HSON 2014.06.30- 10Q



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 June 30, 2014
or
o
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 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) 

  
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 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  x     No  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

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 June 30, 2014
Common Stock - $0.001 par value
 
33,007,345



HUDSON GLOBAL, INC.
INDEX


 
 
Page
 
 
Item 1.
 
 
Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) - Three Months Ended June 30, 2014 and 2013
 
Condensed Consolidated Balance Sheets – June 30, 2014 and December 31, 2013
 
Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2014 and 2013
 
Condensed Consolidated Statement of Changes in Stockholders’ Equity – Six Months Ended June 30, 2014
 
Item 2.
Item 3.
Item 4.
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 



PART I – FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS

HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Revenue
$
167,365

 
$
171,360

 
$
329,226

 
$
337,037

Direct costs
104,554

 
110,856

 
208,885

 
219,857

Gross margin
62,811

 
60,504

 
120,341

 
117,180

Operating expenses:
 

 
 

 
 

 
 

Selling, general and administrative expenses
63,612

 
63,023

 
123,214

 
124,613

Depreciation and amortization
1,514

 
1,656

 
3,002

 
3,304

Business reorganization expenses
1,117

 
1,249

 
1,231

 
3,231

Operating income (loss)
(3,432
)
 
(5,424
)
 
(7,106
)
 
(13,968
)
Non-operating income (expense):
 

 
 

 
 

 
 

Interest income (expense), net
(206
)
 
(155
)
 
(350
)
 
(300
)
Other income (expense), net
(321
)
 
(94
)
 
(523
)
 
177

Income (loss) before provision for income taxes
(3,959
)
 
(5,673
)
 
(7,979
)
 
(14,091
)
Provision for (benefit from) income taxes
415

 
138

 
939

 
(39
)
Net income (loss)
$
(4,374
)
 
$
(5,811
)
 
$
(8,918
)
 
$
(14,052
)
Earnings (loss) per share:
 

 
 

 
 

 
 

Basic
$
(0.13
)
 
$
(0.18
)
 
$
(0.27
)
 
$
(0.43
)
Diluted
$
(0.13
)
 
$
(0.18
)
 
$
(0.27
)
 
$
(0.43
)
Weighted-average shares outstanding:
 

 
 

 
 

 
 

Basic
32,752

 
32,717

 
32,697

 
32,532

Diluted
32,752

 
32,717

 
32,697

 
32,532

Comprehensive income (loss):
 

 
 

 
 

 
 

Net income (loss)
$
(4,374
)
 
$
(5,811
)
 
$
(8,918
)
 
$
(14,052
)
Other comprehensive income (loss):
 

 
 

 
 
 
 
Foreign currency translation adjustment, net of income taxes
1,001

 
(3,626
)
 
2,030

 
(5,387
)
Pension liability adjustment

 
29

 
(25
)
 
44

Total other comprehensive income (loss), net of income taxes
1,001

 
(3,597
)
 
2,005

 
(5,343
)
Comprehensive income (loss)
$
(3,373
)
 
$
(9,408
)
 
$
(6,913
)
 
$
(19,395
)
 
See accompanying notes to condensed consolidated financial statements.


- 1 -


HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(Unaudited)  
 
June 30,
2014
 
December 31,
2013
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
17,853

 
$
37,378

Accounts receivable, less allowance for doubtful accounts of $1,152 and $1,108, respectively
100,508

 
85,901

Prepaid and other
10,381

 
8,762

Total current assets
128,742

 
132,041

Property and equipment, net
14,900

 
13,822

Deferred tax assets, non-current
6,487

 
7,124

Other assets, non-current
5,791

 
5,842

Total assets
$
155,920

 
$
158,829

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
8,177

 
$
9,747

Accrued expenses and other current liabilities
57,574

 
54,722

Short-term borrowings
2,183

 
476

Accrued business reorganization expenses
2,292

 
3,810

Total current liabilities
70,226

 
68,755

Deferred rent and tenant improvement contributions
7,556

 
6,120

Income tax payable, non-current
2,929

 
3,872

Other non-current liabilities
6,600

 
5,697

Total liabilities
87,311

 
84,444

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 33,134 and 33,543 shares, respectively
34

 
34

Additional paid-in capital
476,193

 
475,461

Accumulated deficit
(426,340
)
 
(417,422
)
Accumulated other comprehensive income, net of applicable tax
19,178

 
17,173

Treasury stock, 127 and 211 shares, respectively, at cost
(456
)
 
(861
)
Total stockholders’ equity
68,609

 
74,385

Total liabilities and stockholders' equity
$
155,920

 
$
158,829

 
See accompanying notes to condensed consolidated financial statements.
 



- 2 -


HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
 
Six Months Ended June 30,
 
2014
 
2013
Cash flows from operating activities:
 

 
 

Net income (loss)
$
(8,918
)
 
$
(14,052
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
3,002

 
3,304

Provision for (recovery of) doubtful accounts
78

 
35

Provision for (benefit from) deferred income taxes
237

 
(373
)
Stock-based compensation
829

 
1,532

Other, net
192

 
324

Changes in assets and liabilities:
 

 
 

Decrease (increase) in accounts receivable
(12,622
)
 
(1,393
)
Decrease (increase) in prepaid and other assets
(670
)
 
(692
)
Increase (decrease) in accounts payable, accrued expenses and other liabilities
679

 
3,371

Increase (decrease) in accrued business reorganization expenses
(1,086
)
 
743

Net cash provided by (used in) operating activities
(18,279
)
 
(7,201
)
Cash flows from investing activities:
 

 
 

Capital expenditures
(2,746
)
 
(1,416
)
Net cash provided by (used in) investing activities
(2,746
)
 
(1,416
)
Cash flows from financing activities:
 

 
 

Borrowings under credit agreements
23,584

 
9,550

Repayments under credit agreements
(21,884
)
 
(8,887
)
Repayment of capital lease obligations
(283
)
 
(230
)
Purchase of restricted stock from employees
(122
)
 
(470
)
Net cash provided by (used in) financing activities
1,295

 
(37
)
Effect of exchange rates on cash and cash equivalents
205

 
(1,692
)
Net increase (decrease) in cash and cash equivalents
(19,525
)
 
(10,346
)
Cash and cash equivalents, beginning of the period
37,378

 
38,653

Cash and cash equivalents, end of the period
$
17,853

 
$
28,307

Supplemental disclosures of cash flow information:
 

 
 

Cash paid during the period for interest
$
202

 
$
123

Cash payments during the period for income taxes, net of refunds
$
555

 
$
395

 
See accompanying notes to condensed consolidated financial statements. 
 



