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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

OR

COMMISSION FILE NUMBER 000-50129

HUDSON HIGHLAND GROUP, INC.

(Exact Name of Registrant As Specified in Its Charter)

622 Third Avenue, New York, New York 10017

(Address of Principal Executive Offices)

(212) 351-7300

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act: None.

Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.001 par value per share

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  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    Yes  x    No  ¨

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12 b-2).    Yes  ¨    No  x

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $158,629,000 as of June 30, 2003.

The number of shares of Common Stock, $.001 par value, outstanding as of March 1, 2004 was 8,574,705.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2004 Annual Meeting of Stockholders are incorporated by reference into Part III.

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PART I

ITEM 1. BUSINESS

Hudson Highland Group, Inc. (“the Company” or “we”, “us” and “our”) is one of the world’s largest professional staffing and executive recruiting agencies. We help our clients in recruiting employees in a wide variety of positions ranging from mid-level or professional candidates to senior executives. We provide professional staffing services on a permanent, contract and temporary basis, as well as executive search and a range of human capital services to clients operating in a wide variety of businesses. We are organized into two principal businesses, Hudson Global Resources and Highland Partners, which constituted approximately 85% percent and 15% of our gross margin, respectively, for the year ended December 31, 2003.

Hudson Global Resources. Hudson Global Resources primarily provides mid-level professional temporary personnel and permanent recruitment services to our clients. Mid-level professionals are those who typically earn between $50,000 and $150,000 annually, and possess professional skills and/or profile required by our clients. In the case of our temporary recruitment business, we primarily focus on the placement of professionals in temporary assignments that can range from one day to more than twelve months. In the case of our permanent placement business, we search and select mid-level professionals, both on a contingent and retained basis, for permanent employment with our clients. In larger markets, our sales strategy focuses on both clients operating in particular business segments, such as financial services, health care, or technology, and candidates possessing particular professional qualifications, such as accounting and finance, information technology and communications, legal and health care. Hudson Global Resources uses both traditional and interactive methods to select potential candidates for our clients, employing a suite of products, that assess talent and help predict whether a candidate will be successful in a given role.

Hudson Global Resources also provides a variety of other services in the area of Human Capital Solutions, including among others, customized interactive recruiting and HR solutions, career transition, executive assessment and coaching, knowledge management, diversity and inclusion assessment and consulting, and organizational effectiveness. Through it’s Center for High Performance, the Company also offers leadership solutions designed to assist senior management in enhancing the operating performance of large organizations.

These services enable us to offer clients a comprehensive set of human capital management services, ranging from providing temporary workers, to assessment or coaching of permanent staff, to recruitment or search for permanent executives and professionals, to outplacement.

Hudson Global Resources operates on a global basis with our revenues divided approximately evenly among North America, Europe (including the United Kingdom), and the Asia Pacific region (primarily Australia and New Zealand).

Highland Partners. Highland Partners offers a comprehensive range of executive search services on a retained basis aimed at recruiting senior level executives or professionals. Highland Partners also has an active practice in assisting clients desiring to augment their boards of directors. Highland Partners concentrates on searches for positions of senior executives and operates exclusively on a retained basis.

Highland Partners employs a multilevel process to identify appropriate candidates for our clients. This process begins with an analysis of the vacant position and a thorough understanding of both the tangible skills and experience required, as well as the intangible cultural aspects of the client’s workplace. These requirements are then matched against a pool of qualified candidates. We then assist the client with the interview process and help the client structure the compensation package for the best candidate.

The Highland Partners sales strategy approaches the market through industry sectors, such as financial services, life sciences, retail and consumer products, industrial and technology. This industry sector approach is

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designed to enable us to better understand the market conditions and strategic management issues faced by clients within their specific industry. Highland Partners business is also organized to recruit candidates through functional specialist groups, including board of directors, chief financial officer, chief information officer, human resources and legal. These functional expertise groups are each comprised of consultants who have extensive backgrounds in placing executives in certain specialist positions within an industry.

Highland Partners operates as a global boutique with 16 practice offices in 5 countries. For the year ended December 31, 2003, approximately 68% of revenues in the Highland Partners business were derived in North America.

The Company is the combination of 67 acquisitions made prior to our spin-off from Monster Worldwide, Inc. (“Monster”), formerly TMP Worldwide, Inc. While these acquisitions were made between 1999 and 2002, some of our constituent businesses have operated for more than 20 years. These companies and businesses operated within Monster as the eResourcing and Executive Search divisions since 1998. On March 31, 2003 (the “Distribution Date”), we spun-off from Monster (the “Distribution”), who distributed 100% of our outstanding common stock to stockholders of Monster as of the close of business on March 14, 2003. Since the Distribution, we have operated as an independent, publicly held company. For periods pre Distribution, these companies are sometimes referred to as the “Constituent Companies” and post Distribution as the “HH Group”.

SALES AND MARKETING

We maintain separate sales and marketing staffs for our Hudson Global Resources and Highland Partners businesses. Our sales, marketing and customer service staffs are divided along industry sectors, such as health care, financial services, technology, consumer and retail. In some countries, such as the United States and the United Kingdom, our sales force is also organized according to the specialized professional qualifications of candidates, such as accounting, banking and finance, legal, engineering, scientific and human resource professionals. In some instances, sales personnel are dedicated to sales, but in many other cases we rely on staff within our branch organization to provide both sales and service delivery. We also divide our Hudson Global Resources sales force between temporary contracting and permanent placement. In addition to focusing on sales of the services of its own organization, each sales professional is accountable for, and incentivised to, cross-sell each other’s products within its existing client base. Our philosophy is to place primary reliance on our field sales force and our branch structure for sales and marketing since we believe that a business service transaction in the human capital industry is best sold on a face-to-face basis.

We use three principal channels for marketing our services and promoting our brand: (1) In the UK, Australia, New Zealand, and other countries where it is an accepted practice, we use client paid advertising for vacant positions; (2) public relations, particularly through the Center for High Performance, which undertakes original research on business management topics that are of particular importance to CEOs and other senior executives, and (3) to a lesser extent, we also use broad based media (Internet and business publications) and trade publications.

CLIENTS

The Company’s clients include small to large-sized organizations, enterprises, government agencies and educational institutions. No one client accounts for more than 5% of total annual revenue. At December 31, 2003, there were over 10,000 Hudson Global Resources clients and over 1,000 Highland Partners clients.

COMPETITION

The markets for the Company’s services and products are highly competitive and are characterized by pressure to reduce prices, incorporate new capabilities and technologies, attract new clients, attract high-quality specialized employment candidates and accelerate job completion schedules. The Company’s industry is intensely competitive and highly fragmented, with few barriers to entry by potential competitors.

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The Company faces competition from other temporary contracting agencies, executive search and professional staffing agencies, many of which are far larger than us. Many competitors or potential competitors have long operating histories, and some have greater financial, management, technological, development, sales, marketing and other resources than the Company. In addition, the Company’s ability to maintain its existing clients and generate new clients depends to a significant degree on the quality of its services, pricing and its reputation among its clients and potential clients.

EMPLOYEES

The Company employs approximately 3,700 people worldwide. In most jurisdictions our employees are not represented by a labor union or a collective bargaining agreement. The Company regards the relationships with its employees as satisfactory.

SEGMENT AND GEOGRAPHIC DATA

Financial information concerning the Company’s business segments and geographic areas of operation is included in Note 14 in the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.

AVAILABLE INFORMATION

We maintain a website with the address www.hhgroup.com. We are not including the information contained on our website as part of, or incorporating it by reference into, this report. We make available free of charge (other than an investor’s own Internet access charges) through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission.

RISK FACTORS

The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results, and cash flows could be materially adversely affected.

We have a history of negative cash flows and operating losses that we expect will continue for the foreseeable future.

