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EX-32.1 - Hudson Global, Inc.v200378_ex32-1.htm
EX-31.2 - Hudson Global, Inc.v200378_ex31-2.htm
EX-32.2 - Hudson Global, Inc.v200378_ex32-2.htm
EX-31.1 - Hudson Global, Inc.v200378_ex31-1.htm
 

UNITED STATES
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, 2010
 
or
 
¨
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.)
 
560 Lexington Avenue, New York, New York 10022
(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ¨     No   ¨
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
¨
  
Accelerated filer
 
x
       
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨
 
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
 
Outstanding on September 30, 2010
Common Stock - $0.001 par value
 
32,204,758
  

 
HUDSON HIGHLAND GROUP, INC.
INDEX
 
         
 
  
 
  
Page
 
  
PART I – FINANCIAL INFORMATION
  
 
     
Item 1.
  
Financial Statements (Unaudited)
  
 
         
 
  
Condensed Consolidated Statements of Operations - Three and Nine Months Ended September 30, 2010 and 2009
  
3
     
 
  
Condensed Consolidated Balance Sheets – September 30, 2010 and December 31, 2009
  
4
     
 
  
Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2010 and 2009
  
5
 
 
 
 
  
Condensed Consolidated Statement of Changes in Stockholders’ Equity – Nine Months Ended September 30, 2010
  
6
     
 
  
Notes to Condensed Consolidated Financial Statements
  
7
   
 
Item 2.
  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  
20
     
Item 3.
  
Quantitative and Qualitative Disclosures about Market Risk
  
39
     
Item 4.
  
Controls and Procedures
  
39
     
 
  
PART II – OTHER INFORMATION
  
 
     
Item 1.
  
Legal Proceedings
  
40
     
Item 1A.
  
Risk Factors
  
40
     
Item 2.
  
Unregistered Sales of Equity Securities and Use of Proceeds
  
41
     
Item 3.
  
Defaults Upon Senior Securities
  
41
     
Item 4.
  
Removed and Reserved
  
41
     
Item 5.
  
Other Information
  
41
     
Item 6.
  
Exhibits
  
41
     
 
  
Signatures
  
42
     
 
  
Exhibit Index
  
43
 
- 2 -

 
 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

   
Three Month Ended September 30,
   
Nine Months Ended September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenue
  $ 200,394     $ 169,647     $ 575,481     $ 508,645  
Direct costs
    125,403       105,457       359,833       317,567  
Gross margin
    74,991       64,190       215,648       191,078  
Operating expenses:
                               
Selling, general and administrative expenses
    74,378       67,412       214,121       208,442  
Depreciation and amortization
    1,981       2,741       6,453       9,369  
Business reorganization and integration expenses
    41       2,878       705       12,279  
Goodwill and other impairment charges
    -       -       -       1,549  
Operating loss
    (1,409 )     (8,841 )     (5,631 )     (40,561 )
Other (expense) income :
                               
Interest, net
    (497 )     (96 )     (972 )     (469 )
Other, net
    1,184       99       2,687       773  
Fee for early extinguishment of credit facility
    (563 )     -       (563 )     -  
Loss from continuing operations before provision for income taxes
    (1,285 )     (8,838 )     (4,479 )     (40,257 )
Provision for (benefit from) income taxes
    599       (1,215 )     1,366       (2,300 )
Loss from continuing operations
    (1,884 )     (7,623 )     (5,845 )     (37,957 )
(Loss) income from discontinued operations, net of income taxes
    (14 )     770       (31 )     7,773  
Net loss
  $ (1,898 )   $ (6,853 )   $ (5,876 )   $ (30,184 )
(Loss) earnings per share:
                               
Basic and diluted
                               
Loss from continuing operations
  $ (0.06 )   $ (0.29 )   $ (0.20 )   $ (1.47 )
(Loss) income from discontinued operations
    (0.00 )     0.03       (0.00 )     0.30  
Net loss
  $ (0.06 )   $ (0.26 )   $ (0.20 )   $ (1.17 )
Basic and diluted weighted average shares outstanding:
    31,225       26,311       29,493       25,744  

See accompanying notes to condensed consolidated financial statements.
 
- 3 -

 
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)

   
September 30,
   
December 31,
 
   
2010
   
2009
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 34,174     $ 36,064  
Accounts receivable, less allowance for doubtful accounts of $2,408 and $2,423, respectively
    129,116       98,994  
Prepaid and other
    17,463       13,308  
Total current assets
    180,753       148,366  
Property and equipment, net
    15,360       19,433  
Other assets
    17,975       14,145  
Total assets
  $ 214,088     $ 181,944  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 13,567     $ 12,811  
Accrued expenses and other current liabilities
    75,000       54,103  
Short-term borrowings
    13,871       10,456  
Accrued business reorganization expenses
    2,398       8,784  
Total current liabilities
    104,836       86,154  
Other non-current liabilities
    9,260       10,768  
Income tax payable, non-current
    8,476       8,415  
Accrued business reorganization expenses, non-current
    627       347  
Total liabilities
    123,199       105,684  
Commitments and contingencies
               
Stockholders’ equity:
               
Preferred stock, $0.001 par value, 10,000 shares authorized; none issued or outstanding
    -       -  
Common stock, $0.001 par value, 100,000 shares authorized; issued 32,214 and 26,836 shares, respectively
    32       27  
Additional paid-in capital
    466,178       445,541  
Accumulated deficit
    (409,390 )     (403,514 )
Accumulated other comprehensive income—translation adjustments
    34,107       34,509  
Treasury stock, 9 and 114 shares, respectively, at cost
    (38 )     (303 )
Total stockholders’ equity
    90,889       76,260  
Total liabilities and stockholders' equity
  $ 214,088     $ 181,944  

See accompanying notes to condensed consolidated financial statements.
 
- 4 -

HUDSON HIGHLAND GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

   
Nine Months Ended September 30,
 
   
2010
   
2009
 
Cash flows from operating activities:
           
Net loss
  $ (5,876 )   $ (30,184 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    6,453       9,456  
Goodwill and other impairment charges
    -       1,549  
Provision (recovery) of doubtful accounts
    421       (270 )
Benefit from deferred income taxes
    (296 )     (3,813 )
Stock-based compensation
    1,320       819  
Net gain on disposal of assets
    -       (11,625 )
Fee for early extinguishment of credit facility
    563       -  
Other, net
    (1,706 )     -  
Changes in assets and liabilities, net of effects of business acquisitions:
               
(Increase) decrease in accounts receivable
    (29,373 )     40,222  
(Increase) decrease in other assets
    (4,163 )     2,880  
Increase (decrease) in accounts payable, accrued expenses and other liabilities
    18,613       (29,063 )
Decrease in accrued business reorganization expenses
    (6,104 )     (541 )
Net cash used in operating activities
    (20,148 )     (20,570 )
Cash flows from investing activities:
               