- 3 -


HUDSON GLOBAL, INC.
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 December 31, 2013
33,332

 
$
34

 
$
475,461

 
$
(417,422
)
 
$
17,173

 
$
(861
)
 
$
74,385

Net income (loss)

 

 

 
(8,918
)
 

 

 
(8,918
)
Other comprehensive income (loss), currency translation adjustments, net of applicable tax

 

 

 

 
2,030

 

 
2,030

Other comprehensive income (loss), pension liability adjustment

 

 

 

 
(25
)
 

 
(25
)
Purchase of restricted stock from employees
(33
)
 

 

 

 

 
(122
)
 
(122
)
Issuance of shares for 401(k) plan contribution
118

 

 
(97
)
 

 

 
527

 
430

Stock-based compensation
(410
)
 

 
829

 

 

 

 
829

Balance at June 30, 2014
33,007

 
$
34

 
$
476,193

 
$
(426,340
)
 
$
19,178

 
$
(456
)
 
$
68,609

 
See accompanying notes to condensed consolidated financial statements.

- 4 -

Index
HUDSON GLOBAL, INC.
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 United States of America (“U.S.”) generally accepted accounting principles (“U.S. 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 Global, Inc. and its subsidiaries (the “Company”) filed in its Annual Report on Form 10-K for the year ended December 31, 2013.
 The preparation of financial statements in conformity with U.S. 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.
Certain prior year amounts have been reclassified to conform to the current period presentation.

NOTE 2 – DESCRIPTION OF BUSINESS
The Company is comprised of the operations, assets and liabilities of the three Hudson regional businesses of Hudson Americas, Hudson Asia Pacific, and Hudson Europe (“Hudson regional businesses” or “Hudson”). The Company provides specialized professional-level recruitment and related talent solutions. The Company’s core service offerings include Permanent Recruitment, Contract Consulting, Recruitment Process Outsourcing (“RPO”), Talent Management Solutions and Legal eDiscovery.
The Company operates in 20 countries with three reportable geographic business segments: Hudson Americas, Hudson Asia Pacific, and Hudson Europe. See Note 15 for further details regarding the reportable segments.
Corporate expenses are reported separately from the reportable segments and pertain to certain functions, such as executive management, corporate governance, human resources, accounting, tax, marketing, information technology and treasury. A portion of these expenses are attributed to the reportable segments for providing the above services to them and have been allocated to the segments as management service fees and are included in the segments’ non-operating other income (expense).

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 its consultants, psychologists and other professionals 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 a client's specific business need.
RPO: Hudson RPO delivers both permanent recruitment and temporary contracting outsourced recruitment solutions tailored to the individual needs of primarily 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.

- 5 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

Talent Management Solutions: Featuring embedded proprietary talent assessment and selection methodologies, Hudson’s Talent Management capability encompasses services such as talent assessment (utilizing a variety of competency, attitude and experiential testing), interview training, executive coaching, employee development and outplacement.
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 and are included within temporary contracting services. The most comprehensive of these is Hudson's full-service eDiscovery solution, providing an integrated system of discovery management and review technology deployment for both corporate and law firm clients.

NOTE 3 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period ("ASU 2014-12"). ASU 2014-12 requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification ("ASC") 718, Compensation - Stock Compensation, as it relates to such awards. ASU 2014-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 with early adoption permitted using either of two methods: (i) prospective to all awards granted or modified after the effective date or (ii) retrospective to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter, with the cumulative effect of applying ASU 2014-12 as an adjustment to the opening retained earnings balance as of the beginning of the earliest annual period presented in the financial statements. Accordingly, the standard is effective for the Company beginning on January 1, 2016. The Company is currently evaluating the impact of adopting ASU 2014-12 on the Company's financial condition, results of operations, and disclosures.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is not permitted. Accordingly, the standard is effective for the Company beginning on January 1, 2017. The Company is currently evaluating the impact that the standard will have on the Company's financial condition, results of operations, and disclosures.
In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”). The standard raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. ASU 2014-08 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2014. Accordingly, the standard is effective for the Company beginning on January 1, 2015. Early adoption is permitted, but only for disposals that have not been reported in financial statements previously issued. The Company is currently reviewing the requirements of ASU 2014-08, which will only impact the Company's financial statements upon the occurrence of a future disposal transaction within its scope.
In July 2013, the FASB issued ASU No. 2013-11, “Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, an amendment to FASB Accounting Standards Codification Topic 740, Income Taxes" ("ASU 2013-11"). ASU 2013-11 clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. The Company adopted the ASU 2013-11 prospectively on January 1, 2014. As of June 30, 2014, the Company reclassified $772 of its unrecognized tax benefit as a reduction to a deferred tax asset for a net operating loss carryforward in the Condensed Consolidated Balance Sheet.

There have been no other new accounting pronouncements not yet effective that have significance, or potential significance, to the Company's Condensed Consolidated Financial Statements.


