SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
___________
FORM 10-Q
___________
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________________ TO ____________________
COMMISSION FILE NUMBER: 000-50129
______________________________
HUDSON HIGHLAND GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-3547281
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
622 Third Avenue, New York, New York 10017
(Address of principal executive offices) (Zip code)
(212) 351-7300
(Registrant's telephone number, including area code)
______________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act). Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Outstanding on
Class April 30, 2003
- ----- --------------
Common Stock 8,387,364
HUDSON HIGHLAND GROUP, INC.
INDEX
Page No.
--------
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets - March 31, 2003
and December 31, 2002 3
Consolidated Condensed Statements of Operations - Three
Months Ended March 31, 2003 and 2002 4
Consolidated Condensed Statements of Cash Flows - Three
Months Ended March 31, 2003 and 2002 5
Notes to Consolidated Condensed Financial Statements 6
Report of Independent Certified Public Accountants 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
Item 4. Controls and Procedures 24
PART II-OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
Certifications 28
Exhibit Index 30
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HUDSON HIGHLAND GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except per share amounts)
March 31, December 31,
2003 2002
--------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 40,000 $ 25,908
Accounts receivable, net 158,467 161,831
Due from Monster Worldwide, Inc. 13,530 --
Other current assets 20,316 28,177
-------- --------
Total current assets 232,313 215,916
Property and equipment, net 43,116 34,106
Intangibles, net 204,688 201,937
Other assets 14,805 15,145
-------- --------
$494,922 $467,104
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 25,287 $ 28,305
Accrued expenses and other current liabilities 96,948 84,669
Accrued integration and restructuring costs 7,519 8,935
Accrued business reorganization costs 22,569 25,845
-------- --------
Total current liabilities 152,323 147,754
Other liabilities 2,318 2,776
-------- --------
Total liabilities 154,641 150,530
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000 shares
authorized; none issued or outstanding -- --
Common stock, $0.001 par value, 100,000 shares authorized;
issued and outstanding: 8,383 and 0 shares, respectively 8 --
Additional paid-in capital 312,394 --
Accumulated other comprehensive income:
Foreign currency translation adjustments 27,879 24,660
Total divisional equity -- 291,914
-------- --------
Total stockholders' equity 340,281 316,574
-------- --------
$494,922 $467,104
======== ========
See accompanying notes to consolidated condensed financial statements.
-3-
HUDSON HIGHLAND GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31,
-----------------------
2003 2002
---------- ----------
Revenue $ 259,189 $ 264,080
Direct costs (Note 4) 161,657 154,756
--------- ---------
Gross margin 97,532 109,324
Selling, general and administrative expenses 124,418 118,888
Business reorganization and other special expenses 7,961 --
Merger and integration expenses 975 5,740
--------- ---------
Operating loss (35,822) (15,304)
Other expense:
Other, net (1,747) (442)
Interest (expense) income, net (293) 28
--------- ---------
Loss before provision for (benefit of)
income taxes and accounting change (37,862) (15,718)
Provision for (benefit of) income taxes 6,149 (713)
--------- ---------
Loss before accounting change (44,011) (15,005)
Cumulative effect of accounting change -- (293,000)
--------- ---------
Net loss $ (44,011) $(308,005)
========= =========
Basic and diluted loss per share:
Loss before accounting change $ (5.25) $ (1.80)
Net loss $ (5.25) $ (36.94)
Weighted average shares outstanding 8,383 8,339
See accompanying notes to consolidated condensed financial statements.
-4-
HUDSON HIGHLAND GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
-----------------------
2003 2002
---------- ----------
Cash flows from operating activities:
Net loss $ (44,011) $(308,005)
Adjustments to reconcile net loss to net
cash used in operating activities:
Cumulative effect of accounting change -- 293,000
Depreciation and amortization 5,485 4,064
Provision (credit) for doubtful accounts 3,917 (482)
Net loss on disposal of assets 1,647 769
Benefit (provision) for deferred income taxes 5,292 (1,017)
Changes in assets and liabilities, net of
effects of purchases of businesses:
Decrease (increase) in accounts receivable 1,797 (19,058)
Decrease (increase) in other assets 1,891 8,859
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 4,925 (11,526)
Decrease in accrued integration and
restructuring costs (1,130) (3,704)
Decrease in accrued business reorganization costs (3,690) --
--------- ---------
Total adjustments 20,134 270,905
--------- ---------
Net cash used in operating activities (23,877) (37,100)
--------- ---------
Cash flows from investing activities:
Capital expenditures (3,518) (4,574)
Payments related to prior years' purchased
businesses (330) (4,528)
--------- ---------
Net cash used in investing activities (3,848) (9,102)
--------- ---------
Cash flows from financing activities:
Net payments on short and long-term debt (638) (4,015)
Net cash transfers received from Monster
Worldwide, Inc. 41,317 43,158
--------- ---------
Net cash provided by financing activities 40,679 39,143
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents 1,138 684
--------- ---------
Net increase (decrease) in cash and cash equivalents 14,092 (6,375)
Cash and cash equivalents, beginning of period 25,908 37,672
--------- ---------
Cash and cash equivalents, end of period $ 40,000 $ 31,297
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 639 $ 329
See accompanying notes to consolidated condensed financial statements.
-5-
HUDSON HIGHLAND GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(unaudited)
NOTE 1 - INTERIM CONSOLIDATED CONDENSED QUARTERLY FINANCIAL STATEMENTS
These interim consolidated condensed quarterly financial statements have
been prepared in accordance with the rules and regulations of the Securities and
Exchange Commission ("SEC") and should be read in conjunction with the combined
audited financial statements and related notes of Hudson Highland Group, Inc.
(the "Company" or "HH Group") in its Registration Statement on Form 10 filed
with the SEC on March 14, 2003 (the "Form 10"). The consolidated results for
interim periods are not necessarily indicative of results for the full year or
any subsequent period. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
financial position, results of operations and cash flows at the dates and for
the periods presented have been included.
NOTE 2 - REORGANIZATION, BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Reorganization
The accompanying condensed consolidated financial statements include the
operations, assets and liabilities of the Hudson Global Resources ("Hudson") and
Highland Partners ("Highland") business segments of Monster Worldwide, Inc.
("Monster"), formerly known as TMP Worldwide Inc. In October 2002, Monster
announced a plan to distribute to its stockholders the shares of HH Group, a
wholly owned subsidiary of Monster (the "Distribution"). Immediately prior to
the Distribution, Monster transferred the assets and liabilities of its Hudson
and Highland business segments to HH Group. These assets and liabilities are
reflected in HH Group's financial statements at Monster's historical cost. On
March 31, 2003 (the "Distribution Date"), Monster distributed to all of its
stockholders of record one share of HH Group Common Stock for each thirteen and
one third shares of Monster Common Stock so held. The assets and liabilities of
the Company consist primarily of businesses Monster acquired at various times in
prior years.
Basis of Presentation
The consolidated condensed financial statements have been derived from the
financial statements and accounting records of Monster using the historical
results of operations and historical basis of the assets and liabilities of the
Company's business. In connection with the Distribution, the inter-company
balances due to Monster were contributed by Monster to equity; accordingly, such
balances are reflected as divisional equity for periods prior to March 31, 2003
at which time the amount was reclassified to common stock and additional paid-in
capital. Earnings and losses will be accumulated in retained earnings (deficits)
starting April 1, 2003. The terms of the distribution agreement with Monster did
not require repayment or distribution of any portion of the divisional equity
back to Monster. The Company's costs and expenses in the accompanying
consolidated condensed financial statements include allocations from Monster for
executive, legal, accounting, treasury, real estate, information technology,
certain merger and integration costs and business reorganization costs and other
Monster corporate services and infrastructure costs because specific
identification of the expenses is not practicable. The total corporate services
allocation to the Company from Monster was $5,260 and $7,331 for the three
months ended March 31, 2003 and 2002, respectively. The expense allocations were
determined on the basis that Monster and the Company considered to be reasonable
reflections of the utilization of services provided or the benefit received by
the Company using ratios that are primarily based on the Company's revenue, net
of direct costs of temporary contractors compared to Monster as a whole. The
financial information included herein may not necessarily reflect the financial
position and results of operations of HH Group in the future or what these
amounts would have been had it been a separate, stand-alone entity during the
periods presented. However, management believes that if the Company had been a
stand-alone entity during the periods presented, the expenses would not have
been materially different from the allocations presented.
- 6 -
NOTE 2 - REORGANIZATION, BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
(Continued)
Loss Per Share
To determine the shares outstanding for the Company for the period prior to
the Distribution, Monster's weighted average number of shares is multiplied by
the distribution ratio of one share of HH Group commons stock for every thirteen
and one third shares of Monster common stock. Basic loss-per-share is computed
by dividing the Company's losses by the weighted average number of shares
outstanding during the period. When the effects are not anti-dilutive, diluted
losses-per-share is computed by dividing the Company's net losses by the
weighted average number of shares outstanding and the impact of all dilutive
potential common shares, primarily stock options. The dilutive impact of stock
options is determined by applying the "treasury stock" method.