We have experienced negative cash flows and operating and net losses since we began operations as an independent company, and we expect to continue to experience negative cash flows and losses for the foreseeable future. For the year ended December 31, 2003, we used cash in operating activities of $42.6 million and we incurred net losses attributable to common stockholders of $328.8 million. We cannot assure you that we will have positive cash flows or profitable operations. Additionally, if our revenue grows more slowly than we anticipate, or if operating expenses exceed our expectations, we may not become profitable.

In the future, we may not generate sufficient revenues to pay for all of our operating costs or other expenses. Even if we become profitable, we may be unable to sustain our profitability. In either of these cases, our business, financial condition, results of operations and cash flows will be negatively impacted.

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The performance of our businesses is difficult to forecast and is cyclical, and a decline in these businesses could have a material adverse effect on our overall business, financial condition and operating results.

The performance of our businesses has fluctuated in the past and can be expected to continue to fluctuate in the future. We provide executive search and mid-market professional staffing services on an assignment-by-assignment basis, which clients can generally terminate at any time, and existing clients may not continue to use our executive search and professional staffing services at historical levels. Like our temporary contracting business, our executive search and professional staffing business is significantly affected by the general level of employment activity in the regions and industries in which we operate, and our executive search and professional staffing business may suffer during employment downturns. When employment activity slows, many of our clients hire fewer employees, and may engage in hiring freezes. An employment downturn could cause employers to reduce or postpone their recruiting efforts and therefore affect demand for our services. In the current employment environment affecting the United States and European markets, our fees and commissions from our executive search and mid-market professional staffing businesses have been adversely affected.

Our operations will be affected by global employment fluctuations.

Demand for our services is significantly affected by the general level of employment activity in the regions and industries in which we operate, and our businesses may suffer during employment downturns. An employment downturn may result in decreased demand for our services, and thus in a decrease in our revenues, and may adversely affect our financial condition and results of operations. Because we operate from many small offices with fixed overhead, we have only limited flexibility to reduce expenses during employment downturns. Further, we may face increased pricing pressures during employment downturns. For example, during 2001 and 2002, employers across the United States reduced their overall workforce to reflect the slowing demand for their products and services. In turn, our revenues were significantly reduced in the United States. Employment conditions could continue to challenge our revenue and profit growth in 2004, which could have a material adverse effect on our business, financial condition and operating results.

Our results may suffer if we are unable to implement our existing reorganization initiatives to streamline our operations.

We are in the process of implementing reorganization initiatives to streamline our operations, lower our cost structure, integrate businesses previously acquired, and improve our return on capital. These initiatives include workforce reduction, consolidation of excess facilities and restructuring of certain business functions. For the year ended December 31, 2003, we incurred $26.8 million in expenses related to these reorganization efforts. We cannot assure you that our reorganization efforts will be successful. If we are unsuccessful in implementing these initiatives, we will not achieve the planned operational efficiencies and cost savings, and our results of operations and financial condition could be negatively impacted.

Our credit facility restricts our operating flexibility.

We have a $30.0 million senior secured credit facility, which may be increased to $50.0 million at the option of our lender upon syndication for the additional $20.0 million. There are no current borrowings under the credit facility other than approximately $3.4 million in the form of issued letters of credit. Our ability to borrow under the credit facility is tied to a borrowing base of our eligible accounts receivable. If the amount or quality of our accounts receivable deteriorates our ability to borrow under the credit facility will be directly affected. In addition, our credit facility requires that we satisfy several financial covenants, including complying with targeted levels of adjusted EBITDA. The adjusted EBITDA covenant generally provides that our adjusted EBITDA (as defined in our credit facility) loss for the trailing twelve-month periods ending March 31, June 30, September 30 and December 31, 2004 may not exceed $48.5 million, $35.5 million, $25.5 million and $8.0 million, respectively. As a result, we cannot assure you that we will be able to borrow under our credit

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agreement if we need money to fund working capital or other needs. In addition, our credit facility contains various restrictions and covenants that restrict our operating flexibility including:

These restrictions and covenants could have important consequences for investors, including the following:

Our ability to comply with these financial requirements and other restrictions may be affected by events beyond our control, and our inability to comply with them could result in a default under our credit facility or other debt instruments. If a default occurs under our credit facility, the lenders under this facility could elect to declare all of the outstanding borrowings, as well as accrued interest and fees, to be due and payable and require us to apply all of our available cash to repay those borrowings. In addition, a default may result in higher rates of interest and the inability to obtain additional borrowings. Further, debt incurred under our credit facility bears interest at variable rates. Any increase in interest expense could reduce the funds available for operations.

We face risks relating to our foreign operations, many of which are inherent in our U.S. operations.

We conduct operations in over 20 foreign countries, including Australia, Belgium, Canada, France, Germany, Italy, the Netherlands, New Zealand and the United Kingdom. For the years ended December 31, 2003, 2002 and 2001, approximately 71%, 67% and 62%, respectively, of our revenues were earned outside of the United States.

Our current or future international operations might not succeed for a number of reasons including:

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If we are forced to discontinue any of our international operations, we could incur material costs to close down such operations.

We are also subject to taxation in foreign jurisdictions. In addition, transactions between us and our foreign subsidiaries may be subject to United States and foreign withholding taxes. Applicable tax rates in foreign jurisdictions differ from those of the United States, and change periodically. The extent, if any, to which we will receive credit in the United States for taxes we pay in foreign jurisdictions will depend upon the application of limitations set forth in the Internal Revenue Code, as well as the provisions of any tax treaties which may exist between the United States and such foreign jurisdictions.

Our historical financial information may not be representative of our results as a separate company.

The historical financial statements included in this Annual Report on Form 10-K differ from the results of operations, financial condition and cash flows that would have been achieved had we been operated independently during the periods and as of the dates presented. Prior to April 1, 2003, our businesses were operated as divisions of Monster, as part of its broader corporate organization rather than as a stand-alone company.

Therefore, you should not make assumptions regarding our future performance based on the historical financial statements included in this Annual Report on Form 10-K.

We may not be able to manage our growth.

Historically, our business has grown rapidly through acquisitions and internally. This prior growth of our business has placed a significant strain on our management and operations. Our expansion has resulted in substantial growth in the number of our employees. In addition, this growth has resulted in increased responsibility for both existing and new management personnel and incremental strain on our existing operations, financial and management information systems and financial resources, including the need for additional working capital to fund our growth. Our success depends to a significant extent on the ability of our executive officers and other members of senior management to operate effectively both independently and as a group. If we are not able to manage any existing or future growth, our business, financial condition and operating results may be materially adversely affected.

We face risks associated with acquisitions.

We expect that if we continue to grow, it may be, in part, by acquiring businesses. We continue to review potential acquisitions to expand our markets and complement the services we offer to our clients. The success of this strategy depends upon several factors, including:

We cannot assure you that financing for acquisitions will be available on terms we find acceptable, or at all, or that we will be able to identify or consummate new acquisitions, or manage and integrate our recent or future expansions successfully. Any inability to do so may materially adversely affect our business, financial condition and operating results. Our level of indebtedness may increase in the future if we finance acquisitions with debt, which would cause us to incur additional interest expense and could increase our vulnerability to general adverse economic and industry conditions and limit our ability to obtain additional financing. If we issue shares of our stock as currency in any future acquisitions, then our earnings per share may be diluted as a result of the issuance

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of such stock. In addition, we cannot assure you that participants in potential acquisitions will view our stock attractively. Our ability to enter new geographies may be impacted by the same reasons that may limit our ability to make acquisitions.

We rely on our information systems and if we lose that technology, or fail to further develop our technology, our business could be harmed.

Our success depends in large part upon our ability to store, retrieve, process and manage substantial amounts of information, including our client and candidate databases. To achieve our strategic objectives and to remain competitive, we must continue to develop and enhance our information systems. This may require the acquisition of equipment and software and the development, either internally or through independent consultants, of new proprietary software. Our inability to design, develop, implement and utilize, in a cost-effective manner, information systems that provide the capabilities necessary for us to compete effectively, or any interruption or loss of our information processing capabilities, for any reason, could harm our business, results of operations or financial condition.

