Document



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, 2016
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.)
 
1325 Avenue of the Americas, New York, NY 10019
(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, 2016
Common Stock - $0.001 par value
 
33,611,474



HUDSON GLOBAL, INC.
INDEX


 
 
Page
 
 
Item 1.
 
 
Condensed Consolidated Statement of Operations - Three and Six Months Ended June 30, 2016 and 2015
 
Condensed Consolidated Statement of Other Comprehensive Income (Loss) - Three and Six Months Ended June 30, 2016 and 2015
 
Condensed Consolidated Balance Sheets – June 30, 2016 and December 31, 2015
 
Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2016 and 2015
 
Condensed Consolidated Statement of Stockholders’ Equity – Six Months Ended June 30, 2016
 
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 STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenue
$
113,067

 
$
122,743

 
$
214,294

 
$
247,060

Direct costs
66,228

 
72,521

 
126,193

 
148,934

Gross margin
46,839

 
50,222

 
88,101

 
98,126

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative expenses
48,315

 
53,550

 
91,957

 
105,716

Depreciation and amortization
805

 
974

 
1,493

 
2,085

Business reorganization expenses
144

 
2,060

 
781

 
3,403

Total operating expenses
49,264

 
56,584

 
94,231

 
111,204

Gain (loss) on sale and exit of businesses

 
20,005

 

 
20,005

Operating income (loss)
(2,425
)
 
13,643

 
(6,130
)
 
6,927

Non-operating income (expense):
 
 
 
 
 
 
 
Interest income (expense), net
(101
)
 
(369
)
 
(155
)
 
(449
)
Other income (expense), net
(13
)
 
(40
)
 
(150
)
 
(27
)
Income (loss) from continuing operations before provision for income taxes
(2,539
)
 
13,234

 
(6,435
)
 
6,451

Provision for (benefit from) income taxes from continuing operations
808

 
460

 
482

 
331

Income (loss) from continuing operations
(3,347
)
 
12,774

 
(6,917
)
 
6,120

Income (loss) from discontinued operations, net of income taxes
209

 
1,103

 
292

 
919

Net income (loss)
$
(3,138
)
 
$
13,877

 
$
(6,625
)
 
$
7,039

Basic and diluted earnings (loss) per share:
 
 
 
 
 
 
 
Basic and diluted earnings (loss) per share from continuing operations
$
(0.10
)
 
$
0.38

 
$
(0.21
)
 
$
0.18

Basic and diluted earnings (loss) per share from discontinued operations
0.01

 
0.03

 
0.01

 
0.03

Basic and diluted earnings (loss) per share
$
(0.09
)
 
$
0.41

 
$
(0.20
)
 
$
0.21

Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
33,252

 
33,525

 
33,434

 
33,296

Diluted
33,252

 
33,525

 
33,434

 
33,296


See accompanying notes to condensed consolidated financial statements.



- 1 -


HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
(unaudited)


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Comprehensive income (loss):
 
 
 
 
 
 
 
Net income (loss)
$
(3,138
)
 
$
13,877

 
$
(6,625
)
 
$
7,039

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of income taxes
(1,833
)
 
1,192

 
(1,164
)
 
(1,571
)
Pension liability adjustment
(9
)
 

 
(7
)
 
(19
)
Total other comprehensive income (loss), net of income taxes
(1,842
)
 
1,192

 
(1,171
)
 
(1,590
)
Comprehensive income (loss)
$
(4,980
)
 
$
15,069

 
$
(7,796
)
 
$
5,449


See accompanying notes to condensed consolidated financial statements.

- 2 -




HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
 
June 30,
2016
 
December 31,
2015
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
24,939

 
$
37,663

Accounts receivable, less allowance for doubtful accounts of $792 and $860, respectively
67,368

 
62,420

Prepaid and other
4,811

 
5,979

Current assets of discontinued operations
38

 
81

Total current assets
97,156

 
106,143

Property and equipment, net
7,385

 
7,928

Deferred tax assets, non-current
7,018

 
6,724

Other assets, non-current
4,369

 
4,154

Total assets
$
115,928

 
$
124,949

LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
3,963

 
$
5,184

Accrued expenses and other current liabilities
43,138

 
40,344

Short-term borrowings
7,163

 
2,368

Accrued business reorganization expenses
1,757

 
2,252

Current liabilities of discontinued operations
596

 
1,443

Total current liabilities
56,617

 
51,591

Deferred rent and tenant improvement contributions
3,562

 
4,244

Income tax payable, non-current
2,240

 
2,279

Other non-current liabilities
4,752

 
5,655

Total liabilities
67,171

 
63,769

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 35,208 and 35,260 shares, respectively
34

 
34

Additional paid-in capital
481,942

 
480,816

Accumulated deficit
(438,313
)
 
(428,287
)
Accumulated other comprehensive income, net of applicable tax
9,121

 
10,292

Treasury stock, 1,597 and 646 shares, respectively, at cost
(4,027
)
 
(1,675
)
Total stockholders' equity
48,757

 
61,180

Total liabilities and stockholders' equity
$
115,928

 
$
124,949

 
See accompanying notes to condensed consolidated financial statements.
 



