HSON 2012.12.31-10K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549  

 
FORM 10-K

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-50129 

HUDSON GLOBAL, 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) 

  HUDSON HIGHLAND GROUP, INC.
(Former name)
  
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $0.001 par value
 
The NASDAQ Stock Market LLC
Preferred Share Purchase Rights
 
The NASDAQ Stock Market LLC

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes   o    No   x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Act.   Yes   o    No   x

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  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit to post such flies).    Yes  x     No  o

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.    o
 
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
o
 
Accelerated filer
x
Non-accelerated filer
o
 
Smaller reporting company
o
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No x

The aggregate market value of the voting common stock held by non-affiliates of the registrant was approximately $135,961,000 based on the closing price of the Common Stock on the NASDAQ Global Select Market on June 30, 2012.

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 January 31, 2013
Common Stock - $0.001 par value
 
33,021,211

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2013 Annual Meeting of Stockholders are incorporated by reference into Part III.



Table of Contents
 
 
 
 
 
Page
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
 
 
 
PART II
ITEM 5.

ITEM 6.
17 
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
 
 
 
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
 
 
 
PART IV
ITEM 15.
 
 
 
 
 




PART I

ITEM 1.    BUSINESS

On April 26, 2012, the Company changed its corporate name to “Hudson Global, Inc.” from “Hudson Highland Group, Inc.” On April 30, 2012, the Company changed its trading symbol on the Nasdaq Stock Market to “HSON” from “HHGP."
Hudson Global, Inc. (the “Company” or “Hudson”, “we”, “us” and “our”) provides highly specialized professional-level recruitment and related talent solutions worldwide. Core service offerings include Permanent Recruitment, Contract Consulting, Legal eDiscovery, Recruitment Process Outsourcing (“RPO”) and Talent Management solutions.

Hudson has operated as an independent publicly-held company since April 1, 2003 when the eResourcing division of Monster Worldwide, Inc., formerly TMP Worldwide, Inc., comprised of 67 acquisitions made between 1999 and 2001, was spun off. Today, Hudson has approximately 2,000 employees and operates in 20 countries with three reportable geographic business segments: Hudson Americas, Hudson Asia Pacific, and Hudson Europe.

For the year ended December 31, 2012, the amounts and percentage of the Company’s total gross margin from the three reportable segments were as follows:
 
 
Gross Margin
 
 
Amount
 
Percentage
Hudson Americas
 
$
43,164

 
15
%
Hudson Asia Pacific
 
117,428

 
41
%
Hudson Europe
 
124,275

 
44
%
Total
 
$
284,867

 
100
%

The Company's core service offerings include those services described below:

Permanent Recruitment: Offered on both a retained and contingent basis, Hudson's Permanent Recruitment services leverage the firm's more than 1,200 consultants, supported by the Company's psychologists and other scientific specialists in the development and delivery of its proprietary methods to identify, select and engage the best-fit talent for critical client roles.

Contract Consulting: In Contract Consulting, Hudson provides a range of project management, interim management and professional contract staffing services. These services draw upon a combination of specialized recruiting and project management competencies to deliver a wide range of solutions. Hudson-employed professionals - either individually or as a team - are placed with client organizations for a defined period of time based on specific business need.

Legal eDiscovery: Hudson's Legal eDiscovery services comprise eDiscovery solutions, managed document review (encompassing logistical deployment, project management, process design and productivity management), and contract attorney staffing. The most comprehensive of these is the firm's full-service eDiscovery solution, providing an integrated system of discovery management and review technology deployment for both corporate and law firm clients.

RPO: Hudson RPO delivers outsourced recruitment solutions tailored to the individual needs of mid- to large-cap multinational companies. Hudson RPO's delivery teams utilize state-of-the-art recruitment process methodologies and project management expertise in their flexible, turnkey solutions to meet clients' ongoing business needs. Hudson RPO services include complete recruitment outsourcing, project-based outsourcing, contingent workforce solutions and recruitment consulting.

Talent Management Solutions: Featuring embedded proprietary talent assessment and selection methodologies, Hudson's Talent Management Solutions capability encompasses services such as talent assessment (utilizing a variety of competency, attitude and experiential testing), interview training, executive coaching, employee development and outplacement.
 

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CLIENTS

The Company's clients include small to large-sized corporations and government agencies. As of December 31, 2012, there were approximately 460 Hudson Americas clients, 1,200 Hudson Asia Pacific clients and 2,700 Hudson Europe clients. The business of the Company is not dependent upon either a single client or a limited number of clients. During 2012, no single client accounted for more than 10% of the Company's revenue. As of December 31, 2012, no single client accounted for more than 10% of the Company's outstanding accounts receivable.

EMPLOYEES

The Company employs approximately 2,000 people worldwide. In most jurisdictions, our employees are not represented by a labor union or covered by a collective bargaining agreement. The Company regards its relationships with its employees as satisfactory.

SALES AND MARKETING

The majority of Hudson's roughly 1,200 client-facing consultants sell its portfolio of services to its existing client base of over 4,300 companies and to prospective client organizations. The Company's consultant population has deep expertise in specific functional areas and industry sectors, and provides broad-based recruitment and solution services based on the needs of the client. With the realignment of the Company's business into three regions and the growth in multi-nationals within its client base, the Company's consultants are increasingly partnering with colleagues in other countries to sell the Company's services across geographic boundaries.

COMPETITION

The markets for the Company's services and products are highly competitive. There are few barriers to entry, so new entrants occur frequently, resulting in considerable market fragmentation. Companies in this industry compete on a number of parameters including degree and quality of candidate and position knowledge, industry expertise, service quality, and efficiency in completing assignments. Typically, companies with greater strength in these parameters garner higher margins.


SEGMENT AND GEOGRAPHIC DATA

Financial information concerning the Company's reportable segments and geographic areas of operation is included in Note 15 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.

AVAILABLE INFORMATION

We maintain a Web site with the address www.hudson.com. We are not including the information contained on our Web site as part of, or incorporating it by reference into, this report. Through our Web site, we make available free of charge (other than an investor's own Internet access charges) 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 in a timely manner after we provide them to the Securities and Exchange Commission.




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ITEM 1A.    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, results of operations, and cash flows could be materially adversely affected.

Our operations will be affected by global economic fluctuations.

Client's demand for our services may fluctuate with changes in economic conditions in the markets in which we operate. Those conditions include slower employment growth or reductions in employment. We have limited flexibility to reduce expenses during economic downturns due to some overhead costs which are fixed in the short-term. Furthermore, we may face increased pricing pressures during economic downturns. For example, during the 2008 and 2009 economic downturn, many employers in our operating regions reduced their overall workforce to reflect the slowing demand for their products and services. Employers continuing to operate with these reduced workforces contributed to operating losses for our company in 2012. Economic conditions could remain weak in 2013, which may result in lower operating results than we currently expect.

Our operating results fluctuate from quarter to quarter; no single quarter is predictive of future periods' results.

Our operating results fluctuate quarter to quarter primarily due to the vacation periods during the first quarter in the Asia Pacific region and the third quarter in the Americas and Europe regions. Demand for our services is typically lower during traditional national vacation periods when clients and candidates are on vacation.

Our revenue can vary because our clients can terminate their relationship with us at any time with limited or no penalty.

We provide professional mid-market personnel on a temporary assignment-by-assignment basis, which clients can generally terminate at any time or reduce their level of use when compared to prior periods. Our professional recruitment business is also significantly affected by our clients' hiring needs and their views of their future prospects. These factors can also affect our RPO business. Clients may, on very short notice, terminate, reduce or postpone their recruiting assignments with us and, therefore, affect demand for our services. This could have a material adverse effect on our business, financial condition and results of operations.

Our markets are highly competitive.

The markets for our services are highly competitive. Our markets are characterized by pressures to provide high levels of service, incorporate new capabilities and technologies, accelerate job completion schedules and reduce prices. Furthermore, we face competition from a number of sources. These sources include other executive search firms and professional search, staffing and consulting firms. Several of our competitors have greater financial and marketing resources than we do. Due to competition, we may experience reduced margins on our services, 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 contract and consulting markets. We cannot provide assurance that existing or future competitors will not develop or offer services 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 increased use of the Internet may attract technology-oriented companies to the professional staffing industry. We cannot provide assurance 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, financial condition and results of operations.


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Our investment strategy subjects us to risks.

From time to time, we make investments as part of our growth plans. Investments may not perform as expected because they are dependent on a variety of factors, including our ability to effectively integrate new personnel and operations, our ability to sell new services, and our ability to retain existing or gain new clients. Furthermore, we may need to borrow more money from lenders or sell equity or debt securities to the public to finance future investments and the terms of these financings may be adverse to us.

We face risks related to our international operations.