Capital expenditures
    (2,394 )     (1,573 )
Proceeds from sale of assets
    81       11,625  
Payment received on note from asset sale
    3,500       -  
Change in restricted cash
    (1,719 )     514  
Payment for acquisitions
    (1,856 )     (1,669 )
Net cash (used in) provided by investing activities
    (2,388 )     8,897  
Cash flows from financing activities:
               
Borrowings under credit facility and other short term financing
    60,216       51,985  
Repayments under credit facility and other short term financing
    (56,885 )     (46,836 )
Payment for early extinguishment of credit facility
    (563 )     -  
Payment of deferred financing costs
    (1,479 )     -  
Proceeds from issuance of common stock, net
    19,167       -  
Purchase of treasury stock, including fees
    -       (703 )
Purchase of restricted stock from employees
    (70 )     (63 )
Net cash provided by financing activities
    20,386       4,383  
Effect of exchange rates on cash and cash equivalents
    260       2,564  
Net decrease in cash and cash equivalents
    (1,890 )     (4,726 )
Cash and cash equivalents, beginning of the period
    36,064       49,209  
Cash and cash equivalents, end of the period
  $ 34,174     $  44,483  
Supplemental disclosures of cash flow information:
               
Cash paid during the period for interest
  $ 880     $ 735  
Cash payment (refund), net during the period for income taxes
  $ 2,923     $ (2,039 )

See accompanying notes to condensed consolidated financial statements.
 
- 5 -

 
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)

   
Common stock
   
Additional
paid-in
capital
   
Accumulated
deficit
   
Accumulated
other
comprehensive
income (loss)
   
Treasury
stock
   
Total
 
   
Shares
   
Value
                               
Balance at January 1, 2010
    26,722     $ 27     $ 445,541     $ (403,514 )   $ 34,509     $ (303 )   $ 76,260  
Net loss
    -       -       -       (5,876 )     -       -       (5,876 )
Issuance of shares
    4,830       5       19,111       -       -       -       19,116  
Other comprehensive loss, translation adjustments
    -       -       -       -       (402 )     -       (402 )
Purchase of restricted stock from employees
    (16 )     -       -       -       -       (70 )     (70 )
Issuance of shares for 401(k) plan contribution
    121       -       206       -       -       335       541  
Stock-based compensation
    548       -       1,320       -       -       -       1,320  
Balance at September 30, 2010
    32,205     $ 32     $ 466,178     $ (409,390 )   $ 34,107     $ (38 )   $ 90,889  

See accompanying notes to condensed consolidated financial statements.
 
- 6 -

 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
 
NOTE 1 – BASIS OF PRESENTATION
 
These interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and should be read in conjunction with the consolidated financial statements and related notes of Hudson Highland Group, Inc. and its subsidiaries (the “Company”) filed in its Annual Report on Form 10-K for the year ended December 31, 2009.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of operating revenues and expenses. These estimates are based on management’s knowledge and judgments. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows at the dates and for the periods presented have been included. The results of operations for interim periods are not necessarily indicative of the results of operations for the full year. The Condensed Consolidated Financial Statements include the accounts of the Company and all of its wholly-owned and majority-owned subsidiaries. All significant intra-entity balances and transactions between and among the Company and its subsidiaries have been eliminated in consolidation. In preparing the accompanying financial statements, management has evaluated all events and transactions through the issuance date of its condensed consolidated financial statements. See Part II – Other Information, Item 1 Legal Proceedings of this Form 10-Q for recent developments with regard to the Company’s “Wells Notice” and Note 17 “Subsequent Event” for details of the Company’s collection of a note receivable.

Certain prior year amounts have been reclassified to conform to the current period presentation.
 
NOTE 2 – DESCRIPTION OF BUSINESS
 
The Company provides professional staffing services on a permanent and contract basis and a range of human capital services to businesses operating in a wide variety of industries. The Company’s operations, assets and liabilities are organized into four reportable segments—Hudson Americas, Hudson Europe, Hudson Australia and New Zealand (“ANZ”), and Hudson Asia (“Hudson regional businesses” or “Hudson”), which constituted approximately 13%, 46%, 30%, and 11%, respectively, of the Company’s gross margin for the nine months ended September 30, 2010.
 
Corporate expenses are reported separately from the four reportable segments and pertain to certain functions, such as executive management, corporate governance, human resources, accounting, administration, tax and treasury, some of which are attributable and have been allocated to the reportable segments.
 
NOTE 3 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
In February 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2010-09 “Amendments to Certain Recognition and Disclosure Requirements” amending FASB Accounting Standards Codification Topic (“ASC”) 855, “Subsequent Events.” The amendment eliminates the requirement in ASC 855 to disclose the date through which subsequent events have been evaluated in the consolidated financial statements of Securities and Exchange Commission (“SEC”) filers and is effective for reports filed after February 24, 2010. The Company adopted ASU 2010-09 and evaluated all events and transactions through the issuance date of its condensed consolidated financial statements.

In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements." ASU 2010-06 provides amendments to ASC 820 that require separate disclosure of significant transfers in and out of Level 1 and Level 2 fair value measurements and the presentation of separate information regarding purchases, sales, issuances and settlements for Level 3 fair value measurements. Additionally, ASU 2010-06 provides amendments to ASC 820 that clarify existing disclosures about the level of disaggregation, inputs and valuation techniques. The new disclosures and clarification of existing disclosures of ASU 2010-06 are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure about purchases, sales, issuance, and settlements in the rollforward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company adopted ASU 2010-06 effective January 1, 2010. The adoption had no material impact on the Company’s results of operations or financial position.
 
- 7 -

 
NOTE 4 – EARNINGS (LOSS) PER SHARE
 
Basic earnings (loss) per share are computed by dividing the Company’s net income (loss) by the weighted average number of shares outstanding during the period. When the effects are not anti-dilutive, diluted earnings (loss) per share are computed by dividing the Company’s net income (loss) by the weighted average number of shares outstanding and the impact of all dilutive potential common shares, primarily stock options and unvested restricted stock. The dilutive impact of stock options and unvested restricted stock is determined by applying the “treasury stock” method. For the periods in which losses are presented, dilutive loss per share calculations do not differ from basic loss per share because the effects of any potential common stock were anti-dilutive and therefore not included in the calculation of dilutive loss per share. For the three and nine months ended September 30, 2010, the effect of approximately 2,645,968 of outstanding stock options and other common stock equivalents was excluded from the calculation of diluted loss per share because the effect was anti-dilutive.  For the three and nine months ended September 30, 2009, the effect of approximately 2,277,475 of outstanding stock options and other common stock equivalents was excluded from the calculation of diluted loss per share because the effect was anti-dilutive.
 
