ITEM 1. BUSINESS
Robert Half International Inc. is the world's largest specialized provider of temporary and permanent personnel in the fields of accounting and finance. Its divisions include ACCOUNTEMPS-Registered Trademark- and ROBERT HALF-Registered Trademark-, providers of temporary and permanent personnel, respectively, in the fields of accounting and finance. The Company, utilizing its experience as a specialized provider of temporary and permanent personnel, has expanded into additional specialty fields. In December 1991, the Company formed OFFICETEAM-Registered Trademark- to provide skilled temporary administrative and office personnel. In 1992, the Company acquired THE AFFILIATES-Registered Trademark-, which focuses on placing temporary and permanent employees in paralegal, legal administrative and other legal support positions. In addition, the Company recently established RHI CONSULTING-SM- to concentrate on providing temporary information technology professionals in positions ranging from PC/LAN technician to system design and application programmer.
The Company's business was originally founded in 1948. Prior to 1986, the Company was primarily a franchisor of ACCOUNTEMPS and ROBERT HALF offices. Beginning in 1986, the Company and its current management embarked on a strategy of acquiring franchised locations and other local or regional independent providers of specialized temporary service personnel. The Company has acquired all but five of the ACCOUNTEMPS and ROBERT HALF franchises in 45 separate transactions, and has acquired 14 other local or regional providers of specialized temporary service personnel. Since 1986, the Company has significantly expanded operations at many of the acquired locations and has opened over 50 new locations. The Company believes that direct ownership of offices allows it to better monitor and protect the image of the ACCOUNTEMPS and ROBERT HALF names, promotes a more consistent and higher level of quality and service throughout its network of offices and improves profitability by centralizing many of its administrative functions. The Company currently has more than 180 offices in 36 states and five foreign countries and placed approximately 85,000 employees on temporary assignment with clients in 1994.
ACCOUNTEMPS
The ACCOUNTEMPS temporary services division offers customers a reliable and economical means of dealing with uneven or peak work loads for accounting, tax and finance personnel caused by such predictable events as vacations, taking inventories, tax work, month-end activities and special projects and such unpredictable events as illness and emergencies. Businesses increasingly view the use of temporary employees as a means of controlling personnel costs and converting such costs from fixed to variable. The cost and inconvenience to clients of hiring and firing permanent employees are eliminated by the use of ACCOUNTEMPS temporaries. The temporary workers are employees of ACCOUNTEMPS and are paid by ACCOUNTEMPS only when working on customer assignments. The customer pays a fixed rate only for hours worked.
ACCOUNTEMPS clients may fill their permanent employment needs by using an ACCOUNTEMPS employee on a trial basis and, if so desired, "converting" the temporary position to a permanent position. The client typically pays a one-time fee for such conversions.
The ACCOUNTEMPS business accounted for 75% of the Company's revenue in 1993 and 66% of the Company's revenue in 1994.
OFFICETEAM
The Company's OFFICETEAM division, which commenced operations in 1991, places temporary and permanent office and administrative personnel, ranging from word processors to office managers, from over 125 locations in the United States. OFFICETEAM operates in much the same fashion as the ACCOUNTEMPS and ROBERT HALF divisions. The OFFICETEAM business accounted for 14% of the Company's revenue in 1993 and 19% of the Company's revenue in 1994.
ROBERT HALF
The Company offers permanent placement services through its office network under the name ROBERT HALF. The Company's ROBERT HALF division specializes in placing accounting, financial, tax and banking personnel. Fees for successful permanent placements are paid only by the employer and are generally a percentage of the new employee's annual compensation. No fee for permanent placement services is charged to employment candidates.
The ROBERT HALF business accounted for 9% of the Company's revenue in 1993 and 1994.
OTHER ACTIVITIES
In 1992, the Company acquired THE AFFILIATES, a small operation involving only a limited number of offices, which places temporary and permanent employees in paralegal, legal administrative and legal secretarial positions. The legal profession's requirements (the need for confidentiality, accuracy and reliability, a strong drive toward cost-effectiveness, and frequent peak workload periods) are similar to the demands of the clients of the ACCOUNTEMPS division.
The Company recently established its RHI CONSULTING division, which specializes in providing information technology professionals ranging from PC/LAN technician to system design and application programmer.
MARKETING AND RECRUITING
The Company markets its services to clients as well as employment candidates. Local marketing and recruiting are generally conducted by each office or related group of offices. Advertising directed to clients and employment candidates consists primarily of yellow pages advertisements, classified advertisements and radio. Direct marketing through mail and telephone solicitation also constitutes a significant portion of the Company's total advertising. National advertising conducted by the Company consists primarily of print advertisements in national newspapers, magazines and certain trade journals. Joint marketing arrangements have been entered into with Lotus Development Corporation, WordPerfect Corporation, Peachtree Software, Inc., and Computer Associates International, Inc. and typically provide for cooperative advertising, joint mailings and similar promotional activities. The Company also actively seeks endorsements and affiliations with professional organizations in the business management, office administration and professional secretarial fields. The Company also conducts public relations activities designed to enhance public recognition of the Company and its services. Local employees are encouraged to be active in civic organizations and industry trade groups.
The Company owns many trademarks, service marks and tradenames, including the ROBERT HALF-Registered Trademark-, ACCOUNTEMPS-Registered Trademark-, OFFICETEAM-Registered Trademark-, THE AFFILIATES-Registered Trademark- and RHI CONSULTING-SM- marks, which are registered in the United States and in a number of foreign countries.
ORGANIZATION
Management of the Company's operations is coordinated from its headquarters in Menlo Park, California. The Company's headquarters provides support and centralized services to its offices in the administrative, marketing, accounting, training and legal areas, particularly as it relates to the standardization of the operating procedures of its offices. The Company has more than 180 offices in 36 states and five foreign countries. Office managers are responsible for most activities of their offices, including sales, local advertising and marketing and recruitment.
COMPETITION
The Company faces competition in its efforts to attract clients as well as high-quality specialized employment candidates. The temporary and permanent placement businesses are highly competitive, with a number of firms offering services similar to those provided by the Company on a national, regional or local basis. In many areas the local companies are the strongest competitors. The most significant competitive factors in the temporary and permanent placement businesses are price and the reliability of service, both of which are often a function of the availability and quality of personnel.
The Company believes it derives a competitive advantage from its long experience with and commitment to the specialized employment market, its national presence, and its various marketing activities.
EMPLOYEES
The Company has approximately 1,600 full-time staff employees. The Company's offices placed approximately 85,000 employees on temporary assignments with clients during 1994. Temporary employees placed by the Company are the Company's employees for all purposes while they are working on assignments. The Company pays the related costs of employment, such as workers' compensation insurance, state and federal unemployment taxes, social security and certain fringe benefits. The Company provides voluntary health insurance coverage to interested temporary employees.
OTHER INFORMATION
The Company's current business constitutes a single business segment. (See Item 8. Financial Statements and Supplementary Data for financial information about the Company.)