- 3 -


HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
Six Months Ended June 30,
 
2016
 
2015
Cash flows from operating activities:
 

 
 

Net income (loss)
$
(6,625
)
 
$
7,039

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
1,493

 
2,085

Provision for (recovery of) doubtful accounts
113

 
111

Provision for (benefit from) deferred income taxes
(431
)
 
(64
)
Stock-based compensation
1,126

 
3,758

Gain on sale and exit of businesses

 
(21,373
)
Other, net
189

 
175

Changes in assets and liabilities:
 
 
 
Decrease (increase) in accounts receivable
(6,319
)
 
(11,215
)
Decrease (increase) in prepaid and other assets
703

 
2,102

Increase (decrease) in accounts payable, accrued expenses and other liabilities
1,562

 
(5,470
)
Increase (decrease) in accrued business reorganization expenses
(1,884
)
 
(128
)
Net cash used in operating activities
(10,073
)
 
(22,980
)
Cash flows from investing activities:
 

 
 

Capital expenditures
(1,194
)
 
(1,325
)
Proceeds from sale of consolidated subsidiary, net of cash sold

 
7,894

Proceeds from sale of assets
32

 
16,815

Net cash provided by (used in) investing activities
(1,162
)
 
23,384

Cash flows from financing activities:
 

 
 

Borrowings under credit agreements
56,229

 
72,132

Repayments under credit agreements
(51,430
)
 
(70,894
)
Repayment of capital lease obligations
(42
)
 
(24
)
Dividend payments
(3,401
)
 

Purchase of treasury stock
(2,352
)
 

Purchase of restricted stock from employees

 
(163
)
Net cash provided by (used in) financing activities
(996
)
 
1,051

Effect of exchange rates on cash and cash equivalents
(493
)
 
(603
)
Net increase (decrease) in cash and cash equivalents
(12,724
)
 
852

Cash and cash equivalents, beginning of the period
37,663

 
33,989

Cash and cash equivalents, end of the period
$
24,939

 
$
34,841

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for interest
$
140

 
$
85

Net cash payments (refunds) during the period for income taxes
$
324

 
$
(98
)
 
See accompanying notes to condensed consolidated financial statements. 

- 4 -


HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF 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, 2015
34,611

 
$
34

 
$
480,816

 
$
(428,287
)
 
$
10,292

 
$
(1,675
)
 
$
61,180

Net income (loss)

 

 

 
(6,625
)
 

 

 
(6,625
)
Other comprehensive income (loss), currency translation adjustments, net of applicable tax

 

 

 

 
(1,164
)
 

 
(1,164
)
Other comprehensive income (loss), pension liability adjustment

 

 

 

 
(7
)
 

 
(7
)
Cash dividends ($0.10 per share)

 

 

 
(3,401
)
 

 

 
(3,401
)
Purchase of treasury stock
(948
)
 

 

 

 

 
(2,352
)
 
(2,352
)
Stock-based compensation
(52
)
 


 
1,126

 

 

 

 
1,126

Balance at June 30, 2016
33,611

 
$
34

 
$
481,942

 
$
(438,313
)
 
$
9,121

 
$
(4,027
)
 
$
48,757

 
See accompanying notes to condensed consolidated financial statements.

- 5 -

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, 2015.
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.

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, Temporary Contracting, Recruitment Process Outsourcing ("RPO") and Talent Management Solutions.
The Company operates in 12 countries with three reportable geographic business segments: Hudson Americas, Hudson Asia Pacific, and Hudson Europe. See Note 18 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.
Temporary Contracting: In Temporary Contracting, 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.

- 6 -

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

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.
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.

NOTE 3 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, "Stock Compensation (Topic 718)" ("ASU 2016-09"),  which is intended to simplify several aspects of the accounting for share-based payment award transactions. ASU 2016-09 will be effective for the fiscal year beginning after December 15, 2016, including interim periods within that year. Early adoption is permitted. The Company is currently evaluating the impact to its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which amends the existing standards for lease accounting. This new standard requires the recognition of lease assets and lease liabilities on the balance sheet and the disclosure of key information about leasing arrangements including the amounts, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 will be effective for the Company on January 1, 2019 and will require modified retrospective application as of the beginning of the earliest year presented in the financial statements. Early adoption is permitted. The Company is currently evaluating the impact to its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB amended the effective date of this ASU to fiscal years beginning after December 15, 2017 and early adoption is permitted only for fiscal years beginning after December 15, 2016. In March, April and May 2016, the FASB issued ASU 2016-08 “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU 2016-10 “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” and ASU 2016-12 "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients" which provide further clarifications to be considered when implementing ASU 2014-09. The Company plans to adopt this guidance on January 1, 2018. Companies may use either a full retrospective or a modified retrospective approach to adopt this ASU. The Company is currently evaluating the impact to its consolidated financial statements.
There are no other recently issued accounting pronouncements that have had, or that the Company believes will have, a material impact on the Company's consolidated financial statements.


- 7 -

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

NOTE 4 – DIVESTITURES

Hudson Information Technology (US) business (the "US IT business")

On June 15, 2015, the Company completed the sale (the "US IT Business Sale") of substantially all of the assets (excluding working capital) of its US IT business to Mastech, Inc. (the "Purchaser"). The completion of the US IT Business Sale was effective June 14, 2015. The US IT Business Sale was pursuant to an Asset Purchase Agreement, dated as of May 8, 2015 (the "Agreement"), by and among the Company, Hudson Global Resources Management, Inc., a wholly owned subsidiary of the Company, and the Purchaser. At the closing of the U.S. IT Business Sale, the Company received from the Purchaser pursuant to the Agreement the purchase price of $16,977 in cash. The US IT business pre-tax loss in accordance with ASC No. 205 "Reporting Discontinued Operations" ("ASC 205") for the three and six months ended June 30, 2015 was $266 and $7, respectively.

On the US IT Business Sale, for the six months ended June 30, 2015 the Company recognized a pre-tax gain of $15,938, net of closing and other direct transaction costs. Income tax on the gain was $11. For U.S. Federal income tax purposes, the gain is offset in full by net operating loss carryforwards. For state and local income tax purposes, the gain was mostly offset by net operating loss carryforwards. As the divestiture did not meet the requirements for classification as discontinued operations, the gain on sale is presented as a component of income (loss) from operations.

Netherlands business

On May 7, 2015, the Company entered into a Share Purchase Agreement and completed the sale (the "Netherlands Business Sale") of its Netherlands business to InterBalance Group B.V., effective April 30, 2015, in a management buyout for $9,029, which included cash retained of $1,135. As the divestiture did not reach the thresholds required to qualify as discontinued operations, the operations remain within the Company's continuing operations for all periods presented. The Netherlands pre-tax profit in accordance with ASC 205 for the three and six months ended June 30, 2015 was $17 and $373, respectively.