Our markets are highly competitive.

The markets for our services are highly competitive. They are characterized by pressures to:

Furthermore, we face competition from a number of sources. These sources include other executive search firms and search and professional staffing firms and several of our competitors have greater financial and marketing resources than we do.

Due to competition, we may experience reduced margins on our products and services, as well as loss of market share and our customers. If we are not able to compete effectively with current or future competitors as a result of these and other factors, our business, financial condition and results of operations could be materially adversely affected.

We have no significant proprietary technology that would preclude or inhibit competitors from entering the mid-market professional staffing and temporary contracting and executive search markets. We cannot assure you that existing or future competitors will not develop or offer services and products that provide significant performance, price, creative or other advantages over our services. In addition, we believe that with continuing development and increased availability of information technology, the industries in which we compete may attract new competitors. Specifically, the advent and increased use of the Internet may attract technology-oriented companies to the executive search industry. We cannot assure you that we will be able to continue to compete effectively against existing or future competitors. Any of these events could have a material adverse effect on our business and operating results.

Our operating results fluctuate seasonally and from quarter to quarter.

Our operating results have fluctuated seasonally and from quarter to quarter in the past and may fluctuate in the future. These fluctuations are a result of a variety of factors, including:

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Foreign currency fluctuations may have a material adverse effect on our operating results.

For the years ended December 31, 2003, 2002 and 2001, approximately 71%, 67% and 62%, respectively, of our revenue was generated outside the United States. The results of our local operations are reported in the applicable foreign currencies and then translated into U.S. dollars at the applicable foreign currency exchange rates for inclusion in our financial statements. In addition, we generally pay operating expenses in the corresponding local currency. We have no hedging or similar foreign currency contracts. Because of devaluations and fluctuations in currency exchange rates or the imposition of limitations on conversion of foreign currencies into U.S. dollars, we are subject to currency translation exposure on the revenue and income of our operations in addition to economic exposure. This risk could have a material adverse effect on our business, financial condition and operating results.

We depend upon Monster Worldwide, Inc. for important sourcing services.

We use Monster’s websites/databases for the acquisition of a large quantity of our candidates in the United States and in the United Kingdom. If these websites/databases become unavailable, for whatever reason, our ability to source appropriate candidates could be affected until we develop a suitable alternative sourcing arrangements.

We depend on our highly skilled professionals.

The success of our employment recruiting business depends upon our ability to attract and retain highly skilled professionals who possess the skills and experience necessary to fulfill our clients’ employee search needs. Competition for highly skilled professionals is intense. We compete with other staffing and executive search agencies for qualified professionals. We and many of our competitors have experienced turnover of qualified professionals. We believe that we have been able to attract and retain highly qualified, effective professionals as a result of our reputation and our performance-based compensation system. These professionals have the potential to earn substantial bonuses based on the amount of revenue they generate by:

Bonuses represent a significant proportion of these professionals’ total compensation. Any diminution of our reputation could impair our ability to retain existing or attract additional highly skilled professionals. Any inability to attract and retain highly skilled professionals could have a material adverse effect on our executive search business, financial condition and operating results.

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Our employees may depart with existing executive search clients.

The success of our executive search business depends upon the ability of employees to develop and maintain strong, long-term relationships with clients. Usually, one or two employees have primary responsibility for a client relationship. When an employee leaves a recruiting firm and joins another, clients that have established relationships with the departing employee may move their business to the employee’s new employer. The loss of one or more clients is more likely to occur if the departing employee enjoys widespread name recognition or has developed a reputation as a specialist in executing searches in a specific industry or management function. Historically, we have not experienced significant problems in this area. However, a failure to retain our most effective employees or maintain the quality of service to which our clients are accustomed could have a material adverse effect on our business, financial condition and operating results. Also, the ability of a departing employee to move business to his or her new employer could have a material adverse effect on our business, financial condition and operating results.

We face risks maintaining our professional reputation and establishing and maintaining our brand name.

Our ability to secure new employee recruiting engagements and to hire qualified professionals is highly dependent upon our overall reputation and brand name recognition as well as the individual reputations of our professionals. We obtain a majority of our new engagements by referrals from existing clients. Therefore, the dissatisfaction of any client could have a disproportionate, adverse impact on our ability to secure new engagements. Any factor that diminishes our reputation or the reputation of any of our personnel could make it more difficult for us to compete successfully for both new engagements and qualified personnel. This could have an adverse effect on our executive search business, financial condition and operating results.

We face restrictions imposed by blocking arrangements.

Either by agreement with clients or for marketing or client relationship purposes, executive search firms frequently refrain, for a specified period of time, from recruiting certain employees of a client, and possibly other entities affiliated with such client, when conducting executive searches on behalf of other clients. This is known as a “blocking” or “off-limits” arrangement. Blocking arrangements generally remain in effect for one or two years following completion of an assignment. The actual duration and scope of any blocking arrangement, including whether it covers all operations of a client and its affiliates or only certain divisions of a client, generally depends on such factors as:

Some of our executive search clients are recognized as industry leaders and/or employ a significant number of qualified executives who are potential candidates for other companies in that client’s industry. Blocking arrangements with a client of this nature, or the awareness by a client’s competitors of such an arrangement, may make it difficult for us to obtain executive search assignments from, or to fulfill executive search assignments for, competitors while employees of that client may not be solicited. As our client base grows, particularly in our targeted business sectors, blocking arrangements increasingly may impede our growth or ability to attract and serve new clients. This could have an adverse effect on our businesses, results of operations and financial condition.

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We may be exposed to employment-related claims, legal liability and costs from both clients and employers that could adversely affect our business, financial condition and results of operations, and our insurance coverage may not cover all of our potential liability.

We are in the business of employing people and placing them in the workplaces of other businesses. Risks relating to these activities include:

We are also exposed to potential claims with respect to the recruitment process. A client could assert a claim for matters such as breach of a blocking arrangement or recommending a candidate who subsequently proves to be unsuitable for the position filled. Further, the current employer of a candidate whom we place could file a claim against us alleging interference with an employment contract. In addition, a candidate could assert an action against us for failure to maintain the confidentiality of the candidate’s employment search or for alleged discrimination or other violations of employment law by one of our clients.

We may incur fines and other losses or negative publicity with respect to these problems. In addition, some or all of these claims may give rise to litigation, which could be time-consuming to our management team and costly and could have a negative impact or our business. In some cases, we have agreed to indemnify our clients against some or all of these types of liabilities. We cannot assure you that we will not experience these problems in the future or that our insurance will cover all claims or that our insurance coverage will continue to be available at economically feasible rates.

We depend on our key management personnel.

Our continued success will depend to a significant extent on our senior management, including Jon F. Chait, our Chairman, President and CEO. The loss of the services of Mr. Chait or one or more key employees could have a material adverse effect on our business, financial condition and operating results. In addition, if one or more key employees join a competitor or form a competing company, the resulting loss of existing or potential clients could have a material adverse effect on our business, financial condition and operating results.

Government regulations may result in the prohibition or restriction of certain types of employment services we offer or in the imposition of additional licensing or tax requirements that may reduce our future earnings.

In many jurisdictions in which we operate, such as France, Germany and Japan, the temporary staffing industry is heavily regulated. For example, governmental regulations in Germany restrict the length of contracts

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of temporary employees and the industries in which temporary employees may be used. In some countries, special taxes, fees or costs are imposed in connection with the use of temporary workers. For example, temporary workers in France are entitled to a 10% allowance for the precarious nature of employment, which is eliminated if a full-time position is offered to them within three days. The countries in which we operate may:

Any future regulations that make it more difficult or expensive for us to continue to provide our staffing services may have a material adverse effect on our financial condition, results of operations and liquidity.

We do not intend to pay cash dividends on our common stock in the foreseeable future.