The Company is not dependent upon a single customer or a limited number of customers. The Company's operations are generally more active in the first and fourth quarters of a calendar year. Order backlog is not a material aspect of the Company's business and no material portion of the Company's business is subject to government contracts. The Company does not have any material expenditures for research and development. Compliance with federal, state or local environmental protection laws has no material effect on the capital expenditures, earnings or competitive position of the Company.
Information about foreign operations is contained in Note N of Notes to Consolidated Financial Statements in Item 8. The Company does not have export sales.
ITEM 2.

ITEM 2. PROPERTIES
The Company's headquarters is located in Menlo Park, California. Placement activities are conducted through more than 180 offices located in the United States, Canada, the United Kingdom, Belgium, France and the Netherlands. All of the offices are leased.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings other than routine litigation incidental to its business.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed for trading on the New York Stock Exchange under the symbol "RHI". On February 28, 1995, there were approximately 1,400 holders of record of the Common Stock.
Following is a list by fiscal quarters of the sales prices of the stock as quoted on the New York Stock Exchange, adjusted, as appropriate, to reflect the two-for-one stock split effected in the form of a stock dividend in August 1994:
No cash dividends were paid in 1994 or 1993. The Company, as it deems appropriate, may continue to retain all earnings for use in its business or may consider paying a dividend in the future.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
Following is a table of selected financial data of the Company of the last five years:
All shares and per share amounts have been restated to retroactively reflect the two-for-one stock split effected in the form of a stock dividend in August 1994.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1994
Temporary services revenues increased 46% during 1994 and 40% during 1993, including the revenues generated from the Company's OfficeTeam division, which was started in 1991 to provide highly-skilled office and administrative personnel. Permanent placement revenues increased 47% during the year ended December 31, 1994 and 30% during the year ended December 31, 1993. The revenue comparisons reflect continued improvement in the demand for the Company's services.
Gross margin dollars increased 47% during the year ended December 31, 1994 compared to 33% for the year ended December 31, 1993. Gross margin amounts equaled 39% of revenue in 1994 and 1993. In 1992, gross margin equaled 40% of revenue. The percentage decline relative to 1992 related primarily to the lower mix of the higher permanent placement gross margins and higher unemployment insurance costs associated with the temporary services divisions.
Selling, general and administrative expenses were approximately $122 million during 1994 compared to $88 million in 1993 and $72 million in 1992. Selling, general and administrative expenses as a percentage of revenues were 27% in 1994, compared to 29% in 1993 and 33% in 1992. The percentage declines were attributable to revenue growth coupled with the Company's continued cost containment.
Amortization of intangible assets increased from 1992 to 1994 due to the acquisitions in each of those years of additional personnel services operations.
Interest expense for the years ended December 31, 1994 and 1993 decreased 61% and 7%, respectively, over the comparable prior periods due primarily to the conversion of the Convertible Subordinated Debentures in the fourth quarter of 1993 and the reduction in outstanding indebtedness.
The provision for income taxes was 42% in 1994, as compared to 46% in 1993 and 45% in 1992. The decrease in 1994 is the result of a smaller percentage of non-deductible intangible expenses relative to income. The 1993 increase reflects the effect of the 1% increase in the federal corporate income tax rate as a result of the 1993 Tax Act. Because of the increase in pre-tax book income, the effect of the non-deductible intangible amortization on the effective tax rate was reduced in 1993 as compared to 1992. The Financial Accounting Standards Board issued a new standard on accounting for income taxes, which the Company adopted, as required, on January 1, 1993. The cumulative effect of the adoption of the accounting method prescribed by the new standard was not material.
LIQUIDITY AND CAPITAL RESOURCES
The change in the Company's liquidity during the past three years is the net effect of funds generated by operations and the funds used for the personnel services acquisitions, principal payments on outstanding notes payable, and the securities repurchase program.
In November 1994, the Company issued 633,555 shares of its common stock. The net proceeds from the sale of shares were approximately $12.6 million. The Company used the proceeds for repayment of the borrowings under the Company's revolving credit agreement.
On December 10, 1993, substantially all of its outstanding convertible subordinated debentures were converted into common stock of the Company. See Note E to the Consolidated Financial Statements.
The Company's working capital requirements consist primarily of the financing of accounts receivable. While there can be no assurances in this regard, the Company expects that internally generated cash plus the bank revolving line of credit will be sufficient to support the working capital needs of the Company's offices, the Company's fixed payments and other long-term obligations.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
All share and per share amounts have been restated to retroactively reflect the two-for-one stock split effected in the form of a stock dividend in August 1994.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
All share and per share amounts have been restated to retroactively reflect the two-for-one stock split effected in the form of a stock dividend in August 1994.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
All share and per share amounts have been restated to retroactively reflect the two-for-one stock split effected in the form of a stock dividend in August 1994.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ROBERT HALF INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The Consolidated Financial Statements include the accounts of Robert Half International Inc. (the "Company") and its subsidiaries, all of which are wholly-owned. The Company is a Delaware corporation. All significant intercompany balances have been eliminated. Certain reclassifications have been made to the 1993 and 1992 financial statements to conform to the 1994 presentation.
REVENUE RECOGNITION. Temporary services revenues are recognized when the services are rendered by the Company's temporary employees. Permanent placement revenues are recognized when employment candidates accept offers of permanent employment. Allowances are established to estimate losses due to placed candidates not remaining in employment for the Company's guarantee period, typically 90 days.
FOREIGN CURRENCY TRANSLATION. Foreign income statement items are translated at the monthly average exchange rates prevailing during the period. Foreign balance sheets are translated at the current exchange rates at the end of the period, and the related translation adjustments are recorded as part of Stockholders' Equity. Gains and losses resulting from foreign currency transactions are included in the Consolidated Statements of Income.
CASH AND CASH EQUIVALENTS. For purposes of the Consolidated Statements of Cash Flows, the Company classifies all highly liquid investments with an original maturity of three months or less as cash equivalents.
INTANGIBLE ASSETS. Intangible assets represent the cost of acquired companies in excess of the fair market value of their net tangible assets at acquisition date, and are being amortized on a straight-line basis over a period of 40 years. The carrying value of intangible assets is periodically reviewed by the Company and impairments are recognized when the expected future operating cash flows derived from such intangible assets is less than their carrying value. Based upon its most recent analysis, the Company believes that no material impairment of intangible assets exists at December 31, 1994.
INCOME TAXES. Effective January 1, 1993, the Company adopted Financial Accounting Standards No. 109, Accounting for Income Taxes (FAS 109). Under FAS 109, deferred taxes are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. As permitted under the provisions of FAS 109, the Company elected not to restate prior years and has determined that the cumulative effect of implementation was immaterial.
NOTE B -- ACQUISITIONS In July 1986, the Company acquired all of the outstanding stock of Robert Half Incorporated, the franchisor of the Accountemps and Robert Half operations. Subsequently, in 59 separate transactions the Company acquired all of the outstanding stock of certain corporations operating Accountemps and Robert Half franchised offices in the United States, the United Kingdom and Canada as well as other personnel services businesses. The Company has paid approximately $192 million in cash, stock, notes and other indebtedness in these acquisitions, excluding transaction costs and cash acquired.
