and can't think it will be the same. There are larger numbers now. We think the market opportunity is huge. We would be very disappointed if we can't grow rapidly.

We can't guarantee any of that, but obviously infuses many of the decisions we make, some of come may seem questionable to you. Only time will tell if we are right or not.

)) ANALYST: Would you grant me a follow-up on that?

)) MAX MESSMER: Sure.

)) ANALYST: If you look out corporate development standpoint to the next cycle, you are a lot larger, larger installed base in North America, obviously and globally. Are there corporate development leavers we should look for you to pull over the next year, whether entering new business in Asia that are emerging rapidly or entering new service lines in a material way that we should look to?

)) MAX MESSMER: Adam, as you know, we never said a lot about our white coat lab work so to speak in terms of what we are looking at. When you think about Protiviti and mention corporate development, I would recognize we would consider that significant corporate development activity, so to speak. I would also say that frankly Protiviti provides us very interesting platform for further expansions and to different aspects of professional services. It encompasses a lot of activities and opens a lot of avenues for us to explore future opportunities and we're doing that. I would love to be more specific. Our pattern has been to wait to see what is there, test it and try to develop it and once we get to a certain point, we talk about it. I do want to assure you we are aware there are many opportunities out there and we are doing our best to look at them with the help of Keith, Bob Glass and others.

)) ANALYST: Thanks.

)) OPERATOR: Thank you. Next we have Kelly Flynn of UBS Warburg.

)) ANALYST: Question on secular growth. A lot of people are interested in your views on this succession versus the last one. What do you think the secular growth rate of the accounting segment of the staffing market is right now and how would you compare that to what you thought five years ago? Quickly follow-up, I want to make sure guidance for Q1 assumes no bad debt expense and also want to be the currency impact in the first quarter? Thanks.

)) MAX MESSMER: Start with the last parts. Bad debt assume to return to not totally normal, but nowhere near the degree of charges we took in the first quarter. No major currency impact assumed, nor has there been one lately. As far as secular growth rate, if we are talking about have the last five years changed our view of the long-term growth opportunities in accounts, the answer would be absolutely not. Annually we update a bunch of internal market research that we've completed in the last few months. And once again, gives us much hope and much confidence that the accounting and finance segment is significantly underdeveloped in the United States. Therefore, we believe long-term, secular growth is in accounting and is very positive.

)) ANALYST: Okay. You won't throw out a number?

)) MAX MESSMER: Pre-recession, we talked about how we thought over extended period of time, accounting and finance was at 15 or so growing. Given where we currently are with the low base, it seems silly to throw that out. As we talked about on the last call, coming out of the last downturn we grew revenue over 40% compound. We grew earnings over 75% compound for five years. So, with the impact getting back to where you were before you start rolling at the secular rate, the rates are much higher than the long-term secular rate itself would indicate. Our point is our views of the long-term growth aspects of accounting finance have not diminished at all through this downturn.

)) ANALYST: Okay. On the bad debt, can you be specific how much lower it will be in Q1 versus Q4?

)) KEITH WADDELL: Probably couple million dollars. I mean, most of the extra in Q4 probably you won't see again in Q1.

)) ANALYST: Okay. Thank you very much.

)) OPERATOR: Thank you. Next we have Brett McCree, from Thomas Weisel Partners.

)) ANALYST: Question in terms of Protiviti. Maybe you can talk little bit to how the landscape vis-a-vis competitors and who you are seeing out there in terms of your feelings about staff growth over the course of the coming year?

)) MAX MESSMER: Well, I would say larger publicly held firms, it is virtually always often a Big 4 firm and virtually never the smaller what you are calling boutique firms. With the smaller public companies, it is not unusual for there to be a boutique firm or two at the table. Virtually always three or four firms proposing, particularly this internal audit. As to staff headcount in Protiviti, currently we have underutilized staff at the moment and the thought that we're sold out and need more is actually quite a pleasant thing to think about. We have got some room to go there. We certainly don't anticipate a significant addition to Protiviti headcount for the foreseeable future.

)) ANALYST: Quickly, in terms of the Accountemps side, I noticed increased (inaudible), maybe you could talk about the next couple of quarters and what your thoughts are there in terms of ad spend on the radio side.

)) MAX MESSMER: I don't think it is so sure the aggregate dollars spent as much as it is how do we allocate to the various media elements how we spend the money. Q4 and Q3 are virtually the same in absolute dollars. I think what you are seeing is and what you want to see is more allocation in the radio and less allocation in the other elements.

)) ANALYST: Great. Thank you so much.

)) OPERATOR: Thank you. Our next question comes from Mark Markum of Wachovia Securities.

)) ANALYST: Good afternoon, Max and Keith. With regard to Protiviti, can you talk -- you know, there is something that came up which is utilization of Protiviti. Can you give us a feel for the utilization rate you are currently running at and what sort of utilization rate you would need in order to get to break even for Protiviti?