We have never declared or paid dividends on our common stock, and we cannot assure you that any dividends will be paid in the foreseeable future. Any payment of cash dividends will depend upon our financial condition, capital requirements, earning and other factors deemed relevant by our board of directors. In addition, the terms of our credit facility prohibit us from paying dividends and making other distributions. We currently anticipate that we will retain all future earnings, if any, to finance growth and development of our business and do not anticipate paying cash dividends in the foreseeable future. As a result, only appreciation of the price of our common stock will provide a return to our stockholders.

There may be volatility in our stock price.

The market for our common stock has experienced price and volume fluctuations. Factors such as the announcement of variations in our quarterly financial results could cause the market price of our common stock to fluctuate significantly. Further, due to the volatility of the stock market generally, the price of our common stock could fluctuate for reasons unrelated to our operating performance.

The market price of our common stock can be influenced by professional securities analysts’ expectations about the ability of our business to grow and to achieve certain profitability targets. If our financial performance in a particular quarter does not meet the expectations of securities analysts, then this may adversely affect the views of those securities analysts concerning our growth potential and future financial performance. If the securities analysts who regularly follow our common stock lower their ratings for our common stock or lower their projections for our future growth or financial performance, then the market price of our common stock is likely to drop significantly.

Provisions in our organizational documents and Delaware law will make it more difficult for someone to acquire control of us.

Our certificate of incorporation and by-laws and the Delaware General Corporation Law contain several provisions that make more difficult an acquisition of control of us in a transaction not approved by our board of directors, including transactions in which stockholders might otherwise receive a premium for their shares over then current prices, and that may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. Our certificate of incorporation and by-laws include provisions:

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In addition, Section 203 of the Delaware General Corporation Law generally provides that a corporation may not engage in any business combination with any interested stockholder during the three-year period following the time that the stockholder becomes an interested stockholder, unless a majority of the directors then in office approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder or specified stockholder approval requirements are met.

We agreed in the spin-off from Monster not to engage in certain specified transactions, including a sale of Hudson Highland to a third party acquirer, before March 31, 2005. In addition, we have agreed to indemnify Monster for any tax and certain other costs and expenses resulting from any acquisition or other issuance of our common stock that causes the spin-off from which we were created to become taxable to Monster.

ITEM 2. PROPERTIES

All of the Company’s operating offices are located in leased premises. Our principal office is currently located at 622 Third Avenue, New York, New York, where we occupy approximately 48,000 square feet of space under a lease with Monster expiring in July 2015.

In the United States Hudson Global Resources leases space in 32 locations with approximately 192,000 square feet, Highland Partners leases space in 5 locations with approximately 44,000 square feet and there are 8 leased locations with approximately 63,000 square feet, that are shared between the Hudson Global Resources, Highland Partners and corporate functions.

In the more than 20 non-U.S. countries in which the Company is located, Hudson Global Resources is the primary lessee of 94 locations with approximately 668,000 square feet and Highland Partners leases 2 locations with approximately 17,000 square feet, and 2 locations are shared with approximately 10,000 square feet. All leased space is considered to be adequate for the operation of its business, and no difficulties are foreseen in meeting any future space requirements. The Company owns three vacant buildings in India, with approximately 6,700 square feet, which the Company is currently offering for sale.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in various legal proceedings that are incidental to the conduct of its business. The Company is not involved in any pending or threatened legal proceedings that it believes could reasonably be expected to have a material adverse effect on its financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of the Company’s security holders during the fourth quarter of the fiscal year covered in this report.

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EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information, as of March 3, 2004, regarding the executive officers of Hudson Highland Group, Inc.:

The following biographies describe the business experience of our executive officers:

Jon F. Chait has served as Chairman of the Board, President and Chief Executive Officer since the Company was spun off from Monster Worldwide, Inc. in March 2003. He joined Monster in October 2002 expressly in contemplation of the spinoff. Prior to joining the Company, Mr. Chait was the Chairman of Spring Group, PLC from May 2000 through June 2002, and Chief Executive Officer from May 2000 to March 2002. From 1998 through 2000, Mr. Chait founded and acted as Chairman and Chief Executive Officer of Magenta Limited, a developer of web-enabled human resources solutions, which was subsequently sold to Spring Group, PLC. Mr. Chait served as the Managing Director—International Operations of Manpower Inc. from 1995 to July 1998, Chief Financial Officer from August 1993 to 1998 and Executive Vice President and a director from September 1989 to July 1998. Mr. Chait is also a director of the Marshall and Ilsley Corporation, a bank holding company, and Krueger Inc., a manufacturer of office furniture.

Richard W. Pehlke has served as a director since April 2003 and as Executive Vice President, Chief Financial Officer since he joined the Company in February 2003. Prior to joining the Company, Mr. Pehlke served as an independent consultant for various companies from 2001 to 2003. From 2000 to 2001, Mr. Pehlke served as the Chief Financial Officer of ONE, Inc., a software implementation and consulting firm. Mr. Pehlke served as Vice President, Treasurer for Ameritech Corporation from 1994 to 1999 and as Vice President, Investor Relations from 1986 to 1993.

Margaretta Noonan has served as Executive Vice President, Human Resources since she joined the Company in January 2003. Prior to joining HH Group, Ms. Noonan served as Senior Vice President, Global Human Resources and corporate officer of Monster Worldwide, Inc. Prior to joining Monster in 1998, Ms. Noonan was Vice President, Human Resources—Stores, for the Lord & Taylor division of May Department Stores Company, a large retail department store, from February 1997 to May 1998 and was Vice President, Human Resources, of Kohl’s Corporation, a large retail department store, from November 1992 to February 1997.

Richard A. Harris has served as Senior Vice President and Chief Information Officer since joining the Company in January 2003. Prior to that, Mr. Harris served as the Chief Information Officer of Spring Group, PLC, a U.K. based human capital management company, from March 2001 to December 2002. Prior to joining Spring Group, PLC, Mr. Harris was the interim Chief Information Officer at TRS Staffing Services, a U.K. subsidiary of Fluor Corporation specializing in the technical staffing business, from 1999 to 2000. Mr. Harris also served as Chief Information Officer between 1994 and 1998 at TAC Worldwide, an information technologies staffing company.

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Neil J. Funk has served as Vice President, Internal Audit since joining the Company in August 2003. Prior to joining the Company, Mr. Funk was a Senior Manager at Deloitte & Touche LLP, a multi-national auditing and consulting firm, from September 2000 until July 2003. Before joining Deloitte & Touche, Mr. Funk was with Prudential Financial, Inc., a large insurance company, specializing in personal financial planning from February 2000 until September 2000. Before joining Prudential Financial, Inc., Mr. Funk was District Audit Manager for PRG-Schultz, Inc., a recovery audit company, based in Atlanta, Georgia from September 1997 until February 2000.

Richard S. Gray has served as Vice President, Marketing and Communications since joining the Company in May 2003. Prior to joining the Company, Mr. Gray was Senior Vice President for Ogilvy Public Relations Worldwide, a large public relations firm, based in Chicago, Illinois from September 2002 until May 2003. Before joining Ogilvy Public Relations Worldwide, Mr. Gray was a Vice President, Marketing and Communications for Lante Corporation, an internet consulting boutique, in Chicago Illinois from November 1998 until November 2001.

Steven B. London has served as Vice President, Global Treasurer since joining the Company in April 2003. Prior to joining the Company, Mr. London was European Treasurer for Monster from April 2000 until March 2003. Prior to joining Monster Mr. London was Group Treasurer for SGB Group, plc, a manufacturer and distributor of products and services for building, civil engineering, industrial and event support applications, based in London England from September 1998 until April 2000.

Ralph L. O’Hara has served as Vice President and Controller since joining the Company in June of 2003. Prior to joining the Company, Mr. O’Hara was Chief Financial Officer and Treasurer for The Domestic and Foreign Missionary Society, a major not-for-profit organization also known as the Episcopal Church of the United States, from 2001 until June of 2003. Before joining The Domestic and Foreign Missionary Society, Mr. O’Hara was Controller for GATX Corporation, a specialized finance and leasing company, from 1986 until 2000.