NOTE 5 – STOCK-BASED COMPENSATION
 
The Company accounts for stock-based compensation in accordance with ASC 718 "Compensation – Stock Compensation", as interpreted by the SEC Staff Accounting Bulletins No. 107 and No. 110. Under ASC 718, stock-based compensation is based on the fair value of the award on the date of grant, which is recognized over the related service period, net of estimated forfeitures. For awards with graded vesting conditions, the values of the awards are determined by valuing each tranche separately and expensing each tranche over the required service period. The service period is the period over which the related service is performed, which is generally the same as the vesting period. The Company uses the Black-Scholes option-pricing model to determine the compensation expense related to stock options.
 
Incentive Compensation Plan
 
The Company maintains the Hudson Highland Group, Inc. 2009 Incentive Stock and Awards Plan (the “ISAP”) pursuant to which it can issue equity-based compensation incentives to eligible participants. The ISAP permits the granting of stock options and restricted stock as well as other types of equity-based awards. The Compensation Committee of the Company’s Board of Directors will establish such conditions as it deems appropriate on the granting or vesting of stock options or restricted stock. While the Company historically granted both stock options and restricted stock to its employees, since 2008 the Company has granted primarily restricted stock to its employees. Occasionally, the Company continues to grant stock options to certain of its executive employees at the time of hire.
 
The ISAP provides that an aggregate of 1,600,000 shares of the Company’s common stock are reserved for issuance to participants. The Compensation Committee of the Company’s Board of Directors administers the ISAP and may designate any of the following as a participant under the ISAP: any officer or other employee of the Company or its affiliates or individuals engaged to become an officer or employee, consultants or other independent contractors who provide services to the Company or its affiliates and non-employee directors of the Company.
 
Stock Options
 
Stock options granted under the ISAP generally expire ten years after the date of grant. Stock options granted under the ISAP have an exercise price of at least 100% of the fair market value of the underlying stock on the date of grant and generally vest ratably over a four year period.
 
For the three months ended September 30, 2010 and 2009, the Company recognized an expense of $12 and $132, respectively, of stock-based compensation expense related to stock options. For the nine months ended September 30, 2010 and 2009, the Company recognized an expense of $142 and $294, respectively, of stock-based compensation expense related to stock options.
 
As of September 30, 2010, the Company had approximately $57 of total unrecognized stock-based compensation expense related to outstanding non-vested stock options. The Company expects to recognize that cost over a weighted average service period of approximately 1.1 years.
 
- 8 -

 
Changes in the Company’s stock options for the nine months ended September 30, 2010 were as follows:

         
Weighted
 
   
Number of
   
Average
 
   
Options
   
Exercise Price
 
   
Outstanding
   
per Share
 
             
Options outstanding, beginning of year
    1,763,250     $ 12.79  
Forfeited
    (15,750 )     15.85  
Expired
    (182,575 )     13.63  
Options outstanding at September 30, 2010
    1,564,925       12.66  
Options exercisable at September 30, 2010
    1,503,050     $ 12.79  
 
Restricted Stock
 
During the nine months ended September 30, 2010, the Company granted 592,732 shares of restricted stock to various employees. Shares of restricted stock with only service-based vesting conditions and shares of restricted stock with performance vesting conditions are valued at the closing market value of the Company’s common stock on the date of grant. The Company recognizes compensation cost for the awards with performance conditions if and when the Company concludes that it is probable that the performance condition will be achieved. Of the 592,732 shares granted, (i) 17,567 shares vested immediately, (ii) 229,832 shares vest ratably over a three year period from the date of grant with only service-based conditions, (iii) 60,000 shares vest ratably over a four year period from the date of grant with only service-based conditions (iv) 240,333 shares vest ratably over a three year period from the date of grant based on performance of the Company’s Gross Margin and Earnings Before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”), and (v) 45,000 shares vest in full on April 1, 2013.
 
For the three months ended September 30, 2010 and 2009, the Company recognized $430 and $132, respectively, of stock-based compensation expense related to restricted stock. For the nine months ended September 30, 2010 and 2009, the Company recognized $1,178 and $526, respectively, of stock-based compensation expense related to restricted stock.

As of September 30, 2010, the Company had $2,234 of total unrecognized stock-based compensation expense related to outstanding nonvested restricted stock. The Company expects to recognize that cost over a weighted average service period of 1.8 years.
 
Changes in the Company’s restricted stock for the nine months ended September 30, 2010 were as follows:
 
   
Number of
 
Weighted
 
   
Shares of
 
Average
 
   
Restricted
 
Grant-Date
 
   
Stock
 
Fair Value
 
             
Nonvested restricted stock, beginning of year
    531,083     $ 2.70  
Granted
    592,732       4.57  
Vested
    (102,587 )     4.14  
Forfeited
    (21,750 )     2.96  
Nonvested restricted stock at September 30, 2010
    999,478     $ 3.66  
 
Defined Contribution Plans
 
The Company maintains the Hudson Highland Group, Inc. 401(k) Savings Plan (the “401(k) plan”). The 401(k) plan allows eligible employees to contribute up to 15% of their earnings to the 401(k) plan. The Company has the discretion to match employees’ contributions up to 3% through a contribution of the Company’s common stock. Vesting of the Company’s contribution occurs over a five-year period. For the three months ended September 30, 2010 and 2009, the Company recognized $179 and $174, respectively, of expense for the 401(k) plan. For the nine months ended September 30, 2010 and 2009, the Company recognized $609 and $695, respectively, of expense for the 401(k) plan. In March 2010, the Company issued 121,016 shares of its common stock with a value of $541 plus cash of $111 to satisfy the 2009 contribution liability to the 401(k) plan. In March 2009, the Company issued 1,318,161 shares of its common stock with a value of $1,226 to satisfy the 2008 contribution liability to the 401(k) plan.
- 9 -

 
NOTE 6 – DISCONTINUED OPERATIONS
 
In the second and first quarter of 2009, the Company exited the markets in Italy and Japan, respectively.  In accordance with the provision of ASC 205-20-45 “Reporting Discontinued Operations” the assets, liabilities, and results of operations of the Italy and Japan operations were reclassified as discontinued operations.

In the first quarter of 2008, the Company sold substantially all of the assets of Hudson Americas’ energy, engineering and technical staffing division (“ETS”) to System One Holdings LLC (“System One”).
 
In the third quarter of 2006, the Company sold its Highland Partners executive search business (“Highland”) to Heidrick & Struggles International, Inc. As a result of Highland achieving certain revenue metrics in 2008, the Company received an additional and final earn-out payment of $11,625 on April 9, 2009, which was reflected within discontinued operations as a gain from sale of discontinued operations for the nine months ended September 30, 2009. 
 
Italy was part of the Hudson Europe reportable segment, Japan was part of the Hudson Asia reportable segment, and ETS was part of the Hudson Americas reportable segment. Highland was a separate reportable segment of the Company at the time of its sale. The gain or loss on sale and results of operations of the disposed businesses were reported in discontinued operations in the relevant periods.
 
