Hudson Highland Group Inc. Annual Report 2009

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FY2009 Annual Report · Hudson Highland Group Inc.

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

FORM 10-K

(Mark One)
(cid:1)

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

For the Fiscal Year Ended December 31, 2009

□

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

Commission File Number 000-50129

HUDSON HIGHLAND GROUP, INC.

(Exact Name of Registrant as Speciﬁed in Its Charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

59-3547281
(I.R.S. Employer
Identiﬁcation Number)

560 Lexington Avenue, New York, New York 10022
(Address of Principal Executive Offices)

(212) 351-7300
(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which Registered

Common Stock, $0.001 par value
Preferred Share Purchase Rights

The NASDAQ Stock Market LLC
The NASDAQ Stock Market LLC

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as deﬁned in Rule 405 of the Securities

Act. Yes (cid:3) No (cid:1)

Indicate by check mark if the registrant is not required to ﬁle reports pursuant to Section 13 or 15(d) of the Securities

Act. Yes (cid:3) No (cid:1)

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 (cid:1) No (cid:3)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit to post such ﬁles). Yes (cid:3) No (cid:3)

Indicate by check mark if disclosure of delinquent ﬁlers pursuant to Item 405 of Regulation S-K is not contained herein, and will

not be contained, to the best of Registrant’s knowledge, in deﬁnitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. □

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 □
Indicate by checkmark whether the Registrant is a shell company (as deﬁned in Exchange Act Rule 12b-2). Yes (cid:3) No (cid:1)
The aggregate market value of the voting common stock held by non-affiliates of the Registrant was approximately $50,941,000

Smaller reporting company □

Non-accelerated ﬁler □

Accelerated ﬁler (cid:1)

as of June 30, 2009.

The number of shares of Common Stock, $.001 par value, outstanding as of January 31, 2010 was 26,704,388

Portions of the Proxy Statement for the 2010 Annual Meeting of Stockholders are incorporated by reference into Part III.

DOCUMENTS INCORPORATED BY REFERENCE

HUDSON HIGHLAND GROUP, INC.

TABLE OF CONTENTS

PART I

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1.
Item 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations. .
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .
Item 9.
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10.
Item 11.
Item 12.

Item 13.
Item 14.

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneﬁcial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

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Item 1. Business

PART I

Hudson Highland Group, Inc. (the ‘‘Company’’ or ‘‘Hudson’’, ‘‘we’’, ‘‘us’’ and ‘‘our’’) is one of the
world’s largest specialized professional staffing and talent management solutions providers. The Company
provides professional staffing services on a permanent and contract consulting basis and a range of talent
management services to businesses operating in many industries. The Company helps its clients in recruiting
and developing employees for professional-level functional and managerial positions.

The Company is organized into three reportable segments, Hudson Americas, Hudson Europe and
Hudson Asia Paciﬁc. These reportable segments constituted approximately 16%, 47% and 37% of the
Company’s gross margin, respectively, for the year ended December 31, 2009. The Hudson regional
businesses were historically the combination of 67 acquisitions made between 1999 and 2001, which became
the eResourcing division of Monster Worldwide, Inc. (‘‘Monster’’), formerly TMP Worldwide, Inc. Some of
the Company’s constituent businesses have operated for more than 20 years. On March 31, 2003, Monster
distributed all of the outstanding shares of the Company to its stockholders of record on March 14, 2003 (the
‘‘Distribution’’). Since the Distribution, the Company has operated as an independent publicly held company,
adding one mid-sized and eight smaller acquisitions, and divesting or reorganizing a number of business units
after determining that those businesses did not ﬁt the Company’s long-term strategy.

Hudson’s three regional businesses provide professional contract consultants and permanent recruitment

services to a wide range of clients. With respect to temporary and contract personnel, Hudson focuses on
providing candidates with specialized functional skills and competencies, such as accounting and ﬁnance, legal
and information technology. The length of a contract assignment can vary, but engagements at the professional
level tend to be longer than those in the general clerical or industrial sectors. With respect to permanent
recruitment, Hudson focuses on mid-level professionals typically earning between $50,000 and $150,000
annually and possessing the professional skills and/or proﬁle required by clients. Hudson provides permanent
recruitment services on both a retained and contingent basis. In larger markets, Hudson’s sales strategy
focuses on both clients operating in particular industry sectors, such as ﬁnancial services or technology, and
candidates possessing particular professional skills, such as accounting and ﬁnance, information technology,
legal and human resources. Hudson uses both traditional and interactive methods to select potential candidates
for its clients, employing a suite of products that assesses talent and helps predict whether a candidate will be
successful in a given role.

Hudson regional businesses also provide organizational effectiveness and development services through

their talent management units. These services encompass candidate assessment, competency modeling,
leadership development, performance management, and career transition. These services enable Hudson to
offer clients a comprehensive set of management services, across the entire employment life-cycle from
attracting, assessing and selecting best-ﬁt employees to engaging and developing those individuals to help
build a high-performance organization.

Hudson Americas operates from 30 offices in the United States and Canada, with 96% of its 2009 gross
margin generated in the United States. Hudson Europe operates from 39 offices in 14 countries, with 41% of
its 2009 gross margin generated in the United Kingdom. Hudson Asia Paciﬁc operates from 17 offices in
4 countries, with 66% of its 2009 gross margin generated in Australia.

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 that are not attributable to the reportable segments.

Discontinued Operations

In the second and ﬁrst quarters of 2009, the Company exited the markets in Italy and Japan, respectively.

The operations in Italy were part of the Hudson Europe reportable segment and the operations in Japan were
part of the Hudson Asia Paciﬁc reportable segment.

In the second quarter of 2008, the Company sold substantially all of the assets of Balance Public
Management B.V. (‘‘BPM’’), a division of Balance Ervaring op Projectbasis, B.V. (‘‘Balance’’), a subsidiary
of the Company, which was part of the Hudson Europe reportable segment. In the ﬁrst quarter of 2008, the
Company sold substantially all of the assets of its Hudson Americas energy, engineering and technical staffing
division (‘‘ETS’’), which was part of the Hudson Americas reportable segment.

In the fourth quarter of 2007, the Company sold its Netherlands reintegration subsidiary, Hudson Human

Capital Solutions B.V. (‘‘HHCS’’), which was part of the Hudson Europe reportable segment, and its
Australian blue-collar market’s Trade & Industrial subsidiary (‘‘T&I’’), which was part of the Hudson Asia
Paciﬁc reportable segment.

In the fourth quarter of 2006, the Company sold its Highland Partners (‘‘Highland’’) executive search

business, which was a separate reportable segment of the Company.

In accordance with the provisions of Accounting Standards Codiﬁcation Topic (‘‘ASC’’) 205-20-45
‘‘Reporting Discontinued Operations’’ issued by Financial Accounting Standards Board (‘‘FASB’’), the assets,
liabilities, and results of operations of the Company’s discontinued operations above were reclassiﬁed as
discontinued operations for all the periods presented. The gain or loss on sale and results of operations of the
disposed businesses were reported in discontinued operations in the relevant periods.

Sales and Marketing

Each of Hudson’s regional businesses maintains a sales force composed of business development

specialists that is aligned along functional practice areas or industry sector groups as appropriate for the
market. These business development specialists at times receive incentives for cross-selling services with other
practices and business units as the client need arises. In addition, each region has a business liaison for
international sales opportunities that arise for global recruitment and/or talent management needs from a client
or prospect.

The Company’s global marketing and communications function is responsible for brand and marketing

strategy, client and candidate lead generation campaigns, public relations and corporate/employee
communications. This team closely coordinates with the operational leadership and regional/practice/business
unit marketing and sales teams to generate leads, support sales efforts and build a strong brand reputation —
both in the external market and within the organization.

We use three principal channels for marketing our services and promoting our brand: (1) in the United
Kingdom, Australia, New Zealand, and other countries where it is an accepted practice, we use client-paid and
Company-paid advertising for vacant positions; (2) public relations to promote our experts and offerings, and
original research on business management and human capital issues of particular relevance to senior business
managers; and (3) the Internet, both for promoting the Company’s services to clients and attracting, assisting
and managing candidates.

Clients

The Company’s clients include small to large-sized corporations and government agencies. No one client

accounted for more than 5% of total annual revenue in 2009. At December 31, 2009, there were
approximately 400 Hudson Americas clients, 3,500 Hudson Europe clients and 2,200 Hudson Asia Paciﬁc
clients.

Competition

The markets for the Company’s services and products are highly competitive. There are few barriers to

entry, so new entrants occur frequently, resulting in considerable market fragmentation. Companies in this
industry compete on price, service quality, new capabilities and technologies, client attraction methods, and
speed of completing assignments.

Employees

The Company employs approximately 2,100 people worldwide. In most jurisdictions, our employees are
not represented by a labor union or a collective bargaining agreement. The Company regards its relationships
with its employees as satisfactory.

Segment and Geographic Data

Financial information concerning the Company’s reportable segments and geographic areas of operation

is included in Note 16 in the Notes to Consolidated Financial Statements contained in Item 8 of this
Form 10-K.

Available Information

We maintain a Web site with the address www.hudson.com. We are not including the information
contained on our Web site as part of, or incorporating it by reference into, this report. Through our Web site,
we make available free of charge (other than an investor’s own Internet access charges) our annual reports on
Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these
reports in a timely manner after we provide them to the Securities and Exchange Commission.

Item 1A. Risk Factors

The following risk factors and other information included in this Annual Report on Form 10-K should be

carefully considered. The risks and uncertainties described below are not the only ones we face. Additional
risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our
business operations. If any of the following risks occur, our business, ﬁnancial condition, results of operations,
and cash ﬂows could be materially adversely affected.

Our operations will be affected by global economic ﬂuctuations, including the global economic conditions
prevailing during 2009.

Demand for our services ﬂuctuates with changes in economic conditions in the markets in which we

operate. Those conditions include slower employment growth or reductions in employment, as is being
experienced at the present time. We have limited ﬂexibility to reduce expenses during economic downturns
due to some overhead costs which are ﬁxed in the short-term. Furthermore, we may face increased pricing
pressures during economic downturns. During the 2009 economic downturn, many employers in our operating
regions reduced their overall workforce to reﬂect the reduced demand for their products and services. The
global weakness impacted virtually all of our markets and, as a result, our 2009 ﬁnancial results were below
the ﬁnancial results of 2008. Despite indications of improving economic conditions in the later part of 2009,
the economic recovery is in its early stages and the potential for further decline in economic activity remains
possible. lf this were to occur, it could have a material adverse effect on our business, ﬁnancial condition and
results of operations.

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

We provide professional mid-market staffing services on a temporary assignment-by-assignment basis,
which clients can generally terminate at any time or reduce their level of use when compared to prior periods.
Our professional recruitment business is also signiﬁcantly affected by our clients, hiring needs and their views
of their future prospects. Clients may, on very short notice, reduce or postpone their recruiting assignments
with us and, therefore, affect demand for our services. Given the current economic conditions, many
companies may decrease their spending on projects and staffing, including our clients who may terminate or
reduce their level of services with us, which could have a material adverse effect on our business, ﬁnancial
condition and results of operations.

We face risks in collecting our accounts receivable.

In virtually all of our businesses, we invoice customers after providing services, which creates accounts

receivable. Delays or defaults in payments owed to us could have a signiﬁcant adverse impact on our
business, ﬁnancial condition and results of operations. Factors that could cause a delay or default include, but
are not limited to, business failures, turmoil in the ﬁnancial and credit markets, and global economic
conditions. Given current economic conditions, we are particularly susceptible to delays or defaults in
payment by our customers.

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

We have experienced negative cash ﬂows and shown operating and net losses in the past. For example,
our cash ﬂows from operations were negative during 2009 and we had operating and net losses for the years
ended December 31, 2009 and 2008. We cannot provide any assurance that we will have positive cash ﬂows
or operating proﬁtability in the future, particularly to the extent the global economy is slow to recover from
the global economic downturn. If our revenue declines or if operating expenses exceed our expectations, we
may not be proﬁtable and may not generate positive operating cash ﬂows.

We have limited borrowing availability under our credit facilities, which may negatively impact our liquidity.

Extensions of credit under our primary credit facility, as amended (the ‘‘Credit Agreement’’), with Wells

Fargo Foothill Inc. and our lending arrangements in Europe are permitted based on a borrowing base, which is
an agreed percentage of eligible accounts receivable, less required reserves, letters of credit and outstanding
borrowings. If the amount or quality of our accounts receivable deteriorates, then our ability to borrow under
these credit facilities will be directly affected. Our lenders can impose other conditions, such as payroll and
other reserves at any time without prior notice to us and these actions would reduce the amounts available to
us under the credit facilities. We cannot provide assurance that we will be able to borrow under these credit
facilities if we need money to fund working capital or other needs.

If sources of liquidity are not available or if we cannot generate sufficient cash ﬂows from operations,
then we may be required to obtain additional sources of funds through additional operating improvements,
capital markets transactions, asset sales or ﬁnancing from third parties, or a combination thereof and, under
certain conditions, such transactions could substantially dilute the ownership of existing stockholders. We
cannot provide assurance that the additional sources of funds will be available, or if available, would have
reasonable terms, particularly in light of current credit market conditions.

Our credit facility restricts our operating ﬂexibility.

Our Credit Agreement contains various restrictions and covenants that restrict our operating ﬂexibility

including:

•

prohibitions on payments of dividends;

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

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

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

In addition, a default or amendment or waiver to our Credit Agreement to avoid a default may result in

higher rates of interest and impact our ability to obtain additional borrowings. For example, the amendment to
our Credit Agreement that we entered into on December 30, 2008 to eliminate a minimum quarterly EBITDA
covenant resulted in higher interest rates and a reduction in the amount that we may borrow under the Credit
Agreement. Finally, debt incurred under our Credit Agreement bears interest at variable rates. Any increase in
interest expense could reduce the funds available for operations.

Our operating results ﬂuctuate from quarter to quarter and therefore quarterly results cannot be used to
predict future periods’ results.

Our operating results ﬂuctuate quarter to quarter primarily due to the vacation periods during the ﬁrst

quarter in the Asia Paciﬁc region and the third quarter in the Americas and Europe regions. Demand for our
services is typically lower during traditional national vacation periods when clients are on vacation.

We face risks relating to our international operations.

We conduct operations in more than twenty countries and face both translation and transaction risks
related to foreign currency exchange. For the year ended December 31, 2009, approximately 85% of our gross
margin was earned outside of the United States. Our ﬁnancial results could be materially affected by a number
of factors particular to international operations. These include, but are not limited to, difficulties in staffing and
managing international operations, operational issues such as longer customer payment cycles and greater
difficulties in collecting accounts receivable, changes in tax laws or other regulatory requirements, issues
relating to uncertainties of laws and enforcement relating to the regulation and protection of intellectual
property, and currency ﬂuctuation. If we are forced to discontinue any of our international operations, we
could incur material costs to close down such operations.

Regarding the foreign currency risk inherent in international operations, the results of our local operations

are reported in the applicable foreign currencies and then translated into U.S. dollars at the applicable foreign
currency exchange rates for inclusion in our ﬁnancial statements. In addition, we generally pay operating
expenses in the corresponding local currency. Because of devaluations and ﬂuctuations in currency exchange
rates or the imposition of limitations on conversion of foreign currencies into U.S. dollars, we are subject to
currency translation exposure on the revenue and income of our operations in addition to economic exposure.
Our consolidated U.S. dollar cash balance could be lower because a signiﬁcant amount of cash is generated
outside of the United States. This risk could have a material adverse effect on our business, ﬁnancial condition
and results of operations.

Our investment strategy subjects us to risks.

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

We face risks associated with our dispositions of underperforming or non-core assets.

We have disposed of several non-core businesses since the third quarter of 2006. We have retained
liabilities of some of these businesses and may be responsible for certain potential indemniﬁcation claims by
the purchasers. We may not be able to settle the liabilities at the recorded value in our ﬁnancial statements
and indemniﬁcation claims may adversely affect our ﬁnancial results. Further, we may have risks associated
with our ability to effectively restructure our operations following these dispositions.

If we are unable to effectively implement our cost reduction initiatives, including outsourcing, our ability to
compete could be adversely impacted and our regional operations could be disrupted.

We have undertaken a series of cost reduction initiatives. In 2009, we initiated a number of structural

cost reduction and productivity improvement initiatives in our operations to reduce costs and improve
proﬁtability. Our future proﬁtability depends upon our continued success in achieving anticipated cost
reductions. The impact of these cost reduction actions on our revenue, operating results and cash ﬂows may
be inﬂuenced by factors including our ability to successfully complete these ongoing efforts and our ability to
generate the level of cost savings we expect or that are necessary to enable us to effectively compete in the
staffing industry.

On January 30, 2009, we entered into an agreement with a company located in India to outsource certain
back-office processes performed in our Australia and New Zealand regional business. The processes that were
outsourced are invoicing, accounts payable, accounts receivable and transactional accounting. The efficient
operation of that regional business is dependent on the stability of the Indian political environment.
Substantially all of the specially-trained employees at the Indian company are Indian nationals. Because
substantially all of the named operations have been transferred, it may not be possible to replace the Indian-
based employees in another location, should operations at this Indian company be disrupted. This could
impact the operational efficiency of that regional business.

We rely on our information systems, and if we lose that technology or fail to further develop our
technology, our business could be harmed.

Our success depends in large part upon our ability to store, retrieve, process, and manage substantial
amounts of information, including our client and candidate databases. To achieve our strategic objectives and
to remain competitive, we must continue to develop and enhance our information systems. This may require
the acquisition of equipment and software and the development, either internally or through independent
consultants, of new proprietary software. Our inability to design, develop, implement and utilize, in a cost-
effective manner, information systems that provide the capabilities necessary for us to compete effectively, or
any interruption or loss of our information processing capabilities, for any reason, could harm our business,
ﬁnancial condition and results of operations.

Our markets are highly competitive.

The markets for our services are highly competitive. Our markets are characterized by pressures to
reduce prices, provide high levels of service, incorporate new capabilities and technologies and accelerate job
completion schedules. Furthermore, we face competition from a number of sources. These sources include
other executive search ﬁrms and professional search, staffing and consulting ﬁrms. Several of our competitors
have greater ﬁnancial and marketing resources than we do. Due to competition, we may experience reduced
margins on our products and services, and loss of market share and our customers. If we are not able to
compete effectively with current or future competitors as a result of these and other factors, our business,
ﬁnancial condition and results of operations could be materially adversely affected.

We have no signiﬁcant proprietary technology that would preclude or inhibit competitors from entering

the mid-market professional staffing contract and consulting markets. We cannot provide assurance that
existing or future competitors will not develop or offer services and products that provide signiﬁcant
performance, price, creative or other advantages over our services. In addition, we believe that, with
continuing development and increased availability of information technology, the industries in which we
compete may attract new competitors. Speciﬁcally, the increased use of the Internet may attract technology-
oriented companies to the professional staffing industry. We cannot provide assurance that we will be able to
continue to compete effectively against existing or future competitors. Any of these events could have a
material adverse effect on our business, ﬁnancial condition and results of operations.

We may be exposed to employment-related claims, legal liability and costs from both clients and employers
that could adversely affect our business, ﬁnancial condition or results of operations, and our insurance
coverage may not cover all of our potential liability.

We are in the business of employing people and placing them in the workplaces of other businesses.

Risks relating to these activities include:

•

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

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

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

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

claims for violations of wage and hour requirements;

claims for retroactive entitlement to employee beneﬁts;

claims of errors and omissions of our temporary employees, particularly in the case of professionals;

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

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

•

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

We are exposed to potential claims with respect to the recruitment process. A client could assert a claim
for matters such as breach of a blocking arrangement or recommending a candidate who subsequently proves
to be unsuitable for the position ﬁlled. Similarly, a client could assert a claim for deceptive trade practices on
the grounds that we failed to disclose certain referral information about the candidate or misrepresented
material information about the candidate. Further, the current employer of a candidate whom we place could
ﬁle a claim against us alleging interference with an employment contract. In addition, a candidate could assert
an action against us for failure to maintain the conﬁdentiality of the candidate’s employment search or for
alleged discrimination or other violations of employment law by one of our clients.

We may incur ﬁnes and other losses or negative publicity with respect to these problems. In addition,
some or all of these claims may give rise to litigation, which could be time-consuming to our management
team, costly and could have a negative effect on our business. In some cases, we have agreed to indemnify
our clients against some or all of these types of liabilities. We cannot assure you that we will not experience
these problems in the future, that our insurance will cover all claims, or that our insurance coverage will
continue to be available at economically-feasible rates.

From time to time, we may still incur liabilities associated with pre-spin off activities with Monster.
Under the terms of our Distribution Agreement with Monster, these liabilities will be retained by us. If these
liabilities are signiﬁcant, the retained liabilities could have a material adverse effect on our business, ﬁnancial
condition and results of operations.

We depend on our key management personnel.

Our continued success will depend to a signiﬁcant extent on our senior management, including Jon F.
Chait, our Chairman and Chief Executive Officer. The loss of the services of Mr. Chait or one or more key
employees could have a material adverse effect on our business, ﬁnancial condition and results of operations.
In addition, if one or more key employees join a competitor or form a competing company, the resulting loss
of existing or potential clients could have a material adverse effect on our business, ﬁnancial condition and
results of operations.

If we fail to attract and retain qualiﬁed personnel, it may negatively impact our business, ﬁnancial
condition and results of operations.

Our success also depends upon our ability to attract and retain highly-skilled professionals who possess

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

There may be volatility in our stock price.

The market price for our common stock has ﬂuctuated in the past and could ﬂuctuate substantially in the

future. For example, during 2009, the market prices of our common stock reported on the NASDAQ Global
Market ranged from a high of $5.19 to a low of $0.68. Factors such as general macroeconomic conditions
adverse to workforce expansion, the announcement of variations in our quarterly ﬁnancial results or changes
in our expected ﬁnancial results could cause the market price of our common stock to ﬂuctuate signiﬁcantly.
Further, due to the volatility of the stock market generally, the price of our common stock could ﬂuctuate for
reasons unrelated to our operating performance.

Government regulations may result in the prohibition, regulation or restriction of certain types of
employment services we offer, the imposition of additional licensing or tax requirements, or increase in the
number of compliance audits that may reduce our future earnings.

In many jurisdictions in which we operate, the contract staffing industry is heavily regulated. For

example, governmental regulations can restrict the length of contracts of contract employees and the industries
in which they may be used. In some countries, special taxes, fees or costs are imposed in connection with the
use of contract workers.

The countries in which we operate may:

•

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

impose new or additional beneﬁt requirements;

require us to obtain additional licensing to provide staffing services;

impose new or additional visa restrictions on movements between countries;

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

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

Any future regulations that make it more difficult or expensive for us to continue to provide our staffing

services may have a material adverse effect on our business, ﬁnancial condition and results of operations.

Provisions in our organizational documents and Delaware law will make it more difficult for someone to
acquire control of us.

Our certiﬁcate of incorporation and by-laws and the Delaware General Corporation Law contain several
provisions that make more difficult an acquisition of control of us in a transaction not approved by our Board
of Directors, including transactions in which stockholders might otherwise receive a premium for their shares
over then current prices, and that may limit the ability of stockholders to approve transactions that they may
deem to be in their best interests. Our certiﬁcate of incorporation and by-laws include provisions:

•

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

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

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

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

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

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

eliminating the right of stockholders to call a special meeting of stockholders or take action by
written consent without a meeting of stockholders.

In addition, Section 203 of the Delaware General Corporation Law generally provides that a corporation

may not engage in any business combination with any interested stockholder during the three-year period
following the time that the stockholder becomes an interested stockholder, unless a majority of the directors
then in office approve either the business combination or the transaction that results in the stockholder
becoming an interested stockholder or speciﬁed stockholder approval requirements are met.

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

th) of a share of our Series A Junior Participating Preferred Stock (‘‘Preferred Shares’’)

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

All of the Company’s operating offices are located in leased premises. Our principal executive office is

currently located at 560 Lexington Avenue, New York, New York, where we occupy space under a lease
expiring in March 2017.

Hudson Americas operates from 43 leased locations with space of approximately 336,000 aggregate
square feet, which includes 2 leased locations with space of approximately 60,000 aggregate square feet,
which are shared between the Hudson Americas and corporate functions. Hudson Europe operates from
44 leased locations with approximately 338,000 aggregate square feet, and Hudson Asia Paciﬁc is the lessee
of 21 locations with approximately 240,000 aggregate square feet. All leased space is considered to be
adequate for the operation of its business, and no difficulties are foreseen in meeting any future space
requirements.

Item 3. Legal Proceedings

Hudson Highland Group, Inc. (the ‘‘Company’’) has been responding to a previously disclosed

investigation by the staff of the Division of Enforcement (the ‘‘Staff’’) of the Securities and Exchange
Commission (‘‘SEC’’) regarding disclosure of the Company’s North American state sales tax charges and
reserves. The total amount of the Company’s past due sales tax liabilities for the seven-year period from 2001
to 2007 was less than $3.9 million. Company clients reimbursed the Company for approximately $450,000 of
such liabilities. The Company has settled all of such sales tax matters with, and paid all taxes due to, the
respective states. Under the direction of the Company’s Audit Committee, the Company has fully and
voluntarily cooperated with the Staff’s requests for information. In May 2009, the Company learned that the
Staff intends to recommend that the SEC bring an enforcement action described below relating to an alleged
lack of disclosure concerning these sales tax matters in the Company’s Quarterly Reports on Form 10-Q for
the quarters ended June 30, 2006, September 30, 2006 and March 31, 2007 and the Annual Report on
Form 10-K for the year ended December 31, 2006. The Company believes that all such sales tax charges and
reserves have been reﬂected in the Company’s ﬁnancial statements that have been previously ﬁled with the
SEC. Furthermore, the Company has already implemented a number of remedial actions and internal control
enhancements relating to sales tax matters, which have been operating effectively for over two years. All
quarterly and annual ﬁnancial statements for these periods were reviewed or audited by the Company’s
independent auditor at the time.

On May 13, 2009, the Company received a ‘‘Wells Notice’’ from the SEC in connection with the

investigation by the Staff described above. According to the Wells Notice, the Staff intends to recommend that
the SEC bring a civil injunctive action against the Company alleging that the Company violated Section 13(a)
of the Securities Exchange Act of 1934 and related Rules 13a-1 and 13a-13. The Company’s Chief Financial
Officer also received a Wells Notice that the Staff intends to recommend the SEC bring a civil injunctive
action against the Chief Financial Officer alleging that the Chief Financial Officer aided and abetted such
violations.

The Company and its Chief Financial Officer disagree with the Staff with respect to their proposed
recommendations. Under the process established by the SEC, the Company and its Chief Financial Officer
have provided written submissions to the Staff. The Staff continues to gather information and the Company
and its Chief Financial Officer continue to cooperate with the Staff’s investigation.

In addition to the matter mentioned above, the Company is involved in various legal proceedings that are

incidental to the conduct of its business. The Company is not involved in any pending or threatened legal
proceedings that it believes could reasonably be expected to have a material adverse effect on its ﬁnancial
condition, or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of the Company’s security holders during the fourth quarter of the

ﬁscal year covered by this report.

Executive Officers of the Registrant

The following table sets forth certain information, as of February 12, 2010, regarding the executive

officers of Hudson Highland Group, Inc.:

Name

Jon F. Chait
Mary Jane Raymond
Margaretta R. Noonan
Richard S. Gray
Latham Williams

Frank P. Lanuto
Neil J. Funk

Age

59
49
52
53
57

47
58

Title

Chairman and Chief Executive Officer
Executive Vice President and Chief Financial Officer
Senior Human Resources Officer
Senior Vice President, Marketing and Communications
Senior Vice President, Legal Affairs and Administration,
Corporate Secretary
Senior Vice President and Corporate Controller
Vice President, Internal Audit

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

Jon F. Chait has served as Chairman and Chief Executive Officer since the Company was spun off from
Monster in March 2003. He joined Monster in October 2002 expressly in contemplation of the spin-off. Prior
to joining the Company, Mr. Chait was the Chairman of Spring Group, PLC, a provider of workforce
management solutions, from May 2000 through June 2002 and Chief Executive Officer from May 2000 to
March 2002. From 1998 through 2000, Mr. Chait founded and acted as Chairman and Chief Executive Officer
of Magenta Limited, a developer of web-enabled human resource solutions, which was subsequently sold to
Spring Group, PLC. Mr. Chait served as the Managing Director — International Operations of Manpower Inc.
from 1995 to July 1998, Chief Financial Officer from August 1993 to 1998, Executive Vice President,
Secretary and Director from 1991 to 1998 and Executive Vice President from September 1989 to July 1998 of
Manpower International Inc., a provider of temporary employment services. Mr. Chait is also a director of the
Marshall and Ilsley Corporation, a bank holding company.

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

Margaretta R. Noonan has served as Senior Human Resources Officer from March 3, 2009. Prior to that,

Ms. Noonan served as Executive Vice President and Chief Administrative Officer since February 2005. Prior
to that Ms. Noonan served as Executive Vice President, Human Resources since she joined the Company in
April 2003. Prior to joining the Company, Ms. Noonan served as Senior Vice President, Global Human
Resources and corporate officer of Monster Worldwide, Inc. Prior to joining Monster in 1998, Ms. Noonan
was Vice President, Human Resources — Stores, for the Lord & Taylor division of May Department Stores
Company, a large retail department store, from February 1997 to May 1998 and was Vice President, Human
Resources, of Kohl’s Corporation, a large retail department store, from November 1992 to February 1997.

Richard S. Gray has served as Senior Vice President, Marketing and Communications since

February 2005. Prior to that, Mr. Gray served as Vice President, Marketing and Communications since joining
the Company in May 2003. Prior to joining the Company, Mr. Gray was Senior Vice President for Ogilvy
Public Relations Worldwide, a large public relations ﬁrm, in Chicago, Illinois from September 2002 until

May 2003. Before joining Ogilvy Public Relations Worldwide, Mr. Gray was Vice President, Marketing and
Communications for Lante Corporation, an internet consulting boutique, in Chicago, Illinois from
November 1998 until November 2001.

Latham Williams has served as Senior Vice President, Legal Affairs and Administration, Corporate

Secretary since February 2007. Prior to that, Mr. Williams served as Vice President, Legal Affairs and
Administration, Corporate Secretary since joining the Company in April 2003. Prior to joining the Company,
Mr. Williams was a Partner, Leader Diversity Practice Group and Co-Leader Global Legal Practice in
Monster’s executive search division. Prior to joining Monster in 2001, Mr. Williams was an equity partner
with the international law ﬁrm of Sidley Austin LLP from 1993 to 2000, specializing in health care joint
ventures, mergers and acquisitions. Before joining Sidley Austin, Mr. Williams was an equity partner in the
Chicago-based law ﬁrm of Gardner, Carton & Douglas and was with the ﬁrm from 1981 to 1993.