These acquisitions were accounted for as purchases, and the excess of cost over the fair market value of the net tangible assets acquired is being amortized over 40 years using the straight-line method. Results of operations of the acquired companies are included in the Consolidated Statements of Income from the dates of acquisition. The acquisitions made during 1994 and 1993 had no material pro forma impact on the results of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- NOTES PAYABLE AND OTHER INDEBTEDNESS The Company issued promissory notes as well as other forms of indebtedness in connection with certain acquisitions. These are due in varying installments, carry varying interest rates and in aggregate amounted to $4,214,000 at December 31, 1994, and $2,440,000 at December 31, 1993. At December 31, 1994, $1.8 million of the notes was secured by a standby letter of credit (see Note D). The following table shows the schedule of maturities for notes payable and other indebtedness at December 31, 1994 (in thousands):
At December 31, 1994, all of the notes carried fixed rates of interest ranging from 4.1% to 13.3%. The weighted average interest rate for the above was approximately 8.2%, 11.1% and 8.5% for the years ended December 31, 1994, 1993 and 1992, respectively.
As part of a Restructuring in 1987, a newly formed corporation, BF Enterprises, Inc., assumed the obligation for certain subordinated debentures issued by a predecessor of the Company. At December 31, 1994, the Company remains contingently liable for $3.6 million of these subordinated debentures, payment of $3.4 million of which has been provided for by the issuance of letters of credit to the trustee for the debentures by BF Enterprises, Inc. Additionally, pursuant to a pledge and security agreement entered into at the time of Restructuring, BF Enterprises, Inc., has agreed to pledge to the Company collateral (consisting of real estate, marketable securities and bank letters of credit) if the net worth of BF Enterprises, Inc., falls below certain minimum levels.
NOTE D -- BANK LOAN (REVOLVING CREDIT) The bank loan is an unsecured credit facility which provides a line of credit of up to $80,000,000, which is available to fund the Company's general business and working capital needs, including acquisitions and the purchase of the Company's common stock, and to cover the issuance of debt support standby letters of credit up to $15,000,000.
As of December 31, 1994, the Company had no borrowings on the line of credit outstanding and had used $3,358,000 in debt support standby letters of credit. There is a commitment fee on the unused portion of the entire credit facility of .25%. The loan is subject to certain financial covenants which also affect the interest rates charged.
The credit facility has the following scheduled reduction in availability (in thousands):
The final maturity date for the credit facility is August 31, 2000.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- BANK LOAN (REVOLVING CREDIT) (CONTINUED) As of December 31, 1993, the Company had borrowed $30,300,000 on the line of credit and had used $2,780,000 in debt support standby letters of credit. Of the $30,300,000 outstanding loan balance at December 31, 1993, $29,000,000 carried an interest rate tied to Eurodollar rates plus 1.25% and the remaining balance of $1,300,000 carried an interest rate at prime.
NOTE E -- CONVERTIBLE SUBORDINATED DEBENTURES On August 6, 1987, the Company issued $74,750,000 of 7.25% Convertible Subordinated Debentures (the "Convertible Debentures"). Prior to 1993, all but $22,745,000 of the Convertible Debentures were repurchased by the Company pursuant to its repurchase program (see Note F). The Convertible Debentures were unsecured obligations of the Company with an original maturity date of August 1, 2012. Interest was payable semi-annually as of February 1 and August 1 of each year to the registered holders as of the preceding January 15 and July 15, respectively. The Convertible Debentures were redeemable at the Company's option at any time on or after August 1, 1990, at declining redemption prices.
In December 1993, the Company called for redemption all of its then outstanding Convertible Debentures. Holders of $22,440,000 in principal amount elected to convert their debentures into 2.04 million shares of common stock at the conversion price of $11.00 per share. The remaining $305,000 in principal amount of Convertible Debentures was redeemed at 102.9% of the principal amount plus accrued interest.
NOTE F -- STOCKHOLDERS' EQUITY On June 27, 1994, the stockholders of the Company voted to amend the certificate of incorporation to increase the number of authorized shares of the Company's common stock from 30,000,000 to 100,000,000 shares and the number of authorized shares of the Company's preferred stock from 500,000 to 5,000,000. The stockholders of the Company also authorized a reduction in par value from $1 per share to $.001 per share on both classes of shares.
In August 1994, the Company effected a two-for-one stock split in the form of a stock dividend. All share and per share amounts have been restated to retroactively reflect the two-for-one stock split.
In November 1994, the Company issued 633,555 shares of its common stock at a price of $21.25 per share. The net proceeds from the sale of shares (after deducting issuance costs of approximately $355,000 and a 4% underwriter's discount) were approximately $12.6 million.
NOTE G -- INCOME TAXES The provisions for income taxes for the three years ended December 31, 1994, consisted of the following (in thousands):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G -- INCOME TAXES (CONTINUED) The income taxes shown above varied from the statutory federal income tax rates for these periods as follows:
The deferred portion of the tax provisions consisted of the following (in thousands):
During the fourth quarter of 1992, the Company recorded a one-time benefit of $400,000 for the resolution of certain tax accounting issues related to previous acquisitions.
The deferred income tax liability shown on the balance sheet is comprised of the following (in thousands):
No valuation allowances against deferred tax assets were required for the years ended December 31, 1994 and 1993.
The components of the net deferred income tax liability at December 31, 1994 and 1993, were as follows (in thousands):
NOTE H -- EMPLOYEE BENEFIT PLANS Under a retirement plan covering one current and one former executive officer of the Company, monthly benefits are payable equal to 25% of the participant's base compensation as defined, increased by an inflation formula. The plan was amended effective May 31, 1992, to provide a fixed supplemental benefit for the current employee during the first 15 years after retirement. The current employee forfeited long-term incentive awards of equal value in exchange for this amendment. The plan was also amended effective May 21, 1991, for the current employee to increase the percentage of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H -- EMPLOYEE BENEFIT PLANS (CONTINUED) base compensation to 30% increasing thereafter by 3% for each year of service beyond the age of 50, up to a maximum of 66%. During 1993, the Company changed its discount rate assumption from 8% to 6%. The effect of both plan amendments and the discount rate change are being amortized over the employee's expected future service period (initially 15 years) and will increase after-tax expense by approximately $76,000 per year. The employee can require the Company to discharge its liability at defined intervals by purchasing annuities. At December 31, 1992, a liability of $1,124,000 was established to cover the estimated unfunded cost of these benefits. This amount was increased to $1,721,000 at December 31, 1993, and at December 31, 1994, is $1,827,000. Pre-tax pension costs for these plans were $232,000, $188,000, and $131,000 for the years ended December 31, 1994, 1993 and 1992, respectively. These charges were computed using certain assumptions regarding salary increases, retirement age and life expectancy.