- 6 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)


NOTE 4 – REVENUE, DIRECT COSTS AND GROSS MARGIN
 The Company’s revenue, direct costs and gross margin were as follows: 
 
Three Months Ended June 30, 2014
 
Temporary Contracting
 
 Permanent Recruitment
 
Other
 
Total
Revenue
$
119,344

 
$
35,094

 
$
12,927

 
$
167,365

Direct costs (1)
100,880

 
680

 
2,994

 
104,554

Gross margin
$
18,464

 
$
34,414

 
$
9,933

 
$
62,811

 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2013
 
Temporary Contracting
 
 Permanent Recruitment
 
Other
 
Total
Revenue
$
127,995

 
$
31,357

 
$
12,008

 
$
171,360

Direct costs (1)
107,617

 
429

 
2,810

 
110,856

Gross margin
$
20,378

 
$
30,928

 
$
9,198

 
$
60,504

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2014
 
Temporary Contracting
 
 Permanent Recruitment
 
Other
 
Total
Revenue
$
238,677

 
$
65,224

 
$
25,325

 
$
329,226

Direct costs (1)
201,795

 
1,167

 
5,923

 
208,885

Gross margin
$
36,882

 
$
64,057

 
$
19,402

 
$
120,341

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2013
 
Temporary Contracting
 
 Permanent Recruitment
 
Other
 
Total
Revenue
$
256,836

 
$
57,838

 
$
22,363

 
$
337,037

Direct costs (1)
213,983

 
1,038

 
4,836

 
219,857

Gross margin
$
42,853

 
$
56,800

 
$
17,527

 
$
117,180

 
 
 
 
 
 
 
 
  
(1)
Direct costs in Temporary Contracting include the direct staffing costs of salaries, payroll taxes, employee benefits, travel expenses, rent 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 Permanent Recruitment and Other category. 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 under the caption "Selling, general and administrative expenses" in the Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss).


- 7 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)


NOTE 5 – STOCK-BASED COMPENSATION
Incentive Compensation Plan
The Company maintains the Hudson Global, Inc. 2009 Incentive Stock and Awards Plan, as amended and restated April 26, 2012 (the “ISAP”), pursuant to which it can issue equity-based compensation incentives to eligible participants. The ISAP permits the granting of stock options, restricted stock, restricted stock units, and other types of equity-based awards. The Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) will establish such conditions as it deems appropriate on the granting or vesting of stock options, restricted stock, restricted stock units and other types of equity-based awards. The Company grants primarily restricted stock to its employees, although the Company has recently also granted restricted stock units to certain of its employees. A restricted stock unit is equivalent to one share of the Company’s common stock and is payable only in common stock of the Company issued under the ISAP.
The Compensation Committee 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. As of June 30, 2014, there were 2,608,643 shares of the Company’s common stock available for future issuance under the ISAP.
A summary of the quantity and vesting conditions for stock-based awards granted to the Company's employees for the six months ended June 30, 2014 was as follows:
Vesting conditions
 
Number of Shares of Restricted Stock Granted
Vest 100% on the third anniversary of the grant date with service conditions only
 
5,000

The Company also maintains the Director Deferred Share Plan (the “Director Plan”) pursuant to which it can issue restricted stock units to its non-employee directors. A restricted stock unit is equivalent to one share of the Company’s common stock and is payable only in common stock issued under the ISAP upon a director ceasing service as a member of the Board of Directors of the Company. The restricted stock units vest immediately upon grant and are credited to each of the non-employee director's retirement accounts under the Director Plan. During the six months ended June 30, 2014, the Company granted 50,259 restricted stock units to its non-employee directors pursuant to the Director Plan.
For the three and six months ended June 30, 2014 and 2013, the Company’s stock-based compensation expense related to stock options, restricted stock and restricted stock units was as follows: 

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Stock options
 
$
27

 
$
93

 
$
85

 
$
237

Restricted stock
 
93

 
417

 
502

 
898

Restricted stock units
 
213

 
347

 
242

 
397

Total
 
$
333

 
$
857

 
$
829

 
$
1,532

 

- 8 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

Stock Options
There was no unrecognized stock-based compensation expense related to outstanding unvested stock options as of June 30, 2014.
Changes in the Company’s stock options for the six months ended June 30, 2014 and 2013 were as follows: 

 
Six Months Ended June 30,
 
2014
 
2013
 
Number of
Options
 
Weighted
Average
Exercise Price
per Share
 
Number of
Options
 
Weighted
Average
Exercise Price
per Share
Options outstanding at January 1,
800,350

 
$
9.15

 
1,238,650

 
$
11.21

Expired/forfeited
(18,550
)
 
14.13

 
(188,200
)
 
7.95

Options outstanding at June 30,
781,800

 
9.03

 
1,050,450

 
11.80

Options exercisable at June 30,
781,800

 
$
9.03

 
850,450

 
$
13.36


Restricted Stock
As of June 30, 2014, the Company had approximately $578 of unrecognized stock-based compensation expense related to outstanding unvested restricted stock. The Company expects to recognize that cost over a weighted average service period of 1.64 years.
Changes in the Company’s restricted stock for the six months ended June 30, 2014 and 2013 were as follows:
 
 
Six Months Ended June 30,
 
2014
 
2013
 
Number of
Shares of
Restricted
Stock
 
Weighted
Average
Grant Date
Fair Value
 
Number of
Shares of
Restricted
Stock
 
Weighted
Average
Grant Date
Fair Value
Unvested restricted stock at January 1,
997,802

 
$
3.00

 
1,028,916

 
$
4.87

Granted
5,000

 
3.87

 
555,221

 
2.42

Vested
(168,574
)
 
5.32

 
(374,225
)
 
5.15

Forfeited
(445,416
)
 
2.31

 
(398,805
)
 
4.26

Unvested restricted stock at June 30,
388,812

 
$
2.80

 
811,107

 
$
3.36



- 9 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

Restricted Stock Units
 As of June 30, 2014, the Company had approximately $43 of unrecognized stock-based compensation expense related to outstanding unvested restricted stock units. The Company expects to recognize that cost over a weighted average service period of 1.0 years.
Changes in the Company’s restricted stock units for the six months ended June 30, 2014 and 2013 were as follows:
 
Six Months Ended June 30,
 
2014
 
2013
 
Number of
Restricted
Stock Units
 
Weighted
Average
Grant-Date
Fair Value
 
Number of
Restricted
Stock Units
 
Weighted
Average
Grant-Date
Fair Value
Unvested restricted stock units at January 1,
115,869

 
$
3.65

 
100,000

 
$
5.18

Granted
50,259

 
3.88

 
167,400

 
2.88

Vested
(82,022
)
 
4.18

 
(152,200
)
 
3.84

Forfeited
(48,160
)
 
2.42

 
(5,000
)
 