)) KEITH WADDELL: Good questions, Mark. Our view is that we are already disclosing boot load of information on Protiviti, particularly given the relative size and start-up state. We're kind of holding the line on what we have given to date.

)) ANALYST: Okay.

you have a lot of excess capacity?

)) KEITH WADDELL: No question.

)) ANALYST: How about pricing, what can you mention about pricing at Protiviti?

)) KEITH WADDELL: I would say for the most part, they are getting the same kind of pricing they got when they were at Anderson.

)) ANALYST: And what about no discounting needing or anything like that? You are not contemplating discounting in other to get the utilization rate up?

)) KEITH WADDELL: Never say never. There is always a case here or there, but again, when you are competing when it is you and three of the former Big 4 at the table competing, typically it is price that determines who wins. It is how deep are the skills of the individuals assigned to the account, what is your methodology and what type of technology tools do you have. This Sarbonese-Oxley work, you don't just need people, you need people and methodology and tools. You need diagnostic and assessment tool, documentation and workflow tools and repository type tools so those things can be stored. Having people is not enough, it is combination of people, methodology and tools.

)) ANALYST: Uh-huh. Professional staffing in that sense, anybody can claim they provide professional staffing, but to be successful, you have to have credibility with clients and that is typically based on the tools you have and the performance you rendered. You have to build your credibility and I would have to say the people at Protiviti given their Anderson heritage have a lot of credibility.

)) ANALYST: Sure. That would certainly make sense. Are they settled in at this point in terms of office moves and all of that?

)) MAX MESSMER: They are certainly out of Anderson space. The majority of them are into permanent space. There is still 8 or 10 offices that are in executive suite-type space waiting for their permanent space. So, they're mostly settled in, but it isn't totally over. Keep in mind, they are not typically in our office, they are at the client's office.

)) KEITH WADDELL: They are getting there. There has been a lot of turmoil. We are getting there.

)) ANALYST: I was just trying to get a sense in terms of to what extent not being settled interfered with their ability to generate full revenue?

)) MAX MESSMER: I think they have been very active since they joined us in their marketing activities, which as you know has a longer sales cycle that happens in staffing so the things coming to fruition today are things that have been worked on for a number of months.

)) ANALYST: Okay. In terms of your guidance you provided, is there any way you can -- would you expect the same sort of sequential trends on average daily basis would generally hold in terms of the relative basis, between the different divisions?

)) MAX MESSMER: Relatively speaking, I would agree. If you look on a seasonal basis in accounting and finance, particularly, and if you look back 10 years prior to the recession, we grew 8 or nine% sequentially Q1 versus Q4. And our upside number assumes only 2% sequential growth. Clearly, we have been more conservative than we have seen in the past. I would argue the fourth quarter would indicate that is how you ought to be.

)) ANALYST: Sure. Two last questions. Number one, how many people do you now have? You have got that in your 10-K, can you release that now?

)) KEITH WADDELL: We will release that when we do our 10-K.

)) ANALYST: Last question, I like to believe it will come out at some point. What sort of revenue run rate would you need to get to get your EBIT margin back up to the 10% level?

)) KEITH WADDELL: I think the easy answer is look at revenue run rate we last had when we were at that level. And there aren't long-term extra cost in the business that would preclude us getting there.

)) ANALYST: Okay. Thanks.

)) OPERATOR: Thank you. Our next question comes from Tim Conesquey of Janney Montgomery Scott.

)) ANALYST: Good afternoon. As a follow-up to Protiviti, when you look at the pipeline and you I think Max mentioned, substantial projects were signed up for substantial projects in fourth quarter, can you give us a sense of the timing of those projects as you move into '03?

)) MAX MESSMER: Well, I guess if the question is when do you start to work versus when did you get the booking? The work is going to start over the course of the first quarter. Again, most clients have said we don't want to see you until the external audit is done. Therefore, we are just talking now about getting in there and doing the work. Clearly, there is a lag between when you find out that you win, sign the job arrangement letter and you physically start to work.

)) ANALYST: You expect the lag to be shorter after audit season when you sign up?

)) MAX MESSMER: Based on what is signed up today, yes. And given the nature of the work, yes.

)) ANALYST: Okay. When you look back as Protiviti the Anderson people, rather, weren't Protiviti at the time, got together and packaged themselves to move to another organization and they had a business plan and the revenues behind that plan, do you feel as if, you know, I agree with your comment about wanting to push it off past the audit season and don't talk to us until audit season is over. Do you feel the acceptance of Sarbonese-Oxley has been slower, faster or about the same as you expected?