We conduct operations in approximately twenty countries and face both translation and transaction risks related to foreign currency exchange. For the year ended December 31, 2012, approximately 86% of our gross margin was earned outside of the U.S. Our financial results could be materially affected by a number of factors particular to international operations. These include, but are not limited to, difficulties in staffing and managing international operations, operational issues such as longer customer payment cycles and greater difficulties in collecting accounts receivable, changes in tax laws or other regulatory requirements, issues relating to uncertainties of laws and enforcement relating to the regulation and protection of intellectual property, and currency fluctuation. If we are forced to discontinue any of our international operations, we could incur material costs to close down such operations.

Regarding the foreign currency risk inherent in international operations, 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. 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. Our consolidated U.S. dollar cash balance could be lower because a significant amount of cash is generated outside of the U.S. This risk could have a material adverse effect on our business, financial condition and results of operations.

We depend on our key management personnel.

Our continued success will depend to a significant extent on our senior management team. The loss of the services of one or more key senior management team member could have a material adverse effect on our business, financial condition and results of operations. 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 results of operations.

Failure to attract and retain qualified personnel could negatively impact our business, financial condition and results of operations.

Our success also depends upon our ability to attract and retain highly-skilled professionals who possess the skills and experience necessary to meet the staffing requirements of our clients. We must continually evaluate and upgrade our base of available qualified personnel to keep pace with changing client needs and emerging technologies. Furthermore, a substantial number of our contractors during any given year may terminate their employment with us and accept regular staff employment with our clients. Competition for qualified professionals with proven skills is intense, and demand for these individuals is expected to remain strong for the foreseeable future. There can be no assurance that qualified personnel will continue to be available to us in sufficient numbers. If we are unable to attract the necessary qualified personnel for our clients, it may have a negative impact on our business, financial condition and results of operations.


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We face risks in collecting our accounts receivable.

In virtually all of our businesses, we invoice customers after providing services, which creates accounts receivable. Delays or defaults in payments owed to us could have a significant adverse impact on our business, financial condition and results of operations. Factors that could cause a delay or default include, but are not limited to, global economic conditions, business failures, and turmoil in the financial and credit markets.

In certain situations, we provide our services to clients under a contractual relationship with a third-party vendor manager, rather than directly to the client. In those circumstances, the third-party vendor manager is typically responsible for aggregating billing information, collecting receivables from the client and paying staffing suppliers once funds are received from the client. In the event that the client has paid the vendor manager for our services and we are unable to collect from the vendor manager, we may be exposed to financial losses.

We have had periods of negative cash flows and operating losses that may reoccur in the future.

We have experienced negative cash flows and reported operating and net losses in the past. For example, our cash flows from operations were negative during 2010 and we had operating and net losses for the year ended December 31, 2012. We cannot provide any assurance that we will have positive cash flows or operating profitability in the future, particularly to the extent the global economy continues to recover slowly from the global economic downturn. If our revenue declines or if operating expenses exceed our expectations, we may not be profitable and may not generate positive operating cash flows.

Our credit facilities restrict our operating flexibility.

Our credit facilities contain various restrictions and covenants that restrict our operating flexibility including:

borrowings limited to eligible receivables;

lenders' ability to impose restrictions, such as payroll or other reserves;

limitations on payments of dividends;

restrictions on our ability to make additional borrowings, or to consolidate, merge or otherwise fundamentally change our ownership;

limitations on capital expenditures, investments, dispositions of assets, guarantees of indebtedness, permitted acquisitions and repurchases of stock; and

limitations on certain intercompany payments of expenses, interest and dividends. 

These restrictions and covenants could have adverse consequences for investors, including the consequences of our need to use a portion of our cash flow from operations for debt service, rather than for our operations, restrictions on our ability to incur additional debt financing for future working capital or capital expenditures, a lesser ability for us to take advantage of significant business opportunities, such as acquisition opportunities, the potential need for us to undertake equity transactions which may dilute the ownership of existing investors, and our inability to react to market conditions by selling lesser-performing assets.

In addition, a default, amendment or waiver to our credit facilities to avoid a default may result in higher rates of interest and could impact our ability to obtain additional borrowings. Finally, debt incurred under our credit facilities bears interest at variable rates. Any increase in interest expense could reduce the funds available for operations.


- 7 -


If we are unable to maintain costs at an acceptable level, our operations could be adversely impacted.

Our ability to reduce costs in line with expectations is important for the improvement of our profitability. Efforts to improve our efficiency could be affected by several factors including turnover, client demands, market conditions, changes in laws, and availability of talent. Our failure to realize the expected benefits of these cost reduction initiatives could have an adverse effect on our financial condition and results of operations.

We rely on our information systems, and if we lose our information processing capabilities or fail to further develop our technology, our business could be adversely affected.

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 adversely affect our business, financial condition and results of operations.

As we operate in an international human resources environment, we are subject to cyber-security risks and incidents. Our business involves the storage and transmission of our candidates' personal information, our clients' job requirement preferences and confidential information used in our Legal eDiscovery practice. We also use mobile devices, social networking and other online activities to connect with our candidates, clients and business partners. While we have implemented measures to prevent security breaches and cyber incidents, our measures may not be effective and any security breaches or cyber incidents could adversely affect our business, financial condition and results of operations.

Our business depends on uninterrupted service to clients.

Our operations depend on our ability to protect our facilities, computer and telecommunication equipment and software systems against damage or interruption from fire, power loss, cyber attacks, sabotage, telecommunications interruption, weather conditions, natural disasters and other similar events such as Hurricane Sandy experienced in the Northeastern United States in late October 2012, the flooding experienced throughout Queensland, Australia in January 2011 and the major earthquake that occurred in Christchurch, New Zealand in February 2011. Additionally, severe weather can cause our employees or contractors to miss work and interrupt delivery of our service, resulting in a loss of revenue. While interruptions of these types that have occurred in the past have not caused material disruption, it is not possible to predict the type, severity or frequency of interruptions in the future or their impact on our business.


- 8 -


We may be exposed to employment-related claims, legal liability and costs from clients, employers and regulatory authorities that could adversely affect our business, financial condition or 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:

claims of misconduct or negligence on the part of our employees;

claims by our employees of discrimination or harassment directed at them, including claims relating to actions of our clients;

claims related to the employment of illegal aliens or unlicensed personnel;

claims for payment of workers' compensation and other similar claims;

claims for violations of wage and hour requirements;

claims for retroactive entitlement to employee benefits;

claims of errors and omissions of our temporary employees;

claims by taxing authorities related to our independent contractors and the risk that such contractors could be considered employees for tax purposes;

claims by candidates that we place for wrongful termination or denial of employment;

claims related to our non-compliance with data protection laws, which require the consent of a candidate to transfer resumes and other data; and

claims by our clients relating to our employees' misuse of client proprietary information, misappropriation of funds, other misconduct, criminal activity or similar claims.

We are 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. Similarly, a client could assert a claim for deceptive trade practices on the grounds that we failed to disclose certain referral information about the candidate or misrepresented material information about the candidate. 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, costly and could have a negative effect on our business. In some cases, we have agreed to indemnify our clients against some or all of these types of liabilities. We cannot assure that we will not experience these problems in the future, that our insurance will cover all claims, or that our insurance coverage will continue to be available at economically-feasible rates.

It is possible that we may still incur liabilities associated with certain pre-spin off activities with Monster. Under the terms of our Distribution Agreement with Monster, these liabilities generally will continue to be retained by us. If these liabilities are significant, the retained liabilities could have a material adverse effect on our business, financial condition and results of operations. However, in some circumstance, we may have claims against Monster, and we will make a determination on a case by case basis.


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Our ability to utilize net operating loss carry-forwards may be limited.

The Company has U.S. net operating loss carry-forwards (“NOLs”) that expire through 2032. Section 382 of the Internal Revenue Code imposes an annual limitation on a corporation's ability to utilize NOLs if it experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50% over a three-year period. The Company has experienced ownership changes in the past. Ownership changes in our stock, some of which are outside of our control, could result in a limitation in our ability to use our NOLs to offset future taxable income, could cause U.S. Federal income taxes to be paid earlier than otherwise would be paid if such limitation were not in effect and could cause such NOLs to expire unused, reducing or eliminating the benefit of such NOLs.

There may be volatility in our stock price.

The market price for our common stock has fluctuated in the past and could fluctuate substantially in the future. For example, during 2012, the market price of our common stock reported on the NASDAQ Global Select Market ranged from a high of $5.98 to a low of $3.23. Factors such as general macroeconomic conditions adverse to workforce expansion, the announcement of variations in our quarterly financial results or changes in our expected 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.
 
Our future earnings could be reduced as a result of the imposition of licensing or tax requirements or new regulations that prohibit, or restrict certain types of employment services we offer.

In many jurisdictions in which we operate, the provision of temporary staffing is heavily regulated. For example, governmental regulations can restrict the length of contracts of contract employees and the industries in which they may be used. In some countries, special taxes, fees or costs are imposed in connection with the use of contract workers.
 