Reported results for the discontinued operations were insignificant for the three and nine months ended September 30, 2010. The reported results for the discontinued operations for the three and nine months ended September 30, 2009 were as follows:

   
For The Three Month Ended September 30, 2009
 
   
Italy
   
Japan
   
T&I
   
ETS
   
Highland
   
Total
 
Revenue
  $  -     $  (20 )   $  -     $  -     $  -     $  (20 )
Gross margin
  $  (3 )   $  (20 )   $  -     $  181     $  -     $  158  
Operating (loss) income
  $ (298 )   $ 98     $ -     $ 179     $ -     $ (21 )
Other income (expense)
    709       (59 )     202       -       123       975  
Provision for income taxes (a)
    124       -       60       -       -       184  
  (Loss) income from discontinued operations
  $  287     $  39     $  142     $  179     $  123     $  770  

   
For The Nine Months Ended September 30, 2009
 
   
Italy
   
Japan
   
T&I
   
ETS
   
Highland
   
Total
 
Revenue
  $ 432     $ 1,022     $ -     $ -     $ -     $ 1,454  
Gross margin
  $ 388     $ 986     $ -     $ 645     $ -     $ 2,019  
Operating (loss) income
  $ (2,036 )   $ (2,648 )   $ -     $ 511     $ -     $ (4,173 )
Other income (expense)
    699       (238 )     202       -       (156 )     507  
Gain from sale of discontinued operations
    -       -       -       -       11,625       11,625  
Provision for income taxes (a)
    126       -       60       -       -       186  
  (Loss) income from discontinued operations
  $ (1,463 )   $ (2,886 )   $ 142     $ 511     $ 11,469     $ 7,773  
  

(a)
Income tax expense is provided at the effective tax rate by taxing jurisdiction and differs from the U.S. statutory tax rate of 35% due to differences in the foreign statutory tax rates, as well as the ability to offset certain net operating losses (“NOLs”) against taxable profits.
 
- 10 -

NOTE 7 – REVENUE, DIRECT COSTS AND GROSS MARGIN
 
The Company’s revenue, direct costs and gross margin were as follows:

   
For The Three Month Ended September 30, 2010
   
For The Three Month Ended September 30, 2009 (2)
 
   
Temporary
   
Other
   
Total
   
Temporary
   
Other
   
Total
 
Revenue
  $ 147,910     $ 52,484     $ 200,394     $ 128,717     $ 40,930     $ 169,647  
Direct costs (1)
    122,161       3,242       125,403       103,358       2,099       105,457  
Gross margin
  $ 25,749     $ 49,242     $ 74,991     $ 25,359     $ 38,831     $ 64,190  

   
For The Nine Months Ended September 30, 2010
   
For The Nine Months Ended September 30, 2009 (2)
 
   
Temporary
   
Other
   
Total
   
Temporary
   
Other
   
Total
 
Revenue
  $ 425,111     $ 150,370     $ 575,481     $ 385,074     $ 123,571     $ 508,645  
Direct costs (1)
    349,695       10,138       359,833       308,946       8,621       317,567  
Gross margin
  $ 75,416     $ 140,232     $ 215,648     $  76,128     $  114,950     $  191,078  
 

(1)
Direct costs include the direct staffing costs of salaries, payroll taxes, employee benefits, travel expenses and insurance costs for the Company’s contractors and reimbursed out-of-pocket expenses and other direct costs. Other than reimbursed out-of-pocket expenses, there are no other direct costs associated with the Other category, which includes the search, permanent recruitment and other human resource solutions’ revenue. Gross margin represents revenue less direct costs. The region where services are provided, the mix of contracting and permanent recruitment, and the functional nature of the staffing services provided can affect gross margin. The salaries, commissions, payroll taxes and employee benefits related to recruitment professionals are included in selling, general and administrative expenses.

(2)
For the three months ended September 30, 2009, the Company reclassified $1,484 of Temporary revenue, $1,346 of Temporary direct costs and $138 of Temporary gross margin from Other revenue, Other direct costs and Other gross margin, respectively. For the nine months ended September 30, 2009, the Company reclassified $3,917 of Temporary revenue, $3,469 of Temporary direct costs and $448 of Temporary gross margin from Other revenue, Other direct costs and Other gross margin, respectively. The Company reclassified these amounts to be consistent with similar arrangements.
 
NOTE 8 – PROPERTY AND EQUIPMENT, NET
 
As of September 30, 2010 and December 31, 2009, property and equipment, net consisted of the following:

   
September 30,
   
December 31,
 
   
2010
   
2009
 
Computer equipment
  $ 19,032     $ 19,095  
Furniture and equipment
    13,983       14,635  
Capitalized software costs
    33,656       32,074  
Leasehold and building improvements
    23,245       24,194  
Transportation equipment
    21       22  
      89,937       90,020  
Less: accumulated depreciation and amortization
    74,577       70,587  
Property and equipment, net
  $ 15,360     $ 19,433  
 
- 11 -

 
NOTE 9 – GOODWILL

Under ASC 350, the Company is required to test goodwill and indefinite-lived intangible assets for impairment on an annual basis as of October 1, or more frequently if circumstances indicate that its carrying value might exceed its current fair value.

As per ASC 350, a two-step impairment test is performed to identify potential goodwill impairment and to measure the amount of the impairment loss to be recognized, if applicable. In the first step, a comparison is made of the estimated fair value of a reporting unit to its carrying value. If the carrying value of a reporting unit exceeds the estimated fair value, the second step of the impairment test is required. In the second step, an estimate of the current fair values of all assets and liabilities is made to determine the amount of implied goodwill and consequently the amount of any goodwill impairment.
 
The following is a summary of the changes in the carrying value of the Company’s goodwill for the three and nine months ended September 30, 2010 and 2009. The amounts relate to the earn-out payments for the Company’s 2007 acquisition of the businesses of Tong Zhi (Beijing) Consulting Service Ltd and Guangzhou Dong Li Consulting Service Ltd (collectively, “TKA”)
  
   
Carrying Value
 
   
2010
   
2009
 
             
Goodwill, beginning of year
  $ -     $ -  
Additions and adjustments
    1,880       1,671  
Impairments
    -       (1,671 )
Goodwill on September 30,
  $ 1,880     $ -  

In May 2007, the Company completed the purchase of TKA and paid $5,000 at closing. Under the purchase agreement, the Company would also make earn-out payments based on the financial performance of the acquired business through April 30, 2010. The Company made earn-out payments of $1,113 in 2008 and $1,669 in 2009 under the purchase agreement. All of the consideration and earn-out payments discussed above, to the extent recorded to goodwill, had been written off as impairment charges in accordance with ASC 350, “Intangibles - Goodwill and Other” prior to December 31, 2009. For the nine months ended September 30, 2010, the Company made the final earn-out payment of $1,856 in accordance with the purchase agreement and recorded the amount as an addition to goodwill.
 
