Hudson Highland Group Announces Preliminary Results for Second Quarter 2006; Company to Restate First Quarter 2006

Aug 03, 2006, 01:00 ET from Hudson Highland Group, Inc.

    NEW YORK, Aug. 3 /PRNewswire-FirstCall/ -- Hudson Highland Group, Inc.
 (Nasdaq:   HHGP), one of the world's leading providers of specialized
 professional staffing, retained executive search and talent management
 solutions, today announced that the company expects to report revenue for
 the quarter ended June 30, 2006 of between $363 to $367 million and EBITDA
 of between $8.0 to $9.0 million, compared to revenue of $365 million and
 EBITDA of $9.6 million in the second quarter of 2005. These ranges include
 the $1.6 million reduction in both revenue and EBITDA described below.
     As discussed in its first quarter earnings call, the company undertook
 a comprehensive post-implementation review of the accounting processes
 supported by the new PeopleSoft accounting and management reporting system
 the company implemented last year in its Hudson North America business
 unit. As a result of this review, the company identified a number of items
 that it believes constitute errors in accounting and accordingly will take
 the follow actions:
     -- Restate results of the first quarter of 2006 to reflect net charges of
        $2.2 million in the quarter, as detailed in the Form 8-K;
     -- Reflect in its results for the second quarter of 2006, net charges of
        $1.6 million, consisting of:
        - $0.7 million adjustment to revenue attributable to 2005 results,
          which is considered immaterial to that year;
        - $0.9 million adjustment to receivables, for which the applicable
          period cannot practicably be determined.
     During this review, the company identified the items described above,
 which primarily arose due to a weakened reconciliation and review process
 related to staff turnover in the first quarter of 2006. The company's
 management determined that this condition constituted a material weakness
 in the company's internal controls over financial reporting as of the end
 of the first quarter. This material weakness and the remedial actions the
 company has already taken and will complete prior to the filing of the
 second quarter Form 10-Q will be described in greater detail in the
 company's Form 8-K filed today and Form 10-Q for the second quarter to be
 filed on August 9, 2006.
     "We recognize the seriousness of this matter relative to internal
 controls and the integrity of our financials," said Jon Chait, chairman and
 chief executive officer of Hudson Highland Group. "However, these errors do
 not impact the basic business operations and there is no evidence of
 misconduct on the part of any employee."
     The company's management consulted throughout this process, and
 discussed the restatement, with the company's audit committee of the board
 of directors and independent auditors. The company also engaged a team of
 relevant experts to assist in a thorough review of its monthly general
 ledger account reconciliation process. The company believes that this
 review has been comprehensive and that it has identified the full extent of
 the differences existing in the accounts as of the end of the second
 quarter of 2006 that may be material.
     "We have re-examined our accounting practices and taken swift action to
 establish better controls," said Mary Jane Raymond, executive vice
 president and chief financial officer. "The restatement only involves
 Hudson North America. We have reviewed our other business units and found
 no similar problems."
     The following table summarizes the impact of the restatement on the
 company's first quarter 2006 financial statements:
                          First Quarter 2006    Amount of    First Quarter 2006
                              as Reported       Adjustment      as Restated
                            (In thousands of dollars, except per share amounts)
     Hudson Americas
     Revenue                    $112,248         $(1,643)        $110,605
     Gross Margin                $25,322         $(2,467)         $22,855
     EBITDA                      $(3,377)        $(2,598)         $(5,975)
     Revenue                    $344,701         $(1,643)        $343,058
     Gross Margin               $128,090         $(2,467)        $125,623
     EBITDA                        $(107)        $(2,223)         $(2,330)
     Net Loss                    $(5,857)        $(2,223)         $(8,080)
     Loss Per Share               $(0.24)         $(0.09)          $(0.33)
     The company expects to file an amended Form 10-Q for the quarter ended
 March 31, 2006 reflecting the restatement on August 7, 2006. In the
 meantime, investors are advised that they can no longer rely on the
 financial statements contained in the company's Form 10-Q for the quarter
 ended March 31, 2006 as originally filed.
     The company will host a conference call to discuss this restatement
 today, Thursday, August 3, 2006 at 10:00 AM EDT. Individuals wishing to
 participate can join the conference call by dialing 1-800-374-1532 followed
 by the participant passcode 4001903 at 9:50 AM EDT. For those outside the
 United States, please call in on 1-706-634-5594 followed by the participant
 passcode 4001903. Hudson Highland Group's conference call can also be
 accessed online through Yahoo! Finance at and the
 investor information section of the company's website at
     The company will release second quarter financial results for the
 period ended June 30, 2006 after the market closes on August 7, 2006. The
 company's second quarter earnings call is scheduled for 9:00 AM EDT on
 August 8, 2006, at which time the company will update its 2006 guidance.
     Hudson Highland Group
     Hudson Highland Group is one of the world's leading professional
 staffing, retained executive search and talent management solution
 providers. We help our clients achieve greater organizational performance