NOTE I -- COMMITMENTS Rental expense, primarily for office premises, amounted to $9,183,000, $8,457,000 and $8,042,000 for the years ended December 31, 1994, 1993 and 1992, respectively. The approximate minimum rental commitments for 1995 and thereafter under non-cancelable leases in effect at December 31, 1994, are as follows (in thousands):
NOTE J -- STOCK PLANS Under various stock plans, officers, employees and outside directors may receive grants of restricted stock or options to purchase common stock. Grants are made at the discretion of the Compensation Committee of the Board of Directors. Grants usually vest over four years.
Options granted under the plans have exercise prices ranging from 85% to 100% of the fair market value of the Company's common stock at the date of grant, consist of both incentive stock options and nonstatutory stock options under the Internal Revenue Code, and generally have a term of ten years.
Recipients of restricted stock do not pay any cash consideration to the Company for the shares, have the right to vote all shares subject to such grant, and receive all dividends with respect to such shares, whether or not the shares have vested.
As of December 31, 1994 the total number of available grants under the plans (consisting of either restricted stock or options) was 340,227.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J -- STOCK PLANS (CONTINUED) The following table reflects activity under all stock plans from January 1, 1992 through December 31, 1994 and the exercise prices:
As of December 31, 1994, an aggregate of 1,235,574 options to purchase common stock were vested.
NOTE K -- PREFERRED SHARE PURCHASE RIGHTS Pursuant to the Company's stockholder rights agreement, each share of common stock carries one right to purchase one two-hundredth of a share of preferred stock. The rights become exercisable in certain limited circumstances involving a potential business combination transaction or an acquisition of shares of the Company and are exercisable at a price of $32.50 per right, subject to adjustment. Following certain other events after the rights become exercisable, each right entitles its holder to purchase for $32.50 an amount of common stock of the Company, or, in certain circumstances, securities of the acquiror, having a then-current market value of twice the exercise price of the right. The rights are redeemable and may be amended at the Company's option before they become exercisable. Until a right is exercised, the holder of a right has no rights as a stockholder of the Company. The rights expire on July 23, 2000.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE L -- INCOME PER SHARE Income per fully diluted share has been computed using the weighted average number of shares of fully diluted common stock and common stock equivalents outstanding during each period (28,484,000, 25,260,000 and 24,007,000 shares for the years ending December 31, 1994, 1993 and 1992, respectively). An assumed conversion of the Convertible Debentures was not dilutive to income per share in 1993 (see Note E) or 1992.
NOTE M -- QUARTERLY FINANCIAL DATA (UNAUDITED) The following tabulation shows certain quarterly financial data for 1994 and 1993 (in thousands, except per share amounts):
NOTE N -- SEGMENT REPORTING Information about the Company's operations in different geographic locations for each of the three years in the period ended December 31, 1994, is shown below. The Company's areas of operations outside of the United States include Canada, the United Kingdom, Belgium, France and the Netherlands. Revenues represent total net revenues from the respective geographic areas. Operating income is net revenues less operating costs and expenses pertaining to specific geographic areas. Foreign operating income reflects charges for U.S. management fees and amortization of intangibles of $956,000, $917,000 and $854,000 for the years ended December 31, 1994, 1993 and 1992, respectively. Domestic operating income reflects charges for amortization of intangibles of $4,137,000,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N -- SEGMENT REPORTING (CONTINUED) $3,841,000 and $3,606,000 for the years ended December 31, 1994, 1993 and 1992, respectively. Identifiable assets are those assets used in the geographic areas and are after elimination of intercompany balances.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND THE BOARD OF DIRECTORS OF ROBERT HALF INTERNATIONAL INC.:
We have audited the accompanying consolidated statements of financial position of Robert Half International Inc. (a Delaware corporation) and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Robert Half International Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California January 24, 1995
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
The information required by Items 10 through 13 of Part III is incorporated by reference from the registrant's Proxy Statement, under the captions "NOMINATION AND ELECTION OF DIRECTORS," "BENEFICIAL STOCK OWNERSHIP," "COMPENSATION OF DIRECTORS," "COMPENSATION OF EXECUTIVE OFFICERS" AND "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION AND CERTAIN TRANSACTIONS," which Proxy Statement will be mailed to stockholders in connection with the registrant's annual meeting of stockholders which is scheduled to be held in May 1995.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its subsidiaries are included in Item 8 of this report:
Consolidated statements of financial position at December 31, 1994 and 1993.
Consolidated statements of income for the years ended December 31, 1994, 1993 and 1992.
Consolidated statements of stockholders' equity for the years ended December 31, 1994, 1993 and 1992.
Consolidated statements of cash flows for the years ended December 31, 1994, 1993 and 1992.
Notes to consolidated financial statements.
Report of independent public accountants.
Selected quarterly financial data for the years ended December 31, 1994 and 1993 are set forth in Note M - Quarterly Financial Data (Unaudited) included in Item 8 of this report.
2. FINANCIAL STATEMENT SCHEDULES
Schedules I through V have been omitted as they are not applicable.
3. EXHIBITS
(b) Reports on Form 8-K
The Registrant filed the following report on Form 8-K during the fiscal quarter ending December 31, 1994:
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ROBERT HALF INTERNATIONAL INC. (Registrant)
Date: March 8, 1995 By: /S/ M. KEITH WADDELL
----------------------------------- M. Keith Waddell Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


ITEM 1. Business
Introduction
Triad Systems Corporation is a leading provider of business and information management solutions for the automotive aftermarket and the hardgoods industry. Triad offers new and existing customers a variety of proprietary database products with periodic updates, software and hardware products, financing and ongoing support services.
Triad's installed base provides significant recurring revenues, accounting for 72% of its annual revenues in fiscal 1994. In the year ended September 30, 1994, 33% of Triad's total revenues were from service and support agreements, 24% from sales of hardware and software upgrades and add-ons to existing customers and 15% from subscription fees for Triad's proprietary database products. Triad's principal strategy is to increase its installed base by offering its database, hardware and software products in its two key markets, by penetrating adjacent segments of those markets and by geographic expansion.
Markets
The Company's markets consist of numerous independent businesses which require management of large quantities of data. These businesses are increasingly seeking information management products and services targeted to their specific industries. Triad is providing a growing family of database products and information management services to existing and new customers in response to these market demands. See "BUSINESS-Information Services." Triad continues to provide cost-effective software and hardware products for these markets.
Automotive Aftermarket. The automotive aftermarket consists of four principal levels of distribution: manufacturers, warehouse distributors, wholesalers ("jobbers") and retailers and auto repair shops ("service dealers"). Manufacturers distribute automotive parts through warehouse distributors to jobbers and retailers, who stock and sell the automobile parts used by service dealers and consumers.
As of September 30, 1994, the Company had approximately 10,000 Automotive Division customers, spanning small-to large-sized jobbers. Historically, the Company's Automotive Division has sold integrated business systems primarily to jobbers. Triad's large installed base of jobber customers provides a source of recurring revenue through sales of applications software packages, peripherals, hardware upgrades, information services, supplies and customer support services. The new Triad Prism is initially targeted at upgrade opportunities for our existing customer base. Due to the high level of automation in the traditional jobber market and the lower per-unit cost of systems being sold to smaller non-automated jobbers, the Company does not anticipate significant growth in revenues from system sales in the domestic jobber market.
