UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20182020
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Commission File No. 0-25837
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
36-2681268
Delaware
36-2681268
(State or Other Jurisdiction of

Incorporation or Organization)
(I.R.S. Employer

Identification Number)
233 South Wacker Drive, Suite 4900, Chicago, Illinois 60606-6303
(Address of principal executive offices) (Zip Code)
(312) 496-1200
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange On Which Registered
Common Stock, $.01 par valueHSIIThe Nasdaq Stock Market
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  ¨    No  x☒


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act.    Yes  ¨    No  x☒


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x☒    No  ¨


Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes  x☒    No  ¨

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    Yes  x    No  ¨.


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨Accelerated filerFilerx☒
Non-Accelerated filer
¨
Smaller reporting company¨
Emerging growth company
¨


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨


Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act ((15. U.S. C 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    Yes  ☒    No  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x☒


The aggregate market value of the registrant’s Common Stock held by non-affiliates (excludes shares held by executive officers, directors and beneficial owners of 10% or more of the registrant’s outstanding Common Stock) on June 30, 20182020 was approximately $568,550,686$356,598,123 based upon the closing market price of $35.00$21.62 on that date of a share of Common Stock as reported on the Nasdaq Global Stock Market. As of February 22, 2019,2021, there were 18,984,34419,359,586 shares of the Company’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 23, 2019,27, 2021, are incorporated by reference into Part III of this Form 10-K.




HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES


TABLE OF CONTENTS
 
PAGE
PART I
Item 1.
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Item 1A.
710
Item 1B.
1115
Item 2.
1115
Item 3.
1216
Item 4.
1216
PART II
Item 5.
1317
Item 6.
1619
Item 7.
1720
Item 7A.
3536
Item 8.
3637
Item 9.
72
Item 9A.
72
Item 9B.
73
PART III
Item 10.
74
Item 11.
74
Item 12.
74
Item 13.
74
Item 14.
74
PART IV
Item 15.
75
Item 16.
78
79


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PART I
 
ITEM 1. BUSINESS


Overview


Heidrick & Struggles International, Inc. (“Heidrick & Struggles”) is a leadership advisory firm providing executive search and consulting services to businesses and business leaders worldwide. When we use the terms “Heidrick & Struggles,” “the Company,” “we,” “us” and “our,” in this Form 10-K, we mean Heidrick & Struggles International, Inc. a Delaware corporation, and its consolidated subsidiaries. We provide our services to a broad range of clients through the expertise of over 400425 consultants located in major cities around the world. Heidrick & Struggles and its predecessors have been a leadership advisor for more than 60 years. Heidrick & Struggles was formed as a Delaware corporation in 1999 when two of our predecessors merged to form Heidrick & Struggles.


Our service offerings include the following:


Executive Search. We partner with respected organizations globally to build and sustain the best leadership teams in the world, with a specialized focus on the placement of top-level senior executives. We believe focusing on top-level senior executives provides the opportunity for several competitive advantages including access to and influence with key decision makers, increased potential for recurring search and consulting engagements, higher fees per search, enhanced brand visibility, and a leveraged global footprint. Working at the top of client organizations also facilitates the attraction and retention of high-caliber consultants who desire to serve top industry executives and their leadership needs. Our executive search services derive revenue through the fees generated for each search engagement, which generally are based on the annual compensation for the placed executive. We provide our executive search services primarily on a retained basis, recruiting senior executives whose first-year base salary and bonus averaged approximately $382,000$370,000 in 20182020 on a worldwide basis.


The executive search industry is highly fragmented, consisting of several thousand executive search firms worldwide. Executive search firms are generally separated into two broad categories: retained search and contingency search. Retained executive search firms fulfill their clients’ senior leadership needs by identifying potentially qualified candidates and assisting clients in evaluating and assessing these candidates. Retained executive search firms generally are compensated for their services regardless of whether the client employs a candidate identified by the search firm and are generally retained on an exclusive basis. Typically, retained executive search firms are paid a retainer for their services equal to approximately one-third of the estimated first year compensation for the position to be filled. In addition, if the actual compensation of a placed candidate exceeds the estimated compensation, executive search firms often are authorized to bill the client for one-third of the excess. In contrast, contingency search firms are compensated only upon successfully placing a recommended candidate.


We are a retained executive search firm. Our search process typically consists of the following steps:
 
•Analyzing the client’s business needs in order to understand its organizational structure, relationships and culture, advising the client as to the required set of skills and experiences for the position, and identifying with the client the other characteristics desired of the successful candidate;


•Selecting, contacting, interviewing and evaluating candidates on the basis of experience and potential cultural fit with the client organization;


•Presenting confidential written reports on the candidates who potentially fit the position specification;


•Scheduling a mutually convenient meeting between the client and each candidate;


•Completing reference checks on the final candidate selected by the client; and


•Assisting the client in structuring compensation packages and supporting the successful candidate’s integration into the client team.


Heidrick Consulting. In 2018, we combined our Leadership Consulting and Culture Shaping businesses to create Heidrick Consulting, a comprehensive offering of the firm's leadership advisory services. Our consulting services include leadership assessment and development, executive coaching and on-boarding, succession planning, team and board effectiveness, organizational performance acceleration, workforce planning and culture shaping. Our consulting services generate revenue

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primarily through the professional fees generated for each engagement which are generally based on the size of the project and scope of services. Heidrick Consulting represented less than 10% of our net revenue in 2018.2020.

Client Base

For many of our clients, our global access to and knowledge of regional and functional markets and candidate talent is an important differentiator of our business. Our clients generally fall into one of the following categories:
Fortune 1000 companies;

Major U.S. and non-U.S. companies;

Middle market and emerging growth companies;

Governmental, higher education and not-for-profit organizations; and

Other leading private and public entities.

Available Information

We maintain an Internet website at http://www.heidrick.com. We make available free of charge through the investor relations section of our website annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934 ("Exchange Act"), as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (“SEC”). Also posted on our website, and available in print upon request of any shareholder to our Investor Relations Officer, are our certificate of incorporation and by-laws, charters for our Audit and Finance Committee, Human Resources and Compensation Committee and Nominating and Board Governance Committee, our Policy Regarding Director Independence Determinations, our Policy on Reporting of Concerns Regarding Accounting and Other Matters, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics governing our directors, officers and employees. Within the time period required by the SEC, we will post on our website any amendment to the Code of Business Conduct and Ethics and any waiver applicable to any executive officer, director or senior financial officer.

In addition, our website includes information concerning purchases and sales of our equity securities by our executive officers and directors, as well as disclosure relating to certain non-GAAP financial measures (as defined in the SEC’s Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by similar means from time to time.

Our Investor Relations Officer can be contacted at Heidrick & Struggles International, Inc., 233 South Wacker Drive, Suite 4900, Chicago, Illinois, 60606, Attn: Investor Relations Officer, telephone: 312-496-1200,
e-mail: InvestorRelations@heidrick.com.


Organization


Our organizational structure, which is arranged by geography, service offering and industry and functional practices, is designed to enable us to better understand our clients’ cultures, operations, business strategies, industries and regional markets for leadership talent.


Geographic Structure. We provide senior-level executive search and consulting services to our clients worldwide through a network of 5251 offices in 28 countries.countries including our affiliates. Each office size varies; however, major locations are staffed with consultants, research associates, administrative assistants and other support staff. Administrative functions are centralized where possible, although certain support and research functions are situated regionally because of variations in local requirements. We face risks associated with political instability, legal requirements and currency fluctuations in our international operations. Examples of such risks include difficulties in managing global operations, social and political instability, regulations and potential adverse tax consequences. For a more complete description of the risks associated with our business see the Section in this Form 10-K entitled “Risk Factors”.


In addition to our wholly-ownedwholly owned subsidiaries, our worldwide network includes affiliate relationships in Finland, South Africa and Turkey. We have no financial investment in these affiliates but receive licensing fees from them for the use of our name and our databases. Licensing fees are less than 1% of our net revenue.



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Information by Geography. We operate our Executive Search services in three geographic regions, each of which is reported as a separate reporting segment: the Americas (which includes the countries in North and South America); Europe (which includes the continents of Europe and Africa); and Asia Pacific (which includes Asia and the region generally known as the Middle East). Our Heidrick Consulting reporting segment operates globally.


Americas Executive Search. As of December 31, 2018,2020, we had 179190 consultants in our Americas segment. The largest offices in this segment, as defined by net revenue, are located in New York, Chicago, and Boston.San Francisco.


Europe Executive Search. As of December 31, 2018,2020, we had 101102 consultants in our Europe segment. The largest countries in this segment, as defined by net revenue, are the United Kingdom, Germany, and France.


Asia Pacific Executive Search. As of December 31, 2018,2020, we had 7369 consultants in our Asia Pacific segment. The largest countries in this segment, as defined by net revenue, are China (including Hong Kong), Australia, and Japan.


Heidrick Consulting. As of December 31, 2018,2020, we had 6665 consultants in our Heidrick Consulting segment. The largest countries in this segment, as defined by net revenue, are the United Kingdom,States, the United StatesKingdom, and Dubai.


The relative percentages of net revenue attributable to each segment were as follows:
 Year Ended December 31,
 202020192018
Executive Search
Americas58 %58 %57 %
Europe20 %19 %20 %
Asia Pacific13 %14 %14 %
Heidrick Consulting9 %9 %9 %
  Year Ended December 31,
  2018 2017 2016
Executive Search      
Americas 57% 55% 53%
Europe 20% 20% 19%
Asia Pacific 14% 14% 15%
Heidrick Consulting 9% 11% 13%


For financial information relating to each segment, see Note 18, 17, Segment Information, in the Notes to Consolidated Financial Statements.


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Global Industry Practices. Our executive search and consulting businesses operate in six broad industry groups listed below. These industry categories and their relative sizes, as measured by billings for 2018, 20172020, 2019 and 2016,2018, are as follows:
Percentage of Billings
Global Industry Practices202020192018
Financial Services25 %26 %28 %
Global Technology & Services21 21 20 
Industrial20 21 21 
Consumer Markets17 17 16 
Healthcare & Life Sciences14 12 11 
Social Impact3 3 4 
100 %100 %100 %
  Percentage of Billings
Global Industry Practices 2018 2017 2016
Financial Services 28% 27% 28%
Industrial 21
 18
 21
Global Technology & Services 20
 22
 21
Consumer Markets 16
 17
 17
Healthcare & Life Sciences 11
 12
 11
Education, Non-Profit & Social Enterprise 4
 4
 2
  100% 100% 100%


Within each broad industry group are a number of industry sub-sectors. Consultants often specialize in one or more sub-sectors to provide clients with market intelligence and candidate knowledge specific to their industry. For example, within the Financial Services sector, our business is diversified amongst a number of industry sub-sectors including Asset & Wealth Management, Consumer & Commercial Finance, Commodities, Corporate and Transaction Banking, Global Markets, Hedge Fund, Infrastructure, Investment Banking, Insurance, Private Equity Investment Professionals and Real Estate.


We service our clients with global industry interests and needs through unified global executive search teams who specialize in industry practices. This go-to-market strategy allows us to leverage our global diversity and market intelligence and is designed to provide better client service. Each client is served by one global account team, which we believe is a key differentiator from our competition.


Global Functional Practices. Our Executive Search consultants also specialize in searches for specific “C-level” functional positions, which are roles that generally report directly to the chief executive officer.


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Our Global Functional Practices include Chief Executive Officer & Board of Directors; Human Resources Officers, Financial Officers; Information and Technology Officers, Legal, Risk, Compliance & Government Affairs, Marketing, Sales and Strategy Officers and Supply Chain and Operations.


Our team of Executive Search consultants may service clients from any one of our offices around the world. For example, an executive search for a chief financial officer of an industrial company located in the United Kingdom may involve an executive search consultant in the United Kingdom with an existing relationship with the client, another executive search consultant in the United States with expertise in our Industrial practice and a third executive search consultant with expertise in recruiting chief financial officers. This same industrial client may also engage us to perform skill-based assessments for each of its senior managers, which could require the expertise of one of our leadership advisory consultants trained in this service.


SeasonalityClient Base


ThereFor many of our clients, our global access to and knowledge of regional and functional markets and candidate talent is no discernible seasonality inan important differentiator of our business, although as a percentagebusiness. Our clients generally fall into one of total annual net revenue, the first quarter typically generates less revenue than the other three quarters. Revenuefollowing categories:
•Fortune 1000 companies;

•Major U.S. and operating income have historically varied by quarternon-U.S. companies;

•Middle market and are hard to predict from quarter to quarter. In addition, the volatility in the global economyemerging growth companies;

•Governmental, higher education and business cycles can impact our quarterly revenuenot-for-profit organizations; and operating income.


•Other leading private and public entities.

Clients and Marketing


Our consultants market the firm’s executive search and consulting services through two principal means: targeted client calling and industry networking with clients and referral sources. These efforts are supported by proprietary databases, which provide our consultants with information as to contacts made by their colleagues with particular referral sources, candidates and
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clients. In addition, we benefit from a significant number of referrals generated by our reputation for high quality service and successfully completed assignments, as well as repeat business resulting from our ongoing client relationships.


In support of client calling and networking, the practice teams as well as individual consultants also author and publish articles and white papers on a variety of leadership and talent topics and trends around the world. Our consultants often present research findings and talent insights at notable conferences and events as well. Our insights are sometimes acknowledged by major media outlets and trade journalists. These efforts aid in the marketing of our services as well.


Either by agreement with the clients or to maintain strong client relationships, we may refrain from recruiting employees of a client, or possibly other entities affiliated with that client, for a specified period of time but typically not more than one year from the commencement of a search. We seek to mitigate any adverse effects of these off-limits arrangements by strengthening our long-term relationships, allowing us to communicate our belief to prospective clients that we can conduct searches effectively notwithstanding certain off-limits arrangements.


No single client accounted for more than 3%1% of our net revenue in 2018, 20172020, and no more than 2% in 2019 or 2016.2018. As a percentage of total revenue, our top ten clients in aggregate accounted for approximately 6% in 2018 and2020, 7% in 20172019, and 2016.6% in 2018.


Information Management Systems


We rely on technology to support our consultants and staff in the search process. We employ a global approach to executive search built on better insights, more data and faster decision making facilitated by the use of our proprietary Infinity Framework and Heidrick Connect. Our technology infrastructure consistsInfinity Framework allows clients to holistically evaluate a candidate's pivotal experience and expertise, leadership capabilities, agility and potential, and culture fit and impact, thereby allowing our clients to find the right person for the role. We supplement our Infinity Framework through a series of internally developed databases containing candidate profiles and client records, coupled withadditional online services, industry reference sources, andtools including our Leadership Accelerator, Leadership Signature an internally developedand Culture Signature assessments. Heidrick Connect, a completely digital, always available, client experience portal allows our clients to access talent insights for each engagement, including the Infinity Framework and other proprietary assessment tool. We use technologytools. In response to manageworking remotely, our Executive Search teams employed Heidrick Connect to operate effectively and share information on currentefficiently while engaging virtually with our clients. Additionally, we have introduced upgrades to Heidrick Connect, resulting in greater flexibility, increased productivity and potential clients and candidates,the ability to communicatedeliver more insights to both internal and external constituencies and to support administrative functions.our clients.


Our consulting business’ proprietary Web-based system, SD Connect™Culture Connect, is integral to the culture-shaping process. This technology platform enables our consultants to administer, analyze and interpret online Corporate Culture Profiles™ surveys to develop clarity around team and organizational need and desired outcomes. In addition, we gather data using our online Culture Impact Survey™ to determine which culture-shaping concepts are being utilized by individuals and the team as a whole. Our Heidrick Consulting teams have pivoted to create new digital solutions for Leadership Assessments, Team Acceleration, and Organization and Culture Acceleration that can be delivered virtually in response to required social distancing practices.


Professional StaffCompetition

The executive search industry is highly competitive. While we face competition to some degree from all firms in the industry, we believe our most direct competition comes from four established global retained executive search firms that conduct searches primarily for the most senior-level positions within an organization. In particular, our competitors include Egon Zehnder International, Korn Ferry, Russell Reynolds Associates, and EmployeesSpencer Stuart. To a lesser extent, we also face competition from smaller boutique firms that specialize in certain regional markets or industry segments and Internet-based firms. Each firm with which we compete is also a competitor in the marketplace for effective search consultants.


Overall, the search industry has relatively few barriers to entry; however, there are higher barriers to entry to compete with global retained executive search firms that can provide leadership consulting services at the senior executive level. At this level, clients rely more heavily on a search firm’s reputation, global access and the experience level of its consultants. We believe that the segment of executive search in which we compete is more quality-sensitive than price-sensitive. As a result, we compete on the level of service we offer, reflected by our client services specialties and, ultimately, by the quality of our search results. We believe that our emphasis on senior-level executive search, the depth of experience of our search consultants and our global presence enable us to compete favorably with other executive search firms.

Competition in the leadership consulting markets in which we operate is highly fragmented, with no universally recognized market leaders.

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Seasonality

There is no discernible seasonality in our business, although as a percentage of total annual net revenue, the first quarter typically generates less revenue than the other three quarters. Revenue and operating income have historically varied by quarter and are hard to predict from quarter to quarter. In addition, the volatility in the global economy and business cycles can impact our quarterly revenue and operating income.

Human Capital Resources

Employee Summary. As of December 31, 2020, Heidrick & Struggles employed 1,563 employees, which includes 856 in the Americas, 442 in Europe, and 265 in Asia Pacific. Our headcount included of 426 consultants (361 related to Executive Search and 65 related to Heidrick Consulting), 480 associates and 657 other search, support and Global Operations Support staff.

Within Executive Search and Heidrick Consulting, our professionals are generally categorized either as consultants or associates. Associates assist consultants by providing research support, coordinating candidate contact and performing other engagement-related functions. As of December 31, 2018, we had a headcount of 1,611, consisting of 419 consultants (353 related to Executive Search and 66 related to Heidrick Consulting), 444 associates and 748 other search, support and Global Operations Support staff.

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We promote our associates to consultants during the annual consultant promotion process, and we recruit our consultants from other executive search or human capital firms, or in the case of executive search, consultants new to search who have worked in industries or functions represented by our practices. In the latter case, these are often seasoned executives with extensive contacts and outstanding reputations who are entering the search profession as a second career and whom we train in our techniques and methodologies. Our Heidrick Consulting consultants are recruited for their executive business experience as well as their skills in consulting and leadership advisory and often are former clients who are familiar with our consulting methodology. We are not a party to any U.S.-based collective bargaining agreement, and we consider relations with our employees to be good.


Competition

The executive search industry is highly competitive. While we face competition to some degree from all firms in the industry, we believe our most direct competition comes from four established global retained executive search firms that conduct searches primarily for the most senior-level positions within an organization. In particular, our competitors include Egon Zehnder International, Korn Ferry, Russell Reynolds Associates, and Spencer Stuart. To a lesser extent, we also face competition from smaller boutique firms that specialize in certain regional markets or industry segments and Internet-based firms. Each firm with which we compete is also a competitor in the marketplace for effective search consultants.