NOTE 10 – INCOME TAXES
 
The provision for income taxes for the nine months ended September 30, 2010 was $1,366 on a pre-tax loss of $4,479, compared with a benefit from income taxes of $2,300 on a pre-tax loss of $40,257 for the same period in 2009. The effective tax rate for the nine months ended September 30, 2010 was negative 30.5% as compared to 5.7% for the same period of 2009. In the current period, the effective tax rate differs from the U.S. federal statutory rate of 35% primarily due to the inability to recognize tax benefits on net losses in the U.S. and certain other foreign jurisdictions. 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.
 
Under ASC 270, “Interim Reporting”, and ASC 740-270, “Income Taxes – Intra Tax Allocation”, the Company is required to adjust its effective tax rate for each quarter to be consistent with the estimated annual effective tax rate. Jurisdictions with a projected loss for the full year where no tax benefit can be recognized are excluded from the calculation of the estimated annual effective tax rate. Applying the provisions of ASC 270 and 740-270 could result in a higher or lower effective rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections.
 
As of September 30, 2010 and December 31, 2009, the Company had $8,476 and $8,528, respectively, of uncertain tax benefits, including interest and penalties, which if recognized in the future, would affect the annual effective income tax rate. Reductions to uncertain tax positions, including from the lapse of the applicable statutes of limitations during the next twelve months, are estimated to be approximately $1,700 to $4,400, excluding any potential new additions. 
 
- 12 -

 
Estimated interest costs and penalties are classified as part of the provision for income taxes in the Company’s Condensed Consolidated Statements of Operations and totaled to a provision of $17 and $280, respectively, for the nine months ended September 30, 2010 and 2009. Accrued interest and penalties were $1,997 and $2,014 as of September 30, 2010 and December 31, 2009, respectively. In many cases, the Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. Tax years that had NOLs would remain open until the expiration of the statute of limitations of the future tax years those NOLs would be utilized. Notwithstanding the above, the open tax years are 2006 through 2009 for U.S. Federal, 2005 through 2009 for most U.S. state and local jurisdictions, 2007 through 2009 for the U.K., 2000 through 2003 and 2006 through 2009 for Australia and 2003 through 2009 for most other jurisdictions. The Company is currently under income tax examination in France (2006-2008) and the State of Pennsylvania (2004-2005).
 
NOTE 11 – BUSINESS REORGANIZATION EXPENSES
 
The following table contains amounts for Changes in Estimate, Additional Charges, and Payments related to prior restructuring plans that were incurred or recovered in the current period. These amounts are classified as business reorganization expenses in the Company’s Condensed Consolidated Statements of Operations. Amounts in the “Payments” column represent the cash payments associated with the reorganization plans. Changes in the accrued business reorganization expenses for the nine months ended September 30, 2010 were as follows:
 
For The Nine Months Ended September 30,
 
December 31,
   
Changes in
   
Additional
          
September 30,
 
2010 
 
2009
   
Estimate
   
Charges
   
Payments
   
2010
 
Lease termination payments
  $ 4,897     $ 483     $ -     $ (3,213 )   $ 2,167  
Employee termination benefits
    4,100       224       -       (3,563 )     761  
Contract cancellation costs
    134       6       -       (43 )     97  
Total
  $ 9,131     $ 713     $ -     $ (6,819 )   $ 3,025  
 
NOTE 12 – COMMITMENTS AND CONTINGENCIES
 
The Company has entered into various consulting, employment and non-compete agreements with certain key management personnel, executive search consultants and former owners of acquired businesses. Agreements with key members of management are on an at will basis, provide for compensation and severance payments under certain circumstances, and are automatically renewed annually unless either party gives sufficient notice of termination. Agreements with certain consultants and former owners of acquired businesses are generally two to five years in length.  The Company is subject, from time to time, to disputes under these agreements, typically associated with terminations.  The Company routinely monitors claims such as these, and records provisions for losses when the claims become probable and the amounts due are estimable.
 
The Company is subject to, from time to time, various claims, lawsuits, and other complaints from, for example, clients, candidates, suppliers, landlords, and taxing authorities in the ordinary course of business. The Company routinely monitors claims such as these, and records provisions for losses when the claim becomes probable and the amount due is estimable. Although the outcome of these claims cannot be determined, the Company believes that the final resolution of these matters will not have a material adverse effect on the Company’s financial condition, results of operations or liquidity.
 
On May 13, 2009 and September 23, 2010, the Company received “Wells Notices” from the SEC. For further information, including discussions regarding a potential settlement with the SEC, refer to Part II – Other Information, Item 1 Legal Proceedings of this Form 10-Q.
 
The Company’s reserves for the above referenced matters were $530 as of September 30, 2010 (of which $200 was incurred for the three months ended September 30, 2010 in connection with discussions regarding a potential settlement with the SEC) and were $335 as of December 31, 2009.
 
The Company has certain asset retirement obligations that are primarily the result of legal obligations for the removal of leasehold improvements and restoration of premises to their original condition upon termination of leases. As of September 30, 2010 and December 31, 2009, $2,208, and $2,935, respectively, of asset retirement obligations were included in the Condensed Consolidated Balance Sheets under the caption “Other non-current liabilities” and $650 and $0, respectively, of asset retirement obligations were included in the Condensed Consolidated Balance Sheets under the caption “Accrued expenses and other current liabilities.”
 
- 13 -

 
NOTE 13 – SUPPLEMENTAL CASH FLOW INFORMATION
 
During the nine months ended September 30, 2010, the Company issued 121,016 shares of its common stock held in treasury with a value of $541 at issuance, plus cash of $111 to satisfy its 2009 contribution liability to its 401(k) plan.
 
NOTE 14 – FINANCIAL INSTRUMENTS
 
Credit Agreements
 
On August 5, 2010, the Company and certain of its North American and U.K. subsidiaries entered into a senior secured revolving credit facility (the “Revolver Agreement”) with RBS Business Capital, a division of RBS Asset Finance, Inc. (“RBS”), that provides the Company with the ability to borrow up to $40,000, including the issuance of letters of credit. The Company may increase the maximum borrowing amount to $50,000, subject to certain conditions including lender acceptance. Extensions of credit are based on a percentage of the eligible accounts receivable less required reserves principally related to the U.K. and North America operations. In connection with the Revolver Agreement, the Company incurred and capitalized approximately $1,457 of deferred financing costs, which are being amortized over the term of the agreement. As of September 30, 2010, the Company’s borrowing base was $35,385 and the Company was required to maintain a minimum availability of $10,000. As of September 30, 2010, the Company had $8,985 of outstanding borrowings, and $1,576 of outstanding letters of credit issued, under the Revolver Agreement, resulting in the Company being able to borrow up to an additional $14,824 after deducting the minimum availability, outstanding borrowings and outstanding letters of credit issued.
 