The countries in which we operate may:

create additional regulations that prohibit or restrict the types of employment services that we currently provide;

impose new or additional benefit requirements;

require us to obtain additional licensing to provide staffing services;

impose new or additional visa restrictions on movements between countries;

increase taxes, such as sales or value-added taxes, payable by the providers of staffing services;

increase the number of various tax and compliance audits relating to a variety of regulations, including wage and hour laws, unemployment taxes, workers' compensation, immigration, and income, value-added and sales taxes; or

revise transfer pricing laws or successfully challenge our transfer prices, which may result in higher foreign taxes or tax liabilities or double taxation of our foreign operations.

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 business, financial condition and results of operations.


- 10 -


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:
 

dividing our Board of Directors into three classes to be elected on a staggered basis, one class each year;

authorizing our Board of Directors to issue shares of our preferred stock in one or more series without further authorization of our stockholders;

requiring that stockholders provide advance notice of any stockholder nomination of directors or any of new business to be considered at any meeting of stockholders;

permitting removal of directors only for cause by a super-majority vote;

providing that vacancies on our Board of Directors will be filled by the remaining directors then in office;

requiring that a super-majority vote be obtained to amend or repeal specified provisions of our certificate of incorporation or by-laws; and

eliminating the right of stockholders to call a special meeting of stockholders or take action by written consent without a meeting of stockholders.
 
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 approve either the business combination or the transaction that results in the stockholder becoming an interested stockholder or specified stockholder approval requirements are met.

In February 2005, our Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of our common stock payable upon the close of business on February 28, 2005 to the stockholders of record on that date. Each Right entitles the registered holder to purchase from us one one-hundredth (1/100th) of a share of our Series A Junior Participating Preferred Stock (“Preferred Shares”) at a price of $60 per one one-hundredth of a Preferred Share, subject to adjustment. These Rights may make the cost of acquiring us more expensive and, therefore, make an acquisition more difficult.
 


ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.



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ITEM 2.    PROPERTIES

All of the Company's operating offices are located in leased premises. Our principal executive office is currently located at 560 Lexington Avenue, New York, New York, where we occupy space under a lease expiring in March 2017.

Hudson Americas maintains 20 leased locations with approximately 158,000 aggregate square feet, which include 2 leased locations with space of approximately 60,000 aggregate square feet, which are shared between the Hudson Americas and corporate functions. Hudson Asia Pacific maintains 18 leased locations with approximately 184,000 aggregate square feet. Hudson Europe maintains 35 leased locations with approximately 294,000 aggregate 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.


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.    MINE SAFETY DISCLOSURES

Not applicable.


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EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information, as of February 23, 2013, regarding the executive officers of Hudson Global, Inc.:
 
 
 
 
 
Name
  
Age
  
Title
Manuel Marquez Dorsch
  
54
  
Chairman and Chief Executive Officer
Mary Jane Raymond
 
52
 
Executive Vice President and Chief Financial Officer
Latham Williams
  
60
  
Senior Vice President, Legal Affairs and Administration, Corporate Secretary
Frank P. Lanuto
 
50
 
Senior Vice President, Controller and Chief Accounting Officer

Neil J. Funk
  
61
  
Vice President, Internal Audit

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

Manuel Marquez Dorsch has served as Chairman and Chief Executive Officer since May 2011, with overall responsibility for the Company's growth strategy, operational execution and performance. Mr. Marquez has over 20 years of experience in senior leadership positions. Most recently, from 2007 to 2010, he was the chief executive officer of Amper S.A., a leading defense, homeland security and telecom services company in Spain with approximately 1,200 employees. Prior to joining Amper, Mr. Marquez spent 15 years in the recruitment industry with Spencer Stuart, an international leader in executive search consulting services. He joined Spencer Stuart in 1991 and co-founded one of the firm's first specialized industry practices, High Technology. In 1995, he was asked to lead the European Telecommunications Practice. From 1997 to 2000, he was the Managing Partner responsible for the Spanish market. From 2000 to 2005, he was a member of the global executive team of Spencer Stuart responsible for the firm's operations in Europe, India and South Africa. Mr. Marquez began his professional career at IBM in 1981. He later joined Digital Equipment Corporation in 1989, as marketing and sales director for its Spanish subsidiary.

Mary Jane Raymond has served as the Executive Vice President and Chief Financial Officer, which position she has held since joining the Company in December 2005. From February 2011 to May 2011, she also served as Interim Chief Executive Officer. Prior to that, Ms. Raymond was the Chief Risk Officer of The Dun & Bradstreet Corporation during 2005. From 2002 to 2005, Ms. Raymond served as the Vice President and Corporate Controller of the Dun & Bradstreet Corporation. Ms. Raymond served as the Merger Integration Vice President of Lucent Technologies, Inc. from 1998 to 2002 and as Financial Vice President in International from 1997 to 1998. From 1988 to 1997, Ms. Raymond served in various positions with Cummins, Inc.

Latham Williams has served as Senior Vice President, Legal Affairs and Administration, Corporate Secretary since February 2007. Prior to that, Mr. Williams served as Vice President, Legal Affairs and Administration, Corporate Secretary since joining the Company in April 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 LLP from 1993 to 2000, specializing in health care joint ventures, mergers and acquisitions. Before joining Sidley Austin, Mr. Williams was an equity partner in the Chicago-based law firm of Gardner, Carton & Douglas (now, Drinker Biddle) and was with the firm from 1981 to 1993.


- 13 -


Frank P. Lanuto has served as Senior Vice President, Controller and Chief Accounting Officer since November 2009. Prior to that, Mr. Lanuto served as Vice President and Corporate Controller since he joined the Company in June 2008. Prior to joining the Company, Mr. Lanuto served as Executive Vice President and Chief Financial Officer of Initiative Media Worldwide, a subsidiary of The Interpublic Group of Companies. Inc., from September 2005 to March 2008. Prior to that, Mr. Lanuto served as Chief Financial Officer of Publicis Healthcare Communications, from April 2003 to August 2005. Prior to that, he served as Executive Vice President, Corporate Finance of Bcom3 Group, Inc. from December 2001 to March 2003 and Senior Vice President and Director, Group Financial Reporting of Bcom3 Group from May 2000 to November 2001. Mr. Lanuto served in various positions for Omnicom Group Inc. from 1993 to 2000, including Chief Operating Officer and Chief Financial Officer of its Rapp Collins Worldwide (New York office) business.

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 during 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.    

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.




- 14 -


PART II

ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET FOR COMMON STOCK

The Company's common stock was listed for trading on the NASDAQ Global Select Market during 2012. From January 1, 2012 through April 29, 2012, the Company's common stock was listed under the symbol “HHGP” and from April 30, 2012 through December 31, 2012 under the symbol “HSON. On January 31, 2013, there were approximately 633 holders of record of the Company's common stock.

The following is a list by fiscal quarter of the market prices of the Company's common stock.
 
  
  
Market Price
 
  
High
  
Low
2012
 
 
 
 
Fourth quarter
  
$
4.71

  
$
3.82

Third quarter
  
$
4.73

 
$
3.78

Second quarter
  
$
5.98

 
$
3.23

First quarter
  
$
5.91

 
$
4.29

2011
  
 
  
 
Fourth quarter
  
$
5.48

  
$
3.05

Third quarter
  
$
6.16

  
$
3.17

Second quarter
  
$
6.66

  
$
4.39

First quarter
  
$
7.11

  
$
4.87


We have never declared or paid cash dividends on our common stock, and we currently do not intend to declare or pay cash 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 agreement prohibit us from paying dividends and making other distributions.


- 15 -


ISSUER PURCHASES OF EQUITY SECURITIES

The Company's purchases of its common stock during the fourth quarter of fiscal 2012 were as follows:

Period
 
Total 
Number of Shares 
Purchased
 
Average 
Price
Paid 
per Share
 
Total Number of
Shares Purchased 
as Part of Publicly
Announced Plans or Programs
 
Approximate Dollar 
Value of Shares
that May Yet Be
Purchased Under
the Plans or Programs (a)
October 1, 2012 - October 31, 2012 (b)
 

 

 

 
6,792,000

November 1, 2012 - November 30, 2012 (b)
 
10,794

 
$
4.35

 

 
6,792,000

December 1, 2012 - December 31, 2012 (b)
 
2,600

 
$
4.44

 

 
6,792,000

Total
 
13,394

 
$
4.37

 

 
6,792,000


(a)
On February 4, 2008, the Company announced that its Board of Directors authorized the repurchase of a maximum of $15 million of the Company's common stock. The Company has repurchased 1,491,772 shares for a total cost of approximately $8.2 million under this authorization. Repurchases of common stock are restricted under the Company's revolver agreement entered on August 5, 2010, as amended.

(b)
Consisted of shares of restricted stock withheld from employees upon the vesting of such shares to satisfy employees' income tax withholding requirements.