Overall, the search industry has relatively few barriers to entry; however, there are higher barriers to entry to compete with global retained executive search firms that can provide leadership consulting services at the senior executive level. At this level, clients rely more heavily on a search firm’s reputation, global access and the experience level of its consultants. We believe that the segment of executive search in which we compete is more quality-sensitive than price-sensitive. As a result, we compete on the level of service we offer, reflected by our client services specialties and, ultimately, by the quality of our search results.Our Values. We believe that our emphasissuccess is grounded in how we operate each and every day as individual professionals and, collectively, as a firm. In 2015, we formalized our long-held beliefs into defined values to guide our employees – Grow with our clients; Win as one firm; Always act with Integrity; and Own the results. These values still represent who we are and who we want to be. With the unique circumstances brought on senior-level executive search,by the depth of experiencepandemic and the renewed urgency to address racial inequality, over the last year we reflected further on how our employees, our connections with one another, and the communities we build together shape our identity and aspirations as a firm. Importantly, we saw an opportunity to directly underscore the importance of our search consultantsemployees in our values.

With this in mind, we have introduced an additional, important new value – Respect and value each individual – to more clearly articulate our commitment to increasing diversity and fostering an inclusive environment, one where all individual voices and backgrounds are welcomed, listened to and valued. Our values serve to guide us in how we approach our business and how we treat our colleagues and clients, and also help us build trust and a common understanding of what we stand for and believe in as a firm.

In 2020, we demonstrated the strength of our culture and the positive results we could achieve as we worked together to drive our transformation in the midst of an unprecedented year. We strive to build on these efforts as we continue to grow our business with our new, expanded and explicitly more inclusive values.

Diversity and Inclusion. Diversity and inclusion is imperative for our internal culture, as we believe it drives innovation and future growth. We have committed substantial time and resources to advance diversity in our workforce, and we continue to support a culture where diversity is celebrated. We also work to create a culture of inclusion, where everyone feels valued and supported, and is encouraged to contribute to our success through authentic participation. Collaboration and inclusion are among our greatest strengths. By cultivating a culture that brings the maximum range of ideas and experience to our work with clients around the world, we believe we increase our innovation, create better solutions to our clients’ business challenges and win as one firm.

Our diversity and inclusion efforts are comprised of many initiatives including:

•Creating an Advancing Black Leaders Action Group.

•Commitment to the “Paradigm for Parity”, a movement that is a coalition of business leaders dedicated to addressing the leadership gender gap in corporate America. We created and launched the Accelerating Women’s Excellence initiative to develop high-potential women for promotion into leadership positions. In 2021, we launched the third cohort of this program.
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•Holding “Courageous Conversations” around race and intersectionality.

•Development and signing of the Association of Executive Search Consultants Diversity Pledge.

•Establishing employee resource groups including: Women’s Inclusion Network, Professionals of Color, Ethnic Diversity Engagement Network, Pride@Heidrick, and Honor Equality and Inclusion for Disability

•Diverse office, practice and executive leaders within the firm.

In 2020, we reaffirmed our commitment to diversity and inclusion with the appointment of our Chief Inclusion Officer and the establishment of our diversity and inclusion aspirations - “We Create, We Invest, We Build.” These aspirations are explained below:

•We create a culture of inclusion where everyone is valued and respected. We create a culture that embraces differences and encourages authenticity. We create innovation by maximizing the contributions of our diverse populations. We offer services to our clients to help them do the same.

•We invest in the advancement, experience and success of diverse talent within our organization. We invest in leaders both internally and externally who are inclusive and empathetic and champion diversity. We invest in our communities, specifically targeting those groups who have been historically underrepresented and disadvantaged.

•We build talent pipelines for our clients and ourselves that intentionally target and develop diverse talent. We build diverse and inclusive teams to best represent our clients and their interests. We build innovative solutions to enhance the success of diverse individuals. We build quantifiable measures that define and track diversity statistics to create accountability.

We believe that diversity and inclusion are key elements of an organization’s ability to mobilize, execute and transform with agility.

Employee Engagement. We provide all employees with the opportunity to share their opinions and feedback through our proprietary Organization Accelerator Questionnaire (“OAQ”) every two years. The OAQ provides an accurate Acceleration Profile based on assessment of the 13 Drive Factors of organizational performance. The OAQ captures an individual’s perception of the organization, as well as their own personal experience within the organization, and tracks progress from period to period, while also benchmarking teams within the same organization. The insights it provides enable focused action planning. Results of the questionnaire are measured, analyzed and discussed in live sessions in each office to enhance the employee experience, drive change, and leverage the overall success of our organization. On a global basis, 92% of our employees participated in the OAQ in 2020.

Learning and Development. We are committed to the professional development of our employees and promoting a continuous learning culture within our firm. Our learning and development programs have been created with the goal of building leadership, business development, account management, client service, and change leadership skills among our employees. In addition to building personal and professional capabilities, these programs set a standard for the behaviors that will help us realize our business goals and strategies.

In 2020, our Learning & Development team re-imagined our programs to adapt to a virtual environment, and we will continue to deliver programs virtually in 2021. Our learning catalog outlines dozens of live, virtual programs and thousands of eLearning courses designed to help build and enhance employee leadership, business acumen and business development skills. These programs are continually updated to reflect best practices and feedback received from employees.

Over 1,200 of our employees participated in almost 11,000 hours of virtual learning during 2020.

Participation in our Communities. We are proud members and eager participants in communities where we work. We know first-hand from our client work the positive effects that strong leaders can bring to both organizations and communities, and to encourage employees to contribute to our communities as well.

The Company formed a Global Philanthropic Committee in 2019 to establish a coordinated, global approach to supporting the charitable causes and philanthropic endeavors that impact our employees, clients and communities. We also respect the right
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of our employees to independently engage in charitable causes and encourage the same. We collaborate to find appropriate charitable and community causes by promoting suggestions to the Global Philanthropic Committee.

In 2019, employees participated in our first ever Global Day of Service where we, as a firm, gave back to our communities by raising awareness, volunteering and raising funds for non-profits and organizations focused on education, training, development and other local causes. In 2020, participation in the Global Day of Service increased to over 600 employees in 26 offices benefiting over 45 organizations and non-profits.

Compensation and Benefits. Our goal is not only to challenge our employees to reach their potential professionally, and reward them for great work, but also to understand and consider their need to be simultaneously healthy, balanced and focused. We believe in fair compensation, based upon demonstrated capabilities and achievement, experience, and superior performance. We place great importance on incentivizing, recognizing, and rewarding performance and behaviors aligned with our values in the form of discretionary bonus awards. Through our benefits program, we demonstrate commitment to fostering an environment in which employees are able to maintain a healthy work-life balance, and in which the best talent wants to work and thrive. Our benefits are administered on a country-by-country basis, so that benefits are comparable to other employers within each jurisdiction and our global presence enable usindustry. We use several measures to compete favorably with other executive search firms.

Competitionensure that our benefits offerings are up-to-date, competitive in the leadership consulting marketsmarketplace, and in whichline with employee needs, including employee surveys, benchmarking exercises, and other benefits measurement tools. Benefits offered to our employees may include annual leave and other paid time off, medical, dental and vision benefits, prescription drug benefits, flexible spending accounts, employee assistance programs, 401(k) and deferred compensation retirement programs, short and long-term disability insurance, critical illness insurance and life insurance.

Employee Safety. As we operatecontinue to navigate through these extraordinary times, our top priority has been ensuring the health and safety of our employees, clients and the communities where we live and work around the globe. To minimize the risk of exposure to COVID-19, and in line with guidance and mandates from local and national governments and health authorities, we have suspended all business travel and instituted a work-from-home policy across the Americas, Europe and Asia Pacific. As a digital-focused, tech-enabled firm, we have been able to adapt quickly to having so many of our employees work from home, and have also expanded the support provided to our employees and their families, including flexible work times and telemedicine options. In addition, we have been reviewing our business continuity plans on an ongoing basis to ensure our operations continue to run smoothly.

Ethics. Employees are encouraged to speak to their colleagues and representatives in Legal and Human Resources whenever an ethical question or situation arises. We also have established the Heidrick & Struggles EthicsLine, a service that provides a mechanism for reporting alleged breaches of any legal or regulatory obligations, financial fraud, including accounting, internal controls and auditing, or any alleged violation of the Code of Conduct or corporate policies to the Company. The EthicsLine is highly fragmented, with no universally recognized market leaders.a web-based and telephonic reporting hotline available to all company employees, contractors, vendors, stockholders, clients, or other interested parties. The EthicsLine is administered by an independent third party that is separate from the Company and specializes in running whistleblower hotline programs for companies throughout the U.S. Calls are not recorded and callers may remain anonymous. The EthicsLine is operational 24 hours a day, seven days a week. To contact the EthicsLine, you may dial 800-735-0589 toll-free in the U.S. or 704-731-7242 outside the U.S. or by visiting https://heidrickandstruggles.alertline.com.


Regulation


We are subject to the U.S. securities laws and general corporate and commercial laws and regulations of the locations which we serve. These include regulations regarding anti-bribery, privacy and data protection, intellectual property, data security, data retention, personal information, economic or other trade prohibitions or sanctions. In particular, we are subject to federal, state, and foreign laws regarding privacy and protection of people's data. Foreign data protection, privacy, and other laws and regulations can be more restrictive than those in the United States. Most notably, certain aspects of our business are subject to the European Union's General Data Protection Regulation ("GDPR") which became effective on May 25, 2018. We have a GDPR compliance program to facilitate our ongoing efforts to comply with GDPR regulations. U.S. federal and state and foreign laws and regulations, which in some cases can be enforced by private parties in addition to government entities, are constantly evolving and can be subject to change.


Available Information

We maintain an Internet website at http://www.heidrick.com. We make available free of charge through the investor relations section of our website annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the U.S. Securities Exchange Act of
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1934 ("Exchange Act"), as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (“SEC”). Also posted on our website, and available in print upon request of any shareholder to our Investor Relations Officer, are our certificate of incorporation and by-laws, charters for our Audit and Finance Committee, Human Resources and Compensation Committee and Nominating and Board Governance Committee, our Policy Regarding Director Independence Determinations, our Policy on Reporting of Concerns Regarding Accounting and Other Matters, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics governing our directors, officers and employees. Within the time period required by the SEC, we will post on our website any amendment to the Code of Business Conduct and Ethics and any waiver applicable to any executive officer, director or senior financial officer.

In addition, our website includes information concerning purchases and sales of our equity securities by our executive officers and directors, as well as disclosure relating to certain non-GAAP financial measures (as defined in the SEC’s Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by similar means from time to time.

Our Investor Relations Officer can be contacted at Heidrick & Struggles International, Inc., 233 South Wacker Drive, Suite 4900, Chicago, Illinois, 60606, Attn: Investor Relations Officer, telephone: 312-496-1200,
e-mail: InvestorRelations@heidrick.com.

ITEM 1A. RISK FACTORS


In addition to other information in this Form 10-K, the following risk factors should be carefully considered in evaluating our business because such factors may have a material impact on our business, operating results, cash flows and financial condition. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties of which we are unaware, or that we currently believe are not material, may also become important factors that adversely affect our business.


Company Risks

Operational Risks

We depend on attracting, integrating, developing, managing, and retaining qualified consultants and senior leaders.


Our success depends upon our ability to attract, develop, integrate, manage and retain quality consultants with the skills and experience necessary to fulfill our clients’ needs and achieve our operational and financial goals. Our ability to hire and retain qualified consultants could be impaired by any diminution of our reputation, disparity in compensation relative to our competitors, modifications to our total compensation philosophy or competitor hiring programs. If we cannot attract, hire, develop and retain qualified consultants, our business, financial condition and results of operations may suffer. Our future success also depends upon our ability to integrate newly-hirednewly hired consultants successfully into our operations and to manage the performance of our consultants. Failure to successfully integrate newly-hirednewly hired consultants or to manage the performance of our consultants could affect our profitability by causing operating inefficiencies that could increase operating expenses and reduce operating income. There is also a risk that unanticipated turnover in senior leadership could stall company activity, interrupt strategic vision or lower productive output which may adversely affect our business, financial condition and results of operations.

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We may not be able to prevent our consultants from taking our clients with them to another firm.


Our success depends upon our ability to develop and maintain strong, long-term relationships with our clients. Although we work on building these relationships between our firm and our clients, in many cases one or two consultants have primary responsibility for a client relationship. When a consultant leaves one executive search firm and joins another, clients who have established relationships with the departing consultant may move their business to the consultant’s new employer. We may also lose clients if the departing consultant has widespread name recognition or a reputation as a specialist in executing searches in a specific industry or management function. If we fail to retain important client relationships when a consultant departs our firm, our business, financial condition and results of operations may be adversely affected.


Our success depends on our ability to maintain our professional reputation and brand name.


We depend on our overall professional reputation and brand name recognition to secure new engagements and hire qualified consultants. Our success also depends on the individual reputations of our consultants. We obtain many of our new engagements from existing clients or from referrals by those clients. A client who is dissatisfied with our work can adversely
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affect our ability to secure new engagements. If any factor, including poor performance, hurts our reputation we may experience difficulties in competing successfully for both new engagements and qualified consultants. Failure to maintain our professional reputation and brand name could adversely affect our business, financial condition and results of operations.

Our net revenue may be affected by adverse economic conditions.

Demand for our services is affected by global economic conditions and the general level of economic activity in the geographic regions in which we operate. During periods of slowed economic activity many companies hire fewer permanent employees, and our business, financial condition and results of operations may be adversely affected. If unfavorable changes in economic conditions occur, our business, financial condition and results of operations could suffer.


Because our clients may restrict us from recruiting their employees, we may be unable to fill or obtain new executive search assignments.


Clients frequently require us to refrain from recruiting certain of their employees when conducting executive searches on behalf of other clients. These restrictions generally remain in effect for no more than one year following the commencement of an engagement. However, the specific duration and scope of the off-limits arrangements depend on the length of the client relationship, the frequency with which the client engages us to perform searches, the number of assignments we have performed for the client and the potential for future business with the client.


Client restrictions on recruiting their employees could hinder us from fulfilling executive searches. Additionally, if a prospective client believes that we are overly restricted from recruiting the employees of our existing clients, these prospective clients may not engage us to perform their executive searches. As a result, our business, financial condition and results of operations may suffer.

We face aggressive competition.

The global executive search industry is highly competitive and fragmented. We compete with other large global executive search firms, smaller specialty firms and, more recently with Internet-based firms and social media. Specialty firms may focus on regional or functional markets or on particular industries to a greater extent than we do. Some of our competitors may possess greater resources, greater name recognition and longer operating histories than we do in particular markets or practice areas, or be willing to reduce their fees or agree to alternative pricing practices in order to attract clients and increase market share. Our competitors may be further along in the development and design of technological solutions to meet client requirements.

There are limited barriers to entry into the search industry and new search firms continue to enter the market. Executive search firms that have a smaller client base than we do may be subject to fewer off-limits arrangements. In addition, our clients or prospective clients may decide to perform executive searches using in-house personnel. Also, as Internet-based firms continue to evolve, they may develop offerings similar to or more expansive than ours, thereby increasing competition for our services or more broadly disrupting the executive search industry. As a result, we may not be able to continue to compete effectively with existing or potential competitors and we may not be able to implement our leadership strategy effectively. Our inability to meet these competitive challenges could have an adverse affect on our business, financial condition and results of operations.


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We rely heavily on information management systems.


Our success depends upon our ability to store, retrieve, process and manage substantial amounts of information. To achieve our goals, we must continue to improve and upgrade our information management systems. We may be unable to license, design and implement, in a cost-effective and timely manner, improved information systems that allow us to compete effectively. In addition, business process reengineering efforts may result in a change in software platforms and programs. Such efforts may result in an acceleration of depreciation expense over the shortened expected remaining life of the software and present transitional problems. Problems or issues with our proprietary search system or other factors may result in interruptions or loss in our information processing capabilities which may adversely affect our business, financial condition and results of operations.


Legal, Regulatory and Compliance Risks

We face the risk of liability in the services we perform.


We are exposed to potential claims with respect to the executive search process. A client could assert a claim for violations of off-limits arrangements, breaches of confidentiality agreements or professional malpractice. The growth and development of our consulting services brings with it the potential for new types of claims. In addition, candidates and client employees could assert claims against us. Possible claims include failure to maintain the confidentiality of the candidate’s employment search or for discrimination or other violations of the employment laws or malpractice. In various countries, we are subject to data protection laws impacting the processing of candidate information. We maintain professional liability insurance in amounts and coverage that we believe are adequate; however, we cannot guarantee that our insurance will cover all claims or that coverage will always be available. Significant uninsured liabilities could have a negative impact on our business, financial condition and results of operations.


Data security, data privacy and data protection laws, such as GDPR, and other evolving regulations and cross-border data transfer restrictions, may limit the use of our services and adversely affect our business.


We are or may become subject to a variety of laws and regulations in the European Union (including GDPR), United States and abroad regarding data privacy, protection and security. As these laws continue to evolve, we may be required to make changes to our services, solutions and/or products so as to enable the Company and/or our clients to meet the new legal requirements, including by taking on more onerous obligations in our contracts, limiting our storage, transfer and processing of data and, in some cases, limiting our service and/or solution offerings in certain locations. Changes in these laws may also increase our potential exposure through significantly higher potential penalties for non-compliance. The costs of compliance with, and other burdens imposed by, such laws and regulations and client demands in this area may limit the use of, or demand for, our services, solutions and/or products, make it more difficult and costly to meet client expectations, or lead to significant fines, penalties or liabilities for noncompliance, any of which could adversely affect our business, financial condition and results of operations.


In addition, due to the uncertainty and potentially conflicting interpretations of these laws, it is possible that such laws and regulations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict
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with other rules or our practices. Any failure or perceived failure by us to comply with applicable laws or satisfactorily protect personal information could result in governmental enforcement actions, litigation, or negative publicity, any of which could inhibit sales of our services, solutions and/or products.


Increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted cyber-related attacks could pose a risk to our systems, networks, solutions, services and data.

Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted cyber-related attacks pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. We have a program in place to detect and respond to data security incidents. However, we remain potentially vulnerable to additional known or unknown threats. We also have access to sensitive, confidential or personal data or information that is subject to privacy and security laws, regulations and client-imposed controls. Despite our efforts to protect sensitive, confidential or personal data or information, we may be vulnerable to security breaches, theft, lost data, employee errors and/or malfeasance that could potentially lead to the compromising of sensitive, confidential or personal data or information, improper use of our systems or networks, unauthorized access, use, disclosure, modification or destruction of information. In addition, a cyber-related attack could result in other negative consequences, including damage to our reputation or competitiveness, remediation or increased protection costs, litigation or regulatory action which could result in a negative impact to our results of operations.

Industry and General Economic Risks

The current COVID-19 pandemic, or the future outbreak of other highly infectious or contagious diseases, could continue to adversely impact or cause disruption to our business, financial condition, results of operations and cash flows. Further, the COVID-19 pandemic has caused severe disruptions in the U.S. and global economy, may further disrupt financial markets and could potentially create widespread business continuity issues.

COVID-19 has spread to over 100 countries, including the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19.