Frank P. Lanuto has served as Senior Vice President and Corporate Controller since November 9, 2009.

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

Neil J. Funk has served as Vice President, Internal Audit since joining the Company in August 2003.
Prior to joining the Company, Mr. Funk was a Senior Manager at Deloitte & Touche LLP, a multi-national
auditing and consulting ﬁrm, from September 2000 until July 2003. Before joining Deloitte & Touche,
Mr. Funk was with Prudential Financial, Inc., a large insurance company, specializing in personal ﬁnancial
planning from March 2000 until August 2000. Before joining Prudential Financial, Inc., Mr. Funk was District
Audit Manager for PRG-Schultz, Inc., a recovery audit company, based in Atlanta, Georgia from
September 1997 until February 2000.

Executive officers are elected by, and serve at the discretion of, the Board of Directors. There are no

family relationships between any of our directors or executive officers.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

Market for Common Stock

The Company’s common stock is listed for trading on the NASDAQ Global Market under the symbol

‘‘HHGP.’’ On December 31, 2009, there were approximately 1,022 holders of record of the Company’s
common stock.

The following is a list by ﬁscal quarter of the market prices of the Company’s common stock.

Market Price

2009
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2008

Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

High
$5.19
$4.04
$2.63
$3.67

$ 7.25
$11.94
$13.00
$ 9.78

Low
$2.99
$1.70
$1.09
$0.68

$2.00
$6.39
$8.08
$5.82

We have never declared or paid cash dividends on our common stock, and we currently do not intend to

declare or pay cash dividends on our common stock. Any payment of cash dividends will depend upon our
ﬁnancial condition, capital requirements, earnings and other factors deemed relevant by our Board of
Directors. In addition, the terms of our credit agreement prohibit us from paying dividends and making other
distributions.

Issuer Purchases of Equity Securities

The Company’s purchases of its common stock during the fourth quarter of ﬁscal 2009 were as follows:

Period

Total
Number
of Shares
Purchased

Average
Price Paid
per Share

October 1, 2009 − October 31, 2009 . . . .
November 1, 2009 − November 30,

2009 . . . . . . . . . . . . . . . . . . . . . . .

December 1, 2009 − December 31,

2009(b) . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . .

—

2,764
2,764

$ —

$4.05
$4.05

Total
Number
of Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs

—

—
—

Approximate
Dollar Value of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs(a)

$6,792,000

$6,792,000
$6,792,000

(a) On February 4, 2008, the Company announced that its Board of Directors authorized the repurchase
of a maximum of $15 million of the Company’s common stock. The Company has repurchased
1,491,772 shares for a total cost of approximately $8.2 million under this authorization. As of March 1,
2009, repurchases of common stock are no longer permitted under the Company’s credit agreement.

(b) Represents restricted stock withheld from employees upon the vesting of such shares to satisfy

employees’ income tax withholding requirements.

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

PERFORMANCE INFORMATION

The following graph compares on a cumulative basis changes since December 31, 2004 in (a) the total
stockholder return on the Company’s common stock with (b) the total return on the Russell 2000 Index and
(c) the total return on the companies in a peer group selected in good faith by the Company, in each case
assuming reinvestment of dividends. Such changes have been measured by dividing (a) the difference between
the price per share at the end of and the beginning of the measurement period by (b) the price per share at the
beginning of the measurement period. The graph assumes $100 was invested on December 31, 2004 in the
Company’s common stock, the Russell 2000 Index and the peer group consisting of Kforce Inc., Manpower,
Inc., Spherion Corporation, CDI Corp. and Robert Half International Inc. The returns of each component
company in the peer group have been weighted based on each company’s relative market capitalization.

$200

$150

$100

$50

$0
12/31/04 06/30/05

12/31/05

6/30/06 12/31/06 6/30/07

12/31/07

6/30/08

12/31/08

6/30/09

12/31/09

HHGP

Russell 2000

Peer Group

HHGP . . . . . . . . . . . . . . . .
PEER GROUP . . . . . . . . . .
RUSSELL 2000 INDEX . . . .

2004
$100.00
$100.00
$100.00

2005
$120.56
$112.61
$103.32

December 31,

2006
$115.83
$137.38
$120.89

2007
$ 58.40
$104.22
$117.57

2008
$23.26
$68.79
$76.65

2009
$32.99
$99.92
$95.98

Item 6. Selected Financial Data

The following table shows selected ﬁnancial data of the Company that has been adjusted to reﬂect the

classiﬁcation of certain businesses as discontinued operations. The data has been derived from, and should be
read together with, the Consolidated Financial Statements and corresponding notes and ‘‘Management’s
Discussion and Analysis of Financial Condition and Results of Operations’’ included in Items 7 and 8 of this
Form 10-K.

Year Ended December 31,

2009

2008

2007
(Dollars in Thousands, Except per Share Data)

2006

2005

Summary of operations:
Revenue . . . . . . . . . . . . . . . . . . . . . . . .

$691,149

$1,079,085 $1,170,061 $1,146,794

$1,114,420

Gross margin . . . . . . . . . . . . . . . . . . . . .

$260,453

$ 454,986 $ 496,440 $ 444,213

$ 419,699

Business reorganization and integration

expense . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other impairment charges(a). .
Depreciation and amortization. . . . . . . . . .

Operating (loss) income . . . . . . . . . . . . . .
(Loss) income from continuing operations .
Income (loss) from discontinued

operations, net of income taxes . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . .
Basic (loss) income per share from

continuing operations . . . . . . . . . . . . . .
Basic net (loss) income per share . . . . . . .
Diluted (loss) income per share from

continuing operations . . . . . . . . . . . . . .
Diluted net (loss) income per share . . . . . .
Other ﬁnancial data:
Net cash (used in) provided by operating

$ 18,180
1,549
$

$ 12,543

$
$

11,217 $
67,087 $

3,575 $
— $

6,046
1,300

14,662 $

14,377 $

18,196

$
$

483
—

16,251

$ (49,453) $ (70,783) $
$ (42,953) $ (73,096) $

18,995 $
5,528 $

(5,828)
(8,855)

$ (10,265)
$ (16,518)

2,344

(1,222) $
$
$
$ (40,609) $ (74,318) $

9,453 $
14,981 $

29,283
20,428

$
$

(1.65) $
(1.56) $

(2.90) $
(2.95) $

(1.65) $
(1.56) $

(2.90) $
(2.95) $

0.22 $
0.59 $

0.21 $
0.58 $

(0.36)
0.83

$
$

16,720
201

(0.74)
0.01

activities . . . . . . . . . . . . . . . . . . . . . .

$ (26,988) $

11,860 $

37,741 $

35,867

$ (26,298)

Net cash provided by (used in) investing

activities . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by (used in) ﬁnancing

activities . . . . . . . . . . . . . . . . . . . . . .

Balance sheet data:
Current assets. . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . .
Long-term debt, less current portion . . . . .
Total stockholders’ equity. . . . . . . . . . . . .
EBITDA (loss)(b)
. . . . . . . . . . . . . . . . . .

6,804

4,371

4,196 $ (50,837) $

1,881

$ (35,715)

(646) $

4,864 $ (28,803)

75,857

$148,366
$181,944
$ 86,154
$
$ 76,260
$ (35,466) $ (52,852) $

$ 194,149 $ 259,075 $ 280,107
$ 230,953 $ 374,206 $ 352,182
$ 104,581 $ 152,426 $ 167,289
235
$ 107,992 $ 200,115 $ 171,324
13,959

36,795 $

— $

$ 279,877
$ 347,773
$ 202,761
478
$
$ 132,454
5,568
$

(a) The results for the year ended December 31, 2009 included an impairment charge of $1,669 related to
goodwill associated with the Tong Zhi (Beijing) Consulting Service Ltd. and Guangzhou Dong Li
Consulting Service Ltd. (collectively, ‘‘TKA’’) acquisition. The results for the year ended December 31,
2008 included impairment charges related to goodwill of $64,495, a write down of long-term assets of
$2,224 and impairment charges related to intangible assets of $368. The results for the year ended
December 31, 2006 included an impairment charge of $1,300 related to goodwill associated with the
Alder Novo acquisition.

(b) SEC Regulation S-K 229.10(e)1(ii)(A) deﬁnes EBITDA as earnings before interest, taxes, depreciation
and amortization. EBITDA is presented to provide additional information to investors about the
Company’s operations on a basis consistent with the measures which the Company uses to manage its
operations and evaluate its performance. Management also uses this measurement to evaluate working
capital requirements. EBITDA should not be considered in isolation or as a substitute for operating
income and net income prepared in accordance with generally accepted accounting principles or as a
measure of the Company’s proﬁtability. See Note 16 to the Consolidated Financial Statements for further
EBITDA segment and reconciliation information.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations

(‘‘MD&A’’) should be read in conjunction with the Consolidated Financial Statements and the notes thereto,
included in Item 8 of this Form 10-K. This MD&A contains forward-looking statements. Please see note
‘‘Regarding Forward-Looking Statements’’ for a discussion of the uncertainties, risks and assumptions
associated with these statements This MD&A also uses the non-GAAP measure of earnings before interest,
taxes, depreciation and amortization (‘‘EBITDA’’). See Note 16 to the Consolidated Financial Statements for
EBITDA segment reconciliation information.

Executive Overview

Hudson Highland Group, Inc. (the ‘‘Company’’ or ‘‘Hudson,’’ ‘‘we,’’ ‘‘us’’ and ‘‘our’’) has operated as an

independent publicly traded company since April 1, 2003, when we were spun-off from Monster Worldwide,
Inc. (‘‘Monster’’). Our businesses are specialized professional staffing services for permanent and contract and
talent management services to businesses operating in many industries and in 20 countries around the world.
Our largest operations are in the U.S., the U.K. and Australia. We are organized into three reportable segments
of Hudson Americas, Hudson Europe and Hudson Asia Paciﬁc. These segments contributed approximately
16%, 47% and 37% of the Company’s gross margin, respectively, for the year ended December 31, 2009. Our
management’s primary focus since the spin-off has been to move the Company to proﬁtability, particularly at
the level most in the control of the country level operating leaders. We have focused on specialized
professional recruitment through our staffing, project solutions and talent management businesses. In doing so,
we have sold or discontinued non-core businesses, taken actions to streamline support operations to match the
business focus and reduced costs to increase our long-term proﬁtability. We have measured our improvements
at the level of gross margin, less selling, general and administrative expenses, and depreciation and
amortization.

Recent Economic Events

During 2009, the Company experienced recessionary conditions throughout its operations. By the second

half of 2009, the Company began showing encouraging signs of economic recovery in the key markets in
which we operate. Macro economic reports have indicated growth in gross domestic product (‘‘GDP’’) in the
U.S., Australia, China, the U.K. and the 16-nation Euro zone. Reports are forecasting economic growth in
2010 in the range of 1% to 3% for the majority of the developed economies and higher for some of the
emerging markets. However, unemployment, traditionally a lagging economic indicator, remains at elevated
levels and reached double digits in some markets by the end of 2009.

Our ﬁnancial results have trended closely to the macro economic data and, during the second half of

2009, we experienced sequential improvement in revenue in the U.K., U.S., China and Singapore. The
improvement was led by growth in the banking and ﬁnancial services sectors in the U.K., a resumption of
new legal services projects as the liquidity crisis eased in the U.S. and the easing of hiring restrictions by
large multinational clients in China and Singapore as the growth rate in those markets accelerated. In the later
part of 2009, Australia, New Zealand and Belgium experienced a reduced rate of decline in revenue and
showed signs of more typical seasonal revenue trends. Revenue in the Netherlands was not impacted
signiﬁcantly in 2009 and remained relatively ﬂat compared to 2008 as public sector spending remained stable.

Although the recessionary conditions showed signs of abating in the latter part of 2009, the ﬁnancial

results of the Company for the year ended December 31, 2009 were below the ﬁnancial results of the prior
year in all of our major markets. Business visibility remains relatively low despite early sign of improvement;
unemployment could remain at elevated levels well into 2010. These conditions could impact the Company’s
ﬁnancial results in 2010 and, as a result, future ﬁnancial results may differ from historical performance. See
‘‘Liquidity Outlook’’ for additional information.

Financial Performance

As discussed in more detail in this MD&A, the following ﬁnancial data present an overview of our

ﬁnancial performance for 2009, 2008 and 2007:

$ in Millions
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . .
Business reorganization and integration expenses . .
Goodwill and other impairment charges . . . . . . . .
Operating (loss) income . . . . . . . . . . . . . . . . . . .
(Loss) income from continuing operations. . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2009
$691.1
260.5
290.2
18.2
1.5
(49.4)
(43.0)
$ (40.6)

2008
$1,079.1
455.0
447.5
11.2
67.1
(70.8)
(73.1)
$ (74.3) $

2007
$1,170.1
496.4
473.8
3.6
—
19.0
5.5
15.0

Changes
(2009 v.s.
2008)

Amount
$(388.0)
(194.5)
(157.3)
7.0
(65.6)
21.4
30.1
$ 33.7

Changes
(2008 v.s.
2007)

Amount
$(91.0)
(41.4)
(26.3)
7.6
67.1
(89.8)
(78.6)
$(89.3)

•

Revenue was $691 million for the year ended December 31, 2009, as compared to $1,079 million for
2008, a decrease of $388 million or 36%. Contracting revenue declined $244 million or 32% and
permanent recruitment revenue declined $122 million or 51% for the year ended December 31, 2009,
compared to 2008. Revenue was $1,079 million for the year end December 31, 2008, as compared to
$1,170 million for 2007, a decrease of $91 million or 8%. Contracting revenue declined $50 million or
6% and permanent recruitment revenue declined $34 million or 13% for the year ended December 31,
2008, compared to 2007.

Gross margin was $260 million for the year ended December 31, 2009, as compared to $455 million for
2008, a decrease of $195 million or 43%. Permanent recruitment gross margin declined $121 million or
51% and contracting gross margin declined $60 million or 37% for the year ended December 31, 2009,
compared to 2008. Gross margin was $455 million for the year ended December 31, 2008, as compared
to $496 million for 2007, a decrease of $41 million or 8%. Permanent recruitment gross margin declined
$32 million or 12% and contracting gross margin declined $11 million or 6% for the year ended
December 31, 2008, compared to 2007

Selling, general and administrative expenses were $290 million for the year ended December 31, 2009, as
compared to $447 million for 2008, a decrease of $157 million or 35%. Selling, general and
administrative expenses were $447 million for the year months ended December 31, 2008, as compared
to $474 million for 2007, a decrease of $26 million or 6%.

Goodwill and other impairment charges of $2 million were included in the results for the year ended
December 31, 2009, as compared $67 million for the same period in 2008 and none for the same period
in 2007.

Goodwill and Other Impairment Charges

Under the Financial Accounting Standards Board (‘‘FASB’’) Accounting Standards Codiﬁcation Topic

(‘‘ASC’’) 350-20-35 ‘‘Intangibles-Goodwill and Other, Goodwill Subsequent Measurement’’, the Company is
required to test goodwill and indeﬁnite-lived intangible assets for impairment on an annual basis as of
October 1, or more frequently if circumstances indicate that its carrying value might exceed its current fair
value.

By the fourth quarter of 2008, the economic slowdown that had been evident earlier in the year in the
U.S. and the U.K. spread rapidly to other industries and countries and had impacted virtually all our markets.
Consequently, these conditions negatively impacted both the Company’s stock price and its outlook for
operating results. The Company’s stock price declined approximately ﬁfty percent as of December 31, 2008
compared to the stock price as of October 1, 2008. As a result, the Company’s market capitalization declined
below its book value, an indication that the aggregate fair value of its reporting units could potentially be less
than their carrying value. Accordingly, management updated its impairment testing from October 1 (annual

assessment date), through December 31, 2008 with the assistance of a third-party valuation ﬁrm utilizing both
an income and market based approach.

At the conclusion of the testing, the Company determined that goodwill was impaired at all of its
reporting units and recorded an impairment charge of $64.5 million in 2008. It also recorded an additional
impairment charge on intangible assets of $2.6 million. The total charges of $67.1 million for 2008 were
recorded under the caption of ‘‘Goodwill and other impairment charges’’ in the Company’s Consolidated
Statements of Operations included in the Company’s 2008 Annual Report on Form 10-K.

The primary drivers that resulted in the goodwill impairment charge were the anticipated signiﬁcant
reduction in 2009 revenue, earnings and cash ﬂows with modest expected recovery in 2010 and a reduction in
the market price of the Company’s stock.

During the ﬁrst half of 2009, the Company experienced a continued deterioration in market conditions.

Over the course of the ﬁrst six months of the year, the Company’s stock price declined approximately
thirty-ﬁve percent as of June 30, 2009 as compared to the stock price as of December 31, 2008. As a result,
management performed an interim test for impairment of the $1.7 million additional purchase price payment
for its Tong Zhi (Beijing) Consulting Service Ltd and Guangzhou Dong Li Consulting Service Ltd
(collectively, ‘‘TKA’’) acquisition, which was recorded as goodwill at June 30, 2009. The Company concluded
that the entire amount of recorded goodwill was impaired and recorded an impairment charge of $1.7 million
at the same reporting unit.

Strategic Actions

Our management’s primary focus has been to move the Company to proﬁtability through a focus on
specialized professional recruitment through our staffing, project solutions and talent management businesses.
We have focused our strategy on higher-margin specialized professional recruitment with a long-term ﬁnancial
goal of 7 − 10% EBITDA margins, which we believe is the measure most within the control of our operating
leaders. We believe achievement of these long-term EBITDA margins will generate long-term proﬁtability. We
continue to execute this strategy through a combination of delivery of higher margin services, price
negotiations, efficient delivery of services, investments, restructuring, acquisitions and divestitures. In doing
so, we continue to focus on retaining and maintaining key clients, retaining high performing revenue earners,
integrating businesses to achieve synergies, discontinuing non-core businesses, streamlining support operations
and reducing costs to achieve the Company’s long-term proﬁtability goals.

To counteract the negative economic conditions worldwide, the Company rapidly reduced its operating
costs during 2009. The Company’s Board of Directors (the ‘‘Board’’) approved a restructuring program during
2009 (‘‘2009 Plan’’) for up to $19 million to counteract the ongoing declines in revenue. The Company
substantially completed these actions by the end of 2009. For the year ended December 31, 2009, the
Company incurred approximately $17 million of expenses in connection with the 2009 Plan. The Company
expects these actions will produce recurring cost savings through the 2010 and beyond, resulting in a more
efficient operating model going forward. The Company expects to leverage these efficiencies as the economy
recovers to improve its long-term proﬁtability.

In April 2008, we acquired certain business assets of Propensity, Ltd., a professional services ﬁrm based

in Texas specializing in accounting and ﬁnance services and providing both contract and permanent
recruitment services. In February 2008, we completed the acquisition of the majority of the assets of
Executive Coread SARL, a talent management and recruitment company in France. In May 2007, we acquired
the business assets of TKA, an information technology recruiting business, which has operations located in
three major cities in China.

We expect to continue our review of opportunities to expand our operations in specialized professional

recruitment.

Since 2007, we completed the sale of or otherwise discontinued the following non-core businesses to

improve our strategic focus:

•

Hudson’s Italy operations (‘‘Italy’’) in April 2009 (2008 revenue of $4 million).

Hudson’s Japan operations (‘‘Japan’’) in March 2009 (2008 revenue of $5 million).

•

Hudson’s public management division (‘‘BPM’’) of Balance Ervaring op Projectbasis, B.V.
(‘‘Balance’’) in May 2008 (2007 revenue of $6 million).

Hudson Americas’ energy, engineering and technical staffing division (‘‘ETS’’) in February 2008
(2007 revenue of $146 million).

The Netherlands’ reintegration business (‘‘HHCS’’) in December 2007 (2006 revenue of
$19 million).

Australia’s trade and industrial business (‘‘T&I’’) in October 2007 (2006 revenue of $44 million).

Alder Novo, a company that we acquired in January 2006 and subsequently sold, in April 2007
(2006 revenue of $1.4 million).

U.K. office support business in January 2007 (2006 revenue of $10 million).

Discontinued Operations

In the second and ﬁrst quarters of 2009, the Company exited the markets in Italy and Japan, respectively.

The operations in Italy were part of the Hudson Europe reportable segment and the operations of Japan were
part of the Hudson Asia Paciﬁc reportable segment.

In the fourth quarter of 2007, the Company sold its Netherlands reintegration subsidiary, Hudson Human

In the fourth quarter of 2006, the Company sold its Highland Partners (‘‘Highland’’) executive search

business, which was a separate reportable segment of the Company.

In accordance with the provisions of ASC 205-20-45 ‘‘Reporting Discontinued Operations’’, the assets,

liabilities, and results of operations of the Company’s discontinued operations above were reclassiﬁed as
discontinued operations for all the periods presented. The gain or loss on sale and results of operations of the
disposed businesses were reported in discontinued operations in the relevant periods

Use of EBITDA

Management believes EBITDA is a meaningful indicator of the Company’s performance that provides
useful information to investors regarding the Company’s ﬁnancial condition and result of operations. EBITDA
is also considered by management as the best indicator of operating performance and most comparable
measure across our regions, because it does not include certain expenses that are generally outside the control
of local management. Management also uses this measurement to evaluate capital needs and working capital
requirements. EBITDA should not be considered in isolation or as a substitute for operating income or net
income prepared in accordance with generally accepted accounting principles or as a measure of the
Company’s proﬁtability. EBITDA, as presented below, is derived from net (loss) income adjusted for (beneﬁt
from) provision for income taxes, interest expense (income), and depreciation and amortization. For the year
ended December 31, 2009, the Company recorded an EBITDA loss of $35.5 million, which included
$18.2 million of restructuring charges. For the year ended December 31, 2008, the Company recorded an
EBITDA loss of $52.9 million in 2008, which included non-cash charges of $67.1 million primarily for the
impairment of goodwill and intangible assets and write down of other long-term assets. The reconciliation of
EBITDA to the most directly comparable GAAP ﬁnancial measure is provided in the table below:

$ in Thousands
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted for income (loss) from discontinued operations,

net of income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from continuing operations . . . . . . . . . . . . .
Adjustments to (loss) income from continuing operations

Year Ended December 31,

2009
$(40,609)

2008
$(74,318)

2007
$14,981

2,344
(42,953)

(1,222)
(73,096)

9,453
5,528

(Beneﬁt from) provision for income taxes . . . . . . . . . . .
Interest expense (income), net . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .

(5,750)
694
12,543

6,681
(1,099)
14,662

17,519
(629)
14,377

Total adjustments from (loss) income from continuing

operations to EBITDA (loss) . . . . . . . . . . . . . . . . . . . .
EBITDA (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7,487
$(35,466)

20,244
$(52,852)

31,267
$36,795

Critical Accounting Policies

Our discussion and analysis of our ﬁnancial condition and results of operations are based upon our

Consolidated Financial Statements, which have been prepared in accordance with generally accepted
accounting principles in the United States of America (‘‘US GAAP’’). The preparation of ﬁnancial statements
in accordance with US GAAP requires our management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and
liabilities. US GAAP provides the framework from which to make these estimates, assumptions and
disclosures. We choose accounting policies within US GAAP that our management believes are appropriate to
accurately and fairly report our operating results and ﬁnancial position in a consistent manner. Our
management regularly assesses these policies in light of current and forecasted economic conditions. Our
accounting policies are stated in Note 2 to our Consolidated Financial Statements included in Item 8. We
believe the following accounting policies are critical to understanding our results of operations and affect the
more signiﬁcant judgments and estimates used in the preparation of our Consolidated Financial Statements
that are inherently uncertain:

Revenue Recognition

The Company recognizes revenue for temporary services at the time services are provided and revenue is

recorded on a time and materials basis. Temporary contracting revenue is reported on a gross basis when the
Company acts as the principal in the transaction and is at risk for collection in accordance with ASC 605-45,
‘‘Overall Considerations of Reporting Revenue Gross as a Principal versus Net as an Agent’’. The Company’s
revenues are derived from its gross billings, which are based on (i) the payroll cost of its worksite employees;
and (ii) a markup computed as a percentage of the payroll cost.

The Company recognizes revenue for permanent placements based on the nature of the fee arrangement.
Revenue generated when the Company permanently places an individual with a client on a contingent basis is
recorded at the time of acceptance of employment, net of an allowance for estimated fee reversals. Revenue
generated when the Company permanently places an individual with a client on a retained basis is recorded
ratably over the period services are rendered, net of an allowance for estimated fee reversals.

ASC 605-45-50-3 and ASC 605-45-50-4, ‘‘Taxes Collected from Customers and Remitted to
Governmental Authorities’’ provide that the presentation of taxes on either a gross or net basis is an
accounting policy decision. The Company collects various taxes assessed by governmental authorities and
records these amounts on a net basis.

Accounts Receivable

The Company’s accounts receivable balances are composed of trade and unbilled receivables. The
Company maintains an allowance for doubtful accounts and makes ongoing estimates as to the collectability
of the various receivables. If the Company determines that the allowance for doubtful accounts is not adequate
to cover estimated losses, an expense to provide for doubtful accounts is recorded in selling, general and

administrative expenses. If an account is determined to be uncollectible, it is written off against the allowance
for doubtful accounts. Management’s assessment and judgment are vital requirements in assessing the ultimate
realization of these receivables, including the current credit-worthiness, ﬁnancial stability and effect of market
conditions on each customer.

Income Taxes

We account for income taxes using the asset and liability method in accordance with ASC 740, ‘‘Income
Taxes’’. This standard establishes ﬁnancial accounting and reporting standards for the effects of income taxes
that result from an enterprise’s activities during the current and preceding years. It requires an asset and
liability approach for ﬁnancial accounting and reporting of income taxes.

As of December 31, 2009, we had current net deferred tax assets of $4,883 and non-current net deferred

tax assets of $7,028. The calculation of net deferred tax assets assumes sufficient future earnings for the
realization of such assets as well as the continued application of currently anticipated tax rates. Included in net
deferred tax assets is a valuation allowance of $152,099 for deferred tax assets where management believes it
is more likely than not that the deferred tax assets will not be realized in the relevant jurisdiction. Based on
our assessments, no additional valuation allowance is required. If we determine that a deferred tax asset will
not be realizable, an adjustment to the deferred tax asset will result in a reduction of earnings at that time.

ASC 740-10-55-3 ‘‘Recognition and Measurement of Tax Positions — a Two Step Process’’ provides

implementation guidance related to the accounting for uncertainty in income taxes recognized in an
enterprise’s ﬁnancial statements and prescribes a two-step evaluation process for a tax position taken or
expected to be taken in a tax return. The ﬁrst step is recognition and the second is measurement. ASC 740
also provides guidance on derecognition, measurement, classiﬁcation, disclosures, transition and accounting for
interim periods. In addition, ASC 740-10-25-9 provides guidance on how to determine whether a tax position
is effectively settled for the purpose of recognizing previously unrecognized tax beneﬁts.

We adopted the provision related to unrecognized tax beneﬁt in accordance with ASC 740-10-25-5
effective January 1, 2007, which resulted in a cumulative adjustment of $3,537 (net of tax effect), which, as
required, was accounted for as a reduction to the January 1, 2007 balance of retained earnings. The
cumulative effect of the adjustment consisted of $1,969 for income taxes related to both foreign and U.S. state
and local jurisdictions, $671 of interest and $897 of penalties related to uncertain tax beneﬁts. Accrued interest
and penalties were $1,568 as of January 1, 2007. The Company had approximately $6,514 and $5,884 of
unrecognized tax beneﬁts, excluding interest and penalties of $2,014 and $1,625, which if recognized in the
future, would affect the annual effective income tax rate as of December 31, 2009, and 2008, respectively. See
Note 11 to the Consolidated Financial Statements for further information regarding unrecognized tax beneﬁts.
We elected to continue our historical practice of classifying applicable interest and penalties as a component
of the provision for income taxes.

We provide tax reserves for Federal, state, local and international exposures relating to periods subject to

audit. The development of reserves for these exposures requires judgments about tax issues, potential
outcomes and timing, and is a subjective critical estimate. We assess our tax positions and record tax beneﬁts
for all years subject to examination based upon management’s evaluation of the facts, circumstances and
information available at the reporting dates. For those tax positions where it is more likely than not that a tax
beneﬁt will be sustained, we have recorded the largest amount of tax beneﬁt with greater than 50% likelihood
of being realized upon settlement with a tax authority that has full knowledge of all relevant information. For
those tax positions where it is not more likely than not that a tax beneﬁt will be sustained, no tax beneﬁt has
been recognized in the Consolidated Financial Statements. Where applicable, associated interest and penalties
have also been recognized. Although the outcome relating to these exposures are uncertain, we believe that
our reserves reﬂect the probable outcome of known tax contingencies. In certain circumstances, the ultimate
outcome of exposures and risks involves signiﬁcant uncertainties which render them inestimable. If actual
outcomes differ materially from these estimates, including those that cannot be quantiﬁed, they could have a
material impact on our results of operations.

Contingencies

From time to time in the ordinary course of business, the Company is subject to compliance audits by

federal, state, local and foreign government regulatory, tax, and other authorities relating to a variety of
regulations, including wage and hour laws, unemployment taxes, workers’ compensation, immigration, and
income, value-added and sales taxes. The Company is also subject to, from time to time in the ordinary
course of business, various claims, lawsuits, and other complaints from, for example, clients, candidates,
suppliers, and landlords for both leased and subleased properties.

Periodic events can also change the number and type of audits, claims, lawsuits or complaints asserted
against the Company. Events can also change the likelihood of assertion and the behavior of third parties to
reach resolution regarding such matters. The present economic circumstances have given rise to many news
reports and bulletins from clients, tax authorities and other parties about changes in their procedures for
audits, payment, plans to challenge existing contracts and other such matters aimed at being more aggressive
in the resolution of such matters in their own favor. The Company has appropriate procedures in place for
identifying and communicating any matters such as these, whether asserted or likely to be asserted, and it
evaluates its liabilities in light of the prevailing circumstances. Changes in the behavior of third parties could
cause the Company to change its view of the likelihood of a claim and what might constitute a trend. In the
last twelve months, the Company has not seen a marked difference in employee disputes or client disputes,
though pressure on fees is increasing. In the same period, the Company has seen an increase in audits by tax
authorities. We cannot determine if this is typical at this point in the Company’s history or higher than typical,
and in either event, we cannot determine if this is an indication of a trend for our Company given our
operations in 20 countries and multiple municipalities. However, we do not expect at this time that such
matters will have a material adverse effect on the Company’s results of operations, ﬁnancial condition 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 not signiﬁcant as
of December 31, 2009 and 2008. Although the outcome of these matters cannot be determined, the Company
believes that none of the currently pending matters, individually or in the aggregate, will have a material
adverse effect on the Company’s ﬁnancial condition, results of operations or liquidity.

