Heidrick & Struggles Reports 2002 First Quarter Financial Results
Initial View on 2002 Second Quarter Also Provided
CHICAGO, May 1 /PRNewswire-FirstCall/ -- Heidrick & Struggles International, Inc. (Nasdaq: HSII), the world's premier executive search and leadership consulting firm, today announced its financial results for the 2002 first quarter. On a U.S. GAAP basis, Heidrick & Struggles reported a loss per share of $0.98, compared to diluted earnings per share of $0.45 in the 2001 first quarter. The net loss was $17.7 million, compared to net income of $9.3 million in last year's first quarter. Consolidated revenue was $91.7 million, a decrease of 34 percent from $139.3 million in the comparable quarter of 2001. Excluding the impact of foreign currency translation into the U.S. dollar, revenue decreased 32 percent. On an adjusted basis, the loss per share was $0.15 in the 2002 first quarter compared to diluted earnings per share of $0.28 in last year's same period. The adjusted net loss was $2.8 million, compared to net income of $5.9 million reported in last year's first quarter. Adjusted-basis results in 2002 exclude the special charges and, in both 2002 and 2001, exclude the realized and unrealized gains and losses, and goodwill amortization.
The reconciliation between U.S. GAAP results and adjusted results appears below.
Three Months Ended March 31,
Per Share(A) $Millions
2002 2001 2002 2001
U.S. GAAP Reported Net Income
(Loss) $(0.98) $0.45 $(17.7) $9.3
Add back:
Special Charges 0.83 - 15.1 -
Goodwill Amortization - 0.02 - 0.3
Net Unrealized Loss on
Derivative Instruments - 0.04 - 0.8
Subtract:
Cumulative Effect of Change
in Accounting Principle(B) - (0.22) - (4.5)
Net Realized Gain on
Investments - (0.01) - (0.1)
Net Unrealized Gain on
Derivative Instruments (0.01) - (0.1) -
Adjusted Net Income (Loss) $(0.15) $0.28 $(2.8) $5.9
(A) earnings per share are on a diluted basis
(B) Related to the adoption of SFAS No. 133
Columns may not add due to rounding
Comparing 2002 first quarter performance to the 2001 fourth quarter, consolidated revenue rose approximately 4 percent and the adjusted loss per share improved nearly 50 percent as the company benefited from the actions it has taken since June 2001 to reduce its cost structure.
"It is certainly encouraging to see some improvement in our business in the past three months," said Piers Marmion, Chairman and Chief Executive Officer of Heidrick & Struggles International, Inc. "North America appears to have stabilized and there are noted pockets of new business activity in certain markets outside the U.S. But a general sense of caution continues to permeate the overall business environment."
Consolidated salaries and employee benefits expense in the 2002 first quarter was $68.9 million, down 21 percent from $87.1 million in the comparable quarter last year. The decrease was primarily attributed to lower fixed costs as a result of the elimination of more than 600 people from the company's workforce since last year's first quarter. In addition, the 2001 first quarter reflected certain adjustments to bonus accruals that reduced the salaries and employee benefits line below typical levels.
On January 1, 2002, Heidrick & Struggles adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." As a result of this adoption goodwill is no longer amortized. There were no impairment charges taken in the 2002 first quarter in connection with the adoption of SFAS No. 142.
Consolidated pro forma general and administrative expenses (excluding goodwill amortization in both periods) declined 36 percent to $27.8 million in the 2002 first quarter, compared to $43.8 million in the 2001 first quarter. The decrease was primarily due to lower fixed costs resulting from office consolidations, reduced spending on discretionary items such as marketing, internal meetings and non-client related travel, and lower bad debt expense.
Confirmed executive searches decreased 34 percent from the 2001 first quarter and fees per search declined 4 percent. Compared to the 2001 fourth quarter, confirmed executive searches increased 15 percent. At March 31, 2002, the company employed 414 executive search consultants, compared to 432 as of December 31, 2001, and 546 as of March 31, 2001.