With infections reported throughout the world, certain governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of the pandemic. Additional, more restrictive proclamations and/or directives may be issued in the future. We temporarily closed our offices and shifted our workforce to remote operations to ensure the safety of our employees. In addition, certain of our customers have closed or reduced their operations during this pandemic.

The global pandemic has created significant volatility, uncertainty and economic disruption. Beginning in the second quarter, we experienced a decline in demand for our executive search and consulting services, a lengthening of the executive search process due to a slow-down in client decision making and an inability to execute in-person consulting engagements, which negatively impacted our results of operations. The extent to which the pandemic continues to impact our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic, and actions taken in response to the pandemic, on economic activity; the effect on our clients and client demand for our services and solutions; our ability to sell and provide our services and solutions, including as a result of travel restrictions and people working from home; the ability of our clients to pay for our services and solutions; and any closures of our and our clients’ offices and facilities. Restrictions inhibiting our employees’ and clients' ability to access those offices and facilities, has disrupted, and are expected to continue to disrupt, our ability to provide our services and solutions. These disruptions have, and may continue to, result in, among other things, a decline in demand for our executive search and consulting services due to temporary and permanent workforce reductions; a lengthening of the executive search process due to a slow-down in client decision making; an increase in executive searches placed on hold due to delays in planned work by our clients; an inability to execute in-person consulting engagements; prolonged disruptions in business operations for offices in areas most impacted by the pandemic, including the United States, United Kingdom, Italy, Spain, China and Brazil; terminations of client contracts and losses of revenue.

Management expects that all of its business segments, across all of its geographies, will continue to be impacted to some degree by the pandemic and actions taken in response to the pandemic, but the significance of the impact of the pandemic on our business and the duration for which it may have an impact cannot be determined at this time. During the second quarter, the sustained economic downturn resulted in the impairment of the goodwill in our Europe and Asia Pacific reporting units. We also evaluated the recoverability of our intangible and other long-lived assets during the second quarter and determined that no
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impairment was necessary. We will continue to monitor the impact of the economic downturn for additional potential impairment of goodwill, other intangible assets and long-lived assets.

The impact of the COVID-19 pandemic may also exacerbate other risks discussed herein, any of which could have a material effect on us. The ultimate effect that the COVID-19 pandemic may have on our business, financial condition or results of operations is not presently known to us or may present unanticipated risks that cannot be determined at this time.

We face aggressive competition.

The global executive search industry is highly competitive and fragmented. We compete with other large global executive search firms, smaller specialty firms and, more recently with Internet-based firms and social media. Specialty firms may focus on regional or functional markets or on particular industries to a greater extent than we do. Some of our competitors may possess greater resources, greater name recognition and longer operating histories than we do in particular markets or practice areas, or be willing to reduce their fees or agree to alternative pricing practices in order to attract clients and increase market share. Our competitors may be further along in the development and design of technological solutions to meet client requirements.

There are limited barriers to entry into the search industry and new search firms continue to enter the market. Executive search firms that have a smaller client base than we do may be subject to fewer off-limits arrangements. In addition, our clients or prospective clients may decide to perform executive searches using in-house personnel. Also, as Internet-based firms continue to evolve, they may develop offerings similar to or more expansive than ours, thereby increasing competition for our services or more broadly disrupting the executive search industry. As a result, we may not be able to continue to compete effectively with existing or potential competitors and we may not be able to implement our leadership strategy effectively. Our inability to meet these competitive challenges could have an adverse effect on our business, financial condition and results of operations.

Our net revenue may be affected by adverse economic conditions.

Demand for our services is affected by global economic conditions and the general level of economic activity in the geographic regions in which we operate. During periods of slowed economic activity many companies hire fewer permanent employees, and our business, financial condition and results of operations may be adversely affected. If unfavorable changes in economic conditions occur, our business, financial condition and results of operations could suffer.

A significant currency fluctuation between the U.S. dollar and other currencies could adversely impact our operating income.

With our operations in the Americas, Europe and Asia Pacific, we conduct business using various currencies. In 2020, approximately 40% of our net revenue was generated outside the United States. As we typically transact business in the local currency of our subsidiaries, our profitability may be impacted by the translation of foreign currency financial statements into U.S. dollars. Significant long-term fluctuations in relative currency values, in particular an increase in the value of the U.S. dollar against foreign currencies, could have an adverse effect on our financial condition and results of operations.

Our ability to access additional credit could be limited.

Banks can be expected to strictly enforce the terms of our credit agreement. Although we are currently in compliance with the financial covenants of our revolving credit facility, a deterioration of economic conditions may negatively impact our business resulting in our failure to comply with these covenants, which could limit our ability to borrow funds under our credit facility or from other borrowing facilities in the future. In such circumstances, we may not be able to secure alternative financing or may only be able to do so at significantly higher costs.

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General Risks

Our multinational operations may be adversely affected by social, political, regulatory, legal and economic risks.


We generate substantial revenue outside the United States. We offer our services through a network of offices in 28 countries around the world. Our ability to effectively serve our clients is dependent upon our ability to successfully leverage our operating model across all of these and any future locations, maintain effective management controls over all of our locations to ensure, among other things, compliance with applicable laws, rules and regulations, and instill our core values in all of our personnel at each of these and any future locations. We are exposed to the risk of changes in social, political, legal and economic conditions inherent in our operations, which could have a significant impact on our business, financial condition and results of operations. In addition, we conduct business in countries where the legal systems, local laws and trade practices are unsettled and evolving. Commercial laws in these countries are sometimes vague, arbitrary and inconsistently applied. Under these circumstances, it is difficult for us to determine at all times the exact requirements of such local laws. If we fail to comply with local laws, our business, financial condition and results of operations could suffer. In addition, the global nature of our operations poses challenges to our management, and financial and accounting systems. Failure to meet these challenges could adversely affect our business, financial condition and results of operations.

A significant currency fluctuation between the U.S. dollar and other currencies could adversely impact our operating income.

With our operations in the Americas, Europe and Asia Pacific, we conduct business using various currencies. In 2018, approximately 41% of our net revenue was generated outside the United States. As we typically transact business in the local

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currency of our subsidiaries, our profitability may be impacted by the translation of foreign currency financial statements into U.S. dollars. Significant long-term fluctuations in relative currency values, in particular an increase in the value of the U.S. dollar against foreign currencies, could have an adverse effect on our financial condition and results of operations.

We may not be able to align our cost structure with net revenue.

We must ensure that our costs and workforce continue to be in proportion to demand for our services. Failure to align our cost structure and headcount with net revenue could adversely affect our business, financial condition and results of operations.


Unfavorable tax law changes and tax authority rulings may adversely affect results.


We are subject to income taxes in the United States and in various foreign jurisdictions. Domestic and international tax liabilities are subject to the allocation of income among various tax jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings among countries with differing statutory tax rates, or changes in the valuation allowance of deferred tax assets or tax laws. The amount of income taxes and other taxes are subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. authorities. If these audits result in assessments different from amounts recorded, future financial results may include unfavorable tax adjustments.


We may not be able to generate sufficient profits to realize the benefit of our net deferred tax assets.


We establish valuation allowances against deferred tax assets when there is insufficient evidence that we will be able to realize the benefit of these deferred tax assets. We reassess our ability to realize deferred tax assets as facts and circumstances dictate. If after future assessments of our ability to realize the deferred tax assets we determine that a lesser or greater allowance is required, we record a reduction or increase to the income tax expense and the valuation allowance in the period of such determination. The uncertainty surrounding the future realization of our net deferred tax assets could adversely impact our financial condition and results of operations.


We may not be able to align our cost structure with net revenue.

We must ensure that our costs and workforce continue to be in proportion to demand for our services. Failure to align our cost structure and headcount with net revenue could adversely affect our business, financial condition and results of operations.

We may experience impairment of our goodwill, other intangible assets and other long-lived assets.


In accordance with generally accepted accounting principles, we perform assessments of the carrying value of our goodwill at least annually, and we review our goodwill, other intangible assets and other long-lived assets for impairment whenever events occur or circumstances indicate that a carrying amount of these assets may not be recoverable. These events and circumstances include a significant change in business climate, attrition of key personnel, changes in financial condition or results of operations, a prolonged decline in our stock price and market capitalization, competition, and other factors. In performing these assessments, we must make assumptions regarding the estimated fair value of our goodwill and other intangible assets. These assumptions include estimates of future market growth and trends, forecasted revenue and costs, capital investments, discount rates, and other variables. If the fair market value of one of our reporting units or other long termlong-term assets is less than the carrying amount of the related assets, we would be required to record an impairment charge. Due to continual changes in market and general business conditions, we cannot predict whether, and to what extent, our goodwill and long-lived intangible assets may be impaired in future periods. Any resulting impairment loss could have an adverse impact on our business, financial condition and results of operations.


Our ability to execute and integrate future acquisitions, if any, could negatively affect our business and profitability.

Our future success may depend in part on our ability to complete the integration of acquisition targets successfully into our operations. The process of executing and integrating an acquired business may subject us to a number of risks, including:
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•diversion of management attention;


•failure to successfully further develop the acquired business;


•amortization of intangible assets, adversely affecting our reported results of operations;


•inability to retain and/or integrate the management, key personnel and other employees of the acquired business;


•inability to properly integrate businesses resulting in operating inefficiencies;


•inability to establish uniform standards, disclosure controls and procedures, internal control over financial reporting and other systems, procedures and policies in a timely manner;


•inability to retain the acquired company’s clients;



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•exposure to legal claims for activities of the acquired business prior to acquisition; and


•inability to generate revenues to offset any new liabilities assumed and expenses associated with an acquired business.
If our acquisitions are not successfully executed and integrated, our business, financial condition and results of operations, as well as our professional reputation, could be adversely affected.


We have anti-takeover provisions that make an acquisition of us difficult and expensive.


Anti-takeover provisions in our Certificate of Incorporation, our Bylaws and the Delaware laws make it difficult and expensive for someone to acquire us in a transaction which is not approved by our Board of Directors. Some of the provisions in our Certificate of Incorporation and Bylaws include:


limitations on the removal of directors;

•limitations on stockholder actions; and


•the ability to issue one or more series of preferred stock by action of our Board of Directors.


These provisions could discourage an acquisition attempt or other transaction in which stockholders could receive a premium over the then-current market price for the common stock.


Our ability to access additional credit could be limited.

Banks can be expected to strictly enforce the terms of our credit agreement. Although we are currently in compliance with the financial covenants of our revolving credit facility, a deterioration of economic conditions may negatively impact our business resulting in our failure to comply with these covenants, which could limit our ability to borrow funds under our credit facility or from other borrowing facilities in the future. In such circumstances, we may not be able to secure alternative financing or may only be able to do so at significantly higher costs.

Increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted cyber-related attacks could pose a risk to our systems, networks, solutions, services and data.

Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted cyber-related attacks pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. We have a program in place to detect and respond to data security incidents. However, we remain potentially vulnerable to additional known or unknown threats. We also have access to sensitive, confidential or personal data or information that is subject to privacy and security laws, regulations and client-imposed controls. Despite our efforts to protect sensitive, confidential or personal data or information, we may be vulnerable to security breaches, theft, lost data, employee errors and/or malfeasance that could potentially lead to the compromising of sensitive, confidential or personal data or information, improper use of our systems or networks, unauthorized access, use, disclosure, modification or destruction of information. In addition, a cyber-related attack could result in other negative consequences, including damage to our reputation or competitiveness, remediation or increased protection costs, litigation or regulatory action which could result in a negative impact to our results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS


None.


ITEM 2. PROPERTIES


Our corporate headquarters is located in Chicago, Illinois. We have leased office space in 4948 cities in 25 countries around the world. All of our offices are leased. We do not own any real estate. The aggregate office space under lease was 481,081421,734 square feet as of December 31, 2018.2020. Our office leases call for future minimum lease payments of approximately $150.1$128.7 million and have terms that expire between 20192021 and 2027,2033, exclusive of renewal options that we can exercise. Approximately 7,300 square feet of office space has been sublet to third parties.


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Our office space by geographic segment as of December 31, 20182020 is as follows:
Square

Footage
Americas269,185214,821 
Asia PacificEurope125,940131,586 
EuropeAsia Pacific85,95675,327 
Total481,081421,734 
 


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ITEM 3. LEGAL PROCEEDINGS


We have contingent liabilities from various pending claims and litigation matters arising in the ordinary course of our business, some of which involve claims for damages that may be substantial in amount. Some of these matters are covered by insurance. Based upon information currently available, we believe the ultimate resolution of such claims and litigation will not have a material adverse effect on our financial condition, results of operations or liquidity.


ITEM 4. MINE SAFETY DISCLOSURES


Not applicable.



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PART II
 
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES


Market for Registrant’sour Common EquityStock


Our common stock, $0.01 par value, is listed on the Nasdaq Global Stock Market under the symbol “HSII.” The following table sets forth the high and low stock price per share“HSII”.

Holders of theRecord

As of February 15, 2021, we had 50 holders of record of our common stock for the periods indicated, as reported on the Nasdaq Global Stock Market.and 19,359,586 shares of common stock outstanding. A greater number of holders of our common stock are beneficial holders, whose shares are held by banks, brokers, and other financial institutions.
Year Ended December 31, 2018 High Low
First Quarter $32.65
 $20.95
Second Quarter 39.73
 28.80
Third Quarter 45.29
 33.10
Fourth Quarter 39.69
 28.25
Year Ended December 31, 2017 High Low
First Quarter $26.50
 $20.95
Second Quarter 27.10
 19.90
Third Quarter 22.60
 17.90
Fourth Quarter 26.82
 20.55





































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Performance Graph


We have presented below a graph which compares the cumulative total stockholder return on our common shares with the cumulative total stockholder return of the Standard & Poor’s SmallCap 600 Index and the Standard & Poor’s Composite 1500 Human Resource and Employment Services Index. The S&P Composite 1500 Human Resource & Employment Services Index includes 11 companies in related businesses, including Heidrick & Struggles. Cumulative total return for each of the periods shown in the performance graph is measured assuming an initial investment of $100 on December 31, 2013.2015.


The stock price performance depicted in this graph is not necessarily indicative of future price performance. This graph will not be deemed to be filed as part of this Form 10-K, and will not be deemed to be incorporated by reference by any general statement incorporating this Form 10-K into any filing by us under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate this information by reference.
graphupdatea02.jpg

hsii-20201231_g1.gif


* Assuming $100 invested on 12/31/1315 in HSII or index, including reinvestment of dividends.
Prepared by: Zacks Investment Research, Inc.
Copyright: Standard and Poor’s, Inc.

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Dividends


SinceFrom September 2007 through December 2018, we have paid a quarterly cash dividend of $0.13 per share as approved by our Board of Directors. In 2018,2019, we began paying a quarterly cash dividend of $0.15 per share as approved by our Board of Directors. In 2020, the total cash dividend paid was $0.52$0.60 per share.

The following table outlines the record date, payment date and amount of quarterly cash dividends paid during 2018 and 2017:
QuarterRecord DatePayment DateDividends
(in millions)
Q1 2017February 3, 2017February 17, 2017$2.4
Q2 2017May 5, 2017May 19, 2017$2.4
Q3 2017August 4, 2017August 18, 2017$2.4
Q4 2017November 3, 2017November 17, 2017$2.4
Q1 2018February 2, 2018February 16, 2018$2.5
Q2 2018May 4, 2018May 18, 2018$2.5
Q3 2018August 10, 2018August 24, 2018$2.5
Q4 2018November 9, 2018November 23, 2018$2.5


In February 2019,2021, our Board of Directors approved a quarterly dividend of $0.15 per share on our common stock which will be paid on March 22, 201919, 2021 to shareholders of record as of March 8, 2019. Cash dividends payable of $2.4 million related to the fourth quarter 2017 cash dividend was paid in the first quarter of 2018.5, 2021.


In connection with the quarterly cash dividend, we also pay a dividend equivalent on outstanding restricted stock units. The amounts related to the dividend equivalent payments for restricted stock units are accrued over the vesting period and paid upon vesting. In 20182020 and 2017,2019, we paid $0.2$0.5 million and $0.3$0.4 million, respectively, in dividend equivalent payments.


Issuer Purchases of Equity Securities


On February 11, 2008, we announced that our Board of Directors authorized management to repurchase shares of our common stock with an aggregate purchase price of up to $50 million.million (the "Repurchase Agreement"). We intendmay from time to time and as business conditions warrant to purchase shares of our common stock on the open market or in negotiated or block trades. No time limit has been set for completion of this program. We did not repurchase any shares of our common stock in 2018.2020 or 2019. The most recent purchase of shares of common stock occurred during the year ended December 31, 2012. As of December 31, 2018 and December 31, 2017,2020, we have purchased 1,038,670 shares of our common stock pursuant to the Repurchase Authorization for a total of $28.3 million and $21.7 million remains available for future purchases under the authorization. For further information of our share repurchase activity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”Repurchase Authorization.




15
18




ITEM 6. SELECTED FINANCIAL DATA


The selected financial data presented below has been derived from our audited consolidated financial statements. The data as of December 31, 20182020 and 2017,2019, and for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, is derived from the audited current and historical consolidated financial statements, which are included elsewhere in this Form 10-K. Other than noted below, the data as of December 31, 2016, 20152018, 2017 and 2014,2016, and for the years ended December 31, 20152017 and 2014,2016, are derived from audited historical consolidated financial statements, which are not included in this report. The data set forth is qualified in its entirety by, and should be read in conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”Operations”, the audited consolidated financial statements, the notes thereto, and the other financial data and statistical information included in this Form 10-K.
 Year Ended December 31,
 20202019201820172016
 (in thousands, except per share and other operating data)
Statements of Operations Data
Revenue
Revenue before reimbursements (net revenue)$621,615 $706,924 $716,023 $621,400 $582,390 
Reimbursements7,755 18,690 19,632 18,656 18,516 
Total revenue629,370 725,614 735,655 640,056 600,906 
Operating expenses
Salaries and benefits450,424 501,791 506,349 434,219 400,070 
General and administrative expenses121,378 137,492 140,817 147,316 147,087 
Impairment charges(1)
32,970 — — 50,722 — 
Restructuring charges(2)
52,372 4,130 — 15,666 — 
Reimbursed expenses7,755 18,690 19,632 18,656 18,516 
Total operating expenses664,899 662,103 666,798 666,579 565,673 
Operating income (loss)(35,529)63,511 68,857 (26,523)35,233 
Non-operating income (expense)
Interest, net204 2,880 1,141 385 244 
Other, net3,927 2,898 494 (3,280)2,289 
Net non-operating income (expense)4,131 5,778 1,635 (2,895)2,533 
Income (loss) before income taxes(31,398)69,289 70,492 (29,418)37,766 
Provision for income taxes6,309 22,420 21,197 19,217 22,353 
Net income (loss)$(37,707)$46,869 $49,295 $(48,635)$15,413 
Basic weighted average common shares outstanding19,301 19,103 18,917 18,735 18,540 
Diluted weighted average common shares outstanding19,301 19,551 19,532 18,735 18,939 
Basic net income (loss) per common share$(1.95)$2.45 $2.61 $(2.60)$0.83 
Diluted net income (loss) per common share$(1.95)$2.40 $2.52 $(2.60)$0.81 
Cash dividends paid per share$0.60 $0.60 $0.52 $0.52 $0.52 
Balance Sheet Data (at end of period)
Working capital$154,448 $149,140 $131,916 $77,998 $77,838 
Total assets787,812 844,173 700,629 587,204 581,502 
Long-term debt, less current maturities— — — — — 
Stockholders’ equity267,602 309,115 267,156 212,705 258,590 

(1)Includes goodwill impairment charges of $24.5 million in Europe and $8.5 million in Asia Pacific in 2020. Includes $50.7 million of goodwill and other intangible asset impairment charges related to Heidrick Consulting in 2017. (See Note 8, Goodwill and Other Intangible Assets).
(2)The 2020 restructuring charges consist of $32.8 million of employee-related costs associated with severance agreements and the elimination of certain deferred compensation programs, $18.9 million of real estate related expenses, and $0.7 million of professional fees and other expenses. The 2019 charges consist primarily of employee-related costs associated with severance arrangements. The 2017 charges consist of $13.1 million of employee-related costs associated with severance arrangements, $2.3 million in professional fees and other expenses and $0.3 million in real estate related expenses (See Note 14, Restructuring).