Exit of Businesses in Central and Eastern Europe

In February 2015, the Company's Board of Directors approved the exit of operations in certain countries within Central and Eastern Europe (Ukraine, Czech Republic and Slovakia). During the quarter ended June 30, 2015, the Company deemed the liquidation of its Central and Eastern Europe businesses to be substantially complete.

Luxembourg

In March 2015, the Company's management approved the exit of operations in Luxembourg. In the third quarter of 2015, the Company deemed the liquidation of its Luxembourg business to be substantially complete.

- 8 -

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

NOTE 5 – DISCONTINUED OPERATIONS

Effective November 9, 2014, the Company completed the sale of substantially all of the assets and certain liabilities of its Legal eDiscovery business in the U.S. and United Kingdom ("U.K.") to Document Technologies, LLC and DTI of London Limited. In addition, in 2014, the Company ceased operations in Sweden, which was included within the Hudson Europe segment. The Company concluded that the divestiture of the Legal eDiscovery business and the cessation of operations in Sweden meet the criteria for discontinued operations set forth in ASC 205. The Company reclassified its discontinued operations for all periods presented and has excluded the results of its discontinued operations from continuing operations and from segment results for all periods presented.

The carrying amounts of the classes of assets and liabilities from the Legal eDiscovery business and Sweden operations included in discontinued operations were as follows:

 
 
June 30, 2016
 
December 31, 2015
 
 
eDiscovery
 
Sweden
 
Total
 
eDiscovery
 
Sweden
 
Total
Total current assets
 
$
38

 
$

 
$
38

 
$
49

 
$
32

 
$
81

Total liabilities (a)
 
$
586

 
$
10

 
$
596

 
$
1,439

 
$
4

 
$
1,443


(a) Total liabilities primarily consisted of restructuring liabilities for lease termination payments.

Reported results for the discontinued operations by period were as follows:
 
 
Three Months Ended June 30, 2016
 
Three Months Ended June 30, 2015
 
 
eDiscovery
 
Sweden
 
Total
 
eDiscovery
 
Sweden
 
Total
Revenue
 
$

 
$

 
$

 
$

 
$
6

 
$
6

Gross margin
 
58

 

 
58

 
(192
)
 
6

 
(186
)
Reorganization expenses
 
(201
)
 

 
(201
)
 
(7
)
 
(23
)
 
(30
)
Operating income (loss), excluding gain (loss) from sale of business
 
247

 

 
247

 
(230
)
 
47

 
(183
)
Gain (loss) from sale and liquidation of discontinued operations (1)
 

 

 

 
12

 
1,274

 
1,286

Income (loss) from discontinued operations before income taxes
 
247

 

 
247

 
(218
)
 
1,321

 
1,103

Provision (benefit) for income taxes
 
38

 

 
38

 

 

 

Income (loss) from discontinued operations
 
$
209

 
$

 
$
209

 
$
(218
)
 
$
1,321

 
$
1,103


- 9 -

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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2016
 
Six Months Ended June 30, 2015
 
 
eDiscovery
 
Sweden
 
Total
 
eDiscovery
 
Sweden
 
Total
Revenue
 
$

 
$

 
$

 
$
(1
)
 
$
6

 
$
5

Gross margin
 
59

 

 
59

 
(103
)
 
6

 
(97
)
Reorganization expenses
 
(341
)
 

 
(341
)
 
356

 
(29
)
 
327

Operating income (loss), excluding gain (loss) from sale of business
 
357

 
(1
)
 
356

 
(496
)
 
18

 
(478
)
Other non-operating income (loss), including interest
 

 

 

 
(8
)
 

 
(8
)
Gain (loss) from sale and liquidation of discontinued operations (1)
 

 

 

 
94

 
1,274

 
1,368

Income (loss) from discontinued operations before income taxes
 
357

 
(1
)
 
356

 
(410
)
 
1,292

 
882

Provision (benefit) for income taxes
 
64

 

 
64

 
(37
)
 

 
(37
)
Income (loss) from discontinued operations
 
$
293

 
$
(1
)
 
$
292

 
$
(373
)
 
$
1,292

 
$
919


(1) During the quarter ended June 30, 2015, the Company deemed the liquidation of its Sweden business to be substantially complete. As such under ASC 830, "Foreign Currency Matters," for the three and six months ended June 30, 2015, the Company transferred the amount of the foreign entity's accumulated foreign currency translation gains and losses from accumulated other comprehensive income to income (loss) from discontinued operations.

- 10 -

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

NOTE 6 – REVENUE, DIRECT COSTS AND GROSS MARGIN
 The Company’s revenue, direct costs and gross margin were as follows: 
 
Three Months Ended June 30, 2016
 
Temporary Contracting
 
 Permanent Recruitment
 
Other
 
Total
Revenue
$
72,035

 
$
29,491

 
$
11,541

 
$
113,067

Direct costs (1)
62,956

 
611

 
2,661

 
66,228

Gross margin
$
9,079

 
$
28,880

 
$
8,880

 
$
46,839

 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2015
 
Temporary Contracting
 
 Permanent Recruitment
 
Other
 
Total
Revenue
$
80,389

 
$
31,873

 
$
10,481

 
$
122,743

Direct costs (1)
69,101

 
697

 
2,723

 
72,521

Gross margin
$
11,288

 
$
31,176

 
$
7,758

 
$
50,222

 
Six Months Ended June 30, 2016
 
Temporary Contracting
 
 Permanent Recruitment
 
Other
 
Total
Revenue
$
137,890

 
$
56,062

 
$
20,342

 
$
214,294

Direct costs (1)
120,178

 
1,185

 
4,830

 
126,193

Gross margin
$
17,712

 
$
54,877

 
$
15,512

 
$
88,101

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2015
 
Temporary Contracting
 
 Permanent Recruitment
 
Other
 
Total
Revenue
$
166,969

 
$
59,979

 
$
20,112

 
$
247,060

Direct costs (1)
142,717

 
1,182

 
5,035

 
148,934

Gross margin
$
24,252

 
$
58,797

 
$
15,077

 
$
98,126


(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. Permanent Recruitment and Other category include direct costs for out-of-pocket expenses and third party suppliers. 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 Statement of Operations.