Business Segments
The Company is one of the world's largest specialized staffing and
executive search firms. The Company provides professional staffing services on a
permanent, contract and temporary basis, as well as executive search and career
management services to clients operating in a wide range of sectors. The Company
focuses on mid-level executives in specialized professional areas and at the
senior executive level.
The Company is organized into two divisions, Hudson Global Resources and
Highland Partners.
Hudson Global Resources. Hudson primarily focuses on mid-level executive
recruitment or placement and providing professional temporary and contract
personnel and business solutions to our clients. Mid-level executives and
professionals are those who typically earn between $50,000 and $150,000
annually, and possess the set of executive or professional skills and/or profile
required by our clients. In the case of the temporary and contracting business,
Hudson primarily focuses on the placement of professionals or executives in
temporary assignments that can range from one day to more than 12 months.
Hudson's sales strategy focuses on clients operating in particular sectors, such
as health care, financial services, and technology and communications. Hudson
supplies candidates in a variety of specialist fields such as law, accounting,
banking and finance, health care, engineering, technology and science. Hudson
uses both traditional and interactive methods to find and recruit potential
candidates for our clients, employing a suite of products, which assess talent
and help predict whether a candidate will be successful in a given role.
Hudson also provides a variety of other services, including career
management, executive assessment and coaching, and human resources consulting.
These service offerings are growing rapidly and Company's management believes
will help balance the cyclical nature of its core offerings.
These services allow Hudson to offer clients a comprehensive set of human
capital management services, ranging from temporary workers, to assessment or
coaching of permanent staff, to recruitment or search for permanent workers, to
outplacement. Hudson is also marketed under the name TMP/Hudson Global Resources
and TMP/Hudson Human Resource Consulting in certain markets around the world.
Highland Partners. Highland offers a comprehensive range of executive
search services aimed at finding the senior level executive or professional for
a wide range of clients operating in sectors such as health care, technology,
financial services, retail and consumer and industrial. Highland also has an
active practice in assisting clients who desire to augment their boards of
directors. Highland concentrates on searches for positions with annual
compensation of $150,000 or more and operates exclusively on a retained basis.
Highland is also marketed as TMP/Highland Partners in certain markets around the
world.
Reclassifications
In the current financial statement presentation, changes have been made
from the Form 10 presentation and new account descriptions are being used. The
Company is classifying certain transactions with Monster as selling expenses in
2003 that were classified as an offset to revenues in prior periods. Certain
prior period amounts have been reclassified to conform to the Company's 2003
financial statement presentation, these reclassifications do not change total
revenues, total expenses, net loss, total assets, total liabilities or
stockholders' equity.
- 7 -
NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 146, Accounting for
Costs Associated with Exit or Disposal Activities ("SFAS 146"). SFAS 146 applies
to costs associated with an exit (including restructuring) or disposal activity.
Those activities can include eliminating or reducing product lines, terminating
employees and contracts, and relocating plant facilities or personnel. Under
SFAS 146, a company will record a liability for a cost associated with an exit
or disposal activity when that liability is incurred and can be measured at fair
value. SFAS 146 will require a company to disclose information about its exit
and disposal activities, the related costs and changes in those costs in the
notes to the interim and annual financial statements that include the period in
which an exit activity is initiated and in any subsequent period until the
activity is completed. SFAS 146 is effective prospectively for exit or disposal
activities initiated after December 31, 2002. Under SFAS 146, a company may not
restate its previously issued financial statements. Liabilities recognized as a
result of disposal activities prior to the adoption of SFAS 146 will continue to
be accounted for under Emerging Issues Task Force ("EITF") Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring) ("EITF
94-3"). The Company's adoption of SFAS 146 did not have a material impact on the
Company's financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation--Transition and Disclosure, an amendment of SFAS No. 123,
Accounting for Stock-Based Compensation, which provides alternatives for
companies electing to account for stock-based compensation using the fair value
criteria established by SFAS No. 123. The Company intends to account for
stock-based compensation under the provisions of Accounting Principles Board
Opinion No. 25.
In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Guarantees of
the Indebtedness of Others, which addresses the accounting for and disclosure of
guarantees. Interpretation No. 45 requires a guarantor to recognize a liability
for the fair value of a guarantee at inception. The recognition of the liability
is required even if it is not probable that payments will be required under the
guarantee. The disclosure requirements are effective for interim and annual
financial statements ending after December 15, 2002. The initial recognition and
measurement provisions are effective on a prospective basis for guarantees
issued or modified after December 31, 2002. The Company's adoption of
Interpretation No. 45 did not have a material effect on the Company's
consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities. The objective of this interpretation is to
provide guidance on how to identify a variable interest entity ("VIE") and
determine when the assets, liabilities, noncontrolling interests, and results of
operations of a VIE need to be included in a company's consolidated financial
statements. A company that holds variable interests in an entity will need to
consolidate the entity if the company's interest in the VIE is such that the
company will absorb a majority of the VIE's expected losses and/or receive a
majority of the entity's expected residual returns, if they occur.
Interpretation No. 46 also requires additional disclosures by primary
beneficiaries and other significant variable interest holders. The
interpretation became effective upon issuance. The Company's adoption of this
interpretation did not have an effect on its consolidated financial statements.
On May 1, 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities (`SFAS 149"). SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. SFAS 149 is effective for contracts entered into or modified
after June 30, 2003. The Company's adoption of SFAS 149 should not have an
effect on its consolidated financial statements.
- 8 -
NOTE 4 - REVENUES, DIRECT COSTS AND GROSS MARGIN
Details of the Company's revenues and direct costs, classified by temporary
and permanent placement business, are as follows:
Three months Ended March 31, 2003 Three months Ended March 31, 2002
--------------------------------- ---------------------------------
Temporary Permanent Total Temporary Permanent Total
--------- --------- -------- --------- --------- --------
Revenue $186,242 $72,947 $259,189 $189,797 $74,283 $264,080
Direct costs (1) 153,644 8,013 161,657 151,392 3,364 154,756
-------- ------- -------- -------- ------- --------
Gross Margin $ 32,598 $64,934 $ 97,532 $ 38,405 $70,919 $109,324
======== ======= ======== ======== ======= ========
(1) Direct costs include the direct staffing costs of salaries, payroll taxes, employee
benefits, travel expenses and insurance costs for the Company's temporary contractors
and reimbursed out-of-pocket expense and other direct costs. Other than reimbursed
out-of-pocket expenses, there are no other direct costs associated with the search
and permanent placement revenues. The salaries, commissions, payroll taxes and
employee benefits related to recruitment professionals are included in selling,
general and administrative expenses.
NOTE 5 - INTANGIBLE ASSETS, NET
As of March 31, 2003 and December 31, 2002, the Company's intangible
assets consisted of the following:
March 31, 2003 December 31, 2002
----------------------- -----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
-------- ------------ -------- ------------
Goodwill $201,788 $ - $199,063 $ -
Amortizable intangible assets:
Client lists and other amortizable intangibles 4,966 (2,066) 5,085 (2,211)
-------- ------- -------- -------
Total intangible assets $206,754 $(2,066) $204,148 $(2,211)
======== ======= ======== =======
Intangibles represent acquisition costs in excess of the fair value of net
tangible assets of businesses purchased and consist primarily of the value of
client lists, non-compete agreements, trademarks and goodwill. With the
exception of goodwill, the Company amortizes these costs over periods ranging
from two to thirty years. In conjunction with its adoption of SFAS No. 142,
Goodwill and Other Intangible Assets ("SFAS 142"), the Company will evaluate its
goodwill annually for impairment, or earlier if indicators of potential
impairment exist. Changes in the Company's strategy and market conditions could
significantly impact these evaluations and require adjustments to recorded
amounts of intangible assets. In addition, SFAS 142 eliminates the amortization
of indefinite lived intangible assets. As a result of the adoption of SFAS 142
on January 1, 2002, the Company recorded a non-cash impairment charge of
$293,000 to reduce the carrying value of goodwill.
NOTE 6 - TAXES
The provision for income taxes for the three months ended March 31, 2003
was $6,149 on a pretax loss of $37,862, compared with a benefit of $713 on a
pretax loss of $15,718 for the same period of 2002. The change in the Company's
tax provision (benefit) from the quarter ended March 31, 2003 compared to the
quarter ended March 31, 2002 was primarily due to the establishment of valuation
allowances in the quarter ended March 31, 2003 on certain foreign tax losses,
which may not be realizable. In each period, the effective tax rate differs from
the U.S. Federal statutory rate of 35% due to valuation allowances on deferred
tax assets, net operating losses retained or utilized by Monster, certain
non-deductible expenses such as amortization, business restructuring and spin
off costs, merger costs from pooling of interests transactions, and variations
from the U.S. tax rate in foreign jurisdictions.
- 9 -
NOTE 7 - BUSINESS COMBINATIONS
Accrued Merger and Integration and Restructuring Costs
Pursuant to the conclusions stated in EITF 94-3 and EITF Issue No.