The following information in this Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate it by reference into such a filing. 


- 16 -


PERFORMANCE INFORMATION

The following graph compares on a cumulative basis changes since December 31, 2007 in (a) the total stockholder return on the Company's common stock with (b) the total return on the Russell 2000 Index and (c) the total return on the companies in a peer group selected in good faith by the Company, in each case assuming reinvestment of dividends. Such changes have been measured by dividing (x) the difference between the price per share at the end of and the beginning of the measurement period by (y) the price per share at the beginning of the measurement period. The graph assumes $100 was invested on December 31, 2007 in the Company's common stock, the Russell 2000 Index and the peer group consisting of Resources Connection, Inc., Kelly Services, Inc., Kforce, Inc., and CDI Corporation. The returns of each component company in the peer group have been weighted based on each company's relative market capitalization on December 31, 2012.

 
 
December 31,
 
 
2007
 
2008
 
2009
 
2010
 
2011
 
2012
HSON
 
$
100.00

 
$
39.83

 
$
56.48

 
$
69.32

 
$
56.96

 
$
53.27

RUSSELL 2000 INDEX
 
$
100.00

 
$
65.20

 
$
81.64

 
$
102.30

 
$
96.72

 
$
110.87

PEER GROUP
 
$
100.00

 
$
74.54

 
$
92.86

 
$
114.51

 
$
80.94

 
$
94.08




- 17 -


ITEM 6.    SELECTED FINANCIAL DATA

The following table shows selected financial data of the Company that has been adjusted to reflect the classification of certain businesses as discontinued operations. The data 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.

 
  
Year Ended December 31,
 
  
2012
 
2011
 
2010
 
2009
 
2008
 
  
(dollars in thousands, except per share data)
SUMMARY OF OPERATIONS:
  
 
 
 
 
 
 
 
 
 
Revenue
  
$
777,577

 
$
933,736

 
$
794,542

 
$
691,149

 
$
1,079,085

Gross margin
  
$
284,867

 
$
354,305

 
$
298,573

 
$
260,453

 
$
454,986

Business reorganization and integration expense
 
$
7,782

 
$
720

 
$
1,694

 
$
18,180

 
$
11,217

Goodwill and other impairment charges (a)
 
$

 
$

 
$

 
$
1,549

 
$
67,087

Depreciation and amortization
  
$
6,438

 
$
6,251

 
$
8,184

 
$
12,543

 
$
14,662

Operating income (loss)
  
$
(6,638
)
 
$
17,435

 
$
(5,618
)
 
$
(49,453
)
 
$
(70,783
)
Income (loss) from continuing operations
  
$
(5,335
)
 
$
10,909

 
$
(4,441
)
 
$
(42,953
)
 
$
(73,096
)
Income (loss) from discontinued operations, net of income taxes
 
$

 
$

 
$
(244
)
 
$
2,344

 
$
(1,222
)
Net income (loss)
  
$
(5,335
)
 
$
10,909

 
$
(4,685
)
 
$
(40,609
)
 
$
(74,318
)
Basic income (loss) per share from continuing operations
  
$
(0.17
)
 
$
0.35

 
$
(0.15
)
 
$
(1.65
)
 
$
(2.90
)
Basic net income (loss) per share
  
$
(0.17
)
 
$
0.35

 
$
(0.16
)
 
$
(1.56
)
 
$
(2.95
)
Diluted income (loss) per share from continuing operations
  
$
(0.17
)
 
$
0.34

 
$
(0.15
)
 
$
(1.65
)
 
$
(2.90
)
Diluted net income (loss) per share
  
$
(0.17
)
 
$
0.34

 
$
(0.16
)
 
$
(1.56
)
 
$
(2.95
)
OTHER FINANCIAL DATA:
  
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
  
$
13,159

 
$
13,396

 
$
(15,658
)
 
$
(26,988
)
 
$
11,860

Net cash provided by (used in) investing activities
  
$
(8,272
)
 
$
(6,584
)
 
$
1,140

 
$
6,804

 
$
4,196

Net cash provided by (used in) financing activities
  
$
(4,274
)
 
$
1,639

 
$
7,578

 
$
4,371

 
$
(646
)
BALANCE SHEET DATA:
  
 
 
 
 
 
 
 
 
 
Current assets
  
$
157,412

 
$
181,923

 
$
172,087

 
$
148,366

 
$
194,149

Total assets
  
$
193,468

 
$
216,546

 
$
205,834

 
$
181,944

 
$
230,953

Current liabilities
  
$
67,168

 
$
90,515

 
$
93,760

 
$
86,154

 
$
104,581

Total stockholders’ equity
  
$
106,541

 
$
107,357

 
$
93,278

 
$
76,260

 
$
107,992

OTHER DATA:
 
 
 
 
 
 
 
 
 
 
EBITDA (loss) (b)
  
$
54

 
$
23,642

 
$
6,503

 
$
(35,466
)
 
$
(52,852
)

(a)
The results for the year ended December 31, 2009 principally consisted of an impairment charge of $1,669 related to goodwill associated with the Tong Zhi (Beijing) Consulting Service Ltd. and Guangzhou Dong Li Consulting Service Ltd. (collectively, “TKA”) acquisition. The results for the year ended December 31, 2008 included impairment charges related to goodwill of $64,495, a write down of long-term assets of $2,224 and impairment charges related to intangible assets of $368.

(b)
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 that 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. See Note 15 to the Consolidated Financial Statements for further EBITDA segment and reconciliation information.


- 18 -


ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and the notes thereto, included in Item 8 of this Form 10-K. This MD&A contains forward-looking statements. Please see “FORWARD-LOOKING STATEMENTS” for a discussion of the uncertainties, risks and assumptions associated with these statements. This MD&A also uses the non-generally accepted accounting principle measure of earnings before interest, taxes, depreciation and amortization (“EBITDA”). See Note 15 to the Consolidated Financial Statements for EBITDA segment reconciliation information.
This MD&A includes the following sections:
Executive Overview
Results of Operations
Liquidity and Capital Resources
Contingencies
Critical Accounting Policies
Recent Accounting Pronouncements
Forward-Looking Statements

Executive Overview
Hudson is a global talent solutions company with expertise in leadership and specialized recruitment, contracting solutions, recruitment process outsourcing, talent management and eDiscovery. The Company helps it clients and candidates succeed by leveraging our expertise, deep industry and market knowledge, and proprietary assessment tools and techniques. With approximately 2,000 employees in 20 countries, and relationships with specialized professionals around the globe, the Company brings a unique ability to match talent with opportunities by assessing, recruiting, developing and engaging the best and brightest people for the Company's clients. The Company combines broad geographic presence, world-class talent solutions and a tailored, consultative approach to help businesses and professionals achieve maximum performance. Hudson's focus is to continually upgrade its service offerings, delivery capability and assessment tools to make candidates more successful in achieving its clients' business requirements.
The Company has shifted and refined its focus to place greater emphasis on key accounts and solutions-based offerings in order to operate as a trusted business advisor and partner to both clients and candidates. The Company’s proprietary frameworks, assessment tools and leadership development programs, coupled with our broad geographic footprint, has allowed us to design and implement regional and global recruitment solutions that we believe greatly enhance the quality of hiring.
The Company’s strategic initiatives for the near term include:
Leveraging the value of our global business as exemplified by the launch of the global practices in Legal eDiscovery and RPO.
Attracting, developing and retaining the right people to increase productivity and profitability.
Focusing on selected clients and services to provide higher value recruitment solutions to their businesses.
Creating a compelling digital presence to help attract both highly-skilled candidates and new clients to grow our business.

In 2012, the Company took steps to accelerate its strategic initiatives and announced in April 2012 a plan of reorganization ("2012 Plan"). The 2012 Plan is focused on:
Redirecting resources to high-potential strategic businesses, such as RPO and Legal eDiscovery, and growth markets of the world.


- 19 -


Optimizing its operations in under-performing sectors and markets to deliver improved performance, re-engineering of its delivery model, and consolidating operations globally.

Streamlining its back office support areas and business processes, and establishing a shared services operation and global centers of excellence to gain efficiencies of operation.