19

  Year Ended December 31,
  2018 2017 2016 2015 2014
  (in thousands, except per share and other operating data)
Statements of Operations Data:          
Revenue:          
Revenue before reimbursements (net revenue) $716,023
 $621,400
 $582,390
 $531,139
 $494,292
Reimbursements 19,632
 18,656
 18,516
 17,172
 18,947
Total revenue 735,655
 640,056
 600,906
 548,311
 513,239
Operating expenses:          
Salaries and employee benefits 506,349
 434,219
 400,070
 369,385
 337,448
General and administrative expenses 140,817
 147,316
 147,087
 127,692
 130,191
Impairment charges (1) —
 50,722
 —
 —
 —
Restructuring charges (2) —
 15,666
 —
 —
 —
Reimbursed expenses 19,632
 18,656
 18,516
 17,172
 18,947
Total operating expenses 666,798
 666,579
 565,673
 514,249
 486,586
Operating income (loss) 68,857
 (26,523) 35,233
 34,062
 26,653
Non-operating income (expense):          
Interest, net 1,141
 385
 244
 (122) (358)
Other, net 494
 (3,280) 2,289
 (2,386) (2,108)
Net non-operating income (expense) 1,635
 (2,895) 2,533
 (2,508) (2,466)
Income (loss) before income taxes 70,492
 (29,418) 37,766
 31,554
 24,187
Provision for income taxes 21,197
 19,217
 22,353
 14,422
 17,390
Net income (loss) $49,295
 $(48,635) $15,413
 $17,132
 $6,797
Basic weighted average common shares outstanding 18,917
 18,735
 18,540
 18,334
 18,210
Diluted weighted average common shares outstanding 19,532
 18,735
 18,939
 18,715
 18,432
Basic net income (loss) per common share $2.61
 $(2.60) $0.83
 $0.93
 $0.37
Diluted net income (loss) per common share $2.52
 $(2.60) $0.81
 $0.92
 $0.37
Cash dividends paid per share $0.52
 $0.52
 $0.52
 $0.52
 $0.52
Balance Sheet Data (at end of period):          
Working capital (3) $131,916
 $77,998
 $77,838
 $79,533
 $112,387
Total assets (3) 700,629
 587,204
 581,502
 572,718
 568,621
Long-term debt, less current maturities —
 —
 —
 —
 23,500
Stockholders’ equity 267,156
 212,705
 258,590
 254,802
 244,664

(1)Includes impairment charges of $50.7 million related to Heidrick Consulting in 2017.
(2)Includes restructuring charges of $15.7 million in 2017. These charges consist of $13.1 million of employee-related costs associated with severance arrangements, $2.3 million in professional fees and other expenses and $0.3 million in real estate related expenses.
(3)
As adjusted for the adoption of ASU No. 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes in 2015.
(4)As adjusted to include Heidrick Consulting Principals for the years ended December 31, 2018 and 2017.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as other sections of this annual report on Form 10-K contain forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements are not historical facts, but instead represent only our beliefs, assumptions, expectations, estimates, forecasts and projections regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These statements include statements other than historical information or statements of current condition and may relate to our future plans and objectives and results. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed under the Section heading “Risk Factors” in Part I, Item 1A of this Form 10-K.


Factors that may affect the outcome of the forward-looking statements include, among other things, the impacts, direct and indirect, of the COVID-19 pandemic on our business, our consultants and employees, and the overall economy; leadership changes, our ability to attract, integrate, develop, manage and retain qualified consultants and senior leaders; our ability to prevent our consultants from taking our clients with them to another firm; our ability to maintain our professional reputation and brand name; the fact that our net revenue may be affected by adverse economic conditions; our clients’ ability to restrict us from recruiting their employees; the aggressive competition we face; our heavy reliance on information management systems; the fact that we face the risk of liability in the services we perform; the fact that data security, data privacy and data protection laws and other evolving regulations and cross-border data transfer restrictions may limit the use of our services and adversely affect our business; social, political, regulatory and legal risks in markets where we operate; the impact of foreign currency exchange rate fluctuations; the fact that we may not be able to align our cost structure with net revenue; unfavorable tax law changes and tax authority rulings; our ability to realize our tax losses; the timing of the establishment or reversal of valuation allowance on deferred tax assets; any impairment of our goodwill, other intangible assets and other long-lived assets; our ability to execute and integrate future acquisitions; the fact that we have anti-takeover provisions that make an acquisition of us difficult and expensive; our ability to access additional credit; and the increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted cyber-related attacks that could pose a risk to our systems, networks, solutions, services and data. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.


The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for years 2020 and 2019. For the discussion of changes from 2018 to 2019 and other financial information related to 2018, refer to "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2019. This document was filed with the SEC on February 24, 2020.

Executive Overview


Our Business


We are a leadership advisory firm providing executive search and consulting services. We help our clients build leadership teams by facilitating the recruitment, management and development of senior executives. We believe focusing on top-level services offers us several advantages that include access to and influence with key decision makers, increased potential for recurring search consulting engagements, higher fees per search, enhanced brand visibility and a leveraged global footprint, which create added barriers to entry for potential competitors. Working at the top of client organizations also allows us to attract and retain high-caliber consultants.


In addition to executive search, we provide consulting services including executive leadership assessment, leadership, team and board development, succession planning, talent strategy, people performance, inter-team collaboration, culture shaping and organizational transformation.


We provide our services to a broad range of clients through the expertise of over 400425 consultants located in major cities around the world. Our executive search services are provided on a retained basis. Revenue before reimbursements of out-of-pocket expenses (“net revenue”) consists of retainers and indirect expenses billed to clients. Typically, we are paid a retainer for our executive search services equal to approximately one-third of the estimated first-year compensation for the position to be filled. In addition, if the actual compensation of a placed candidate exceeds the estimated compensation, we often are
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authorized to bill the client for one-third of the excess. Indirect expenses are calculated as a percentage of the retainer with certain dollar limits per search.


Key Performance Indicators


We manage and assess our performance through various means, with primary financial and operational measures including net revenue, operating income, operating margin, Adjusted EBITDA (non-GAAP) and Adjusted EBITDA margin (non-GAAP).

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Executive Search and Heidrick Consulting performance is also measured using consultant headcount. Specific to Executive Search, confirmationconfirmed search (confirmation) trends, consultant productivity and average revenue per search are used to measure performance. Productivity is as measured by annualized Executive Search net revenue per consultant.


Revenue is driven by market conditions and a combination of the number of executive search engagements and leadership consulting and culture shaping projects and the average revenue per search or project. With the exception of compensation expense, incremental increases in revenue do not necessarily result in proportionate increases in costs, particularly operating and administrative expenses, thus creating the potential to improve operating margins.


The number of consultants, confirmation trends, number of searches or projects completed, productivity levels and the average revenue per search or project will vary from quarter to quarter, affecting net revenue and operating margin.


Our Compensation Model


At the Executive Search consultant level, there are fixed and variable components of compensation. Individuals are rewarded for their performance based on a system that directly ties a portion of their compensation to the amount of net revenue for which they are responsible. A portion of the reward may be based upon individual performance against a series of non-financial measures. Credit towards the variable portion of an executive search consultant’s compensation is earned by generating net revenue for winning and executing work. Each quarter, we review and update the expected annual performance of all Executive Search consultants and accrue variable compensation accordingly. The amount of variable compensation that is accrued for each Executive Search consultant is based on a tiered payout model. Overall Company performance determines the amount available for total variable compensation. The more net revenue that is generated by the consultant, the higher the percentage credited towards the consultant’s variable compensation and thus accrued by our Company as expense. 


At the Heidrick Consulting consultant level, there are also fixed and variable components of compensation. Overall compensation is determined based on the total economic contribution of the Heidrick Consulting segment to the business as a whole. Individual consultant compensation can vary and is derived from credits earned for delivering client work plus credits earned for contributions of intellectual and human capital, client relationship development and consulting practice development. Each quarter, we review and update the expected annual performance of all Heidrick Consulting consultants and accrue variable compensation accordingly.


The mix of individual consultants who generate revenue in Executive Search and economic contributions in Heidrick Consulting can significantly affect the total amount of compensation expense recorded, which directly impacts operating margin. As a result, the variable portion of the compensation expense may fluctuate significantly from quarter to quarter. The total variable compensation is discretionary and is based on Company-wide financial targets approved by the Human Resources and Compensation Committee of the Board of Directors.


A portion of our Executive Search consultants’ andthe Company’s management cash bonuses isare deferred and paid over a three-year vesting period. The portion of the bonus is approximately 15% depending on the employee’s level or position. The compensation expense related to the amounts being deferred is recognized on a graded vesting attribution method over the requisite service period. This service period begins on January 1 of the respective fiscal year and continues through the deferral date, which coincides with ourthe Company’s bonus payments in the first quarter of the following year and for an additional three yearthree-year vesting period. The deferrals are recorded in Accrued salaries and employee benefits within both Current liabilities and Non-current liabilities in the Consolidated Balance Sheets.


Historically, the Company's consultants participated in the same cash bonus deferral program as management. In 2020, the Company terminated the cash bonus deferral for consultants and now pays 100% of the cash bonuses earned by consultants in the first quarter of the following year. Consultant cash bonuses earned prior to 2020 will continue to be paid under the terms of the cash bonus deferral program.

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Impact of COVID-19

On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. COVID-19 has significantly impacted various markets around the world, including the United States.

With infections reported throughout the world, certain governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of the pandemic. Additional, more restrictive proclamations and/or directives may be issued in the future. We temporarily closed our offices and shifted our workforce to remote operations to ensure the safety of our employees. Our offices are now accessible to our employees, however, we continue to encourage all employees to work remotely. During this uncertain time, our critical priorities are:

•the health and safety of our employees, clients and their families;

•providing support to our clients; and

•helping our clients accelerate their business performance and transform with agility.

In response to working remotely, our Executive Search teams employed our robust digital search platform, Heidrick Connect, to operate effectively and efficiently while engaging virtually with our clients. Additionally, we have introduced upgrades to Heidrick Connect, resulting in greater flexibility, increased productivity and the ability to deliver more insights to our clients. Our Heidrick Consulting teams have pivoted to create new digital solutions for Leadership Assessments, Team Acceleration, and Organization and Culture Acceleration that can be delivered virtually in response to required social distancing practices.

Beginning in the second quarter, we experienced a decline in demand for our executive search and consulting services, a lengthening of the executive search process due to a slow-down in client decision making and an inability to execute in-person consulting engagements, which had a material adverse impact on our results of operations. The extent to which the pandemic continues to impact our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including, but not limited to:

•the duration and scope of the pandemic;

•the impact of the pandemic, and actions taken in response to the pandemic, on economic activity;

•governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic;

•restrictions inhibiting our employees’ ability to access our offices;

•the effect on our clients and client demand for our services and solutions;

•our ability to sell and provide our services and solutions, including as a result of travel restrictions and people working from home; and

•the ability of our clients to pay for our services and solutions.

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We expect that all of our business segments, across all of our geographies, will continue to be impacted by the pandemic and actions taken in response to the pandemic, but the significance of the impact of the pandemic on our business and the duration for which it may have an impact cannot be determined at this time. Specific factors that may impact our business include, but are not limited to:

•a decline in demand for our executive search and consulting services due to temporary and permanent workforce reductions, and general economic uncertainty;

•a lengthening of the executive search process due to a slow-down in client decision making;

•an increase in executive searches placed on hold due to delays in planned work by our clients;

•an inability to execute in-person consulting engagements; and

•disruptions in business operations for offices in areas most impacted by the pandemic, including the United States, United Kingdom, Italy, Spain, China and Brazil.

During the year ended December 31, 2020, and as a direct result of the economic impact of COVID-19, we experienced a decline in demand for our executive search services and a lengthening of the executive search process due to a slow-down in client decision making, which had a material adverse impact on our results of operations. As a result, we identified a triggering event and performed an interim goodwill impairment evaluation during the three months ended June 30, 2020 resulting in the impairment of the goodwill in our Europe and Asia Pacific reporting units. We also evaluated the recoverability our intangible and other long-lived assets and determined that no impairment was necessary. We continue to monitor the impact of the economic downturn for additional potential impairment of goodwill, other intangible assets and long-lived assets.

We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. In the event we require additional liquidity, our 2018 Credit Agreement (as defined below) provides us with a senior unsecured revolving line of credit with an aggregate commitment of $175 million, which includes a sublimit of $25 million for letters of credit and a $10 million swingline loan sublimit. The agreement also includes a $75 million expansion feature.

In the third quarter, we implemented a restructuring plan to optimize future growth and profitability. The expected annual cost savings from the restructuring ranges from $30 million to $40 million. The primary components of the restructuring include a workforce reduction, and a reduction of the firm’s real estate expenses, professional fees and the future elimination of certain deferred compensation programs.

As part of this restructuring plan, we implemented several real estate initiatives including downsizing and terminating certain of our existing office leases. Our success working from home, utilizing Heidrick Connect and our digital consulting solutions, allowed us to reevaluate how we utilize our offices and plan to use them in a post-pandemic environment. Upon the expiration of the leases included in the restructuring, we will have reduced our square footage under lease by approximately 20%.

Moving forward, we will continue with our real estate strategy, which consists of three objectives: 1) matching our real estate footprint to the new, post-pandemic office occupancy expectations 2) creating open and collaborative environments, including unassigned work spaces that facilitate work from anywhere; and 3) increasing our focus on reducing our carbon footprint as part of our long-term sustainability goals. We believe we have opportunity to further decrease costs primarily through lease renewals and rightsizing offices where it makes business sense.

We have not experienced any material impact to our internal controls over financial reporting due to the pandemic. We are continually monitoring and assessing the pandemic situation on our internal controls to minimize the impact on their design and operating effectiveness.

2020 Overview

Consolidated net revenue was $716.0$621.6 million for the year ended December 31, 2018, an increase2020, a decrease of $94.6$85.3 million, or 15.2%12.1%, compared to 2017.2019. Executive Search net revenue was $652.9$565.2 million in 2018, an increase2020, a decrease of $100.8$81.2 million compared to 2017.2019. The increasedecrease in Executive Search net revenue was the result of growthdeclines in Asia Pacific, the Americas, Europe and Asia Pacific. Our acquisition of Amrop A/S ("Amrop") in January 2018 also contributed to the growth in Executive Search net revenue. The net impact of the new revenue recognition standard increased Executive Search net revenue by approximately $8.0 million.Europe. The number of Executive Search consultants was 353361 as of December 31, 2018,2020, compared to 346380 as of December 31, 2017.2019. Executive Search productivity, as measured by annualized net Executive Search revenue per consultant was $1.9$1.5 million and $1.6$1.7 million
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for the years ended December 31, 20182020 and 2017,2019, respectively. The number of confirmed searches increased 11.8%decreased 6.3%, compared to 2017.2019. The average revenue per executive search increaseddecreased to $127,300$123,200 in 2018,2020 compared to $120,300$132,000 in 2017.2019. Heidrick Consulting net revenue decreased $6.2$4.1 million, or 9.0%6.8%, to $63.1$56.4 million in 2018,2020 from $69.4$60.6 million in 2017. Heidrick Consulting net revenue declined by approximately $3.8 million due to the adoption of the new revenue recognition standard and its impact on revenue associated with enterprise agreements.2019. The number of Heidrick Consulting consultants was 6665 as of December 31, 2018,2020, compared to 6471 as of December 31, 2017.2019.

Operating incomeloss as a percentage of net revenue was 9.6%5.7% in 2018,2020, compared to an operating loss marginincome as a percentage of 4.3%revenue of 9.0% in 2017.2019. The change in operating income was primarily due to an increasea decrease in net revenue of $94.6$85.3 million, and the impact$52.4 million of impairment

18


restructuring charges, and restructuring$33.0 million of impairment charges of $50.7 and $15.6 million, respectively, in 2017,2020, partially offset by an increasedecreases in salaries and employee benefits expense, and general and administrative expenses of $72.1 million.$51.4 million and $16.1 million, respectively. Salaries and employee benefits expense as a percentage of net revenue was 70.7%72.5% in 2018 and 69.9%2020, compared to 71.0% in 2017.2019. General and administrative expense as a percentage of net revenue was 19.7%19.5% in 2018 and 23.7%2020, compared to 19.4% in 2017.2019.


We ended the year with combined cash, and cash equivalents, and marketable securities of $279.9$336.5 million, an increase of $72.3$3.6 million compared to $207.5$332.9 million at December 31, 2017. The increase was primarily due to the strong cash inflows from operations partially offset by acquisition spend, restructuring payments and larger bonus payments year over year.2019. We pay the majority of bonuses in the first quarter following the year in which they were earned. Employee bonuses are accrued throughout the year and are based on the Company’s performance and the performance of the individual employee. We expect to pay approximately $202.0$180.4 million in bonuses related to 20182020 performance in March and April 2019.2021. In January 2019,2021, we paid approximately $14.0$19.9 million in cash bonuses deferred in prior years.


20192021 Outlook

We are currently forecasting 20192021 first quarter net revenue of between $165$160 million and $175$170 million. Our 20192021 first quarter guidance is based upon, among other things, management’s assumptions for the anticipated volume of new executive search confirmations and leadership consulting and culture shaping projects, the current backlog, consultant productivity, consultant retention, the seasonality of our business and average currency rates from December 2018.2020.

Our 20192021 first quarter guidance is subject to a number of risks and uncertainties, including those disclosed under "Item 1A - Risk"Risk Factors" and in this "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K. As such, actual results could vary from these projections.