Goodwill

Under ASC 350-20-35 ‘‘Intangibles-Goodwill and Other, Goodwill Subsequent Measurement’’, the
Company is required to test goodwill and indeﬁnite-lived intangible assets for impairment on an annual basis
as of October 1, or more frequently if circumstances indicate that its carrying value might exceed its current
fair value.

ASC 350-20-35 requires a two-step process to identify potential goodwill impairment and to measure the
amount of the impairment loss to be recognized, if applicable. The ﬁrst step of the goodwill impairment test,
used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount,
including goodwill. If the fair value of a reporting unit exceeds its carrying amount, then goodwill of the
reporting unit is not considered impaired and the second step of the impairment test is unnecessary. In
contrast, if the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill
impairment test shall be performed to measure the amount of impairment loss, if any.

Step two of the impairment test, if necessary, consists of determining the implied fair value of each

reporting unit’s goodwill. In calculating the implied fair value of goodwill, the fair values of the reporting
units are allocated to all of the other assets and liabilities of the reporting units based on their fair values. The
excess of the fair value of each reporting unit over the amounts assigned to its other assets and liabilities is
equal to the implied fair value of its goodwill. The goodwill impairment is measured as the excess of the
carrying amount of goodwill over its implied fair value.

A reporting unit is an operating segment or one level below an operating segment (referred to as a
component). A component of an operating segment is a reporting unit if the component constitutes a business
for which discrete ﬁnancial information is available and segment management regularly reviews the operating
results of that component.

To estimate the fair value of a reporting unit, the Company utilized the income approach, a valuation

technique which indicates the fair value of the invested capital of a reporting unit based on the value of the
cash ﬂows that it is expected to generate in the future. The discounted cash ﬂow method, an application of the
income approach, estimates the future cash ﬂows of the reporting unit and discounts these cash ﬂows to their
present value equivalents at a rate of return that considers the relative risk of achieving the cash ﬂows and the
time value of money. These cash ﬂows indicate the fair value of the invested capital of the reporting unit on a
marketable, controlling basis.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of signiﬁcant
estimates and assumptions. These estimates and assumptions include revenue growth rates, operating margins,
corporate overhead allocations, cash ﬂow adjustments related to capital expenditures, and working capital
investments and risk-adjusted discount rates used to calculate the present value of the projected future cash
ﬂows. We base our fair value estimates on assumptions we believe to be reasonable.

The Company also considers the market approach, which indicates the fair value of the invested capital

of the Company based on the Company’s market capitalization. We use the quoted market price method to
estimate the fair value of the Company based on the quoted market price in the active markets (NASDAQ).
We estimate the Company’s market capitalization by multiplying the quoted per share market price by the
number of shares outstanding. As an additional measure, the Company reconciles the aggregate fair value of
all of its reporting units, as determined by the discounted cash ﬂow method, with its total market
capitalization to determine the reasonableness of the fair value calculations.

Intangibles and Long-lived Assets

The Company evaluates the recoverability of the carrying value of its long-lived assets, excluding

goodwill, whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. Under such circumstances, the Company assesses whether the projected undiscounted cash ﬂows
of its businesses are sufficient to recover the existing unamortized cost of its long-lived assets. If the
undiscounted projected cash ﬂows are not sufficient, the Company calculates the impairment amount by
discounting the cash ﬂows using its weighted average cost of capital. The amount of the impairment is
written-off against earnings in the period in which the impairment has been determined in accordance with
ASC 360-10-35, ‘‘Impairment or Disposal of Long-Lived Assets.’’

Business Reorganization and Merger and Integration Plans

The Company has recorded signiﬁcant charges and accruals in connection with its business

reorganization, merger and integration plans. These reserves include estimates pertaining to lease termination
payments, employee termination beneﬁts and contract cancellation costs resulting from its actions. Although
the Company does not anticipate signiﬁcant changes, the actual costs may differ from these estimates.

Foreign Currency Translation

The ﬁnancial position and results of operations of the Company’s international subsidiaries are
determined using local currency as the functional currency. Assets and liabilities of these subsidiaries are
translated at the exchange rate in effect at each year-end. Statements of Operations accounts are translated at
the average rate of exchange prevailing during each period. Translation adjustments arising from the use of
differing exchange rates from period to period are included in the other comprehensive income (loss) account
in stockholders’ equity, other than translation adjustments on short-term inter-company balances, which are
included in other income (expense). Gains and losses resulting from other foreign currency transactions are
included in other income (expense). Inter-company receivable balances of a long-term investment nature are
considered part of the Company’s permanent investment in a foreign jurisdiction and the gains or losses on
these balances are reported in other comprehensive income.

Self-Insurance Liabilities

The Company utilizes a combination of insurance and self insurance for employee related health care
beneﬁts (a portion of which is paid by its employees). Self-insurance claims ﬁled and claims incurred but not
reported are accrued based upon our estimates of ultimate cost for self-insured claims incurred using actuarial
assumptions followed in the insurance industry and historical experience. Liabilities associated with the risks

that the Company retains are estimated by considering historical claims experience, demographic factors,
severity factors and other actuarial assumptions. Although the Company’s claims experience has not displayed
substantial volatility in the past, actual experience could materially vary from its historical experience in the
future. Factors that affect these estimates include, but are not limited to, inﬂation, the number and severity of
claims and regulatory changes. In the future, if the Company concludes an adjustment to self insurance
accruals is required, the liability will be adjusted accordingly.

Stock-Based Compensation

Under ASC 718 ‘‘Compensation — Stock Compensation’’, the Company uses the Black-Scholes option

pricing model to determine the fair value of its stock options. The Black-Scholes model includes various
assumptions, including the expected life of stock options, the expected risk free interest rate and the historic
volatility of the Company’s stock price. These assumptions reﬂect the Company’s best estimates, but they
involve inherent uncertainties based on market conditions generally outside the control of the Company. As a
result, if other assumptions had been used, total stock-based compensation cost, as determined in accordance
with ASC 718 could have been materially impacted. Furthermore, if the Company uses different assumptions
for future grants, stock-based compensation cost could be materially impacted in future periods.

The Company determines its assumptions for the Black-Scholes option pricing model in accordance with

ASC 718 and Staff Accounting Bulletin (‘‘SAB’’) No. 107, ‘‘Interaction between Statement of Financial
Accounting Standards Statement No. 123 (revised 2004), Share-Based Payment and certain Securities and
Exchange Commission rules and regulations and provides the staffs views regarding the valuation of share-
based payment arrangements for public companies’’.

•

The expected term of stock options is estimated using the simpliﬁed method since the Company
currently does not have sufficient stock option exercise history.

The expected risk free interest rate is based on the U.S. Treasury constant maturity interest rate
which term is consistent with the expected term of the stock options.

The expected volatility is based on the historic volatility.

In December 2007, the Securities and Exchange Commission (‘‘SEC’’) staff issued SAB No. 110,

‘‘Certain Assumptions Used in Valuation Methods — Expected Term’’. SAB No.110 allows companies to
continue to use the simpliﬁed method, as deﬁned in SAB No. 107, to estimate the expected term of stock
options under certain circumstances. The simpliﬁed method for estimating expected term uses the mid-point
between the vesting term and the contractual term of the stock option. We have analyzed the circumstances in
which the use of the simpliﬁed method is allowed. We have opted to use the simpliﬁed method for stock
options we granted in 2008 because management believes that the Company does not have sufficient historical
exercise data to provide a reasonable basis upon which to estimate the expected term due to the limited period
of time the Company’s shares of common stock have been publicly traded.

For awards with graded vesting conditions, the values of the awards are determined by valuing each
tranche separately and expensing each tranche over the required service period. The Company is required to
record stock-based compensation expense net of estimated forfeitures. The Company estimated its forfeiture
rate based on historical data. The future forfeiture rate could differ from these estimates.

Recent Accounting Pronouncements

In August 2009, the FASB issued ASU No. 2009-05 ‘‘Fair Value Measurements and Disclosures
(Topic 820) — Measuring Liabilities at Fair Value’’. ASU No. 2009-05 amends Accounting Standards
Codiﬁcation (‘‘ASC’’) Subtopic 820-10 ‘‘Fair Value Measurements and Disclosures — Overall’’, with respect
to the fair value measurement of liabilities. ASU No. 2009-05 provides clariﬁcation that in circumstances in
which a quoted price in an active market for the identical liability is not available, a reporting entity is
required to measure fair value using one or more of the following techniques: (1) the quoted price of the
identical liability when traded as an asset, (2) the quoted prices for similar liabilities or similar liabilities when
traded as assets, and (3) another valuation technique (e.g., a market approach or income approach including a
technique based on the amount an entity would pay to transfer the identical liability, or a technique based on
the amount an entity would receive to enter into an identical liability. ASU No. 2009-05 is effective for the

ﬁrst interim or annual period beginning after this ASU’s issuance, which was October 1, 2009. The Company
does not currently expect the adoption of ASU No. 2009-05 to have a material impact on its results of
operations or ﬁnancial condition.

In June 2009, the FASB issued Accounting Standards Update (‘‘ASU’’) No. 2009-01 ‘‘Topic 105 —
Generally Accepted Accounting Principles — amendments based on — Statement of Financial Accounting
Standards No. 168 — The FASB Accounting Standards CodiﬁcationTM and the Hierarchy of Generally
Accepted Accounting Principles.’’ ASU No. 2009-01 deﬁnes the Codiﬁcation as the single source of
authoritative nongovernmental U.S. GAAP that was launched on July 1, 2009. The Codiﬁcation is effective for
interim and annual periods ending after September 15, 2009, which means that preparers were required to
begin using the Codiﬁcation for periods that began on or about July 1, 2009. All existing accounting standard
documents are superseded. All other accounting literature not included in the Codiﬁcation are considered
nonauthoritative. The Codiﬁcation reorganizes the thousands of U.S. GAAP pronouncements into roughly
90 accounting topics and displays all topics using a consistent structure. It also includes relevant SEC
guidance that follows the same topical structure in separate sections in the Codiﬁcation. Effective July 1,
2009, the Company adopted ASU No. 2009-01 and the adoption had no material impact on its results of
operations or ﬁnancial condition.

In May 2009, the FASB issued ASC 855 ‘‘Subsequent Events,’’ which establishes general standards of

accounting for and disclosure of events that occur after the balance sheet date but before ﬁnancial statements
are issued. In particular, ASC Topic 855 sets forth: (1) the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the ﬁnancial statements, (2) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its ﬁnancial statements, and (3) the
disclosures that an entity should make about events or transactions that occurred after the balance sheet date.
ASC 855 is effective for interim or annual ﬁnancial periods ending after June 15, 2009, and shall be applied
prospectively. Effective July 1, 2009, the Company adopted the ASC 855 and the adoption had no impact on
the Company’s results of operations or ﬁnancial condition.

In April 2009, the FASB issued ASC 805-20-25-18A through 25-20B, which amends and clariﬁes the
accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies.
ASC 805-20-25-18A through 25-20B are effective for business combinations for which the acquisition date is
on or after the beginning of the ﬁrst annual reporting period beginning on or after December 15, 2008.
Effective January 1, 2009, the Company adopted ASC 805-20-25-18A through 25-20B and the adoption had
no impact on the Company’s results of operations or ﬁnancial condition.

In November 2008, the FASB issued ASC 350-30, ‘‘General Intangibles Other Than Goodwill.’’

ASC 350-30 applies to defensive intangible assets, which are acquired intangible assets that the acquirer does
not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. As
these assets are separately identiﬁable, ASC 350-30 requires an acquiring entity to account for defensive
intangible assets as a separate unit of accounting. Defensive intangible assets must be recognized at fair value
in accordance with ASC 805, ‘‘Business Combinations’’ and ASC 820, ‘‘Fair Value Measurements and
Disclosures’’. ASC 350-30 is effective for defensive intangible assets acquired in ﬁscal years beginning on or
after December 15, 2008. The adoption of ASC 350-30 had no impact on the Company’s results of operations
or ﬁnancial condition.

Results of Operations

The following table sets forth the Company’s revenue, gross margin, operating (loss) income, (loss)

income from continuing operations, net (loss) income, temporary contracting revenue, direct costs of
temporary contracting revenue, temporary contracting gross margin, and gross margin as a percentage of
revenue for the years ended December 31, 2009, 2008 and 2007 (dollars in thousands). See Note 16 to the
Consolidated Financial Statements for EBITDA segment and reconciliation information.

For the Year Ended December 31,
2008

2007

2009

Revenue:

Hudson Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hudson Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hudson Asia Paciﬁc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gross margin:

Operating (loss) income:

Hudson Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hudson Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hudson Asia Paciﬁc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from continuing operations . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Temporary contracting data(a):
Temporary contracting revenue:

Direct costs of temporary contracting:

Temporary contracting gross margin:

Gross margin as a percent of revenue:

$161,872
276,975
252,302
$691,149

$ 40,959
124,162
95,332
$260,453

$ (14,999)
(12,813)
(4,294)
(17,347)
$ (49,453)
$ (42,953)
$ (40,609)

$156,435
182,713
182,632
$521,780

$120,879
145,112
152,998
$418,989

$ 35,556
37,601
29,634
$102,791

$ 273,648
415,871
389,566
$1,079,085

75,016
212,603
167,367
$ 454,986

$ (44,441)
(5,285)
8,441
(29,498)
$ (70,783)
$ (73,096)
$ (74,318)

$ 260,632
244,257
260,831
$ 765,720

$ 198,396
189,639
214,718
$ 602,753

62,236
54,618
46,113
$ 162,967

$ 291,525
469,454
409,082
$1,170,061

87,494
233,980
174,966
$ 496,440

$
$
$

(8,510)
24,289
30,681
(27,465)
18,995
5,528
14,981

$ 267,465
275,286
272,939
$ 815,690

$ 202,211
215,687
224,309
$ 642,207

65,254
59,599
48,630
$ 173,483

Hudson Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hudson Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hudson Asia Paciﬁc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22.7%
20.6%
16.2%

23.9%
22.4%
17.7%

24.4%
21.6%
17.8%

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

Constant Currency

The Company deﬁnes the term ‘‘constant currency’’ to mean that ﬁnancial data for a period are translated

into U.S. dollars using the same foreign currency exchange rates that were used to translate ﬁnancial data for
the previously reported period. The Company uses constant currency to depict the current period results at the
exchange rates of the prior year. Changes in revenue, direct costs, gross margin, selling, general and
administrative expenses and operating (loss) income include the effect of changes in foreign currency
exchange rates. Variance analysis usually describes period-to-period variances that are calculated using
constant currency as a percentage. The Company’s management reviews and analyzes business results in
constant currency and believes these results better represent the Company’s underlying business trends.

The Company believes that these calculations are a useful measure, indicating the actual change in
operations. Earnings from subsidiaries are, at times, repatriated to the U.S., and there are no signiﬁcant gains
or losses on foreign currency transactions between subsidiaries. Therefore, changes in foreign currency
exchange rates generally impact only reported earnings and not the Company’s economic condition. The tables
on page 34 and below summarize the impact of foreign currency exchange adjustments on the Company’s
operating results for the years ended December 31, 2009, 2008 and 2007 (dollars in thousands).

For the Year Ended December 31,

As Reported

2009
Currency
Translation

Revenue:

Hudson Americas . . . . . . . . . . . . . . . . . . . . .
Hudson Europe . . . . . . . . . . . . . . . . . . . . . . .
Hudson Asia Paciﬁc. . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$161,872
276,975
252,302
691,149

Direct costs:

Gross margin:

Selling, general and administrative(a):

Hudson Americas . . . . . . . . . . . . . . . . . . . . .
Hudson Europe . . . . . . . . . . . . . . . . . . . . . . .
Hudson Asia Paciﬁc. . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

120,913
152,813
156,970
430,696

40,959
124,162
95,332
$260,453

$ 50,960
127,296
94,711
17,210
$290,177

173
37,870
21,873
59,916

26
23,187
14,933
38,146

147
14,683
6,940
$21,770

189
16,377
7,290
—
$23,856

Constant
Currency

$162,045
314,845
274,175
751,065

120,939
176,000
171,903
468,842

41,106
138,845
102,272
$282,223

$ 51,149
143,673
102,001
17,210
$314,033

2008

As Reported

$ 273,648
415,871
389,566
1,079,085

198,632
203,268
222,199
624,099

75,016
212,603
167,367
$ 454,986

75,647
195,428
147,891
28,499
$ 447,465

(a) Selling, general and administrative expenses include the following captions on the Consolidated

Statements of Operations: salaries and related, office and general, acquisition-related expenses, marketing
and promotion, and depreciation and amortization.

The Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008

Hudson Americas

Hudson Americas’ revenue was $161.9 million for the year ended December 31, 2009, as compared to

$273.7 million for 2008, a decrease of $111.8 million or 40.9%. Of this decline, $104.3 million was in
contracting and $7.8 million was in permanent recruitment revenue. These declines were 40% and 58.8%,
respectively, compared to 2008.

Revenue in Legal Services contracting, the largest Hudson Americas practice, declined $75 million or
44.1%, and the other contracting areas of IT and Financial Solutions declined $29.2 million or 32.3%. With
respect to Legal Services contracting revenue, the 2008 results included revenue attributed to two large
projects of approximately $49.9 million that were completed by the end of 2008, about the time large-project
initiation was declining. The remainder of the decline in Legal Services contracting revenue, $25.1 million,
was primarily due to the initiation of fewer, large scale, new client projects and a lower level of litigation and
merger and acquisition activities by clients in the period. The rate of decline in Legal Services contracting
revenue was less in the second half of 2009 as compared to the ﬁrst half of 2009 and Legal Services reported
sequential growth in the latter part of the year. Contracting revenue in IT and Financial Solutions declined
primarily due to weaker economic conditions. Clients who tend to use these services generally delayed new
projects and restricted outside hiring as a cost reduction and cash preservation measure.

Hudson Americas’ direct costs were $120.9 million for the year ended December 31, 2009, as compared

to $198.6 million for 2008, a decrease of $77.7 million or 39.1%. The decrease was primarily due to fewer
contractors on billing, which was a direct result of the factors affecting the contracting revenue as noted
above.

Hudson Americas’ gross margin was $41 million for the year ended December 31, 2009, as compared to

$75 million for 2008, a decrease of $34 million or 45.4%. The majority of Hudson Americas’ gross margin
decline was from contracting, which declined $26.7 million or 42.9% compared to 2008. The largest portion
of the contracting decline was in Legal Services which declined by $16.4 million or 46.8%. The decline in
Legal Services gross margin was primarily due to the lower level of demand for these services,
underutilization of legal project facilities and approximately a 6% reduction in average bill rates as a result of
increased competition. The decline in contracting revenue in IT and Financial Solutions was partially due to a
reduction in billable hours, fewer contractors on billing and approximately a 2% reduction in average bill rates
as a result of increased pricing pressure from clients.

Contracting gross margin as a percentage of revenue was 22.7% for the year ended December 31, 2009,

as compared to 23.9% for 2008. The decline was primarily driven by lower average bill rates, which were
down approximately 3%, and underutilization of legal project facilities.

Total gross margin, as a percentage of revenue, was 25.3% for the year ended December 31, 2009, as

compared to 27.4% for 2008. The steeper decline in total gross margin as a percentage of revenue was
primarily due to the decline in contracting gross margin as noted above and in permanent recruitment revenue,
which has a proportionately greater effect on gross margin.

Hudson Americas’ selling, general and administrative expenses were $51 million for the year ended

December 31, 2009, as compared to $75.6 million for 2008, a decrease of $24.6 million or 32.6%. The
decrease in selling, general and administrative expenses was partially due to head count reductions resulting
from performance management of the consultant staff, lower commissions associated with lower gross margin
and lower travel and marketing expenses. The decrease in selling, general and administrative expenses also
resulted from restructuring actions, including the reduction of management and support staff and the
consolidation of functions and facilities. Hudson Americas’ selling, general and administrative expenses, as a
percentage of revenue, were 31.5% for the year ended December 31, 2009, compared to 27.6% for 2008.

Hudson Americas incurred $5.1 million of reorganization expenses during the year ended December 31,

2009, as compared to $3.1 million for 2008, an increase of $2 million. Reorganization expenses incurred
during the year ended December 31, 2009 consisted primarily of amounts provided for employee termination
beneﬁts and lease termination payments related to the 2009 Plan.

Hudson America’s 2008 results included non-cash charges of $38.2 million, $2.2 million and $0.4 million

for the impairment of goodwill, other long-term assets and intangibles, respectively, related to Hudson
Americas. There were no impairment charges for the year ended December 31, 2009.

Hudson America’s other non-operating income was $0.9 million for the year ended December 31, 2009,

as compared to less than $0.1 million of other non-operating expense for 2008, an increase in other
non-operating income of $1 million. The increase was primarily due to an unrealized gain on derivative of
$0.5 million in 2009 and an increase of $0.3 million in foreign exchange gains.

Hudson Americas’ EBITDA loss was $9.7 million for the year ended December 31, 2009, compared to
$39.9 million for 2008, a decrease in EBITDA loss of $30.2 million. Hudson Americas’ EBITDA loss, as a
percentage of revenue, was 6.0% for the year ended December 31, 2009, compared to 14.6% for 2008. The
decrease in EBITDA loss was primarily due to the goodwill, intangible assets and other long-term asset
impairment charges of $40.8 million in 2008 and reductions in selling, general and administrative expenses of
$24.6 million in 2009, partially offset by the reduced gross margin of $34 million in 2009.

Hudson America’s operating loss was $15.0 million for the year ended December 31, 2009, compared to
an operating loss of $44.4 million for 2008, a decrease in operating loss of $29.4 million. Operating loss, as a
percentage of revenue, was 9.3% for the year ended December 31, 2009, compared to 16.2% for 2008. The
decrease in operating loss resulted primarily from the same factors as discussed above with respect to
EBITDA.

Hudson Europe

Hudson Europe’s revenue was $277 million for the year ended December 31, 2009, compared to

$415.9 million for 2008, a decrease of $138.9 million or 33.4%. On a constant currency basis, Hudson
Europe’s revenue decreased $101 million or 24.3%, for the year ended December 31, 2009, compared to
2008. The revenue decrease of $101 million was primarily due to decreases of $51.3 million in permanent
recruitment, $34 million in contracting and $10.4 million in talent management revenue. These declines were
44.1%, 13.9%, and 22.8% in permanent recruitment, contracting and talent management, respectively,
compared to 2008.

The majority of the decline in constant currency, or $60.6 million, was in the U.K., where both
contracting and permanent recruitment revenue declined compared to 2008. In the U.K., contracting and
permanent recruitment revenue declined $33.1 million or 17.2%, and $23.6 million or 43.6%, respectively, for
the year ended December 31, 2009, compared to 2008. The revenue declined as a result of general economic
weakness, particularly in the ﬁnancial services sector, and the continued weakness in other professional
sectors, which experienced the majority of the job losses in the U.K. In the second half of 2009, however, the
U.K. experienced sequential improvement in both contracting and permanent recruitment revenue over the ﬁrst
half of 2009, as clients, particularly in the banking and ﬁnancial services sectors, eased hiring and budget
restrictions implemented in the beginning of the year.

In Continental Europe, permanent recruitment and talent management revenue declined $27.9 million and
$7.1 million, respectively, for the year ended December 31, 2009, compared to 2008. In France and Belgium,
permanent recruitment revenue declined $11.2 million or 43.2%, and $7.4 million or 41.7%, respectively, for
the year ended December 31, 2009, compared to 2008. These markets experienced declines in their major
sectors, including real estate and ﬁnancial services. Permanent recruitment revenue in France did, however,
begin to show signs of sequential growth in the later part of 2009. Talent management revenue in Belgium
declined $5.8 million or 20.8% for the year ended December 31, 2009, compared to 2008. The majority of the
decline was driven by reductions in demand for assessment work in the public and ﬁnancial services sectors.
The decrease was partially offset by an increase in revenue for career guidance services. The economic
weakness did not have a major impact on the Netherlands’ contracting revenue as public sector spending
remained stable. Contracting revenue declined less than 4% for the year ended December 31, 2009, compared
to 2008 and returned to sequential growth by the end of 2009.

Hudson Europe’s direct costs were $152.8 million for the year ended December 31, 2009, as compared to

$203.3 million for 2008, a decrease of $50.5 million or 24.8%. On a constant currency basis, Hudson
Europe’s direct costs decreased $27.3 million or 13.4% for the year ended December 31, 2009, compared to
2008. The decrease in direct costs was primarily due to fewer contractors on billing and was a direct result of
the factors affecting revenue as discussed above.

Hudson Europe’s gross margin was $124.2 million for the year ended December 31, 2009, compared to

$212.6 million for 2008, a decrease of $88.4 million or 41.6%. On a constant currency basis, gross margin
decreased $73.8 million or 34.7% for the year ended December 31, 2009, compared to 2008. Permanent
recruitment gross margin declined $51 million or 44.6% for the year ended December 31, 2009, of which
slightly less than half of the decline, or $23.5 million, was in the U.K. Declines in permanent recruitment
gross margin in France and Belgium were $11.2 million and $7.3 million, respectively. The declines in the
U.K., France and Belgium approximated 44.6%, 43.8% and 41.8%, respectively, for the year ended
December 31, 2009, compared to 2008. The decline in permanent recruitment gross margin was generally due
to decreased demand for hiring permanent staff and lower average fees. The declines in contracting and talent
management gross margin were $11.6 million and $9.2 million, or 21.2% and 23%, respectively, compared to
2008. The vast majority of the decline in contracting was in the U.K. and it was primarily driven by a
reduction in billable hours and fewer contractors on billing. The majority of the talent management gross
margin decline was in Belgium and it was driven by the same factors affecting revenue as described above.

Contracting gross margin as a percentage of revenue was 20.5% for the year ended December 31, 2009,

compared to 22.4% for 2008. The decline was partially driven by a change in client mix towards high volume
and IT clients with lower margins in the U.K. Total gross margin as a percentage of revenue was 44.1% for
the year ended December 31, 2009, compared to 51.1% for 2008. The steeper decline in total gross margin as
a percentage of revenue was primarily due to the decline in permanent recruitment revenue, which has a
proportionately greater effect on gross margin.

Hudson Europe’s selling, general and administrative expenses were $127.3 million for the year ended

December 31, 2009, compared to $195.4 million for 2008, a decrease of $68.1 million or 34.9%. On a
constant currency basis, selling, general and administrative expenses decreased $51.8 million or 26.5% for the
year ended December 31, 2009, compared to 2008. The decrease in selling, general and administrative
expenses was partially due to reductions resulting from performance management of the consultant staff, lower
travel and marketing expenses and lower commissions associated with lower gross margin. The decrease in
selling, general and administrative expenses also resulted from restructuring actions, including the reduction of
management and support staff, the consolidation of functions and the successful negotiations of existing and
new leases at lower rates in the fourth quarter of 2008 and in 2009. Selling, general and administrative
expenses, as a percentage of revenue, were 45.6% for the year ended December 31, 2009, compared to 47.0%
for 2008.

Hudson Europe incurred $9.7 million of reorganization expenses for the year ended December 31, 2009,
compared to $2.9 million for 2008, an increase of $6.8 million. On a constant currency basis, reorganization
expenses increased $7.8 million for the year ended December 31, 2009, compared to 2008. Reorganization
expenses incurred were related to the Company’s 2009 Plan and included amounts provided for employee
termination beneﬁts primarily in the U.K., France, Belgium, Spain and Sweden. The expenses also related to
the restructuring of the management structure in regional head-office and in local markets, as well as contract
cancellation costs and lease termination payments.

Hudson Europe’s 2008 results included a non-cash charge of $19.6 million for the impairment of

goodwill related to Hudson Europe. There were no asset impairment charges for the year ended December 31,
2009.

Hudson Europe’s other non-operating expense was $0.5 million for the year ended December 31, 2009,

as compared to $2.8 million of other non-operating income for the year ended December 31, 2008, a decrease
of $3.3 million in other non-operating income. The decrease was primarily due to a foreign exchange loss of
$0.6 million in 2009 and a foreign exchange gain of $2.2 million in 2008.

Hudson Europe’s EBITDA loss was $8.8 million for the year ended December 31, 2009, compared to

positive EBITDA of $3.3 million for 2008, a decrease of $12.1 million. On a constant currency basis,
EBITDA decreased $14 million for the year ended December 31, 2009, compared to 2008. Hudson Europe’s
EBITDA loss, as a percentage of revenue, was 3.4% for the year ended December 31, 2009, compared to
positive EBITDA of 0.1% for 2008. The decrease in EBITDA was primarily due to the $73.8 million
reduction in gross margin, $7.8 million increase in reorganization costs, partially offset by reductions in
selling, general and administrative expenses of $51.8 million and the $19.6 million non-cash charge for the
impairment of goodwill in 2008.

Hudson Europe’s operating loss was $12.8 million for the year ended December 31, 2009, compared to
$5.3 million for 2008, an increase in operating loss of $7.5 million. On a constant currency basis, operating
loss increased $10.2 million for the year ended December 31, 2009, compared to 2008. Operating loss, as a
percentage of revenue, was 4.9% for the year ended December 31, 2009, compared to 1.3% for 2008. The
increase in operating loss resulted primarily from the same factors as discussed above with respect to EBITDA.

Hudson Asia Paciﬁc

Hudson Asia Paciﬁc’s revenue was $252.3 million for the year ended December 31, 2009, as compared

to $389.6 million for 2008, a decrease of $137.3 million or 35.2%. On a constant currency basis, Hudson Asia
Paciﬁc’s revenue decreased $115.4 million or 29.6% for the year ended December 31, 2009, compared to
2008. The revenue decrease of $115.4 million was primarily due to decreases of $60.7 million in contracting
revenue and $53 million in permanent recruitment revenue. These declines were 23.3% and 49.4% in
contracting and permanent recruitment revenue, respectively, compared to 2008. Talent management revenue
increased $2.9 million or 20.3% for the year ended December 31, 2009, compared to 2008.

The entire decline of $60.7 million in contracting revenue occurred in Australia and New Zealand. We
experienced declines in major sectors of these markets including ﬁnancial services, public works, industrial,
technology, and mining and resources due to the recessionary economic conditions. Permanent recruitment
revenue declined $39.1 million in Australia and New Zealand partially due to reduced demand for permanent
recruitment services in a weaker economic environment and partially to a decrease in fees on permanent
placements. However, the rate of decline in revenue was less in the second half of 2009, as compared to the
ﬁrst half of 2009. Talent management revenue increased primarily due to the increase in demand for
outplacement services as companies reduced the size of their work forces earlier in the year.

In Asia, where the entire business is permanent recruitment, revenue declined $13.3 million or 34.5% for

the year ended December 31, 2009, compared to 2008. As with other markets, general economic conditions
caused a reduction in demand for permanent recruitment services, including widespread hiring freezes early in
the year. The majority of revenue in Asia is derived from multinational clients, and during the second half of
2009, we experienced sequential improvement in revenue in China and Singapore over the ﬁrst half of 2009
as these clients eased hiring restrictions implemented in the beginning of the year. Although the majority of
recruitment needs in the region continue to be met using in-house resources, demand is increasing for
recruitment agency services.