- 11 -

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

NOTE 7 – STOCK-BASED COMPENSATION
Incentive Compensation Plan
The Company maintains the Hudson Global, Inc. 2009 Incentive Stock and Awards Plan, as amended and restated May 24, 2016 (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. As determined by the Compensation Committee, equity awards also may be subject to immediate vesting upon the occurrence of certain events following a change in control of the Company. The Company primarily grants restricted stock and restricted stock units to 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. On May 24, 2016, the Company's stockholders approved an amendment and restatement of the ISAP to, among other things, increase the number of shares of the Company's common stock that are reserved for issuance by 2,400,000 shares. As of June 30, 2016, there were 2,559,784 shares of the Company’s common stock available for future issuance under the ISAP.
The Company’s stock plan agreements provide that a change in control of the Company will occur if, among other things, individuals who were directors as of the date of the agreement and any new director whose appointment or election was approved or recommended by a vote of at least two-thirds of the directors then in office who were either directors on the date of the agreement or whose appointment or election was previously so approved or recommended (each, a “continuing director”) cease to constitute a majority of the Company’s directors. A change in control occurred as of the Company's 2015 annual meeting of stockholders on June 15, 2015 under these agreements because continuing directors ceased to constitute a majority of the Company's directors. As a result, certain equity awards vested resulting in an accelerated stock-based compensation expense of $2,541 for the three and six months ended June 30, 2015.
A summary of the quantity and vesting conditions for stock-based units granted to the Company's employees for the six months ended June 30, 2016 was as follows:
Vesting conditions
 
Number of Restricted Stock Units Granted
Performance and service conditions (1) (2)
 
500,000

(1)
The performance conditions with respect to restricted stock units may be satisfied as follows: 
(a)
For employees from the Americas, Asia Pacific and Europe 80% of the restricted stock units may be earned on the basis of performance as measured by a "regional adjusted EBITDA," and 20% of the restricted stock units may be earned on the basis of performance as measured by a "group adjusted EBITDA"; and
(b)
For employees from the Corporate office 100% of the restricted stock units may be earned on the basis of performance as measured by a "group adjusted EBITDA."
(2)
To the extent restricted stock units are earned on the basis of performance, such restricted stock units will vest on the basis of service as follows:
(a)
One-third of the restricted stock units will vest on the first anniversary of the grant date;
(b)
One-third of the restricted stock units will vest on the second anniversary of the grant date; and
(c)
One-third of the restricted stock units will vest on the third anniversary of the grant date; provided that, in each case, the employee remains employed by the Company from the grant date through the applicable service vesting date.

- 12 -

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

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. Restricted stock units issued under the Director Plan contain the right to a dividend equivalent award in the form of additional restricted stock units. The dividend equivalent award is calculated using the same rate as the cash dividend paid on a share of the Company's common stock, and then divided by the closing price of the Company’s common stock on the date the dividend is paid to determine the number of additional restricted stock units to grant. Dividend equivalent awards have the same vesting terms as the underlying awards. During the six months ended June 30, 2016, the Company granted 184,342 restricted stock units to its non-employee directors pursuant to the Director Plan.
For the three and six months ended June 30, 2016 and 2015, the Company’s stock-based compensation expense related to stock options, restricted stock and restricted stock units were as follows:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
Stock options
 
$
5

 
$

 
$
10

 
$

Restricted stock
 
220

 
2,475

 
460

 
2,860

Restricted stock units
 
529

 
750

 
656

 
898

Total
 
$
754

 
$
3,225

 
$
1,126

 
$
3,758

 
Stock Options
Stock options granted by the Company generally expire between five and ten years after the date of grant and have an exercise price of at least 100% of the fair market value of the underlying share of common stock on the date of grant.
As of June 30, 2016, the Company had approximately $7 of unrecognized stock-based compensation expense related to outstanding unvested stock options. The Company expects to recognize that cost over a weighted average service period of 0.35 years.
Changes in the Company’s stock options for the six months ended June 30, 2016 and 2015 were as follows: 

 
Six Months Ended June 30,
 
2016
 
2015
 
Number of
Options
 
Weighted
Average
Exercise Price
per Share
 
Number of
Options
 
Weighted
Average
Exercise Price
per Share
Options outstanding at January 1,
206,000

 
$
8.13

 
756,800

 
$
8.78

Expired/forfeited
(27,500
)
 
15.86

 
(128,300
)
 
13.66

Options outstanding at June 30,
178,500

 
$
6.94

 
628,500

 
$
7.79

Options exercisable at June 30,
153,500

 
$
7.67

 
628,500

 
$
7.79



- 13 -

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

Restricted Stock
As of June 30, 2016, the Company had approximately $218 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 0.30 years. Restricted stock awards have voting and dividend rights as of the grant date.
Changes in the Company’s restricted stock for the six months ended June 30, 2016 and 2015 were as follows:
 
 
Six Months Ended June 30,
 
2016
 
2015
 
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,
680,000

 
$
1.60

 
803,999

 
$
3.00

Granted

 

 
1,090,100

 
2.12

Vested

 

 
(1,204,398
)
 
2.90

Forfeited
(51,800
)
 
0.79

 
(189,701
)
 