2.42

Unvested restricted stock units at June 30,
35,946

 
$
4.40

 
110,200

 
$
3.67

 
Defined Contribution Plan and Employer-matching contributions
The Company maintains the Hudson Global, 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% of the employees' earnings through a contribution of the Company’s common stock to the 401(k) plan. Vesting of the Company’s contribution occurs over a five-year period. For the three and six months ended June 30, 2014 and 2013, the Company’s current year expenses and contributions to satisfy the prior years’ employer-matching liability for the 401(k) plan were as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
($ in thousands, except otherwise stated)
2014
 
2013
 
2014
 
2013
Expense recognized for the 401(k) plan
$
155

 
$
152

 
$
319

 
$
342

Contributions to satisfy prior years' employer-matching liability
 
 
 

 
 

 
 

Number of shares of the Company's common stock issued (in thousands)
118

 

 
118

 

Market value per share of the Company's common stock on contribution date (in dollars)
$
3.65

 
$

 
$
3.65

 
$

Non-cash contribution made for employer matching liability
$
430

 
$

 
$
430

 
$

Additional cash contribution made for employer-matching liability
$

 
$

 
$

 
$
651

Total contribution made for employer-matching liability
$
430

 
$

 
$
430

 
$
651

  

- 10 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

NOTE 6 – INCOME TAXES
Under ASC 270, “Interim Reporting”, and ASC 740-270, “Income Taxes – Intra Period 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 ASC 740-270 could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections.
Effective Tax Rate
The provision for income taxes for the six months ended June 30, 2014 was $939 on a pre-tax loss of $7,979, compared to a benefit from income taxes of $39 on pre-tax loss of $14,091 for the same period in 2013. The Company’s effective income tax rate was negative 11.8% and positive 0.3% for the six months ended June 30, 2014 and 2013, respectively. For the six months ended June 30, 2014 and 2013, the effective tax rate differed from the U.S. Federal statutory rate of 35% due to the inability of the Company to recognize tax benefits on losses in the U.S. and certain foreign jurisdictions, variations from the U.S. tax rate in foreign jurisdictions, non-deductible expenses and other miscellaneous taxes.

Uncertain Tax Positions 
As of June 30, 2014 and December 31, 2013, the Company had $2,929 and $3,872, respectively, of unrecognized tax benefits, including interest and penalties, which if recognized in the future, would lower the Company’s annual effective income tax rate. Accrued interest and penalties were $775 and $786 as of June 30, 2014 and December 31, 2013, respectively. Estimated interest and penalties are classified as part of the provision for income taxes in the Company’s Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) and totaled to a provision of $34 and a provision of $58 for the six months ended June 30, 2014 and 2013, respectively.
In many cases, the Company’s unrecognized tax benefits are related to tax years that remain subject to examination by the relevant tax authorities. Tax years with NOLs remain open until such losses expire or until the statutes of limitations for those years when the NOLs are used expire. As of June 30, 2014, the Company's open tax years, which remain subject to examination by the relevant tax authorities, were principally as follows:
 
 
Year
Earliest tax years which remain subject to examination by the relevant tax authorities:
 
 
U.S. Federal
 
2010
Majority of U.S. state and local jurisdictions
 
2009
United Kingdom
 
2012
Australia
 
2009
Majority of other non-U.S. jurisdictions
 
2008
The Company believes that its tax reserves are adequate for all years that remain subject to examination or are currently under examination.
Based on information available as of June 30, 2014, it is reasonably possible that the total amount of unrecognized tax benefits could decrease in the range of $500 to $750 over the next 12 months as a result of projected resolutions of global tax examinations and controversies and potential expirations of the applicable statutes of limitations.


- 11 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)


NOTE 7 – EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share (“EPS”) is 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 is 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 “in-the-money” and unvested restricted stock. The dilutive impact of stock options, unvested restricted stock, and unvested restricted stock units is determined by applying the “treasury stock” method. Performance-based restricted stock awards are included in the computation of diluted earnings per share only to the extent that the underlying performance conditions: (i) are satisfied prior to the end of the reporting period; or (ii) would be satisfied if the end of the reporting period were the end of the related performance period and the result would be dilutive under the treasury stock method. Stock awards subject to vesting or exercisability based on the achievement of market conditions are included in the computation of diluted earnings per share only when the market conditions are met.
A reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share calculations for the six months ended June 30, 2014 and 2013 were as follows:

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Earnings (loss) per share ("EPS"):
 
 

 
 

 
 

 
 

Basic
 
$
(0.13
)
 
$
(0.18
)
 
$
(0.27
)
 
$
(0.43
)
Diluted
 
$
(0.13
)
 
$
(0.18
)
 
$
(0.27
)
 
$
(0.43
)
EPS numerator - basic and diluted:
 
 

 
 

 
 

 
 
Net income (loss)
 
$
(4,374
)
 
$
(5,811
)
 
$
(8,918
)
 
$
(14,052
)
EPS denominator (in thousands):
 
 

 
 

 
 

 
 
Weighted average common stock outstanding - basic
 
32,752

 
32,717

 
32,697

 
32,532

Common stock equivalents: stock options and other stock-based awards (a)
 

 

 

 

Weighted average number of common stock outstanding - diluted
 
32,752

 
32,717

 
32,697

 
32,532


(a)
For the periods in which net losses are presented, the diluted weighted average number of shares of common stock outstanding did not differ from the basic weighted average number of shares of common stock outstanding because the effects of any potential common stock equivalents (see Note 5 for further details on outstanding stock options, unvested restricted stock units and unvested restricted stock) were anti-dilutive and therefore not included in the calculation of the denominator of dilutive earnings per share.
The weighted average number of shares outstanding used in the computation of diluted net income (loss) per share for the six months ended June 30, 2014 and 2013 did not include the effect of the following potentially outstanding shares of common stock because the effect would have been anti-dilutive:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2014
 
2013
 
2014
 
2013
Unvested restricted stock
 
388,812

 
811,107

 
388,812

 
811,107

Unvested restricted stock units
 
35,946

 
110,200

 
35,946

 
110,200

Stock options
 
781,800

 
1,050,450

 
781,800

 
1,050,450

Total
 
1,206,558

 
1,971,757

 
1,206,558

 
1,971,757



- 12 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)