Hudson Asia Paciﬁc’s direct costs were $157 million for the year ended December 31, 2009, as compared

to $222.2 million for 2008, a decrease of $65.2 million or 29.4%. On a constant currency basis, Hudson Asia
Paciﬁc’s direct costs decreased $50.3 million or 22.6%, for the year ended December 31, 2009, compared to
2008. The decrease in direct costs was primarily due to fewer contractors on billing, a direct result of the
factors affecting revenue as noted above.

Hudson Asia Paciﬁc’s gross margin was $95.3 million for the year ended December 31, 2009, compared

to $167.4 million for 2008, a decrease of $72.1million or 43%. On a constant currency basis, gross margin
decreased $65.1 million or 38.9% for the year ended December 31, 2009, compared to 2008. The majority of
the region’s gross margin decline was from the decline in permanent recruitment services of $52.8 million or
49.2% for the year ended December 31, 2009, compared to 2008. Permanent recruitment gross margin
declined primarily due to the declines in Australia, New Zealand and China. Permanent recruitment gross
margin declined primarily for the same reasons as the decline in permanent recruitment revenue. Contracting
gross margin declined $13.7 million or 29.7%. The entire decline in contracting was in Australia and
New Zealand and the decline was driven by a reduction in billable hours and fewer contractors on billing.

Contracting gross margin as a percentage of revenue was 16.2% for the year ended December 31, 2009,

compared to 17.7% for 2008. The decline was partially driven by increased pricing pressure mentioned above.
Total gross margin as a percentage of revenue was 37.3% for the year ended December 31, 2009, compared to
43% for 2008. The steeper decline in total gross margin as a percentage of revenue was primarily due to the
decline in permanent recruitment revenue, which has a proportionately greater effect on gross margin.

Hudson Asia Paciﬁc’s selling, general and administrative expenses were $94.7 million for the year ended
December 31, 2009, compared to $147.9 million for 2008, a decrease of $53.2 million or 36%. On a constant
currency basis, selling, general and administrative expenses decreased $45.9 million or 31% for the year
ended December 31, 2009, compared to 2008. The decrease in selling, general and administrative expenses
was primarily attributable to lower commissions and bonuses associated with lower gross margin and lower
travel and marketing expenses. The decrease also resulted from restructuring actions, including reduction of
consultant headcount and management support, consolidation of functions and facilities and outsourcing of
administrative functions including ﬁnance and IT. Selling, general and administrative expenses, as a
percentage of revenue, were 37.2% for the year ended December 31, 2009, compared to 38% for 2008.

In 2009, the Company recorded a non-cash charge of $1.7 million for the impairment of goodwill related
to its China reporting unit. This amount was for an earn-out payment linked to the 2008 ﬁnancial results for a
business within the China reporting unit that achieved its required ﬁnancial targets. However, the ﬁnancial
results and projected cash ﬂows for the total China reporting unit were insufficient to support the additional
goodwill. The 2008 results included a non-cash charge of $6.7 million also related to the impairment of
goodwill at the Company’s China reporting unit.

Hudson Asia Paciﬁc incurred $3.2 million of reorganization expenses for the year ended December 31,

2009, compared to $4.3 million for 2008, a decrease of $1.1 million. On a constant currency basis,
reorganization expenses decreased $0.5 million for the year ended December 31, 2009, compared to 2008.
Reorganization expenses incurred for the year ended December 31, 2009 included amounts provided for
employee termination beneﬁts primarily in Australia and New Zealand and costs to exit several leases in
Australia, New Zealand and China.

Hudson Asia Paciﬁc’s other non-operating income was $0.9 million for the year ended December 31,
2009, as compared to $0.6 million for the year ended December 31, 2008, an increase of $0.3 million. The
increase was primarily due to an increase in government assistance grant in our China operations in 2009.

Hudson Asia Paciﬁc’s EBITDA loss was less than $0.1 million for the year ended December 31, 2009,

compared to positive EBITDA of $13.1 million for 2008, a decrease of $13.1 million. On a constant currency
basis, EBITDA decreased $13.7 million for the year ended December 31, 2009, compared to 2008. Hudson
Asia Paciﬁc’s EBITDA loss, as a percentage of revenue, was 0.2% for the year ended December 31, 2009,
compared to positive EBITDA, as percentage of revenue, of 3.4% for 2008. The decrease in EBITDA was
primarily due to the reduced gross margin of $65.1 million, partially offset by reductions in selling, general
and administrative expenses of $45.9 million and decrease in goodwill impairment charges of $5 million.

Hudson Asia Paciﬁc’s operating loss was $4.3 million for the year ended December 31, 2009, as

compared to operating income of $8.4 million for 2008, a decrease in operating income of $12.7 million. On a
constant currency basis, operating income decreased $13.7 million for the year ended December 31, 2009,
compared to 2008. Operating loss, as a percentage of revenue, was 1.9% for the year ended December 31,
2009, as compared to operating income, as a percentage of revenue, of 2.2% for 2008. The decrease in
operating income resulted primarily from the same factors as discussed above with respect to EBITDA.

Corporate and Other

Corporate expenses were $17.2 million for the year ended December 31, 2009, as compared to
$28.5 million for 2008, a decrease of $11.3 million or 39.6%. This decrease was primarily due to lower
professional fees of $4.4 million, decreases in support staff compensation of $2.8 million, other office and
administrative costs of $2.7 million and travel related expenses of $0.7 million.

Interest expense, net of interest income was $0.7 million for the year ended December 31, 2009, as
compared to net interest income of $1.1 million for 2008, a decrease in interest income of $1.8 million. The
decrease in interest income was primarily due to lower interest income received on cash balances at lower
interest rates and higher interest expense as a result of increased borrowings under our credit agreement in 2009.

(Beneﬁt from) Provision for Income Taxes

The beneﬁt from income taxes for the year ended December 31, 2009 was $5.8 million on a

$48.7 million loss from continuing operations, as compared to a provision for income taxes of $6.7 million on
a $66.4 million loss from continuing operations for 2008. The effective tax rate for the year ended
December 31, 2009 was 11.8%, as compared to negative 10.1% for 2008.

The changes in the Company’s effective tax rate resulted primarily from the Company’s ability to
recognize income tax beneﬁts from losses incurred in certain foreign jurisdictions that have historically been
proﬁtable. The effective tax rate differs from the U.S. federal statutory rate of 35% due to the inability to
recognize tax beneﬁts on U.S. and foreign losses of $8.1 million, state and local taxes of $0.1 million, non-
deductible goodwill impairment charges of $0.6 million, other non-deductible expenses of $1.5 million and
variations from the U.S. tax rate in foreign jurisdictions of $1 million. The Company’s effective tax rate will
change from year to year based on non-recurring and recurring factors including, but not limited to, the
geographical mix of earnings, enacted tax legislation, state and local taxes, and tax audit settlements.

Net Loss from Continuing Operations

Net loss from continuing operations was $43 million for the year ended December 31, 2009, as compared

to $73.1 million for 2008, a decrease in net loss of $26.1 million. Basic and diluted loss per share from
continuing operations was $1.65 for the year ended December 31, 2008, as compared to $2.9 for 2008.

Net Income (Loss) from Discontinued Operations

Net income from discontinued operations was $2.3 million for year ended December 31, 2009, as
compared to net loss from discontinued operations of $1.2 million for 2008, an increase of $3.5 million. The
increase was primarily due to the receipt of the ﬁnal earn-out payment of $11.6 million due the Company as a
result of its former Highland Partners executive search business (‘‘Highland’’) reporting unit achieving certain
2008 revenue metrics as deﬁned in the sale agreement, partially offset by the provision for income taxes from
the gain of the ﬁnal earn out payment above of $4 million, and the losses from discontinued operations in
Japan of $2.9 million and Italy of $1.6 million.

Basic and diluted earnings per share from discontinued operations were $0.09 for the year ended

December 31, 2009, as compared to basic and diluted loss per share from discontinued operations of $0.05 for
2008.

Net (Loss) Income

Net loss was $40.6 million for the year ended December 31, 2009, as compared to $74.3 million for

2008, a decrease of $33.7 million. Basic and diluted loss per share were $1.56 for the year ended
December 31, 2009, as compared to $2.95 for 2008.

The Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007

For the Year Ended December 31,

As Reported

2008
Currency
Translation

Revenue:

$ 273,648
415,871
389,566
1,079,085

Direct costs:

198,632
203,268
222,199
624,099

Gross margin:

75,016
212,603
167,367
$ 454,986

Selling, general and administrative(a):

75,647
195,428
147,891
28,499
$ 447,465

(85)
6,831
(8,854)
(2,108)

(6)
9,096
(3,436)
5,654

(79)
(2,265)
(5,418)
$(7,762)

$ (111)
(1,566)
(4,190)
—
$(5,867)

Constant
Currency

$ 273,563
422,702
380,712
1,076,977

198,626
212,364
218,763
629,753

74,937
210,338
161,949
$ 447,224

75,536
193,862
143,701
28,499
$ 441,598

2007

As Reported

$ 291,525
469,454
409,082
1,170,061

204,031
235,474
234,116
673,621

87,494
233,980
174,966
$ 496,440

95,512
207,254
144,301
26,803
$ 473,870

(a) Selling, general and administrative expenses include the following captions on the Consolidated

Statements of Operations: salaries and related, office and general, acquisition-related expenses, marketing
and promotion, and depreciation and amortization.

Hudson Americas

Hudson Americas’ revenue was $273.6 million for the year ended December 31, 2008, as compared to
$291.5 million for 2007, a decrease of $17.9 million (6.1%). Revenues decreased primarily due to decreases
of $10.0 million (43.2%) in permanent recruitment services and $6.8 million (2.6%) in contracting revenue.
About half of the decline in permanent recruitment services was due to a decision of a speciﬁc client to bring
an outsourced recruitment function in-house. The decrease in contracting revenue was primarily due to
decreases in Information Technology of $22.2 million (27.6%) and Financial Solutions of $9.7 million
(23.3%) as clients bought fewer outside services in response to economic conditions. These decreases were
partially offset by an increase in Legal Services of $23.8 million (16.3%). Financial Solutions also closed
certain offices in 2007, with the effect realized for a full year in 2008.

Hudson Americas’ direct costs were $198.6 million for the year ended December 31, 2008, as compared

to $204.0 million for 2007, a decrease of $5.4 million (2.6%). The decrease in direct costs was consistent with
the decrease in Hudson Americas’ contracting revenue as noted above.

Hudson Americas’ gross margin was $75.0 million for the year ended December 31, 2008, as compared
to $87.5 million for 2007, a decrease of $12.5 million (14.3%). Contracting and permanent recruitment gross
margins in 2008 were $62.2 million and $13.1 million, respectively. The decrease in gross margin resulted
from the greater decrease in permanent recruitment service revenue compared to contracting service revenue.
Gross margin, as a percentage of revenue, was 27.4% for the year ended December 31, 2008, compared to
30.0% for 2007. The decrease in gross margin resulted primarily from $8.4 million (39.2%) and $3.0 million
(4.6%) decreases in permanent recruitment and contracting gross margin, respectively. The decrease in

permanent recruitment gross margin was a direct result of the decrease in permanent recruitment revenue as
noted above. The decrease in contracting gross margin consisted of decreases in Information Technology of
$5.1 million (26.8%) and Financial Solutions of $2.8 million (21.9%), partially offset by an increase in Legal
Services of $4.7 million (15.3%), in each case as a result of the factors mentioned above.

Hudson Americas’ selling, general and administrative expenses were $75.6 million for the year ended
December 31, 2008, as compared to $95.5 million for 2007, a decrease of $19.9 million (20.8%). Selling,
general and administrative expenses as a percentage of revenue decreased to 27.6% for the year ended
December 31, 2008, compared to 32.8% for 2007. The decrease in selling, general and administrative
expenses was primarily due to decreases in sales compensation of $11.0 million (20.7%), support staff salaries
of $4.2 million (32.7%) and professional and other fees of $2.5 million (55.7%). The decrease in sales
compensation resulted, in part, from the recognition of a non-recurring $3.6 million non-cash
acquisition-related charge during 2007, our 2008 reorganization plan and an improved focus on productivity.
The decrease in support staff salaries was primarily related to our 2008 reorganization program.

Hudson Americas incurred $3.1 million of reorganization expenses during the year ended December 31,

2008, as compared to $0.5 million for 2007. Reorganization expenses incurred during the year ended
December 31, 2008 included severance costs and costs relating to terminating a number of contracts, including
exiting several leases in the U.S., related to the Company’s 2008 reorganization program and ﬁnal adjustments
for lease termination costs related to the Company’s 2006 reorganization program.

Based on the results of the annual impairment test that was commenced on October 1, 2008 and updated

through December 31, 2008, the Company recorded, for 2008, a non-cash charge of $38.2 million for the
impairment of goodwill related to Hudson Americas. The Company also recorded for 2008 a $2.2 million
write down of other long-term assets and $0.4 million of impairment charges for intangible assets.

Hudson Americas’ other non-operating expense was insigniﬁcant for the years ended December 31, 2008

and 2007.

Hudson Americas’ EBITDA was a loss of $39.9 million for the year ended December 31, 2008, as
compared to a loss of $4.2 million for 2007, an increase in EBITDA loss of $35.7 million. The increase in
EBITDA loss resulted primarily due to the goodwill, intangible assets and other long-term asset impairment
charges of $40.8 million, as described above. Hudson Americas’ EBITDA loss as a percentage of revenue
increased to 14.6% for the year ended December 31, 2008, compared to 1.4% for 2007.

Hudson Americas’ operating loss was $44.4 million for the year ended December 31, 2008, as compared

to an operating loss of $8.5 million for 2007, an increase in operating loss of $35.9 million. The increase in
the operating loss resulted primarily from the same factors as discussed above with respect to EBITDA.
Hudson Americas’ operating loss as a percentage of revenue increased to 16.2% for the year ended
December 31, 2008, compared to 2.9% for 2007.

Hudson Europe

Hudson Europe’s revenue was $415.9 million for the year ended December 31, 2008, as compared to
$469.5 million for 2007, a decrease of $53.6 million (11.4%). On a constant currency basis, Hudson Europe’s
revenue decreased $46.8 million (10%), during the year ended December 31, 2008, as compared to 2007. The
largest decrease in revenue, as measured in constant currency, was $26.3 million (11.3%) from temporary
contracting in the U.K. followed by $23.6 million (29.2%) from permanent recruitment services in the U.K.
These decreases were partially offset by increases in temporary contracting revenue of $6.4 million (15.3%)
and talent management consulting services revenue of $1.8 million (5.2%) in Continental Europe. The
increases in Continental Europe were primarily due to increases in France of $3.6 million (13.0%), the
Netherlands of $3.0 million (7.1%) and Belgium of $1.6 million (3.4%). The increase in France was the result
of increased branding, practice specialization and commercial wins with large clients, as well as the successful
integration of the Coread Talent Management Business following its February 2008 acquisition. The increase
in the Netherlands was the result of continued demand in the public sector for Hudson Europe’s services,
mainly in the technical and infrastructure engineering areas.

Hudson Europe’s direct costs were $203.3 million for the year ended December 31, 2008, as compared to

$235.5 million for 2007, a decrease of $32.2 million (13.7%). On a constant currency basis, direct costs
decreased $23.1 million (9.8%), for the year ended December 31, 2008, as compared to 2007. The decrease in
direct costs, as measured in constant currency, was consistent with the decrease in contracting revenue,
primarily in the U.K. of $23.6 million.

Hudson Europe’s gross margin was $212.6 million for the year ended December 31, 2008, as compared

to $234 million for 2007, a decrease of $21.4 million (9.1%). On a constant currency basis, gross margin
decreased $23.6 million (10.1%), during the year ended December 31, 2008, as compared to 2007. As
measured in constant currency, Hudson Europe’s gross margin, as a percentage of revenue, remained at 49.8%
for the years ended December 31, 2008 and 2007.

Hudson Europe’s selling, general and administrative expenses were $195.4 million for the year ended

December 31, 2008, as compared to $207.3 million for 2007, a decrease of $11.8 million (5.7%). On a
constant currency basis, selling, general and administrative expenses decreased $13.3 million (6.5%), for the
year ended December 31, 2008, as compared to 2007. As measured in constant currency, Hudson Europe’s
selling, general and administrative expenses, as a percentage of revenue, were 45.9% for the year ended
December 31, 2008, compared to 44.2% for 2007. The decrease in selling, general and administrative
expenses, as measured in constant currency, was driven primarily by lower sales staff compensation of
$9.7 million (7.8%), travel and entertainment costs of $1.8 million (29.6%), and marketing and promotional
expenses of $1.1 million (11.5%). These decreases were partially offset by an increase in support staff
compensation of $1.8 million (9.7%). Lower sales staff compensation was the result of a reduction in fee
earner headcount and lower bonus payments driven by the lower level of business. Support staff compensation
increased due to transitional management arrangements in the Netherlands, additional operational management
in the U.K. and regional European personnel.

Hudson Europe incurred $2.9 million of reorganization expenses during the year ended December 31,

2008, as compared to $2.4 million for 2007. Reorganization expenses incurred during the year ended
December 31, 2008 included severance costs and costs for the reorganization of certain support functions
related to the Company’s 2008 reorganization program.

Based on the results of the annual impairment test that was commenced on October 1, 2008 and updated

through December 31, 2008, the Company recorded, for 2008, a non-cash charge of $19.6 million for the
impairment of goodwill related to Hudson Europe.

Hudson Europe’s other non-operating income was $2.8 million for the year ended December 31, 2008, as

compared to $3.3 million for the year ended December 31, 2007, a decrease of $0.5 million. Included in the
2008 results were $2.2 million of foreign exchange gains. The 2007 result primarily consisted of a gain on the
sales of U.K. office and support service business.

Hudson Europe’s EBITDA was $3.3 million for the year ended December 31, 2008, as compared to
EBITDA of $33.6 million for 2007. On a constant currency basis, EBITDA decreased $32.3 million for the
year ended December 31, 2008, as compared to 2007. As measured in constant currency, Hudson Europe’s
EBITDA, as a percentage of revenue, was 0.3% for the year ended December 31, 2008, compared to 7.2% for
2007. The decrease in EBITDA, as measured in constant currency, resulted primarily from the $19.6 million
impairment of goodwill and a $9.0 million reduction in EBITDA in the U.K for the reasons discussed above.

Hudson Europe’s operating loss was $5.3 million for the year ended December 31, 2008, as compared to

operating income of $24.3 million for 2007. On a constant currency basis, operating income decreased
$32.7 million for the year ended December 31, 2008, as compared to 2007. Hudson Europe’s operating loss,
as a percentage of revenue, was 2.0% for the year ended December 31, 2008, compared operating income as a
percentage of revenue of 5.3% for 2007. The decrease in operating income, as measured in constant currency,
resulted primarily from the same factors as discussed above with respect to EBITDA.

Hudson Asia Paciﬁc

Hudson Asia Paciﬁc’s revenue was $389.6 million for the year ended December 31, 2008, as compared

to $409.1 million for 2007, a decrease of $19.5 million (4.8%). On a constant currency basis, Hudson Asia
Paciﬁc’s revenue decreased $28.4 million (6.9%), during the year ended December 31, 2008, as compared to
2007. Australia accounted for the largest decrease in revenue, as measured in constant currency, which
principally resulted from decreases in contracting revenue of $7.3 million (3.5%), permanent recruitment
services of $6.0 million (9.1%) and talent management consulting service of $2.8 million (19.1%). The
decreases in Australia were primarily due to our withdrawal from low margin business, lower demand earlier
in the year for outplacement services and weaker economic conditions. New Zealand’s contracting and
permanent recruitment revenues decreased by $7.8 million (12.7%) and $2.6 million (21.3%), respectively,
primarily attributed to declining economic conditions in the latter part of 2008.

Hudson Asia Paciﬁc’s direct costs were $222.2 million for the year ended December 31, 2008, as

compared to $234.1 million for 2007, a decrease of $11.9 million (5.1%). On a constant currency basis, direct
costs decreased $15.4 million (6.6%) for the year ended December 31, 2008, as compared to 2007. The
decrease in direct costs was consistent with the decrease in contracting revenue as noted above.

Hudson Asia Paciﬁc’s gross margin was $167.4 million for the year ended December 31, 2008, as
compared to $175 million for 2007, a decrease of $7.6 million (4.4%). On a constant currency basis, gross
margin decreased $13 million (7.4%) for the year ended December 31, 2008, as compared to 2007. As
measured in constant currency, gross margin, as a percentage of revenue, was 42.5% for the year ended
December 31, 2008, compared to 42.8% for 2007. The decrease in gross margin resulted primarily from the
larger decline in permanent recruitment revenue compared to temporary contracting revenue in Australia of
$5.8 million (8.9%) related to permanent recruitment service. Decreases in New Zealand’s permanent
recruitment services and contract services of $2.6 million (21.2%) and $1.9 million (16.5%), respectively, also
contributed to the decline in gross margin. Gross margin in Asia remained ﬂat when compared to 2007.

Hudson Asia Paciﬁc’s selling, general and administrative expenses were $147.9 million for the year

ended December 31, 2008, compared to $144.3 million for 2007, an increase of $3.6 million (2.5%). On a
constant currency basis, selling, general and administrative expenses decreased $0.6 million (0.4 %) for the
year ended December 31, 2008, as compared to 2007. Selling, general and administrative expenses, as a
percentage of revenue, were 37.7% for the year ended December 31, 2008, compared to 35.3% for 2007. The
decrease in selling, general and administrative expenses was less than proportional to the decline in gross
margin as a result of certain investments made earlier in the year, including a new office in Beijing.

Hudson Asia Paciﬁc incurred $4.3 million of reorganization expenses during the year ended

December 31, 2008, as compared to none for 2007. Reorganization expenses incurred during the year ended
December 31, 2008 included severance costs and contract termination costs related to the Company’s 2008
reorganization program.

Based on the results of the annual impairment test that was commenced on October 1, 2008 and updated

through December 31, 2008, the Company recorded, for 2008, a non-cash charge of $6.7 million for the
impairment of goodwill related to Hudson Asia Paciﬁc.

Hudson Asia Paciﬁc’s other non-operating income was $0.6 million for the year ended December 31,
2008, as compared to $0.2 million for the year ended December 31, 2007, an increase of $0.4 million in other
non-operating income. The increase was primarily due the receipt of a government assistance grant in our
China operations in 2008. In 2007, we did not receive a similar government assistance grant.

Hudson Asia Paciﬁc’s EBITDA was $13.1 million for the year ended December 31, 2008, compared to

$34.6 million for 2007, a decrease of $21.5 million or 63.7%. On a constant currency basis, EBITDA
decreased $22.6 million, or 65.4%, for the year ended December 31, 2008, compared to 2007. EBITDA, as a
percentage of revenue, was 3.1% for the year ended December 31, 2008, compared to 8.5% for 2007. The
decrease in EBITDA was primarily due to reduced business levels as described above, the goodwill
impairment charge of $6.7 million and reorganization charges of $4.3 million.

Hudson Asia Paciﬁc’s operating income was $8.4 million for the year ended December 31, 2008, as
compared to $30.7 million for 2007, a decrease of $22.2 million (72.5%). On a constant currency basis,
operating income decreased $23.3 million for the year ended December 31, 2008, compared to 2007.
Operating income, as a percentage of revenue, was 1.9% for the year ended December 31, 2008, compared to
7.5% for 2007. The decrease in operating income, as measured in constant currency, resulted primarily from
the same factors as discussed above with respect to EBITDA.

Corporate and Other

Corporate expenses were $28.5 million for the year ended December 31, 2008, as compared to

$26.8 million for 2007, an increase of $1.7 million or 6.3%. This increase was due to higher professional fees
of $5.3 million and the resolution of outstanding litigation of $1.3 million and was partially offset by
decreases in support staff compensation of $2.4 million, travel related expenses of $1.5 million and marketing
and promotion costs of $0.4 million as compared to 2007.

Interest income, net was $1.1 million for the year ended December 31, 2008, compared to $0.6 million
for 2007. The increase was primarily due to the Company’s lower borrowings under its credit facility during
the year ended December 31, 2008, compared to 2007, resulting in reduced interest expense.

Provision for Income Taxes

The provision for income taxes for the year ended December 31, 2008 was $6.7 million on a

$66.4 million loss from continuing operations, as compared to a provision of $17.5 million on $23 million of
income from continuing operations for 2007. The effective rate differs from the statutory rate due to the tax
impact of U.S. and foreign tax losses for which the Company receives no beneﬁt of $17.0 million,
nondeductible goodwill impairment charges of $9.3 million, tax beneﬁt related to foreign income of
$0.1 million, other nondeductible expenses of $4.4 million and a net beneﬁt for state and local taxes of
$0.7 million. Our effective rate will change from year to year based on non-recurring and recurring factors
including, but not limited to, the geographical mix of earnings, enacted tax legislation, state and local taxes,
and tax audit settlements. The effective rate for income taxes was negative 10.1% for the year ended
December 31, 2008, as compared to 76% for 2007.

Net (Loss) Income from Continuing Operations

Net loss from continuing operations was $73.1 million for the year ended December 31, 2008, as

compared to a net income of $5.5 million for 2007. The net loss for the year ended December 31, 2008
included non-cash charges of $67.1 million related to impairment of goodwill and intangible assets and a
write down of long-term assets. Basic and diluted loss per share from continuing operations were $2.9 for the
year ended December 31, 2008, as compared to basic and diluted earnings per share of $0.22 and 0.21,
respectively, for 2007.

Discontinued Operations

Net loss from discontinued operations was $1.2 million for the year ended December 31, 2008 and
related principally to ETS, Japan, and Italy. Included in this amount were operating losses from discontinued
operations of $8.1 million, which included charges of $2.8 million primarily for the settlement of retained
liabilities of ETS, as well as the cost of ﬁnal liquidation of the Highland entities of $1.9 million. Net
operating loss from discontinued operations was partially offset by net income from Highland and BPM.
Included in this amount was $5.4 million of gains on sale consisting principally of $3.4 million for Highland
due to its achievement of certain 2007 metrics as deﬁned in the sale agreement and a $2.7 million gain on the
sale of BPM, partially offset by a $0.7 million loss on sale of ETS. Net loss from discontinued operations was
also impacted by an income tax beneﬁt of $3.3 million principally associated with the wind down of the
Highland business. Net income from discontinued operations was $9.5 million for the year ended
December 31, 2007. Basic and diluted loss per share from discontinued operations were $0.05 for the year
ended December 31, 2008, as compared to basic and diluted earnings per share of $0.37 for 2007.

Net (Loss) Income

Net loss was $74.3 million for the year ended December 31, 2008, compared to net income of

$15.0 million for 2007. Basic and diluted loss per share were $2.95 for the year ended December 31, 2008
compared to basic earnings per share of $0.59 and diluted earnings per share of $0.58 for the year ended
December 31, 2007.

Liquidity and Capital Resources

The Company’s liquidity needs arise primarily from funding working capital requirements and capital

investments in information technology and facilities.

Cash ﬂows

(In Millions)

Fiscal 2009

Fiscal 2008

Fiscal 2007

Net cash (used in) provided by operating activities . . . . . . . . . .
Net cash provided by (used in) investing activities. . . . . . . . . . .
Net cash provided by (used in) ﬁnancing activities. . . . . . . . . . .
Effect of exchange rates on cash and cash equivalents . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . . . . . . .

$(27.0)
6.8
4.4
2.7
$(13.1)

$11.9
4.2
(0.7)
(5.4)
$10.0

$ 37.7
(50.8)
4.9
2.8
$ (5.4)

The Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008

Cash Flows (Used in) Provided by Operating Activities

For the year ended December 31, 2009, net cash used in operating activities was $27 million, compared

to net cash provided by operating activities of $11.9 million for 2008, a decrease in net cash provided by
operating activities of $38.8 million. The decrease was primarily due to lower net earnings from operations
and $18.7 million in restructuring payments associated with the Company’s business reorganization plans to
reduce expenses, partially offset by lower expenses and greater collections as revenue declined.

Cash Flows Provided by Investing Activities

For the year ended December 31, 2009, net cash provided by investing activities was $6.8 million,
compared to $4.2 million for 2008, an increase of $2.6 million. The primary source of net cash from investing
activities was the receipt of the ﬁnal earn out payment of $11.6 million in 2009 from the sale of Highland,
offset by an earn out payment to TKA of $1.7 million and capital expenditures of $3.7 million. In 2008, the
sources of cash from investing activities were the proceeds of $20.9 million related to the sales of BPM and
ETS and the ﬁrst earn out payment from Highland, offset by $6.6 million of aggregate earn out payments to
TKA and Balance and the acquisitions of Propensity and Coread, and $10.6 million in capital expenditures.

Cash Flows Provided by (Used in) Financing Activities

For the year ended December 31, 2009, net cash provided by ﬁnancing activities was $4.4 million,
compared to net cash used in ﬁnancing activities of $0.7 million for 2008, an increase in net cash provided by
ﬁnancing activities of $5 million. The increase was primarily due to a $6.8 million reduction on repurchases
of shares of our common stock, partially offset by $1.7 million less of cash proceeds from the exercise of
stock options.

The Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007

Cash Flows Provided by Operating Activities

The Company generated cash from operating activities of $11.9 million for the year ended December 31,

2008, compared to $37.7 million for 2007, a decrease of $25.8 million. The decrease in cash provided by
operating activities was primarily due to lower gross margin and net earnings from operations, and
$11.9 million in charges related to the lease termination payments, employee termination beneﬁts and contract
cancellation costs related to the 2008 business reorganization plan.

Cash Flows Provided by (Used in) Investing Activities

For the year ended December 31, 2008, the Company generated $4.2 million in cash from investing
activities compared to cash used in investing activities of $50.8 million for 2007, an increase of $55.0 million.
The increase in cash provided by investing activities in 2008 was primarily due to the considerably lower
earn-out payment in 2008 ($6.6 million in 2008 compared to $37.5 million in 2007), proceeds from the sale
of the non-core ETS business of $11.0 million and BPM business of $6.6 million, the receipt of an earn-out
payment related to the sale of Highland of $3.4 million and decreased capital expenditures of $2.7 million.

Cash Flows (Used in) Provided by Financing Activities

For the year ended December 31, 2008, the Company used $0.7 million in ﬁnancing activities compared
to cash provided by ﬁnancing activities of $4.9 million for 2007, an increase of $5.6 million in cash used in
ﬁnancing activities. The increase in cash used in ﬁnancing activities in 2008 was primarily due to the
purchase of our common stock of $7.5 million and reduced proceeds from the exercise of stock options of
$3.2 million, which was primarily offset by an increase in proceeds from net borrowings under the Credit
Agreement of $5.3 million.