3.14

Unvested restricted stock at June 30,
628,200

 
$
1.69

 
500,000

 
$
1.27


Restricted Stock Units
As of June 30, 2016, the Company had approximately $920 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 1.72 years. Restricted stock units granted to employees have no voting or dividend rights until the awards are vested.
Changes in the Company’s restricted stock units for the six months ended June 30, 2016 and 2015 were as follows:
 
Six Months Ended June 30,
 
2016
 
2015
 
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,

 
$

 
119,940

 
$
3.57

Granted
684,342

 
2.67

 
320,122

 
2.50

Vested
(184,342
)
 
2.33

 
(397,562
)
 
2.75

Forfeited

 

 
(42,500
)
 
3.21

Unvested restricted stock units at June 30,
500,000

 
$
2.79

 

 
$

 

- 14 -

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

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 or cash 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, 2016 and 2015, 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)
2016
 
2015
 
2016
 
2015
Expense recognized for the 401(k) plan
$
57

 
$
55

 
$
73

 
$
127

Contributions to satisfy prior years' employer-matching liability
 
 
 

 
 

 
 

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

 
116

 

 
116

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

 
$
2.71

 
$

 
$
2.71

Non-cash contribution made for employer matching liability
$

 
$
314

 
$

 
$
314

Cash contribution made for employer-matching liability
$
162

 
$

 
$
162

 
$

Total contribution made for employer-matching liability
$
162

 
$
314

 
$
162

 
$
314


- 15 -

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

NOTE 8 – 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, 2016 was $482 on a pre-tax loss from continuing operations of $6,435, compared to a provision for income taxes of $331 on pre-tax income from continuing operations of $6,451 for the same period in 2015. The Company’s effective income tax rate was negative 7.5% and positive 5.1% for the six months ended June 30, 2016 and 2015, respectively. For the six months ended June 30, 2016, the effective tax rate differed from the U.S. Federal statutory rate of 35% primarily due to the inability of the Company to recognize tax benefits on certain losses until positive earnings are achieved in the U.S. and certain other foreign jurisdictions, non-deductible expenses, and variations from the U.S. tax rate in foreign jurisdictions. For the six months ended June 30, 2015, the effective tax rate differed from the U.S. Federal statutory rate of 35% due to the foreign tax exemptions applicable to gains on sale or exit of businesses, the inability of the Company to recognize tax benefits on losses until positive earnings are achieved in the U.S. and certain other foreign jurisdictions, non-deductible expenses, and variations from the U.S. tax rate in foreign jurisdictions.
Uncertain Tax Positions 
As of June 30, 2016 and December 31, 2015, the Company had $2,240 and $2,279, 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 $563 and $536 as of June 30, 2016 and December 31, 2015, respectively. Estimated interest and penalties are classified as part of the provision for income taxes in the Company’s Condensed Consolidated Statement of Operations and totaled to a provision of $11 and $34 for the six months ended June 30, 2016 and 2015, 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 net operating losses ("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, 2016, 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
 
2012
Majority of U.S. state and local jurisdictions
 
2011
United Kingdom
 
2014
Australia
 
2011
Majority of other non-U.S. jurisdictions
 
2010
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, 2016, it is reasonably possible that the total amount of unrecognized tax benefits could decrease in the range of $200 to $500 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.


- 16 -

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

NOTE 9 – EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share 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", unvested restricted stock and unvested restricted stock units. 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 three and six months ended June 30, 2016 and 2015 were as follows:

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Earnings (loss) per share ("EPS"):
 
 

 
 

 
 

 
 

EPS - basic and diluted:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
(0.10
)
 
$
0.38

 
$
(0.21
)
 
$
0.18

Income (loss) from discontinued operations
 
0.01

 
0.03

 
0.01

 
0.03

Net income (loss)
 
$
(0.09
)
 
$
0.41

 
$
(0.20
)
 
$
0.21

EPS numerator - basic and diluted:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
(3,347
)
 
$
12,774

 
$
(6,917
)
 
$
6,120

Income (loss) from discontinued operations
 
209

 
1,103

 
292

 
919

Net income (loss)
 
$
(3,138
)
 
$
13,877

 
$
(6,625
)
 
$
7,039

EPS denominator (in thousands):
 
 

 
 

 
 

 
 
Weighted average common stock outstanding - basic
 
33,252

 
33,525

 
33,434

 
33,296

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

 

 

 

Weighted average number of common stock outstanding - diluted
 
33,252

 
33,525

 
33,434

 
33,296


(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 7 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.

- 17 -

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

The weighted average number of shares outstanding used in the computation of diluted net income (loss) per share for the three and six months ended June 30, 2016 and 2015 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,
 
 
2016
 
2015
 
2016
 
2015
Unvested restricted stock
 
330,000

 
500,000

 
330,000

 
500,000

Unvested restricted stock units
 
39,458

 

 
39,458

 

Stock options
 
178,500

 
628,500

 
178,500

 
628,500

Total
 
547,958

 
1,128,500

 
547,958

 
1,128,500


NOTE 10 – RESTRICTED CASH
A summary of the Company’s restricted cash included in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015 was as follows: 
 
June 30,
2016
 
December 31,
2015
Included under the caption "Prepaid and other":
 

 
 

Client guarantees
$
128

 
$
118

Other
113

 
110

Total amount under the caption "Prepaid and other"
$
241

 
$
228

Included under the caption "Other assets":
 

 
 

Collateral accounts
$
558

 
$
229

Rental deposits
416

 
480

Total amount under the caption "Other assets"
$
974

 
$
709

Total restricted cash
$
1,215

 
$
937


Collateral accounts primarily include deposits held under a collateral trust agreement, which supports the Company’s workers’ compensation policy and an outstanding letter of credit in the U.S. The rental deposits with banks include amounts held as guarantees from subtenants in the U.K. Client guarantees were held in banks in Belgium as deposits for various client projects. Other primarily includes bank guarantee for licensing in Switzerland.