The Company has developed new products and approaches to expand its customer base in adjacent markets. The Company typically offers its software products and databases in conjunction with system sales, and also markets selected software products and databases separately from its hardware products. Triad has gained access to several leading retail chains, as well as jobbers with competing systems, with these products. Further, the Company has reached retail chains, service dealers and small jobbers through products such as the LaserCat and ServiceCat workstations and software and database products. See "BUSINESS-Triad Hardware Systems and Software Products" and " - - - -Information Services." The ServiceCat product, Triad Service System and Triad ServiceWriter are directed to the automotive repair market of approximately 185,000 potential customers.
To expand its market presence, Triad intends to pursue strategic acquisitions in its markets as opportunities arise.
Triad markets its Automotive Division products in the United States, United Kingdom, Ireland, Canada and Puerto Rico. See "BUSINESS-Marketing and Sales." The Company's strategy is to expand its customer base through the development and marketing of database products for the automotive parts aftermarket in the United States, United Kingdom and selected European Community countries. See "BUSINESS-Information Services."
Triad markets systems to the warehouse distributor segment of the automotive parts aftermarket. In February 1994, the Company introduced The Paperless Warehouse and the UNIX-based Warehouse System to provide new levels of efficiency and productivity in automotive parts warehouses. Approximately 70 mid-range and large warehouse distributors have installed the company's systems, and 180 smaller warehouse distributors and larger jobbers have purchased the Company's Series 14 system or its predecessor, the Series 12 system, equipped with specialized applications software designed for the needs of the warehouse operations. The Triad Information System is designed for large multiple-location customers who require single-system solutions. See "BUSINESS-Triad Hardware Systems and Software Products."
Hardgoods Industry. Triad's Hardgoods Division offers integrated business systems to approximately 47,000 hardware stores and home centers, lumber/building supplies stores and paint and decorating retailers with annual sales of between $250,000 and $100 million. At September 30, 1994, the Company had more than 3,500 customers in these markets.
Hardgoods distribution chains have a much lower level of automation than the automotive parts aftermarket. The Company believes that independent hardgoods dealers are increasingly recognizing the advantages of automation as they face increased competition. Hardgoods trade journals have strongly favored automation, and major hardgoods wholesalers and cooperatives strongly endorse automation to their members. Approximately half of the top 60 hardware distributors endorse Triad products and services, along with five of the seven leading lumber and building materials groups. In addition, Triad has developed and maintains strong relationships with the four major hardgoods cooperatives. See "BUSINESS-Marketing and Sales."
Technological advancements in Triad's interactive UNIX-based Eagle and Eagle LS systems allow for product offerings suitable for hardgoods and building materials chains with up to 30 stores and $100 million in annual sales. See "BUSINESS-Triad Hardware Systems and Software Products."
Information Services
Triad provides its proprietary databases to its customers in return for a license fee and monthly subscription fees entitling customers to periodic updates. These database products generate recurring revenues for Triad through the monthly subscription fees and differentiate the Company's products from those of its competitors, contributing to new system sales. The Company cur- rently offers four unique databases to its Automotive Division customers and has a database catalog product for hardgoods distribution chains affiliated with Cotter & Company (True Value).
Electronic Catalog. Triad's Electronic Catalog product provides nearly 16.5 million automobile parts applications. This database virtually eliminates the time-consuming and cumbersome use of printed catalogs and is designed to increase productivity and accuracy in parts selection and handling. Proprietary software on Triad's jobber systems integrates information from the Electronic Catalog and the Telepricing databases so that for a given auto- motive repair, such as a tune-up, all parts required are identified, along with updated prices and inventory levels. Additional prompts enable the jobber to recommend related parts that the customer may need in addition to the parts requested. Triad charges a monthly subscription fee for the Electronic Catalog database and provides the customer with periodic updates. At September 30, 1994, approximately 3,400 customers had licensed the Electronic Catalog database and it was used at more than 29,000 automotive counter positions.
Telepricing. The Telepricing service provides automatic price updates for automotive parts following a manufacturer's price change, eliminating a customer's need to input this data manually. Telepricing service customers pay an initial license fee and a monthly subscription fee for this updating service. This database had more than 3,000 subscribers at September 30, 1994.
LaborGuide Database. The LaborGuide database automates the estimation of labor hours for car repairs and is based on labor estimating data from Mitchell International, Inc. There were more than 1,600 customers paying monthly fees for this database at September 30, 1994. This database is targeted to approximately 185,000 service dealers in the United States and permits users to comply more easily with regulations in many states that require written estimates of repair costs. During fiscal 1994, Triad added a new dimension to the automotive repair industry's most comprehensive database with its introduction of Major Service Intervals for domestic automobiles. The data includes detailed labor time and parts recommendations as defined by the automobile manufacturer, enabling subscribers to schedule regular maintenance appointments for their customers.
LaserGuide. The LaserGuide database is a reconfiguration of Electronic Catalog and allows a jobber to determine which automobiles (by make and year) the identified automotive parts will fit. The database also assists the jobber in making decisions on inventory levels. There were approximately 300 cust- omers using this database at September 30, 1994.
Workstation Products. Triad offers several products which are designed to make its proprietary databases available in a cost-effective manner to businesses with or without Triad systems. These products, including the LaserCat and ServiceCat, make Triad's proprietary database products available through CD-ROM technology and are designed to operate as stand-alone terminals or integrated as terminals in Triad systems or many competitors' systems. See "BUSINESS-Triad Hardware Systems and Software Products." The Company's Information Services Division also markets the software and database products to new customers separately from Triad's hardware systems.
Databases for Retailers. Triad markets its database products to large automotive retail chains (i.e., Goodyear, Western Auto, Kmart and Sears) with multiple national or regional sites. These chains use a variety of hardware platforms and applications software on their systems. Triad's proprietary databases are integrated into these systems. Triad's applications software may, but need not, be included in these packages.
Databases for Manufacturers. Triad markets database services utilizing Triad's database products to auto parts manufacturers. In addition to the full Telepricing database, manufacturers may select only certain categories of parts, or may choose the Competitive Analysis service, which compares price levels and number of applications to a competitor's product line. Triad's new transaction analysis services, MarketPACE for the Automotive aftermarket and VISTA for the Hardgoods industry, reports product movement information based on point of sale (POS) data collected at the independent retail levels in the respective markets. MarketPACE services supply comprehensive POS information and inventory analysis providing the decision support tools required to increase sales, boost productivity, improve distribution and enhance customer service for warehouses and auto parts stores. VISTA information services provide product manufacturers with ongoing measurement of brand and item movement with major product classifications using POS business analysis data from independent hardware stores, home centers and lumber and building materials outlets. Information provided by the MarketPACE and VISTA services provide manufacturers with insight into how a given product or brand performs against its competitors and the market in general.