Current Market Conditions
Economic conditions in most parts of the world have not yet shown improvement. These conditions have impacted European and Australia markets in particular. In virtually all markets in which we operate, clients are focused on reducing expenses.
These market conditions contributed to a decline of 17% in the Company’s annual revenues of as compared to 2011 and affected nearly all of the major markets in which we operate. If the current market conditions persist, we may experience extended periods of lower revenues, which could negatively impact our business, operating results and financial condition. We may also see an increasing trend among clients to re-tender contracts rather than renewing them. At this time, we are unable to accurately predict the outcome of these events or changes in general economic conditions and their effect on the demand for our services. 
Financial Performance
The following is a summary of the highlights for the years ended December 31, 2012, 2011 and 2010. These should be considered in the context of the additional disclosures in this MD&A.
Revenue was $777.6 million for the year ended December 31, 2012, compared to $933.7 million for 2011, a decrease of $156.2 million, or 16.7%. On a constant currency basis, the Company's revenue decreased $145.9 million, or 15.8%. Of this decrease, $107.6 million was in contracting revenue (down 15.6% compared to 2011) and $40.8 million was in permanent recruitment revenue (down 21.9% compared to 2011).
Revenue was $933.7 million for the year ended December 31, 2011, compared to $794.5 million for 2010, an increase of $139.2 million, or 17.5%. On a constant currency basis, the Company's revenue increased $90.1 million, or 10.8%. Of this increase, $72.8 million was in contracting revenue (up 11.8% compared to 2010) and $18.6 million was in permanent recruitment revenue (up 11.1% compared to 2010).
Gross margin was $284.9 million for the year ended December 31, 2012, compared to $354.3 million for 2011, a decrease of $69.4 million, or 19.6%. On a constant currency basis, gross margin decreased $63.6 million, or 18.2%. Of this decrease, $40.0 million was in permanent recruitment gross margin (down 21.9% compared to 2011) and $25.2 million was in contracting gross margin (down 19.9% compared to 2011).
Gross margin was $354.3 million for the year ended December 31, 2011, compared to $298.6 million for 2010, an increase of $55.7 million, or 18.7%. On a constant currency basis, gross margin increased $36.7 million, or 11.8%. Of this increase, $19.5 million was in contracting gross margin (up 18.1% compared to 2010) and $18.0 million was in permanent recruitment gross margin (up 10.9% compared to 2010).
Selling, general and administrative expenses and other non-operating income (expense) (“SG&A and Non-Op”) were $277.0 million for the year ended December 31, 2012, compared to $329.9 million for 2011, a decrease of $52.9 million, or 16.0%. On a constant currency basis, SG&A and Non-Op decreased $47.0 million, or 14.5%. SG&A and Non-Op, as a percentage of revenue, was 35.6% for the year ended December 31, 2012, compared to 35.1% for 2011.
SG&A and Non-Op were $329.9 million for the year ended December 31, 2011, compared to $289.8 million for 2010, an increase of $40.1 million, or 13.8%. On a constant currency basis, SG&A and Non-Op increased $22.4 million, or 7.4%. SG&A and Non-Op, as a percentage of revenue, was 35.3% for the year ended December 31, 2011, compared to 36.2% for 2010.

- 20 -



Business reorganization expenses were $7.8 million for the year ended December 31, 2012, compared to $0.7 million in for 2011, an increase of $7.1 million on both a reported and constant currency basis.
Business reorganization expenses were $0.7 million for the year ended December 31, 2011, compared to $1.7 million in for 2010, a decrease of $1.0 million on both a reported and constant currency basis.
EBITDA was $0.1 million for the year ended December 31, 2012, compared to EBITDA of $23.6 million for 2011. On a constant currency basis, EBITDA decreased $23.7 million in 2012 compared to 2011.
EBITDA was $23.6 million for the year ended December 31, 2011, compared to EBITDA of $6.5 million for 2010. On a constant currency basis, EBITDA increased $16.0 million in 2011 compared to 2010.
Net loss was $5.3 million for the year ended December 31, 2012, compared to net income of $10.9 million for 2011. On a constant currency basis, net income decreased $16.4 million in 2012 compared to 2011.
Net income was $10.9 million for the year ended December 31, 2011, compared to a net loss of $4.7 million for 2010. On a constant currency basis, net income increased $15.9 million in 2011 compared to 2010.

- 21 -


Constant Currency
The Company operates on a global basis, with the majority of its gross margin generated outside of the U.S. Accordingly, fluctuations in foreign currency exchange rates can affect our results of operations. For the discussion of reportable segment results of operations, the Company uses constant currency information. Constant currency compares financial results between periods as if exchange rates had remained constant period-over-period. The Company defines the term “constant currency” to mean that financial data for previously reported periods are translated into U.S. dollars using the same foreign currency exchange rates that were used to translate financial data for the current period. The Company’s management reviews and analyzes business results in constant currency and believes these results better represent the Company’s underlying business trends. Changes in foreign currency exchange rates generally impact only reported earnings.
Changes in revenue, gross margin, SG&A and Non-Op, business reorganization expenses, operating income (loss), net income (loss) and EBITDA (loss) include the effect of changes in foreign currency exchange rates. The tables below summarize the impact of foreign currency exchange rate adjustments on the Company’s operating results for the years ended December 31, 2012, 2011 and 2010
 
 
Year Ended December 31,
 
 
2012
 
2011
 
2010
 
 
As
 
As
 
Currency
 
Constant
 
As
 
Currency
 
Constant
$ in thousands
 
reported
 
reported
 
translation
 
currency
 
reported
 
translation
 
currency
Revenue:
 
 

 
 

 
 

 
 

 
 
 
 
 
 
Hudson Americas
 
$
169,216

 
$
192,217

 
$
(20
)
 
$
192,197

 
$
162,432

 
$
36

 
$
162,468

Hudson Asia Pacific
 
288,144

 
359,108

 
1,745

 
360,853

 
303,619

 
35,621

 
339,240

Hudson Europe
 
320,217

 
382,411

 
(11,983
)
 
370,428

 
328,491

 
3,138

 
331,629

Total
 
$
777,577

 
$
933,736

 
$
(10,258
)
 
$
923,478

 
$
794,542

 
$
38,795

 
$
833,337

Gross margin:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Hudson Americas
 
$
43,164

 
$
50,778

 
$
(20
)
 
$
50,758

 
$
39,417

 
$
36

 
$
39,453

Hudson Asia Pacific
 
117,428

 
146,917

 
845

 
147,762

 
121,965

 
13,134

 
135,099

Hudson Europe
 
124,275

 
156,610

 
(6,697
)
 
149,913

 
137,191

 
(31
)
 
137,160

Total
 
$
284,867

 
$
354,305

 
$
(5,872
)
 
$
348,433

 
$
298,573

 
$
13,139

 
$
311,712

SG&A and Non-Op (a):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Hudson Americas
 
$
40,876

 
$
47,306

 
$
(52
)
 
$
47,254

 
$
37,308

 
$
45

 
$
37,353

Hudson Asia Pacific
 
110,798

 
132,653

 
741

 
133,394

 
113,134

 
12,109

 
125,243

Hudson Europe
 
122,101

 
147,919

 
(6,633
)
 
141,286

 
134,817

 
(318
)
 
134,499

Corporate
 
3,256

 
2,065

 
1

 
2,066

 
4,554

 
1

 
4,555

Total
 
$
277,031

 
$
329,943

 
$
(5,943
)
 
$
324,000

 
$
289,813

 
$
11,837

 
$
301,650

Business reorganization expenses:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Hudson Americas
 
$
1,007

 
$

 
$

 
$

 
$
307

 
$
3

 
$
310

Hudson Asia Pacific
 
1,285

 

 
(1
)
 
(1
)
 
(15
)
 
(12
)
 
(27
)
Hudson Europe
 
5,131

 
720

 
(24
)
 
696

 
1,402

 
46

 
1,448

Corporate
 
359

 

 

 

 

 

 

Total
 
$
7,782

 
$
720

 
$
(25
)
 
$
695

 
$
1,694

 
$
37

 
$
1,731

Operating income (loss):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Hudson Americas
 
$
3,318

 
$
5,351

 
$
21

 
$
5,372

 
$
(2,499
)
 
$
5

 
$
(2,494
)
Hudson Asia Pacific
 
7,988

 
18,384

 
191

 
18,575

 
10,822

 
1,042

 
11,864

Hudson Europe
 
1,326

 
14,156

 
(525
)
 
13,631

 
5,050

 
82

 
5,132

Corporate
 
(19,270
)
 
(20,456
)
 
1

 
(20,455
)
 
(18,991
)
 
(9
)
 
(19,000
)
Total
 
$
(6,638
)
 
$
17,435

 
$
(312
)
 
$
17,123

 
$
(5,618
)
 
$
1,120

 
$
(4,498
)
Net income (loss), consolidated
 
$
(5,335
)
 
$
10,909

 
$
179

 
$
11,088

 
$
(4,685
)
 
$
(81
)
 
$
(4,766
)
EBITDA (loss) (b):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Hudson Americas
 
$
1,268

 
$
3,482

 
$
29

 
$
3,511

 
$
1,687

 
$
(12
)
 
$
1,675

Hudson Asia Pacific
 
5,355

 
14,180

 
106

 
14,286

 
8,847

 
1,033

 
9,880

Hudson Europe
 
(2,955
)
 
8,071

 
(42
)
 
8,029

 
1,086

 
243

 
1,329

Corporate
 
(3,614
)
 
(2,091
)
 
1

 
(2,090
)
 
(5,117
)
 

 
(5,117
)
Total
 
$
54

 
$
23,642

 
$
94

 
$
23,736

 
$
6,503

 
$
1,264

 
$
7,767

 

- 22 -


(a)
SG&A and Non-Op is a measure that management uses to evaluate the segments’ expenses, which include the following captions on the Consolidated Statements of Operations and Other Comprehensive Income (Loss): Selling, general and administrative expenses, and other income (expense), net. Corporate management service allocations are included in the segments’ other income (expense).
(b)
See EBITDA reconciliation in the following section.
Use of EBITDA (Non-GAAP measure)
Management believes EBITDA is a meaningful indicator of the Company’s performance that provides useful information to investors regarding the Company’s financial condition and results of operations. EBITDA is also considered by management as the best indicator of operating performance and most comparable measure across the regions in which we operate. Management also uses this measurement to evaluate capital needs and working capital requirements. EBITDA should not be considered in isolation or as a substitute for operating income or net income prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) or as a measure of the Company’s profitability. EBITDA is derived from net income (loss) adjusted for the provision for (benefit from) income taxes, interest expense (income), and depreciation and amortization.
 