- 18 -

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

NOTE 11 – PROPERTY AND EQUIPMENT, NET
As of June 30, 2016 and December 31, 2015, property and equipment, net, was as follows:

 
June 30,
2016
 
December 31,
2015
Computer equipment
$
6,224

 
$
5,911

Furniture and equipment
1,968

 
2,668

Capitalized software costs
17,686

 
17,946

Leasehold improvements
14,656

 
15,522

 
40,534

 
42,047

Less: accumulated depreciation and amortization
33,149

 
34,119

Property and equipment, net
$
7,385

 
$
7,928


The Company had expenditures of approximately $603 and $513 for acquired property and equipment, mainly consisting of software, furniture and fixtures and leasehold improvements, which had not been placed in service as of June 30, 2016 and December 31, 2015, respectively. Depreciation expense is not recorded for such assets until they are placed in service.
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 as of June 30, 2016 and December 31, 2015 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, 2016 and December 31, 2015. A summary of the Company’s equipment acquired under capital lease agreements were as follows:

 
June 30,
2016
 
December 31,
2015
Capital lease obligation, current
$
65

 
$
62

Capital lease obligation, non-current
$
190

 
$
229




NOTE 12 – GOODWILL
The following is a summary of the changes in the carrying value of the Company’s goodwill, which was included under the caption "Other Assets" in the accompanying Condensed Consolidated Balance Sheets, as of June 30, 2016 and December 31, 2015. 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. The goodwill is recorded in the Asia Pacific segment.
 
Carrying Value
 
2016
Goodwill, January 1,
$
1,938

Currency translation
(43
)
Goodwill, June 30,
$
1,895



- 19 -

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

NOTE 13 – BUSINESS REORGANIZATION EXPENSES

The Company initiated and executed certain strategic actions requiring business reorganization expenses ("2016 Exit Plan"). Business exit costs associated with the 2016 Exit Plan primarily consisted of employee termination benefits, lease termination payments and costs for elimination of contracts for certain discontinued services and locations.

The Board previously approved other reorganization plans in prior years (the "Previous Plans"). Business exit costs associated with Previous Plans primarily consisted of employee termination benefits, lease termination payments and costs for elimination of contracts for certain discontinued services and locations.

For the six months ended June 30, 2016, restructuring charges associated with these initiatives primarily included employee separation costs in Europe and Asia Pacific and lease termination payments for rationalized offices in Europe under the 2016 Exit Plan and Previous Plans. Business reorganization expenses for the three and six months ended June 30, 2016 and 2015 by plan were as follows:
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Previous Plans
 
$
60

 
$
1,972

 
$
283

 
$
3,315

2016 Exit Plan
 
84

 

 
498

 

Total reorganization expenses in continuing operations
 
$
144

 
$
1,972

 
$
781

 
$
3,315

 
The following table contains amounts for Changes in Estimate, Additional Charges, and Payments related to the 2016 Exit Plan and Previous Plans that were incurred or recovered during the six months ended June 30, 2016 in continuing operations. The amounts in the "Changes in Estimate" and "Additional Charges" columns are classified as business reorganization expenses in the Company’s Condensed Consolidated Statement of Operations. Amounts in the "Payments" column represent primarily the cash payments associated with the 2016 Exit Plan and Previous Plans. Changes in the accrued business reorganization expenses for the six months ended June 30, 2016 were as follows:
 
 
December 31,
2015
 
Changes in
Estimate
 
Additional
Charges
 
Payments
 
June 30,
2016
Lease termination payments
$
2,970

 
$
215

 
$
190

 
$
(769
)
 
$
2,606

Employee termination benefits
1,186

 
(40
)
 
305

 
(937
)
 
514

Other associated costs
208

 
(17
)
 
127

 
(318
)
 

Total
$
4,364

 
$
158

 
$
622

 
$
(2,024
)
 
$
3,120

 

- 20 -

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

NOTE 14 – 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 $111 and $109 as of June 30, 2016 and December 31, 2015, respectively.
Costs Associated with Termination
As previously disclosed, in May 2015, the Company incurred compensation and benefits obligations to its former Chairman and Chief Executive Officer, Manuel Marquez, under his employment agreement, dated March 7, 2011, in connection with the Company providing Mr. Marquez notice of non-renewal of his employment agreement, which is treated as a termination without cause. The Company had accrued $747 as of March 31, 2016 in connection with compensation and benefits Mr. Marquez was entitled to upon a termination without cause, subject to his execution of a release. Mr. Marquez did not agree with the Company’s treatment of compensation and benefits under his employment agreement and, in August 2015, filed an arbitration claim against the Company for additional amounts of up to approximately $2,000 and reimbursement of his legal fees.
     On May 27, 2016, the arbitrator issued his decision on Mr. Marquez’s claim and awarded Mr. Marquez approximately $1,800 in additional compensation and benefits and approximately $700 toward the reimbursement of a portion of his legal fees incurred pursuing his claim, $265 of which legal fees the Company had previously paid by March 31, 2016. For the three and six months ended June 30, 2016, the Company recorded an additional charge of $2,514 and $3,025, respectively for the resolution of this arbitration.
  

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, 2016 and December 31, 2015 were as follows:
 
June 30,
2016
 
December 31,
2015
Total asset retirement obligations
$
1,971

 
$
1,962


- 21 -

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

NOTE 15 – CREDIT AGREEMENTS

Receivables Finance Agreement with Lloyds Bank Commercial Finance Limited and Lloyds Bank PLC

On August 1, 2014, the Company’s U.K. subsidiary ("U.K. Borrower") entered into a receivables finance agreement for an asset-based lending funding facility (the "Lloyds Agreement") with Lloyds Bank PLC and Lloyds Bank Commercial Finance Limited (together, "Lloyds"). The Lloyds Agreement provides the U.K. Borrower with the ability to borrow up to $19,967 (£15,000). Extensions of credit are based on a percentage of the eligible accounts receivable less required reserves from the Company's U.K. operations. The initial term is two years with renewal periods every three months thereafter. Borrowings under this facility are secured by substantially all of the assets of the U.K. Borrower.