Shelf Registrations

The Company ﬁled a shelf registration with the Securities and Exchange Commission (‘‘SEC’’) in 2004

to enable it to issue up to 1,350,000 shares of its common stock from time to time in connection with
acquisitions of businesses, assets or securities of other companies, whether by purchase, merger or any other
form of acquisition or business combination. If any shares are issued using this shelf registration, the
Company will not receive any proceeds from these offerings other than the assets, businesses or securities
acquired.

In December 2009, the Company ﬁled a shelf registration with the SEC to enable it to issue up to

$30 million equivalent of securities or combinations of the securities. The type of securities permitted for
offering under the shelf registration are debt securities, common stock, preferred stock, warrants, stock
purchase contracts and stock purchase units. The SEC declared the registration statement effective as of
December 18, 2009.

Credit Agreements

The Company has a primary credit facility, as amended (the ‘‘Credit Agreement’’), with Wells Fargo
Foothill, Inc. and another lender that provides the Company with the ability to borrow up to $75 million,
including the issuance of letters of credit. The Company’s available borrowings under the Credit Agreement
are based on an agreed percentage of eligible accounts receivable less required reserves, principally related to
the Company’s North America, U.K. and Australia operations, as deﬁned in the Credit Agreement. As of
December 31, 2009, the Company’s borrowing base was $42.2 million and we are required to maintain a
minimum borrowing base of $25 million. As of December 31, 2009, the Company had $10.5 million of
outstanding borrowings under the Credit Agreement and a total of $4.6 million of outstanding letters of credit
issued under the Credit Agreement, resulting in the Company being able to borrow up to an additional
$2.1 million after deducting the minimum borrowing base.

The maturity date of the Credit Agreement is July 31, 2012. Borrowings may be made with an interest

rate based on the prime rate plus a margin based on borrowing availability or an interest rate based on the
LIBOR rate plus a margin based on borrowing availability. The interest rate on outstanding borrowings was
6.75% as of December 31, 2009. Borrowings under the Credit Agreement are secured by substantially all of
the assets of the Company.

The Credit Agreement contains various restrictions and covenants, including those that (1) prohibit
payments of dividends; (2) limit the Company’s capital expenditures to $9 million in 2009 and $11 million
per year thereafter; (3) restrict the ability of the Company to make additional borrowings, or to consolidate,
merge or otherwise fundamentally change the ownership of the Company; (4) limit dispositions of assets to
permitted dispositions in the aggregate not to exceed $15 million per year; (5) limit guarantees of
indebtedness; (6) prohibit the Company from making stock repurchases after February 28, 2009; and (7) limit
the amount of permitted acquisitions to $10 million per year. The Company was in compliance with all
ﬁnancial covenants under the Credit Agreement as of December 31, 2009.

The Company has entered into lending arrangements with local banks through its subsidiaries in Europe

and Asia. In Europe, the subsidiaries can borrow up to $7.1 million based on an agreed percentage of
accounts receivable related to their operations. The lending arrangements will expire in 2011. In Asia, our
subsidiary can borrow up to $1 million for working capital purposes. The lending arrangement expires
annually each September but can be renewed for one year period at that time. As of December 31, 2009, there
were no outstanding borrowings under these lending arrangements.

Liquidity Outlook

The global economic downturn, which began in 2008 and continued during 2009, signiﬁcantly impacted
the Company’s results of operations for the year. Although the second half of 2009 showed some encouraging
signs of economic recovery as measured by GDP in the key markets in which the Company operates, the
results for the year ended December 31, 2009 were below the results of the prior year in all of our major
markets.

To counteract the negative impact of the weaker economic conditions, the Company initiated a variety of
actions that included restructuring programs. The Board approved restructuring programs during the 2009 Plan
for up to $19 million to counteract the ongoing declines in revenue. The Company initiated the restructuring
initiatives to streamline the Company’s operations and actions to reduce support facilities to match them to the
scale of the business. The actions taken included the reduction in size of support and management functions,
the exit from underutilized properties and the elimination of contracts for certain discontinued services. These
actions resulted in costs for lease termination payments, employee termination beneﬁts and contract
cancellations. The measures have already produced cost savings in 2009 and the Company expects them to
produce recurring cost savings through 2010 and beyond. The Company expects to make approximately
$8 million of cash payments during 2010 related to its 2009 Plan and 2008 Plan.

The Company expects to maintain a reduced level of capital expenditures in 2010 as it did in 2009,
compared to prior years. In 2010, the Company expects to spend approximately $3 million to $5 million,
compared to approximately $4 million in 2009, after averaging approximately $11 million from 2006 through
2008. The Company is closely managing its capital spending and will perform capital additions where
economically feasible, while continuing to invest strategically for future growth.

The Company believes that it has sufficient liquidity to satisfy its needs through at least the next
12 months, based on cash and cash equivalents on hand at December 31, 2009, supplemented by availability
under the Credit Agreement and other lending arrangements in Europe and Asia. Cash and cash equivalents
totaled $36 million as of December 31, 2009. The Company’s near-term cash requirements are primarily
related to funding operations, a portion of current and prior year restructuring actions, capital expenditures and
approximately $1 − 1.5 million of contingent payments related to earn-out liabilities for the TKA acquisition
during 2010.

The Company believes, however, that current external market conditions remain difficult particularly the

limited access to credit, modest rates of near-term projected economic growth and persistent levels of high
unemployment. The Company cannot provide assurance that actual cash requirements will not be greater in
the future than those currently expected, especially if market conditions deteriorate substantially. If sources of
liquidity are not available or if the Company cannot generate sufficient cash ﬂow from operations, the
Company might be required to obtain additional sources of funds through additional operating improvements,
capital market transactions, asset sales or ﬁnancing from third parties, or a combination thereof. The Company
cannot provide assurance that these additional sources of funds will be available or, if available, would have
reasonable terms.

Off-Balance Sheet Arrangements

As of December 31, 2009, the Company had no off-balance sheet arrangements.

Contractual Obligations

The Company has entered into various commitments that will affect its cash generation capabilities going

forward. Particularly, it has entered into several non-cancelable operating leases for facilities and equipment
worldwide. Future contractual obligations as of December 31, 2009 are as follows (dollars in thousands)
(commitments based in currencies other than U.S. dollars were translated using exchange rates as of
December 31, 2009):

Contractual Obligation(a)

Operating lease obligations. . . . . . .
Other long term liabilities:
Reorganization expenses . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . .

Less than
1 Year

$30,667

8,784
$39,451

1 to 3
Years

3 to 5
Years

More Than
5 Years

Total

$43,976

$30,193

$50,228

$155,064

347
$44,323

—
$30,193

—
$50,228

9,131
$164,195

(a) The Company’s other non-current liabilities of $19.2 million in the Consolidated Balance Sheet as of
December 31, 2009 are primarily comprised of deferred rent, income taxes, unrecognized tax beneﬁts,
employee deferred compensation, and other various accruals. As the timing and/or amounts of any cash
payment is uncertain, the related amounts have not been reﬂected in the table above.

Regarding Forward-Looking Statements

This Form 10-K 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 Form 10-K, including 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 important factors, risks,
uncertainties and assumptions, including industry and economic conditions’ that could cause actual results to
differ materially from those described in the forward-looking statements. Such factors, risks, uncertainties and
assumptions include, but are not limited to, (1) global economic ﬂuctuations, including the global economic
conditions prevailing during 2009, (2) the ability of clients to terminate their relationship with the Company at
any time, (3) risks in collecting the Company’s accounts receivable, (4) the Company’s history of negative
cash ﬂows and operating losses may continue, (5) the Company’s limited borrowing availability under its
credit facility, which may negatively impact its liquidity, (6) restrictions on the Company’s operating ﬂexibility
due to the terms of its credit facility, (7) risks related to ﬂuctuations in the Company’s operating results from
quarter to quarter, (8) risks related to international operations, including foreign currency ﬂuctuations, (9) risks
associated with the Company’s investment strategy, (10) risks and ﬁnancial impact associated with dispositions
of underperforming assets, (11) implementation of the Company’s cost reduction initiatives effectively,
(12) the Company’s heavy reliance on information systems and the impact of potentially losing or failing to
develop technology, (13) competition in the Company’s markets, (14) the Company’s exposure to
employment-related claims from both clients and employers and limits on related insurance coverage, (15) the
Company’s dependence on key management personnel, (16) the Company’s ability to attract and retain highly
skilled professionals, (17) volatility of the Company’s stock price, (18) the impact of government regulations,
and (19) restrictions imposed by blocking arrangements. These forward-looking statements speak only as of
the date of this Form 10-K. The Company assumes no obligation, and expressly disclaims any obligation, to
update any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company conducts operations in various countries and faces both translation and transaction risks

related to foreign currency exchange. For the year ended December 31, 2009, the Company earned
approximately 85% of its gross margin outside the United States, and it collected payments in local currency
and related operating expenses were paid in such corresponding local currency. Revenues and expenses in
foreign currencies translate into higher or lower revenues and expenses in U.S. dollars as the U.S. dollar
weakens or strengthens against other currencies. Therefore, changes in exchange rates may affect our
consolidated revenues and expenses (as expressed in U.S. dollars) from foreign operations.

Amounts invested in our foreign operations are translated into U.S. dollars at the exchange rates in effect

at the balance sheet date. The resulting translation adjustments are recorded as a component of accumulated
other comprehensive income (loss) in the stockholders’ equity section of the Consolidated Balance Sheets. The
translation of foreign currency into the U.S. dollar is reﬂected as a component of stockholders’ equity and it
does not impact our operating results.

The Company has Credit Agreement with Wells Fargo Foothill, Inc. and another lender in the U.S. and
other credit agreements with lenders in Europe and Asia. The Company does not hedge the interest risk on
borrowings under any of such credit agreements and, accordingly, it is exposed to interest rate risk on
borrowings under such credit agreements. Based on our annual average borrowings, a 1% increase or decrease
in interest rates on our borrowings would not have a material impact on our earnings.

Item 8. Financial Statements and Supplementary Data

Management’s Annual Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal
control over ﬁnancial reporting, as such term is deﬁned in Rules 13a-15(f) and 15(d)-15 (f) of the Securities
Exchange Act of 1934. The Company’s internal control over ﬁnancial reporting is designed to provide
reasonable assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements
for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over ﬁnancial

reporting as of December 31, 2009 using the criteria set forth in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, the Company’s management believes that, as of December 31, 2009, the Company’s internal
control over ﬁnancial reporting was effective based on those criteria.

The Company’s independent registered public accounting ﬁrm, KPMG LLP, has issued an attestation
report on the effectiveness of the Company’s internal control over ﬁnancial reporting. That attestation report is
set forth immediately following the report of KPMG LLP on the ﬁnancial statements included herein.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Hudson Highland Group, Inc.:

We have audited the accompanying consolidated balance sheets of Hudson Highland Group, Inc. and
subsidiaries (Hudson Highland Group, Inc.) as of December 31, 2009 and 2008, and the related consolidated
statements of operations, changes in stockholders’ equity, and cash ﬂows for the years then ended. In
connection with our audit of the consolidated ﬁnancial statements, we also have audited the ﬁnancial
statement schedule for the years ended December 31, 2009 and 2008, which is included in Item 15 of Form
10-K. These consolidated ﬁnancial statements and the ﬁnancial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated ﬁnancial statements
and the ﬁnancial statement schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight

Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the ﬁnancial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁnancial statements. An
audit also includes assessing the accounting principles used and signiﬁcant estimates made by management, as
well as evaluating the overall ﬁnancial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the consolidated ﬁnancial statements referred to above present fairly, in all material
respects, the ﬁnancial position of Hudson Highland Group, Inc. as of December 31, 2009 and 2008, and the
results of its operations and its cash ﬂows for the years then ended, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related ﬁnancial statement schedule, when considered
in relation to the basic consolidated ﬁnancial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight

Board (United States), the effectiveness of Hudson Highland Group, Inc.’s internal control over ﬁnancial
reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report
dated February 23, 2010 expressed an unqualiﬁed opinion on the effective operation of internal control over
ﬁnancial reporting.

/s/ KPMG LLP

New York, New York
February 23, 2010

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Hudson Highland Group, Inc.:

We have audited Hudson Highland Group Inc.’s and subsidiaries (Hudson Highland Group, Inc.) internal
control over ﬁnancial reporting as of December 31, 2009, based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Hudson Highland Group, Inc.’s management is responsible for maintaining effective internal control
over ﬁnancial reporting and for its assessment of the effectiveness of internal control over ﬁnancial reporting,
included in the accompanying ‘‘Management’s Annual Report on Internal Control Over Financial Reporting’’.
Our responsibility is to express an opinion on the Company’s internal control over ﬁnancial reporting based on
our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight

Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over ﬁnancial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over ﬁnancial reporting, assessing
the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.

A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable

assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over
ﬁnancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reﬂect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
ﬁnancial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
ﬁnancial statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, Hudson Highland Group, Inc, maintained, in all material respects, effective internal
control over ﬁnancial reporting as of December 31, 2009, based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Hudson Highland Group, Inc. as of December 31,
2009 and 2008, and the related consolidated statements of operations, changes in stockholders’ equity and
cash ﬂows for the years then ended, and our report dated February 23, 2010 expressed an unqualiﬁed opinion
on those consolidated ﬁnancial statements.

/s/ KPMG LLP

New York, New York
February 23, 2010

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
Hudson Highland Group, Inc.
New York, New York

We have audited the accompanying consolidated statements of operations, cash ﬂows and changes in

stockholders’ equity of Hudson Highland Group, Inc. for the year ended December 31, 2007. These
consolidated ﬁnancial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated ﬁnancial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight

In our opinion, the consolidated ﬁnancial statements referred to above present fairly, in all material

respects, the results of operations and cash ﬂows of Hudson Highland Group, Inc. for the year ended
December 31, 2007 in conformity with accounting principles generally accepted in the United States of
America.

As discussed in Note 2 to the consolidated ﬁnancial statements, effective January 1, 2007 the company
adopted certain provisions of ASC Topic 740, ‘‘Income Taxes’’ related to accounting for uncertainty in income
taxes.

/s/ BDO Seidman, LLP
BDO Seidman, LLP

New York, New York

March 6, 2008, except for Note 3, as to which the date is
December 9, 2009 and Note 2 — Revenue Recognition as to
which the date is February 17, 2010

HUDSON HIGHLAND GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except per Share Amounts)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating expenses:

Year Ended December 31,

2009
$691,149
430,696
260,453

2008
$1,079,085
624,099
454,986

2007
$1,170,061
673,621
496,440

Salaries and related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office and general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and promotion . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related expenses . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .
Business reorganization and integration expenses . . . . . . . . . .
Goodwill and other impairment charges . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . . .

204,097
66,713
6,824
—
12,543
18,180
1,549
309,906
(49,453)

325,774
90,110
16,919
—
14,662
11,217
67,087
525,769
(70,783)

Other income (expense):

Interest, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(694)
1,444

1,099
3,269

(Loss) income from continuing operations before provision for

income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Beneﬁt from) provision for income taxes. . . . . . . . . . . . . . . . .
(Loss) income from continuing operations . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of income taxes .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(48,703)
(5,750)
(42,953)
2,344
$ (40,609)

(66,415)
6,681
(73,096)
(1,222)
$ (74,318)

Earnings (loss) per share:
Basic

(Loss) income from continuing operations . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted

(1.65)
0.09
(1.56)

(2.90)
(0.05)
(2.95)

342,332
93,110
18,752
5,299
14,377
3,575
—
477,445
18,995

629
3,423

23,047
17,519
5,528
9,453
14,981

0.22
0.37
0.59

0.21
0.37
0.58

Basic weighted average shares outstanding:
. . . . . . . . . . . . . . .
Diluted weighted average shares outstanding: . . . . . . . . . . . . . .

26,036
26,036

25,193
25,193

25,274
25,914

See Accompanying Notes to Consolidated Financial Statements.

HUDSON HIGHLAND GROUP, INC.

CONSOLIDATED BALANCE SHEETS
(In Thousands, Except per Share Amounts)

December 31,

2009

2008

Current assets:

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,064
Accounts receivable, less allowance for doubtful accounts of $2,423 and $3,394,

respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

98,994
13,247
61
148,366
503
19,433
13,642
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 181,944

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,811
54,008
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
10,456
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,784
Accrued business reorganization expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95
Current liabilities of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
86,154
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,183
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued business reorganization expenses, non-current . . . . . . . . . . . . . . . . . . . . . .
347
105,684
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 49,209

127,169
15,411
2,360
194,149
2,498
24,379
9,927
$ 230,953

$ 15,693
76,447
5,307
5,724
1,410
104,581
16,904
1,476
122,961

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 26,836 and

27
26,494 shares, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
445,541
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(403,514)
Accumulated deﬁcit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,509
Accumulated other comprehensive income − translation adjustments . . . . . . . . . . .
(303)
Treasury stock, 114 and 1,140 shares, respectively, at cost . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,260
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 181,944

26
450,739
(362,905)
27,054
(6,922)
107,992
$ 230,953

See Accompanying Notes to Consolidated Financial Statements.

HUDSON HIGHLAND GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

Cash ﬂows from operating activities:

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net (loss) income to net cash provided by

operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other impairment charges . . . . . . . . . . . . . . . . . .
Recovery of doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . .
(Beneﬁt from) provision for deferred income taxes . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gain on disposal of assets . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash acquisition-related expenses . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in assets and liabilities, net of effects of business

acquisitions:
Decrease in accounts receivable . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in other assets . . . . . . . . . . . . . . . . . . . . .
Decrease in accounts payable, accrued expenses and other

liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in accrued business reorganization expenses .
Net cash (used in) provided by operating activities . . . . . . . . . .

Cash ﬂows from investing activities:

Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of assets . . . . . . . . . . . . . . . . . . . . . . .
Change in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for acquisitions, net of cash acquired. . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . .

Cash ﬂows from ﬁnancing activities:

Borrowings under credit facility and other short term ﬁnancing . .
Repayments under credit facility and other short term ﬁnancing. .
Net payments on current and long-term debt. . . . . . . . . . . . . . .
Issuance of common stock − Long Term Incentive Plan option

exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock − Employee Stock Purchase Plans . . .
Purchase of treasury stock, including fees . . . . . . . . . . . . . . . .
Purchase of restricted stock from employees. . . . . . . . . . . . . . .
Net cash provided by (used in) ﬁnancing activities . . . . . . . . . .
Effect of exchange rates on cash and cash equivalents . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . .
Cash and cash equivalents, beginning of year. . . . . . . . . . . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . .
Supplemental disclosures of cash ﬂow information:

Cash paid during the period for interest . . . . . . . . . . . . . . . . . .
Cash (refund), net of taxes paid during the period for income

Year Ended December 31,
2008

2007

2009

$(40,609)

$ (74,318)

$ 14,981

12,630
1,549
(290)
(3,542)
973
(11,625)
—
(625)

39,147
5,635

(31,523)
1,292
(26,988)

(3,666)
11,625
514
(1,669)
6,804

51,985
(46,836)
—

—
—
(703)
(75)
4,371
2,668
(13,145)
49,209
$ 36,064

14,913
67,087
(213)
935
4,701
(4,838)
—
—

50,393
(3,663)

(44,909)
1,772
11,860

(10,558)
20,861
500
(6,607)
4,196

104,104
(98,797)
(262)

372
1,670
(7,491)
(242)
(646)
(5,446)
9,964
39,245
$ 49,209

14,989
—
(88)
(563)
5,514
(10,174)
3,551
—

26,190
1,002

(14,696)
(2,965)
37,741

(13,250)
2,859
(2,900)
(37,546)
(50,837)

259,947
(259,947)
(279)

3,606
1,652
—
(115)
4,864
2,828
(5,404)
44,649
$ 39,245

999

936

1,557

taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (1,215)

$ 12,183

$ 11,835

See Accompanying Notes to Consolidated Financial Statements.

HUDSON HIGHLAND GROUP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(In Thousands, Except Share Amounts)

Balance January 1, 2007. . . . . . . . . . . . 24,941,934
Cumulative effect of adoption of

Value
25

Common Stock

Additional
Paid-in
Capital
427,645

Accumulated
Deﬁcit
(300,031)

Accumulated
Other
Comprehensive
Income
43,915

Treasury
Stock

Total

(230) 171,324

Total
Comprehensive
Income (Loss)

ASC 740-10 . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, translation

adjustments . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . .
Compensation on JMT acquisition . . . . .
Issuance of shares for 401(k) plan

contribution . . . . . . . . . . . . . . . . . .
Issuance of shares from exercise of stock
options . . . . . . . . . . . . . . . . . . . . .

Issuance of shares for employee stock

— —
— —

— —
(8,882) —
— —

—
—

—
—
3,551

134,331 —

2,108

397,960

3,605

(3,537)
14,981

—
—
—

—

purchase plans . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . .
Balance December 31, 2007 . . . . . . . . . 25,665,951
Net loss . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, translation

151,108 —
49,500 —
26
— —

1,652
5,514
444,075
—

—
—
(288,587)
(74,318)

—
—

1,031
—
—

—

—
—
44,946
—

— (3,537)
— 14,981

—
$ 14,981

—
(115)
—

—

1,031
(115)
3,551

2,108

3,606

1,031
—
—

—

—
—

1,652
5,514
(345) 200,115
— (74,318)

—
—
$ 16,012
$(74,318)

adjustments . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . .
Purchase of restricted stock from

employees . . . . . . . . . . . . . . . . . . .

Issuance of shares for 401(k) plan

contribution . . . . . . . . . . . . . . . . . .
Issuance of shares from exercise of stock
options . . . . . . . . . . . . . . . . . . . . .

Issuance of shares for employee stock

— —
(1,248,456) —

(26,939) —

—
—

—

140,051 —

(176)

54,500 —

372

—
—

—

(17,892)
—

— (17,892)
(7,491)

(7,491)

(17,892)
—

—

(242)

1,156

—

980

372

—

purchase plans . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . .
Balance December 31, 2008 . . . . . . . . . 25,354,457
Net loss . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, translation

296,555 —
472,795 —
$26
— —

adjustments . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . .
Purchase of restricted stock from

employees . . . . . . . . . . . . . . . . . . .

— —

(243,316)

(28,724)

1,670
4,798
$450,739
—

—
—
$(362,905)
(40,609)

—
—
$ 27,054
—

—
—

1,670
4,798
$(6,922) $107,992
— (40,609)

—
—
$(92,210)
(40,609)

—
—

—

—
—

—

7,455
—

—
(703)

7,455
(703)

—

(75)

7,455
—

—

Issuance of shares for 401(k) plan

1,318,161
contribution . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . .
321,810
Balance December 31, 2009 . . . . . . . . . 26,722,388

$27

(6,171)
973
$445,541

—
—
$(403,514)

—
—
$ 34,509

7,397
—

1,227
973
$ (303) $ 76,260

—
—
$(33,154)

See Accompanying Notes to Consolidated Financial Statements.

HUDSON HIGHLAND GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and per Share Amounts)

1. Basis of Presentation and Description of Business

Basis of Presentation

Hudson Highland Group, Inc. and its subsidiaries (the ‘‘Company’’) are comprised of the operations,

assets and liabilities of the three Hudson regional businesses of Hudson Americas, Hudson Europe and
Hudson Asia Paciﬁc (‘‘Hudson regional businesses’’ or ‘‘Hudson’’). The Company has operated as an
independent publicly held company since its spin-off (the ‘‘Distribution’’) from Monster Worldwide, Inc.
(‘‘Monster’’), formerly TMP Worldwide, Inc., on March 31, 2003 (the ‘‘Distribution Date’’).

Certain prior year amounts have been reclassiﬁed to conform to the current period presentation. In
preparing the accompanying Consolidated Financial Statements, management has evaluated subsequent events
through February 23, 2010 (the issue date of the Consolidated Financial Statements). See Note 2 for further
details.

Reporting Segments

The Company provides professional staffing services on a permanent and contract basis and a range of
human capital services to businesses operating in a wide variety of industries. The Company is organized into
three reportable segments: Hudson Americas, Hudson Europe, and Hudson Asia Paciﬁc, which constituted
approximately 16%, 47% and 37% of the Company’s gross margin, respectively, for the year ended
December 31, 2009.

Corporate expenses are reported separately from the three reportable segments and consist primarily of

expenses for compensation, marketing programs, rent and professional consulting.

Hudson Americas operates from 30 offices in the United States and Canada, with 96% of its 2009 gross
margin generated in the United States. Hudson Europe operates from 39 offices in 14 countries, with 41% of
its 2009 gross margin coming from the United Kingdom operations. Hudson Asia Paciﬁc operates from
17 offices in 4 countries, with 66% of its 2009 gross margin stemming from Australia.

Hudson’s three regional businesses provide contract personnel and permanent recruitment services to a

wide range of clients. With respect to contract personnel, Hudson focuses on providing candidates with
specialized functional skills and competencies, such as accounting and ﬁnance, legal and information
technology. Hudson provides permanent recruitment services on both a retained and contingent basis and
focuses on mid-level professionals. Hudson regional businesses also provide organizational effectiveness and
development services through their Talent Management Solutions units.

Discontinued Operations

The Company has designated certain of its operations as discontinued operations in the accompanying

Consolidated Financial Statements, as further discussed in Note 3.

2. Summary of Signiﬁcant Accounting Policies

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and all of its wholly-owned
and majority-owned subsidiaries. All signiﬁcant inter-company accounts and transactions between and among
the Company and its subsidiaries have been eliminated in consolidation. Transactions and balances between
the Company and Monster are included in the accompanying Consolidated Financial Statements.

Nature of Business and Credit Risk

The Company’s revenue is earned from professional placement services, mid-level employee professional
staffing and temporary contracting services and human capital services. These services are provided to a large
number of customers in many different industries. The Company operates throughout North America, the
United Kingdom, Continental Europe, Australia, New Zealand and Asia.

Financial instruments, which potentially subject the Company to concentrations of credit risk, are

primarily cash and accounts receivable. The Company performs continuing credit evaluations of its customers
and does not require collateral. The Company has not experienced signiﬁcant losses related to receivables
from individual customers or groups of customers in any particular industry or geographic area.

Fair Value of Financial Instruments

The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents,
accounts receivable, accounts payable and short-term borrowings approximate fair value because of the
immediate or short-term maturity of these ﬁnancial instruments. See Note 6 ‘‘Fair Value Measurement’’ for
further information on the Company’s fair value measurements.

Use of Estimates

The preparation of ﬁnancial statements in conformity with accounting principles generally accepted in the

United States requires management to make estimates and assumptions about future events. These estimates
and the underlying assumptions affect the reported amounts of assets and liabilities, the disclosures about
contingent assets and liabilities, and the reported amounts of revenue and expenses. Such estimates include the
value of purchase consideration, allowances for doubtful accounts, goodwill, intangible assets, and other long-
lived assets, legal reserve and provision, estimated self-insured liabilities, assumptions used in the fair value of
stock-based compensation and the valuation of deferred tax assets. These estimates and assumptions are based
on management’s best estimates and judgment. Management evaluates the estimates and assumptions on an
ongoing basis using historical experience and other factors, including the current economic environment,
which management believes to be reasonable under the circumstances. The Company adjusts such estimates
and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined
with precision, actual results could differ signiﬁcantly from those estimates.

The reduction in demand for the Company’s services due to continued weakness of global economic
conditions may result in a decline in revenue and accounts receivable. Such declines may in turn impact the
aforementioned estimates and assumptions, including speciﬁcally the Company’s allowance for doubtful
accounts and liquidity. Refer to Note 14 for further discussion of the provisions of the Company’s credit
agreements.

Revenue Recognition

The Company recognizes revenue for temporary services at the time services are provided and revenue is

recorded on a time and materials basis. Temporary contracting revenue is reported on a gross basis when the
Company acts as the principal in the transaction and is at risk for collection in accordance with Financial
Accounting Standards Board (‘‘FASB’’) Accounting Standards Codiﬁcation Topic (‘‘ASC’’) 605-45, ‘‘Overall
Considerations of Reporting Revenue Gross as a Principal versus Net as an Agent’’. The Company’s revenues
are derived from its gross billings, which are based on (i) the payroll cost of its worksite employees; and (ii) a
markup computed as a percentage of the payroll cost.

The ASC 605-45-50-3 and ASC 605-45-50-4, ‘‘Taxes Collected from Customers and Remitted to

Governmental Authorities’’ provide that the presentation of taxes on either a gross or net basis is an
accounting policy decision. The Company collects various taxes assessed by governmental authorities and
records these amounts on a net basis.

Revenue, direct costs and gross margin of the Company were as follows:

Year Ended December 31, 2009

Year Ended December 31, 2008

Year Ended December 31, 2007

Temporary
Revenue . . . . . . . $521,780
Direct costs
418,989
Gross margin . . . $102,791

. . . .

Other
$169,369
11,707
$157,662

Total
$691,149
430,696
$260,453

Temporary
$765,720
602,752
$162,968

Other

Temporary
Total
$313,365 $1,079,085 $815,690
642,207
$292,018 $ 454,986 $173,483

624,099

21,347

Other

Total

$354,371 $1,170,061
673,621
$322,957 $ 496,440

31,414

(1)

Included in the 2009 results were $3,962 of revenue and $827 of gross margin for three additional days
of billings, principally related to our Temporary contracting business. The additional days resulted from
certain subsidiaries conforming their reporting period from a weekly convention to a calendar month-end
basis. The impact of this change was not deemed material to the current and prior periods.

(2) The Company reclassiﬁed $8,043, $7,311 and $732 of Temporary Revenue, Temporary Direct Costs and
Other Direct Costs, respectively, for the year ended December 31, 2008 and $6,495, $5,845 and $650 of
Temporary Revenue, Temporary Direct Costs and Other Direct Costs, respectively, for the year ended
December 31, 2007. The Company reclassiﬁed these amounts related to revenue and direct costs in its
Temporary contracting business to be consistent with similar arrangements.

(3) The Company reclassiﬁed $6,901 and $7,390 from Other Revenue (principally permanent recruitment
business) to Temporary Revenue (principally contracting business) for the years ended December 31,
2008 and 2007, respectively, to be consistent with the underlying nature of services being performed. The
reclassiﬁed amounts relate to revenue earned on services performed by contractors on temporary, short-
term assignments for an up-front fee, which is recognized as revenue at the time the client and contractor
have accepted all employment terms.

Direct Costs and Gross Margin

Direct costs include the direct staffing costs of salaries, payroll taxes, employee beneﬁts, travel expenses

and insurance costs for the Company’s temporary contractors as well as reimbursed out-of-pocket expenses
and other direct costs. Other direct costs include out-of-pocket expenses associated with search, permanent
placement and other talent management services. Gross margin represents revenue less direct costs. The region
where services are provided, the mix of temporary and permanent placements, and the functional nature of the
staffing services provided can affect gross margin.