The maturity date of the Revolver Agreement is August 5, 2014. Borrowings may initially be made with an interest rate based on a base rate plus 2.25% or on the LIBOR rate for the applicable period plus 3.25%. The applicable margin for each rate is based on the Company’s Fixed Charge Coverage Ratio (as defined in the Revolver Agreement). The interest rate on outstanding borrowings was 5.5% as of September 30, 2010. Borrowings under the Revolver Agreement are secured by substantially all of the assets of the Company and certain of its North American and U.K. subsidiaries.
 
The Revolver Agreement contains various restrictions and covenants including (1) a requirement to maintain a minimum excess availability of $10,000 until such time as for two consecutive fiscal quarters (i) the Company’s Fixed Charge Coverage Ratio is at least 1.2x and (ii) the Company’s North American and U.K. operations, for the four fiscal quarters then ending, have an EBITDA (as defined in the Revolver Agreement) for such twelve month period of not less than $500 as of the end of each fiscal quarter during the fiscal years 2010 and 2011 and $1,000 at the end of each fiscal quarter thereafter; thereafter a requirement to maintain a minimum availability of $5,000, a Fixed Charge Coverage Ratio of at least 1.1x and EBITDA (as defined in the Revolver Agreement) for the Company’s North American and U.K. operations of at least $500 during the fiscal years 2010 and 2011 and $1,000 thereafter; (2) a limit on the payment of dividends of not more than $5,000 per year and subject to certain conditions; (3) restrictions on the ability of the Company to make additional borrowings, acquire, merge or otherwise fundamentally change the ownership of the Company or repurchase the Company’s stock; (4) a limit on investments, and a limit on acquisitions of not more than $25,000 in cash and $25,000 in non-cash consideration per year, subject to certain conditions set forth in the Revolver Agreement; and (5) a limit on dispositions of assets of not more than $4,000 per year. The Company was in compliance with all financial covenants under the Revolver Agreement as of September 30, 2010.
 
Prior to entering into the Revolver Agreement with RBS, the Company had a primary credit facility (the “Credit Agreement”) with Wells Fargo Capital Finance, Inc. (“WFCF”) and another lender that provided the Company with the ability to borrow up to $75,000, including the issuance of letters of credit.  In connection with entering into the Revolver Agreement described above, the Company terminated the Credit Agreement effective August 12, 2010. The Company repaid the outstanding balance of $10,456 under the Credit Agreement and paid an early termination fee of $563 on the effective date of termination. The early termination fee is included in the caption “Fee for early extinguishment of credit facility” in the accompanying Condensed Consolidated Statements of Operations. In addition, the Company recorded a non-cash write-off of $290 of unamortized deferred financing costs in connection with the termination of the Credit Agreement. This charge is included in the caption “Interest, net” in the accompanying Condensed Consolidated Statements of Operations. As of September 30, 2010, the Company had cash collateral of $1,355 with WFCF for two outstanding letters of credit issued by WFCF. The cash collateral is included in the caption “Prepaid and other” in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2010.
 
On August 3, 2010, an Australian subsidiary of the Company entered into a Receivables Finance Agreement and related agreements (the “Finance Agreement”) with Commonwealth Bank of Australia (“CBA”) that provides the Australian subsidiary with the ability to borrow up to approximately $14,496 (AUD 15,000). Under the terms of the Finance Agreement, the Australian subsidiary may make offers to CBA to assign its accounts receivable with recourse, which accounts receivable CBA may in its good faith discretion elect to purchase. As of September 30, 2010, the Company had $2,379 (AUD 2,461) of outstanding borrowings under the Finance Agreement. Available credit for use under the Finance Agreement as of September 30, 2010 was $12,117 (AUD 12,539).
 
- 14 -

 
The Finance Agreement does not have a stated maturity date and can be terminated by either party upon 90 days written notice. Borrowings may be made with an interest rate based on the average bid rate for bills of exchange (“BBSY”) with the closest term to 30 days plus a margin of 1.6%.  The interest rate was 6.27% as of September 30, 2010. Borrowings are secured by substantially all of the assets of the Australian subsidiary and are based on an agreed percentage of eligible accounts receivable.
 
The Finance Agreement contains various restrictions and covenants for the Australian subsidiary, including (1) a requirement to maintain a minimum Tangible Net Worth (as defined in the Finance Agreement) ratio of 70%; (2) a minimum Fixed Charge Coverage Ratio (as defined in the Finance Agreement) of 1.4x for a trailing twelve month period; and (3) a limitation on certain intercompany payments of expenses, interest and dividends not to exceed Net Profit After Tax (as defined in the Finance Agreement). The Australian subsidiary was in compliance with all financial covenants under the Finance Agreement as of September 30, 2010.
 
As of September 30, 2010, the Company had a total of $2,253 of bank guarantees issued  by CBA under the Finance Agreement that were collateralized by a restricted term deposit of an equal amount. See section “Restricted Cash” below for details.
 
The Company also has lending arrangements with local banks through its subsidiaries in Belgium, the Netherlands, New Zealand, and China. The aggregate outstanding borrowings under the lending arrangements in Belgium, the Netherlands and New Zealand were $2,507 and $0 as of September 30, 2010 and December 31, 2009, respectively. As of September 30, 2010, the Belgium and the Netherlands subsidiaries could borrow up to $6,244 based on an agreed percentage of accounts receivable related to their operations. Borrowings under the Belgium and the Netherlands lending arrangements may be made with an interest rate based on the one month EURIBOR plus 2.5%, or about 3.1% at September 30, 2010. The lending arrangements of Belgium and the Netherlands will expire on May 2, 2011 and May 15, 2011, respectively. In New Zealand, the Company’s subsidiary can borrow up to $1,101 (NZD1,500) as of September 30, 2010 for working capital purposes. This lending arrangement expires on March 31, 2011.  Interest on borrowings under the New Zealand lending arrangement is based on a three month cost of funds rate as determined by the bank, plus a 1.84% margin, and was 6.5% on September 30, 2010.  In China, the Company’s subsidiary can borrow up to $1,000 for working capital purposes. Interest on borrowings under this overdraft facility is based on the People’s Republic of China’s six month rate, plus 200 basis points, and was 6.86% on September 30, 2010. There were no outstanding borrowings under this overdraft facility as of September 30, 2010 and December 31, 2009. This overdraft facility expires annually each September, but can be renewed for one year periods at that time.
 
The Company continues to use the aforementioned credit to support its ongoing global working capital requirements, capital expenditures and other corporate purposes and to support letters of credit. Letters of credit and bank guarantees are used primarily to support office leases.
 