95-3, Recognition of Liabilities in Connection with a Purchase Business
Combination, and in connection with the acquisitions and mergers made in 2001
and 2000, the Company formulated plans to integrate the operations of such
companies. Such plans involve the closure of certain offices of the acquired and
merged companies and the termination of certain management and employees. The
objectives of the plans are to eliminate redundant facilities and personnel and
to create a single brand in the related markets in which the Company operates.
In connection with plans relating to pooled entities, the Company
expensed $975 and $5,740 in the first quarter of 2003 and 2002, respectively,
relating to integration activities included as a component of merger and
integration expenses. Amounts recorded relating to business combinations
accounted for as purchases were charged to goodwill. The $975 expenses for the
first quarter of 2003 were almost entirely related to lease obligations on
closed facilities.
Accrued integration and restructuring costs and liabilities are
comprised of:
Balance Balance
December 31, Change in March 31,
2002 Estimate Utilization 2003
------------ --------- ----------- ---------
Assumed lease obligations on closed facilities $7,292 $978 $(2,111) $6,159
Consolidation of acquired facilities 1,607 (3) (279) 1,325
Severance, relocation and other employee costs 36 - (1) 35
------ ---- ------- ------
Total $8,935 $975 $(2,391) $7,519
====== ==== ======= ======
The following table presents a summary of activity relating the
Company's integration and restructuring plans for acquisitions made in prior
years. Amounts reflected in the "Change in estimate" column represent
modifications to plans, subsequent to finalization and have been expensed in the
current period. Cash payments and associated write-offs relating to the plans
are reflected in the "Utilization" caption of the following table.
Details of the exit plan activity comprising the Company's integration
and restructuring accruals for the three months ended March 31, 2003 are as
follows:
Balance Balance
December 31, Change in March 31,
2002 Estimate Utilization 2003
------------ --------- ----------- ---------
2000 Plans $2,388 $ (6) $ (222) $2,160
2001 Plans 3,291 907 (1,862) 2,336
2002 Plans 3,256 74 (307) 3,023
------ ---- ------- ------
Total $8,935 $975 $(2,391) $7,519
====== ==== ======= ======
- 10 -
NOTE 8 - BUSINESS REORGANIZATION AND OTHER SPECIAL EXPENSES
In the second quarter of 2002, the Company announced a reorganization
initiative to further streamline its operations, lower its cost structure,
integrate businesses previously acquired and improve its return on capital. This
reorganization program includes a workforce reduction, consolidation of excess
facilities, restructuring of certain business functions and other special
charges, primarily for exiting activities that are no longer part of the
Company's strategic plan.
In the fourth quarter of 2002, the Company announced further reorganization
efforts related to its separation from Monster and the streamlining of
operations, which continued into the first quarter of 2003. The charge consisted
primarily of workforce reduction, office consolidation costs and related
write-offs, professional fees and other special charges. The Company will incur
additional charges in the future, primarily relating to workforce reduction,
office consolidation costs and related asset write-offs.
A summary of activity of the business reorganization costs and other
special charges for the three months ended March 31, 2003 is outlined as
follows:
Balance Balance
December 31, Change in March 31,
2002 Additions Estimate Utilization 2003
------------ --------- --------- ----------- ---------
Workforce reductions $ 8,375 $1,770 $(149) $ (5,677) $ 4,319
Consolidation of excess facilities 15,048 5,194 (426) (5,225) 14,591
Professional fees and other 2,422 1,723 (151) (335) 3,659
------- ------ ----- -------- -------
Total $25,845 $8,687 $(726) $(11,237) $22,569
======= ====== ===== ======== =======
The following table presents a summary of plan activity related to
business reorganization costs for the three months ended March 31, 2003. Amounts
in the "Additions" column of the following table represent amounts charged to
business reorganization and other special charges in the Company's statement of
operations for the three months ended March 31, 2003. The expenses were
primarily related to consolidation of facilities, workforce reductions and
professional fees related to the Distribution. Costs under these plans are
charged to expense as estimates are finalized and events become accruable.
Amounts reflected in the "Change in estimate" column represent modifications to
previously accrued amounts that were initially established under each plan.
Cash payments and associated write-offs relating to the plans are
reflected in the "Utilization" caption of the following table.
Balance Balance
December 31, Change in March 31,
2002 Additions Estimate Utilization 2003
------------ --------- --------- ----------- ---------
Second Quarter 2002 Plan $14,908 $ 615 $(726) $ (5,789) $ 9,008
Fourth Quarter 2002 Plan 10,937 8,072 - (5,448) 13,561
------- ------ ----- -------- -------
Total $25,845 $8,687 $(726) $(11,237) $22,569
======= ====== ===== ======== =======
NOTE 9 - COMPREHENSIVE INCOME
Three Months
Ended March 31,
---------------------
2003 2002
-------- ----------
Net loss $(44,011) $(308,005)
Other comprehensive income (loss)--
translation adjustments 3,219 (2,486)
-------- ---------
Total comprehensive loss $(40,792) $(310,491)
======== =========
- 11 -
NOTE 10 - RELATED PARTY TRANSACTIONS
In connection with the Distribution, Monster and HH Group entered into the
following agreements:
Distribution Agreement and Employee Benefits Plans
The Company entered into a distribution agreement with Monster effective as
of the Distribution Date, pursuant to which the Company among other things,
agreed to maintain independent employee benefit plans and programs (other than
equity compensation) that are substantially similar to Monster's existing
employee benefit plans and programs. Following the Distribution, Monster
generally ceased to have any liability to the Company's current and former
employees and their beneficiaries including liability under any of Monster's
benefit plans or programs.
Real Estate Agreements
Monster and the Company entered into various lease and sublease
arrangements for the sharing of certain facilities for a transitional period on
commercial terms. In the case of subleases or sub-subleases of property, the
lease terms and conditions generally coincide with the remaining terms and
conditions of the primary lease or sublease, respectively.
Transition Services Agreement
The Company entered into a transition services agreement with Monster
effective as of the Distribution Date. Under the agreement, Monster provides to
the Company, and the Company provides to Monster, certain insurance, tax, legal,
facilities, human resources, information technology and other services that are
required for a limited time (generally for one year following the Distribution
Date, except as otherwise agreed).
Under the transition services agreement, the Company and Monster provide or
arrange to provide services to each other in exchange for fees, which the
Company believes are similar in material respects to what a third-party provider
would charge. Fees for transition services are based on two billing methods,
"agreed billing" and "pass-through billing." Under the agreed billing method,
Monster will provide or arrange to provide the Company or the Company will
provide or arrange to provide Monster, with services at the specified cost of
providing the services, plus, in the cases of some services, 5% of these costs,
in any case subject to increase by the party providing the relevant service, in
the exercise of its reasonable judgment, after the distribution. Under the
pass-through billing method, the Company and Monster will reimburse each other
for all third party expenses, out-of-pocket costs and other expenses incurred in
providing or arranging to provide the relevant service.
The Company and Monster generally will invoice each other monthly for the
cost of services provided under the transition services agreement. If either
party fails to pay an invoice by its due date, it will be obligated to pay
interest to the invoicing party at the prime rate as reported in The Wall Street
Journal.
Tax Separation Agreement
After the Distribution Date, the Company is no longer included in Monster's
consolidated group for United States federal income tax purposes. The Company
and Monster entered into a tax separation agreement to reflect the Company's
separation from Monster with respect to tax matters. The primary purpose of the
agreement is to reflect each party's rights and obligations relating to payments
and refunds of taxes that are attributable to periods beginning before and
including the date of the distribution and any taxes resulting from transactions
effected in connection with the distribution.
The tax separation agreement provides for payments between the two
companies to reflect tax liabilities, which may arise before and after the
distribution. It also covers the handling of audits, settlements, elections,
accounting methods and return filing in cases where both companies have an
interest in the results of these activities.
The Company has agreed to indemnify Monster for any tax liability
attributable to the distribution resulting from any action taken by the Company.
- 12 -
NOTE 10 - RELATED PARTY TRANSACTIONS (continued)
Loan Agreement and Security Agreement
On the Distribution Date, Monster extended a secured revolving credit
facility of up to $15,000 to the Company (the "Monster Credit Facility"). The
Monster Credit Facility provides for an interest rate equal to the prime rate.
The Company is restricted from borrowing under the Monster Credit Facility until
such time as the Company's aggregate cash and cash equivalents balance is equal
to or less than $10,000. The Monster Credit Facility is secured by substantially
all of the assets of the Company pursuant to a security agreement between the
Company and Monster. The maturity date of the Monster Credit Facility is the
earlier of six months from the Distribution Date or 90 days following the date
on which the Company closes on a credit facility with a third party that
provides for a total borrowing capacity of $15,000 or more. However, the
maturity date will be accelerated to the date within such 90-day period on which
the borrowing capacity under a new third party credit facility is available to
the Company. The Company closed on a credit facility with a third party on March
31, 2003 and expects to activate the borrowing capacity under that credit
facility in May 2003, as described in Note 12. Accordingly, the Monster Credit
Facility will lapse on the earlier of June 29, 2003 or the date that that the
borrowing capacity under the new credit facility is available to the Company.