19
24




Results of Operations


The following table summarizes, for the periods indicated, the results of operations (in thousands, except per share data):
 Year Ended December 31,
 202020192018
Revenue
Revenue before reimbursements (net revenue)$621,615 $706,924 $716,023 
Reimbursements7,755 18,690 19,632 
Total revenue629,370 725,614 735,655 
Operating expenses
Salaries and benefits450,424 501,791 506,349 
General and administrative expenses121,378 137,492 140,817 
Impairment charges(1)
32,970 — — 
Restructuring charges(2)
52,372 4,130 — 
Reimbursed expenses7,755 18,690 19,632 
Total operating expenses664,899 662,103 666,798 
Operating income (loss)(35,529)63,511 68,857 
Non-operating income
Interest, net204 2,880 1,141 
Other, net3,927 2,898 494 
Net non-operating income4,131 5,778 1,635 
Income (loss) before taxes(31,398)69,289 70,492 
Provision for income taxes6,309 22,420 21,197 
Net income (loss)$(37,707)$46,869 $49,295 
Weighted-average common shares outstanding
Basic19,301 19,103 18,917 
Diluted19,301 19,551 19,532 
Earnings (loss) per common share
Basic$(1.95)$2.45 $2.61 
Diluted$(1.95)$2.40 $2.52 
Cash dividends paid per share$0.60 $0.60 $0.52 
  Year Ended December 31,
  2018 2017 2016
Revenue      
Revenue before reimbursements (net revenue) $716,023
 $621,400
 $582,390
Reimbursements 19,632
 18,656
 18,516
Total revenue 735,655
 640,056
 600,906
Operating Expenses      
Salaries and employee benefits 506,349
 434,219
 400,070
General and administrative expenses 140,817
 147,316
 147,087
Impairment charges (1) —
 50,722
 —
Restructuring charges (2) —
 15,666
 —
Reimbursed expenses 19,632
 18,656
 18,516
Total operating expenses 666,798
 666,579
 565,673
Operating income (loss) 68,857
 (26,523) 35,233
Non-operating income (expense)      
Interest, net 1,141
 385
 244
Other, net 494
 (3,280) 2,289
Net non-operating income (expense) 1,635
 (2,895) 2,533
Income (loss) before taxes 70,492
 (29,418) 37,766
Provision for income taxes 21,197
 19,217
 22,353
Net income (loss) $49,295
 $(48,635) $15,413
Basic weighted average common shares outstanding 18,917
 18,735
 18,540
Diluted weighted average common shares outstanding 19,532
 18,735
 19,038
Basic net income (loss) per common share $2.61
 $(2.60) $0.83
Diluted net income (loss) per common share $2.52
 $(2.60) $0.81
Cash dividends paid per share $0.52
 $0.52
 $0.52


(1)Includes impairment charges of $50.7 million related to Heidrick Consulting in 2017.
(2)Includes restructuring charges of $15.7 million in 2017. These charges consist of $13.1 million of employee-related costs associated with severance arrangements, $2.3 million in professional fees and other expenses and $0.3 million in real estate related expenses.

(1)Includes goodwill impairment charges of $33.0 million related to Europe and Asia Pacific in 2020 (See Note 8, Goodwill and Other Intangible Assets).

(2)Includes restructuring charges of $30.5 million in the Americas, $8.6 million in Europe, $4.6 million in Asia Pacific, $4.7 million in Heidrick Consulting, and $4.0 million in Global Operations Support. The 2019 restructuring charges include $4.1 million in the Americas and less than $0.1 million in Global Operations Support. (See Note 14, Restructuring).








20
25




The following table summarizes, for the periods indicated, our results of operations as a percentage of revenue before reimbursements (net revenue):
 Year Ended December 31,
 202020192018
Revenue
Revenue before reimbursements (net revenue)100.0 %100.0 %100.0 %
Reimbursements1.2 2.6 2.7 
Total revenue101.2 102.6 102.7 
Operating expenses
Salaries and benefits72.5 71.0 70.7 
General and administrative expenses19.5 19.4 19.7 
Impairment charges5.3 — — 
Restructuring charges8.4 0.6 — 
Reimbursed expenses1.2 2.6 2.7 
Total operating expenses107.0 93.7 93.1 
Operating income (loss)(5.7)9.0 9.6 
Non-operating income
Interest, net— 0.4 0.2 
Other, net0.6 0.4 0.1 
Net non-operating income0.7 0.8 0.2 
Income (loss) before income taxes(5.1)9.8 9.8 
Provision for income taxes1.0 3.2 3.0 
Net income (loss)(6.1)%6.6 %6.9 %
  Year Ended December 31,
  2018 2017 2016
Revenue:      
Revenue before reimbursements (net revenue) 100.0% 100.0 % 100.0%
Reimbursements 2.7
 3.0
 3.2
Total revenue 102.7
 103.0
 103.2
Operating expenses: 
 
 
Salaries and employee benefits 70.7
 69.9
 68.7
General and administrative expenses 19.7
 23.7
 25.3
Impairment Charges —
 8.2
 —
Restructuring charges —
 2.5
 —
Reimbursed expenses 2.7
 3.0
 3.2
Total operating expenses 93.1
 107.3
 97.1
Operating income (loss) 9.6
 (4.3) 6.0
Non-operating income (expense) 
 
 
Interest, net 0.2
 0.1
 —
Other, net 0.1
 (0.5) 0.4
Net non-operating income (expense) 0.2
 (0.5) 0.4
Income (loss) before income taxes 9.8
 (4.7) 6.5
Provision for income taxes 3.0
 3.1
 3.8
Net income (loss) 6.9% (7.8)% 2.6%


Note: Totals and subtotals may not equal the sum of individual line items due to rounding.



















26


We operate our Executive Search business in the Americas, Europe (which includes Africa) and Asia Pacific (which includes the Middle East), and we operate our Heidrick Consulting business globally, (See Note 18, 17, Segment Information).


21



The following table sets forth, for the periods indicated, our revenue and operating income by segment (in thousands):
 Year Ended December 31,
 202020192018
Revenue
Executive Search
Americas$361,416 $415,455 $405,267 
Europe124,243 135,070 145,348 
Asia Pacific79,511 95,827 102,276 
Total Executive Search565,170 646,352 652,891 
Heidrick Consulting56,445 60,572 63,132 
Revenue before reimbursements (net revenue)621,615 706,924 716,023 
Reimbursements7,755 18,690 19,632 
Total revenue$629,370 $725,614 $735,655 
Operating income (loss)
Executive Search
Americas(1)
$62,806 $100,833 $96,880 
Europe(2)
(22,827)3,026 5,849 
Asia Pacific(3)
(6,724)13,590 15,999 
Total Executive Search33,255 117,449 118,728 
Heidrick Consulting(4)
(28,369)(18,499)(13,619)
Total segments4,886 98,950 105,109 
Global Operations Support(5)
(40,415)(35,439)(36,252)
Total operating income (loss)$(35,529)$63,511 $68,857 
  Year Ended December 31,
  2018 2017 2016
Revenue:      
Executive Search      
Americas $405,267
 $339,793
 $313,292
Europe 145,348
 125,346
 108,754
Asia Pacific 102,276
 86,905
 85,319
Total Executive Search 652,891
 552,044
 507,365
Heidrick Consulting 63,132
 69,356
 75,025
Revenue before reimbursements (net revenue) 716,023
 621,400
 582,390
Reimbursements 19,632
 18,656
 18,516
Total revenue $735,655
 $640,056
 $600,906
       
Operating income (loss):      
Executive Search      
Americas (1) $96,880
 $75,337
 $71,993
Europe (2) 5,849
 13
 5,943
Asia Pacific (3) 15,999
 537
 3,944
Total Executive Search 118,728
 75,887
 81,880
Heidrick Consulting (4) (13,619) (62,368) (5,322)
Total segments 105,109
 13,519
 76,558
Global Operations Support (5) (36,252) (40,042) (41,325)
Total operating income (loss) $68,857
 $(26,523) $35,233


(1)Operating income for the Americas includes $0.8 million of restructuring charges in 2017.
(2)Operating income for Europe includes $4.0 million of restructuring charges in 2017.
(3)Operating income for Asia Pacific includes $2.0 million of restructuring charges in 2017.
(4)Operating loss for Heidrick Consulting includes $50.7 million of impairment charges and $3.4 million of restructuring charges in 2017.
(5)Operating loss for Global Operations Support includes $5.5 million of restructuring charges in 2017.

(1)Includes $30.5 million and $4.1 million of restructuring charges in 2020 and 2019, respectively.
(2)Includes $24.5 million of goodwill impairment charges and $8.6 million of restructuring charges in 2020.
(3)Includes $8.5 million of goodwill impairment charges and $4.6 million of restructuring charges in 2020.
(4)Includes $4.7 million of restructuring charges in 2020.
(5)Includes $4.0 million of restructuring charges in 2020.

Year ended December 31, 20182020 compared to year ended December 31, 20172019


Total revenue. Consolidated total revenue increased $95.6decreased $96.2 million, or 14.9%13.3%, to $735.7$629.4 million in 20182020 from $640.1$725.6 million in 2017.2019. The increasedecrease in total revenue was primarily due to the increasedecrease in revenue before reimbursements (net revenue).


Revenue before reimbursements (net revenue). Consolidated net revenue increased $94.6decreased $85.3 million, or 15.2%12.1%, to $716.0$621.6 million in 20182020 from $621.4$706.9 million in 2017.2019. Foreign exchange rates positivelynegatively impacted results by $4.0$0.9 million, or 0.6%0.1%. Executive Search net revenue was $652.9$565.2 million in 2018, an increase2020, a decrease of $100.8$81.2 million, or 12.6%, compared to 2017.2019. The increasedecrease in Executive Search net revenue was the result of growthdeclines in the Americas, Europe, and Asia Pacific. Our acquisition of Amrop in January 2018 also contributed to the growth in Executive Search net revenue. The net impact of the new revenue recognition standard increased Executive Search net revenue by approximately $8.0 million.all three executive search regions. Heidrick Consulting net revenue decreased $6.2$4.1 million, or 9.0%6.8%, to $63.1$56.4 million in 20182020 from $69.4$60.6 million in 2017.2019. Both Executive Search revenue and Heidrick Consulting net revenue declinedwere materially impacted by approximately $3.8 millionthe ongoing COVID-19 pandemic. Significant factors contributing to the decline in revenue include a decline in demand for our executive search and consulting services, a lengthening of the executive search process due to the adoption of the new revenue recognition standarda slow-down in client decision making and its impact on revenue associated with enterprise agreements.an inability to execute in-person consulting engagements.


The number of Executive Search and Heidrick Consulting consultants was 353361 and 66,65, respectively, as of December 31, 2018,2020, compared to 346380 and 64,71, respectively, as of December 31, 2017. Specific to2019. Executive Search which is our largest business, productivity, as measured by annualized net Executive Search revenue per consultant, was $1.9$1.5 million and $1.6$1.7 million for the years ended December 31, 2018
27


2020 and 2017,2019, respectively. The number of confirmed searches increased 11.8%decreased 6.3%, compared to 2017.2019. The average revenue per executive search increaseddecreased to $127,300$123,200 in 20182020 compared to $120,300$132,000 in 2017.2019.


Salaries and employee benefits. Consolidated salaries and employee benefits expense increased $72.1decreased $51.4 million, or 16.6%10.2%, to $506.3$450.4 million in 20182020 from $434.2$501.8 million in 2017.2019. The increasedecrease was due to higherlower fixed compensation of $24.9$13.5 million and

22


higher lower variable compensation of $47.2$37.9 million. Fixed compensation increaseddecreased due toretirement and benefits, and talent acquisition and retention costs, stock compensation, base salaries and payroll taxes, and retirement and benefits, partially offset by a decline in the deferred compensation plan due to market fluctuations. Our acquisition of Amrop in January 2018 contributed to thean increase in base salaries and payroll taxes and retirement and benefits.taxes. Variable compensation increaseddecreased due to increasedlower production overcompared to the prior year. The impact of the new revenue recognition standard increased salaries and benefits expense by approximately $3.0 million. Foreign exchange rate fluctuations negativelypositively impacted salaries and employee benefits expenses by $2.4$1.5 million, or 0.5%0.3%.


In 2018,2020, we had an average of 1,6101,708 employees, compared to an average of 1,7981,680 employees in 2017.2019.


As a percentage of net revenue, salaries and employee benefits expense was 70.7%72.5% in 2018,2020, compared to 69.9%71.0% in 2017.2019.


General and administrative expenses. Consolidated general and administrative expenses decreased $6.5$16.1 million, or 4.4%11.7%, to $140.8$121.4 million in 20182020 from $147.3$137.5 million in 2017.2019. The decrease was primarily due to a reductiondecreases in the use of external third-party consultants by Heidrick Consulting, lower expenses associated with global partner meetings, lowerinternal travel, office occupancy, hiring fees, marketing, intangible amortization, due to intangible asset impairment in the prior year,earnout accretion, and bad debt expense,taxes and licenses, partially offset by increases in professional fees, information technology, and office occupancy.bad debt. Foreign exchange rate fluctuations negativelypositively impacted general and administrative expenses by $0.8$0.3 million, or 0.6%0.3%.


As a percentage of net revenue, general and administrative expenses were 19.7%19.5% in 2018,2020, compared to 23.7%19.4% in 2017.2019.


Impairment charges. In 2017,2020, and as a direct result of the economic impact of COVID-19, the Company determined thatexperienced a decline in demand for our executive search services and a lengthening of the executive search process due to a slow-down in client decision making, which had a material adverse impact on our results of operations. As a result, the Company identified a triggering event and performed an interim goodwill impairment evaluation. Based on the results of the of the impairment evaluation, the Company recorded an impairment charge of $24.5 million in Europe and intangible asset within the Culture Shaping and Leadership Consulting reporting units were impaired, which resulted$8.5 million in impairment chargesAsia Pacific to write-off all of $39.2 million and $11.6 million, respectively, to write off all the goodwill and intangible assets associated with each of the reporting units.unit. The impairments wereimpairment was non-cash in nature and did not affect our current liquidity, cash flows, borrowing capability or operations,operations; nor did theyit impact the debt covenants under our credit agreement. The impairment charges are recorded within Impairment charges in the Condensed Consolidated Statements of Comprehensive Income (Loss) for the twelve months ended December 31, 2017. In 2018, the Company completed the integration of its Leadership Consulting and Culture Shaping businesses into one combined service offering, Heidrick Consulting..


Restructuring charges. During the fourth quarter 2017, the Company announced a restructuring plan to reduce overall costs and improve efficiencies in its operations. As a result of this plan, theThe Company incurred approximately $15.7$52.4 million in restructuring charges forduring the year ended December 31, 2017. These charges included approximately $13.1 million in severance-related charges, $2.3 million in2020. The primary components of the restructuring include a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and other expenses, and $0.3the future elimination of certain deferred compensation programs. The Company incurred approximately $4.1 million in office-related charges. There were no similar restructuring charges during the year ended December 31, 2019 in 2018.connection with initiatives to integrate the Company's existing Brazil operations into the 2GET business operation. The expenses were primarily employee-related including the elimination of duplicative positions in the Company's existing Brazil operations. The restructuring charges are recorded within Restructuring charges in the Consolidated Statements of Comprehensive Income (Loss).


Operating income. Our consolidatedConsolidated operating incomeloss was $68.9 million in 2018, compared to a loss of $26.5$35.5 million, including impairment charges of $50.7$33.0 million and restructuring charges of $15.7$52.4 million in 2017.2020, compared to operating income of $63.5 million, including restructuring charges of $4.1 million, in 2019. Foreign exchange rate fluctuations positively impacted operating income by $0.8$1.0 million, or 1.2%2.1%. Excluding the impact of impairment and restructuring charges in 2017, operating income increased $29.0 million from $39.7 million to $68.9 million.


Net non-operating income (expense). Net non-operating income was $1.6$4.1 million in 2018,2020, compared to expense$5.8 million in 2019.

Interest, net was income of $0.2 million in 2020, a $2.7 million decrease from $2.9 million in 2017.2019. The decrease was primarily the result of reduced yields on the Company's investments in U.S. Treasury bills, lower overall par value throughout the year on which interest could be earned, and interest paid on the credit facility.

Net interest income was $1.1 million in 2018, a $0.7 million increase from net interest income of $0.4 million in 2017.


Other, net was income of $0.5$3.9 million in 2018,2020, compared to expense of $3.3$2.9 million in 2017. Other, net results improved2019. The increase was primarily due to Her Majesty's Revenue and Customs ("HMRC") employee benefit tax settlementthe result of $2.4 milliongains on the deferred compensation plan assets. Investments held in 2017, as well as the positive impact of foreign exchange rate fluctuations of $1.2 million.Company’s deferred compensation plan are recorded at fair value.


Income taxes. See Note 1715, Income Taxes.




28


Executive Search


Americas


The Americas segment reported net revenue of $405.3$361.4 million in 2018, an increase2020, a decrease of 19.3%13.0% from $339.8$415.5 million in 2017.2019. The increasedecrease in net revenue was driven bydue to a 14.4% increase2.6% decrease in the number of executive search confirmations compared to the prior year, as well as an increaseand a decrease in average revenue per executive search. The net impact of the new revenue recognition standard increased revenue by approximately $4.1 million. All industry practice groups contributed to the increased net revenue.decline in revenue with the exception of the Life Sciences practice group. Foreign

23


exchange fluctuations negatively impacted net revenue by $0.7$2.0 million, or 0.2%0.6%. There were 179 Partner and Principal190 Executive Search consultants in the Americas as of December 31, 2018,2020, compared to 163200 as of December 31, 2017.2019.


Salaries and employee benefits expense increased $45.7decreased $34.7 million, or 21.1%13.3%, from 2017.compared to 2019. Fixed compensation increased $14.6decreased $11.4 million, primarily due to decreases in retirement and benefits, talent acquisition and retention costs, stock compensation, and retirementbase salaries and benefits, partially offset by a decrease in the deferred compensation plan due to market fluctuations.payroll taxes. Variable compensation increased $31.1decreased $23.3 million primarily due to higherlower bonus accruals foras a result of decreased consultant performance. The impactproductivity, partially offset by contingent compensation related to the acquisition of the new revenue recognition standard increased salaries and benefits expense by approximately $2.9 million.2GET.


General and administrative expenses decreased $1.0$7.7 million, or 2.0%15.7%, from 2017 primarilycompared to 2019 due to a decrease in communications, bad debt,internal travel, office occupancy, and office occupancy,taxes and licenses, partially offset by increases in professional services,other operating expense and internal travel.bad debt.


Restructuring charges were $0.8 million for the year ended December 31, 2017. These charges included approximately $0.6$30.5 million in severance-related charges2020. The primary components of the restructuring include a workforce reduction, a reduction of the Company’s real estate expenses and $0.2 million in professional fees, and other expenses.

Operating income was $96.9the future elimination of certain deferred compensation programs. Restructuring charges were $4.1 million in 2018, an increase2019. The charges were incurred in connection with initiatives to integrate the Company's existing Brazil operations into the 2GET business operation. The expenses were primarily employee-related including the elimination of $21.5duplicative positions in the Company's existing Brazil operations.

The Americas reported operating income of $62.8 million, including restructuring charges of $30.5 million, in 2020, a decrease of $38.0 million compared to $75.3$100.8 million, including restructuring charges of $4.1 million, in 2017. Excluding the impact of restructuring charges in 2017, operating income increased $20.8 million from $76.1 million in 2017 to $96.9 million in 2018.2019.