Special Charges
During the 2002 first quarter, Heidrick & Struggles incurred $23.2 million in special charges, representing the completion of the cost reduction plan announced in October 2001. This charge is approximately 15 percent higher than estimates provided to investors in February 2002 and in the company's 2001Form 10-K, as management determined that the ongoing weak economic environment required greater cost reductions than initially anticipated. This charge includes severance and related costs for the reduction of 166 positions, including 51 executive search and management search consultants, and 115 search support and corporate staff. Also included are costs associated with the closing or consolidation of additional offices. The company does not anticipate taking any special charges in the 2002 second quarter.
2002 First Quarter Results by Geographic Region
(Note: As of January 1, 2002, the company operates under one line of business, Executive Search and Related Services, as the Management Search practice, formerly known as LeadersOnline, has been fully integrated into the Executive Search operations. Prior period information has been restated to conform to the 2002 presentation.)
Revenue in North America was $49.8 million, a decrease of 34 percent from $75.3 million in the 2001 first quarter. Almost all of the practices reported lower revenue in the 2002 first quarter compared to the 2001 first quarter. The Management Search practice was particularly weak, although performance improved in the latter part of the quarter. Operating income was $3.0 million, a decrease of 48 percent from $5.8 million in the 2001 first quarter. The operating margin declined to 6.0 percent from 7.7 percent in the 2001 first quarter.
In Latin America, revenue was $2.9 million, a decrease of 33 percent from $4.3 million in the 2001 first quarter. Excluding the impact of foreign currency translation into the U.S. dollar, revenue decreased 23 percent on a local currency basis from the comparable quarter in 2001. There was an operating loss of $353,000 in the 2002 first quarter, compared to an operating loss of $217,000 in the 2001 first quarter.
Revenue in Europe was $33.4 million, a decrease of 35 percent from $51.7 million in the 2001 first quarter. Revenue decreased 32 percent on a local currency basis from the comparable quarter in 2001. All of the practices experienced revenue declines in the 2002 first quarter compared to the 2001 first quarter. There was an operating loss of $957,000 in the 2002 first quarter, compared to operating income of $9.5 million in the comparable quarter last year. The operating loss was lower than the $3.3 million loss in the 2001 fourth quarter, however, as the region began to benefit from previous cost reduction activities.
In Asia Pacific, revenue was $5.6 million, a decrease of 29 percent from $7.9 million in the 2001 first quarter. Excluding the impact of foreign currency translation into the U.S. dollar, revenue decreased 26 percent from the comparable quarter in 2001. Operating income was $659,000 in the 2002 first quarter, compared to $792,000 in the comparable quarter last year.
Consolidated Outlook for the 2002 Second Quarter and Full Year
Currently, the company believes revenue for the 2002 second quarter will be in the range of $85 million to $95 million. At those revenue levels, the company estimates that 2002 second quarter results could range from a loss of $0.03 per share to diluted earnings per share of $0.04.
"It is our view that the recovery in the business environment will be more gradual than many believed earlier this year, which is modestly tempering our expectations," said Marmion. "It is for this reason that we have been more aggressive in reducing our cost structure than we originally thought necessary. We want to make certain our cost structure is appropriate for most economic scenarios, so that we can direct more of our attention to revenue generation and to providing unparalleled service to our clients. We are confident the firm can live with a modest economic recovery and is designed correctly to take advantage of growth opportunities."
Webcast of Investor Call Available
To review its 2002 first quarter financial results, the company will provide a real-time webcast of the related investor call on Thursday, May 2, 2002, at 9:00 a.m. Central Time. The call will last up to one hour and will feature remarks by Piers Marmion, Chairman and Chief Executive Officer, and Kevin Smith, Chief Financial Officer. The webcast will be available online at http://www.heidrick.com/ . Listeners should log on approximately ten minutes in advance to ensure they are set up to receive the webcast. A replay will be available for up to 30 days. The webcast will also be available through CCBN's Investor Distribution Network. Individual investors can listen to the webcast through CCBN's individual investor center at biz.yahoo.com/cc/. Institutional investors can access the webcast via CCBN's password-protected event management site, StreetEvents, at http://www.streetevents.com/ .
About Heidrick & Struggles International, Inc.