NOTE 8 – RESTRICTED CASH
A summary of the Company’s restricted cash included in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 was as follows: 
 
June 30,
2014
 
December 31,
2013
Included under the caption "Other assets":
 

 
 

Collateral accounts
$
619

 
$
619

Rental deposits
1,229

 
1,195

Total amount under the caption "Other assets":
$
1,848

 
$
1,814

Included under the caption "Prepaid and other":
 

 
 

Client guarantees
$
60

 
$
61

Other
146

 
172

Total amount under the caption "Prepaid and other"
$
206

 
$
233

Total restricted cash
$
2,054

 
$
2,047


Collateral accounts include primarily deposits held under a collateral trust agreement, which supports the Company’s workers’ compensation insurance policy. The rental deposits are with banks and include amounts held as guarantees for the rent on the Company’s offices in the Netherlands and rental deposits from sub-tenants in the United Kingdom ("U.K."). The client guarantees are held in banks in Belgium as deposits for various client projects. Other includes a deposit for a business license in Switzerland and social tax payment reserves, which are held with banks for employee social tax payments required by law in the Netherlands.

NOTE 9 – PROPERTY AND EQUIPMENT, NET
As of June 30, 2014 and December 31, 2013, property and equipment, net were as follows:

 
June 30,
2014
 
December 31,
2013
Computer equipment
$
10,190

 
$
9,395

Furniture and equipment
6,440

 
6,379

Capitalized software costs
28,603

 
26,962

Leasehold improvements
22,948

 
20,816

 
68,181

 
63,552

Less: accumulated depreciation and amortization
53,281

 
49,730

Property and equipment, net
$
14,900

 
$
13,822


The Company had expenditures of approximately $1,871 and $595 for acquired property and equipment, mainly consisting of software and leasehold improvements, which had not been placed in service as of June 30, 2014 and December 31, 2013, respectively. Depreciation expense is not recorded for such assets until they are placed in service.


- 13 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

Non-Cash Capital Expenditures
The Company has acquired certain computer equipment under capital lease agreements. The current portion of the capital lease obligations are included under the caption “Accrued expenses and other current liabilities” in the Condensed Consolidated Balance Sheets and the non-current portion of the capital lease obligations are included under the caption “Other non-current liabilities” in the Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013. A summary of the Company’s equipment acquired under capital lease agreements was as follows:

 
June 30,
2014
 
December 31,
2013
Capital lease obligation, current
$
153

 
$
315

Capital lease obligation, non-current
$
350

 
$
9


The Company acquired $437 of property and equipment under capital lease agreements during the six months ended June 30, 2014 in Australia. Capital expenditures for the six months ended June 30, 2014 included $1,415 of landlord-funded tenant improvements for the Company's leased properties in Perth and Melbourne, Australia.

NOTE 10 – GOODWILL
The following is a summary of the changes in the carrying value of the Company’s goodwill, which was included under the caption of Other Assets in the accompanying Condensed Consolidated Balance Sheets, for the six months ended June 30, 2014. The goodwill related to the earn-out payment made in 2010 for the Company’s 2007 acquisition of the businesses of Tong Zhi (Beijing) Consulting Service Ltd and Guangzhou Dong Li Consulting Service Ltd.
 
Carrying Value
 
2014
Goodwill, January 1,
$
2,078

Currency translation
(49
)
Goodwill, June 30,
$
2,029




NOTE 11 – BUSINESS REORGANIZATION EXPENSES

Initiated in 2012 and extended during 2013, the Company took steps to accelerate its strategic initiatives with the implementation of the 2012 plan of reorganization ("2012 Plan"). The Company's 2012 Plan was focused on (1) redirecting resources to high-potential strategic businesses, (2) optimizing operations in under-performing sectors and markets to deliver improved performance, re-engineering of the delivery model, and consolidating operations globally, and (3) streamlining back office support areas and business processes, and establishing global centers of excellence, to gain efficiencies of operation. For the six months ended June 30, 2014, restructuring charges associated with these initiatives for the 2012 Plan primarily included employee separation costs for 16 positions in Asia Pacific and lease termination payments for offices in the U.S. and Australia. The actions identified above were completed in the six months ended June 30, 2014.

- 14 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

The Company’s Board previously approved other reorganization plans in 2009, 2008 and 2006 (“Previous Plans”) to streamline the Company’s support operations and the Previous Plans included actions to reduce support functions to match them to the scale of the business, to exit underutilized properties and to eliminate contracts for certain discontinued services. These actions resulted in costs for lease termination payments, employee termination benefits and contract cancellations. Business reorganization expenses for the three and six months ended June 30, 2014 and 2013 by plan were as follows:  
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Previous Plans
 
$

 
$

 
$

 
$
36

2012 Plan
 
1,117

 
1,249

 
1,231

 
3,195

Total
 
$
1,117

 
$
1,249

 
$
1,231

 
$
3,231

 
The following table contains amounts for Changes in Estimate, Additional Charges, and Payments related to prior restructuring plans that were incurred or recovered during the six months ended June 30, 2014. The amounts in the “Changes in Estimate” and “Additional Charges” columns are classified as business reorganization expenses in the Company’s Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss). Amounts in the “Payments” column represent primarily the cash payments associated with the reorganization plans. Changes in the accrued business reorganization expenses for the six months ended June 30, 2014 were as follows:
 
For The Six Months Ended June 30, 2014
December 31,
2013
 
Changes in
Estimate
 
Additional
Charges
 
Payments
 
June 30,
2014
Lease termination payments
$
2,445

 
$
729

 
$
90

 
$
(671
)
 
$
2,593

Employee termination benefits
1,780

 

 
343

 
(1,524
)
 
599

Other associated costs
56

 

 
69

 
(56
)
 
69

Total
$
4,281

 
$
729

 
$
502

 
$
(2,251
)
 
$
3,261

 
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Consulting, Employment and Non-compete Agreements
The Company has entered into various consulting, and employment agreements with certain key members of management. These agreements generally (i) are one year in length, (ii) contain restrictive covenants, (iii) under certain circumstances, provide for compensation and subject to providing the Company with a release, severance payments, and (iv) are automatically renewed annually unless either party gives sufficient notice of termination.
Litigation and Complaints 
The Company is subject, from time to time, to various claims, lawsuits, contracts disputes and other complaints from, for example, clients, candidates, suppliers, landlords for both leased and subleased properties, former and current employees, and regulators or tax authorities arising 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.
For matters that have reached the threshold of probable and estimable, the Company has established reserves for legal, regulatory and other contingent liabilities. The Company’s reserves were $163 and $745 as of June 30, 2014 and December 31, 2013, respectively.