The reconciliation of EBITDA to the most directly comparable GAAP financial measure is provided in the table below:
 
 
 
Year Ended December 31,
$ in thousands
 
2012
 
2011
 
2010
Net income (loss)
 
$
(5,335
)
 
$
10,909

 
$
(4,685
)
Adjustment for income (loss) from discontinued operations, net of income taxes
 

 

 
(244
)
Income (loss) from continuing operations
 
$
(5,335
)
 
$
10,909

 
$
(4,441
)
Adjustments to income (loss) from continuing operations
 
 

 
 

 
 
Provision for (benefit from) income taxes
 
(1,684
)
 
5,339

 
1,482

Interest expense, net
 
635

 
1,143

 
1,278

Depreciation and amortization expense
 
6,438

 
6,251

 
8,184

Total adjustments from income (loss) from continuing operations to EBITDA (loss)
 
5,389

 
12,733

 
10,944

EBITDA
 
$
54

 
$
23,642

 
$
6,503

 

- 23 -


Temporary Contracting Data
The following table sets forth the Company’s temporary contracting revenue, gross margin, and gross margin as a percentage of revenue for the years ended December 31, 2012, 2011 and 2010

 
 
Year Ended December 31,
 
 
2012
 
2011
 
2010
$ in thousands
 
As reported
 
As reported
 
Currency
translation
 
Constant
currency
 
As reported
 
Currency
translation
 
Constant
currency
TEMPORARY CONTRACTING DATA (a):
 
 

 
 

 
 
 
 
 
 
Temporary contracting revenue:
 

 
 

 
 

 
 

 
 
 
 
 
 
Hudson Americas
 
$
157,554

 
$
181,272

 
$

 
$
181,272

 
$
156,961

 
$

 
$
156,961

Hudson Asia Pacific
 
195,438

 
244,562

 
1,057

 
245,619

 
208,267

 
25,819

 
234,086

Hudson Europe
 
226,922

 
266,831

 
(6,237
)
 
260,594

 
220,093

 
3,533

 
223,626

Total
 
$
579,914

 
$
692,665

 
$
(5,180
)
 
$
687,485

 
$
585,321

 
$
29,352

 
$
614,673

Temporary contracting gross margin:
 
 

 
 

 
 

 
 

 
 

 
 

Hudson Americas
 
$
31,906

 
$
40,202

 
$
9

 
$
40,211

 
$
33,870

 
$
1

 
$
33,871

Hudson Asia Pacific
 
30,317

 
37,642

 
169

 
37,811

 
32,168

 
3,974

 
36,142

Hudson Europe
 
39,565

 
50,359

 
(1,369
)
 
48,990

 
37,108

 
384

 
37,492

Total
 
$
101,788

 
$
128,203

 
$
(1,191
)
 
$
127,012

 
$
103,146

 
$
4,359

 
$
107,505

Temporary contracting gross margin as a percent of temporary contracting revenue:
 
 

 
 
 
 
Hudson Americas
 
20.25
%

22.18
%

N/A


22.18
%
 
21.58
%
 
N/A

 
21.58
%
Hudson Asia Pacific
 
15.51
%

15.39
%

N/A


15.39
%
 
15.45
%
 
N/A

 
15.44
%
Hudson Europe
 
17.44
%

18.87
%

N/A


18.80
%
 
16.86
%
 
N/A

 
16.77
%
Total
 
17.55
%

18.51
%

N/A


18.47
%
 
17.62
%
 
N/A

 
17.49
%
 
(a)
Temporary contracting gross margin and gross margin as a percentage of revenue are shown to provide additional information regarding the Company’s ability to manage its cost structure and to provide further comparability relative to the Company’s peers. Temporary contracting gross margin is derived by deducting the direct costs of temporary contracting from temporary contracting revenue. The Company’s calculation of gross margin may differ from those of other companies.



- 24 -


Results of Operations
Hudson Americas (reported currency) 
Revenue
 
 
Year Ended December 31,
 
 
2012
 
2011
 
Change in amount
 
Change in %
 
2010
 
Change in amount
 
Change in %
$ in millions
 
 As reported
 
 As reported
 
 
 
 As reported
 
 
Hudson Americas
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
169.2

 
$
192.2

 
$
(23.0
)
 
(12.0
)%
 
$
162.4

 
$
29.8

 
18.3
%
 
For the year ended December 31, 2012, contracting revenue decreased $23.7 million, or 13.1%, and was partially offset by a $0.7 million, or 6.4%, increase in permanent recruitment revenue, as compared to 2011. Contracting revenue represented approximately 93% of Hudson Americas' 2012 revenue. The decline in contracting revenue compared to 2011 was in Legal and resulted principally from the non-recurrence of certain large projects, including M&A projects, present in 2011. RPO revenue accounted for all of the growth in permanent recruitment revenue.

For the year ended December 31, 2011, contracting and permanent recruitment revenue increased $24.3 million and $5.5 million, or 15.5% and 100.6%, respectively, as compared to 2010. The increase in revenue reflected the Company's sale of higher-value recruitment services and solutions to new and existing clients. Contracting revenue in Legal increased $24.2 million, or 22.3%, primarily due to the eDiscovery practice. RPO accounted for the increase in permanent recruitment revenue compared to 2010. The revenue increase in this practice in 2011 featured new client wins and our achievement of incentive levels with certain existing clients.
Gross margin 
 
 
Year Ended December 31,
 
 
2012
 
2011
 
Change in amount
 
Change in %
 
2010
 
Change in amount
 
Change in %
$ in millions
 
 As reported
 
 As reported
 
 
 
 As reported
 
 
Hudson Americas
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross margin
 
$
43.2

 
$
50.8

 
$
(7.6
)
 
(15.0
)%
 
$
39.4

 
$
11.4

 
28.8
%
Gross margin as a percentage of revenue
 
25.5
%
 
26.4
%
 
N/A

 
N/A

 
24.3
%
 
N/A

 
N/A

Contracting gross margin as a percentage of contracting revenue
 
20.3
%
 
22.2
%
 
N/A

 
N/A

 
21.6
%
 
N/A

 
N/A

 
For the year ended December 31, 2012, contracting gross margin decreased $8.3 million, or 20.6%, and was partially offset by an increase in permanent recruitment gross margin of $0.7 million, or 6.4%, as compared to 2011. The changes in gross margin were attributable to the same factors as described above for revenue. Contracting gross margin, as a percentage of revenue, was 20.3% for the year ended December 31, 2012, as compared to 22.2% for 2011. The change was due to a stronger mix of projects in the prior year. Total gross margin, as a percentage of revenue, decreased to 25.5% for the year as compared to 26.4% for 2011 and was attributable principally to the decline in contracting gross margin.

For the year ended December 31, 2011, contracting and permanent recruitment gross margins increased $6.3 million and $5.1 million, or 18.7% and 94.7%, respectively, as compared to 2010. Almost the entire increase in contracting gross margin was in Legal and was driven principally by eDiscovery as noted above for revenue. The increase in permanent recruitment gross margin was attributable to RPO also as noted above for revenue. Contracting gross margin, as a percentage of revenue, was 22.2% for the year ended December 31, 2011, as compared to 21.6% for 2010. The increase was driven by the higher margins in Legal eDiscovery in 2011. Total gross margin, as a percentage of revenue, increased to 26.4% for the year ended December 31, 2011 from 24.3% in 2010 and resulted from the significant growth in RPO in 2011, as well as the higher contracting gross margin as described above.