 by attracting, selecting and developing the best and brightest people for
 their businesses. Our approximately 3,800 employees in more than 20
 countries are dedicated to providing unparalleled service and value to our
 clients. More information about Hudson Highland Group is available at
     Safe Harbor Statement
     This press release contains statements that the company believes to be
 "forward-looking statements" within the meaning of the Private Securities
 Litigation Reform Act of 1995. All statements other than statements of
 historical fact included in this press release, including those under the
 caption "Guidance" and other statements regarding the company's future
 financial condition, results of operations, business operations and
 business prospects, are forward-looking statements. Words such as
 "anticipate," "estimate," "expect," "project," "intend," "plan," "predict,"
 "believe" and similar words, expressions and variations of these words and
 expressions are intended to identify forward-looking statements. All
 forward-looking statements are subject to risks and uncertainties that
 could cause actual results to differ materially from those described in the
 forward-looking statements. These factors include, but are not limited to,
 the impact of global economic fluctuations on temporary contracting
 operations; the cyclical nature of the company's executive search and
 mid-market professional staffing businesses; the company's ability to
 manage its growth; risks associated with expansion; risks and financial
 impact associated with disposition of non- strategic assets; the company's
 reliance on information systems and technology; competition; fluctuations
 in operating results; risks relating to foreign operations, including
 foreign currency fluctuations; dependence on highly skilled professionals
 and key management personnel; the impact of employees departing with
 existing executive search clients; risks maintaining professional
 reputation and brand name; restrictions imposed by blocking arrangements;
 exposure to employment-related claims, and limits on insurance coverage
 related thereto; government regulations; restrictions on the company's
 operating flexibility due to the terms of its credit facility; and the
 company's ability to implement remedial actions with respect to internal
 control weaknesses. Additional information concerning these and other
 factors is contained in the company's filings with the Securities and
 Exchange Commission. These forward-looking statements speak only as of the
 date of this press release. The company assumes no obligation, and
 expressly disclaims any obligation, to review or confirm analysts'
 expectations or estimates or to update any forward-looking statements,
 whether as a result of new information, future events or otherwise.
                          HUDSON HIGHLAND GROUP, INC.
                                SEGMENT ANALYSIS
                                 (in thousands)
     For the Three Months Ended
      March 31, 2006 (Restated)
                 Hudson    Hudson     Hudson      Highland
                Americas   Europe   Asia Pacific  Partners  Corporate  Total
     Revenue   $110,605   $116,141    $100,538    $15,774      $ -   $343,058
      margin    $22,855    $50,965     $36,861    $14,942      $ -   $125,623
      EBITDA(1) $(5,975)    $5,550      $4,732     $1,288  $(7,922)   $(2,327)
      expenses        -          -           -          3        -          3
     EBITDA (1)  (5,975)     5,550       4,732      1,285   (7,922)    (2,330)
      and amort
      -ization    1,506      1,739         775        323      165      4,508
      (loss)    $(7,481)    $3,811      $3,957       $962  $(8,087)   $(6,838)
     For the Three Months Ended
      March 31, 2006 (As Originally Reported)
                 Hudson    Hudson      Hudson     Highland
                Americas   Europe   Asia Pacific  Partners  Corporate  Total
     Revenue   $112,248   $116,141    $100,538    $15,774      $ -   $344,701
      margin    $25,322    $50,965     $36,861    $14,942      $ -   $128,090
      EBITDA(1) $(3,377)    $5,550      $4,732     $1,288  $(8,297)     $(104)
      expenses        -          -           -          3        -          3
     EBITDA (1)  (3,377)     5,550       4,732      1,285   (8,297)      (107)
      and amort
      -ization    1,506      1,739         775        323      165      4,508
      (loss)    $(4,883)    $3,811      $3,957       $962  $(8,462)   $(4,615)
     Estimated Results
     For the Three Months Ended June 30, 2006
     (amounts in millions)
     EBITDA (1)                                  $8.0 to $9.0
     Depreciation and amortization               $4.3 to $4.5
     Operating income (loss)                     $3.5 to $4.7
     (1) Non-GAAP earnings before interest, income taxes, special charges,
         other non-operating expense, and depreciation and amortization
         ("Adjusted EBITDA") and non-GAAP earnings before interest, income
         taxes, other non-operating expense, and depreciation and amortization
         ("EBITDA") are presented to provide additional information about the
         company's operations on a basis consistent with the measures which the
         company uses to manage its operations and evaluate its performance.
         Management also uses these measurements to evaluate capital needs and
         working capital requirements. Adjusted EBITDA and EBITDA should not be
         considered in isolation or as a substitute for operating income, cash
         flows from operating activities, and other income or cash flow
         statement data prepared in accordance with generally accepted
         accounting principles or as a measure of the company's profitability
         or liquidity.  Furthermore, adjusted EBITDA and EBITDA as presented
         above may not be comparable with similarly titled measures reported by
         other companies.

SOURCE Hudson Highland Group, Inc.