- 15 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

Asset Retirement Obligations 
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. The asset retirement obligations are included under the caption “Other non-current liabilities” in the Condensed Consolidated Balance Sheets. The Company’s asset retirement obligations that are included in the Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 were as follows:
 
June 30,
2014
 
December 31,
2013
Total asset retirement obligations
$
2,579

 
$
2,533

  
NOTE 13 – CREDIT AGREEMENTS
Credit Agreement with RBS Citizens Business Capital 
The Company and certain of its North American and U.K. subsidiaries ("Loan Parties") have a senior secured revolving credit facility (as amended, the “Revolver Agreement”) with RBS Citizens Business Capital, a division of RBS Asset Finance, Inc. (“RBS”). The Revolver Agreement 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 from the Company's U.K. and North American operations, less required reserves. The maturity date of the Revolver Agreement is August 5, 2014 and will not be renewed with RBS. On August 1, 2014, the Company entered into two credit agreements to replace the Revolver Agreement with credit facilities with Lloyds Bank PLC and Lloyds Bank Commercial Finance Ltd and Siena Lending Group, LLC (See Note 16 - Subsequent Events for further details). Borrowings under the Revolver Agreement are secured by substantially all of the assets of the Company and can be made with an interest rate based on a base rate plus an applicable margin or on the LIBOR rate for the applicable period plus an applicable margin. The applicable margin for each rate is based on the Company’s Fixed Charge Coverage Ratio (as defined in the Revolver Agreement) and is determined as follows:
 
Level
Fixed Charge Coverage Ratio
Base Rate Revolving Loans
 
LIBOR Revolving Loans or Letter of Credit Obligations
I
Greater than or equal to 1.25:1.0
1.25
%
 
2.25
%
II
Less than 1.25:1.0 but greater than or equal to 1.10:1.0
1.50
%
 
2.50
%
III
Less than 1.10:1.0
1.75
%
 
2.75
%
 
The details of the Revolver Agreement as of June 30, 2014 were as follows:
 
 
June 30, 2014
Borrowing base
$
26,654

Less: adjustments to the borrowing base
 

Minimum availability
(10,000
)
Outstanding letters of credits
(1,754
)
Adjusted borrowing base
14,900

Less: outstanding borrowing
(1,811
)
Additional borrowing availability
$
13,089

Interest rates on outstanding borrowing
5.00
%
 

- 16 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

The Revolver Agreement contains various restrictions and covenants including:

(1)
a requirement to maintain a minimum excess availability of $10,000 until such time that, for two consecutive fiscal quarters, the Company’s Fixed Charge Coverage Ratio is at least 1.2x (such occurrence, a “Trigger Event”), at which time the Company’s required minimum excess availability is reduced to $5,000;

(2)
upon the occurrence of a Trigger Event, maintain a minimum required Fixed Charge Coverage Ratio of 1.1x;

(3)
maintain a minimum EBITDA (as defined in the Revolver Agreement) for the Company’s North American and U.K. operations of at least $1,000;

(4)
a limit on the payment of dividends of not more than $5,000 per year and subject to certain conditions;

(5)
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;

(6)
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;

(7)
a limit on dispositions of assets of not more than $4,000 per year; and

(8)
a limit on the aggregate cumulative amount of cash outflows from Loan Parties to affiliates of the Company that are not Loan Parties not to exceed the aggregate cumulative amount of cash inflows from (i) affiliates that are not Loan Parties to Loan Parties, (ii) equity offerings by the Company and (iii) the proceeds of divestiture or asset sales, in the case of each of the following periods, by more than $5,000 for any quarterly compliance testing period beginning after March 1, 2013 or in the aggregate through December 31, 2013 or for any twelve-month period ending as of the end of each fiscal quarter commencing with the twelve-month period ending December 31, 2013.

The Company was in compliance with all financial covenants under the Revolver Agreement as of June 30, 2014.
Credit Agreement with Westpac Banking Corporation 

Certain Australian and New Zealand subsidiaries of the Company have a facility agreement with Westpac Banking Corporation and Westpac New Zealand Limited (collectively, “Westpac”). On September 30, 2013, the Company and certain of its Australian and New Zealand subsidiaries entered into a waiver letter to waive compliance with a financial covenant contained in the facility agreement at the September 30, 2013 and December 31, 2013 testing dates, and on December 19, 2013, the Company and certain of its Australian and New Zealand subsidiaries entered into a Deed of Variation to the facility agreement (as amended, the “Facility Agreement”) to amend certain terms and conditions of the Facility Agreement.
The Facility Agreement provides three tranches: (1) an invoice discounting facility of up to $14,150 (AUD15,000) (“Tranche A”) for an Australian subsidiary of the Company, the availability under which facility is based on an agreed percentage of eligible accounts receivable; (2) an overdraft facility of up to $3,065 (NZD3,500) (“Tranche B”) for a New Zealand subsidiary of the Company; and (3) a financial guarantee facility of up to $4,717 (AUD5,000) (“Tranche C”) for the Australian subsidiary.   
The Facility Agreement does not have a stated maturity date and can be terminated by Westpac upon 90 days written notice. Borrowings under Tranche A may be made with an interest rate based on the Invoice Finance 30-day Bank Bill Rate (as defined in the Facility Agreement) plus a margin of 0.90%. Borrowings under Tranche B may be made with an interest rate based on the Commercial Lending Rate (as defined in the Facility Agreement) plus a margin of 0.83%. Each of Tranche A and Tranche B bears a fee, payable monthly, equal to 0.90% and 0.65%, respectively, of the size of Westpac’s commitment under such tranche. Borrowings under Tranche C may be made incurring a fee equal to 1.80% of the face value of the financial guarantee requested. Amounts owing under the Facility Agreement are secured by substantially all of the assets of the Australian subsidiary, its Australian parent company and the New Zealand subsidiary (collectively, the “Obligors”) and certain of their subsidiaries.