Databases for International Markets. Triad established a wholly-owned subsidiary in Longford, Ireland, to create, maintain and distribute database products for automotive business management systems marketed by Triad and third parties in the United Kingdom and Ireland and subsequently for third party systems marketed in selected European Community nations. This project is supported, in part, by grants from the Industrial Development Authority of Ireland ("IDA"), subject to maintaining minimum capitalization and employment levels for the subsidiary. The facility began distributing database products in 1993 and its Electronic Catalog product is marketed in the United Kingdom and Ireland. Triad also markets automotive database products in Canada and Puerto Rico and is in the process of developing a product for the French market to be introduced in late 1995.
Cotter & Company Database. Triad introduced the Cotter & Company database product as a catalog of products available from the Cotter & Company (True Value) cooperative warehouses. The database is marketed both to Cotter affiliates and to independent outlets and outlets affiliated with other cooperatives. See "BUSINESS-Triad Hardware Systems and Software Products."
Triad Hardware Systems and Software Products
Triad's applications software and business computer systems, together with its database products, provide comprehensive business solutions targeted to its two key markets. The Company provides a different set of standard applications programs for each market that include user options allowing the selective structuring of applications files and reports to meet customers' specific requirements. These software products also allow Triad customers to access the Company's proprietary databases. See "BUSINESS-Information Services."
Systems developed for each specific market are generally field-upgradable to meet customers' future growth needs. Hardware components include central processing units (CPUs), disk drives, video display terminals, CD-ROM storage devices, point of sale terminals, communication devices, printers and other peripherals. Triad's systems also have communication capabilities allowing users to exchange purchase orders and pricing and inventory information with suppliers and, in some cases, customers.
Automotive Aftermarket. Since the first phase of the Triad Prism platform introduced in 1993, more than 500 Triad Prism systems have been installed. Triad Prism is a powerful UNIX-based system featuring Intel Pentium and other processors. Triad Prism was created specifically for the automotive parts distributor, and it employs a "management-by-exception" capability that is intuitive and efficient. Triad's Series 11, Series 12 and Series 14 product lines, and the Triad Prism track inventory, perform point of sale functions such as invoicing, billing and other accounting functions. Smaller warehouse distributors also use these systems with applications software designed to serve their particular information management requirements. Triad's systems also use a microcomputer manufactured by Triad with a proprietary operating system. The systems also enable customers to use the Electronic Catalog database and Triad's other automotive database products. See "BUSINESS- Information Services."
The Company also markets the TelePart terminal to its jobber customers, who generally place the terminal on-site with their service dealer customers. The TelePart terminal allows service dealers to electronically order parts by communicating directly with that jobber's Triad system equipped with the Electronic Catalog product. At September 30, 1994, Triad had installed more than 2,400 TelePart terminals.
In May 1994, Triad introduced Triad ServiceWriter, the latest addition to its growing family of affordable information management solutions. Triad ServiceWriter blends Triad's unique databases of 2 million parts, detailed labor estimates and recommended vehicle service intervals with the latest in workstation technology and easy-to-use, pull-down windows. Triad ServiceWriter also creates printed work estimates, automated work orders and maintains individual vehicle records and histories, enabling users to notify customers of required preventive maintenance and create other special promotions to generate higher volumes. Utilizing Triad's unique TelePart feature, Triad ServiceWriter electronically orders required parts, speeding and increasing the accuracy of the ordering process. Triad ServiceWriter can also be integrated with other Triad services, including Triad's new Service Accounting and ServiceTech for the latest in technical bulletins and other repair infor- mation. ServiceWriter can also be expanded to include inventory management, point of sale and general accounting applications.
The ServiceCat workstation is marketed to the service dealer segment of the automotive parts aftermarket. The ServiceCat product includes the Electronic Catalog and LaborGuide databases and TelePart software. It permits service dealers to estimate the cost of an entire repair job, including parts and labor, for customers which is mandatory in several states. See "BUSINESS-Information Services." Triad's Information Services Division also markets the ServiceCat software and databases separately from the workstation.
The Company also markets various terminals and workstations which provide access to Triad's proprietary databases. Triad's LaserCat product is marketed to customers requiring the complete Electronic Catalog database product, regardless of whether they own a Triad jobber system, a competitor's system or are not automated. The LaserCat product is an independent PC-based workstation using CD-ROM technology to provide access to Triad's Electronic Catalog database product, resulting in recurring revenues from monthly subscription fees. See "BUSINESS-Information Services." LaserCat workstations function as stand-alone units and also can be integrated as a terminal with any Triad Jobber System or with numerous competitors' jobber systems. Approx- imately 8,000 LaserCat workstations had been sold as of September 30, 1994. Triad's Information Services Division also markets the LaserCat software and databases separately from the workstation. See "BUSINESS-Information Services."
Triad's warehouse systems have the potential for a larger number of application enhancements and offers increased processor speed to serve businesses with high transaction volumes. The enhanced database management features allow the user flexibility in information retrieval. The Paperless Warehouse from Triad eliminates manual entry of parts-related information and enables warehouse operators to update inventory records, dramatically changing the way warehouses manage the flow of parts. This product enables employees to utilize hand-held computers equipped with bar-code scanners and radio transmitters to perform every warehouse task from receiving to stocking and from order picking to shipping, transmitting the data to the host Triad computer. Triad's UNIX-based Warehouse System merges the latest UNIX/RISC technology to provide users with total warehouse management capabilities and gives users a powerful relational database to access any information they require.
Hardgoods Industry. Triad hardgoods systems automate inventory control, point of sale functions (such as invoicing and billing), payroll, accounting and purchase orders to affiliated cooperatives and distributors.
The UNIX-based Intel 486/Pentium driven Eagle series of systems is designed for mid- to large sized hardgoods dealers. These systems have greater power and functionality and therefore have expanded access to larger hardgoods dealers. Existing Triad customers are able to upgrade to an Eagle system and utilize the newly incorporated technological advancements. More than 1,750 Eagle systems, including upgrades and new systems, have been sold as of September 30, 1994.
The Company's Eagle LS blends the power and flexibility of Triad's UNIX-based business and information management system with applications and features created to meet the unique needs of lumber and building materials operations. The Eagle LS system efficiently manages the flow of a typical transaction, including estimating, ordering and inventory management, shipping, invoicing and tracking accounts receivable. The system's compre- hensive features enable retailers to serve a wide range of customers, from building contractors to the do-it-yourself customer.
The LaserStation product includes the Cotter and Company database product, is designed as a stand-alone unit and may also be integrated as part of a Triad hardgoods system.
Business Products. Triad markets a wide line of business products to the automotive aftermarket and hardgoods industry through catalogs and telemarketing services.
Customer Support and Services
The Company's Customer Support Services organization, representing approximately 32% of the Company's full-time employees at September 30, 1994, provides service, training and support to Triad's domestic and international customers. System support agreements are a significant source of recurring revenue for Triad. Triad system owners are principally small business proprietors without the internal staffing or expertise to train users or to maintain computer systems on a consistent basis. These customers require a high level of service, training and support. Management believes its service organization represents a major competitive advantage.