- 25 -


Selling, general and administrative expenses and non-operating income (expense) (“SG&A and Non-Op”)
 
 
Year Ended December 31,
 
 
2012
 
2011
 
Change in amount
 
Change in %
 
2010
 
Change in amount
 
Change in %
 $ in millions
 
 As reported
 
 As reported
 
 
 
 As reported
 
 
Hudson Americas
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SG&A and Non-Op
 
$
40.9

 
$
47.3

 
$
(6.4
)
 
(13.6
)%
 
$
37.3

 
$
10.0

 
26.8
%
SG&A and Non-Op as a percentage of revenue
 
24.2
%
 
24.6
%
 
N/A

 
N/A

 
23.0
%
 
N/A

 
N/A

 
For the year ended December 31, 2012, SG&A and Non-Op decreased $6.4 million, or 13.6%, as compared to 2011. The decrease was primarily due to actions taken in 2012 to streamline business processes as well as lower gross margin-related compensation and a $0.6 million gain on the disposal of a non-strategic business line. SG&A and Non-Op, as a percentage of revenue, was 24.2% for the year ended December 31, 2012, as compared to 24.6% for 2011. The decrease in SG&A and Non-Op, as a percentage of revenue, was principally due to the business line disposal described above.

For the year ended December 31, 2011, SG&A and Non-Op increased $10.0 million, or 26.8%, as compared to 2010. The increase was primarily due to greater staff compensation resulting from the higher gross margin, which increased 28.8%. SG&A and Non-Op, as a percentage of revenue, was 24.6% as compared to 23.0% for 2010. The increase resulted from the non-recurrence of approximately $3.9 million in gains from the collection of a note receivable, sale of warrants and recovery for unclaimed property in 2010. Excluding these gains, SG&A and Non-Op, as a percentage of revenue, was nearly flat in 2011 as compared to 2010.

Business reorganization expenses

For the year ended December 31, 2012, business reorganization expenses were $1.0 million, as compared to nil and $0.3 million for 2011 and 2010, respectively. Business reorganization expenses incurred in 2012 were attributable to the downsizing of unprofitable lines of business and the reduction of back-office support functions. The reorganization expenses incurred in 2010 were related primarily to amounts provided for employee termination benefits and lease termination payments related to the 2009 restructuring plan.
Operating Income and EBITDA
 
 
Year Ended December 31,
 
 
2012
 
2011
 
Change in amount
 
Change in %
 
2010
 
Change in amount
 
Change in %
$ in millions
 
 As reported
 
 As reported
 
 
 
 As reported
 
 
Hudson Americas
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss):
 
$
3.3

 
$
5.4

 
$
(2.0
)
 
(38.0
)%
 
$
(2.5
)
 
$
7.9

 
(a)
EBITDA
 
$
1.3

 
$
3.5

 
$
(2.2
)
 
(63.6
)%
 
$
1.7

 
$
1.8

 
(a)
EBITDA as a percentage of revenue
 
0.7
%
 
1.8
%
 
N/A

 
N/A

 
1.0
%
 
N/A

 
N/A
(a) Information was not provided because the Company did not consider the change in percentage as a meaningful measure for the years in comparison.
For the year ended December 31, 2012, EBITDA was $1.3 million, or 0.7% of revenue, as compared to $3.5 million, or 1.8% of revenue, for 2011. The decrease in EBITDA was due to lower gross margin and business reorganization expenses in 2012. Operating income was $3.3 million for the year ended December 31, 2012, as compared to $5.4 million for 2011.
For the year ended December 31, 2011, EBITDA was $3.5 million, or 1.8% of revenue, as compared to EBITDA of $1.7 million, or 1.0% of revenue, for 2010. The increase in EBITDA was primarily due to the growth in gross margin. Operating income was $5.4 million for the year ended December 31, 2011, as compared to an operating loss of $2.5 million for 2010.
The difference between operating income and EBITDA for the years ended December 31, 2012, 2011 and 2010 was principally due to the inclusion of corporate management fees and depreciation in the determination of operating income.

- 26 -


Hudson Asia Pacific (constant currency)
Revenue 
 
 
Year Ended December 31,
 
 
2012
 
2011
 
Change in amount
 
Change in %
 
2010
 
Change in amount
 
Change in %
$ in millions
 
As
reported
 
Constant
currency
 
 
 
Constant
currency
 
 
Hudson Asia Pacific
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
288.1

 
$
360.9

 
$
(72.7
)
 
(20.1
)%
 
$
339.2

 
$
21.6

 
6.4
%
 
For the year ended December 31, 2012, contracting and permanent recruitment revenue decreased $50.2 million and $26.6 million, or 20.4% and 26.4%, respectively. These decreases were partially offset by talent management revenue, which increased $5.1 million, or 43.2%, as compared to 2011. Contracting and permanent recruitment revenue in Australia declined $43.0 million and $19.7 million, or 20.9% and 32.8%, respectively, and were partially offset by talent management revenue, which increased $4.3 million, or 43.4%, as compared to 2011. In Asia, revenue decreased $4.8 million, or 12.8%, for the year ended December 31, 2012, as compared to 2011.

The decline in both contracting and permanent recruitment revenue across the region was attributable to increasingly cautious client hiring activities, particularly in corporate management roles, and cost controls implemented in response to the economic environment.

For the year ended December 31, 2011, contracting and permanent recruitment revenue accounted for the vast majority of the region's revenue, which increased $11.5 million and $12.2 million, or 4.9% and 13.7%, respectively, compared to 2010. Talent management revenue decreased $1.6 million, or 11.8%, as compared to 2010. Australia accounted for the vast majority of the increase in revenue for the region, which was principally driven by increased permanent recruitment and contracting revenue of $11.6 million and $6.6 million, or 23.9% and 3.3%, respectively, compared to 2010. The increase in permanent recruitment revenue was led by RPO, which accounted for nearly one-third of the increase, followed by the accounting & finance and information technology & telecom (“IT&T”) practices. The revenue increase in contracting was led by the natural resources sector, which benefited almost all of our practices, particularly accounting & finance and marketing. In Mainland China, permanent recruitment revenue increased $3.5 million, or 22.3%, compared to 2010, and the increase was primarily in our industrial practice.

Gross margin 
 
 
Year Ended December 31,
 
 
2012
 
2011
 
Change in amount
 
Change in %
 
2010
 
Change in amount
 
Change in %
 
 
As
reported
 
Constant
currency
 
 
 
Constant
currency
 
 
Hudson Asia Pacific
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross margin
 
$
117.4

 
$
147.8

 
$
(30.3
)
 
(20.5
)%
 
$
135.1

 
$
12.7

 
9.4
%
Gross margin as a percentage of revenue
 
40.8
%
 
40.9
%
 
N/A

 
N/A

 
39.8
%
 
N/A

 
N/A

Contracting gross margin as a percentage of contracting revenue
 
15.5
%
 
15.4
%
 
N/A

 
N/A

 
15.4
%
 
N/A

 
N/A

 
For the year ended December 31, 2012, permanent recruitment and contracting gross margins decreased $25.9 million and $7.5 million, or 26.0% and 19.8%, respectively. These decreases were partially offset by an increase in talent management of $3.3 million, or 35.6%, as compared to 2011. Australia accounted for the majority of the decrease in gross margin with a decrease of $18.9 million in permanent recruitment gross margin and a decrease of $5.9 million in contracting gross margin. Contracting gross margin, as a percentage of revenue, was 15.5%, and remained consistent as compared to 15.4% for 2011. Total gross margin, as a percentage of revenue, was 40.8%, as compared to 40.9% for 2011. The changes in gross margin were attributable to the same factors as described above for revenue.
 

- 27 -


For the year ended December 31, 2011, permanent recruitment and contracting gross margins increased $12.1 million and $1.7 million, or 13.8% and 4.6%, respectively compared to 2010. Australia accounted for the vast majority of the increase in gross margin, with an increase of $11.3 million, or 23.6%, in permanent recruitment and an increase of $0.6 million, or 2.0%, in contracting compared to 2010. RPO led the increase in permanent recruitment gross margin and accounted for nearly half of the increase, followed by the accounting & finance and IT&T practices. The gross margin increase in contracting was led by the accounting and finance and engineering practices. In Mainland China, permanent recruitment gross margin increased $3.6 million, or 23.1%, primarily in the industrial practice. Contracting gross margin, as a percentage of revenue, was 15.4%, and remained consistent as compared to 2010. Total gross margin, as a percentage of revenue, was 40.9%, as compared to 39.8% for 2010 and resulted principally from the higher proportion of permanent recruitment revenue.
SG&A and Non-Op
 
 
Year Ended December 31,
 
 
2012
 
2011
 
Change in amount
 
Change in %
 
2010
 
Change in amount
 
Change in %
$ in millions
 
As
reported
 
Constant
currency
 
 
 
Constant
currency
 
 
Hudson Asia Pacific
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SG&A and Non-Op
 
$
110.8

 
$
133.4

 
$
(22.6
)
 
(16.9
)%
 
$
125.2

 
$
8.2

 
6.5
%
SG&A and Non-Op as a percentage of revenue
 
38.5
%
 
37.0
%
 
N/A

 
N/A

 
36.9
%
 
N/A

 
N/A

  
Actions taken to streamline business processes as well as lower gross margin related compensation and lesser corporate management fees accounted for the decrease in SG&A and Non-Op for the year ended December 31, 2012 as compared to 2011. SG&A and Non-Op, as a percentage of revenue, was 38.5% as compared to 37.0% for 2011. The increase in SG&A and Non-OP, as a percentage of revenue, was primarily due to proportionally lower revenue in 2012.