Monster Funding of HH Group Obligations
Monster has agreed to reimburse the Company for $13,530 of cash payments,
related to the Company's accrued integration, restructuring and business
reorganization obligations and other expenses during the first year following
the spin-off. The Company expects payment of $3,530 during the second quarter of
2003 and will receive payments of $2,500 from Monster in the first month
subsequent to the end of each quarter, beginning with the second quarter of
2003. Legal obligation for settlement of such liabilities will remain with the
Company.
Other Commercial Arrangements
The Company and Monster have commenced discussions concerning certain
potential commercial arrangements involving the provision of Monster.com and
advertising and communication services. The Company and Monster may from time to
time also negotiate and purchase other services from the other, pursuant to
customary terms and conditions. There is no contractual commitment that requires
the Company to use Monster services in preference to other competitors.
Non-Cash Transfers
Monster transferred to the Company non-cash assets and liabilities in the
first quarter of 2003 as a result of the Distribution. The approximate transfers
by account were; due from Monster Worldwide, Inc. $13,530, property and
equipment $7,800, intangibles $1,500, accrued expenses and other current
liabilities $2,500 and other liabilities $600.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Risks and Uncertainties
The Company has a history of operating losses and has never operated as an
independent company. Its operations have been historically financed by Monster.
It may be unable to make the changes necessary to operate as a profitable
stand-alone business, or to secure additional debt or equity financing on terms
that are acceptable to the Company. Prior to the Distribution, the Company's
businesses were operated by Monster as separate segments of its broader
corporate organization rather than as a separate stand-alone company. Monster
assisted the Company by providing financing, particularly for acquisitions, as
well as providing corporate functions such as identifying and negotiating
acquisitions, legal and tax functions. Following the Distribution, Monster has
no obligation to provide assistance to the Company other than the interim and
transitional services, that will be provided by Monster pursuant to the
transition services agreement described in Note 10. Because the Company's
businesses have never been operated as an independent company, it cannot provide
assurance that it will be able to successfully implement the changes necessary
to operate independently or that the Company will not incur additional costs
operating independently.
- 13 -
NOTE 12 - LIQUIDITY, CREDIT FACILITIES AND CAPITAL RESOURCES
As noted above, Monster granted the Company the Monster Credit Facility of
up to $15,000 and will fund payments of up to $13,530 related to the Company's
accrued integration, restructuring and business reorganization obligations and
other expenses. The Monster Credit Facility lapses upon the earlier of six
months from the Distribution Date or 90 days following completion of a credit
facility with a third party that provides for a total borrowing capacity of
$15,000 or more. However, the maturity date will be accelerated to the date
within such 90-day period on which the borrowing capacity under a new third
party credit facility is available to the Company. On March 31, 2003, the
Company closed a senior secured credit facility for $50,000 with Foothill
Capital Corporation, a wholly-owned subsidiary of Wells Fargo & Company (the
"Foothill Credit Facility"). The Foothill Credit Facility has a term of three
years. Outstanding loans will bear interest equal to the prime rate plus 0.25%
or LIBOR plus 2.00%, at the Company's option. The Foothill Credit Facility is
secured by substantially all of the assets of the Company and borrowings will be
based on a percentage of the accounts receivable of the Company and certain of
its subsidiaries. The Company expects to activate the borrowing capacity under
the Foothill Credit Facility in May 2003 and to use such borrowings to support
its ongoing working capital requirements, capital expenditures and other
corporate purposes.
NOTE 13 - SEGMENT AND GEOGRAPHIC DATA
The Company operates in two business segments: Hudson and Highland. The
Company conducts operations in the following geographic regions: North America,
the Asia/Pacific Region (primarily Australia), the United Kingdom and
Continental Europe.
Segment information is presented in accordance with SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
standard is based on a management approach, which requires segmentation based
upon the Company's internal organization and disclosure of revenue and operating
income based upon internal accounting methods. The Company's financial reporting
systems present various data for management to run the business, including
internal profit and loss statements prepared on a basis not consistent with
generally accepted accounting principles. Assets are not allocated to segments
for internal reporting purposes.
Information by business segment
- -------------------------------
For the three months ended March 31, 2003 2002
Revenue -------- --------
- -------
Hudson $243,965 $246,322
Highland 15,224 17,758
-------- --------
$259,189 $264,080
======== ========
Operating loss
- --------------
Hudson $(22,999) $ (6,515)
Highland (7,563) (1,458)
-------- --------
(30,562) (7,973)
Corporate expenses (5,260) (7,331)
Interest and other expense, net (2,040) (414)
-------- --------
Loss before provision for (benefit of)
income taxes and accounting change $(37,862) $(15,718)
======== ========
United United Continental
Information by geographic region States Australia Kingdom Europe Other(a) Total
- -------------------------------- ------- --------- ------- ----------- -------- --------
For the three months ended March 31, 2003
Revenue $86,215 $67,333 $64,894 $24,037 $16,710 $259,189
======= ======= ======= ======= ======= ========
Long-lived assets $92,392 $14,289 $60,229 $70,454 $10,440 $247,804
======= ======= ======= ======= ======= ========
For the three months ended March 31, 2002
Revenue $91,533 $65,229 $66,519 $23,597 $17,202 $264,080
======= ======= ======= ======= ======= ========
Long-lived assets $84,515 $10,665 $54,086 $47,458 $16,609 $213,333
======= ======= ======= ======= ======= ========
(a) Includes the Americas other than the United States and Asia Pacific other than Australia.
- 14 -
Report of Independent Certified Public Accountants
Board of Directors
Hudson Highland Group, Inc.
New York, New York
We have reviewed the consolidated condensed balance sheet of Hudson
Highland Group, Inc. as of March 31, 2003, the related consolidated condensed
statements of operations and cash flows for the three-month periods ended March
31, 2003 and 2002 included in the accompanying Securities and Exchange
Commission Form 10-Q for the period ended March 31, 2003. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with accounting principles generally accepted
in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the combined balance sheet as of
December 31, 2002, and the related combined statements of operations, divisional
equity, and cash flows for the year then ended (not presented herein); and in
our report dated February 12, 2003, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying combined balance sheet as of December 31, 2002 is fairly stated
in all material respects in relation to the combined balance sheet from which it
has been derived.
New York, New York
May 15, 2003
- 15 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (in thousands, except per share data)
You should read the following discussion in conjunction with the
consolidated condensed financial statements and the notes thereto, included in
Item 1 of this Form 10-Q. This Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements. Please
see "Special Note Regarding Forward-Looking Statements" for a discussion of the
uncertainties, risks and assumptions associated with these statements
As one of the world's largest professional staffing and executive search
agencies, Hudson Highland Group, Inc. ("the Company" or "HH Group") helps its
clients (employers and professional recruiters) find the right employee, from
mid-level candidates to senior executives. HH Group was formed from the
distribution of the Hudson Global Resources ("Hudson") and Highland Partners
("Highland") divisions of Monster Worldwide, Inc., formerly known as TMP
Worldwide Inc. ("Monster"), and currently operates in 25 countries and employs
approximately 4,000 people globally. For the year ended December 31, 2002, 67%
of the Company's revenues were earned outside of the United States. The
Company's two principal business segments are as follows:
Hudson Global Resources. Hudson primarily focuses on mid-level executive
recruitment or placement and providing Professional temporary and contract
personnel and business solutions to our clients. Mid-level executives and
professionals are those who typically earn between $50,000 and $150,000
annually, and possess the set of executive or professional skills and/or profile
required by our clients. In the case of the temporary and contracting business,
Hudson primarily focuses on the placement of professionals or executives in
temporary assignments that can range from one day to more than 12 months.
Hudson's sales strategy focuses on clients operating in particular sectors, such
as health care, financial services, and technology and communications. Hudson
supplies candidates in a variety of specialist fields such as law, accounting,
banking and finance, health care, engineering, technology and science. Hudson
uses both traditional and interactive methods to find and recruit potential
candidates for our clients, employing a suite of products, which assess talent
and help predict whether a candidate will be successful in a given role.
Hudson also provides a variety of other services, including career
management, executive assessment and coaching, and human resources consulting.
These service offerings are growing rapidly and Company's management believes
will help balance the cyclical nature of its core offerings.
These services allow Hudson to offer clients a comprehensive set of human
capital management services, ranging from temporary workers, to assessment or
coaching of permanent staff, to recruitment or search for permanent workers, to
outplacement. Hudson is also marketed under the name TMP/Hudson Global Resources
and TMP/Hudson Human Resources in certain markets around the world.
Highland Partners. Highland offers a comprehensive range of executive
search services aimed at finding the senior level executive or professional for
a wide range of clients operating in sectors such as health care, technology,
financial services, retail and consumer and industrial. Highland also has an
active practice in assisting clients who desire to augment their boards of
directors. Highland concentrates on searches for positions with annual
compensation of $150,000 or more and operates exclusively on a retained basis.