Hardware Maintenance and Software Support. Triad provides a limited 90-day warranty on its systems. Triad also offers a variety of post-sale support programs through its system support agreements, including preventive and remedial maintenance, hardware engineering modifications and daily system operating support by phone. Triad's customers can call the Company's AdviceLine service on a toll-free network, which gives them access to trained personnel able to perform on-line diagnostics or to field engineers if on-site service is necessary.
Quick Assist, introduced in October 1994, is an automated service that connects customers directly with an Advice Line representative for high-priority assistance. It provides an alternative to customers who, due to the urgency of their support need, do not want to wait for a return call.
Virtually all new system customers enter into system support agreements at the time of acquisition and most retain such service agreements as long as they own the system. Monthly domestic fees vary with system size.
Triad also provides support for approximately 450 dental customers with systems previously marketed by Triad and provides support to other businesses under third party maintenance agreements.
At September 30, 1994, the Company had 189 field engineers and managers, and 68 customer education representatives (CERs) and managers in 120 domestic and 15 foreign field service offices.
Customer Training. Customer training is offered in the Company's facilities, including 40 education centers nationwide. The Company also provides on-site training for new and existing customers. In addition to training in system operations and software enhancements, Triad offers seminars and workshops to assist customers in understanding the capabilities of their systems.
Pre-Delivery Services and Installation. Triad's sales representatives provide a number of pre-delivery services to Triad's customers, including a cost-justification analysis, visits to current Triad users, site planning and preparation, training for management and employees and installation planning. Triad's Zapstart product pre-loads an individual automotive customer's inven- tory, pricing and parts applications data into its Triad system upon installation, saving customers significant data-entry time. The Company also offers hardware retailers a similar capability to preload inventory files provided by certain cooperatives or distributors.
Marketing and Sales
The Company markets its automotive and hardgoods products and services through a 275-person direct sales organization operating from 120 domestic and 15 foreign sales and support offices as of September 30, 1994.
The Company's systems are marketed through direct sales calls and by system demonstrations in customer facilities or in Company sales offices. Sales prospects are generated by telemarketing, customer referrals, trade publication advertising and trade show demonstrations. Triad's national accounts sales force solicits endorsements and other marketing arrangements with regional and national associations, distributors and cooperatives.
In addition, the Company markets its unique database products directly by telemarketing and direct sales, or indirectly through value-added resellers, to jobbers, service dealers and hardgoods distribution chains. Triad reaches potential customers who do not own Triad computer systems by marketing its database information products through value-added resellers who offer other systems or products in Triad's markets.
The Company began marketing certain products and services in the automotive aftermarket of the United Kingdom and Canada in the early 1980s. Marketing efforts were expanded to Ireland through the United Kingdom subsidiary in 1989. Sales in foreign countries are generally priced in local currencies and are therefore subject to currency exchange fluctuations.
For the years ended September 30, 1992, 1993 and 1994, no customer other than Triad Systems Financial Corporation ("Triad Financial"), accounted for 10% or more of Triad's revenues, and no end user accounted for more than 10% of Triad's revenues. Historically, the Company's business has been seasonal, with the Company generally experiencing a decline in revenues in the first quarter of each year from the final quarter of the preceding year, with revenues usually building as the year progresses.
Triad Systems Financial Corporation
Triad formed Triad Systems Financial Corporation in August 1978 to provide lease financing to the Company's customers. Leases are full-payout, noncancellable leases with terms from two to six years. Triad Financial provided lease financing for approximately 61% of domestic business systems sales in the year ended September 30, 1994.
The Company believes that its ability to offer lease financing to its customers through Triad Financial shortens the sales cycle and provides a competitive advantage in marketing Triad products. From its inception through September 30, 1994, Triad Financial purchased and leased $488 million of Triad equipment, including $39.6 million during fiscal 1994. Triad Financial provides lease financing and administration services to independent third parties in the markets that Triad serves, and since that time has financed $35.5 million under these programs, including $11.4 million in 1994. It is actively pursuing additional third party opportunities.
Triad Financial discounts most of its lease receivables on either a full or limited recourse basis to banks and lending institutions under discounting agreements. Under the agreements, Triad Financial is contingently liable for losses in the event of lessee nonpayment for discounted leases. The contin- gent liability for losses was $19.4 million at September 30, 1994. The discounting agreements provide for limited recourse of up to 10% or full recourse at 100% of discounted proceeds, depending on the credit risk associated with specific leases. At September 30, 1994, the Company had $26 million invested in its lease portfolio and, if needed, maintains discounting lines to sufficiently liquidate the principal of this investment into cash.
The discounting agreements contain restrictive covenants that must be maintained in order to discount, the most restrictive requiring that both Triad and Triad Financial be profitable every quarter. Under the terms of an operating and support agreement with Triad Financial, the Company is obligated, if required, to make equity contributions or subordinated loans to enable Triad Financial to fulfill its obligations under the equipment financing agreements.
Product Development
Triad's newest products are based on open systems design architecture. This allows the use of latest technology hardware and industry standard software for rapid development of products and services. Triad typically bundles its application software with industry standard operating systems and hardware platforms. Triad uses its system integration expertise to deliver reliable systems with the appropriate performance and scalability for future enhancements. The open design environment allows the Company to focus its development efforts on applications that provide business solutions for each segment of its markets. During 1992, 1993 and 1994, Triad's respective product development expenditures including capitalized costs were $10.8 million, $10.9 million and $11.2 million.
The Company capitalized $3.3 million, $2.8 million and $3.1 million of software development costs in 1992, 1993 and 1994, respectively. Amortization of capitalized software costs begins when the products are available for general release to customers. Costs are amortized over the expected product lives and are calculated using the greater of the straight-line method, generally three or five years, or a cost per unit sold basis.
At September 30, 1994, the Company employed 119 persons in product development. Separate teams of Company analysts and programmers are dedicated to each of the Company's markets. Common hardware and operating system expertise provides support to each market-oriented development team. In addition, Triad uses industry-specific advisory councils, representing a cross-section of its customers, to review its development plans and give advice on software applications features and priorities as they relate to their automation needs.
Manufacturing
Triad's Manufacturing operation consists primarily of systems integra- tion, including third party hardware and software with the Company's application software. Triad assembles and tests systems or peripherals from standard components and third party subassemblies at the Livermore facility. In addition, Triad provides manufacturing and test services for third party companies to optimize capacity and material planning operations.
Purchased parts and standard assemblies normally account for approximately 95% of hardware overhead cost, with subassembly, assembly and test costs representing the balance. The Company had 52 manufacturing employees at September 30, 1994. Standard systems are typically shipped in the same quarter the orders are received. The backlog of orders is not a signi- ficant factor in understanding the Company's business.