Restricted Cash
 
The Company had approximately $4,365 and $3,665 of restricted cash included in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009, respectively. Included in these balances was $1,294 and $1,894 as of September 30, 2010 and December 31, 2009, respectively, held as collateral under a collateral trust agreement, which supports the Company’s workers’ compensation policy. As of September 30, 2010 and December 31, 2009, the Company had $2,253 and $0 of restricted term deposits, respectively, with CBA held as collateral. These restricted term deposits support the issuances of bank guarantees for certain leases in the Australian operation and effectively replace the letters of credit covered under the Company’s previous Credit Agreement with WFCF. As of September 30, 2010 and December 31, 2009, the Company had $146 and $0, respectively, in deposits with banks as guarantees for the rent on the Company’s offices in the Netherlands.  These balances, totaled to $3,693 and $1,894 as of September 30, 2010 and December 31, 2009, respectively, were included in the caption “Other assets” in the accompanying Condensed Consolidated Balance Sheets.
 
The Company had $165 and $159 of deposits with a bank for customer guarantees in Belgium as of September 30, 2010 and December 31, 2009, respectively.  The Company also had $356 and $293 in deposits with banks in the Netherlands as guarantees for the rent on the Company’s offices and a reserve for employee social tax payments required by law as of September 30, 2010 and December 31, 2009, respectively. These deposits totaled approximately $521 and $452 as of September 30, 2010 and December 31, 2009, respectively, and were included in the caption “Prepaid and other” in the accompanying Condensed Consolidated Balance Sheets.
 
The Company maintained $135 and $179 of deposits with banks in Spain as guarantees for the rent on the Company’s offices, and insignificant business license deposits with a bank in Singapore as of September 30, 2010 and December 31, 2009, respectively. The Company also maintained $1,127 of deposits with banks in the Netherlands as required by law as a reserve for employee social tax payments as of December 31, 2009. These deposits totaled approximately $151 and $1,319 as of September 30, 2010 and December 31, 2009, respectively, and were included in the caption “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets.
 
- 15 -

 
Warrants

In connection with the sale of the assets of Hudson Americas’ ETS business in 2008, the Company received warrants, which under certain circumstances, could be converted into cash. These warrants are considered derivative instruments which require fair value measurement. As per ASC 815 “Derivatives and Hedging”, these derivative instruments are considered undesignated derivative instruments. The Company determined the fair value of these instruments using significant unobservable inputs (level 3) as defined in ASC 820 “Fair Value Measurements and Disclosures”.

As of September 30, 2010 and December 31, 2009 the carrying and fair value of the derivative instruments of $1,353 and $488, respectively, was included under the caption “Prepaid and other” in the accompanying Condensed Consolidated Balance Sheets. For the three and nine months ended September 30, 2010, the change in the fair value of the warrants of $1,165 was included in the accompanying Condensed Consolidated Statement of Operations under the caption “Other income (expense).”
 
Acquisition Shelf Registration Statement
 
The Company has a shelf registration on file with the SEC to enable it to issue up to 1,350,000 shares of its common stock from time to time in connection with acquisitions of businesses, assets or securities of other companies, whether by purchase, merger or any other form of acquisition or business combination. If any shares are issued using this shelf registration, the Company will not receive any proceeds from these offerings other than the assets, businesses or securities acquired. As of September 30, 2010, all of the 1,350,000 shares were available for issuance.
 
Shelf Registration and Common Stock Offering
 
In December 2009, the Company filed a shelf registration statement (the “2009 Shelf Registration”) with the SEC to enable it to issue up to $30,000 equivalent of securities or combinations of securities.  The types of securities permitted for issuance under the 2009 Shelf Registration are debt securities, common stock, preferred stock, warrants, stock purchase contracts and stock purchase units.
 
On April 6, 2010, the Company issued in a registered public offering under the 2009 Shelf Registration 4,830,000 shares (which includes the exercise of the underwriter’s overallotment option of 630,000 shares) of common stock at $4.35 per share. Net proceeds to the Company after underwriting discounts and expenses of the public offering were approximately $19,167.
 
After this offering, the Company may issue up to $8,990 equivalent of securities or combinations of securities under the 2009 Shelf Registration.
 
NOTE 15– COMPREHENSIVE INCOME
 
An analysis of the Company’s comprehensive income (loss) is as follows:

   
Three Month Ended September 30,
   
Nine Months Ended September 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Net loss
  $ (1,898 )   $ (6,853 )   $ (5,876 )   $ (30,184 )
Other comprehensive income (loss) - translation adjustments
    6,510       2,372       (402 )     7,074  
Total comprehensive income (loss)
  $ 4,612     $ (4,481 )   $ (6,278 )   $ (23,110 )
 
- 16 -

 
NOTE 16 – SEGMENT AND GEOGRAPHIC DATA
 
The Company operates in four reportable segments: the Hudson regional businesses of Hudson Americas, Hudson Europe, Hudson ANZ, and Hudson Asia. Corporate expenses are reported separately from the four reportable segments and pertain to certain functions, such as executive management, corporate governance, human resources, accounting, administration, tax and treasury which are not attributable to the reportable segments.

Segment information is presented in accordance with ASC 280, “Segments Reporting.”  This standard is based on a management approach that requires segmentation based upon the Company’s internal organization and disclosure of revenue, certain expenses and operating income based upon internal accounting methods. The Company’s financial reporting systems present various data for management to run the business, including internal profit and loss statements prepared on a basis not consistent with generally accepted accounting principles. Accounts receivable, net and long-lived assets are the only significant assets separated by segment for internal reporting purposes.
 
In the first quarter of 2010, the Company revised its reportable segments by segregating the segments of Hudson ANZ and Hudson Asia (previously included in the results for Hudson Asia Pacific). The Company has reclassified prior period information to reflect this change to the segment reporting in accordance with the requirement of ASC 280-10-50-12 to 19, “Quantitative thresholds.
  