The credit facility under the Lloyds Agreement contains two tranches. The first tranche is a revolving facility based on the billed temporary contracting and permanent recruitment activities in the U.K. operations ("Lloyds Tranche A"). The borrowing limit of Lloyds Tranche A is $15,973 (£12,000) based on 83% of eligible billed temporary contracting and permanent recruitment receivables. The second tranche is a revolving facility that is based on the unbilled work-in-progress (as defined under the receivables finance agreement) activities in the Company's U.K. operations ("Lloyds Tranche B"). The borrowing limit of Lloyds Tranche B is $3,993 (£3,000) based on 75% of eligible work-in-progress from temporary contracting and 25% of eligible work-in-progress from permanent recruitment activities. For both tranches, borrowings may be made with an interest rate based on a base rate as determined by Lloyds Bank PLC, based on the Bank of England base rate, plus 1.75%.

The Lloyds Agreement contains various restrictions and covenants including (1) that true credit note dilution may not exceed 5%, measured at audit on a regular basis; (2) debt turn may not exceed 55 days over a three month rolling period; (3) dividends by the U.K. Borrower to the Company are restricted to the value of post-tax profits; and (4) at the end of each month, there must be a minimum excess availability of $2,662 (£2,000).
The details of the Lloyds Agreement as of June 30, 2016 were as follows:
 
 
June 30,
2016
Borrowing capacity
 
$
8,607

Less: outstanding borrowing
 

Additional borrowing availability
 
$
8,607

Interest rates on outstanding borrowing
 
2.25
%

The Company was in compliance with all financial covenants under the Lloyds Agreement as of June 30, 2016.

Facility Agreement with National Australia Bank Limited

On October 30, 2015, Hudson Global Resources (Aust) Pty Limited ("Hudson Australia") and Hudson Global Resources (NZ) Limited ("Hudson New Zealand"), both subsidiaries of Hudson Global, Inc., entered into a Finance Agreement, dated as of October 27, 2015 (the "Finance Agreement"), with National Australia Bank Limited ("NAB"), a NAB Corporate Receivables Facility Agreement, dated as of October 27, 2015 (the "Australian Receivables Agreement"), with NAB and a BNZ Corporate Receivables Facility Agreement, dated as of October 27, 2015 (the "New Zealand Receivables Agreement"), with Bank of New Zealand ("BNZ").
     
The Finance Agreement provides a bank guarantee facility of up to $2,235 (AUD 3,000) for Hudson Australia and Hudson New Zealand. The Finance Agreement matures and becomes due and payable on October 27, 2018. A fee equal to 1.5% per annum will be charged on each bank guarantee issued under the Finance Agreement. The Finance Agreement bears a fee, payable semiannually in arrears, equal to 0.3% per annum of NAB’s commitment under the Finance Agreement.

The Australian Receivables Agreement provides a receivables facility of up to $18,625 (AUD 25,000) for Hudson Australia, which is based on an agreed percentage of eligible accounts receivable, and of which up to $2,980 (AUD 4,000) may be used to support the working capital requirements of operations in China, Hong Kong and Singapore. The Australian Receivables Agreement does not have a stated maturity date and can be terminated by Hudson Australia or NAB upon 90 days written notice. Borrowings under the Australian Receivables Agreement may be made with an interest rate based on a market

- 22 -

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

rate plus a margin of 1.5% per annum. The Australian Receivable Agreement bears a fee, payable monthly in advance, equal to $5 (AUD 6) per month.

The New Zealand Receivables Agreement provides a receivables facility of up to $3,568 (NZD 5,000) for Hudson New Zealand, which is based on an agreed percentage of eligible accounts receivable. The New Zealand Receivables Agreement does not have a stated maturity date and can be terminated by Hudson New Zealand or BNZ upon 90 days written notice. Borrowings under the New Zealand Receivables Agreement may be made with an interest rate based on a market rate. The New Zealand Receivables Agreement bears a fee, payable monthly in advance, equal to $1 (NZD 1) per month.

The details of the Finance Agreement, Australian Receivables Agreement and New Zealand Receivables Agreement as of June 30, 2016 were as follows:
 
 
June 30,
2016
Finance Agreement:
 

Financial guarantee capacity
$
2,235

Less: outstanding financial guarantees
(1,852
)
Additional availability for financial guarantees
$
383

Interest rates on outstanding financial guarantees
1.80
%
 
 
Australian Receivables Agreement:
 

Borrowing capacity
$
14,853

Less: outstanding borrowing
(7,163
)
Additional borrowing availability
$
7,690

Interest rates on outstanding borrowing
3.40
%
 
 
New Zealand Receivables Agreement:
 

Borrowing capacity
$
2,263

Less: outstanding borrowing

Additional borrowing availability
$
2,263

Interest rates on outstanding borrowing
4.38
%

Amounts owing under the Finance Agreement, the Australian Receivables Agreement and the New Zealand Receivables Agreement are secured by substantially all of the assets of Hudson Australia and Hudson New Zealand. Each of the Finance Agreement, the Australian Receivables Agreement and the New Zealand Receivables Agreement contains various restrictions and covenants applicable to Hudson Australia and Hudson New Zealand, including: a requirement that Hudson Australia and Hudson New Zealand maintain (1) a minimum Fixed Charge Coverage Ratio (as defined in the NAB Facility Agreement) of 1.50x as of the last day of each calendar quarter; and (2) a minimum Receivables Ratio (as defined by the NAB Facility Agreement) of 1.20x.