Highland is also marketed as TMP/Highland Partners in certain markets around the
world.
For all of the periods presented in this Form 10-Q, HH Group operated as
part of Monster. The businesses described in this Form 10-Q were conducted by
Monster through various divisions and subsidiaries. Immediately prior to the
Distribution (as defined below), Monster transferred the assets and liabilities
of its Hudson and Highland business segments to HH Group at Monster's historical
cost. On March 31, 2003 (the "Distribution Date"), Monster distributed to all of
its stockholders of record one share of HH Group Common Stock for each thirteen
and one third shares of Monster Common Stock so held (the "Distribution").
Following the Distribution, HH Group became an independent public company and
Monster has no continuing stock ownership interest in HH Group. Prior to the
Distribution, HH Group entered into several agreements with Monster in
connection with, among other things, employee matters, income taxes, leased real
property and transitional services. See Note 7 of the Notes to Consolidated
Condensed Financial Statements for a description of the agreements.
- 16 -
The Company's consolidated condensed financial statements reflect the
historical financial position, results of operations and cash flows of the
businesses transferred to HH Group from Monster as part of the Distribution.
Additionally, net intercompany balances due to Monster have been contributed to
HH Group and are reflected as divisional equity in the accompanying consolidated
condensed financial statements. The financial information included herein,
however, may not necessarily reflect HH Group's financial position, results of
operations and cash flows in the future or what its financial position, results
of operations and cash flows would have been had HH Group been a stand-alone
company during the periods presented.
The Company's costs and expenses in the accompanying consolidated condensed
financial statements include allocations from Monster for executive, legal,
accounting, treasury, real estate, information technology, merger and
integration costs and other Monster corporate services and infrastructure costs
because specific identification of the expenses is not practicable. The total
corporate services allocation to the Company from Monster was $5,260 and $7,331
for the three months ended March 31, 2003 and 2002, respectively. The expense
allocations were determined on the basis that Monster and HH Group considered to
be reasonable reflections of the utilization of services provided or the benefit
received by HH Group using ratios that are primarily based on its revenue, net
of costs of temporary contractors compared to Monster as a whole. Except as
discussed above, interest charges from Monster have been allocated to HH Group
only for that portion of third-party debt attributed to HH Group.
The Company recorded merger, integration and reorganization and
restructuring expense of $8,936 and $5,740 for the three months ended March 31,
2003 and 2002, respectively. The merger and integration charges were recorded in
connection with its pooling of interest transactions and consist of costs to
integrate and/or exit certain aspects of the operations of its pooled entities,
particularly in areas where duplicate functions and facilities existed. During
the first quarter of 2003, the Company recorded $975 related to changes in
estimates to plans in merger and integration expense. The restructuring expenses
were related to the reorganization of operations announced in the second quarter
of 2002 and the Distribution in the first quarter of 2003.
Prior to the Distribution, HH Group was not a separate taxable entity for
federal, state or local income tax purposes and its operating results are
included in Monster 's tax return. Income taxes have been calculated as if HH
Group filed separate tax returns. However, Monster was managing its tax position
for the benefit of its entire portfolio of businesses, and its tax strategies
are not necessarily reflective of the tax strategies that HH Group would have
followed or will follow as a stand-alone company.
Critical Accounting Policies and Items Affecting Comparability
Quality financial reporting relies on consistent application of company
accounting policies that are based on generally accepted accounting principles.
Management considers the accounting policies discussed below to be critical to
understand HH Group's financial statements and often require management judgment
and estimates regarding matters that are inherently uncertain.
Revenue Recognition
Although the Company's revenue recognition policy involves a relatively low
level of uncertainty, it does require judgment on complex matters that is
subject to multiple sources of authoritative guidance.
Hudson. The Company recognizes revenue for services at the time services
are provided and is recorded on a time and materials basis. Revenues generated
when the Company permanently places an individual with a client are recorded at
the time of placement, net of an allowance for estimated fee reversals.
Highland. Substantially all professional fee revenue is derived from fees
for professional services related to executive recruitment, consulting and
related services performed on a retained basis. Fee revenue is generally
one-third of the estimated first year compensation plus a percentage of the fee
to cover indirect expenses. Fee revenue is recognized as earned. The Company
generally bills clients in three monthly installments. Fees earned in excess of
the initial contract amount are billed at completion of the engagement.
- 17 -
Direct Costs
Direct costs include the direct staffing costs of salaries, payroll taxes,
employee benefits, travel expenses and insurance costs for the Company's
temporary contractors and reimbursed out-of-pocket expense and other direct
costs. Other than reimbursed out-of-pocket expenses, there are no other direct
costs associated with the search and permanent placement revenues.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include the salaries,
commissions, payroll taxes and employee benefits related to recruitment
professionals, executive level employees, administrative staff and other
employees of HH Group, who are not temporary contractors, and the expenses for
marketing and promotion, occupancy, equipment leasing and maintenance,
utilities, travel expenses, professional fees and depreciation and amortization.
Accounts Receivable
The Company is required to estimate the collectability of its trade
receivables and notes receivable. A considerable amount of judgment is required
in assessing the ultimate realization of these receivables including the current
credit-worthiness of each customer. Changes in required reserves may occur due
to changing circumstances, including changes in the current market environment
or in the particular circumstances of individual customers.
Merger, Integration, Restructuring and Business Reorganization Plans
The Company has recorded significant charges and accruals in connection
with its merger, integration, restructuring and business reorganization plans.
These reserves include estimates pertaining to employee separation costs and the
settlement of contractual obligations resulting from its actions. Although the
Company does not anticipate significant changes, the actual costs may differ
from these estimates.
Contingencies
The Company is subject to proceedings, lawsuits and other claims related to
labor, service and other matters. The Company is required to assess the
likelihood of any adverse judgments or outcomes to these matters as well as
potential ranges of probable losses. The Company makes a determination of the
amount of reserves required, if any, for these contingencies after careful
analysis of each individual issue. The required reserves may change in the
future due to new developments in each matter or changes in approach, such as a
change in settlement strategy in dealing with these matters.
Intangibles
Intangibles represent acquisition costs in excess of the fair value of net
tangible assets of businesses purchased and consist primarily of the value of
client lists, non-compete agreements, trademarks and goodwill. With the
exception of goodwill, the Company amortizes these costs over periods ranging
from two to thirty years. In conjunction with its adoption of Statement of
Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible
Assets ("SFAS 142"), the Company will evaluate its goodwill annually for
impairment, or earlier if indicators of potential impairment exist. Changes in
the Company's strategy and market conditions could significantly impact these
judgments and require adjustments to recorded amounts of intangible assets. In
addition, SFAS 142 eliminates the amortization of indefinite lived intangible
assets. As a result of the adoption of SFAS 142 on January 1, 2002, the Company
recorded a non-cash impairment charge of $293,000 to reduce the carrying value
of goodwill.
- 18 -
Results of Operations
The following table sets forth the Company's revenue, operating loss, net
loss, temporary contracting revenue, direct costs of temporary contractors and
temporary contractor gross margin for the three months ended March 31.
2003 2002
--------- ----------
Revenue $259,189 $ 264,080
======== =========
Operating loss $(35,822) $ (15,304)
======== =========
Net loss $(44,011) $(308,005)
======== =========
TEMPORARY CONTRACTING DATA (1):
Temporary contracting revenue $186,242 $ 189,797
Direct costs of temporary contractors 153,644 151,392
-------- ---------
Temporary contracting gross margin $ 32,598 $ 38,405
======== =========
Gross margin as a percent of revenue 17.5% 20.2%
(1) Temporary contracting revenues are a component of Hudson revenues.
Temporary contracting gross margin and gross margin as a percent of
revenue are shown to provide additional information on the Company's
ability to manage its cost structure and provide further comparability
relative to HH Group's peers. Temporary contracting gross margin is
derived by deducting the direct costs of temporary contractors from
temporary contracting revenue. The Company's calculation of gross
margin may differ from those of other companies.
The Three Months Ended March 31, 2003 Compared to the Three Months Ended March
31, 2002
Total revenues for the three months ended March 31, 2003 were $259,189, a
decrease of $4,891 or 1.9%, as compared to total revenues of $264,080 in the
first quarter of 2002. This decrease was primarily due to the effects of weak
global economic and labor environments, which reduced demand for the Company's
services. The effect of a weaker U.S. dollar benefited prior year comparisons by
approximately 10%.
Hudson revenues were $243,965 for the three months ended March 31, 2003,
down 1.0% from $246,322 for the same period of 2002, reflecting lower demand for
permanent staffing revenue, particularly in the U.K. and various countries in
continental Europe and lower revenue in temporary staffing, due to weakness in
the domestic IT staffing market. The effect of a weaker U.S. dollar benefited
prior year comparisons by approximately 10%.
Highland revenues of $15,224 for the three months ended March 31, 2003 were
down 14.3% from $17,758 in same period of 2002, reflecting the continued adverse
impact that the challenging global economy is having on executive level search
placements.