- 17 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

The details of the Facility Agreement as of June 30, 2014 were as follows:
 
 
June 30,
2014
Tranche A:
 

Borrowing capacity
$
14,150

Less: outstanding borrowing

Additional borrowing availability
$
14,150

Interest rates on outstanding borrowing
4.61
%
Tranche B:
 

Borrowing capacity
$
3,065

Less: outstanding borrowing

Additional borrowing availability
$
3,065

Interest rates on outstanding borrowing
6.68
%
Tranche C:
 

Financial guarantee capacity
$
4,717

Less: outstanding financial guarantee requested
(3,336
)
Additional availability for financial guarantee
$
1,381

Interest rates on financial guarantee requested
1.80
%
 
The Facility Agreement contains various restrictions and covenants applicable to the Obligors and certain of their subsidiaries, including: (a) a requirement that the Obligors maintain (1) a minimum Tangible Net Worth (as defined in the Facility Agreement) as of the last day of each calendar quarter of not less than the higher of 85% of the Tangible Net Worth as of the last day of the previous calendar year and $16,508 (AUD17,500); (2) a minimum Fixed Charge Coverage Ratio (as defined in the Facility Agreement) of 1.0x for the trailing twelve-month period at March 31, 2014 testing date, 1.1x at the June 30, 2014 testing date and 1.5x at all other testing dates thereafter; and (3) a maximum Borrowing Base Ratio (as defined in the Facility Agreement) as of the last day of each calendar quarter of not more than 0.8; and (b) a limitation on certain intercompany payments with permitted payments outside the Obligor group restricted to a defined amount derived from the net profits of the Obligors and their subsidiaries. The Company was in compliance with all financial covenants under the Facility Agreement as of June 30, 2014.
Other Credit Agreements
The Company also has lending arrangements with local banks through its subsidiaries in the Netherlands, Belgium and Singapore. As of June 30, 2014, the Netherlands subsidiary could borrow up to $1,992 (€1,455) based on an agreed percentage of accounts receivable related to its operations. The Belgium subsidiary has a $1,369 (€1,000) overdraft facility. Borrowings under the Belgium and the Netherlands lending arrangements may be made using an interest rate based on the one-month EURIBOR plus a margin, and the interest rate under each of these arrangements was 2.60% as of June 30, 2014. The lending arrangement in the Netherlands expires annually each June, but can be renewed for one-year periods at that time. The lending arrangement in Belgium has no expiration date and can be terminated with a 15-day notice period. In Singapore, the Company’s subsidiary can borrow up to $802 (SGD1,000) for working capital purposes. Interest on borrowings under the Singapore overdraft facility is based on the Singapore Prime Rate plus a margin of 1.75%, and it was 6.0% on June 30, 2014. The Singapore overdraft facility expires annually each August, but can be renewed for one-year periods at that time. There was an aggregate of $372 in outstanding borrowings under the Belgium, the Netherlands, and Singapore lending agreements as of June 30, 2014.

- 18 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

The average aggregate monthly outstanding borrowings under the Revolver Agreement, Facility Agreement and the various credit agreements in Belgium, the Netherlands and Singapore was $1,546 for the six months ended June 30, 2014. The weighted average interest rate on all outstanding borrowings as of June 30, 2014 was 5.16%.  
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.
 
NOTE 14 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss), net of tax, consisted of the following:
 
 
June 30,
 
December 31,
 
 
2014
 
2013
Foreign currency translation adjustments
 
$
19,232

 
$
17,203

Pension plan obligations
 
(54
)
 
(30
)
Accumulated other comprehensive income (loss)
 
$
19,178

 
$
17,173


NOTE 15 – SEGMENT AND GEOGRAPHIC DATA
Segment Reporting
The Company operates in three reportable segments: the Hudson regional businesses of Hudson Americas, Hudson Asia Pacific, and Hudson Europe. Corporate expenses are reported separately from the three reportable segments and pertain to certain functions, such as executive management, corporate governance, human resources, accounting, administration, tax and treasury, the majority of which are attributable to and have been allocated 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 and certain expenses 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 U.S. GAAP. Accounts receivable, net and long-lived assets are the only significant assets separated by segment for internal reporting purposes.

- 19 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

 
Hudson
Americas
 
Hudson
Asia Pacific
 
Hudson
Europe
 
Corporate
 
Elimination
 
Total
For The Three Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
Revenue, from external customers
$
26,263

 
$
65,101

 
$
76,001

 
$

 
$

 
$
167,365

Inter-segment revenue
38

 

 
27

 

 
(65
)
 

Total revenue
$
26,301

 
$
65,101

 
$
76,028

 
$

 
$
(65
)
 
$
167,365

Gross margin, from external customers
$
7,066

 
$
24,519

 
$
31,226

 
$

 
$

 
$
62,811

Inter-segment gross margin
34

 
1

 
(35
)
 

 

 

Total gross margin
$
7,100

 
$
24,520

 
$
31,191

 
$

 
$

 
$
62,811

Business reorganization expenses
$
3

 
$
1,114

 
$

 
$

 
$

 
$
1,117

EBITDA (loss) (a)
$
(882
)
 
$
(581
)
 
$
1,621

 
$
(2,397
)
 
$

 
$
(2,239
)
Depreciation and amortization
202

 
803

 
372

 
137

 

 
1,514

Intercompany interest income (expense), net

 

 
(132
)
 
132

 

 

Interest income (expense), net
(1
)
 
(37
)
 
(24
)
 
(144
)
 

 
(206
)
Income (loss) from continuing operations before income taxes
$
(1,085
)
 
$
(1,421
)
 
$
1,093

 
$
(2,546
)
 
$

 
$
(3,959
)
For The Six Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
Revenue, from external customers
$
53,126


$
121,532

 
$
154,568

 
$

 
$

 
$
329,226

Inter-segment revenue
37

 