Heidrick & Struggles International, Inc. is the world's premier provider of executive-level search and leadership consulting services. Currently, approximately 1,700 Heidrick & Struggles search professionals and employees operate from locations primarily in North America, Latin America, Europe, and Asia Pacific. For nearly 50 years, Heidrick & Struggles Executive Search has specialized in chief executive, board member and senior-level management assignments for a broad spectrum of clients: multi-national corporations, mid- cap and start-up companies, nonprofit entities, educational institutions, foundations, associations and governmental units. We are expanding our range of complementary services to offer solutions to senior management teams for their leadership needs, including recruitment of emerging talent, executive assessment, interim executive placement, and professional development. For more information about Heidrick & Struggles, visit our web site at http://www.heidrick.com/ .
Safe Harbor Statement
This news release contains forward-looking statements. The forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate and management's beliefs and assumptions. Forward-looking statements may be identified by the use of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and similar expressions. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted or implied in the forward-looking statements. Factors that may affect the outcome of the forward-looking statements include, among other things, our ability to attract and retain qualified executive search consultants; continuing economic weakness in the United States or a material economic downturn in Europe or elsewhere, or social or
political instability in overseas markets; price competition; bad debt write-offs far in excess of allowances for doubtful accounts; losses in our venture capital investments; an inability to achieve the planned cost savings from our restructuring initiatives; and delays in the development and/or implementation of new technology and systems. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended March 31,
2002 2001
Actual Adjust- Pro forma Actual Adjust- Pro forma
ments ments
Revenue $91,723 $- $91,723 $139,268 $- $139,268
Operating expenses:
Salaries and
employee
benefits 68,897 - 68,897 87,090 - 87,090
General and
administrative
expenses (A) 27,813 - 27,813 44,329 (562) 43,767
Special charges
(B) 23,169 (23,169) - - - -
Total operating
expenses 119,879 (23,169) 96,710 131,419 (562) 130,857
Operating income
(loss) (28,156) 23,169 (4,987) 7,849 562 8,411
Non-operating
income (expense):
Interest income 528 - 528 2,061 - 2,061
Interest expense (51) - (51) (41) - (41)
Realized gains
(losses) on
investments (C) - - - 254 (254) -
Net unrealized
gain (loss) on
derivative
instruments (D) 143 (143) - (1,475) 1,475 -
Other, net 251 - 251 (162) - (162)
Net non-operating
income
(expense) 871 (143) 728 637 1,221 1,858
Income (loss) before
income taxes and
cumulative effect
of change in
accounting
principle (27,285) 23,026 (4,259) 8,486 1,783 10,269
Provision for
(benefit from)
income taxes (9,550) 8,059 (1,491) 3,649 767 4,416
Net income (loss)
before cumulative
effect of change
in accounting
principle (17,735) 14,967 (2,768) 4,837 1,016 5,853
Cumulative effect
of change in
accounting
principle, net
of tax (E) - - - 4,494 (4,494) -
Net income
(loss) $(17,735) $14,967 $(2,768) $9,331 $(3,478) $5,853
Basic earnings
(loss) per
common share $(0.98) $(0.15) $0.48 $0.30
Basic weighted
average common
shares
outstanding 18,050 18,050 19,374 19,374
Diluted earnings
(loss) per
common share $(0.98) $(0.15) $0.45 $0.28
Diluted weighted
average common
shares
outstanding 18,050 18,050 20,571 20,571
Salaries and
employee benefits
margin 75.1% 75.1% 62.5% 62.5%
General and
administrative
expense margin 30.3% 30.3% 31.8% 31.4%
Effective tax
rate 35.0% 35.0% 43.0% 43.0%
Notes for the three months ended March 31, 2002 and March 31, 2001:
(A) On January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill is no longer amortized. The 2001 first quarter pro forma results exclude $562,000 of goodwill amortization that was recorded prior to the adoption of SFAS No. 142.
(B) During the 2001 fourth quarter, the Company announced a reduction of its workforce and the consolidation and closing of offices. In the 2002 first quarter, the Company recognized special charges of $23.2 million related to these announced initiatives. The 2002 first quarter pro forma results exclude the impact of these special charges.