For the year ended December 31, 2011, the increase in SG&A and Non-Op was primarily due to the salaries and costs related to the higher gross margin and higher corporate management fees as compared to 2010. SG&A and Non-Op, as a percentage of revenue, remained consistent at 37.0% as compared to 36.9% in 2010.
  
Business reorganization expenses

For the year ended December 31, 2012, business reorganization expenses were $1.3 million, as compared to nil for 2011. Business reorganization expenses incurred in 2012 were primarily for employee termination benefits for the reduction of back-office support functions and lease exit costs associated with the relocation of our Sydney, Australia office.
  
Operating Income and EBITDA
 
 
Year Ended December 31,
 
 
2012
 
2011
 
Change in amount
 
Change in %
 
2010
 
Change in amount
 
Change in %
$ in millions
 
As
reported
 
Constant
currency
 
 
 
Constant
currency
 
 
Hudson Asia Pacific
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income:
 
$
8.0

 
$
18.6

 
$
(10.6
)
 
(57.0
)%
 
$
11.9

 
$
6.7

 
56.6
%
EBITDA
 
$
5.4

 
$
14.3

 
$
(8.9
)
 
(62.5
)%
 
$
9.9

 
$
4.4

 
44.6
%
EBITDA as a percentage of revenue
 
1.9
%
 
4.0
%
 
N/A

 
N/A

 
2.9
%
 
N/A

 
N/A

 
For the year ended December 31, 2012, EBITDA was $5.4 million, or 1.9% of revenue, as compared to $14.3 million, or 4.0% of revenue, for 2011. The decrease in EBITDA for the year ended December 31, 2012 was principally due to the decline in gross margin and business reorganization expenses. Operating income for the year ended December 31, 2012 was $8.0 million, as compared to $18.6 million for 2011.
For the year ended December 31, 2011, EBITDA was $14.3 million, or 4.0% of revenue, as compared to $9.9 million, or 2.9% of revenue, for 2010. The increase in EBITDA for the year ended December 31, 2011 was primarily due to a higher mix of permanent recruitment. Operating income for the year ended December 31, 2011 was $18.6 million, as compared to $11.9 million for 2010.

- 28 -


The difference between operating income and EBITDA for the years ended December 31, 2012, 2011 and 2010 was principally due to the inclusion of corporate management fees and depreciation in the determination of operating income.
Hudson Europe (constant currency)
Revenue
 
 
Year Ended December 31,
 
 
2012
 
2011
 
Change in amount
 
Change in %
 
2010
 
Change in amount
 
Change in %
$ in millions
 
As
reported
 
Constant
currency
 
 
 
Constant
currency
 
 
Hudson Europe
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
320.2

 
$
370.4

 
$
(50.2
)
 
(13.6
)%
 
$
331.6

 
$
38.8

 
11.7
%
  
For the year ended December 31, 2012, contracting, permanent recruitment and talent management revenue decreased $33.7 million, $14.9 million and $1.5 million, or 12.9%, 19.9% and 4.6%, respectively, as compared to 2011. In the U.K., contracting and permanent recruitment revenue declined $39.9 million and $5.4 million, or 18.5% and 15.2%, respectively. These decreases were partially offset by an increase in talent management revenue of $0.7 million, or 15.5%, for the year ended December 31, 2012, as compared to 2011. The decrease was due to retrenchment generally across permanent recruitment and contracting, with the single largest decline in the banking and financial services sector. In Continental Europe, revenue declined $4.0 million, or 3.6%, as compared to 2011. Contracting revenue increased $6.2 million, or 13.7%. The increase was offset by decreases in permanent recruitment and talent management revenue of $7.9 million and $2.0 million, or 21.2% and 7.2%, respectively. Contracting Solutions in the Netherlands and interim management in Belgium accounted for the most of the increase in contracting revenue. The decline in permanent recruitment and talent management revenue occurred principally in France and Belgium.

For the year ended December 31, 2011, contracting revenue increased $37.0 million, or 16.5%, as compared to 2010. Permanent recruitment and talent management revenue was essentially flat. U.K. led the increase in contracting revenue with an increase of $31.0 million, or 16.8%. The increase was primarily in Legal, including eDiscovery, and IT&T. Permanent recruitment revenue decreased $2.8 million, or 7.2%, largely due to a contraction of the banking and finance industry, which affected the majority of our practices. In Continental Europe, revenue increased $11.1 million, or 10.8%. Contracting and permanent recruitment revenue increased $5.8 million and $4.1 million, or 14.8% and 12.4%, respectively. The increase in contracting revenue was primarily driven by interim management, a practice which provides temporary senior management professionals, in Belgium, and the legal and finance practices in the Netherlands. Permanent recruitment revenue increased primarily from the retained placement practices in Belgium and France.
Gross margin
 
 
Year Ended December 31,
 
 
2012
 
2011
 
Change in amount
 
Change in %
 
2010
 
Change in amount
 
Change in %
$ in millions
 
As
reported
 
Constant
currency
 
 
 
Constant
currency
 
 
Hudson Europe
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross margin
 
$
124.3

 
$
149.9

 
$
(25.6
)
 
(17.1
)%
 
$
137.2

 
$
12.8

 
9.3
%
Gross margin as a percentage of revenue
 
38.8
%
 
40.5
%
 
N/A

 
N/A

 
41.4
%
 
N/A

 
N/A

Contracting gross margin as a percentage of contracting revenue
 
17.4
%
 
18.8
%
 
N/A

 
N/A

 
16.8
%
 
N/A

 
N/A

 

- 29 -


For the year ended December 31, 2012, permanent recruitment, contracting and talent management gross margins decreased $14.8 million, $9.4 million and $1.1 million, or 20.4%, 19.2% and 3.9%, respectively, as compared to 2011. In the U.K., contracting and permanent recruitment gross margins declined $9.6 million and $5.4 million, or 25.5% and 15.7%, respectively, for the year ended December 31, 2012, as compared to 2011. In Continental Europe, permanent recruitment and talent management gross margins decreased $7.9 million and $1.2 million, or 21.6% and 5.0%, respectively, partially offset by a nominal increase in contracting gross margin as compared to 2011. The decreases in permanent recruitment and talent management gross margins were attributable to the same factors as described above for revenue. Contracting gross margin, as a percentage of revenue, was 17.4% for the year ended December 31, 2012, as compared to 18.8% for 2011. The decline in contracting gross margin, as a percentage of revenue, was attributable to a lower proportion of high-margin transactional projects in 2012. Total gross margin, as a percentage of revenue, was 38.8% for the year ended December 31, 2012, as compared to 40.5% for 2011. The change in total gross margin, as a percentage of revenue, was primarily related to a lower proportion of permanent recruitment gross margin in 2012.
 
For the year ended December 31, 2011, contracting gross margin increased by $11.5 million, or 30.7%, as compared to 2010. Talent management and permanent recruitment was flat, as compared to 2010. The U.K. led the increase in contracting gross margin with an increase of $9.8 million, or 34.9%. The increase was primarily in Legal, including eDiscovery, and IT&T. Permanent recruitment gross margin decreased $3.0 million, or 8.1%, largely due to a contraction of the banking and finance industry, but was partially offset by an increase in the Legal practice. In Continental Europe, gross margin increased $6.8 million, or 10.1%. Permanent recruitment and contracting gross margins increased $4.1 million and $1.7 million, or 12.5% and 18.1%, respectively. The increases in permanent recruitment and contracting gross margins were for the same reasons as described above for revenue. Contracting gross margin, as a percentage of contracting revenue, was 18.8% for the year ended December 31, 2011, as compared to 16.8% for 2010. The increase was largely driven by the higher margins in our Legal eDiscovery business. Total gross margin, as a percentage of total revenue, was 40.5% for the year ended December 31, 2011, as compared to 41.4% for 2010 and was primarily due to mix between contracting and permanent placement.
SG&A and Non-Op
 
 
 
Year Ended December 31,
 
 
2012
 
2011
 
Change in amount
 
Change in %
 
2010
 
Change in amount
 
Change in %
$ in millions
 
As
reported
 
Constant
currency
 
 
 
Constant
currency
 
 
Hudson Europe
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SG&A and Non-Op
 
$
122.1

 
$
141.3

 
$
(19.2
)
 
(13.6
)%
 
$
134.5

 
$
6.8

 
5.0
%
SG&A and Non-Op as a percentage of revenue