 
107

 

 
(144
)
 

Total revenue
$
53,163

 
$
121,532

 
$
154,675

 
$

 
$
(144
)
 
$
329,226

Gross margin, from external customers
$
13,731


$
45,430

 
$
61,180

 
$

 
$

 
$
120,341

Inter-segment gross margin
31

 
(67
)
 
37

 

 
(1
)
 

Total gross margin
$
13,762

 
$
45,363

 
$
61,217

 
$

 
$
(1
)
 
$
120,341

Business reorganization expenses
$
93


$
1,115

 
$
23

 
$

 
$

 
$
1,231

EBITDA (loss) (a)
$
(1,993
)

$
(884
)
 
$
2,773

 
$
(4,523
)
 
$

 
$
(4,627
)
Depreciation and amortization
426


1,548

 
729

 
299

 

 
3,002

Intercompany interest income (expense), net

 

 
(262
)
 
262

 

 

Interest income (expense), net
(8
)

(80
)
 
(13
)
 
(249
)
 

 
(350
)
Income (loss) from continuing operations before income taxes
$
(2,427
)

$
(2,512
)
 
$
1,769

 
$
(4,809
)
 
$

 
$
(7,979
)
As of June 30, 2014
 

 
 

 
 

 
 

 
 

 
 

Accounts receivable, net
$
16,819

 
$
30,505

 
$
53,184

 
$

 
$

 
$
100,508

Long-lived assets, net of accumulated depreciation and amortization
$
1,453

 
$
10,762

 
$
3,292

 
$
1,395

 
$

 
$
16,902

Total assets
$
20,067

 
$
61,631

 
$
71,148

 
$
3,074

 
$

 
$
155,920


- 20 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

 
Hudson
Americas
 
Hudson
Asia Pacific
 
Hudson
Europe
 
Corporate
 
Inter-
segment
elimination
 
Total
For The Three Months Ended June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
Revenue, from external customers
$
37,327

 
$
62,869

 
$
71,164

 
$

 
$

 
$
171,360

Inter-segment revenue

 

 
17

 

 
(17
)
 

Total revenue
$
37,327

 
$
62,869

 
$
71,181

 
$

 
$
(17
)
 
$
171,360

Gross margin, from external customers
$
9,245

 
$
24,276

 
$
26,983

 
$

 
$

 
$
60,504

Inter-segment gross margin

 
(18
)
 
32

 

 
(14
)
 

Total gross margin
$
9,245

 
$
24,258

 
$
27,015

 
$

 
$
(14
)
 
$
60,504

Business reorganization expenses
$
325

 
$

 
$
556

 
$
368

 
$

 
$
1,249

EBITDA (loss) (a)
$
386

 
$
223

 
$
(2,155
)
 
$
(2,316
)
 
$

 
$
(3,862
)
Depreciation and amortization
249

 
826

 
420

 
161

 

 
1,656

Intercompany interest income (expense), net

 
(601
)
 
(110
)
 
711

 

 

Interest income (expense), net
(8
)
 
(51
)
 
10

 
(106
)
 

 
(155
)
Income (loss) from continuing operations before income taxes
$
129

 
$
(1,255
)
 
$
(2,675
)
 
$
(1,872
)
 
$

 
$
(5,673
)
For The Six Months Ended June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
Revenue, from external customers
$
74,549


$
119,070

 
$
143,418

 
$

 
$

 
$
337,037

Inter-segment revenue
(1
)
 

 
42

 

 
(41
)
 

Total revenue
$
74,548

 
$
119,070

 
$
143,460

 
$

 
$
(41
)
 
$
337,037

Gross margin, from external customers
$
17,389


$
45,768

 
$
54,023

 
$

 
$

 
$
117,180

Inter-segment gross margin
(2
)
 
(43
)
 
58

 

 
(13
)
 

Total gross margin
$
17,387

 
$
45,725

 
$
54,081

 
$

 
$
(13
)
 
$
117,180

Business reorganization expenses
$
308


$
102

 
$
2,427

 
$
394

 
$

 
$
3,231

EBITDA (loss) (a)
$
(560
)

$
(644
)
 
$
(5,607
)
 
$
(3,676
)
 
$

 
$
(10,487
)
Depreciation and amortization
501


1,657

 
825

 
321

 

 
3,304

Intercompany interest income (expense), net

 
(1,266
)
 
(217
)
 
1,483

 

 

Interest income (expense), net
(17
)

(92
)
 
17

 
(208
)
 

 
(300
)
Income (loss) from continuing operations before income taxes
$
(1,078
)

$
(3,659
)
 
$
(6,632
)
 
$
(2,722
)
 
$

 
$
(14,091
)
As of June 30, 2013
 

 
 

 
 

 
 

 
 

 
 

Accounts receivable, net
$
25,284

 
$
30,602

 
$
47,700

 
$

 
$

 
$
103,586

Long-lived assets, net of accumulated depreciation and amortization
$
1,913

 
$
10,690

 
$
4,485

 
$
1,649

 
$

 
$
18,737

Total assets
$
30,669

 
$
66,093

 
$
71,052

 
$
7,547

 
$

 
$
175,361


(a)
Securities and Exchange Commission ("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 U.S. GAAP or as a measure of the Company's profitability.


- 21 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

Geographic Data Reporting
A summary of revenues for the six months ended June 30, 2014 and 2013 and long-lived assets and net assets by geographic area as of June 30, 2014 and 2013 were as follows: 

Information by geographic region
United
Kingdom
 
Australia
 
United
States
 
Continental
Europe
 
Other
Asia Pacific
 
Other
Americas
 
Total
For The Three Months Ended June 30, 2014
 

 
 

 
 

 
 

 
 

 
 

 
 

Revenue (a)
$
47,506

 
$
49,137

 
$
26,073

 
$
28,495

 
$
15,964

 
$
190

 
$
167,365

For The Three Months Ended June 30, 2013
 

 
 

 
 

 
 

 
 

 
 

 
 

Revenue (a)
$
45,685

 
$
46,188

 
$
37,124

 
$
25,480

 
$
16,680

 
$
203

 
$
171,360

For The Six Months Ended June 30, 2014