Latham Williams has served as Vice President, Legal Affairs and Administration, Corporate Secretary since joining the Company in January 2003. Prior to joining the Company, Mr. Williams was a Partner, Leader Diversity Practice Group and Co-Leader Global Legal Practice in Monster’s executive search division. Prior to joining Monster in 2001, Mr. Williams was an equity partner with the international law firm of Sidley Austin Brown and Wood from 1993 to 2000, specializing in health care mergers and acquisitions and other insurance arrangements. Before joining Sidley Austin Brown and Wood, Mr. Williams was an equity partner in the Chicago-based law firm of Gardner, Carton & Douglas from 1981 to 1993.

Executive officers are elected by, and serve at the discretion of, the Board of Directors. There are no family relationships between any of our directors or executive officers.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR COMMON STOCK

The Company’s common stock is listed for trading on the Nasdaq National Market under the symbol “HHGP”. On December 31, 2003, there were approximately 1,500 holders of record of the Company’s common stock.

The following is a list by fiscal quarter of the market prices of the stock.

We have never declared or paid dividends on our common stock, and we currently do not intend to declare and pay dividends on our common stock. Any payment of cash dividends will depend upon our financial condition, capital requirements, earnings and other factors deemed relevant by our board of directors. In addition, the terms of our credit facility prohibit us from paying dividends and making other distributions.

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ITEM 6. SELECTED FINANCIAL DATA

The following table shows selected financial data of the Company and has been derived from, and should be read together with, the consolidated financial statements and corresponding notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in Items 7 and 8 of this Form 10-K. The Company’s consolidated financial statements prior to the Distribution reflect the historical financial position, results of operations and cash flows of the HH Group businesses transferred to the Company from Monster as part of the Distribution. The selected financial information included herein may not necessarily be indicative of the future performance of the Company as an independent company. The consolidated financial data as of and for the three years ended December 31, 2002, 2001 and 2000 are derived from HH Group audited financial statements. The historical consolidated financial data as of and for the year ended December 31, 1999 is derived from HH Group unaudited consolidated financial statements.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

Background

For the periods presented in this Form 10-K primarily through the Distribution Date, the businesses described in this Form 10-K were conducted by Monster through the Constituent Companies. Immediately prior to the Distribution, Monster transferred the assets and liabilities of the Constituent Companies to HH Group at Monster’s historical cost. On 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. Following the Distribution, HH Group became an independent public company and Monster has no continuing stock ownership interest in the Company. 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 12 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for a description of the agreements.

The Company’s consolidated financial statements prior to the Distribution reflect the historical financial position, results of operations and cash flows of the HH Group businesses transferred to the Company 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 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 prior to the Distribution.

HH Group’s costs and expenses prior to March 31, 2003 in the accompanying consolidated financial statements include allocations from Monster for executive, legal, accounting, treasury, real estate, information technology, and other Monster corporate services and infrastructure costs because specific identification of the expenses is not practicable. The total corporate services allocated to HH Group from Monster for these costs were $5.1 million, $31.7 million and $26.2 million for the years ended December 31, 2003, 2002 and 2001, respectively. Monster also allocated business reorganization expenses and merger and integration expenses of $.1 million, $9.9 million and $1.2 million to HH Group for the years ended December 31, 2003, 2002 and 2001, respectively. The expense allocations were determined on the basis that Monster considered to be reasonable reflections of the utilization of services provided or the benefit received by the Constituent Companies using ratios that are primarily based on its revenue, net of costs of temporary contractors compared to Monster as a whole. Interest charges from Monster were allocated to the Constituent Companies only for that portion of third-party debt attributed to them.

Strategic Actions

The Company’s management is focused primarily on returning the Company to profitability, after five years of losses. The Company operated independently from Monster for the last three quarters of 2003. In 2002 and the first quarter of 2003 the Constituent Companies recognized losses due, in part, to merger and integration charges incurred in integrating prior acquisitions. Since the Distribution, additional reorganization charges were recorded primarily as a result of actions (described in more detail below) designed to rationalize various aspects of our cost structure. These charges included costs related to rationalization of real estate, integration of financial and management information systems, reductions in headcount, the write-off of redundant assets and impairment charges related to the goodwill recorded for the acquisitions. The Company also closed or sold a number of its smaller business units in Europe and North America after determining that these businesses were not viable profit centers in the near term. Within individual geographic regions, we have integrated the systems, management structures and compensation plans of our business units. Globally, our businesses operate under common financial policies and timetables, they report through a single consolidation system, and cash management is coordinated centrally from our corporate headquarters in New York.

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Since the Distribution, we implemented several initiatives to speed the path to profitability and to meet our strategic goals.

These actions resulted in charges of approximately $3.0 million and $21.8 million in the third and fourth quarter of 2003, respectively, which were recorded in business reorganization expenses, merger and integration expenses, depreciation and non-operating expenses. The aggregate expenses related to the business reorganization plans for 2003 was $26.8 million.

The Company recorded reorganization, merger and integration expense of $29.5 million, $78.9 million and $43.2 million for the years ended December 31, 2003, 2002 and 2001, respectively. The merger and integration charges were recorded in connection with its pooling of interest transactions, completed prior to June 2001, 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 2003, the Company recorded $2.7 million related to changes in estimates to plans in merger and integration expense.

During the third quarter of 2003, the Company determined that goodwill should be tested for impairment due to current business conditions and changes in circumstances resulting from the Distribution, which established the Company as an independent entity with a separate market capitalization. As a result of this test and the related fair value examination, the Company recorded a non-cash goodwill impairment charge of $202.8 million. The impairment valuation was based upon a discounted cash flow approach that used estimated future revenues and costs for each business segment as well as appropriate discount rates. The estimates that were used are consistent with the plans and estimates the Company is using to manage the underlying business. The goodwill impairment charge wrote-off all goodwill in both of the Company’s business segments.

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 were calculated as if

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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

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 Global Resources. The Company recognizes revenue for temporary services at the time services are provided and revenue is recorded on a time and materials basis. Temporary contracting revenues are reported gross when the Company acts as principal in the transaction and is at risk for collection. Revenues that do not meet the criteria for gross revenue reporting are reported on a net basis. Revenues generated when the Company permanently places an individual with a client are recorded at the time of acceptance of employment, net of an allowance for estimated fee reversals.

Highland Partners. 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 and reimbursed expenses, plus a percentage of the fee to cover indirect expenses. Fee revenue from executive recruitment is recognized when such services are earned. The Company generally bills clients in three monthly installments. Fees earned in excess of the initial contract amount are recognized at completion of the engagement. Reimbursed out-of-pocket expenses are included in revenue.

Accounts Receivable

The Company’s accounts receivable balances are composed of trade and unbilled receivables. The Company maintains an allowance for doubtful accounts and makes ongoing estimates as to the collectibility of the various receivables. If the Company determines that the allowance for doubtful accounts is not adequate to cover estimated losses, an expense to provision for doubtful accounts is recorded in selling, general and administrative expenses. If an account is determined to be uncollectible, it is written off against the allowance for doubtful accounts. Management’s assessment and judgment are vital requirements in assessing the ultimate realization of these receivables, including the current credit-worthiness, financial stability and effect of market conditions on each customer.

Business Reorganization and Merger and Integration Plans

The Company has recorded significant charges and accruals in connection with its business reorganization, merger and integration 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.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax

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bases, net operating loss and tax credit carryforwards, and tax contingencies. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company records a valuation allowance against deferred tax assets to the extent that it is more likely than not that some portion, or all of, the deferred tax assets will not be realized.

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 client lists, trademarks and, prior to September 30, 2003, goodwill. With the exception of goodwill, these costs are being amortized over periods ranging from two to seventeen years on a straight-line basis. Prior to January 1, 2002, goodwill was amortized on a straight-line basis over periods ranging from 20 to 30 years. On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”) and suspended the amortization of goodwill. In accordance with the transitional provisions of SFAS 142, goodwill has not been amortized since January 1, 2002; instead, the Company evaluates its goodwill annually for impairment, or earlier if indicators of potential impairment exist. See Note 4 for the impact of the adoption of SFAS 142 and subsequent impairment charges.

In the third quarter of 2003, the Company recorded a non-cash goodwill impairment charge of $202.8 million. The impairment charge was recorded after the Company completed a goodwill impairment evaluation based on a valuation of the related businesses. The valuation was based upon a discounted cash flow approach that used estimated future revenues and costs for each business segment as well as appropriate discount rates. The estimates that were used are consistent with the plans and estimates the Company is using to manage the underlying business. The goodwill impairment charge wrote-off all goodwill related to both of the Company’s business segments. As a result of the adoption of SFAS 142 on January 1, 2002, the Company recorded a non-cash impairment charge of $293.0 million to reduce the carrying value of goodwill. Intangible asset amortization expense for the years ended December 31, 2003, 2002 and 2001 was $.7 million, $.8 million and $14.3 million, respectively. Amortization expense in 2001 included amortization expense for goodwill of $13.5 million.

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Results of Operations

The following table sets forth the Company’s revenue, operating loss, net loss, temporary contracting revenue, direct costs of temporary contracting and temporary contracting gross margin for the years ended December 31, 2003, 2002 and 2001 (dollars in thousands).

Constant Currencies

The Company defines the term “constant currencies” to mean that financial data for a period are translated into U.S. Dollars using the same foreign currency exchange rates that were used to translate financial data for the previously reported period. Changes in revenues, direct costs, gross margin and selling, general and administrative expenses include the effect of changes in foreign currency exchange rates. Variance analysis usually describes period-to-period variances that are calculated using constant currency as a percentage. The Company’s management reviews and analyzes business results in constant currencies and believes these results better represent the Company’s underlying business trends.

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The Company believes that these calculations are a useful measure, indicating the actual change in operations. Earnings from subsidiaries are rarely repatriated to the United States, and there are not significant gains or losses on foreign currency transactions between subsidiaries. Therefore, changes in foreign currency exchange rates generally impact only reported earnings and not the Company’s economic condition (dollars in thousands).

The Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002

Prior to the Distribution, the HH Group businesses were conducted by Monster, and results herein may not necessarily be indicative of the future performance of the Company as an independent company.

The Company’s financial results for the year ended December 31, 2003, include the results for the first quarter of 2003, when the Company was a wholly-owned subsidiary of Monster.

Total revenues for the year ended December 31, 2003 were $1,085.3 million, an increase of $19.9 million or 1.9%, as compared to total revenues of $1,065.4 million for the year ended December 31, 2002. On a constant currencies basis total revenues decreased 7.7% comparing 2003 with 2002. This decrease was due to the effects of weak global economic and labor environments, which reduced demand for the Company’s services primarily in the U.S. and Asia Pacific temporary contracting markets.

Hudson Global Resources (“Hudson”) revenues were $1,021.3 million for the year ended December 31, 2003, up 2.3% from $998.5 million in 2002. On a constant currencies basis, Hudson’s 2003 revenues decreased 7.6% compared to 2002. This decrease reflected lower revenue from temporary staffing, largely due to lower demand for domestic information technology (“IT”) staffing, lower temporary staffing in Asia Pacific markets, and lower demand for permanent staffing services in all regions.

Highland Partners (“Highland”) revenues of $64.0 million for the year ended December 31, 2003 were down 4.4% from $67.0 million for 2002, reflecting the continued adverse impact that the challenging global economy is having on executive level search placements. On a constant currencies basis, Highland revenues decreased 9.0% comparing 2003 results with 2002.

Direct costs for the year ended December 31, 2003 were $682.3 million compared to $653.6 for 2002. On a constant currencies basis, direct costs decreased 5.1% for 2003 results in comparison to the prior year. The decrease was the result of lower requirements for temporary contractors.

Gross margin, defined as revenue less direct costs, for the year ended December 31, 2003 was $403.0 million, lower by $8.9 million, or 2.1%, from $411.9 million reported for the year ended December 31, 2002, as a result of changes in business mix and margin pressure in Hudson Asia Pacific and Hudson Europe. On

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a constant currencies basis, gross margin decreased by 11.8% for the year ended December 31, 2003 when compared to the year ended December 31, 2002. Gross margin as a percentage of revenue also declined to 37.1% for 2003 results, from 38.7% for 2002 results. The decrease in gross margin was primarily due to: lower revenue in temporary staffing, particularly in Hudson Asia Pacific; Hudson North America’s lower demand in the domestic IT market; a decline in Hudson’s permanent staffing revenue, particularly in Europe; and an increase in direct costs associated with permanent staffing out-of-pocket expenses.

Selling, general and administrative expenses for the year ended December 31, 2003 were $484.4 million, higher by 7.0% when compared with $452.7 million for 2002. Selling general and administrative expenses were 44.6% and 42.5% as a percentage of revenue for full year 2003 and 2002, respectively. On a constant currencies basis, the 2003 selling, general and administrative expenses decreased by 2.6% compared to 2002. A higher provision for doubtful accounts and the reclassification of certain transactions with Monster to selling expenses negatively impacted these expenses for 2003 compared to 2002. This was partially offset by continued cost cutting in reaction to the current economic and labor environment.

In the third quarter of 2003, the Company determined that goodwill should be tested for impairment due to current business conditions and changes in circumstances resulting from the Distribution, which established the Company as an independent entity with a separate market capitalization. As a result of this test and the related fair value examination, the Company recorded a non-cash goodwill impairment charge of $202.8 million. The impairment valuation was based upon a discounted cash flow approach that used estimated future revenues and costs for each business segment as well as appropriate discount rates. The estimates that were used were consistent with the plans and estimates the Company was using to manage the underlying business. The goodwill impairment charge wrote off all goodwill related to both of the Company’s business segments.

Business reorganization expense for the year ended December 31, 2003 totaled $26.8 million as compared to $73.5 million in 2002. The 2002 expenses related to the cost of streamlining operations as announced in the second quarter of 2002 and costs accrued for the spin-off of the Company by Monster. The expenses for 2003 were for the continuation of the process to streamline operations and the spin-off of the Company begun in 2002 and for the decision to close down or sell a number of smaller business units in Europe and North America. The expenses recognized in 2003 for actions started in 2002 were primarily changes in estimates for the close down of facilities and additional severance.

Merger and integration expenses reflect costs incurred as a result of pooling-of-interests transactions completed before June 2001 and the integration of such companies. For the year ended December 31, 2003, merger and integration costs were $2.7 million, a reduction of $2.7 million from the prior year. Merger and integration expenses included lease obligations, office integration costs, and the write-off of fixed assets that will not be used in the future, and severance, professional fees and employee stay bonuses to certain key personnel of the merged companies. The expenses decreased in 2003 because no new pooling-of-interest acquisitions were completed, and actions taken related to previous pooling-of-interest business transactions decreased as those actions neared termination, offset by revised estimates on those actions resulting in higher expenses for certain lease obligations.

Operating loss for the year ended December 31, 2003 was $313.6 million compared to an operating loss of $119.7 million for the comparable period in 2002. The increase in the loss was primarily the result of the goodwill impairment charge of $202.8 million recorded in 2003, higher selling, general and administrative expenses of $31.7 million and lower gross margin of $8.9 million, partially offset by a reduction in business reorganization expenses of $46.7 million.

Hudson’s operating loss for the year ended December 31, 2003 was $246.7 million compared to an operating loss of $64.4 million for 2002. The 2003 loss included a goodwill impairment charge of $195.4 million, higher allowances for doubtful accounts of $7.9 million, and lower business reorganization and merger and integration costs of $35.7 million when compared to 2002 results.

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Highland’s operating loss for the year ended December 31, 2003 was $35.0 million compared to an operating loss of $13.6 million for 2002. The full year 2003 loss included higher selling and administrative costs of $13.1 million, a goodwill impairment charge of $7.4 million and reorganization expenses of $10.8 million. The 2002 results included reorganization expenses of $16.3 million.

Corporate expense for the year ended December 31, 2003 was $32.0 million, compared to the Monster expense allocation of $41.6 million for 2002. For 2003 business reorganization and merger and integration expenses were lower by $9.7 million compared to 2002 results.

Other non-operating expense, including net interest expense, was $3.1 million for the year ended December 31, 2003 and $.5 million for 2002. The increase in expense was from the loss on sale of three non-U.S. subsidiaries during 2003.

The provision for income taxes for the year ended December 31, 2003 was $12.0 million on a pretax loss of $316.8 million, compared with a benefit of $1.0 million on a pretax loss of $120.3 million for 2002. The provision for income taxes in 2003 included an $11.1 million expense for the increased valuation allowances established for deferred tax assets, whose future utilization was not reasonably assured. The Company’s effective tax rate for year ended December 31, 2003 differs significantly from the U.S. Federal statutory rate of 35% (an effective rate is not calculable as there is a provision for a pre-tax loss) as a result of the inability of the Company to recognize benefits from its current losses related to the goodwill impairment charge and current losses from its businesses where the future ability to utilize its loss carryforwards is not reasonably assured, as well as valuation allowances on previously established 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 accounting change was $328.8 million for the year ended December 31, 2003, compared with a loss of $119.3 million for 2002.

In conjunction with the adoption of SFAS 142 as of the beginning of fiscal year 2002, the Company completed the transitional goodwill impairment evaluation for its operating segments. The results of the impairment evaluation indicated that the carrying value of goodwill was not fully supportable. Accordingly, the Company recorded as a cumulative effect of an accounting change a one-time goodwill impairment charge of $293.0 million at January 1, 2002 to reduce the carrying value of goodwill to its estimated fair value.

Net loss was $328.8 million for the year ended December 31, 2003 compared with a net loss of $412.3 million for 2002. Basic and diluted loss per share on loss before accounting change for the year ended December 31, 2003 was a loss of $39.15 per share, compared to a loss of $14.28 per share in the year ended December 31, 2002. Basic and diluted loss per share for the year ended December 31, 2003 was a loss of $39.15 per share, compared to a loss of $49.37 per share in the year ended December 31, 2002. Basic average shares outstanding were essentially unchanged between the two periods. For the 2003 and 2002 periods, dilutive earnings per share calculations do not differ from basic earnings per share because the effects of any potential common stock were anti-dilutive and therefore not included in the calculation of dilutive earnings per share.

The Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001

Prior to the Distribution, the Constituent Companies’ businesses were conducted by Monster, and results herein may not necessarily be indicative of the future performance of the Company as an independent company.

Total revenues for the year ended December 31, 2002 were $1,065.4 million, a decrease of $222.4 million, or 17.3%, as compared to total revenues of $1,287.8 million in 2001. This decrease is primarily due to the effects of weak global economic and labor environments, which reduced demand for the Constituent Companies services. Temporary contracting gross margins in the eResourcing business decreased $60.0 million, or 30.0%,

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for the year ended December 31, 2002, compared to $199.8 million in the year ended December 31, 2001 primarily due to lower demand for temporary labor sources and the Constituent Companies’ inability to maintain overall gross margin percentages in transactions with its clients.

eResourcing revenues were $998.5 million for the year ended December 31, 2002, down 15.3% from $1,178.3 million for 2001, reflecting lower demand for both permanent employees and temporary contractors. As a result of the weak global economic and labor environment, eResourcing had to lower temporary contracting fees to remain competitive within certain professional groups, such as engineering, offset by fee increases in other professional groups, such as accounting and finance. Overall, temporary contracting gross margin decreased to 18.1% for the year ended December 31, 2002 from 22.2% in 2001.

Executive Search revenues of $67.0 million in the year ended December 31, 2002 were down 38.9% from $109.5 million in 2001, again reflecting the continued impact that the challenging global economy had on executive level search placements, particularly in the United States.

Direct costs for the year ended December 31, 2002 were $653.6 million, compared to $716.3 million for 2001. The decrease of $62.7 million or 8.8% is primarily due to staff reductions in eResourcing that began in the latter part of 2001 as a result of its clients’ reduced demand for temporary labor.

Gross margin of $411.9 million in the year ended December 31, 2002 was down 27.9% from $571.5 in 2001, reflecting the reductions of revenues mentioned above, partially offset by the reductions in direct costs instituted in the eResourcing businesses.

Selling, general and administrative expenses for the year ended December 31, 2002 were $452.7 million, compared with $556.6 million for 2001. The decrease of $103.9 million, or 18.7%, is due primarily to cost cutting measures that the Constituent Companies began implementing near the end of 2001 and a reduction in amortization of intangibles of $13.6 million resulting from the adoption of new accounting principles regarding goodwill amortization in 2002.

Merger and integration expenses reflect costs incurred as a result of pooling-of-interests transactions and the integration of such companies. For the year ended December 31, 2002, merger and integration costs were $5.4 million, a decrease of $37.8 million, or 87.6%, compared with $43.2 million for 2001. These expenses include 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 2002 from 2001 is a result of lower employee related expenses of $16.9 million and lower costs associated with the consolidation of facilities of $21.0 million from the finalization of its exit strategies related to its pooled businesses.

Business reorganization and other special charges were $73.5 million for the year ended December 31, 2002. The charge is comprised of severance and related costs of $30.7 million, accruals for future lease obligations on exited properties of $24.9 million and the write-off of fixed assets, primarily leasehold improvements, computer equipment and software of $9.4 million and professional fees of $8.5 million. The continued weakness in the markets served by the Constituent Companies required a renewed emphasis on streamlining operations.

Operating loss for the year ended December 31, 2002 was $119.7 million, compared to an operating loss of $28.2 million in 2001. The increased loss was primarily the result lower gross margin of $159.7 million, 2002 business reoganization charges of $73.5 million, partially offset by lower selling, general and administrative expenses of $103.9 million, and lower merger and integration expenses of $37.8 million.

The benefit for income taxes for the year ended December 31, 2002 was $1.0 million on a pretax loss of $120.3 million, compared with a provision of $3.7 million on a pretax loss of $30.4 million for 2001. The

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Constituent Companies provided for income taxes in profitable jurisdictions, and recorded a full valuation allowance on the tax benefit of losses in certain jurisdictions where it could not currently be demonstrated that it was more likely than not that the tax benefits will be realized. In 2002, the effective tax rate of .8% differs from the U.S. Federal statutory rate of 35% due to valuation allowances on deferred tax assets, net operating losses retained /utilized by Monster, certain non-deductible expenses such as amortization, merger costs from pooling of interests transactions, and variations from the U.S. tax rate in foreign jurisdictions and other international tax strategies.

In conjunction with the adoption of SFAS 142, as of the beginning of fiscal year 2002, the Constituent Companies completed a goodwill impairment review for both of its operating segments. The results of its impairment review indicated that the carrying value of goodwill may not be recoverable. Accordingly, the the Constituent Companies recorded a goodwill impairment charge of $293.0 million at January 1, 2002 to reduce the carrying value of goodwill to its estimated fair value. This charge is reflected in the statement of operations for the year ended December 31, 2002 as a cumulative effect of accounting change.

Net loss was $412.3 million for the year ended December 31, 2002, compared with a net loss of $34.2 million for the prior year.

Liquidity and Capital Resources

Prior to the Distribution, cash receipts associated with the HH Group business were largely retained by Monster, and Monster funded HH Group’s cash needs for operating activities, capital expenditures and acquisitions. The cash balances at December 31, 2002 were based on the results of HH Group’s operations and the net cash resulting from inter-company transfers between HH Group and Monster. The investing and financing activities discussed below during 2002 and the first quarter of 2003 were funded as a result of activities entered into by Monster and relating to HH Group operations. The Company’s long-term debt of $.8 million primarily related to capital lease obligations as of December 31, 2003.

The Company’s liquidity needs arise primarily from funding working capital requirements, as well as capital investment in information technology. Prior to the Distribution, HH Group historically relied upon Monster’s centralized cash management function and Monster’s line of credit facility. Legal obligation for settlement of such liabilities will remain with the Company. In connection with the Distribution, Monster provided HH Group with a cash balance of $40.0 million upon completion of the Distribution on March 31, 2003, agreed to reimburse the Company for $13.5 million of cash payments (the Company received payments totaling $8.0 million during 2003 and will receive payments of $2.5 million from Monster in the first month subsequent to the end of each quarter through the second quarter of 2004) due under its accrued integration restructuring and business reorganization plans. At December 31, 2003 receivables from Monster for amounts agreed upon in the Distribution were $5.5 million.

The Company has a senior secured credit facility for $30.0 million with Wells Fargo Foothill, Inc. (the “Foothill Credit Facility”). The Foothill Credit Facility originally had a term of three years, beginning March 31, 2003. 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 extensions of credit will be based on a percentage of the accounts receivable of the Company. The Company expects to use such credit, if and when required, to support its ongoing working capital requirements, capital expenditures and other corporate purposes and to support letters of credit. As of December 31, 2003, the Company has not borrowed any amounts under this credit facility, but had letters of credit issued and outstanding of $3.4 million, leaving $26.6 million available from the facility. The Foothill Credit Facility may be increased to $50.0 million at the option of Wells Fargo Foothill upon syndication for the additional $20.0 million.

On March 2, 2004, the Company entered into an amendment of the Foothill Credit Facility that established the adjusted EBITDA and capital expenditure covenant levels for fiscal year 2004 and extended the maturity date

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of the Foothill Credit Facility by one year to March 31, 2007. The adjusted EBITDA covenant generally provides that the Company’s adjusted EBITDA (as defined in the Foothill Credit Facility) loss for the trailing twelve-month periods ending March 31, June 30, September 30 and December 31, 2004 may not exceed $48.5 million, $35.5 million, $25.5 million and $8.0 million, respectively. The capital expenditure covenant provides that the Company’s capital expenditures for 2004 may not exceed $11.0 million.

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 its adjusted EBITDA and capital expenditures within 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 years ended December 31, 2003, 2002 and 2001, the Company (used) provided cash in operating activities of $(42.6) million, $(110.8) million and $11.4 million, 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 higher spending related to the business reorganization actions in 2003.

During the years ended December 31, 2003, 2002 and 2001, the Company used cash in investing activities of $11.4 million, $16.6 million and $118.8 million, 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 2003 compared to 2002 was the result of lower payments related to prior period purchases of businesses, as these projects were essentially completed in 2002, partially offset by higher capital expenditures primarily related to office relocations.

During the years ended December 31, 2003, 2002 and 2001, the Company generated cash from financing activities of $49.5 million, $112.1 million and $103.1 million, respectively. The cash funding from Monster and debt payments to third parties were both lower in 2003 compared to 2002. The Company received $1.3 million for the issuance of its common stock under the Employee Stock Purchase Plan in 2003.

Future capital requirements

The Company’s near-term cash requirements are primarily related to funding operations, a portion of prior year restructuring actions and capital expenditures. The Company has experienced negative cash flow from operations and expects to continue to use cash to meet it operating requirements during fiscal 2004. The Company believes that the cash and cash equivalents on hand at December 31, 2003 supplemented by the existing borrowing facility are sufficient to fund the cash requirements for the next 12 months. However, the Company cannot provide assurance that actual cash requirements will not be greater than currently expected. If sources of liquidity are not available or if the Company cannot generate sufficient cash flow from operations, the Company might be required to obtain additional sources of funds through additional operating improvements, capital market transactions, asset sales or financing from third parties, or a combination thereof. The Company cannot provide assurance that these additional sources of funds will be available or, if available, would have reasonable terms.

The Company has an effective shelf registration statement with the SEC for the issuance of up to $25.0 million of common stock or debt securities, in one or more series, consisting of notes, debentures or other evidence of indebtedness.

Off-Balance Sheet Arrangements. As of December 31, 2003, the Company had no off-balance sheet arrangements.

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Contractual Obligations. The Company has entered into various commitments that will affect its cash generation capabilities going forward. Particularly, it has entered into several non-cancelable operating leases for facilities and equipment worldwide. Future contractual obligations as of December 31, 2003 are as follows (amounts in thousands) (commitments based in currencies other than U.S. dollars were translated using exchange rates as of December 31, 2003):

REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-K contains statements that 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-K, including statements regarding the Company’s future financial condition, results of operations, business operations and business prospects, 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. All forward-looking statements are subject to 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 impact of global economic fluctuations on the Company’s temporary contracting operations, (2) the cyclical nature of the Company’s executive search and mid-market professional staffing businesses, (3) the Company’s ability to manage its growth, (4) risks associated with expansion, (5) the Company’s heavy reliance on information systems and the impact of potentially losing or failing to develop technology, (6) competition in the Company’s markets, (7) fluctuations in the Company’s operating results from quarter to quarter, (8) risks relating to the Company’s foreign operations, including foreign currency fluctuations, (9) the Company’s dependence on its highly skilled professionals and key management personnel, (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 from both clients and employers and limits on related insurance coverage, (14) the impact of government regulations, (15) the Company’s ability to successfully operate as an independent company and the level of costs associated therewith, and (16) restrictions on the Company’s operating flexibility due to the terms of its credit facility. These forward-looking statements speak only as of the date of this Form 10-K. 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The majority of our borrowings are in fixed rate equipment leases and seller financed notes. The carrying amounts of long-term debt approximate fair value, generally due to the short-term nature of the underlying instruments. We do not trade derivative financial instruments for speculative purposes.

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We also conduct operations in various foreign countries, including Australia, Belgium, Canada, France, Germany, the Netherlands, New Zealand and the United Kingdom. For the year ended December 31, 2003 approximately 75% of our gross margin was earned outside the United States and collected in local currency, and related operating expenses also were paid in such corresponding local currency. Accordingly, we are subject to increased risk for exchange rate fluctuations between such local currencies and the U.S. dollar.

The financial statements of our 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, 2003, we had a translation gain of $14.4 million, primarily attributable to the weakening of the U.S. dollar against the Australian dollar, the British pound, and the Euro.

The Company’s objective is to reduce earnings and cash flow volatility associated with foreign exchange rate changes. Accordingly, the Company enters into foreign currency forward contracts to minimize the impact of foreign exchange movements on intercompany loan balances. At December 31, 2003, the two outstanding foreign currency forward contracts had terms of no more than two months. The principal currencies hedged are the Euro and the Australian Dollar.

The notional value of the Company’s hedging instruments was approximately $3.5 million at December 31, 2003. The fair value of these hedging instruments is subject to change as a result of potential changes in foreign exchange rates. The Company assesses its market risk based on changes in foreign exchange rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in fair values based on a hypothetical 10% change in currency rates. The potential loss in fair value for foreign exchange rate-sensitive instruments, all of which were forward foreign currency contracts, based on a hypothetical 10% decrease in the value of the U.S. dollar or, in the case of non-dollar-related instruments, the currency being purchased, was $0.4 million at December 31, 2003. However, the change in the fair value of foreign exchange rate-sensitive instruments would likely be offset by a change in the fair value of the intercompany loans being hedged. The estimated fair values of the foreign exchange risk management contracts were determined based on quoted market prices.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

HUDSON HIGHLAND GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

See accompanying notes to consolidated financial statements.

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HUDSON HIGHLAND GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

See accompanying notes to consolidated financial statements.

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HUDSON HIGHLAND GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)