Direct costs for the three months ended March 31, 2003 were $161,657,
compared to $154,756 for the same period of 2002. Direct costs were negatively
affected by a weaker U.S. dollar in prior year comparisons by approximately 9%.
A portion of the increase in direct costs is due to the classification of
permanent staffing out-of-pocket expenses in direct costs in 2003.
Gross margin, defined as revenue less direct costs, for the three months
ended March 31, 2003 was $97,532, lower by $11,792 or 10.8% from $109,324
reported in the three months ended March 31, 2002. Gross margin as a percentage
of revenue declined to 37.6% for the first quarter of 2003, from 41.4% in the
first quarter of 2002. The decrease was primarily due to a decline in permanent
staffing revenue, particularly in the U.K. and various countries in continental
Europe; lower revenue in temporary staffing, due to weakness in the domestic IT
staffing market; and an increase in direct costs associated with the permanent
staffing out-of-pocket expenses. The effect of a weaker U.S. dollar benefited
prior year comparisons by approximately 11%.
- 19 -
Selling, general and administrative expenses for the three months ended
March 31, 2003 were $124,418 compared with $118,888 for the same period of 2002.
Selling general and administrative expenses were 48.0% and 45.0%, as a
percentage of revenue for the first quarter of 2003 and 2002, respectively. The
increase of $5,530 or 4.7%, primarily related an 11% unfavorable effect of a
weaker U.S. dollar compared to the first three months of 2002, higher allowances
for doubtful accounts of $4,399 and the reclassification of certain transactions
with Monster to selling expenses. These increases are partially offset by
continued cost cutting in reaction to the current economic and labor
environment. During 2002, the Company terminated approximately 1,000 employees
in connection with its business reorganization and other special charges.
Business reorganization and special charges for the three months ended
March 31, 2003 totaled $7,961 and were primarily related to the cost for
streamlining of operations from the second quarter 2002 Plan. There were no such
expenses in the first quarter of 2002. The expenses for the first three months
of 2003 were primarily related to consolidation of facilities, workforce
reductions and professional fees related to the Distribution and streamlining of
operations.
Merger and integration expenses reflect costs incurred as a result of
pooling-of-interests transactions and the integration of such companies. For the
three months ended March 31, 2003, merger and integration costs were $975, a
reduction of $4,765 from the same period in the prior year. These expenses
included lease obligations, office integration costs, the write-off of fixed
assets that will not be used in the future, separation pay, professional fees
and employee stay bonuses to certain key personnel of the merged companies. The
decrease in 2003 was a result of the finalization of the exit strategies related
to the pooled businesses.
Operating loss for the three months ended March 31, 2003 was $35,822,
compared to an operating loss of $15,304 for the comparable period in 2002.
Other non-operating expenses, including net interest expense, were $2,040
in the first quarter of 2003 and $414 for the same period of 2002. Other
non-operating expenses included a $1,642 loss on the disposition of the
Company's Brazilian operations.
The provision for income taxes for the three months ended March 31, 2003
was $6,149 on a pretax loss of $37,862, compared with a benefit of $713 on a
pretax loss of $15,718 for the same period of 2002. The change in the Company's
tax provision (benefit) from the quarter ended March 31 is primarily due to
establishment of valuation allowances in the quarter ended March 31, 2003 on
certain foreign tax losses, which may not be realizable. In each period, the
effective tax rate differs from the U.S. Federal statutory rate of 35% due to
valuation allowances on deferred tax assets, net operating losses retained or
utilized by Monster, certain non-deductible expenses such as amortization,
business restructuring and spin off costs, merger costs from pooling of
interests transactions, and variations from the U.S. tax rate in foreign
jurisdictions.
Net loss before cumulative accounting change was $44,011 for the three
months ended March 31, 2003, compared with a loss of $15,005 for the same period
in 2002.
In conjunction with the adoption of SFAS 142, as of the beginning of fiscal
year 2002, the Company completed a goodwill impairment review for its operating
segments. The results of the impairment review indicated that the carrying value
of goodwill may not be recoverable. Accordingly, the Company recorded as a
cumulative effect of an accounting change a one-time goodwill impairment charge
of $293,000 at January 1, 2002 to reduce the carrying value of goodwill to its
estimated fair value. No charges were taken in 2003.
Net loss was $44,011 for the three months ended March 31, 2003, compared
with a net loss of $308,005 for the same period in 2002.
Basic and diluted loss per share on loss before accounting change for the
first quarter of 2003 was a loss of $5.25 per share, compared to a loss of $1.80
per share in the first quarter of 2002. Basic and diluted loss per share for the
first quarter of 2003 was a loss of $5.25 per share, compared to a loss of
$36.94 per share in the first quarter of 2002. Basic average shares outstanding
were essentially unchanged between the two periods. No dilutive earnings per
share calculation is presented, as a result of the Company reporting a net loss,
which would calculate an anti-dilutive amount.
- 20 -
Liquidity and Capital Resources
Historically, Monster has managed cash on a centralized basis. Cash
receipts associated with the HH Group business have largely been retained by
Monster and Monster has provided funds to cover HH Group's disbursements for
operating activities, capital expenditures and acquisitions. The cash balances
at March 31, 2003 and December 31, 2002 are based on the results of the
Company's operations and the net cash resulting from inter-company transfers
between HH Group and Monster. The investing and financing activities discussed
below were funded as a result of activities entered into by Monster and relating
to HH Group operations. The long-term debt amounts reported by the Company
primarily relate to capital lease obligations and long-term debt that Monster
incurred to acquire businesses and other assets that were transferred to the
Company immediately prior to the Distribution.
The Company's liquidity needs arise primarily from funding working capital
requirements, as well as capital investment in information technology. To ensure
long-term liquidity, HH Group historically relied upon Monster's centralized
cash management function and Monster's line of credit facility. In connection
with the Distribution, Monster provided HH Group cash in the aggregate amount of
$40,000 upon completion of the Distribution, agreed to reimburse the Company
$13,530 of cash payments ($3,530 during the second quarter of 2003 and $2,500
per quarter, to be received in the first month subsequent to the end of each
quarter, beginning with the second quarter of 2003) due under its accrued
integration restructuring and business reorganization plans. In addition, on the
Distribution Date, Monster extended a secured revolving credit facility of up to
$15,000 to HH Group (the "Monster Credit Facility"). The Monster Credit Facility
provides for an interest rate equal to the prime rate. The Company is restricted
from borrowing under the Monster Credit Facility until such time as its cash and
cash equivalent balance is equal to or less than $10,000. The Monster Credit
Facility is secured by substantially all of the assets of the Company pursuant
to a security agreement between the Company and Monster. The maturity date of
the Monster Credit Facility is the earlier of six months from the Distribution
Date or 90 days following the date on which the Company closes on a credit
facility with a third party that provides for a total borrowing capacity of
$15,000 or more. However, the maturity date will be accelerated to the date
within such 90-day period on which the borrowing capacity under a new third
party credit facility is available to the Company.
On March 31, 2003, the Company also closed a senior secured credit facility
for $50,000 with Foothill Capital Corporation, a wholly-owned subsidiary of
Wells Fargo & Company (the "Foothill Credit Facility"). Accordingly, the Monster
Credit Facility will lapse on the earlier of June 29, 2003 or the date that that
the borrowing capacity under the Foothill Credit Facility is available to the
Company. The Company expects to activate the borrowing capacity under the
Foothill Credit Facility in May 2003 and to use such borrowings to support its
ongoing working capital requirements, capital expenditures and other corporate
purposes. The Foothill Credit Facility has a term of three years. Outstanding
loans will bear interest equal to the prime rate plus 0.25% or LIBOR plus 2.00%,
at the Company's option. The Foothill Credit Facility is secured by
substantially all of the assets of the Company and borrowings will be based on a
percentage of the accounts receivable of the Company and certain of its
subsidiaries.
The Foothill Credit Facility contains various restrictions and covenants,
including (1) prohibitions on payments of dividends and repurchases of the
Company's stock; (2) requirements that the Company maintain certain financial
ratios at prescribed levels; (3) restrictions on the ability of the Company to
make additional borrowings, or to consolidate, merge or otherwise fundamentally
change the ownership of the Company; and (4) limitations on investments,
dispositions of assets and guarantees of indebtedness. These restrictions and
covenants could limit the Company's ability to respond to market conditions, to
provide for unanticipated capital investments, to raise additional debt or
equity capital, to pay dividends or to take advantage of business opportunities,
including future acquisitions.
During the three months ended March 31, 2003 and 2002, the Company used
cash in operational activities of $23,877 and $37,100, respectively. Cash usage
decreased in 2003 from 2002 as a result of improved working capital accounts,
primarily accounts receivable and current liabilities. These improvements in
cash flow were partially offset by a higher operating loss in 2003.