Europe


Europe reported net revenue of $145.3$124.2 million in 2018, an increase2020, a decrease of 16.0%8.0% from $125.3$135.1 million in 2017.2019. The increasedecrease in net revenue was due to a 13.1% increase10.2% decrease in the number of executive search confirmations compared to the prior year and the Amrop acquisition. The net impact of the new revenue recognition standard increased revenue by approximately $1.0 million.confirmations. All industry practice groups contributed to netthe decline in revenue growth.with the exception of the Social Impact and Life Sciences practice groups. Foreign exchange rate fluctuations positively impacted net revenue by $4.7$1.4 million, or 3.3%1.1%. There were 101 Partner and Principal102 Executive Search consultants in Europe as of December 31, 2018,2020, compared to 103107 as of December 31, 2017.2019.


Salaries and employee benefits expense increased $14.5decreased $10.9 million, or 15.9%10.8%, from 2017.compared to 2019. Fixed compensation increased $5.7decreased $2.7 million primarily due increases in base salaries and payroll taxes andto retirement and benefits, and talent acquisition and retention costs, partially offset by a decreasean increase in separation costs. Base salaries, payroll taxes, and retirement and benefits increasedstock compensation. Variable compensation decreased $8.2 million due to additional headcountlower bonus accruals as a result of the Amrop acquisition. Variable compensation increased $8.8 million due to higher bonus accruals fordecreased consultant performance. The impact of the new revenue recognition standard increased salaries and benefits expense by approximately $0.7 million.productivity.


General and administrative expense increased $3.7expenses decreased $7.1 million, or 12.1% from 2017 primarily23.1%, compared to 2019, due to ongoing generalinternal travel, office occupancy, intangible amortization and administrative expenses related toearnout accretion, partially offset by increases in the Amrop acquisition,use of external third-party consultants, professional fees, and office occupancy.bad debt.


Impairment charges in 2020 were $24.5 million as a result of an interim impairment evaluation on the goodwill of the Europe reporting unit.

Restructuring charges were $3.9 million for the year ended December 31, 2017. These charges included approximately $3.9$8.6 million in severance-related2020. The primary components of the restructuring include a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and the future elimination of certain deferred compensation programs.

Europe reported an operating loss of $22.8 million, including impairment and restructuring charges and $0.1of $33.1 million, in in office-related charges.

The Europe segment reported2020, a decrease of $25.9 million compared to operating income of $5.8$3.0 million in 2018 compared to less than $0.1 million in 2017. Excluding the impact of restructuring charges in 2017, operating income increased $1.8 million from $4.0 million in 2017 to $5.8 million in 2018.2019.


29


Asia Pacific


Asia Pacific reported net revenue of $102.3$79.5 million in 2018, an increase2020, a decrease of 17.7%17.0% compared to $86.9$95.8 million in 2017.2019. The increasedecrease in net revenue was due to a 5.5% increase9.4% decrease in the number of executive search confirmations and an increasea decrease in average revenue per executive search. The net impact of the new revenue recognition standard increased revenue by approximately $3.0 million. All industry practice groups contributed to the increasedecline in net revenue with the exception of the EducationSocial Impact and Social EnterprisesLife Sciences practice group.groups. Foreign exchange rate fluctuations negatively impacted net revenue by $0.7$0.5 million, or 0.7%0.6%. There were 73 Partner and Principal69 Executive Search consultants in Asia Pacific as of December 31, 2018,2020, compared to 8073 as of December 31, 2017.2019.


Salaries and employee benefits expense increased $5.2decreased $7.7 million, or 8.6% from 2017.12.4%, compared to 2019. Fixed compensation decreased by $0.7increased $0.8 million due to decreases in base salaries and payroll taxes and retirement and benefits, partially offset by an increase in talent acquisition and retention costs. Variable compensation increased $5.9 million due to higher bonus accruals for consultant performance. The impact of the new revenue recognition standard increased salaries and benefits expense by approximately $2.1 million.

24


General and administrative expenses decreased $3.3 million, or 13.6% from 2017 primarily due to decreases in bad debt, internal travel and office occupancy.

Restructuring charges were $2.0 million for the year ended December 31, 2017. These charges include approximately $1.8 million in severance-related charges, $0.1 million in office-related charges and $0.1 million in professional fees and other expenses.

The Asia Pacific segment reported operating income of $16.0 million in 2018, an increase of $15.5 million compared to $0.5 million in 2017. Excluding the impact of restructuring charges in 2017, operating income increased $13.4 million from $2.6 million to $16.0 million.

Heidrick Consulting

The Heidrick Consulting segment reported net revenue of $63.1 million in 2018, a decrease of 9.0% compared to $69.4 million in 2017. The decline in revenue was primarily the result of the adoption of the new revenue recognition standard and its $3.8 million negative impact on revenue associated with enterprise agreements. Enterprise agreements are now recognized over a longer term due to certain renewal options included in the contract. Foreign exchange rate fluctuations positively impacted results by $0.7 million, or 1.1%. There were 66 Heidrick Consulting Partner and Principal consultants as of December 31, 2018, compared to 64 as of December 31, 2017.

Salaries and employee benefits expense increased $3.9 million, or 8.0%, from 2017. Fixed compensation increased $4.6 million primarily due to increases in talent acquisition and retention costs, and base salaries and payroll taxes, partially offset by a decrease in retirement and benefits. Variable compensation decreased $0.7$8.5 million due to lower bonus accruals foras a result of a decline in consultant performance. The impact of the new revenue recognition standard decreased salaries and benefits expense by approximately $2.7 million.productivity.


General and administrative expenses decreased $4.8$1.4 million, or 16.7%6.8%, from 2017compared to 2019 primarily due to internal travel, hiring fees, and communication services, partially offset by increases in bad debt and other operating expenses.

Impairment charges in 2020 were $8.5 million as a result of decreases inan interim impairment evaluation on the usegoodwill of external third-party consultants and intangible amortization as a result of impairment in the prior year, partially offset by an increase in professional services.Asia Pacific reporting unit.

Impairment charges for the year ended December 31, 2017 were $50.7 million due to the impairment of goodwill and amortizable intangible assets associated with our Leadership Consulting and Culture Shaping reporting units. The impairment charge is recorded within Impairment charges in the Condensed Consolidated Statement of Comprehensive Income (Loss) for the year ended December 31, 2017. In 2018, the Company completed the integration of its Leadership Consulting and Culture Shaping businesses into one combined service offering, Heidrick Consulting.


Restructuring charges were $3.4 million for the year ended December 31, 2017. These charges included approximately $2.1$4.6 million in severance-related charges, $1.2 million in2020. The primary components of the restructuring include a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and other expenses and $0.1 million in office-related charges.the future elimination of certain deferred compensation programs.


The Heidrick Consulting segmentAsia Pacific reported an operating loss of $13.6$6.7 million, in 2018, an increase of $48.7 million, compared to an operating loss of $62.4 million in 2017. Excluding the impact ofincluding impairment and restructuring charges in 2017, operating loss decreased $5.4 million from a loss of $8.3 million to a loss of $13.6 million.

Global Operations Support

Global Operations Support expenses decreased $3.8 million, or 9.5%, to $36.3 million from $40.0 million in 2017.

Salaries and employee benefits expense increased $2.8 million, or 15.4%, due to increases in management and support bonuses, stock compensation and separation costs, partially offset by a decrease in the deferred compensation plan due to market fluctuations.

General and administrative expense decreased $1.2 million due to decreases in internal travel, professional fees, hiring fees and communications services, partially offset by an increase in office occupancy.

Restructuring charges were $5.5 million for the year ended December 31, 2017. These charges included approximately $4.5 million of severance-related charges and $0.9 million of professional fees and other costs. Excluding the impact of restructuring charges in 2017, expenses increased $1.7 million from $34.6 million in 2017 to $36.3 million in 2018.


25


Year ended December 31, 2017 compared to year ended December 31, 2016

Total revenue. Consolidated total revenue increased $39.2 million, or 6.5%, to $640.1 million for the year ended December 31, 2017 from $600.9 million for the year ended December 31, 2016. The increase in total revenue was primarily due to the increase in revenue before reimbursements (net revenue).

Revenue before reimbursements (net revenue). Consolidated net revenue increased $39.0 million or 6.7%, to $621.4 million in 2017, from $582.4 million in 2016. Foreign exchange rate fluctuations negatively impacted results by $1.4 million, or 0.2%. Executive Search net revenue was $552.0 million in 2017, an increase of $44.7 million from 2016. The increase in Executive Search net revenue was the result of growth in the Americas, Europe and Asia Pacific. Heidrick Consulting net revenue decreased $5.7 million, or 7.6%, to $69.4 million in 2017 from $75.0 million in 2016.

The number of Executive Search and Heidrick Consulting consultants was 346 and 64, respectively, as of December 31, 2017 compared to 335 and 62, respectively, as of December 31, 2016. Specific to Executive Search, productivity as measured by annualized net Executive Search revenue per consultant was $1.6 million for each of the years ended December 31, 2017 and 2016, respectively. The number of confirmed searches increased 4.5%, compared to 2016. The average revenue per executive search increased to $120,300 for the year ended December 31, 2017, compared to $117,700 for the year ended December 31, 2016.

Salaries and employee benefits. Consolidated salaries and employee benefits expense increased $34.1 million, or 8.5%, to $434.2 million in 2017 from $400.1 million in 2016. The increase was due to higher variable compensation of $23.2 million and higher fixed compensation of $10.9 million. Fixed compensation increased due to higher average headcount due to recent acquisitions, new hires over the last year and the HMRC employee benefit tax settlement of $1.5 million. Variable compensation increased due to increased production over the prior year. Foreign exchange rate fluctuations positively impacted salaries and benefits expense by $0.4 million, or 0.1%.

In 2017, we had an average of 1,798 employees, compared to an average of 1,716 employees in 2016.

As a percentage of net revenue, salaries and employee benefits expense was 69.9% in 2017, compared to 68.7% in 2016.

General and administrative expenses. Consolidated general and administrative expenses increased $0.2 million, or 0.2%, to $147.3 million in 2017 from $147.1 million in 2016. Foreign exchange rate fluctuations positively impacted general and administrative expenses by $0.8 million, or 0.5%.

As a percentage of net revenue, general and administrative expenses were 23.7% in 2017, compared to 25.3% in 2016.

Impairment charges. In 2017, the Company determined that the goodwill and intangible assets within the Culture Shaping and Leadership Consulting reporting units were impaired, which resulted in impairment charges of $39.2 million and $11.6 million, respectively, to write off all the goodwill and intangible assets associated with each of the reporting units. The impairments were non-cash in nature and did not affect our current liquidity, cash flows, borrowing capability or operations, nor did they impact the debt covenants under our credit agreement. The impairment charges are recorded within Impairment charges in the Condensed Consolidated Statements of Comprehensive Income (Loss) for the twelve months ended December 31, 2017. In 2018, the Company completed the integration of its Leadership Consulting and Culture Shaping businesses into one combined service offering, Heidrick Consulting.

Restructuring charges. During the fourth quarter of 2017, the Company announced a restructuring plan to reduce overall costs and improve efficiencies in its operations. As a result of this plan, the Company incurred approximately $15.7 million in restructuring charges for the year ended December 31, 2017. These charges included approximately $13.1 million, in severance-related charges, $2.32020, a decrease of $20.3 million in professional fees and other expenses and $0.3 million in office-related charges. There were no similar restructuring charges in 2016.

Operating income. Our consolidated operating income was a loss of $26.5 million in 2017, compared to income of $35.2 million in 2016. The operating loss was primarily due to $50.7 million in impairment charges as well as $15.7 million in restructuring charges. Excluding impairment and restructuring charges, the Company reported operating income of $39.9 million. Exchange rate fluctuations negatively impacted operating income by $0.2 million, or 0.7%, for the year ended December 31, 2017.

Net non-operating income (expense). Net non-operating expense was $2.9$13.6 million in 2017, compared to net non-operating income of $2.5 million in 2016.2019.



Heidrick Consulting
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Net interest income was $0.4 million in 2017, a $0.2 million increase from net interest income of $0.2 million in 2016.

Other, net was expense of $3.3 million in 2017 compared to income of $2.3 million in 2016. Other, net results declined primarily due to the HMRC employee benefit tax settlement of $2.4 million.

Income taxes. See Note 17, Income Taxes.

Executive Search

Americas

The Americas segmentHeidrick Consulting reported net revenue of $339.8$56.4 million in 2017, an increase2020, a decrease of 8.5% from $313.36.8% compared to $60.6 million in 2016.2019. The increasedecrease in net revenue was driven by a 5.7% increasedue to an 8.8% decrease in the number of executive searchconsulting confirmations comparedand an inability to the prior year as well as an increaseexecute in consultant headcount. All industry practice groups contributed to the increased net revenue. The number of consultants was 163 as of December 31, 2017, compared to 158 as of December 31, 2016.

Salaries and employee benefits expense increased $19.2 million from 2016. Fixed compensation increased $7.1 million primarily due to increases in base salaries and payroll taxes, separation costs, and stock compensation expense,person consulting engagements, partially offset by a decreaseone large consulting project in the deferred compensation plan due to market fluctuations. Variable compensation increased $12.1 million primarily due to higher bonus accruals for consultant performance.

General and administrative expenses increased $3.2 million primarily due to increases in professional fees and office occupancy, partially offset by a decrease in hiring fees and temporary labor.

Restructuring charges were $0.8 million for the year ended December 31, 2017. These charges included approximately $0.6 million in severance-related charges and $0.2 million in professional fees and other expenses.

Operating income was $75.3 million in 2017, an increasefirst quarter of $3.3 million compared to $72.0 million in 2016. Excluding the impact of restructuring charges, the Americas segment reported operating income of $76.1 million.

Europe

Europe reported net revenue of $125.3 million in 2017, an increase of 15.3% from $108.8 million in 2016. The increase in net revenue was driven by a 6.2% increase in the number of executive search confirmations compared to the prior year and an increase in consultant headcount. Our acquisition of JCA Group Limited ("JCA Group") in August 2016 also contributed to the year-over-year growth in net revenue. Foreign exchange rate fluctuations negatively impacted results by $1.0 million, or 0.8%. All industry practice groups contributed to net revenue growth with the exception of the Global Technology & Services practice group. The number of consultants was 103 as of December 31, 2017, compared to 95 as of December 31, 2016.

Salaries and employee benefits expense increased $15.7 million from 2016. Fixed compensation increased $7.0 million primarily due to compensation expense associated with the JCA Group acquisition in August 2016, increases in legacy base salaries and payroll taxes and the HMRC employee benefit tax settlement, net of reimbursements. Variable compensation increased $8.7 million due to higher bonus accruals for consultant performance.

General and administrative expense increased $2.8 million from 2016 primarily due to ongoing general and administrative expenses related to the JCA Group acquisition including increases in amortization and accretion and professional services.

Restructuring charges were $3.9 million for the year ended December 31, 2017. These charges included approximately $3.9 million in severance-related charges and $0.1 million in office-related charges.

The Europe segment reported operating income of less than $0.1 million in 2017, a decrease of $5.9 million compared to $5.9 million in 2016. Excluding the impact of restructuring charges, the Europe segment reported operating income of $4.0 million.


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Asia Pacific

Asia Pacific reported net revenue of $86.9 million in 2017, an increase of 1.9% compared to $85.3 million in 2016. The Life Sciences, Industrial, and Financial Services practice groups contributed to the increase in net revenue.2020. Foreign exchange rate fluctuations positively impacted results by $0.4$0.2 million, or 0.4%. The number ofThere were 65 Heidrick Consulting consultants was 80 as of December 31, 2017,2020, compared to 8271 as of December 31, 2016.2019.


Salaries and employee benefits expense increased $3.1$1.5 million, from 2016.or 2.6%, compared to 2019. Fixed compensation remained consistent with the prior yeardecreased $0.6 million, due to decreases in base salariestalent acquisition and payroll taxes and minimum guarantee and sign-on bonus amortization, offset by increases inretention costs, retirement and benefits, and stock compensation. Variable compensation increased $3.1 million due to higher bonus accruals for consultant performance.

General and administrative expenses decreased $0.2 million primarily due to lower office occupancy, internal travel, and taxes and licenses,separation, partially offset by an increase in bad debt.

Restructuring charges were $2.0 million for the year ended December 31, 2017. These charges included approximately $1.8 million in severance-related charges, $0.1 million in office-related chargesbase salaries and $0.1 million in professional fees and other expenses.

The Asia Pacific segment reported operating income of $0.5 million in 2017, a decrease of $3.4 million compared to $3.9 million in 2016. Excluding the impact of restructuring charges, the Asia Pacific segment reported operating income of $2.6 million.

Heidrick Consulting

The Heidrick Consulting segment reported net revenue of $69.4 million in 2017, a decrease of 7.6% compared to $75.0 million in 2016. The decrease in net revenue was due to a decline in the volume of client work. Foreign exchange rate fluctuations negatively impacted results by $1.2 million, or 1.7%. There were 64 Heidrick Consulting Partner and Principal consultants at December 31, 2017, compared to 62 at December 31, 2016.

Salaries and employee benefits expense increased $0.2 million from 2016. Fixedpayroll taxes. Variable compensation increased $1.0 million primarily due to the acquisitions of Decision Strategies International, Inc. ("DSI") and Philosophy IB, partially offset by decreases in minimum guarantee and sign-on bonus amortization and separation. Variable compensation decreased $0.9$2.0 million due to lower bonus accruals.accruals on certain consulting arrangements.


General and administrative expenses decreased $2.9$0.4 million, from 2016 primarilyor 1.7%, compared to 2019, due to decreases in intangible amortization and accretion as a result of current year impairments, litigation expense and professional fees, partially offset by increases ininternal travel, office occupancy, and the use of external third-party consultants, to complete client work.partially offset by increases in professional fees and bad debt.

Impairment charges for the year ended December 31, 2017 were $50.7 million due to the impairment of goodwill and amortizable intangible assets associated with our Leadership Consulting and Culture Shaping reporting units. The impairment charge is recorded within Impairment charges in the Condensed Consolidated Statement of Comprehensive Income (Loss) for the year ended December 31, 2017. In 2018, the Company completed the integration of its Leadership Consulting and Culture Shaping businesses into one combined service offering, Heidrick Consulting.


Restructuring charges were $3.4 million for the year ended December 31, 2017. These charges included approximately $2.1$4.7 million in severance-related charges, $1.2 million in2020. The primary components of the restructuring include a workforce reduction, a reduction of the Company’s real estate expenses and professional fees, and other expenses and $0.1 million in office-related charges.the future elimination of certain deferred compensation programs.


The Heidrick Consulting segment reported an operating loss of $62.4$28.4 million, including restructuring charges of $4.7 million, in 2017, a decrease2020 an increase of $57.0$9.9 million compared to an operating loss of $5.3$18.5 million in 2016. The increased operating loss primarily reflects $50.7 million of impairment charges for goodwill and intangible assets, as well as restructuring charges of $3.4 million. Excluding the impact of impairment and restructuring charges, the Heidrick Consulting segment reported an operating loss of $8.4 million.2019.