Operating Expenses

Salaries and related expenses include the salaries, commissions, payroll taxes and employee beneﬁts
related to recruitment professionals, executive level employees, administrative staff and other employees of the
Company who are not temporary contractors. Office and general expenses include occupancy, equipment
leasing and maintenance, utilities, travel expenses, professional fees and provision for doubtful accounts. The
Company expenses the costs of advertising as incurred.

Accounts Receivable

The Company’s accounts receivable balances are composed of trade and unbilled receivables. The

Company maintains an allowance for doubtful accounts and makes ongoing estimates as to the ability to
collect on the various receivables. If the Company determines that the allowance for doubtful accounts is not
adequate to cover estimated losses, an expense to provide for doubtful accounts is recorded in office and
general expenses. If an account is determined to be uncollectible, it is written off against the allowance for
doubtful accounts. Management’s assessment and judgment are vital requirements in assessing the ultimate
realization of these receivables, including the current credit-worthiness, ﬁnancial stability and effect of market
conditions on each customer.

Cash and Cash Equivalents

Cash and cash equivalents, which consist primarily of money market funds, are stated at cost, which
approximates fair value. For ﬁnancial statement presentation purposes, the Company considers all highly
liquid investments having an original maturity of three months or less as cash equivalents. The Company had
$147 and $373 of outstanding checks in excess of cash account balances as of December 31, 2009 and 2008,
respectively, and are included in accounts payable on the accompanying Consolidated Balance Sheet.

Restricted Cash

The Company had approximately $3,665 and $3,419 of restricted cash included in the accompanying
Consolidated Balance Sheets on December 31, 2009 and 2008, respectively. Included in these balances were
$1,893 and $2,408 held as collateral under a collateral trust agreement which supports the Company’s
workers’ compensation policy as of December 31, 2009 and 2008, respectively. The Company had $159 and
$138 deposits with a bank for a customer guarantee in Belgium and $293 and $277 deposits with a bank in
Netherlands as guarantees for the rent on the Company’s offices as of December 31, 2009 and 2008,
respectively. These balances are included in the caption ‘‘Prepaid and other’’ and ‘‘Other assets’’ in the
accompanying Consolidated Balance Sheets as of December 31, 2009 and 2008, respectively.

The Company maintained $1,127 and $319 of deposits with banks in the Netherlands as required by law
as a reserve for employee social tax payments, $179 and $169 of deposits with banks in Spain as guarantees
for the rent on the Company’s offices, and insigniﬁcant business license deposits with a bank in Singapore as
of December 31, 2009 and 2008, respectively. These deposits totaled to approximately $1,320 and $596 as of
December 31, 2009 and 2008, respectively, and were included in the caption ‘‘Cash and cash equivalents’’ in
the accompanying Consolidated Balance Sheets.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed primarily using the straight line

method over the following estimated useful lives:

Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized software costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer equipment

Years

3 − 8
2 − 5
3 − 5

Leasehold improvements are amortized over the shorter of their estimated useful lives or the lease term.
The amortization periods of material leasehold improvements are estimated at the inception of the lease term.

Capitalized Software Costs

Capitalized software costs consist of costs to purchase and develop software for internal use. The
Company capitalizes certain incurred software development costs in accordance with the ASC 350-40,
‘‘Intangibles Goodwill and Other: Internal-Use Software.’’ Costs incurred during the application-development
stage for software bought and further customized by outside vendors for the Company’s use and software
developed by a vendor for the Company’s proprietary use have been capitalized. Costs incurred for the
Company’s own personnel who are directly associated with software development are capitalized as
appropriate. Capitalized software costs are included in property and equipment.

Long-Lived Assets and Amortizable Intangibles

Intangible assets are amortized on straight line basis over the estimate useful life. The Company

evaluates the recoverability of the carrying value of its long-lived assets, excluding goodwill, whenever events
or changes in circumstances indicate that the carrying value may not be recoverable. Under such
circumstances, the Company assesses whether the projected undiscounted cash ﬂows of its businesses are
sufficient to recover the existing unamortized cost of its long-lived assets. If the undiscounted projected cash
ﬂows are not sufficient, the Company calculates the impairment amount by discounting the cash ﬂows using
its weighted average cost of capital. The amount of the impairment is written-off against earnings in the
period in which the impairment has been determined in accordance with ASC 360-10-35, ‘‘Impairment or
Disposal of Long-Lived Assets.’’

Goodwill

ASC 350-20-35 ‘‘Intangibles — Goodwill and Other, Goodwill Subsequent Measurement’’ requires that
goodwill not be amortized but be tested for impairment on an annual basis, or more frequently if circumstances
warrant. The Company tests goodwill for impairment annually as of October 1, or more frequently if
circumstances indicate that its carrying value might exceed its current fair value. Per the provisions of ASC

350, goodwill impairment testing is a two-step process. The ﬁrst step of the goodwill impairment test, used to
identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including
goodwill. The Company’s reporting units are the components within the reportable segments identiﬁed in Note
16. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered
not impaired, thus the second step of the impairment test is unnecessary. If the carrying amount of a reporting
unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount
of impairment loss, if any. Step two compares the implied fair value of the reporting unit’s goodwill with the
current carrying amount of that goodwill. If the carrying value of a reporting unit’s goodwill exceeds its
implied fair value, an impairment amount equal to the difference is recorded.

Foreign Currency Translation

The ﬁnancial position and results of operations of the Company’s international subsidiaries are
determined using local currency as the functional currency. Assets and liabilities of these subsidiaries are
translated at the exchange rate in effect at each year-end. Statements of Operations accounts are translated at
the average rate of exchange prevailing during each period. Translation adjustments arising from the use of
differing exchange rates from period to period are included in the other comprehensive income (loss) account
in stockholders’ equity, other than translation adjustments on short-term intercompany balances, which are
included in other income (expense). Gains and losses resulting from other foreign currency transactions are
included in other income (expense). Intercompany receivable balances of a long-term investment nature are
considered part of the Company’s permanent investment in a foreign jurisdiction and the gains or losses on
these balances are reported in other comprehensive income.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, ‘‘Income Taxes’’. This standard

establishes ﬁnancial accounting and reporting standards for the effects of income taxes that result from an
enterprise’s activities during the current and preceding years. It requires an asset and liability approach for
ﬁnancial accounting and reporting of income taxes.

ASC 740-10-55-3 ‘‘Recognition and Measurement of Tax Positions — a Two Step Process’’ provides

The Company adopted the provision related to unrecognized tax beneﬁt in accordance with

ASC 740-10-25-5 effective January 1, 2007, which resulted in a cumulative adjustment of $3,537 (net of tax
effect), which, as required, was accounted for as a reduction to the January 1, 2007 balance of retained
earnings. The cumulative effect of the adjustment consisted of $1,969 for income taxes related to both foreign
and U.S. state and local jurisdictions, $671 of interest and $897 of penalties related to uncertain tax beneﬁts.
Accrued interest and penalties were $1,568 as of January 1, 2007.

Earnings (Loss) per Share

Basic earnings (loss) per share are computed by dividing the Company’s income (loss) by the weighted

average number of shares outstanding during the period. When the effects are not anti-dilutive, diluted
earnings per share is computed by dividing the Company’s income (loss) by the weighted average number of
shares outstanding and the impact of all dilutive potential common shares, primarily stock options and
unvested restricted stock. The dilutive impact of stock options and unvested restricted stock is determined by
applying the ‘‘treasury stock’’ method. For periods in which losses are presented, dilutive loss per share
calculations do not differ from basic loss per share because the effects of any potential common stock were
anti-dilutive and therefore not included in the calculation of dilutive earnings per share. For the years ended
December 31, 2009, 2008 and 2007, the effect of approximately 2,350,000, 2,286,000 and 0, respectively, of
outstanding stock options and other common stock equivalents was excluded from the calculation of diluted
loss per share because the effect was anti-dilutive.

Income (loss) per share calculations for each quarter include the weighted average effect for the quarter;
therefore, the sum of quarterly income (loss) per share amounts may not equal year-to-date income (loss) per
share amounts, which reﬂect the weighted average effect on a year-to-date basis.

Comprehensive Income (Loss)

Comprehensive income (loss) is deﬁned to include all changes in equity except those resulting from
investments by owners and distributions to owners. The Company’s other comprehensive income (loss) is
solely comprised of foreign currency translation adjustments, which relate to investments that are permanent
in nature. To the extent that such amounts relate to investments that are permanent in nature, no adjustments
for income taxes are made.

Stock-Based Compensation

The Company applies the fair value recognition provisions of ASC 718 ‘‘Compensation — Stock

Compensation’’. ASC 718 requires companies to estimate the fair value of share-based payment awards on the
date of grant using an option-pricing model. The Company determined the fair value as of the grant date. For
awards with graded vesting conditions, the values of the awards are determined by valuing each tranche
separately and expensing each tranche over the required service period. For stock options, the Black-Scholes
option pricing model considers, among other factors, the expected life of the award and the expected volatility
of the Company’s stock price.

The Company determines its assumptions for the Black-Scholes option-pricing model in accordance with

•

The expected term of stock options is estimated using the simpliﬁed method since the Company
currently does not have sufficient stock option exercise history.

The expected risk free interest rate is based on the U.S. Treasury constant maturity interest rate
which term is consistent with the expected term of the stock options.

The expected volatility is based on the historic volatility.

In December 2007, the Securities and Exchange Commission (‘‘SEC’’) staff issued SAB No. 110,
‘‘Certain Assumptions Used In Valuation Methods — Expected Term’’. SAB No. 110 allows companies to
continue to use the simpliﬁed method, as deﬁned in SAB No. 107, to estimate the expected term of stock
options under certain circumstances. The simpliﬁed method for estimating expected term uses the mid-point
between the vesting term and the contractual term of the stock option. The Company has analyzed the
circumstances in which the use of the simpliﬁed method is allowed. The Company has opted to use the
simpliﬁed method for stock options the Company granted in 2008 because management believes that the
Company does not have sufficient historical exercise data to provide a reasonable basis upon which to
estimate the expected term due to the limited period of time the Company shares of common stock have been
publicly traded. There were no stock options granted in 2009.

Effect of Recently Issued Accounting Standards

In August 2009, the FASB issued Accounting Standards Update (‘‘ASU’’) No. 2009-05 ‘‘Fair Value
Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value’’. ASU No 2009-05 amends
Accounting Standards Codiﬁcation (‘‘ASC’’) Subtopic 820-10 ‘‘Fair Value Measurements and
Disclosures — Overall’’, with respect to the fair value measurement of liabilities. ASU No. 2009-05 provides
clariﬁcation that in circumstances in which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or more of the following techniques:
(1) the quoted price of the identical liability when traded as an asset, (2) the quoted prices for similar

liabilities or similar liabilities when traded as assets, and (3) another valuation technique (e.g., a market
approach or income approach including a technique based on the amount an entity would pay to transfer the
identical liability, or a technique based on the amount an entity would receive to enter into an identical
liability. ASU No.2009-05 is effective for the ﬁrst interim or annual period beginning after this ASU’s
issuance, which was October 1, 2009. The Company does not currently expect the adoption of ASU
No. 2009-05 to have a material impact on its results of operations or ﬁnancial condition.

In June 2009, the FASB issued ASU No. 2009-01 ‘‘Topic 105 — Generally Accepted Accounting
Principles — amendments based on — Statement of Financial Accounting Standards No. 168 — The FASB
Accounting Standards CodiﬁcationTM and the Hierarchy of Generally Accepted Accounting Principles.’’ ASU
No. 2009-01 deﬁnes the Codiﬁcation as the single source of authoritative nongovernmental U.S. GAAP that
was launched on July 1, 2009. The Codiﬁcation is effective for interim and annual periods ending after
September 15, 2009, which means that preparers were required to begin using the Codiﬁcation for periods that
began on or about July 1, 2009. All existing accounting standard documents are superseded. All other
accounting literature not included in the Codiﬁcation are considered nonauthoritative. The Codiﬁcation
reorganizes the thousands of U.S. GAAP pronouncements into roughly 90 accounting topics and displays all
topics using a consistent structure. It also includes relevant SEC guidance that follows the same topical
structure in separate sections in the Codiﬁcation. Effective July 1, 2009, the Company adopted ASU
No 2009-01 and the adoption had no material impact on its results of operations or ﬁnancial condition.

In May 2009, the FASB issued ASC 855 ‘‘Subsequent Events,’’ which establishes general standards of

In November 2008, the FASB issued ASC 350-30, ‘‘General Intangibles Other Than Goodwill.’’

ASC 350-30 applies to defensive intangible assets, which are acquired intangible assets that the acquirer does
not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. As
these assets are separately identiﬁable, ASC 350-30 requires an acquiring entity to account for defensive
intangible assets as a separate unit of accounting. Defensive intangible assets must be recognized at fair value
in accordance with ASC 805, ‘‘Business Combinations’’ and ASC 820, ‘‘Fair Value Measurements and
Disclosures.’’ ASC 350-30 is effective for defensive intangible assets acquired in ﬁscal years beginning on or
after December 15, 2008. The adoption of ASC 350-30 had no impact on the Company’s results of operations
or ﬁnancial condition.

3. Discontinued Operations

In the second and ﬁrst quarters of 2009, the Company exited the markets in Italy and Japan, respectively.

The operations in Italy (‘‘Italy’’) were part of the Hudson Europe reportable segment and the operations of
Japan (‘‘Japan’’) were part of the Hudson Asia Paciﬁc reportable segment. In accordance with the provisions
of ASC 205-20-45 ‘‘Reporting Discontinued Operations’’ the assets, liabilities, and results of operations of the
Company’s Italy and Japan operations were reclassiﬁed as discontinued operations for all the periods
presented. For year end December 31, 2009, Italy reported a loss from discontinued operations of $1,606,
which included approximately $825 of expenses primarily related to employee termination beneﬁts and

contract termination costs and Japan reported a loss from discontinued operations of $2,871, which included
approximately $1,603 of expenses primarily related to employee termination beneﬁts and costs of lease
terminations.

In the second quarter of 2008, the Company sold substantially all of the assets of Balance Public

Management B.V. (‘‘BPM’’), a division of Balance Ervaring op Projectbasis, B.V. (‘‘Balance’’), to KH Health
Care B.V. (‘‘KHHC’’). At the closing of the sale, the Company received €4,250, or $6,628, in cash from
KHHC. For the year ended December 31, 2008, the Company recorded income of $3,054 from discontinued
operations of BPM consisting primarily of a gain on the sale of BPM of $2,686, which included $243 of
foreign currency translation gains, net of $3,737 of goodwill allocated to the business.

In the ﬁrst quarter of 2008, the Company sold substantially all of the assets of Hudson Americas’ energy,

engineering and technical staffing division (‘‘ETS’’) to System One Holdings LLC (‘‘System One’’). The
Company recorded a charge in 2008 of $1,707 for retained payroll liabilities. During 2009 the Company
settled part of the aforementioned payroll liabilities for $1,054 and reversed an excess accrual of a $597 based
on the ﬁnal settlement amount. As of December 31, 2009, the Company had an insigniﬁcant amount of
remaining payroll liabilities. In addition, the Company recorded an additional accrual of approximately $260
related to the workmen compensation reserves. In 2008, the Company recorded a loss of $4,070 consisting of
operating losses of $3,419 and a $651 loss on sale, net of approximately $873 of direct costs of the
transaction and $6,944 of goodwill allocated to the ETS business.

In the fourth quarter of 2007, the Company sold (the ‘‘HHCS Sale’’) all of the outstanding shares of its

Netherlands reintegration subsidiary, Hudson Human Capital Solutions B.V. (‘‘HHCS’’) to Workx! Holding
B.V. (‘‘Workx’’). As of December 31, 2007, the Company recorded income from discontinued operations of
$5,011, which included approximately $7,354 of accumulated foreign currency translation gains previously
included in other comprehensive income and reclassiﬁed in 2007 in accordance with ASC 830, ‘‘Foreign
Currency Matters’’ as a result of the HHCS Sale and severance and professional fees of approximately $2,478.

In the fourth quarter of 2007, certain of the Company’s subsidiaries sold (the ‘‘T&I Sale’’) Hudson Asia
Paciﬁc’s Australian blue-collar trade and industrial business (‘‘T&I’’) to Skilled Group Limited. The Company
recorded a gain on the T&I Sale of $1,877 from cash proceeds of approximately $3,000. The gain was net of
approximately $1,000 of estimated expenses for lease abandonment, professional service fees and severance
costs. The Company retained approximately $3,600 in net assets, primarily accounts receivable, of T&I that
the Company subsequently collected. During 2008, the Company recorded an additional tax beneﬁt of $202
primarily relating to deductible items included in the gain on the T&I Sale upon ﬁling of the tax return.

In the fourth quarter of 2006, the Company sold its Highland Partners executive search business
(‘‘Highland’’) to Heidrick & Struggles International, Inc. (‘‘Heidrick’’). As a result of Highland achieving
certain revenue metrics in 2008, the Company received an additional and ﬁnal earn-out payment of $11,625
on April 9, 2009. This amount was the contractual maximum possible earn-out from this transaction for the
year ended December 31, 2008 and was reﬂected within discontinued operations as a gain from sale of
discontinued operations as of December 31, 2009. The company recorded a provision for income taxes of
$3,967 related to the ﬁnal earn-out payment received.

Italy, BPM and HHCS were part of the Hudson Europe reportable segment, Japan and T&I were part of

the Hudson Asia Paciﬁc reportable segment and ETS was part of the Hudson Americas reportable segment.
The Highland business was a separate reportable segment of the Company at the time of its sale. The gain or
loss on sale and results of operations of the disposed businesses were reported in discontinued operations in
the relevant periods.

Reported results for the discontinued operations by period were as follows:

For the Year Ended December 31, 2009

Revenue . . . . . . . . . . . . . . . . . . . . . . . $

Gross margin . . . . . . . . . . . . . . . . . . . . $

Italy

432

388

Japan
$ 1,022

986

Operating (loss) income . . . . . . . . . . . . . $(2,179) $(2,624)
Other (expense) income . . . . . . . . . . . . .
(247)
Gain (loss) from sale of discontinued

699

operations

. . . . . . . . . . . . . . . . . . . .

Provision for (beneﬁt from) income

taxes(a) . . . . . . . . . . . . . . . . . . . . . . .

—

126

—

(Loss) income from discontinued

BPM
$—

$—

$—
—

—

ETS
$ —

$383

$237
—

—

HHCS
$—

T&I
Highland
$ — $ — $ 1,454

Total

$—

$—
—

—

$ — $ — $ 1,757

$ — $ (104) $ (4,670)
(458)
(1,111)
201

—

11,625

3,967

4,153

operations

. . . . . . . . . . . . . . . . . . . . $(1,606) $(2,871)

$—

$237

$—

$141

$ 6,443

$ 2,344

For the Year Ended December 31, 2008

Revenue . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . .
Operating (loss) income . . . . . . . . . . . . .
. . . . . . . . . . . . .
Other income (expense)
Gain from sale of discontinued operations .
Provision for (beneﬁt from) income

taxes(a)

. . . . . . . . . . . . . . . . . . . . . . .

(Loss) income from discontinued

Italy
Japan
BPM
$3,862
$ 5,490
$2,827
$3,694
$ 5,452
$ 816
$ (131) $(2,448) $ 469
—
— 2,686

(247)
—

458

T&I

Total

Highland

ETS
$12,956
$
568
$ (3,419)
—

HHCS
$— $ — $ — $25,135
$— $ — $ — $10,530
$— $ — $(2,606) $ (8,135)
75
—
5,445
(651) —

—
3,410

(136)
—

1,887

101

—

(202)

(3,239)

(1,393)

operations . . . . . . . . . . . . . . . . . . . . .

$ (438) $(3,877) $3,054

$ (4,070)

$— $ 66

$ 4,043

$ (1,222)

For the Year Ended December 31, 2007

Italy

Japan
$ 6,085
$ 5,894

Revenue . . . . . . . . . . . . . . . . . . . . . . . $ 3,685
Gross margin . . . . . . . . . . . . . . . . . . . . $ 3,539
Operating (loss) income . . . . . . . . . . . . . $(1,160) $(1,173) $1,338 $
Other income (expense) . . . . . . . . . . . . .
Gain from sale of discontinued operations
Provision for income taxes(a) . . . . . . . . . .
(Loss) income from discontinued

23
—
(612)

—
—
323

73
—
11

T&I

ETS

HHCS

BPM
$6,022 $146,237 $13,293 $36,611
$2,040 $ 18,700 $ 6,010 $ 4,208
84 $ 1,229
3,311 $
—
(8)
6
1,877
— 4,921
372
—
—

Total

Highland
$ — $211,933
$ — $ 40,391
$(907) $ 2,722
30
6,798
97

(64)
—
3

operations

. . . . . . . . . . . . . . . . . . . . $(1,098) $ (538) $1,015 $

3,303 $ 5,011 $ 2,734

$(974) $ 9,453

(a)

Income tax expense (beneﬁt) is provided at the effective tax rate by taxing jurisdiction and differs from
the U.S. statutory tax rate of 35% for differences in the foreign statutory tax rates, as well as the ability
to offset net operating loss carry forwards (‘‘NOLs’’) against taxable proﬁts.

As of December 31, 2009, amounts related to assets and liabilities of discontinued operations were

insigniﬁcant. Reported assets and liabilities for discontinued operations as of December 31, 2008 were as
follows:

Assets − discontinued operations
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets of discontinued operations . . . . . . . . . . . . . . . . . . .
Total assets of discontinued operations . . . . . . . . . . . . . . . . . . . . .

Liabilities − discontinued operations
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Total liabilities of discontinued operations

4. Property and Equipment

Property and equipment consisted of the following:

As of December 31, 2008

Italy

Japan

Total

$658
263
921
$921

$ 64
345
$409

$ 751
688
1,439
$1,439

76
925
$1,001

$1,409
951
2,360
$2,360

$ 140
1,270
$1,410

December 31,

2009

Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,095
14,635
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment
32,074
Capitalized software costs
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,194
Leasehold and building improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
Transportation equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90,020
Less: accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . .
70,587
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,433

2008
$21,327
16,393
26,341
22,736
207
87,004
62,625
$24,379

Leasehold improvements included assets classiﬁed under capital leases at December 31, 2009 and 2008

with a cost of $898 and $686, respectively, and accumulated amortization of $766 and $452, respectively.
Capitalized software costs included software under capital leases at December 31, 2009 and 2008 with the
costs of $4,861 for both years, and accumulated amortization of $4,384 and $3,442, respectively. The
Company had approximately $2,474 of property and equipment costs incurred, mainly for computer software
development, which had not been placed in service as of December 31, 2009. Depreciation expense is not
recorded for such costs until the properties and equipment are placed in service.

5. Goodwill and Intangibles

Under ASC 350-20-35, the Company is required to test goodwill and indeﬁnite-lived intangible assets for

impairment on an annual basis as of October 1, or more frequently if circumstances indicate that its carrying
value might exceed its current fair value.

Step two of the impairment test, if necessary, consists of determining the implied fair value of each

excess of the fair value of each reporting unit over the amounts assigned to its other assets and liabilities is
equal to the implied fair value of its goodwill. The goodwill impairment is measured as the excess of the
carrying amount of goodwill over its implied fair value.

To estimate the fair value of a reporting unit, the Company utilized the income approach, a valuation

The Company also considers the market approach, which indicates the fair value of the invested capital

of the Company based on the Company’s market capitalization. We use the quoted market price method to
estimate the fair value of the Company based on the quoted market price in the active markets (NASDAQ).
We estimate the Company’s market capitalization by multiplying the quoted per share market price multiplied
by the number of shares outstanding. As an additional measure, the Company reconciles the aggregate fair
value of all of its reporting units, as determined by the discounted cash ﬂow method, with its total market
capitalization to determine the reasonableness of the fair value calculations.

As a result of the deterioration in market conditions over the course of the fourth quarter of 2008, the

Company’s stock price declined approximately ﬁfty percent as of December 31, 2008 compared to the stock
price as of October 1, 2008. This caused the Company’s market capitalization to decline below its book value,
an indication that the aggregate fair value of its reporting units could potentially be less than their carrying
value. As a result of these events, management updated its impairment testing from October 1, through
December 31 2008.

At the conclusion of its testing, the Company determined that goodwill was impaired at all of its

reporting units and recorded an impairment charge of $64,495. In connection with its testing management also
determined that certain intangible assets were impaired and recorded an additional impairment charge of $368.
The total charges of $64,863 have been recorded under the caption of Goodwill and other impairment charges
in the accompanying Consolidated Statements of Operations. In July 2009, the Company paid a $1,669 earn-
out payment related to the acquisition of business of Tong Zhi (Beijing) Consulting Service Ltd. and
Guangzhou Dong Li Consulting Ltd. (collectively, ‘‘TKA’’), which represented an additional purchase price
and was recorded as goodwill at June 30, 2009. The prevailing economic conditions at year end 2008 had not
sufficiently improved during the ﬁrst-half of 2009 so the Company updated its step one and step two
procedures for the China reporting unit as of June 30, 2009. The Company concluded that the entire amount
of recorded goodwill was impaired and consequently recorded an impairment charge of $1,669, which is
included in the results for the year ended December 31, 2009 in the accompanying Consolidated Statements of
Operations.

Additionally in 2008, the Company evaluated the recoverability of other long-term assets and recorded an

impairment charge of $2,224, which has also been recorded under the caption of ‘‘Goodwill and other
impairment charges’’ in the accompanying Consolidated Statements of Operations.

A summary of changes in the Company’s goodwill by reportable segment follows. Additions in 2009,

2008 and 2007 reﬂect acquisitions and purchase price adjustments made during that year, as described in
Notes 3 and 8.

Hudson Asia Paciﬁc . . . . . . . .

Hudson Americas . . . . . . . . . .
Hudson Europe
. . . . . . . . . . .
Hudson Asia Paciﬁc . . . . . . . .

December 31,
2008

$—
$—

December 31,
2007

$43,982
24,222
5,238
$73,442

Additions
and
Adjustments

$1,669
$1,669

Additions
and
Adjustments

$(5,825)
(3,785)
1,104
$(8,506)

Impairments

$(1,669)
$(1,669)

Impairments

$(38,157)
(19,598)
(6,740)
$(64,495)

Currency
Translation

December 31,
2009

$—
$—

Currency
Translation

December 31,
2008

$ —
(839)
398
$(441)

$—
—
—
$—

December 31,
2006

Additions
and
Adjustments

$13,351
19,807
—
$33,158

$30,631
2,482
5,238
$38,351

Impairments

Currency
Translation

December 31,
2007

$—
—
—
$—

$ —
1,933
—
$1,933

$43,982
24,222
5,238
$73,442

As of December 31, 2009 and 2008, other intangible assets consisted of the following:

Client lists . . . . . . . . . . . . .
Other amortizable intangibles
Total other intangibles, net

. .

December 31, 2009

December 31, 2008

Gross
Carrying
Amount
$ 9,271
4,498
$13,769

Accumulated
Amortization
$ (9,193)
(4,073)
$(13,266)

Net
Book
Value
$ 78
425
$503

Gross
Carrying
Amount
$ 9,116
5,259
$14,375

Accumulated
Amortization
$ (8,032)
(3,845)
$(11,877)

Net
Book
Value
$1,084
1,414
$2,498

Amortization of intangible assets, was $1,566, $2,197, and $3,240, for the years ended December 31,
2009, 2008, and 2007, respectively. The Company recorded an impairment charge pertaining to client lists and
other intangible assets of $368 in 2008, which was included under the caption goodwill and other impairment
charges in the accompanying Consolidated Statements of Operations. Estimated intangible asset amortization
expense is expected to be $179, $179, and $145 for the years ended December 31, 2010, 2011 and 2012,
respectively.

6. Fair Value Measurements

In connection with the sale of the assets of Hudson Americas’ ETS business in 2008, the Company

received warrants, which under certain circumstances, can be converted into cash. These warrants are
considered derivative instruments which require fair value measurement. As per ASC 815 ‘‘Derivatives and
Hedging’’ these derivative instruments are considered undesignated derivative instruments. The Company
determined the fair value of these instruments using signiﬁcant unobservable inputs (level 3) as deﬁned in
ASC 820 ‘‘Fair value Measurements and Disclosures’’.

As of December 31, 2009 and 2008 the carrying and fair value of the derivative instruments of $488 and
$0, respectively, was included under the caption ‘‘Prepaid and other’’ in the Consolidated Balance Sheets. The
change in the fair value of the derivative instruments (the realized / unrealized gain) was included in the
Consolidated Statement of Operations under the caption ‘‘Other income (expense)’’ for the year ended
December 31, 2009.

7. Business Reorganization Expenses

The Company’s Board of Directors (the ‘‘Board’’) approved reorganization plans in 2009 (‘‘2009 Plan’’)

and in 2008 (‘‘2008 Plan’’) to streamline the Company’s support operations and include 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. The 2009 Plan provided for up to $19,000 for
restructuring actions. For the year ended December 31, 2009, the Company incurred $18,198 of business
reorganization expenses, of which $16,973 and $1,138 were related to the 2009 Plan and 2008 Plan,
respectively. The Company substantially completed the 2009 and 2008 Plan before the end of 2009 with
certain actions requiring completion during 2010.

In 2009 and 2008, the Company recorded additional business reorganization expenses of $2,428 and

$409, respectively, as a component of income from discontinued operations.

In the following tables, amounts in the ‘‘Changes in Estimate’’ and ‘‘Additional Charges’’ columns

represent modiﬁcations to amounts charged or recovered for business reorganization expenses in the
Company’s Consolidated Statements of Operations. Amounts in the ‘‘Payments’’ column represent the cash
payments associated with the reorganization programs. Changes in the accrued business reorganization
expenses for the years ended December 31, 2009, 2008 and 2007 were as follows:

Year Ended December 31, 2009

December 31,
2008

Changes in
Estimate

Additional
Charges

. . . . .
Lease termination payments
Employee termination beneﬁts . . . .
Contract cancellation costs
. . . . . .
. . . . . . . . . . . . . . . . . . . . .
Total

$3,325
3,654
221
$7,200

$ 56
(194)
—
$(138)

$ 5,184
12,725
427
$18,336

Year Ended December 31, 2008

December 31,
2007

Changes in
Estimate

Additional
Charges

Lease termination payments . . . . . .
Employee termination beneﬁts . . . .
Contract cancellation costs . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . .

$5,958
71
84
$6,113

$(490)
(41)
2
$(529)

$ 1,489
9,594
626
$11,709

Year Ended December 31, 2007

December 31,
2006

Changes in
Estimate

Additional
Charges

Lease termination payments . . . . . .
Employee termination beneﬁts . . . .
Contract cancellation costs . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . .

$6,102
1,849
120
$8,071

$ (11)
(134)
(156)
$(301)

$4,535
87
41
$4,663

Payments

$ (3,668)
(12,085)
(514)
$(16,267)

Payments

$ (3,632)
(5,970)
(491)
$(10,093)

Payments

$(4,668)
(1,731)
79
$(6,320)

December 31,
2009

$4,897
4,100
134
$9,131

December 31,
2008

$3,325
3,654
221
$7,200

December 31,
2007

$5,958
71
84
$6,113

Lease Termination Payments

During the year ended December 31, 2009, the Company recorded expenses for the 2009 reorganization
program of $4,193 primarily for leases in Hudson Americas of approximately $1,048 and Hudson Europe of
$2,685, and for the 2008 Plan of $991 for leases in Hudson Asia Paciﬁc. During the year ended December 31,
2008, the Company recorded expenses for the 2008 Plan of $1,489 for leases in Hudson Americas and
Hudson Asia Paciﬁc. During the year ended December 31, 2007, the Company recorded expenses for the 2006
reorganization program of $4,535 for leases in Hudson Europe and Hudson Americas and expense recovery of
$11 for changes in estimates to prior programs. As of December 31, 2009, the remaining accrual related to
approximately 30 locations and will be paid over the remaining lease terms, which have various expiration
dates up until 2012. The estimated payments for 2010 are $2,995.

Employee Termination Beneﬁts

During the year ended December 31, 2009, the Company recorded expenses for the 2009 Plan of $12,437

for workforce reductions in Hudson Americas ($3,910), Hudson Europe ($6,888), and Hudson Asia Paciﬁc
($1,516), and the 2008 Plan of $288 for workforce reductions in Hudson America, Hudson Europe, and
Hudson Asia Paciﬁc. During the year ended December 31, 2008, the Company recorded expenses for the 2008
Plan of $9,594 for workforce reductions in Hudson America ($2,072), Hudson Europe ($3,257), Hudson Asia
Paciﬁc ($3,215) and Corporate ($1,050). The Company recorded recoveries for changes in estimates to the
2002 reorganization program of $41 for costs associated with workforce reductions. During the year ended
2007, the Company recorded additional charges for workforce reductions of $87 and recoveries for changes in
estimates to prior programs of $134 for costs associated with workforce reductions. As of December 31, 2009,
the workforce reduction accrual related to settlements and termination payments for 96 former employees,
which are all payable in 2010.

Contract Cancellation Costs

During the year ended December 31, 2009, the Company recorded charges of $343 for professional fees

under the 2009 Plan in association with contract cancellations and $84 for professional fees under the 2008
Plan in association with contract cancellations. During the year ended December 31, 2008, the Company
recorded additional charges of $626 for the 2008 Plan and expense for changes in estimates to prior programs
of $2 for professional fees and other charges. During the year ended 2007, the Company recorded additional
charges of $41 and recovery for changes in estimates to prior programs of $156 for professional fees and
other charges. The accrual at December 31, 2009 was included in current liabilities.

8. Business Combinations — Merger and Integration Expenses

There were no material activities related to the merger and integration associated with the Company’s
business acquisitions in the years ended December 31, 2009 and 2008. In addition, there were also no material
changes in estimates to the Company’s established integration plans subsequent to ﬁnalization. As of
December 31, 2009 and 2008 the accrued balances related to the Company’s plans for acquisitions made in
prior years were insigniﬁcant. The Company adjusted its estimates of the merger and integration costs by
recognizing a recovery of $787 for the year ended December 31, 2007, which consisted of reduction in the
estimated costs associated with assumed lease obligations on closed facilities related to leased office locations
of acquired companies that were either under-utilized prior to the acquisition date or closed by the Company
in connection with acquisition-related restructuring plans. The amount is based on the present value of
minimum future lease obligations, net of estimated sublease income. The accruals for remaining balance for
merger and integration expenses were insigniﬁcant as of December 31, 2009 and 2008.

The Company expects to pay the ﬁnal lease payments of $134 in 2010.

9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

Salaries, commissions and beneﬁts . . . . . . . . . . . . . . . . . . . . . . . . .
Sales, use and income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees for professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accruals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2009
$29,211
9,928
2,646
1,961
10,262
$54,008

2008
$39,153
15,850
2,711
3,081
15,652
$76,447

10. Stock-Based Compensation and Stock Compensation Plans

Incentive Compensation Plan

In May 2009, the Company’s stockholders approved the Hudson Highland Group, Inc. 2009 Incentive
Stock and Awards Plan (the ‘‘2009 Incentive Plan’’). As a result of the approval, the Company terminated the
Hudson Highland Group, Inc. Long Term Incentive Plan (the ‘‘LTIP’’). Awards granted prior to May 2009
under the LTIP that were outstanding at the time of approval of the 2009 Incentive Plan remain outstanding
and continue to be subject to all of the terms and conditions of the LTIP.

The 2009 Incentive Plan provides that an aggregate of 1,600,000 shares of the Company’s common stock

are reserved for issuance to participants under the 2009 Incentive Plan. The Compensation Committee of the
Company’s Board of Directors administers the 2009 Incentive Plan and may designate any of the following as
a participant under the 2009 Incentive Plan: 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. The 2009
Incentive Plan permits the granting of stock options, restricted stock, and other types of equity-based awards.
The Compensation Committee will establish such conditions as it deems appropriate on the granting or vesting
of stock options, restricted stock, or other types of equity-based awards to participants.

As of December 31, 2009, there were approximately 1,416,000 shares available for future issuance. All

options granted have a contractual term of ten years. Unvested options outstanding have vesting periods of
four years that vest 25% on each of the four annual anniversary dates or 50% on the third and fourth annual
anniversary dates. Unvested restricted stock awards outstanding have vesting periods of four years that vest
25% on each of the four annual anniversary dates, three years that vest 33% on each of the three annual
anniversary dates, two years that vest 50% on each of the annual anniversary dates, or vest based on the stock
price of the Company up to the ﬁfth anniversary date (see section ‘‘Restricted Stock’’ below for detail).
While the Company historically granted both stock options and restricted stock to its employees, since 2008,
the Company has granted primarily restricted stock to its employees. Occasionally, the Company grants stock
options to certain of its executive employees at the time of hire.

Stock-Based Compensation

The Company recognized expenses from continuing operations of $999, $4,701and $4,041 in the years
ended December 31, 2009, 2008, and 2007 respectively, for the stock option, restricted stock and employee
stock purchase plans. These expenses are included in selling, general and administrative expenses. In
accordance with ASC 718, the Company reﬂects the tax savings resulting from tax deductions in excess of
income tax beneﬁts as a ﬁnancing cash ﬂow in its Consolidated Statement of Cash Flows rather than as an
operating cash ﬂow as in prior periods. The Company recognized a current tax beneﬁt for the years ended
December 31, 2009, 2008, and 2007, of $100, $434 and $347 respectively, in certain foreign jurisdictions
where the Company has taxable income. Unrecognized compensation expense related to the unvested portion
of the Company’s stock options and restricted stock awards, based on the Company’s historical treatment of
options and restricted stock awards as having been granted at the fair market value, was $187 and $878 as of
December 31, 2009 and 2008, respectively, and is expected to be recognized over a weighted average period
of 1.29 years and 2.13 years, respectively. All share issuances related to stock compensation plans are issued
from unissued shares of stockholder approved compensation plans.

Stock Options

The fair value of stock options granted is estimated on the date of grant using a Black-Scholes option
pricing model. Expected volatilities are calculated based on the historical volatility of the Company’s stock.
Management monitors stock option exercise and employee termination patterns to estimate forfeiture rates.
The Company analyzed its historical forfeiture rate, the remaining lives of unvested options and the amount of
vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is
materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-
based compensation expense could be signiﬁcantly different from what was recorded in the current periods.
The risk-free interest rate is based on the U.S. Treasury whose term is consistent with the expected term of
the option. Volatility is determined using historical prices to estimate the expected future ﬂuctuations in the

Company’s share price. The dividend rate is assumed to be zero as the Company has never paid dividends on
its common stock and does not anticipate paying dividends in the foreseeable future. For awards with graded
vesting conditions, the values of the awards are determined by valuing each tranche separately and expensing
each tranche over the required service period.

In December 2007, the SEC staff issued SAB 110, which allows companies to continue to use the
simpliﬁed method, as deﬁned in SAB 107, to estimate the expected term of stock options under certain
circumstances. The simpliﬁed method for estimating expected term uses the mid-point between the vesting
term and the contractual term of the stock option. The Company has analyzed the circumstances in which the
use of the simpliﬁed method is allowed. The Company has opted to use the simpliﬁed method for stock
options the Company granted in 2008 because management believes that the Company does not have
sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term due
to the limited period of time the Company’s shares of common stock have been publicly traded. There were
no stock options granted in the year of 2009.

The following were the weighted average assumptions used to determine the fair value of stock options

granted by the Company and the details of option activity as of and for the respective periods:

Risk free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life (years) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average fair value of options granted during the

period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the Years Ended December 31,
2007
2008

2.9%
58.0%
6.3
0.0%

4.7%
60.0%
5.0
0.0%

2009
(a)

(a)

$ (a)

$2.99

$9.29

(a) Stock option assumptions were not provided above because there were no option granting activities for

the year ended December 31, 2009.

Changes in the Company’s stock options for the ﬁscal year ended December 31, 2009 were as follows:

Options outstanding, beginning of year . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding at December 31, 2009 . . . . . . . . . . . . . . . . . . .
Options exercisable at December 31, 2009 . . . . . . . . . . . . . . . . . . .

Number of
Options
Outstanding
2,060,325
(55,800)
(241,275)
1,763,250
1,622,125

Weighted
Average
Exercise Price
per Share
$13.14
16.95
14.82
12.79
$12.77

The weighted average remaining contractual term and the aggregated intrinsic value for stock options

outstanding as of December 31, 2009 was approximately 5.07 years and $0, respectively. The weighted
average remaining contractual term and the aggregated intrinsic value for options exercisable as of
December 31, 2009 was 4.86 years and $0, respectively. The total intrinsic values for stock options exercised,
based on the closing price of the Company’s common stock during the years ended December 31, 2009, 2008,
and 2007 were $0, $120, and $3,457, respectively.

There were no cash proceeds from the exercise of stock options for the year ended December 31, 2009,

and there were no associated income tax beneﬁts. The total fair value of stock options vested during the years
ended December 31, 2009, 2008, and 2007, was $3,793, $5,155, and $1,619, respectively.

Restricted Stock

During the year ended December 31, 2009, the Company granted 509,700 shares of restricted stock to

various employees. Shares of restricted stock with only service-based vesting conditions are valued at the
closing market value of the Company’s common stock on the date of grant. Of the 509,700 shares granted,
(i) 4,200 shares vested immediately, (ii) 95,000 shares vest ratably over a four year period from the date of

grant, (iii) 70,000 shares vest in full on April 1, 2012, (iv) 144,000 shares vest ratably over a three year period
from the date of grant, (v) 57,500 shares cliff-vest in three years and (vi) 139,000 shares vest one-third on each
of the ﬁrst three anniversaries of the grant date, provided that the following vesting conditions are met: (1) the
20-day average closing price of a share of the Company’s common stock on the NASDAQ Global Market
meets or exceeds the applicable share price target at anytime on or prior to the anniversary date and (2) the
recipient remains employed by the Company on the anniversary date. The share price targets for each of the
recipients are $6.00 for one third of the shares of restricted stock, $9.00 for one third of the shares of restricted
stock and $12.00 for one third of the shares of restricted stock. With respect to each share price target, such
target is deemed to be achieved on the ﬁrst day following the grant date on which the 20-day average closing
price of a share of the Company’s common stock meets or exceeds such share price target. Shares of restricted
stock that would otherwise vest on an anniversary date, but that do not vest on such date because the
applicable share price target has not been achieved, will vest immediately if and when the applicable share
price target is achieved if the recipient remains employed by the Company at such time; provided that, if a
share price target is not achieved by the ﬁfth anniversary of the grant date, then the recipient will forfeit the
number of unvested shares of restricted stock that correspond to such share price target.

The Company treated its restricted stock awards to employees as having been issued and measured at the
fair market value on the date of grant. The Company may grant restricted stock to employees under the 2009
Incentive Plan. These shares are provided at no cost to the employee.

Changes in the Company’s restricted stock for the year ended December 31, 2009 were as follows:

Unvested restricted stock, beginning of year . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested restricted stock at December 31, 2009 . . . . . . . . . . . . . . .

Number of
Shares of
Restricted
Stock

225,490
509,700
(161,732)
(42,375)
531,083

Weighted
Average
Grant-Date
Fair Value

$9.31
1.77
9.25
1.63
$2.70

The total fair value of restricted shares vested during the years ended December 31, 2009, 2008, 2007,

was $1,496, $1,746 and $670, respectively.

Employee Stock Purchase Plan

The Company suspended the Hudson Highland Group, Inc. Employee Stock Purchase Plan (the ‘‘ESPP’’)

effective January 1, 2009. Under the ESPP, eligible employees could purchase shares of the Company’s
common stock at the lesser of 85% of the fair market value at the commencement of each plan purchase
period or 85% of the fair market value as of the purchase date. Eligible employee purchases were limited to
$25 in any calendar year. ESPP purchase dates are generally every six months ended June 30 and
December 31. The Company values its ESPP using the Black-Scholes option pricing model. The risk-free
interest rate is based on the U.S. Treasury six-month or one-year rate in effect at the time of the grant.
Volatility is determined using historical prices of six-months or one-year prior to the date of grant to estimate
the expected future ﬂuctuations in the Company’s share price. The dividend rate is assumed to be zero as the
Company has never paid dividends on its common stock and does not anticipate paying dividends in the
foreseeable future.

Because the Company suspended the ESPP, there was no expense for the year ended December 31, 2009.

The Company recognized $858, and $565 of stock-based compensation related to shares purchased under the
ESPP for the years ended December 31, 2008 and 2007, respectively, as salaries and related expense. The
Company issued 292,475 and 147,183 shares of common stock pursuant to the ESPP at an average price of
$5.60, and $10.90 per share in 2008, and 2007 respectively.

The Company also suspended the Hudson Global Resources Share Incentive Plan (the ‘‘SIP’’) for the

United Kingdom subsidiary effective December 11, 2008. Under the SIP, a stock purchase plan for its
employees, eligible employees may purchase shares on the open market at the end of each month. The

Company matches the employee purchases with a contribution of shares equal to 50% of the number of
employee shares purchased. The Company did not issue any shares in connection with the SIP in 2009. The
Company issued 4,080 and 4,156 shares of common stock pursuant to the SIP in 2008, and 2007 respectively.
Shares are issued under the SIP from the ESPP share reserve.

As of December 31, 2009 and 2008, the Company had 116,000 shares reserved for future share issuances

under the ESPP and SIP.

For all share plans described above, the Company has issued new shares of the Company’s common

stock only from stockholder approved stock compensation plans.

Deﬁned Contribution Plans

The Company maintains the Hudson Highland Group, Inc. 401(k) Savings Plan (the ‘‘401(k) plan’’). The
401(k) plan allows eligible employees to contribute up to 15% of their earnings to the 401(k) plan subject to
the limitations of the Employee Retirement Income Security Act of 1974. The Company matches employees’
contributions up to 3% through a contribution of the Company’s common stock. Vesting of the Company’s
contribution occurs over a ﬁve-year period. Expense, included in income from continuing operations, for the
years ended December 31, 2009, 2008 and 2007 for the 401(k) plan was $622, $1,053, and $1,608,
respectively. Expense, included in income from discontinued operations, for the years ended December 31,
2009, 2008 and 2007 for the 401(k) plan was $0, $41, and $500, respectively. In March 2009, the Company
issued 1,318,161 shares of its common stock with a value of $1,226 to satisfy the 2008 contribution liability
to the 401(k) plan. In March 2008, the Company issued 140,051 shares of its common stock with a value of
$1,156 to satisfy the 2007 contribution liability to the 401(k) plan. In March 2007, the Company issued
134,331 shares of its common stock with a value of $2,108 to satisfy the 2006 contribution liability to the
401(k) plan. The 2009 401(k) plan matching shares will be issued in the ﬁrst quarter of 2010.

11. Provision for Income Taxes

The domestic and foreign components of (loss) income before income taxes from continuing operations:

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from continuing operations before

2009
$(25,080)
(23,623)

Year Ended December 31,
2008
$(64,887)
(1,528)

2007
$(28,062)
51,109

provision for income taxes. . . . . . . . . . . . . . . . . . .

$(48,703)

$(66,415)

$ 23,047

The (beneﬁt from) provision for income taxes from continuing operations was as follows:

Current tax provision (beneﬁt):

U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local. . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax (beneﬁt) provision

U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local. . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred. . . . . . . . . . . . . . . . . . . . . . . . . .
Total provision . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,
2008

2007

2009

$(3,700)
115
1,376
(2,209)

—
—
(3,541)
(3,541)
$(5,750)

254
(1,180)
8,518
7,592

—
—
(911)
(911)
$ 6,681

$ —
2,093
14,936
17,029

—
—
490
490
$17,519

Deferred income taxes are provided for the tax effect of temporary differences between the ﬁnancial

reporting basis and the tax basis of assets and liabilities. Signiﬁcant temporary differences at December 31,
2009 and 2008 were:

December 31,

2009

2008

Current deferred tax assets:

Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation liabilities. . . . . . . . . . . . . . . . . . . . . . . . .
Tax loss carry-forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . .

Non-current deferred tax assets (liabilities):

Property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other current liabilities and other liabilities . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax loss carry-forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-current deferred tax asset (liability) . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

721
(220)
2,912
2,348
144
5,905
(1,022)
4,883

1,155
26,864
2,018
4,136
2,586
121,346
158,105
(151,077)
7,028
$ 11,911

982
75
4,087
2,572
289
8,005
(3,144)
4,861

(257)
30,577
1,519
4,902
2,679
102,981
142,401
(140,895)
1,506
6,367

Net deferred tax assets were included in other current assets and other assets in the accompanying

Consolidated Balance Sheet.

At December 31, 2009, the Company had net operating losses (‘‘NOLs’’) for U.S. Federal tax purposes
of approximately $260,262. This amount includes a deduction in the amount of $4,476 attributable to stock
options and restricted stock that is not being reﬂected in the NOL carry-forward for deferred tax assets until
such time as the deduction reduces U.S. income tax payable and approximately $16,584 of tax losses that
were not absorbed by Monster on its consolidated U.S. Federal tax returns through the Distribution Date,
which expire through 2030. These losses included pre-acquisition losses of certain acquired companies and are
subject to an annual limitation on the amount that can be utilized. As of December 31, 2009, certain
international subsidiaries had NOLs for local tax purposes of $76,422. With the exception of $58,028 of
NOLs with an indeﬁnite carry forward period as of December 31, 2009, these losses will expire at various
dates through 2030, with $95 scheduled to expire during 2010.

Tax years with NOLs remain open until the losses expire or the statutes of limitations for those years
expire. The open tax years are 2006 through 2009 for the U.S. Federal and 2005 through 2009 for most state
and local jurisdictions, 2007 through 2009 for the U.K., and 2000 through 2009 for Australia and 2003
through 2009 for most other jurisdictions. The Company is currently under income tax examination in China
(2008), Switzerland (2008), France (2006 − 2008), the State of Texas (2004 to 2006) and the State of
Pennsylvania (2004 − 2005). The Company is also subject to income tax examinations in numerous other
states, local and foreign jurisdictions. The Company believes that its tax reserves are adequate for all years
subject to examination.

ASC 740-10-30-5 requires that a valuation allowance be established when it is more likely than not that
all or a portion of a deferred tax asset will not be realized. In making this assessment, management considers
the level of historical taxable income, scheduled reversal of deferred tax liabilities, tax planning strategies, and
projected future taxable income. The valuation allowance of $152,099 relates to the deferred tax asset for

NOLs, $98,899 of which is U.S. Federal and state, and $17,798 of which is foreign, that management has
determined will more likely than not expire prior to realization, and $35,402 which relates to deferred tax
assets on U.S. and foreign temporary differences that management estimates will not be realized due to the
Company’s U.S. and foreign tax losses.

The following table shows a reconciliation of the beginning and ending amounts of unrecognized tax

beneﬁts, exclusive of interest and penalties (in thousands):

Balance at January 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to the current year . . . . . . . . . . . . . . . . . .
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency Translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5,884
720
906
(590)
(34)
(588)
216
$6,514

The Company had $8,528 and $7,509 of unrecognized tax beneﬁts, including interest and penalties, at

December 31, 2009 and 2008, respectively, which if recognized, would affect its effective tax rate. These
unrecognized tax beneﬁts are related to tax positions in jurisdictions in which the Company does not have tax
losses to offset the tax liability with respect to the uncertain tax positions. During 2009, the income tax audits
and examinations noted above remained pending. On the basis of the information available in this regard as of
December 31, 2009, it is reasonably possible that a reduction in the range of $800 to $3,800 of unrecognized
tax beneﬁts may occur in 2010 as a result of projected resolutions of global tax examinations and
controversies or by lapsing statutes of limitations.

Earnings from the Company’s global operations are subject to tax in various jurisdictions both within and

outside the United States. The Company provides tax reserves for U.S. Federal, state, local and international
unrecognized tax beneﬁts for all periods subject to audit. The development of reserves for these exposures
requires judgments about tax issues, potential outcomes and timing, and is a subjective critical estimate. The
Company assesses its tax positions and records tax beneﬁts for all years subject to examination based upon
management’s evaluation of the facts, circumstances, and information available at the reporting dates. For
those tax positions where it is more-likely-than-not that a tax beneﬁt will be sustained, the Company has
recorded the largest amount of tax beneﬁt with a greater than 50% likelihood of being realized upon
settlement with a tax authority that has full knowledge of all relevant information. For those tax positions
where it is not more-likely-than-not that a tax beneﬁt will be sustained, no tax beneﬁt has been recognized in
the ﬁnancial statements. Where applicable, associated interest and penalties have also been recognized.
Although the outcome related to these exposures is uncertain, in management’s opinion, adequate provisions
for income taxes have been made for estimable potential liabilities emanating from these exposures. In certain
circumstances, the ultimate outcome for exposures and risks involve signiﬁcant uncertainties which render
them inestimable. If actual outcomes differ materially from these estimates, including those that cannot be
quantiﬁed, they could have material impact on the Company’s results of operations.

The Company recognizes interest accrued and penalties related to unrecognized tax beneﬁts in tax
expense. The Company recognized an expense of approximately $320 and net beneﬁts of $201 (consisting of
expense of $483 and beneﬁt of $684 primarily for the lapse of various states’ statutes of limitations) in
interest and penalties for 2009 and 2008, respectively. At December 31, 2009 and 2008, the Company had
accrued approximately $2,014 and $1,625 for the payment of interest and penalties, respectively which if
recognized in the future, would affect the annual effective income tax rate as of December 31, 2009 and 2008.

The effective tax rate differs from the U.S. Federal statutory rate of 35% due to the inability to recognize

tax beneﬁts on net U.S. losses, state taxes, non-deductible expenses such as certain acquisition related
payments, variations from the U.S. tax rate in foreign jurisdictions and taxes on repatriations of foreign
proﬁts. The following is a reconciliation of the effective tax rate from continuing operations for the years
ended December 31, 2009, 2008 and 2007 to the U.S. Federal statutory rate of 35%:

(Beneﬁt from) provision for continuing operations at

Federal statutory rate . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of Federal income tax effect . . .
Change in valuation allowance . . . . . . . . . . . . . . . . .
Non-deductible goodwill impairment charges . . . . . . . .
Taxes related to foreign income . . . . . . . . . . . . . . . . .
Nondeductible expenses and others . . . . . . . . . . . . . .
(Beneﬁt from) provision for income tax . . . . . . . . . . .

Year Ended December 31,
2008

2007

2009

$(17,046)
75
8,060
600
1,004
1,557
$ (5,750)

$(23,244)
(767)
16,990
9,338
(40)
4,404
$ 6,681

$ 8,067
1,360
5,611
—
1,010
1,471
$17,519

Federal income and foreign withholding taxes have not been provided on the undistributed earnings of

foreign subsidiaries at December 31, 2009. The Company intends to reinvest these earnings in its foreign
operations indeﬁnitely, except where it is able to repatriate these earnings to the United States without a
material incremental tax provision. The determination and estimation of the future income tax consequences in
all relevant taxing jurisdictions involves the application of highly complex tax laws in the countries involved,
particularly in the United States, and is based on the tax proﬁle of the Company in the year of earnings
repatriation. Accordingly, it is not practicable to determine the amount of tax associated with such
undistributed earnings.

The Company had a net current income tax payable of $241 and a net current income tax receivable of

$1,824 at December 31, 2009 and 2008, respectively.

12. Commitments and Contingencies

Leases

The Company leases facilities and equipment under operating leases that expire at various dates through
2027. Some of the operating leases provide for increasing rents over the term of the lease, total rent expense
under these leases is recognized ratably over the lease terms. As of December 31, 2009, future minimum lease
commitments under non-cancelable operating leases, which will be expensed as Direct costs (for contractor
project space) and Office and general expenses, were as follows:

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 30,667
24,306
19,670
16,138
14,055
50,228
$155,064

Rent and related expenses for operating leases of facilities and equipment recorded under the caption
‘‘Office and general’’ in the accompanying Consolidated Statements of Operations were $21,397, $26,024, and
$27,154 for the years ended December 31, 2009, 2008, and 2007, respectively. Commitments based in
currencies other than U.S. dollars were translated using exchange rates as of December 31, 2009. The
Company is the guarantor of two assigned leases for two former Hudson offices in the U.K. and Australia.
The guarantee under the Australia office lease is covered by a letter of credit issued under our credit facility in
the amount of approximately $323 issued under our Credit Agreement. The Company’s commitment of
guarantee for the Australia location ends on August 31, 2010. The guarantee for the U.K. location is for an
assigned lease with approximately $1,076 of annual rent. The Company’s commitment of guarantee for the
U.K. location ends on April 29, 2023.

The Company has certain asset retirement obligations that are primarily the result of legal obligations for

the removal of leasehold improvements and restoration of premises to their original condition upon
termination of leases. As of December 31, 2009 and 2008, $2,935 and $2,585, respectively, of asset retirement
obligations were included in the Consolidated Balance Sheets, of which $2,935 and $1,033, respectively, were
included under the caption other non-current liabilities.

Consulting, Employment and Non-Compete Agreements

The Company has entered into various consulting, employment and non-compete agreements with certain

key management personnel and former owners of acquired businesses. Agreements with key members of
management are generally one year in length, on an at-will basis, provide for compensation and severance
payments under certain circumstances and are automatically renewed annually unless either party gives
sufficient notice of termination. Agreements with certain consultants and former owners of acquired businesses
are generally two to ﬁve years in length.

Litigation

The Company is subject, from time to time, to various claims, lawsuits, and other complaints from, for

example, clients, candidates, suppliers, landlords, 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.

Other

On May 13, 2009, the Company received a ‘‘Wells Notice’’ from the SEC. For further information refer

to Item 3 ‘‘Legal Proceedings’’.

13. Related Party Transactions

After the Distribution Date, the Company was no longer included in Monster’s consolidated group for
United States federal income tax purposes. The Company and Monster entered into a tax separation agreement
to reﬂect the Company’s separation from Monster with respect to tax matters. The primary purpose of the tax
separation agreement is to reﬂect each party’s rights and obligations relating to payments and refunds of taxes
that are attributable to periods before and including the Distribution date and any taxes resulting from
transactions in connection with the Distribution. The Company has agreed to indemnify Monster for any tax
liability attributable to the Distribution resulting from any action taken by the Company.

14. Financial Instruments

Credit Agreements

The Company has a primary credit facility, as amended (the ‘‘Credit Agreement’’), with Wells Fargo

Foothill, Inc. and another lender that provides the Company with the ability to borrow up to $75,000,
including the issuance of letters of credit. The Company’s available borrowings under the Credit Agreement
are based on an agreed percentage of eligible accounts receivable less required reserves, principally related to
the Company’s North America, the U.K. and Australia operations, as deﬁned in the Credit Agreement. As of
December 31, 2009, the Company’s borrowing base was $42,163 and we are required to maintain a minimum
borrowing base of $25,000. As of December 31, 2009, the Company had $10,456 of outstanding borrowings
under the Credit Agreement and a total of $4,606 of outstanding letters of credit issued under the Credit
Agreement, resulting in the Company being able to borrow up to an additional $2,101 after deducting the
minimum borrowing base.

The maturity date of the Credit Agreement is July 31, 2012. Borrowings may be made with an interest

The Credit Agreement contains various restrictions and covenants, including those that (1) prohibit
payments of dividends; (2) limit the Company’s capital expenditures to $9,000 in 2009 and $11,000 per year
thereafter; (3) restrict the ability of the Company to make additional borrowings, or to consolidate, merge or
otherwise fundamentally change the ownership of the Company; (4) limit dispositions of assets to permitted
dispositions in the aggregate not to exceed $15,000 per year; (5) limit guarantees of indebtedness; (6) prohibit
the Company from making stock repurchases after February 28, 2009; and (7) limit the amount of permitted
acquisitions to $10,000 per year. The Company was in compliance with all ﬁnancial covenants under the
Credit Agreement as of December 31, 2009.

The Company has entered into lending arrangements with local banks through its subsidiaries in Europe

and Asia. In Europe, the subsidiaries can borrow up to $7,066 based on an agreed percentage of accounts
receivable related to their operations. The lending arrangements will expire in 2011. In Asia, our subsidiary
can borrow up to $1,000 for working capital purposes. The lending arrangement expires annually each
September but can be renewed for one year period at that time. As of December 31, 2009, there were no
outstanding borrowings under these lending arrangements.

The Company expects to continue to use the aforementioned credit, if and when required, to support its

ongoing working capital requirements, capital expenditures and other corporate purposes and to support letters
of credit. Letters of credit are used to support office leases and certain ﬁnancial obligations.

Shelf Registration Statement Filing

The Company has on ﬁle with the SEC a shelf registration that enables the issuance of up to 1,350,000

shares of its common stock from time to time in connection with the acquisition of businesses, assets or
securities of other companies, whether by purchase, merger or any other form of acquisition or business
combination. If any shares are issued using this shelf registration, the Company will not receive any proceeds
from these offerings other than the assets, businesses or securities acquired. As of December 31, 2009, all of
the 1,350,000 shares were still available.

In December 2009, the Company ﬁled a shelf registration with the SEC to enable it to issue up to
$30,000 equivalent of securities or combinations of the securities. The type of securities permitted for offering
under the shelf registration are debt securities, common stock, preferred stock, warrants, stock purchase
contracts and stock purchase units.