During the three months ended March 31, 2003 and 2002, the Company used
cash in investing activities of $3,848 and $9,102, respectively. This use of
cash was primarily related to capital expenditures in the normal course of
operations and payments related to businesses purchased in prior years. The
decreased use of cash in the first quarter of 2003 compared to 2002 was the
result of lower payments related to prior period purchases of businesses, as
these projects are in the process of being completed and lower capital
expenditures.
During the three months ended March 31, 2003 and 2002, the Company
generated cash from financing activities of $40,679 and $39,143, respectively.
The cash funding from Monster and debt payments to third parties were both lower
in 2003, compared to 2002. The Company's debt relates to third-party debt and
capital leases incurred to acquire businesses in the 2001 period. Total
third-party debt and capital leases as of March 31, 2003 was $2,124.
The Company believes that the cash and cash equivalents contributed by
Monster, supplemented by the Foothill Credit Facility, will provide it with
sufficient liquidity to satisfy its working capital needs, capital expenditures,
investment requirements and commitments through at least the next twelve months.
Cash generated from operating activities is subject to fluctuations in the
global economy and unemployment rates.
- 21 -
Recent Accounting Pronouncements
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities ("SFAS 146"). SFAS 146 applies to costs
associated with an exit (including restructuring) or disposal activity. Those
activities can include eliminating or reducing product lines, terminating
employees and contracts, and relocating plant facilities or personnel. Under
SFAS 146, a company will record a liability for a cost associated with an exit
or disposal activity when that liability is incurred and can be measured at fair
value. SFAS 146 will require a company to disclose information about its exit
and disposal activities, the related costs and changes in those costs in the
notes to the interim and annual financial statements that include the period in
which an exit activity is initiated and in any subsequent period until the
activity is completed. SFAS 146 is effective prospectively for exit or disposal
activities initiated after December 31, 2002. Under SFAS 146, a company may not
restate its previously issued financial statements. Liabilities recognized as a
result of disposal activities prior to the adoption of SFAS 146 will continue to
be accounted for under Emerging Issues Task Force ("EITF") Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring) ("EITF
94-3"). The Company's adoption of SFAS 146 did not have a material impact on the
Company's financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation--Transition and Disclosure, an amendment of SFAS No. 123,
Accounting for Stock-Based Compensation, which provides alternatives for
companies electing to account for stock-based compensation using the fair value
criteria established by SFAS No. 123. The Company intends to continue to account
for stock-based compensation under the provisions of Accounting Principles Board
Opinion No. 25.
In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Guarantees of
the Indebtedness of Others, which addresses the accounting for and disclosure of
guarantees. Interpretation No. 45 requires a guarantor to recognize a liability
for the fair value of a guarantee at inception. The recognition of the liability
is required even if it is not probable that payments will be required under the
guarantee. The disclosure requirements are effective for interim and annual
financial statements ending after December 15, 2002. The initial recognition and
measurement provisions are effective on a prospective basis for guarantees
issued or modified after December 31, 2002. The Company's adoption of
Interpretation No. 45 did not have a material effect on the Company's
consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities. The objective of this interpretation is to
provide guidance on how to identify a variable interest entity ("VIE") and
determine when the assets, liabilities, noncontrolling interests, and results of
operations of a VIE need to be included in a company's consolidated financial
statements. A company that holds variable interests in an entity will need to
consolidate the entity if the company's interest in the VIE is such that the
company will absorb a majority of the VIE's expected losses and/or receive a
majority of the entity's expected residual returns, if they occur.
Interpretation No. 46 also requires additional disclosures by primary
beneficiaries and other significant variable interest holders. The
interpretation became effective upon issuance. The Company's adoption of this
interpretation did not have an effect on its consolidated financial statements.
On May 1, 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities ("SFAS 149"). SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. SFAS 149 is effective for contracts entered into or modified
after June 30, 2003. The Company's adoption of SFAS 149 should not have an
effect on its consolidated financial statements.
- 22 -
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand the future
prospects of a company and make informed investment decisions. This Form 10-Q
contains these types of statements, which the Company believes to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995.
All statements other than statements of historical fact included in this
Form 10-Q are forward-looking statements. Words such as "anticipate,"
"estimate," "expect," "project," "intend," "plan," "predict," "believe" and
similar words, expressions and variations of these words and expressions are
intended to identify forward-looking statements. The Company uses such
forward-looking statements regarding its future financial condition and results
of operations and its business operations and future business prospects in this
Form 10-Q. All forward-looking statements reflect the Company's present
expectation of future events and are subject to a number of important factors,
risks, uncertainties and assumptions, including industry and economic
conditions, that could cause actual results to differ materially from those
described in the forward-looking statements. Such factors, risks, uncertainties
and assumptions include, but are not limited to, (1) the Company's ability to
manage its growth, (2) risks associated with expansion, (3) the Company's heavy
reliance on information systems and the impact of potentially losing that
technology or failing to further develop technology, (4) the Company's markets
are highly competitive, (5) the Company's operating results fluctuate from
quarter to quarter, (6) the impact of global economic fluctuations on the
Company's temporary contracting operations, (7) the cyclical nature of the
Company's executive search and mid-market professional staffing businesses, (8)
risks relating to the Company's foreign operations, including foreign currency
fluctuations, (9) the Company's dependence on its highly skilled professionals,
(10) the impact of employees departing with existing executive search clients,
(11) risks maintaining the Company's professional reputation and brand name,
(12) restrictions imposed by blocking arrangements, (13) the Company's exposure
to employment-related claims, legal liability and costs from both clients and
employers and limitations on insurance coverage related thereto, (14) the
Company's dependence on key management personnel, (15) the impact of government
regulations, (16) the Company's ability to successfully operate as an
independent company and the level of costs associated therewith and (17) and the
Company's ability to obtain financing on a stand-alone basis and restrictions on
the Company's operating flexibility due to the terms of its credit facility.
Please see "Risk Factors" in the Company's Registration Statement on Form 10
filed with the Securities and Exchange Commission on March 14, 2003 for more
information.
You are cautioned not to place undue reliance on the forward-looking
statements, which speak only as of the date of this Form 10-Q. The Company
assumes no obligation, and expressly disclaims any obligation, to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
- 23 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The majority of the Company's borrowings are in fixed rate equipment leases
and seller financed notes. The carrying amounts of the Company's debt
approximate fair value, generally due to the short-term nature of the underlying
instruments. The Company does not trade derivative financial instruments for
speculative purposes.
The Company also conducts operations in various foreign countries,
including Australia, Belgium, Canada, France, Germany, Italy, the Netherlands,
New Zealand and the United Kingdom. For the quarter ended March 31, 2003,
approximately 67% of the Company's revenues were earned outside the United
States and collected in local currency and related operating expenses were also
paid in such corresponding local currency. Accordingly, the Company is subject
to increased risk for exchange rate fluctuations between such local currencies
and the dollar.
The financial statements of the Company's non-U.S. subsidiaries are
translated into U.S. dollars using current rates of exchange, with translation
gains or losses included in the cumulative translation adjustment account, a
component of stockholders' equity. During the year ended December 31, 2002, the
Company had a translation gain of approximately $3,219, primarily attributable
to the weakening of the U.S. dollar against the Australian dollar and the Euro.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. In accordance with
Rule 13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange Act"),
within 90 days prior to the filing date of this Quarterly Report on Form 10-Q,
an evaluation was carried out under the supervision and with the participation
of the Company's management, including the Company's Chairman of the Board,
President and Chief Executive Officer and Executive Vice President and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rule 13a-14(c) under
the Exchange Act). Based upon their evaluation of these disclosure controls and
procedures, the Chairman of the Board, President and Chief Executive Officer and
the Executive Vice President and Chief Financial Officer concluded that the
disclosure controls and procedures were effective as of the date of such
evaluation to ensure that material information relating to the Company,
including its consolidated subsidiaries, was made known to them by others within
those entities, particularly during the period in which this Quarterly Report on
Form 10-Q was being prepared.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
- 24 -
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On January 14, 2003 the sole stockholder of the Company (which was, at that
time, Monster), by written consent actions in lieu of a special meeting, adopted
resolutions to approve the merger of TMP Worldwide Search, Inc., a Florida
corporation, with and into the Company.
On February 24, 2003, the sole stockholder of the Company (which was, at
that time, Monster), by written consent actions in lieu of a special meeting,
adopted resolutions to approve changing the name of the Company from "TMP
Worldwide Search, Inc." to "Hudson Highland Group, Inc."
On March 12, 2003, the sole stockholder of the Company (which was, at that
time, Monster), by written consent actions in lieu of a special meeting, adopted
resolutions to:
(a) Approve the Company's Amended and Restated Certificate of Incorporation
(a copy of which is filed as Exhibit 3.1 to this Quarterly Report on Form
10-Q).
(b) Approve the Company's Amended and Restated By-Laws (a copy of which is
filed as Exhibit 3.2 to this Quarterly Report on Form 10-Q).
(c) Approve an 85,238.12-for-one stock split on the Company's common stock,
effectuated in the form of a stock dividend declared on the Company's
common stock effective as of 11:59 p.m., New York City time, on March 31,
2003 and paid to stockholders of record at the close of business on March
14, 2003.