)) MAX MESSMER: For Sarbonese-Oxley specifically, I think our initial reaction was it seemed to be going slower than we would have thought, particularly as it related to quarterly certification by CFO and CEO of the financials. There was disappointment that didn't lead to more work. That said, I think they have been encouraged about stage 2 of Sarbonese-Oxley and that controls the documentation requirement that all in forms next year's annual external audit at that station, I think that -- they are already getting (inaudible) from.

)) ANALYST: Okay. Finally, you made a comment about headcount in '03 if you are underutilized. Did you add any partner level or professional level individuals in Protiviti in the fourth quarter?

)) KEITH WADDELL: The difference was exactly one person. That one person was a partner level and managing director.

)) ANALYST: Thanks a lot.

)) OPERATOR: Our next question comes from Kirk Moler of (inaudible).

)) ANALYST: Good afternoon. Could you just kind of help us understand, you mentioned that historically at this point in the hiring cycle, you would have seen more demand for temps you are supplying. What is your sense as to why that is not happening?

)) MAX MESSMER: Well, again, we are not macro economists. Keith may have a different view. At the end of the day, as I tried to state in my opening remarks, you are normally as we run the journal, 16 months after the beginning of the recession, the economy is coming back and the job market is coming back. This time is not clear where the economy is. I think it is slowly picking up but the job markets haven't picked up yet. We believe the job markets will come back as the economy gains strength. We meant it is taking longer this time. We are not sufficiently (inaudible) pick up. We believe it will.

)) ANALYST: Could you kind of -- most of the personnel are white collar function. In terms of the industries you serve, what kind of businesses do they tend to be? What is the end product and end service?

)) MAX MESSMER: Well, we serve basically all industries and we serve all sizes of companies. We have many large clients, a lot more smaller clients. Keith noted earlier receivables with specific account is relatively small, which provides us certain amount of flexibility. I wouldn't say there is any particular industry concentration.

)) ANALYST: Uh-huh. Think about it, particularly in financing and finance we would work at any company in America. With our traditional middle market focus, you know, we have thousands upon thousands of middle market companies that run the game industry-wise.

)) ANALYST: In terms of the end market of the companies who are your customers, in particular end markets who are have more demand where there is more demand for your services than others, I mean, would say manufacturing or certain other kind of things have more or less demand than typical demand for your services?

)) MAX MESSMER: I guess the only comment I would have, the more transactional companies, the more likely it is to need near accounting help. But, other than that, nothing really jumps out.

)) ANALYST: Thank you.

)) OPERATOR: Thank you. Next question comes from Allen Butranny of copper Beach Capital.

)) ANALYST: Question was asked and answered.

)) OPERATOR: Thank you. Our next question comes from Wayne Cookerman.

)) ANALYST: Hi, I think you answered this. I want to ask it differently on the share repurchase. Just the question is do you think that is the best use of cash right now versus dividend or probably acquisitions that are out there at lower multiples than you are buying in your own stock?

)) KEITH WADDELL: We constantly weigh the acquisition alternative versus the purchase alternative. We look at current results, our prospects. It is something we constantly look at and decide whether or not and to what extent we are buying shares.

)) ANALYST: Are there not things out there to buy that you want to own or the prices are too high? I am curious, I don't think you guys have made an acquisition in a while.

)) MAX MESSMER: Every year in the annual report there is a paragraph or two about acquisitions. There is no denying we have been selective and perhaps we missed a lot of opportunities, but we also dodged a lot of bullets. (inaudible) if you look at the last decade. There is a lobster sale everyday, there are transactions crossing our desks. I spend part of my time and others spend a lot of time looking at these all the time. We pursue some of them and have done some over the years. There is no doubt about it, we are biased toward building things whenever possible. I think to get the right combination of personal skills together with good business model and executionability is tricky. It is not like other industries perhaps where you run the numbers and if it looks good on papers and so forth, you do the deal. The deals work or don't work because of the personal skills involved. One reason we like Protiviti so much, we have a long history with Anderson and knew a lot of the people in the audit group. They are our type of people and we thought we would mesh well on a personal level with them and that is turning out to be the case. Again, we could go on and on about why you do or don't do different deals. As I said before, I don't think there is a universe of great businesses out there. There are some good businesses and obviously you would like to find them. We are working at it. At the end of the day, we know our own business a lot better and have more confidence in the future. There is a balancing act in terms of acquisitions versus share repurchase.

)) ANALYST: How about dividends as a one-time event?

)) KEITH WADDELL: With dividends, there is a lot of talk about Bush's proposal regarding taxation of dividends. We are following that and studying that. We don't have a formal position at that point. I guess to the extent we have been advised to date, is the thought that paying nominal dividends at the end of the day doesn't do much for you and if you are going to pay one, you probably need to pay one that is having a yield somewhere

(the last couple of minutes were muffled and inaudible.)

The call lasted about an hour.