Most of the components and peripherals used in the Company's systems are available from a number of different suppliers, although the Company generally purchases such major items as peripherals from a single source of supply. The Company believes that alternative sources could be developed, if required, without significant disruption or delay of shipments.
Product Protection
Triad regards its software and databases as proprietary and attempts to protect them with copyrights, trade secret law and internal nondisclosure safeguards, as well as restrictions on disclosure and transferability that are incorporated into its license agreements. Despite these restrictions, it may be possible for competitors or users to copy aspects of the Company's products or to obtain information which the Company regards as trade secrets.
Triad has obtained software licenses from several sources covering operating systems and applications programs used in its minicomputer and microcomputer systems and planned for future products. The Company is not aware that the manufacture and sale of its current hardware, software and database products requires any licenses from others not already secured.
Triad holds one patent, has two patents pending and may seek additional patent protection related to new hardware or software products as appropriate.
Competition
Triad experiences competition for its applications software and database products from a variety of firms, ranging from small, independent applications software producers to partnerships of software producers and computer systems manufacturers (e.g., IBM and Digital Equipment Corp.). Some of Triad's competitors customize general-purpose business management software and market it for use on industry-standard hardware. The Company also faces competition in both the automotive and hardgoods segments from distributors and coop- eratives that market computer systems to their members. Competition for the Company's higher-priced warehouse systems comes from both customers developing their own systems in-house, and from large, well-established businesses that offer general-purpose business computers and custom programming. Entry into the markets for the Company's products is not unusually difficult, and new competition is expected.
The Company believes that the key competitive factors in each of the Company's markets are information management capability, product features and functions, quality and quantity of data, price, ease of use, reliability, quality of technical support and customer service and features and functions. The Company believes that it competes favorably with respect to these factors.
Litigation
The Company is involved in litigation arising in the ordinary course of business and in litigation to protect its proprietary rights. Triad is party to various legal proceedings, primarily in connection with deficiencies from customer-financed leases for products and services and related contract defenses such as breach of warranty. Alleged damages vary widely and some actions involve claims against the Company for damages, including punitive damages. In the opinion of management, after consultation with legal counsel, these matters will be resolved without material adverse effect on the Company's results of operations or financial position.
Employees
At September 30, 1994, Triad had 1,449 full-time employees. Persons with programming skills and experience are in great demand in the information management industry. The loss of a substantial number of these personnel, or an inability in the future to obtain sufficient additional qualified person- nel, would have an adverse effect on the Company's business. The Company considers its employee relations good and is not party to any collective bargaining agreements.
ITEM 2.

ITEM 2. Properties
The Company owns substantially all of its real property and the equipment used in its business. Corporate headquarters is located on a portion of its Livermore, California properties. Operations are consolidated in three buildings aggregating 220,000 square feet. Title to the headquarters buildings and the land on which they sit is held by a wholly owned subsidiary of the Company, which leases the premises to the Company for approximately $209,000 per month. The property and the lease are pledged as security on a 15-year term loan made by an insurance company to the subsidiary in the principal amount of $15.5 million with an initial interest rate of 9 7/8% that may be adjusted at the option of the lender in 1998.
At September 30, 1994, the Company was leasing sales and service space in 120 cities in the United States and 15 foreign sites.
In 1984 the Company purchased Triad Park, an aggregate of 398 contiguous acres in the City of Livermore, for a total purchase price of $15.8 million. The Company subsequently reconveyed approximately 10 acres of Triad Park to the sellers under the terms of the original purchase agreement. Since 1984, the Company has also conveyed approximately 12.8 acres to Livermore for roadways which Triad developed in Triad Park. A portion of Triad Park consisting of 110 acres is zoned "open space" and currently may not be developed under an agreement with the City of Livermore.
The Company sold an aggregate of 39.6 acres of Triad Park from fiscal years 1987 through 1994 for $8.5 million and intends to market 166 acres of Triad Park for resale during the next several years. Approximately 50 acres of property have been rezoned for retail use, and the balance of the property is zoned for industrial and research and development purposes. As part of this rezoning process, the Company entered into an agreement with the City of Livermore canceling the former development agreement for the Triad Park and eliminating any further obligations by the Triad Park owners, including Triad, to construct or participate in any assessment district to fund construction of two freeway interchanges and a water storage facility. However, all future construction in the Triad Park will require payment to the City of its current traffic impact fees required in connection with issuance of building permits.
Improvements are financed through municipal bonds. Two series of municipal bonds were sold by an assessment district from November 1985 through September 1988 to finance $11.5 million in improvements. A community facilities district was formed in 1990 that replaced the function of the assessment district under which $2.4 million in improvements were financed in September 1990. The community facilities district is authorized to finance a total of $17 million in bonds to provide funds to pay costs of the acquisition and construction of certain public facilities and services related to Triad Park. In 1993, the assessment district debt was refinanced to take advantage of lower interest rates.
The liens of the assessment district and community facilities district securing those bonds is segregated on a pro rata basis among all developable parcels of Triad Park and thus, except with respect to parcels retained by Triad for its own use, will be assumed by buyers of individual parcels.
Principal and interest payments are required to be made by Triad (or by subsequent purchasers of parcels of Triad Park) as additional bonds up to the $17 million authorized are sold. With respect to $11.2 million in assessments outstanding, the Company made $903,000 in interest payments on the bonds in fiscal 1992, $1,033,000 in fiscal 1993 and $864,000 in fiscal 1994.
The Company intends to sell those portions of the Livermore acreage which are in excess of the Company's long-term facilities requirements. The Company's ability to market this property is dependent upon interest rates, general economic and market conditions, the prospective purchaser's ability to develop the property and the purchaser's ability to obtain a variety of governmental approvals, none of which is assured and all of which are subject to objections from the public. Economic conditions continue to impact the real estate market in Livermore, and throughout California, which has resulted in reduced real estate activity.
ITEM 3.

ITEM 3. Legal Proceedings
See "Item 1 - Litigation."
ITEM 4.

ITEM 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matters to a vote of security holders during the fourth quarter of the fiscal year ended September 30, 1994.
PART II
ITEM 5.

ITEM 5. Market for the Registrant's Common Stock and Related Security 	 Holder Matters
There is incorporated by reference the information under the caption "Market for Triad Stock" on page 25 of the Annual Report.
ITEM 6.

ITEM 6. Selected Financial Data
There is incorporated by reference the information under the caption "Selected Financial Data" on the inside cover of the Annual Report.
ITEM 7.

ITEM 7. Management's Discussion and Analysis of Financial Condition and 	 Results of Operations
There is incorporated by reference the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 8 through 11 of the Annual Report.
ITEM 8.

ITEM 8. Financial Statements and Supplementary Data
There is incorporated by reference the financial statements and the notes thereto which appear on pages 12 to 22 of the Annual Report.
ITEM 9.

ITEM 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
			 PART III
ITEM 10.

ITEM 10. Directors, Executive Officers and Operating Management of the 	 Registrant
The Company's Directors, Executive Officers and Operating Management as of December 15, 1994 are as follows: