SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM to
COMMISSION FILE NUMBER: 000-50129
HUDSON HIGHLAND GROUP, INC.
(Exact name of registrant as specified in its charter)
| DELAWARE | 59-3547281 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
622 Third Avenue, New York, New York 10017
(Address of principal executive offices) (Zip code)
(212) 351-7300
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date.
| Class |
Outstanding on October 1, 2004 | |
| Common Stock |
10,238,299 |
INDEX
| Page No. | ||||
| PART I-FINANCIAL INFORMATION | ||||
| Item 1. |
Financial Statements (unaudited) | |||
| 3 | ||||
| Consolidated Condensed Balance Sheets – September 30, 2004 and December 31, 2003 |
4 | |||
| Consolidated Condensed Statements of Cash Flows – Nine Months Ended September 30, 2004 and 2003 |
5 | |||
| Consolidated Condensed Statement of Changes in Stockholders’ Equity – September 30, 2004 |
6 | |||
| 7 | ||||
| 16 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 26 | ||
| Item 4. |
Controls and Procedures | 26 | ||
| PART II-OTHER INFORMATION | ||||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 27 | ||
| Item 6. |
Exhibits | 27 | ||
| Signatures | 28 | |||
| Exhibit Index | 29 | |||
| ITEM 1. | FINANCIAL STATEMENTS |
HUDSON HIGHLAND GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Revenue |
$ | 315,029 | $ | 272,181 | $ | 912,264 | $ | 800,653 | ||||||||
| Direct costs (Note 4) |
198,615 | 173,959 | 570,970 | 501,181 | ||||||||||||
| Gross margin |
116,414 | 98,222 | 341,294 | 299,472 | ||||||||||||
| Selling, general and administrative expenses |
120,165 | 119,082 | 360,573 | 364,420 | ||||||||||||
| Goodwill impairment charge |
— | 202,785 | — | 202,785 | ||||||||||||
| Business reorganization expenses |
3,314 | 2,082 | 3,450 | 9,543 | ||||||||||||
| Merger and integration expenses (recoveries) |
(317 | ) | (102 | ) | (354 | ) | 876 | |||||||||
| Operating loss |
(6,748 | ) | (225,625 | ) | (22,375 | ) | (278,152 | ) | ||||||||
| Other income (expense): |
||||||||||||||||
| Other, net |
128 | (749 | ) | (1,759 | ) | (930 | ) | |||||||||
| Interest income (expense), net |
203 | (121 | ) | (53 | ) | (376 | ) | |||||||||
| Loss before provision for (benefit of) income taxes |
(6,417 | ) | (226,495 | ) | (24,187 | ) | (279,458 | ) | ||||||||
| Provision for (benefit of) income taxes |
530 | (221 | ) | 1,251 | 5,917 | |||||||||||
| Net loss |
$ | (6,947 | ) | $ | (226,274 | ) | $ | (25,438 | ) | $ | (285,375 | ) | ||||
| Basic and diluted loss per share: |
||||||||||||||||
| Net loss |
$ | (.68 | ) | $ | (26.92 | ) | $ | (2.66 | ) | $ | (34.05 | ) | ||||
| Weighted average shares outstanding |
10,154 | 8,405 | 9,575 | 8,382 | ||||||||||||
See accompanying notes to consolidated condensed financial statements.
- 3 -
HUDSON HIGHLAND GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except per share amounts)
| September 30, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 26,528 | $ | 26,137 | ||||
| Accounts receivable, net |
181,852 | 149,042 | ||||||
| Other current assets |
11,633 | 17,719 | ||||||
| Due from Monster |
— | 5,518 | ||||||
| Total current assets |
220,013 | 198,416 | ||||||
| Property and equipment, net |
36,652 | 38,625 | ||||||
| Other assets |
8,801 | 11,703 | ||||||
| Intangibles, net |
6,288 | 2,180 | ||||||
| $ | 271,754 | $ | 250,924 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 29,407 | $ | 26,495 | ||||
| Accrued expenses and other current liabilities |
134,196 | 118,548 | ||||||
| Accrued business reorganization expenses |
10,158 | 11,543 | ||||||
| Accrued merger and integration expenses |
2,021 | 2,960 | ||||||
| Total current liabilities |
175,782 | 159,546 | ||||||
| Accrued business reorganization expenses, non-current |
7,367 | 14,840 | ||||||
| Accrued merger and integration expenses, non-current |
2,176 | 3,484 | ||||||
| Other non-current liabilities |
5,856 | 3,693 | ||||||
| Total liabilities |
191,181 | 181,563 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $.001 par value, 10,000 shares authorized; none issued or outstanding |
— | — | ||||||
| Common stock, $.001 par value, 100,000 shares authorized; issued 10,238 and 8,573 shares, respectively |
10 | 9 | ||||||
| Additional paid-in capital |
352,465 | 315,130 | ||||||
| Retained deficit |
(310,239 | ) | (284,801 | ) | ||||
| Accumulated other comprehensive income - translation adjustments |
38,567 | 39,023 | ||||||
| Treasury stock, 8 shares |
(230 | ) | — | |||||
| Total stockholders’ equity |
80,573 | 69,361 | ||||||
| $ | 271,754 | $ | 250,924 | |||||
See accompanying notes to consolidated condensed financial statements.
- 4 -
HUDSON HIGHLAND GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (25,438 | ) | $ | (285,375 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
14,362 | 15,556 | ||||||
| (Recovery of) provision for doubtful accounts |
(950 | ) | 14,923 | |||||
| Net loss on disposal of assets |
1,182 | 2,063 | ||||||
| Deferred income taxes |
(20 | ) | 5,603 | |||||
| Restricted stock amortization |
670 | 632 | ||||||
| Goodwill impairment charge |
— | 202,785 | ||||||
| Changes in assets and liabilities: |
||||||||
| (Increase) decrease in accounts receivable |
(33,730 | ) | 14,005 | |||||
| Decrease in other assets |
6,584 | 2,694 | ||||||
| Increase in accounts payable, accrued expenses and other liabilities |
21,077 | 16,519 | ||||||
| Decrease in accrued business reorganization expenses |
(8,839 | ) | (14,267 | ) | ||||
| Decrease in accrued merger and integration expenses |
(2,318 | ) | (3,530 | ) | ||||
| Total adjustments |
(1,982 | ) | 256,983 | |||||
| Net cash used in operating activities |
(27,420 | ) | (28,392 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(6,245 | ) | (7,824 | ) | ||||
| Payments related to prior years’ purchased businesses |
(43 | ) | (330 | ) | ||||
| Net cash used in investing activities |
(6,288 | ) | (8,154 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock |
27,919 | — | ||||||
| Borrowings under credit facility |
13,550 | — | ||||||
| Repayments under credit facility |
(13,550 | ) | — | |||||
| Net payments on short and long-term debt |
(1,200 | ) | (1,373 | ) | ||||
| Issuance of common stock – Long Term Incentive Plan option exercises |
1,364 | — | ||||||
| Issuance of common stock – Employee Stock Purchase Plan |
1,078 | 737 | ||||||
| Payments received from Monster |
5,518 | 6,017 | ||||||
| Purchase of restricted stock from employees |
(230 | ) | — | |||||
| Net cash transfers received from Monster, prior to the Distribution |
— | 41,317 | ||||||
| Net cash provided by financing activities |
34,449 | 46,698 | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
(350 | ) | 3,252 | |||||
| Net increase in cash and cash equivalents |
391 | 13,404 | ||||||
| Cash and cash equivalents, beginning of period |
26,137 | 25,908 | ||||||
| Cash and cash equivalents, end of period |
$ | 26,528 | $ | 39,312 | ||||
| Supplemental disclosures of cash flow information |
||||||||
| Cash paid during the period for: |
||||||||
| Interest |
$ | 1,540 | $ | 2,268 | ||||
| Taxes |
$ | 1,140 | $ | — | ||||
See accompanying notes to consolidated condensed financial statements.
- 5 -
HUDSON HIGHLAND GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
(unaudited)
| Common stock |
Additional paid-in capital |
Retained deficit |
Treasury stock |
Accumulated other comprehensive income (loss) |
Total |
|||||||||||||||||
| Balance January 1, 2004 |
$ | 9 | $ | 315,130 | $ | (284,801 | ) | $ | — | $ | 39,023 | $ | 69,361 | |||||||||
| Net loss |
(25,438 | ) | — | |||||||||||||||||||