Global Operations Support


Global Operations Support expenses in 2017 decreased $1.3increased $1.0 million, or 3.1%2.8%, to $40.0$36.4 million from $41.3$35.4 million in 2016.2019.


Salaries and employee benefits expense decreased $4.1expenses increased $0.5 million, or 2.5%, compared to 2019 due to decreases in base salaries and payroll taxes, stock compensation expense as a result of forfeitures during the year, and management and support bonuses,separation, partially offset by increasesdecreases in the deferred compensation plan due to market fluctuations.retirement and benefits, and talent acquisition and retention costs.


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General and administrative expense decreased $2.7expenses increased $0.5 million, or 3.2%, compared to 2019 due to decreases in professional fees office occupancy and hiring fees and temporary labor,information technology, partially offset by increasesdecreases in internal travel and information technology costs.office occupancy.

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Restructuring charges were $5.5$4.0 million forin 2020. The primary components of the year ended December 31, 2017. These charges included approximately $4.5 millionrestructuring include a workforce reduction, a reduction of severance-related chargesthe Company’s real estate expenses and $0.9 million of professional fees, and other costs. Excluding the impactfuture elimination of restructuring charges, Global Operations Support expenses were $34.6 million in 2017.certain deferred compensation programs.


Liquidity and Capital Resources


General. We continually evaluate our liquidity requirements, capital needs and availability of capital resources based on our operating needs. We believe that our available cash balances together with the funds expected to be generated from operations and funds available under our committed revolving credit facility will be sufficient to finance our operations for the foreseeable future, as well as to finance the cash payments associated with our cash dividends and stock repurchase program.


We pay the non-deferred portion of annual bonuses in the first quarter following the year in which they are earned. Employee bonuses are accrued throughout the year and are based on our performance and the performance of the individual employee.


Lines of Credit.credit. On October 26, 2018, the Companywe entered into a new Credit Agreement (the "2018 Credit Agreement") to replace the Second Amended and Restated Credit Agreement (the "Restated Credit Agreement") executed on June 30, 2015.. The 2018 Credit Agreement provides the Companyus with a senior unsecured revolving line of credit with an aggregate commitment of $175 million, which includes a sublimit of $25 million for letters of credit and a $10 million swingline loan sublimit. The agreement also includes a $75 million expansion feature. The 2018 Credit Agreement will mature in October 2023. Borrowings under the 2018 Credit Agreement bear interest at the Company'sour election of the Alternate Base Rate (as defined in the 2018 Credit Agreement) or Adjusted LIBOR (as defined in the 2018 Credit Agreement) plus a spread as determined by the Company’sour leverage ratio.


Borrowings under the 2018 Credit Agreement may be used for working capital, capital expenditures, Permitted Acquisitions (as defined in the 2018 Credit Agreement) and for other general purposes of the Company and its subsidiaries.purposes. The obligations under the 2018 Credit Agreement are guaranteed by certain of the Company'sour subsidiaries.


The CompanyWe capitalized approximately $1.0 million of loan acquisition costs related to the 2018 Credit Agreement, which will be amortized over the remaining term of the agreement.


Before October 26,During the year ended December 31, 2020, we borrowed $100.0 million under the 2018 Credit Agreement. We elected to draw down a portion of the Company was party to its Restated Credit Agreement, which was executed on June 30, 2015. The Restated Credit Agreement provided a single senior unsecuredavailable funds from our revolving line of credit withas a precautionary measure to increase our cash position and further enhance our financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak. We believed that we had more than sufficient liquidity, even prior to taking this action, but elected to draw down available funds out of an aggregate commitmentabundance of up to $100 million, which included a sublimitcaution in this period of $25 million for lettersuncertainty. The draw-down proceeds from the revolving line of credit were invested in short-term securities and a $50 million expansion feature. Borrowings under the Restated Credit Agreement bore interest at the Company’s election of the existing Alternate Base Rate (as defined in the Restated Credit Agreement) or the Adjusted LIBOR Rate (as defined in the Restated Credit Agreement) plus a spread as determined by the Company’s leverage ratio.

During the three months ended March 31, 2018, the Company borrowed $20 million under the Restated Credit Agreement and elected the Adjusted LIBOR Rate. The Companywe subsequently repaid $8$100.0 million during the three monthsyear ended MarchDecember 31, 2018 and $12 million during the three months ended June 30, 2018.2020.

During the three months ended March 31, 2017, the Company borrowed $40 million under the Restated Credit Agreement and elected the Adjusted LIBOR rate. The Company subsequently repaid $15 million during the three months ended March 31, 2017 and $25 million during the three months ended June 30, 2017.


As of December 31, 20182020 and 2017, the CompanyDecember 31, 2019, we had no outstanding borrowings under either the 2018 Credit Agreement or the Restated Credit Agreement. The Company wasborrowings. In both periods, we were in compliance with the financial and other covenants under both facilitiesthe facility and no event of default existed.


Cash, and cash equivalents. Cash and cash equivalents, and marketable securities. Cash, cash equivalents and marketable securities at December 31, 20182020 were $279.9$336.5 million, an increase of $72.4$3.6 million compared to $207.5$332.9 million at December 31, 2017.2019. The $279.9$336.5 million of cash, and cash equivalents, and marketable securities at December 31, 20182020 includes $112.1$122.8 million held by our foreign subsidiaries. A portion of the $112.1$122.8 million is considered permanently reinvested in these foreign subsidiaries. If these funds were required to satisfy obligations in the United States, the repatriation of these funds could cause us to incur additional foreign withholding taxes. We expect to pay approximately $202.0$180.4 million in variable compensation related to 20182020 performance in March and April 2019.2021. In January 2019,2021, we paid approximately $14.0$19.9 million in variable compensation that was deferred in prior years.



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Cash flows provided by operating activities. In 2018, For the year ended December 31, 2020, cash provided by operating activities was $102.9$23.4 million, principallyprimarily reflecting net loss net of non-cash charges of $30.6 million and a decrease in accounts receivable of $22.6 million, partially offset by a decrease in accrued expenses of $26.5 million. The decrease in accrued expenses primarily reflects approximately $202.0 million of 2019 bonuses paid in March 2020, offset by 2020 bonus accruals of $180.4 million.

For the year ended December 31, 2019, cash provided by operating activities was $78.6 million, primarily reflecting net income net of non-cash charges of $68.6$69.2 million, a decrease in accounts receivable of $6.9 million, an increase in net retirement and pension plan liabilities of $3.3 million and an increase in accrued expenses of $71.5 million, partially offset by an increase in accounts receivable of $16.8 million and restructuring payments of $11.6$2.4 million. The increase in accrued expenses primarily reflects approximately $202.0$205.0 million of current year bonus accruals, partially offset by $148.0$202.0 million of bonus payments for 20172018 made in early 2018.2019.

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In 2017, cash provided by operating activities was $67.0 million, principally reflecting net income net of non-cash charges of $21.1 million, an increase in accrued expenses of $18.3 million and a restructuring accrual of $13.0 million. The increase in accrued expenses primarily reflects approximately $148 million of current year bonus accruals, partially offset by $128 million of bonus payments for 2016 made in early 2017.



In 2016, cash provided by operating activities was $21.9 million, principally reflecting net income net of non-cash charges of $41.3 million and an increase in the net retirement and pension plan liability of $4.2 million, partially offset by an increase in accounts receivable of $14.4 million, a change in other assets and liabilities of $3.0 million, a change in accrued liabilities of $3.8 million and an increase in prepaid expenses of $2.3 million.

Cash flows used in investing activities. Cash used in investing activities was $8.2 million for For the year ended December 31, 2018,2020, cash provided investing activities was $32.6 million, primarily due to capital expendituresproceeds from the maturity and sales of $6.0 million, the acquisitionmarketable securities and investments of Amrop for $3.1 million and purchases of available for sale securities of $2.2$158.9 million, partially offset by proceeds from the salepurchases of available for salemarketable securities and investments of $3.0$118.9 million and capital expenditures of $7.3 million. The increase in capital expenditures is primarily the result of office build-outs and a global information technology update.build-outs.


CashFor the year ended December 31, 2019, cash used in investing activities was $15.3$69.3 million, for the year ended December 31, 2017, primarily due to purchases of marketable securities and investments of $130.4 million, the acquisition of 2GET for $3.5 million, and capital expenditures of $14.0 million and purchases of available for sale securities of $2.3$3.4 million, partially offset by proceeds from the salematurity and sales of available for salemarketable securities and investments of $1.4$68.0 million. The increasedecrease in capital expenditures is primarily the result of reduced office build-outs and a global information technology update.build-outs.


Cash flows used in investing activities was $35.0 million forfinancing activities. For the year ended December 31, 2016, primarily due to the acquisitions of JCA Group, DSI and Philosophy IB, capital expenditures of $5.3 million and the purchase of available for sale securities of $2.5 million.

Cash flows used in financing activities. Cash2020, cash used in financing activities in 2018 was $17.0$16.4 million, primarily due to cash dividend payments of $10.2$12.0 million, earnout payments related to the JCA GroupAmrop acquisitions of $3.6$2.8 million, and the payment of employee tax withholdings on equity transactions of $2.2$1.6 million. Gross proceedsborrowings and payments on the Company's line of credit were each $20.0$100.0 million during the year ended December 31, 2018.2020.


CashFor the year ended December 31, 2019, cash used in financing activities in 2017 was $17.1$18.2 million, primarily due to cash dividend payments of $10.1$11.8 million, earnout payments related to the Co Company and Scambler MacGregor acquisitions of $4.6 million and the payment of employee tax withholdings on equity transactions of $2.4 million. Gross proceeds$4.6 million, and payments on the Company's line of credit were each $40.0 million during the year ended December 31, 2017.

Cash used in financing activities in 2016 was $17.2 million due to cash dividend payments of $10.0 million, earnout payments forrelated to the Senn Delaney, Scambler MacGregor and Co CompanyDSI acquisitions of $4.6 million, and the payment of employee tax withholdings on equity transactions of $2.7$1.9 million.


On February 11, 2008, we announced that our Boarda Repurchase Authorization of Directors authorized management to repurchase shares of our common stock with an aggregate total amount up to $50 million. We intendmay from time to time and as business conditions warrant to purchase shares of our common stock on the open market or in negotiated or block trades. No time limit has been set for completion of this program. We did not repurchase any shares of our common stock in 2018.2020 or 2019. The most recent purchase of shares of common stock occurred during the year ended December 31, 2012. As of December 31, 2018,2020 we have purchased 1,038,670 shares of our common stock pursuant to the Repurchase Authorization for a total of $28.3 million and $21.7 million remains available for future purchases under the authorization. Unless terminated or extended earlierRepurchase Authorization.

COVID-19 Considerations We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. We expect that all of our business segments, across all of our geographies, will continue to be impacted to some degree by resolutionthe pandemic and actions taken in response to the pandemic, but the significance of the Boardimpact of Directors, the program will expire whenpandemic on our business and liquidity, and the amount authorizedduration for repurchases has been spent.which it may have an impact cannot be determined at this time. In the event we require additional liquidity, our 2018 Credit Agreement provides us with a senior unsecured revolving line of credit with an aggregate commitment of $175 million, which includes a sublimit of $25 million for letters of credit and a $10 million swingline loan sublimit. The agreement also includes a $75 million expansion feature.


Off-balance sheet arrangements. We do not have material off-balance sheet arrangements, special purpose entities, trading activities of non-exchange traded contracts or transactions with related parties.


Contractual obligations. The following table presents our known contractual obligations as of December 31, 2018,2020, and the expected timing of cash payments related to these contractual obligations (in millions):

 Payments due for the years ended December 31,
 20212022202320242025ThereafterTotal
Contractual obligations:
Operating lease obligations$28.1 $25.8 $23.8 $14.0 $6.7 $30.2 $128.7 
Asset retirement obligations (1)0.8 0.2 0.6 1.3 0.2 0.2 3.3 
Total$28.9 $26.0 $24.4 $15.3 $6.9 $30.4 $132.0 
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  Payments due for the years ended December 31,
  2019 2020 2021 2022 2023 Thereafter Total
Contractual obligations:              
Operating lease obligations $34.5
 $31.8
 $27.4
 $23.4
 $20.1
 $14.4
 $151.6
Asset retirement obligations (1) 0.3
 0.2
 0.8
 0.1
 0.4
 0.9
 2.7
Total $34.8
 $32.0
 $28.2
 $23.5
 $20.5
 $15.3
 $154.3


(1) Represents the fair value of the obligation associated with the retirement of tangible long-lived assets primarily related to our obligation at the end of the lease term to return office space to the landlord in its original condition.


In addition to the contractual obligations included in the above table, we have liabilities related to certain employee benefit plans. These liabilities are recorded in our Consolidated Balance Sheet at December 31, 2018.2020. The obligations related to these employee benefit plans are described in Note 12, 11, Employee Benefit Plans, and Note 13, 12, Pension Plan and Life Insurance Contract,, in the Notes to Consolidated Financial Statements. As the timing of cash disbursements related to these employee benefit plans is uncertain, we have not included these obligations in the above table. The table excludes our liability for
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uncertain tax positions including accrued interest and penalties, which totaled $1.5$0.5 million as of December 31, 2018,2020, since we cannot predict with reasonable reliability the timing of cash settlements to the respective taxing authorities.


Application of Critical Accounting Policies and Estimates


General. Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared using accounting principles generally accepted in the United States of America. Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies and Note 3, Revenue, in the Notes to Consolidated Financial Statements. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. If actual amounts are ultimately different from previous estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.


An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, there are different estimates that reasonably could have been used, or if changes in the accounting estimates are reasonably likely to occur periodically, that could materially impact the financial statements. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of the Consolidated Financial Statements.


Revenue recognition. In our Executive Search segment, revenue is recognized as we satisfy our performance obligations by transferring a good or service to a client. Generally, each of our executive search contracts contain one performance obligation which is the process of identifying potentially qualified candidates for a specific client position. In most contracts, the transaction price includes both fixed and variable consideration. Fixed compensation is comprised of a retainer, equal to approximately one-third of the estimated first year compensation for the position to be filled, and indirect expenses, equal to a specified percentage of the retainer, as defined in the contract. The CompanyWe generally bills itsbill our clients for itsthe retainer and indirect expenses in one-third increments over a three-month period commencing in the month of a client’s acceptance of the contract. If actual compensation of a placed candidate exceeds the original compensation estimate, the Company iswe are often authorized to bill the client for one-third of the excess compensation. The Company refersWe refer to this additional billing as uptick revenue. In most contracts, variable consideration is comprised of uptick revenue and direct expenses. The Company bills itsWe bill our clients for uptick revenue upon completion of the executive search, and direct expenses are billed as incurred.


As required under Accounting Standards Update ("ASU") No. 2014-09, the Companywe now estimatesestimate uptick revenue at contract inception, based on a portfolio approach, utilizing the expected value method based on a historical analysis of uptick revenue realized in the Company’s geographic regions and industry practices, and initially recordsrecord a contract’s uptick revenue in an amount that is probable not to result in a significant reversal of cumulative revenue recognized when the actual amount of uptick revenue for that contract is known. Differences between the estimated and actual amounts of variable consideration are recorded when known. The Company doesWe do not estimate revenue for direct expenses as it is not materially different than recognizing revenue as direct expenses are incurred.


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Revenue from our executive search engagement performance obligation is recognized over time as our clients simultaneously receive and consume the benefits provided by the Company'sour performance.  Revenue from executive search engagements is recognized over the expected average period of performance, in proportion to the estimated personnel time incurred to fulfill our obligations under the executive search contract. Revenue is generally recognized over a period of approximately six months.


Our executive search contracts contain a replacement guarantee which provides for an additional search to be completed, free of charge except for expense reimbursements, should the candidate presented by the Companyus be hired by the client and subsequently terminated by the client for performance reasons within a specified period of time. The replacement guarantee is an assurance warranty, which is not a performance obligation under the terms of the executive search contract, as the Company doeswe do not provide any services under the terms of the guarantee that transfer benefits to the client in excess of assuring that the identified candidate complies with the agreed-upon specifications. The Company accountsWe account for the replacement guarantee under the relevant warranty guidance in ASC 460 - Guarantees.


In our Heidrick Consulting segment, revenue is recognized as we satisfy our performance obligations by transferring a good or service to a client. Heidrick Consulting enters into contracts with clients that outline the general terms and conditions of
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the assignment to provide succession planning, executive assessment, top team and board effectiveness and culture shaping programs. The consideration the Company expectswe expect to receive under each contract is generally fixed. Most of our consulting contracts contain one performance obligation, which is the overall process of providing the consulting service requested by the client. The majority of our consulting revenue is recognized over time utilizing both input and output methods. Contracts that contain coaching sessions, training sessions or the completion of assessments are recognized using the output method as each session or assessment is delivered to the client. Contracts that contain general consulting work are recognized using the input method utilizing a measure of progress that is based on time incurred on the project.
The Company entersWe enter into enterprise agreements with clients to provide a license for online access, via the Company's SDour Culture Connect platform, to training and other proprietary material related to the Company'sour culture shaping programs. The consideration the Company expectswe expect to receive under the terms of an enterprise agreement is comprised of a single fixed fee. Our enterprise agreements contain multiple performance obligations, the delivery of materials via SDCulture Connect and material rights related to options to renew enterprise agreements at a significant discount. The Company allocatesWe allocate the transaction price to the performance obligations in the contract on a stand-alone selling price basis. The stand-alone selling price for the initial term of the enterprise agreement is outlined in the contract and is equal to the price paid by the client for the agreement over the initial term of the contract. The stand-alone selling price for the options to renew, or material right, are not directly observable and must be estimated. This estimate is required to reflect the discount the client would obtain when exercising the option to renew, adjusted for the likelihood that the option will be exercised. The Company estimatesWe estimate the likelihood of renewal using a historical analysis of client renewals. Access to SDCulture Connect represents a right to access the Company’sour intellectual property that the client simultaneously receives and consumes as the Company performswe perform under the agreement, and therefore the Company recognizeswe recognize revenue over time. Given the continuous nature of this commitment, the Company utilizeswe utilize straight-line ratable revenue recognition over the estimated subscription period as the Company'sour clients will receive and consume the benefits from SDCulture Connect equally throughout the contract period. Revenue related to client renewals of enterprise agreements is recognized over the term of the renewal, which is generally twelve months. Enterprise agreements do not comprise a significant portion of the Company'sour revenue.


Each of the Company'sour contracts has an expected duration of one year or less.Accordingly, the Company haswe have elected to utilize the available practical expedient related to the disclosure of the transaction price allocated to the remaining performance obligations under its contracts. The Company hasWe have also elected the available practical expedients related to adjusting for the effects of a significant financing component and the capitalization of contract acquisition costs. The Company chargesWe charge and collectscollect from itsour clients, sales tax and value added taxes as required by certain jurisdictions. The Company hasWe have made an accounting policy election to exclude these items from the transaction price in itsour contracts.