15. Stockholder Rights Plan

On February 2, 2005, the Board of Directors of the Company declared a dividend of one preferred share
purchase right (a ‘‘Right’’) for each outstanding share of common stock of the Company. The dividend was paid
upon the close of business on February 28, 2005 to the stockholders of record on that date. Each Right entitles
the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $.001 (‘‘Preferred Shares’’), of the Company, at a price of $60 per one
one-hundredth of a Preferred Share, subject to adjustment. If any person becomes a 15% or more stockholder of
the Company, then each Right (subject to certain limitations) will entitle its holder to purchase, at the Right’s
then current exercise price, a number of shares of common stock of the Company or of the acquirer having a
market value at the time of twice the Right’s per share exercise price. The Company’s Board of Directors may
redeem the Rights for $.001 per Right at any time prior to the time when the Rights become exercisable. Unless
the Rights are redeemed, exchanged or terminated earlier, they will expire on February 28, 2015.

16. Segment and Geographic Data

The Company operates in three reportable segments: the Hudson regional businesses of Hudson

Americas, Hudson Europe and Hudson Asia Paciﬁc.

Segment information is presented in accordance with ASC 280,‘‘Segments Reporting’’. This standard is

based on a management approach that requires segmentation based upon the Company’s internal organization
and disclosure of revenue, certain expenses and operating income based upon internal accounting methods.
The Company’s ﬁnancial reporting systems present various data for management to run the business, including
internal proﬁt and loss statements prepared on a basis not consistent with generally accepted accounting
principles. Accounts receivable, net and long-lived assets are the only signiﬁcant assets separated by segment
for internal reporting purposes.

Year Ended December 31, 2009
Revenue. . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . .
Business reorganization and integration

expenses. . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other impairment charges . . .
EBITDA (loss)(a) . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . .
Interest income (expense), net . . . . . . . . . .
(Loss) income from continuing operations

Hudson
Americas

Hudson
Europe

Hudson
Asia Paciﬁc

Corporate

Total

$161,872
$ 40,959

$276,975
$124,162

$252,302
$ 95,332

$
$

— $691,149
— $260,453

5,133
$
(120)
$
$ (9,673)
4,417
13

$
— $
$

9,682

$
$
$ (8,763)
4,553
49

3,228
1,669
(39)
3,392
236

137

$
$
$(16,991)
181
(992)

— $

$ 18,180
1,549
$ (35,466)
12,543
(694)

before income taxes . . . . . . . . . . . . . . .

$ (14,077)

$ (13,267)

$ (3,195)

$(18,164)

$ (48,703)

Provision for (beneﬁt from) provision for

income taxes . . . . . . . . . . . . . . . . . . . .

$ (2,931)

$ (2,690)

(129)

As of December 31, 2009
Accounts receivable, net. . . . . . . . . . . . . .
Long-lived assets, net of accumulated

$ 20,433

$ 46,834

$ 31,727

— $ (5,750)

— $ 98,994

depreciation and amortization . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . .

$
2,956
$ 28,509

$
7,346
$ 79,222

$
7,496
$ 57,437

$ 2,138
$ 16,776

$ 19,936
$181,944

Year Ended December 31, 2008
Revenue. . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . .
Business reorganization and integration

before income taxes . . . . . . . . . . . . . . .
(Beneﬁt from) provision for income taxes . .
As of December 31, 2008
Accounts receivable, net. . . . . . . . . . . . . .
Long-lived assets, net of accumulated

Hudson
Americas

Hudson
Europe

Hudson
Asia Paciﬁc

Corporate

Total

$273,648
$ 75,016

$415,871
$212,603

$389,566
$167,367

$
$

— $1,079,085
— $ 454,986

3,062
$
$ 40,749
$ (39,867)
4,630
458

2,863
$
$ 19,598
3,329
$
5,781
333

4,295
$
$
6,740
$ 13,082
4,027
867

$ (44,039)
(332)
$

$ (2,119)
4,401
$

$
$

9,922
2,612

$
— $

997

$
$
$(29,396)
224
(559)

11,217
67,087
$ (52,852)
14,662
1,099

$(30,179)
$

— $

$ (66,415)
6,681

$ 30,947

$ 63,955

$ 32,267

— $ 127,169

depreciation and amortization . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . .

$
6,912
$ 42,176

$ 10,323
$ 99,673

$
6,579
$ 60,047

$ 3,063
$ 29,057

$
26,877
$ 230,953

Year Ended December 31, 2007
Revenue . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . .
Business reorganization and integration

expenses . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related expenses. . . . . . . . . . .
EBITDA (loss)(a)
. . . . . . . . . . . . . . . . . .
Depreciation and amortization. . . . . . . . . .
Interest (expense) income, net. . . . . . . . . .
(Loss) income from continuing operations

before income taxes . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . .
As of December 31, 2007
Accounts receivable, net . . . . . . . . . . . . .
Long-lived assets, net of accumulated

Hudson
Americas

Hudson
Europe

Hudson
Asia Paciﬁc

Corporate

Total

$291,525
$ 87,494

$469,454
$233,980

$409,082
$174,966

$
$

— $1,170,061
— $ 496,440

491
$
$
3,551
$ (4,220)
4,354
(23)

2,438
$
$
1,748
$ 33,628
6,043
361

$
(15)
— $

$
$
$ 34,571
3,706
819

$(27,184)
274
(528)

$
661
— $
$

3,575
5,299
36,795
14,377
629

$ (8,597)
$ 2,692

$ 27,946
8,128
$

$ 31,684
6,699
$

$(27,986)
$

$
— $

23,047
17,519

$ 45,454

$ 88,157

$ 52,519

— $ 186,130

depreciation and amortization . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . .

$ 53,461
$113,295

$ 37,152
$149,965

$ 13,603
$ 94,527

$ 3,319
$ 16,419

$ 107,535
$ 374,206

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

United
States

United
Kingdom

Continental
Europe

Other
Asia

Australia

Information by Geographic Region
Year Ended December 31, 2009
Revenue(b). . . . . . . . . . . . . . . . . . . . . . . . . $160,281 $194,976 $164,947 $112,028 $ 57,326
Year Ended December 31, 2008
Revenue(b). . . . . . . . . . . . . . . . . . . . . . . . . $270,139 $287,059 $255,902 $159,969 $102,507
Year Ended December 31, 2007
Revenue(b). . . . . . . . . . . . . . . . . . . . . . . . . $286,925 $297,659 $329,374 $140,080 $111,423
As of December 31, 2009
Long-lived assets, net of accumulated

Other
Americas

Total

$ 1,591

$ 691,149

$ 3,509

$1,079,085

$ 4,600

$1,170,061

depreciation and amortization(c) . . . . . . . . . $ 5,094 $

Net assets (deﬁcits). . . . . . . . . . . . . . . . . . . $
As of December 31, 2008
Long-lived assets, net of accumulated

3,127 $
9,457 $ 17,184 $ 24,458 $ 17,603 $

5,398 $

4,219 $

2,098
7,461

$ — $
$
97
$

19,936
76,260

depreciation and amortization(c) . . . . . . . . . $ 9,940 $

2,899
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,435 $ 13,736 $ 30,552 $ 19,112 $ 13,149
As of December 31, 2007
Long-lived assets, net of accumulated

5,454 $

3,680 $

4,869 $

depreciation and amortization(c) . . . . . . . . . $ 56,757 $

8,393
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 83,287 $ 24,338 $ 42,645 $ 28,282 $ 22,640

5,412 $ 31,740 $

5,210 $

$
35
$ 1,008

$
26,877
$ 107,992

$
$ 107,534
$(1,077) $ 200,115

(b) Revenue is generally recorded on a geographic basis according to the location of the operating subsidiary.
(c) Comprised of property and equipment and intangibles. Corporate assets are included in the United States.

17. Selected Quarterly Financial Data (Unaudited)

Year ended December 31, 2009(c):
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations(b). . . . . . . . . . . . . . . .
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic loss per share from continuing operations. . . . . . .
Basic earnings (loss) per share from discontinued

operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic loss per share . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted loss per share from continuing operations(d) . . . .
Diluted earnings (loss) per share from discontinued

operations(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings (loss) per share . . . . . . . . . . . . . . . . .
Basic weighted average shares outstanding . . . . . . . . . .
Diluted weighted average shares outstanding. . . . . . . . .

Year ended December 31, 2008(c):
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings (loss) per share from continuing

operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Basic earnings (loss) per share from discontinued

operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings (loss) per share . . . . . . . . . . . . . . . . . .
Diluted earnings (loss) per share from continuing

operations(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted earnings (loss) per share from discontinued

First
Quarter

Second
Quarter(a)

Third
Quarter

Fourth
Quarter(b)

$165,150
$ 62,004
$ (19,325)
$ (14,834)
$ (5,559)
(0.59)
$

$
$
$

$
$

0.37
(0.22)
(0.59)

0.37
(0.22)
25,171
25,171

$173,848
$ 64,884
$ (12,396)
$ (15,499)
$ (17,771)
(0.59)
$

$
$
$

$
$

(0.09)
(0.68)
(0.59)

(0.09)
(0.68)
26,311
26,311

$169,647
$ 64,190
$ (8,841)
$ (7,623)
$ (6,853)
(0.29)
$

$
$
$

$
$

0.03
(0.26)
(0.29)

0.03
(0.26)
26,320
26,320

$182,504
$ 69,375
$ (8,891)
$ (4,997)
$ (10,426)
(0.19)
$

$
$
$

$
$

(0.21)
(0.40)
(0.19)

(0.21)
(0.40)
26,329
26,329

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter(a)

$294,967
$123,177
$ 1,765
604
$
1,365
$

$305,349
$134,403
6,840
$
$ 1,858
4,956
$

$
$

0.02

0.03
0.05

0.02

0.03
0.05
25,500
25,887

$
$

0.07

0.13
0.20

0.07

0.12
0.19
24,984
25,512

$271,248
$112,695
(115)
$
361
$
(309)
$

$
$

0.01

(0.02)
(0.01)

0.01

(0.02)
(0.01)
25,245
25,630

$207,521
$ 84,711
$ (79,273)
$ (75,919)
$ (80,330)

$
$

(3.02)

(0.18)
(3.20)

(3.02)

(0.18)
(3.20)
25,100
25,100

(a) The second quarter of 2009 results included impairment charges related to goodwill of $1,669. The

fourth quarter of 2008 results included impairment charges related to goodwill of $64,495, intangible
assets of $368 and a write-down of long-term assets of $2,224.

(b) The loss from continuing operations for the quarter ended December 31, 2009 includes an income tax

beneﬁt of $4,000 with an offsetting provision for income taxes in income from discontinued operations.
The income tax beneﬁt was related to the $11,625 ﬁnal earn-out payment received in April 2009 in
connection with the sale of Highland Partners in 2006. The earn-out payment was recorded as a gain
from sale of discontinued operations in the quarter ended March 31, 2009. The incremental tax beneﬁt/
provision should have been recorded in that quarter but at that time it was recorded at nil for both the
loss from continuing operations and discontinued operations as a result of the Company’s NOL. The

amounts recorded in the fourth quarter adjusted the tax allocation used in the ﬁrst quarter with no
resulting impact to net loss in either period. The Company does not believe the adjustment is material to
either period.

(c) The reported quarterly numbers for the quarter ended March 31, 2009 have been restated to reﬂect the
effect of the discontinued operations of Italy operations in 2009 as described in Note 3 ‘‘Discontinued
Operations’’. The reported quarterly numbers for the year ended December 31, 2008 have been restated
to reﬂect the effect of the discontinued operations of Italy and Japan in 2009 as described in Note 3
‘‘Discontinued Operations’’.

(d) Diluted earnings (loss) per share reﬂect the potential dilution from the assumed exercise of all dilutive

potential common shares, primarily stock options. For the third and fourth quarters of 2008, and the ﬁrst,
second, third and fourth quarters of 2009, the effect of approximately 1,621,000, 2,286,000, 2,492,000,
2,277,000, 2,233,000 and 2,350,000, respectively, of outstanding stock options and other common stock
equivalents was excluded from the calculation of diluted earnings (loss) per share because the effect was
anti-dilutive.

Earnings (loss) per share calculations for each quarter include the weighted average effect for the quarter;

therefore, the sum of quarterly loss per share amounts may not equal year-to-date earnings (loss) per share
amounts, which reﬂect the weighted average effect on a year-to-date basis.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chairman and Chief Executive
Officer and its Executive Vice President and Chief Financial Officer, has conducted an evaluation of the design
and operation of the Company’s disclosure controls and procedures, as such term is deﬁned under
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the
Company’s Chairman and Chief Executive Officer and its Executive Vice President and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2009.

Management’s Annual Report on Internal Control Over Financial Reporting

The report of management required under this Item 9A is contained in Item 8 of this Annual Report on
Form 10-K under the caption ‘‘Management’s Annual Report on Internal Control Over Financial Reporting’’
on page 44.

Report of Independent Registered Public Accounting Firm

The attestation report required under this Item 9A is contained in Item 8 of this Annual Report on
Form 10-K under the caption ‘‘Report of Independent Registered Public Accounting Firm’’ on page 45.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over ﬁnancial reporting that occurred during

the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over ﬁnancial reporting.

Item 9B. Other Information

Not applicable.

Item 10. Directors, Executive Officers and Corporate Governance

PART III

The information included under the captions ‘‘Election of Directors,’’ ‘‘Board of Directors and Corporate

Governance’’ and ‘‘Section 16(a) Beneﬁcial Ownership Reporting Compliance’’ in the Company’s deﬁnitive
proxy statement, which is expected to be ﬁled pursuant to Regulation 14A within 120 days following the end
of the ﬁscal year covered by this report (the ‘‘Proxy Statement’’), is hereby incorporated by reference. The
information required by Item 10 with respect to our Executive Officers is included in Part I of this Annual
Report on Form 10-K.

We have adopted a Code of Business Conduct and Ethics that applies to all of our employees and a Code
of Ethics for the Chief Executive Officer and the Senior Financial and Accounting Officers. We have posted a
copy of the Code of Business Conduct and Ethics and the Code of Ethics on our Web site at www.hudson.com.
The Code of Business Conduct and Ethics and the Code of Ethics are also available in print to any stockholder
who requests them in writing from the Corporate Secretary at 560 Lexington Avenue, 5th Floor, New York,
New York 10022. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding
amendments to, or waivers from, our Code of Ethics by posting such information on our Web site at
www.hudson.com. We are not including the information contained on our Web site as part of, or incorporating it
by reference into, this report.

Item 11. Executive Compensation

The information required in Item 11 is incorporated by reference to the information in the Proxy

Statement under the captions ‘‘Director Compensation’’, ‘‘Compensation Discussion and Analysis’’,
‘‘Compensation Committee Report’’ and ‘‘Executive Compensation.’’

Item 12. Security Ownership of Certain Beneﬁcial Owners and Management

The information required in Item 12 is incorporated by reference to the information in the Proxy

Statement under the caption ‘‘Principal Stockholders.’’

Equity Compensation Plan Information

The following table presents information on the Company’s equity compensation plans as of

December 31, 2009.

Number of Shares
to Be Issued Upon
Exercise of
Outstanding
Options

Weighted
Average
Exercise
Price of
Outstanding
Options

Number of
Shares Remaining
Available for Future Issuance
Under Equity Compensation Plans
(Excluding Shares Reﬂected in
Column A)

Equity Compensation Plans approved by

stockholders:
Long Term Incentive Plan . . . . . . . . . . . . .
2009 Incentive Stock and Awards Plan . . . .
Employee Stock Purchase Plan . . . . . . . . .

Equity Compensation Plans not approved by

stockholders: . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,763,250
—
—

—
1,763,250

$12.79
—
—

—
$12.79

—

1,416,018(1)
116,329

—
1,532,347

(1) Excludes 587,123 shares of restricted common stock previously issued under the Hudson Highland

Group, Inc. Long Term Incentive Plan and 2009 Incentive Stock and Awards Plan.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required in Item 13 is incorporated by reference to the information in the Proxy
Statement under the caption ‘‘Board of Directors and Corporate Governance — Independent Directors’’ and
‘‘Board of Directors and Corporate Governance — Policies and Procedures Regarding Related Person
Transactions.’’

Item 14. Principal Accounting Fees and Services

The information required in Item 14 is incorporated by reference to the information in the Proxy

Statement under the section ‘‘Ratiﬁcation of the Appointment of KPMG LLP as Independent Registered Public
Accounting Firm.’’

Item 15. Exhibits, Financial Statements Schedules

PART IV

(a)

(1) Financial statements — The following ﬁnancial statements and the reports of independent registered

public accounting ﬁrms are contained in Item 8.

Page

Reports of Independent Registered Public Accounting Firms . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008

and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheets as of December 31, 2009 and 2008 . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008

and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended

December 31, 2009, 2008 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) Financial statement schedules

Schedule II — Valuation and qualifying accounts and reserves.

All other schedules are omitted since the required information is not present, or is not present
in amounts sufficient to require submission of the schedule, or because the information
required is included in the consolidated ﬁnancial statements and the notes thereto.

(3) Exhibits — The exhibits listed in the accompanying index to exhibits are ﬁled as part of this

Annual Report on Form 10-K.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
Hudson Highland Group, Inc.
New York, New York

The audit referred to in our report dated March 6, 2008, except for Note 3 as to which the date is
December 9, 2009 and Note 2 — Revenue Recognition as to which the date is February 17, 2010, relating to
the 2007 consolidated ﬁnancial statements of Hudson Highland Group, Inc. which is contained in Item 8 of
this Form 10-K also included the audit of the 2007 consolidated ﬁnancial statement schedule listed in the
accompanying index. This consolidated ﬁnancial statement schedule is the responsibility of the Company’s
management. Our responsibility is to express an opinion on the consolidated ﬁnancial statement schedule
based on our audit.

In our opinion the consolidated ﬁnancial statement schedule, when considered in relation to the basic
consolidated ﬁnancial statements taken as a whole, presents fairly, in all material respects, the information set
forth therein.

/s/ BDO Seidman, LLP
BDO Seidman, LLP

New York, New York
February 23, 2010

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)

Column A

Column B

Column C Additions

Column D

Column E

Descriptions
Allowance for Doubtful Accounts(a)

Balance at
Beginning
of Period

Charged to
Costs/Expenses
(Recoveries)

Charged to
Other
Accounts

Deductions

Year Ended December 31, 2007 . . . .
Year Ended December 31, 2008 . . . .
Year Ended December 31, 2009 . . . .

$6,748
$4,897
$3,521

(88)
(213)
(255)

(310)
115
(38)

1,453
1,278
806

Balance at
End
of Period

$4,897
$3,521
$2,422

(a)

Included in the balances presented here are the allowances for doubtful accounts for the Company’s
discontinued operations. The sale and subsequent reduction to the account balance is in column C
charged to other accounts as a deletion.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the

Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized,
on this twenty-third day of February 2010.

SIGNATURES

HUDSON HIGHLAND GROUP, INC.

By /s/ Jon F. Chait
Jon F. Chait
Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below

by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ Jon F. Chait
Jon F. Chait

Chairman and Chief Executive Officer and
Director (Principal Executive Officer)

/s/ Mary Jane Raymond
Mary Jane Raymond

Executive Vice President and Chief Financial
Officer (Principal Financial Officer)

/s/ Frank P. Lanuto
Frank P. Lanuto

/s/ Robert B. Dubner
Robert B. Dubner

/s/ John J. Haley
John J. Haley

/s/ Jennifer Laing
Jennifer Laing

/s/ David G. Offensend
David G. Offensend

/s/ Richard J. Stolz
Richard J. Stolz

Senior Vice President, Corporate Controller
(Principal Accounting Officer)

Director

February 23, 2010

Exhibit
Number

(3.1)

(3.2)

(3.3)

(4.1)

(4.2)

(4.3)

(10.1)*

(10.2)*

(10.3)*

(10.4)*

(10.5)*

(10.6)*

(10.7)*

EXHIBIT INDEX

Exhibit Description

Amended and Restated Certiﬁcate of Incorporation of Hudson Highland Group, Inc.
(incorporated by reference to Exhibit 3.1 to Hudson Highland Group, Inc.’s Registration
Statement on Form 10 ﬁled March 14, 2003 (ﬁle No. 0-50129)).

Certiﬁcate of Designations of the Board of Directors Establishing the Series and Fixing the
Relative Rights and Preferences of Series A Junior Participating Preferred Stock (incorporated
by reference to Exhibit 3.1 to Hudson Highland Group, Inc.’s Current Report on Form 8-K
dated February 2, 2005 (ﬁle No. 0-50129)).

Amended and Restated By-laws of Hudson Highland Group, Inc. (incorporated by reference to
Exhibit 3.1 to Hudson Highland Group, Inc.’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004 (ﬁle No. 0-50129)).

Amended and Restated Credit Agreement, dated as of July 31, 2007, by and among Hudson
Highland Group, Inc. and each of its subsidiaries that are signatories thereto, as Borrowers, the
lenders that are signatories thereto, as the Lenders, and Wells Fargo Foothill, Inc., as the
Arranger and Administrative Agent (incorporated by reference to Exhibit 4.1 to Hudson
Highland Group, Inc.’s Current Report on Form 8-K dated July 31, 2007 (ﬁle No. 0-50129)).
Amendment No. 2 to Amended and Restated Credit Agreement, dated as of December 30,
2008, by and among Hudson Highland Group, Inc. and each of its subsidiaries that are
signatories thereto, as Borrowers, the lenders that are signatories thereto, as the Lenders, and
Wells Fargo Foothill, Inc., as the Arranger and Administrative Agent (incorporated by reference
to Exhibit 4.1 to Hudson Highland Group, Inc.’s Current Report on Form 8-K dated January 2,
2009 (ﬁle No. 0-50129)).
Rights Agreement, dated as of February 2, 2005, between Hudson Highland Group, Inc. and
The Bank of New York (incorporated by reference to Exhibit 4.1 to the Registration Statement
on Form 8-A of Hudson Highland Group, Inc. dated February 3, 2005 (ﬁle No. 0-50129)).
Hudson Highland Group, Inc. Long Term Incentive Plan, as amended through October 29,
2007 (incorporated by reference to Exhibit 10.1 to Hudson Highland Group, Inc.’s Annual
Report on Form 10-K for the year ended December 31, 2007 (ﬁle No. 0-50129)).
Form of Hudson Highland Group, Inc. Long Term Incentive Plan Restricted Stock Award
Agreement (incorporated by reference to Exhibit 10.1 to Hudson Highland Group, Inc.’s
Current Report on Form 8-K dated May 1, 2007 (ﬁle No. 0-50129)).
Form of Hudson Highland Group, Inc. Long Term Incentive Plan Restricted Stock Award
Agreement for share price vesting awards (incorporated by reference to Exhibit 10.2 to Hudson
Highland Group, Inc.’s Current Report on Form 8-K dated February 9, 2009 (ﬁle No.
0-50129)).
Form of Hudson Highland Group, Inc. Long Term Incentive Plan Stock Option Agreement
(Employees) (incorporated by reference to Exhibit 10.4 to Hudson Highland Group, Inc.’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (ﬁle No. 0-50129)).

Form of Hudson Highland Group, Inc. Long Term Incentive Plan Stock Option Agreement
(Directors) (incorporated by reference to Exhibit 10.1 to Hudson Highland Group, Inc. Current
Report on Form 8-K dated May 11, 2006 (File No. 0-50129)).

Form of Hudson Highland Group, Inc. Long Term Incentive Plan Stock Option Agreement
applicable to Jon F. Chait (incorporated by reference to Exhibit 10.1 to Hudson Highland
Group, Inc.’s Current Report on Form 8-K dated July 13, 2007 (ﬁle No. 0-50129)).

Hudson Highland Group, Inc. 2009 Incentive Stock and Awards Plan (incorporated by
reference to Exhibit A to the Company’s deﬁnitive proxy statement ﬁled with the Securities
Exchange Commission on Schedule 14A on April 1, 2009 (ﬁle No. 0-50129)).

Exhibit
Number

(10.8)*

(10.9)*

(10.10)*

(10.11)*

(10.12)*

(10.13)*

(10.14)*

(10.15)*

(10.16)*

(10.17)*

(10.18)*

(10.19)*

(10.20)*

Exhibit Description

Form of Hudson Highland Group, Inc. 2009 Incentive Stock and Awards Plan Stock Option
Agreement (Employees) (incorporated by reference to Exhibit 4.2 to Hudson Highland Group,
Inc.’s Registration Statement on Form S-8 dated August 7, 2009 (ﬁle No. 333-161171)).

Form of Hudson Highland Group, Inc. 2009 Incentive Stock and Awards Plan Stock Option
Agreement (Directors) (incorporated by reference to Exhibit 4.3 to Hudson Highland Group,
Inc.’s Registration Statement on Form S-8 dated August 7, 2009 (ﬁle No. 333-161171)).

Form of Hudson Highland Group, Inc. 2009 Incentive Stock and Awards Plan Stock Option
Agreement applicable to Jon F. Chait (incorporated by reference to Exhibit 4.4 to Hudson
Highland Group, Inc.’s Registration Statement on Form S-8 dated August 7, 2009 (ﬁle
No. 333- 161171)).

Form of Hudson Highland Group, Inc. 2009 Incentive Stock and Awards Plan Restricted Stock
Award Agreement (incorporated by reference to Exhibit 4.6 to Hudson Highland Group, Inc.’s
Registration Statement on Form S-8 dated August 7, 2009 (ﬁle No. 333-161171)).

Executive Excise Tax Gross-Up Agreement, amended and restated effective as of October 29,
2007, between Hudson Highland Group, Inc. and Jon F. Chait (incorporated by reference to
Exhibit 10.4 to Hudson Highland Group, Inc.’s Annual Report on Form 10-K for the year
ended December 31, 2007 (ﬁle No. 0-50129)).
Executive Employment Agreement, amended and restated effective as of March 1, 2009,
between Hudson Highland Group, Inc. and Margaretta R. Noonan (incorporated by reference to
Exhibit 10.8 to Hudson Highland Group, Inc.’s Annual Report on Form 10-K for the year
ended December 31, 2008 (ﬁle No. 0-50129)).
Executive Employment Agreement, amended and restated effective as of March 3, 2009,
between Hudson Highland Group, Inc. and Richard S. Gray (incorporated by reference to
Exhibit 10.9 to Hudson Highland Group, Inc.’s Annual Report on Form 10-K for the year
ended December 31, 2008 (ﬁle No. 0-50129)).
Executive Employment Agreement, amended and restated effective as of March 3, 2009,
between Hudson Highland Group, Inc. and Latham Williams (incorporated by reference to
Exhibit 10.10 to Hudson Highland Group, Inc.’s Annual Report on Form 10-K for the year
ended December 31, 2008 (ﬁle No. 0-50129)).
Executive Employment Agreement, amended and restated effective as of March 3, 2009,
between Hudson Highland Group, Inc. and Neil J. Funk (incorporated by reference to Exhibit
10.11 to Hudson Highland Group, Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2008 (ﬁle No. 0-50129)).
Executive Employment Agreement, amended and restated effective as of March 3, 2009,
between Hudson Highland Group, Inc. and Frank P. Lanuto (incorporated by reference to
Exhibit 10.12 to Hudson Highland Group, Inc.’s Annual Report on Form 10-K for the year
ended December 31, 2008 (ﬁle No. 0-50129)).

Executive Employment Agreement, amended and restated effective as of March 3, 2009,
between Hudson Highland Group, Inc. and Mary Jane Raymond (incorporated by reference to
Exhibit 10.13 to Hudson Highland Group, Inc.’s Annual Report on Form 10-K for the year
ended December 31, 2008 (ﬁle No. 0-50129)).

Hudson Highland Group, Inc. Nonqualiﬁed Deferred Compensation Plan (Effective May 1,
2004, as Amended and Restated Effective January 1, 2008) (incorporated by reference to
Exhibit 10.8 to Hudson Highland Group, Inc.’s Annual Report on Form 10-K for the year
ended December 31, 2007 (ﬁle No. 0-50129)).

Summary of Hudson Highland Group, Inc. Compensation for Non-employee Members of the
Board of Directors (incorporated by reference to Exhibit 10.9 to Hudson Highland Group,
Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007 (ﬁle No. 0-50129)).

Exhibit
Number

(10.21)*

(10.22)*

(21)

(23.1)

(23.2)

(31.1)

(31.2)

(32.1)

(32.2)

(99.1)

Exhibit Description

Summary of Hudson Highland Group, Inc. 2009 Incentive Compensation Program
(incorporated by reference to Exhibit 10.1 to Hudson Highland Group, Inc.’s Current Report on
Form 8-K dated February 9, 2009 (ﬁle No. 0-50129)).

Hudson Highland Group, Inc. Director Deferred Share Plan (incorporated by reference to
Exhibit 10.15 to Hudson Highland Group, Inc.’s Annual Report on Form 10-K for the year
ended December 31, 2007 (ﬁle No. 0-50129)).

Subsidiaries of Hudson Highland Group, Inc.

Consent of KPMG LLP.

Consent of BDO Seidman, LLP.

Certiﬁcation by Chairman and Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act.

Certiﬁcation by the Executive Vice President and Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act.

Certiﬁcation of the Chairman and Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

Certiﬁcation of the Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350.
Proxy Statement for the 2009 Annual Meeting of Stockholders [To be ﬁled with the Securities
and Exchange Commission under Regulation 14A within 120 days after December 31, 2009;
except to the extent speciﬁcally incorporated by reference, the Proxy Statement for the 2010
Annual Meeting of Stockholders shall not be deemed to be ﬁled with the Securities and
Exchange Commission as part of this Annual Report on Form 10-K.]

A management contract or compensatory plan or arrangement.

Exhibit 31.1

I, Jon F. Chait, certify that:

CERTIFICATIONS

I have reviewed this annual report on Form 10-K of Hudson Highland Group, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing
the equivalent function):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.

Dated: February 23, 2010

/s/ JON F. CHAIT
Jon F. Chait
Chairman and Chief Executive Officer

Exhibit 31.2

I, Mary Jane Raymond, certify that:

CERTIFICATIONS

I have reviewed this annual report on Form 10-K of Hudson Highland Group, Inc.;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.

Dated: February 23, 2010

/s/ MARY JANE RAYMOND
Mary Jane Raymond
Executive Vice President and Chief Financial Officer

Written Statement of the Chairman and Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1

Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Chairman of the Board and Chief
Executive Officer of Hudson Highland Group, Inc. (the “Company”), hereby certify, based on my knowledge, that the Annual Report
on Form 10-K of the Company for the year ended December 31, 2009 (the “Report”) fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

/s/ JON F. CHAIT
Jon F. Chait

February 23, 2010

Written Statement of the Executive Vice President and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2

Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Executive Vice President and Chief

Financial Officer of Hudson Highland Group, Inc. (the “Company”), hereby certify, based on my knowledge, that the Annual Report
on Form 10-K of the Company for the year ended December 31, 2009 (the “Report”) fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

/s/ MARY JANE RAYMOND
Mary Jane Raymond

February 23, 2010