The Company was in compliance with all financial covenants under the NAB Facility Agreement as of June 30, 2016.
Other Credit Agreements
The Company also has lending arrangements with local banks through its subsidiaries in Belgium and Singapore. The Belgium subsidiary has a $1,111 (€1,000) overdraft facility. Borrowings under the Belgium arrangement may be made using an interest rate based on the one-month EURIBOR plus a margin, and the interest rate was 2.75% as of June 30, 2016. 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 $148 (SGD 200) 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 6.00% on June 30, 2016. The

- 23 -

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

Singapore overdraft facility expires annually each August, but can be renewed for one year periods at that time. There were no outstanding borrowings under the Belgium and Singapore lending agreements as of June 30, 2016.
The average aggregate monthly outstanding borrowings under the Lloyds Agreement, NAB Facility Agreement and the credit agreements in Belgium and Singapore were $8,187 for the six months ended June 30, 2016. The weighted average interest rate on all outstanding borrowings for the six months ended June 30, 2016 was 3.56%.
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 16 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss), net of tax, consisted of the following:
 
 
June 30,
 
December 31,
 
 
2016
 
2015
Foreign currency translation adjustments
 
$
8,995

 
$
10,159

Pension plan obligations
 
126

 
133

Accumulated other comprehensive income (loss)
 
$
9,121

 
$
10,292


As a result of the sale of the Netherlands business and substantially complete liquidation of certain foreign owned entities, the net foreign currency translation loss transferred from accumulated other comprehensive income and included in determining net income (loss) was $0 and $299 for the three and six months ended June 30, 2016 and 2015, respectively. See Note 4 and 5 regarding the substantially complete liquidation of certain foreign owned entities and the sale of the Netherlands business.


NOTE 17 – STOCKHOLDERS' EQUITY

 In December 2015, the Company's Board of Directors determined that the Company intends to pay a regular, quarterly cash dividend on its common stock. The Company's Board of Directors declared a cash dividend of $0.05 per share paid on June 24, 2016 to shareholders of record as of June 14, 2016. Prior to that, a cash dividend of $0.05 per share was paid on March 25, 2016 to shareholders of record as of March 15, 2016. As a result, for the three and six months ended June 30, 2016, the Company paid $1,688 and $3,401, respectively, in dividends to shareholders. The cash dividend payments are applied to accumulated deficit.

On July 30, 2015, the Company announced that its Board of Directors authorized the repurchase of up to $10,000 of the Company's common stock. The Company intends to make purchases from time to time as market conditions warrant. This authorization does not expire. During the three and six months ended June 30, 2016, the Company repurchased 582,510 and 948,623 shares for a total cost of $1,366 and $2,352, respectively. As of June 30, 2016, under the July 30, 2015 authorization, the Company had repurchased 1,476,257 shares for a total cost of $3,738.
    

- 24 -

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

NOTE 18 – 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.


- 25 -

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, 2016
 
 
 
 
 
 
Revenue, from external customers
$
3,661

 
$
62,039

 
$
47,367

 
$

 
$

 
$
113,067

Inter-segment revenue
(22
)
 
(1
)
 
86

 

 
(63
)
 

Total revenue
$
3,639

 
$
62,038

 
$
47,453

 
$

 
$
(63
)
 
$
113,067

Gross margin, from external customers
$
3,180

 
$
22,416

 
$
21,243

 
$

 
$

 
$
46,839

Inter-segment gross margin
(25
)
 
(62
)
 
87

 

 

 

Total gross margin
$
3,155

 
$
22,354

 
$
21,330

 
$

 
$

 
$
46,839

Business reorganization expenses (recovery)
$
(22
)
 
$
77

 
$
109

 
$
(20
)
 
$

 
$
144

EBITDA (loss) (a)
$
(178
)
 
$
575

 
$
1,553

 
$
(3,583
)
 
$

 
$
(1,633
)
Depreciation and amortization
8

 
435

 
193

 
169

 

 
805

Intercompany interest income (expense), net

 

 
(58
)
 
58

 

 

Interest income (expense), net

 
(88
)
 
(9
)
 
(4
)
 

 
(101
)
Income (loss) from continuing operations before income taxes
$
(186
)
 
$
52

 
$
1,293

 
$
(3,698
)
 
$

 
$
(2,539
)
 
 
 
 
 
 
 
 
 
 
 
 
For The Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
Revenue, from external customers
$
7,498

 
$
113,110

 
$
93,686

 
$

 
$

 
$
214,294

Inter-segment revenue
(22
)
 

 
147

 

 
(125
)
 

Total revenue
$
7,476

 
$
113,110

 
$
93,833

 
$

 
$
(125
)
 
$
214,294

Gross margin, from external customers
$
6,520

 
$
41,187

 
$
40,394

 
$

 
$

 
$
88,101

Inter-segment gross margin
(25
)
 
(121
)
 
146

 

 

 

Total gross margin
$
6,495

 
$
41,066


$
40,540


$


$

 
$
88,101

Gain on sale and exit of businesses
$

 
$

 
$

 
$

 
$

 
$

Business reorganization expenses (recovery)
$
(38
)
 
$
274

 
$
593

 
$
(48
)
 
$

 
$
781

EBITDA (loss) (a)
$
(15
)
 
$
(656
)
 
$
1,223

 
$
(5,339
)
 
$

 
$
(4,787
)
Depreciation and amortization
31

 
838

 
376

 
248

 

 
1,493

Intercompany interest income (expense), net

 

 
(115
)
 
115

 

 

Interest income (expense), net

 
(128
)
 
(23
)
 
(4
)
 

 
(155
)
Income (loss) from continuing operations before income taxes
$
(46
)
 
$
(1,622
)
 
$
709

 
$
(5,476
)
 
$

 
$
(6,435
)
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Accounts receivable, net
$
2,637

 
$
35,272

 
$
29,459

 
$

 
$

 
$
67,368

Long-lived assets, net of accumulated depreciation and amortization
$
20

 
$
7,323

 
$
1,506

 
$
516

 
$

 
$
9,365

Total assets
$
5,793

 
$
55,990

 
$
51,663

 
$
2,482

 
$

 
$
115,928


- 26 -

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, 2015