 
Hudson
Americas
   
Hudson
Europe
   
Hudson
ANZ
   
Hudson
Asia
   
Corporate
   
Inter-
segment
elimination
   
Total
 
For The Three Month Ended September 30, 2010
                                         
Revenue, from external customers
  $ 37,839     $ 80,503     $ 72,974     $ 9,078     $ -     $ -     $ 200,394  
Inter-segment revenue
    (3 )     47       1       12       -       (57 )     -  
Total revenue
  $ 37,836     $ 80,550     $ 72,975     $ 9,090     $ -     $ (57 )   $ 200,394  
Gross margin, from external customers
  $ 9,311     $ 32,647     $ 24,259     $ 8,774     $ -     $ -     $ 74,991  
Inter-segment gross margin
    (5 )     16       (15 )     4       -       -       -  
Total gross margin
  $ 9,306     $ 32,663     $ 24,244     $ 8,778     $ -     $ -     $ 74,991  
Business reorganization and integration expenses (recovery)
  $ 41     $ -     $ -     $ -     $ -     $ -     $ 41  
EBITDA (loss) (a)
  $ 532     $ (2,128 )   $ 1,376     $ 1,169     $ 244     $ -     $ 1,193  
Depreciation and amortization
    433       769       647       94       38       -       1,981  
Interest (expense) income , net
    (3 )     -       43       1       (538 )     -       (497 )
(Loss) income from continuing operations before income taxes
    96       (2,897 )     772       1,076       (332 )     -       (1,285 )
                                                         
As of September 30, 2010
                                                       
Accounts receivable, net
  $ 25,505     $ 58,159     $ 37,835     $ 7,617     $ -     $ -     $ 129,116  
Long-lived assets, net of accumulated depreciation and amortization
  $ 1,502     $ 4,927     $ 6,673     $ 2,130     $ 2,361     $ -     $ 17,593  
Total assets
  $ 30,716     $ 89,483     $ 57,217     $ 16,654     $ 20,018     $ -     $ 214,088  
 
- 17 -

 
   
Hudson
Americas
   
Hudson
Europe
   
Hudson
ANZ
   
Hudson
Asia
   
Corporate
   
Inter-segment
elimination
   
Total
 
For The Three Month Ended September 30, 2009
                                         
Revenue, from external customers
  $ 35,705     $ 67,898     $ 59,026     $ 7,018     $ -     $ -     $ 169,647  
Inter-segment revenue
    (1 )     6       -       7       -       (12 )     -  
Total revenue
  $ 35,704     $ 67,904     $ 59,026     $ 7,025     $ -     $ (12 )   $ 169,647  
Gross margin, from external customers
  $ 9,258     $ 29,571     $ 18,754     $ 6,607     $ -     $ -     $ 64,190  
Inter-segment gross margin
    (3 )     4       (5 )     5       -       (1 )     -  
Total gross margin
  $ 9,255     $ 29,575     $ 18,749     $ 6,612     $ -     $ (1 )   $ 64,190  
Business reorganization and integration expenses (recovery)
  $ 592     $ 1,881     $ 405     $ -     $ -     $ -     $ 2,878  
EBITDA (loss) (a)
  $ (2,795 )   $ (2,406 )   $ 1,156     $ 961     $ (2,917 )   $ -     $ (6,001 )
Depreciation and amortization
    1,047       911       573       166       44       -       2,741  
Interest  income (expense), net
    17       45       53       2       (213 )     -       (96 )
(Loss) income from continuing operations before income taxes
  $ (3,825 )   $ (3,272 )   $ 636     $ 797     $ (3,174 )   $ -     $ (8,838 )
                                                         
As of September 30, 2009
                                                       
Accounts receivable, net
  $ 18,796     $ 48,073     $ 24,589     $ 5,536     $ -     $ -     $ 96,994  
Long-lived assets, net of accumulated depreciation and amortization
  $ 4,167     $ 7,800     $ 5,024     $ 752     $ 2,794     $ -     $ 20,537  
Total assets
  $ 26,817     $ 82,715     $ 46,285     $ 12,638     $ 22,809     $ -     $ 191,264  

  
 
Hudson
Americas
   
Hudson
Europe
   
Hudson
ANZ
   
Hudson
Asia
   
Corporate
   
Inter-segment elimination
   
Total
 
For The Nine Months Ended September 30, 2010
                                         
Revenue, from external customers
  $ 118,165     $ 237,875     $ 195,045     $ 24,396     $ -     $ -     $ 575,481  
Inter-segment revenue
    (4 )     73       1       18       -       (88 )     -  
Total revenue
  $ 118,161     $ 237,948     $ 195,046     $ 24,414     $ -     $ (88 )   $ 575,481  
Gross margin, from external customers
  $ 28,643     $ 99,722     $ 63,758     $ 23,525     $ -     $ -     $ 215,648  
Inter-segment gross margin
    (7 )     58       (40 )     (1 )     -       (10 )     -  
Total gross margin
  $ 28,636     $ 99,780     $ 63,718     $ 23,524     $ -     $ (10 )   $ 215,648  
Business reorganization and integration expenses (recovery)
  $ 285     $ 536     $ (116 )   $ -     $ -     $ -     $ 705  
EBITDA (loss) (a)
  $ (699 )   $ 771     $ 2,994     $ 3,076     $ (3,196 )   $ -     $ 2,946  
Depreciation and amortization
    2,005       2,176       1,764       394       114       -       6,453  
Interest (expense) income , net
    (7 )     (27 )     85       2       (1,025 )     -       (972 )
(Loss) income from continuing operations before income taxes
  $ (2,711 )   $ (1,432 )   $ 1,315     $ 2,684     $ (4,335 )   $ -     $ (4,479 )

  
 
Hudson
Americas
   
Hudson
Europe
   
Hudson
ANZ
   
Hudson
Asia
   
Corporate
   
Inter-segment
elimination
   
Total
 
For The Nine Months Ended September 30, 2009
                                         
Revenue, from external customers
  $ 122,861     $ 202,473     $ 165,675     $ 17,636     $ -     $ -     $ 508,645  
Inter-segment revenue
    4       10       3       22       -       (39 )     -  
Total revenue
  $ 122,865     $ 202,483     $ 165,678     $ 17,658     $ -     $ (39 )   $ 508,645  
Gross margin, from external customers
  $ 30,741     $ 91,155     $ 52,718     $ 16,464     $ -     $ -     $ 191,078  
Inter-segment gross margin
    22       (8 )     (11 )     (2 )     -       (1 )     -  
Total gross margin
  $ 30,763     $ 91,147     $ 52,707     $ 16,462     $ -     $ (1 )   $ 191,078  
Business reorganization and integration expenses (recovery)
  $ 3,339     $ 6,547     $ 2,281     $ 98     $ 14     $ -     $ 12,279  
EBITDA (loss) (a)
  $ (10,187 )   $ (8,236 )   $ 221     $ (1,717 )   $ (10,500 )   $ -     $ (30,419 )
Depreciation and amortization
    3,100       3,731       1,753       648       137       -       9,369  
Interest  income (expense), net
    15       84       173       11       (752 )     -       (469 )
Loss from continuing operations before income taxes
  $ (13,272 )   $ (11,883 )   $ (1,359 )   $ (2,354 )   $ (11,389 )   $ -     $ (40,257 )

(a)
SEC Regulation S-K 229.10(e)1(ii)(A) defines EBITDA as earnings before interest, taxes, depreciation and amortization. EBITDA is presented to provide additional information to investors about the Company’s operations on a basis consistent with the measures which the Company uses to manage its operations and evaluate its performance. Management also uses this measurement to evaluate working capital requirements. EBITDA should not be considered in isolation or as a substitute for operating income and net income prepared in accordance with generally accepted accounting principles or as a measure of the Company’s profitability.