(d) Approve the Company's Employee Stock Purchase Plan (a copy of which is
filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q).
(e) Approve the Company's Long Term Incentive Plan (a copy of which is
filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q).
ITEM 5. OTHER INFORMATION.
The information under this Item is being provided as required by Item 11 of
Form 8-K. The Company advised participants in the Company's Inc. 401(k) Savings
Plan (the "Plan") that a blackout period began on April 24, 2003 at 4:00 p.m.
(Eastern Daylight Time) and ended on May 2, 2003 at 10:00 a.m. (Eastern Daylight
Time). The person designated by the Company to respond to inquiries about the
blackout period was Margaretta Noonan, Executive Vice President, Human
Resources, Hudson Highland Group, Inc., 622 Third Avenue, New York, New York
10017, (212)-351-7200.
The blackout period was necessary for administrative reasons arising out of
the Distribution. In connection with the Distribution, the Company effected a
trust-to-trust transfer from the TMP Worldwide Inc. 401(k) Savings Plan of
certain individuals' account balances to the Plan. The blackout period was
necessary to provide time to transfer the assets and liabilities to the Plan and
to ensure a complete and accurate transfer of Plan data.
The Company received notice from the administrator of the Plan of the
impending blackout period (as required by Section 101(i)(2)(E) of the Employment
Retirement Income Security Act of 1974, as amended) on March 21, 2003. On April
1, 2003, the Company sent a notice to its executive officers and directors
informing them that a blackout period would be in effect beginning on April 24,
2003 at 4:00 p.m. (Eastern Daylight Time) and would end on May 2, 2003 at 10:00
a.m. (Eastern Daylight Time) and they were restricted from purchasing,
acquiring, selling or otherwise transferring certain equity securities of the
Company.
- 25 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following Exhibits are filed herewith.
2.1 Distribution Agreement, dated March 31, 2003, by and between
Hudson Highland Group, Inc. and TMP Worldwide Inc. (incorporated
by reference to Exhibit 2.1 to Monster Worldwide, Inc.'s Current
Report of Form 8-K filed on April 11, 2003 (File No.
005-78979)).
3.1 Amended and Restated Certificate of Incorporation of Hudson
Highland Group, Inc. (incorporated by reference to Exhibit 3.1
to Hudson Highland Group, Inc.'s Registration Statement on Form
10 (File No. 0-50129)).
3.2 Amended and Restated By-laws of Hudson Highland Group, Inc.
(incorporated by reference to Exhibit 3.2 to Hudson Highland
Group, Inc.'s Registration Statement on Form 10 (File No.
0-50129)).
4.1 Loan and Security Agreement, dated as of March 31, 2003, by and
among Hudson Highland Group, Inc. and each of its subsidiaries
that are signatories thereto, as Borrowers, the lenders that are
signatories thereto, as the Lenders, and Foothill Capital
Corporation, as the Arranger and Administrative Agent.
10.1 Hudson Highland Group, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.1 to Hudson Highland
Group, Inc.'s Registration Statement on Form S-8 (File No.
333-104212)).
10.2 Hudson Highland Group, Inc. Long Term Incentive Plan
(incorporated by reference to Exhibit 4.1 to Hudson Highland
Group, Inc.'s Registration Statement on Form S-8 (File No.
333-104209)).
10.3 Transition Services Agreement, dated as of March 31, 2003, by
and between TMP Worldwide Inc. and Hudson Highland Group, Inc.
10.4 Tax Separation Agreement, dated as of March 31, 2003, by and
between TMP Worldwide Inc. and Hudson Highland Group, Inc.
10.5 Loan Agreement, dated as of March 31, 2003, by and between TMP
Worldwide Inc. and Hudson Highland Group, Inc.
15 Letter regarding unaudited interim financial information from
BDO Seidman, LLP, independent certified public accountants (With
respect to the unaudited interim financial statements of Hudson
Highland Group, Inc. for the periods ended March 31, 2003 and
2002 included in this Quarterly Report on Form 10-Q, BDO
Seidman, LLP have applied limited procedures in accordance with
professional standards for a review of such information.
However, as stated in their report included in this Quarterly
Report on Form 10-Q, they did not audit and they do not express
an opinion on those unaudited interim financial statements.
Accordingly, the degree of reliance on their reports on such
information should be restricted in light of the limited nature
of the review procedures applied. To the extent that this
Quarterly Report on Form 10-Q is incorporated by reference in
any registration statements that Hudson Highland Group, Inc.
has filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, BDO Seidman, LLP are not
subject to the liability provisions of Section 11 of that Act
for their reports on the unaudited interim financial statements
because those reports are not "reports" or a "part" of the
registration statement prepared or certified by an accountant
within the meaning of Sections 7 and 11 of the Act.)
99.1 Written Statement of the Chairman, President and Chief Executive
Officer Pursuant to 18 U.S.C. Section 1350 for Hudson Highland
Group, Inc.
99.2 Written Statement of the Executive Vice President and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350 for Hudson
Highland Group, Inc.
- 26 -
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUDSON HIGHLAND GROUP, INC.
(Registrant)
By: /s/ Jon F. Chait
---------------------------------------------
Jon F. Chait
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Dated: May 15, 2003
By: /s/ Richard W. Pehlke
---------------------------------------------
Richard W. Pehlke
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: May 15, 2003
- 27 -
CERTIFICATIONS
I, Jon F. Chait, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hudson Highland
Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 15, 2003 /s/ JON F. CHAIT
Jon F. Chait
Chairman, President and
Chief Executive Officer
- 28 -
I, Richard W. Pehlke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hudson Highland
Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 15, 2003 /s/ RICHARD W. PEHLKE
Richard W. Pehlke
Executive Vice President and
Chief Financial Officer
- 29 -
HUDSON HIGHLAND GROUP, INC.
FORM 10-Q
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Distribution Agreement, dated March 31, 2003, by and between
Hudson Highland Group, Inc. and TMP Worldwide Inc. (incorporated
by reference to Exhibit 2.1 to Monster Worldwide, Inc.'s Current
Report of Form 8-K filed on April 11, 2003 (File No. 005-78979)).
3.1 Amended and Restated Certificate of Incorporation of Hudson
Highland Group, Inc. (incorporated by reference to Exhibit 3.1 to
Hudson Highland Group, Inc.'s Registration Statement on Form 10
(File No. 0-50129)).
3.2 Amended and Restated By-laws of Hudson Highland Group, Inc.
(incorporated by reference to Exhibit 3.2 to Hudson Highland
Group, Inc.'s Registration Statement on Form 10 (File No.
0-50129)).
4.1 Loan and Security Agreement, dated as of March 31, 2003, by and
among Hudson Highland Group, Inc. and each of its subsidiaries
that are signatories thereto, as Borrowers, the lenders that are
signatories thereto, as the Lenders, and Foothill Capital
Corporation, as the Arranger and Administrative Agent.
10.1 Hudson Highland Group, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.1 to Hudson Highland
Group, Inc.'s Registration Statement on Form S-8 (File No.
333-104212)).
10.2 Hudson Highland Group, Inc. Long Term Incentive Plan
(incorporated by reference to Exhibit 4.1 to Hudson Highland
Group, Inc.'s Registration Statement on Form S-8 (File No.
333-104209)).
10.3 Transition Services Agreement, dated as of March 31, 2003, by and
between TMP Worldwide Inc. and Hudson Highland Group, Inc.
10.4 Tax Separation Agreement, dated as of March 31, 2003, by and
between TMP Worldwide Inc. and Hudson Highland Group, Inc.
10.5 Loan Agreement, dated as of March 31, 2003, by and between TMP
Worldwide Inc. and Hudson Highland Group, Inc.
15 Letter regarding unaudited interim financial information from BDO
Seidman, LLP, independent certified public accountants (With
respect to the unaudited interim financial statements of Hudson
Highland Group, Inc. for the periods ended March 31, 2003 and
2002 included in this Quarterly Report on Form 10-Q, BDO Seidman,
LLP have applied limited procedures in accordance with
professional standards for a review of such information. However,
as stated in their report included in this Quarterly Report on
Form 10-Q, they did not audit and they do not express an opinion
on those unaudited interim financial statements. Accordingly, the
degree of reliance on their reports on such information should be
restricted in light of the limited nature of the review
procedures applied. To the extent that this Quarterly Report on
Form 10-Q is incorporated by reference in any registration
statements that Hudson Highland Group, Inc. has filed with
the Securities and Exchange Commission under the Securities Act
of 1933, as amended, BDO Seidman, LLP are not subject to the
liability provisions of Section 11 of that Act for their reports
on the unaudited interim financial statements because those
reports are not "reports" or a "part" of the registration
statement prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Act.)
99.1 Written Statement of the Chairman, President and Chief Executive
Officer Pursuant to 18 U.S.C. Section 1350 for Hudson Highland
Group, Inc.
99.2 Written Statement of the Executive Vice President and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350 for Hudson
Highland Group, Inc.
- 30 -