(C) The 2001 first quarter pro forma results exclude $254,000 of realized gains resulting from sales of equity securities, net of consultants' bonuses and administrative and other costs.
(D) On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and its subsequent amendments. During the first quarter of 2002 and 2001 respectively, the Company recorded an unrealized gain of $143,000 and an unrealized loss of $1.5 million, net of consultants' bonuses and administrative and other costs, due to SFAS No. 133. The 2002 and 2001 first quarter pro forma results exclude the impact of these unrealized gains and losses.
(E) As a result of the adoption of SFAS No. 133 on January 1, 2001, the Company recorded, as a cumulative effect of a change in accounting principle, a transition adjustment of $4.5 million, net of consultants' bonuses, administrative and other costs, and taxes.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
SEGMENT INFORMATION - AS ADJUSTED
(In thousands)
Three Months Ended March 31,
2002 2001
2002 2001 % Change Margin Margin
Revenue (A)
North America $49,835 $75,306 -33.8%
Latin America 2,896 4,335 -33.2%
Europe 33,428 51,744 -35.4%
Asia Pacific 5,564 7,883 -29.4%
Total Company $91,723 $139,268 -34.1%
Operating Income (Loss) (A)
North America (B) $3,002 $5,791 -48.2% 6.0% 7.7%
Latin America (353) (217) -62.7% - -
Europe (B) (957) 9,545 - - 18.4%
Asia Pacific (B) 659 792 -16.8% 11.8% 10.0%
Total Regions 2,351 15,911 -85.2% 2.6% 11.4%
Corporate (B) (7,338) (7,500) 2.2% - -
Total Company (C) $(4,987) $8,411 - - 6.0%
Notes for the three months ended March 31, 2002 and March 31, 2001:
(A) As of January 1, 2002, the Company completed the integration of LeadersOnline, its mid-level recruiting business, into the Executive Search business. The 2001 first quarter segment information has been restated to reflect this change.
(B) On January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill is no longer amortized. The 2001 first quarter operating income has been adjusted to exclude goodwill amortization of $189,000 in North America, $109,000 in Europe, $58,000 in Asia Pacific and $206,000 in Corporate.
(C) During the 2001 fourth quarter, the Company announced a reduction of its workforce and the consolidation and closing of offices. In the 2002 first quarter, the Company recognized special charges of $23.2 million related to these announced initiatives. The 2002 first quarter pro forma operating loss excludes the impact of $23.2 million of special charges related to these initiatives.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2002 2001
Current assets:
Cash and cash equivalents $68,550 $108,732
Accounts receivable, net of
allowance for doubtful accounts 69,785 54,241
Other receivables 3,012 5,870
Prepaid expenses 10,001 11,445
Income taxes recoverable 13,420 22,958
Deferred income taxes 36,528 36,605
Total current assets 201,296 239,851
Property and equipment, net 45,205 54,364
Non-current assets:
Assets designated for pension plans 16,191 16,624
Investments 15,009 14,836
Income taxes recoverable 10,665 -
Other assets 11,494 14,637
Deferred income taxes 6,995 7,089
Goodwill, net 51,027 51,110
Other intangibles, net 12,005 12,595
Total non-current assets 123,386 116,891
Total assets $369,887 $411,106
Current liabilities:
Current maturities of long-term debt $1,950 $2,480
Accounts payable 11,878 13,391
Accrued expenses-
Salaries and employee benefits 68,199 101,341
Other 36,047 29,970
Income taxes payable - -
Total current liabilities 118,074 147,182
Non-current liabilities:
Long-term debt, less current
maturities 1,905 1,959
Retirement and pension plans 20,128 19,092
Non-current portion of special
charges 17,156 13,282
Deferred income taxes - -
Total non-current liabilities 39,189 34,333
Stockholders' equity 212,624 229,591
Total liabilities and
stockholders' equity $369,887 $411,106
SOURCE Heidrick & Struggles International, Inc.
Web site: http://www.heidrick.com/
CONTACT: media, Eric Sodorff, +1-312-496-1613, esodorff@heidrick.com , or analyst,
Lynn McHugh, +1-312-496-1593, lmchugh@heidrick.com , both of Heidrick & Struggles
International, Inc.