Income taxes. Determining the consolidated provision for income tax expense, income tax liabilities and deferred tax assets and liabilities involves judgment. As a global company, we calculate and provide for income taxes in each of the tax jurisdictions in which we operate. This involves estimating current tax exposures in each jurisdiction as well as making judgments regarding the recoverability of deferred tax assets. Tax exposures can involve complex issues and may require an extended period to resolve. Changes in the geographic mix or estimated level of annual income before taxes can affect the overall effective tax rate.


The recognition of deferred tax assets is based on management’s belief that it is more likely than not that the tax benefits associated with temporary differences, net operating loss carryforwards and tax credits will be utilized. We assess the recoverability of the deferred tax assets on an ongoing basis. In making this assessment, we consider all positive and negative evidence, and all potential sources of taxable income including scheduled reversals of deferred tax liabilities, tax-planning strategies, projected future taxable income and recent financial performance.


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Deferred taxes have been recorded for U.S. income taxes and foreign withholding taxes related to undistributed foreign earnings that are not permanently reinvested. Annually, we assess material changes in estimates of cash, working capital and long-term investment requirements in order to determine whether these earnings should be distributed. If so, an additional provision for taxes may apply, which could materially affect our future effective tax rate.


Goodwill and other intangible assets. We reviewperform assessments of the carrying value of goodwill for impairment annually. We also review goodwillat least annually and long-lived assets, including identifiable intangible assets, for impairment whenever events occur or changes in circumstances indicate that it is more-likely-than-not that the fair value has fallen below thea carrying amount of an asset. We review factors such asgoodwill may not be recoverable. These circumstances may include a significant change in business climate, attrition of key personnel, changes in financial condition or results of operations, a prolonged decline in our stock price and market capitalization, competition, and other factors to determine if an impairment test is necessary. Our annual impairment test begins with a qualitative assessment to determine whether it is necessary to perform a fair value based goodwill impairment test. The qualitative assessment includes evaluating whether events and circumstances indicate that it is more-likely-than-not that fair values of reporting units are greater than the carrying values. If the qualitative factors do not indicate that it is more-likely-than-not that the fair values of the reporting units are greater than the carrying values then we perform the fair value test.factors.


The Company operatesWe operate four reporting units: the Americas, Europe (which includes Africa), Asia Pacific (which includes the Middle East) and Heidrick Consulting. The goodwill impairment test is completed by comparing the fair value of a reporting unit with its carrying amount.amount, including goodwill. The fair value of each of the Company’sour reporting units is determined using a discounted cash flow methodology. The discounted cash flow approach is dependent on a number of factors including estimates of future
34


market growth and trends, forecasted revenue and costs, capital investments, appropriate discount rates, certain assumptions to allocate shared costs, assets and liabilities, historical and projected performance of our reporting units, the outlook for the executive search industry and the macroeconomic conditions affecting each of our reporting units. The assumptions used in the determination of fair value were (1) a forecast of growth in the near and long term; (2) the discount rate; (3) working capital investments; (4) macroeconomic conditions and (5) other factors. We base our fair value estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. The fair value of our reporting units is also impacted by our overall market capitalization and may be impacted by volatility in our stock price and assumed control premium, among other factors. As a result, actual future results may differ from those estimates and may result in a future impairment charge. These assumptions are updated annually, at a minimum, to reflect information concerning our reportable segments. The Company continues to monitor potential triggering events including changes in the business climate in which it operates, the Company’s market capitalization compared to its book value, and the Company’s recent operating performance. Any changes in these factors could result in an impairment charge. An impairment charge is recognized for the amount by which the carrying value of a reporting unit exceeds its carrying amount;fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit.

Additionally, we review long-lived assets, such as property, equipment, and purchased intangibles subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge, equal to the amount by which the carrying amount of the asset exceeds the fair value of the asset, is recognized.


We believe that the accounting estimate related to goodwill and other intangible asset impairment is a critical accounting estimate because the assumptions used are highly susceptible to changes in the operating results and cash flows of our reportable segments.


Other intangible assets and long-lived assets. We review our other intangible assets and long-lived assets, including property and equipment and right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge, equal to the amount by which the carrying amount of the asset group exceeds the fair value of the asset group, is recognized.

We believe that the accounting estimate related to other intangible and long-lived asset impairment is a critical accounting estimate because the assumptions used are highly susceptible to changes in operating results and cash flows.

Recently Adopted Financial Accounting Standards

In 2018, the Company adopted ASU No. 2018-02, Income Statement - Reporting Comprehensive Income, intended to improve the usefulness of information reported as a result of the Tax Cuts and Jobs Act. The new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. ASU 2018-02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company elected not to utilize the available option to reclassify stranded tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act to retained earnings.


On January 1, 2018, the Company2020, we adopted ASU No. 2017-09, Compensation - Stock Compensation, Scope2016-13, Measurement of Modification Accounting, which is intendedCredit Losses on Financial Instruments, and all related ASU amendments, using the modified retrospective method. The guidance amends the impairment model by requiring entities to provide clarity and reduce diversity in practice, cost and complexity when implementinguse a change in the terms or conditionsforward-looking approach based on expected losses to estimate credit losses on certain types of a share-based payment award. ASU No. 2017-09 requires that an entity should account for the effects of a modification unless the fair value, vesting conditions and whether the award is classified as a liability instrument or an equity instrument remain unchanged in the modification.financial instruments, including trade receivables. The adoption of this guidance did not havehad an immaterial impact on the Company's financial

33


statements. The future impact of this accounting guidance will be dependent on future modification events including the number of awards modified.

On January 1, 2018, the Company adopted ASU No. 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost, which is intended to improve the consistency, transparency and usefulness of net benefit cost disclosures. ASU No. 2017-07 requires that an employer report the service cost component of net benefit cost in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Additionally, the other components of net benefit costs are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The adoption of this guidance did not have an impact on the Company's financial statements.

On January 1, 2018, the Company adopted ASU No. 2016-18,Consolidated Statement of Cash Flows: Restricted Cash, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. The adoption of this guidance increased the Company's beginning and ending balances of cash, cash equivalents and restricted cash in the CondensedComprehensive Income (Loss), Consolidated Balance Sheet, Consolidated Statement of Cash Flows by approximately $0.4 million and $0.6 million, respectivelyConsolidated Statement of Changes in Stockholders' Equity for the year ended December 31, 2018. Beginning and ending balances of cash, cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows increased by approximately $0.6 million and $0.6 million, respectively for the year ended December 31, 2017. Beginning and ending balances of cash, cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows increased by approximately $7.8 million and $0.6 million, respectively for the year ended December 31, 2016.2020.

On January 1, 2018, the Company adopted ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice as to how certain cash receipts and cash payments should be presented and classified. The adoption of this guidance did not have a material impact on the Company's financial statements for the years ended December 31, 2018 and 2017. For the year ended December 31, 2016, the Company reclassified approximately $2.9 million of earnout payments from cash flows used in financing activities to cash flows provided by operating activities. The reclassified amount represents the amount of the earnout payement that is in excess of the earnout accrual established at the acquisition date.

On January 1, 2018, the Company adopted ASU No. 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments including the recognition of unrealized changes in fair value within net income. The adoption of this guidance resulted in a reclassification of accumulated unrealized gains of approximately $6.1 million from accumulated other comprehensive income to retained earnings. The impact of the adoption of this guidance on the Company's Condensed Consolidated Statement of Comprehensive Income for the year ended December 31, 2018, was not material. The comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods.

On January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers, using the modified retrospective method. The Company applied the guidance to all contracts that were not complete as of the adoption date. The guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for these goods or services. The Company recognized the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of retained earnings. The comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods. See Note 3, Revenue in the Notes to Consolidated Financial Statements.


Recent Financial Accounting Standards


In February 2016,March 2020, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02, Leases,2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance is intended to improveprovide temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting about leasing transactions.burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The guidance requires entities that lease assets to recognize on their balance sheetsCompany is currently evaluating the assets and liabilities for the rights and obligations created by those leases and to disclose key information about the leasing arrangements. impact of this accounting guidance. The effect is not known or reasonably estimable at this time.

In July 2018,December 2019, the FASB, issued ASU No. 2018-10, Codification Improvements2019-12, Simplifying the Accounting for Income Taxes. The guidance simplifies the accounting for income taxes by eliminating certain exceptions to Topic 842 (Leases), which provides narrow amendmentsthe guidance in ASC 740 related to clarify how to apply certainthe approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also simplifies aspects of the new lease standard,accounting for franchise taxes and ASU No. 2018-11, Targeted Improvements to Topic 842 (Leases), which provides an additional, optional transition methodenacted changes in tax laws or rates and clarifies the accounting for transactions that allows entities to initially apply the requirements by recognizingresult in a cumulative-effect adjustment to the opening balance of retained earningsstep-up in the periodtax basis of adoption. An entity that adopts this method must report comparative periods in accordance with current guidance (Topic 840).goodwill. The guidance is effective for fiscal years, and interim and annual periods within those fiscal years, beginning after December 15, 2018 with early2021. Early adoption is permitted.


34



The Company will adopt the guidance on January 1, 2019 using the modified retrospective method without restatement of the prior periods. As such, prior periods will continue to be presented under the existing guidance in Topic 840. The Company is currently performing its evaluation of the guidance. The Company's lease portfolio is primarily comprised of office leases, which are currently classified as operating leases and will continue to be classified as operating leases under the new guidance. The adoption of the guidance will have a material impact on the Company's Consolidated Balance Sheets with respect to recording a right-of-use asset and lease liability for each of the Company's leases. The Company will utilize the available practical expedient to not separate the non-lease components from the lease components in its office leases. The Company is currently assessingevaluating the impact of utilizing the practical expedient, however,the use of the practical expedient will increase the total lease liability.this accounting guidance. The Company doeseffect is not anticipate a significant change in expense recognition as it relates to the new guidance.known or reasonably estimable at this time.



35


Quarterly Financial Information (Unaudited)


The following table sets forth certain financial information for each quarter of 20182020 and 2017.2019. The information is derived from our quarterly consolidated financial statements which are unaudited but which, in the opinion of management, have been prepared on the same basis as the audited annual consolidated financial statements included in this document. The consolidated financial data shown below should be read in conjunction with the consolidated financial statements and notes thereto. The operating results for any quarter are not necessarily indicative of results for any future period. 
 Quarter Ended
 20202019
 Mar. 31Jun. 30Sept. 30Dec. 31Mar. 31Jun. 30Sept. 30Dec. 31
Revenue before reimbursements (net revenue)$171,481 $145,603 $143,544 $160,987 $171,594 $173,122 $182,174 $180,034 
Operating income (loss) (1)
18,152 (23,986)(38,233)8,538 16,391 18,353 14,472 14,295 
Income (loss) before income taxes14,396 (21,249)(36,594)12,049 18,842 19,473 14,827 16,147 
Provision for (benefit from) income taxes5,730 4,484 (10,416)6,511 6,755 5,193 4,880 5,592 
Net income (loss)$8,666 $(25,733)$(26,178)$5,538 $12,087 $14,280 $9,947 $10,555 
Basic earnings (loss) per common share$0.45 $(1.33)$(1.35)$0.29 $0.64 $0.75 $0.52 $0.55 
Diluted earnings (loss) per common share$0.44 $(1.33)$(1.35)$0.28 $0.62 $0.73 $0.51 $0.54 
Cash dividends paid per share$0.15 $0.15 $0.15 $0.15 $0.15 $0.15 $0.15 $0.15 
  Quarter Ended
  2018 2017
  Mar. 31 Jun. 30 Sept. 30 Dec. 31 Mar. 31 Jun. 30 Sept. 30 Dec. 31
Revenue before reimbursements (net revenue) $160,071
 $183,059
 $187,588
 $185,305
 $140,006
 $152,214
 $159,800
 $169,380
Operating income (loss) (1) 13,121
 18,461
 20,583
 16,692
 6,638
 (28,411) 14,022
 (18,772)
Income (loss) before income taxes 12,912
 18,411
 23,187
 15,982
 4,094
 (28,686) 14,263
 (19,089)
Provision for (benefit from) income taxes 2,744
 6,948
 6,718
 4,787
 3,444
 (10,438) 6,092
 20,119
Net income (loss) $10,168
 $11,463
 $16,469
 $11,195
 $650
 $(18,248) $8,171
 $(39,208)
Basic earnings (loss) per common share $0.54
 $0.61
 $0.87
 $0.59
 $0.03
 $(0.97) $0.44
 $(2.09)
Diluted earnings (loss) per common share $0.53
 $0.59
 $0.85
 $0.58
 $0.03
 $(0.97) $0.43
 $(2.09)
Cash dividends paid per share $0.13
 $0.13
 $0.13
 $0.13
 $0.13
 $0.13
 $0.13
 $0.13


(1) Includes $39.2$33.0 million of goodwill and intangible asset impairment charges for the three months ended June 30, 2017.2020. Includes $11.6$48.1 million of goodwill and intangible asset impairment and $15.6restructuring charges for the three months ended September 30, 2020. Includes $4.3 million of restructuring charges for the three months ended December 31, 2017.2020. Includes $4.1 million of restructuring charges for the three months ended September 30, 2019.


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Currency market risk. With our operations in the Americas, Europe and Asia Pacific, we conduct business using various currencies. Revenue earned in each country is generally matched with the associated expenses incurred, thereby reducing currency risk to earnings. A 10% change in the average exchange rate for currencies of all foreign countries in which we operate would have increased or decreased our 20182020 net income by approximately $2.0$4.4 million. However, because certain assets and liabilities are denominated in currencies other than the U.S. dollar, changes in currency rates may cause fluctuations in the valuation of such assets and liabilities. Based on balances exposed to fluctuation in exchange rates as of December 31, 2018,2020, a 10% increase or decrease equally in the value of currencies could result in a foreign exchange gain or loss of approximately $3.0$0.2 million. In addition, as the local currency of our subsidiaries has generally been designated as the functional currency, we are affected by the translation of foreign currency financial statements into U.S. dollars. For financial information by segment, see Note 17, Segment Information, in the Notes to Consolidated Financial Statements.



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36




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
PAGE
3738
4042
4143
44
4345
42
Notes to Consolidated Financial Statements
4446

37


36



Report of Independent Registered Public Accounting Firm




To the Stockholders and the Board of Directors of
Heidrick & Struggles International, Inc.

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetsheets of Heidrick & Struggles International, Inc. (the Company) as of December 31, 2018,2020 and 2019, the related consolidated statements of comprehensive income (loss), stockholders’changes in stockholders' equity and cash flows for each of the year thenthree years in the period ended December 31, 2020, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018,2020 and 2019, and the results of its operations and its cash flows for each of the year thenthree years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.


We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control -— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 26, 201924, 2021, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements based on our audit.audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our auditaudits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditaudits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.


Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition
As described in Note 3 of the consolidated financial statements, revenue before reimbursements from executive search and from consulting engagements of $565,170,000 and $56,445,000, respectively, is recognized over the expected average period of performance, in proportion to the estimated personnel time incurred to fulfill the obligations under the executive search or consulting contract. This requires management to make significant estimates including the amount of effort extended over certain defined time periods of the executive search or consulting engagement. The transaction price for executive search engagements generally includes variable consideration, known as uptick revenue, in addition to fixed consideration. The Company estimates the amount of uptick revenue at contract inception based on a portfolio approach utilizing the expected value method based on a historical analysis. This requires management to make significant estimates including the average amount of uptick revenue earned on an executive search engagement. Changes in the assumptions used in these estimates could have a significant impact on the revenue recognized during the period.

We identified the Company’s revenue recognition from executive search and consulting engagements as a critical audit matter because of certain significant assumptions management makes when estimating progress over time for executive search and consulting engagements, and estimating the average uptick revenue earned on executive search engagements. Auditing these
38


assumptions involved a high degree of judgement and subjectivity as changes in these assumptions could have a significant impact on the amount of revenue recognized.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the assumptions involved in estimating progress over time for executive search and consulting engagements, and estimating the average uptick revenue earned on executive search engagements included the following, among others:

•We obtained an understanding of the relevant controls related to management’s estimates of progress over time and average uptick revenue, such as internal controls related to management’s review of the completeness and accuracy of data compiled and used in the estimate vs. excluded from the estimate, and tested such controls for design and operating effectiveness.
•We evaluated whether the historical data utilized to estimate progress over time was complete and accurate based on historical time studies, on a sample basis.
•We evaluated the estimate of the average uptick revenue on executive search engagements by comparing the estimate to historical data of the total uptick revenue billed and total retainer fee for a sample of executive search engagements.
•We selected a sample of contracts and performed the following procedures:
◦Obtained and read contract source documents for each selection.
◦Tested management’s identification of significant terms for completeness, including the identification of distinct performance obligations and variable consideration.
◦Assessed the terms in the customer agreement and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.
◦Tested the mathematical accuracy of management’s revenue calculations and recalculated deferred revenue at period end, if any.
Goodwill
As described in Note 8 of the consolidated financial statements, the Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company’s fair value estimate for each reporting unit is based on the present value of estimated future cash flows attributable to the respective reporting unit. This requires management to make significant estimates and assumptions including estimates of future growth rates, operating margins and discount rates based on the estimated weighted average cost of capital for the business. Changes in these assumptions could have a significant impact on the fair value, which could have an impact on the impairment charge, if any. The Company, as a direct result of the economic impact of COVID-19, experienced a decline in demand for the Company’s executive search and consulting services, and determined that it was more likely than not that an impairment occurred during 2020. Accordingly, the Company performed an interim impairment assessment of its reporting units as of April 30, 2020. In the impairment test, the Europe and Asia Pacific reporting units had a carrying value that exceeded their estimated fair values. As a result, an impairment charge of $32,970,000 was recorded in the consolidated statement of comprehensive income (loss) for the year ended December 31, 2020. Key financial assumptions used to determine the fair value of the reporting units were developed by management.

We identified the valuation of goodwill as a critical audit matter because of certain significant assumptions management makes in determining the estimate, including revenue, profit margin and terminal growth rate projections and the discount rate. Auditing management’s assumptions of revenue, profit margin and terminal growth rate projections and the discount rate involved a high degree of auditor judgment and increased audit effort, including the use of a valuation specialist, as changes in these assumptions could have a significant impact on the fair value of the reporting units and potential impairment charges.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the projections of future revenue growth rates, profit margins, the terminal growth rate and the determination of the discount rate for each of the reporting units included the following, among others:

•We obtained an understanding of the relevant controls related to the development of forecasts of revenue, profit margin and terminal growth rates and the selection of the reporting unit specific discount rate and tested such controls for design and operating effectiveness.
•We evaluated management’s ability to accurately forecast revenue and profit margin projections by comparing management’s prior forecasts to historical results for the Company.
39


•We evaluated the reasonableness of management’s forecasted revenue, profit margin and growth rates by comparing the projections to historic results and industry expectations.
•We evaluated the impact of changes to significant assumptions on the fair value of the respective reporting unit.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate and tested the relevance and reliability of source information underlying the determination of the rate, tested the mathematical accuracy of the calculation, and performed sensitivities by analyzing the break-even discount rate and compared those to the rate selected by management.


/s/ RSM US LLP

We have served as the Company's auditor since 2018.

Chicago, Illinois
February 26, 2019 24, 2021


37
40






Report of Independent Registered Public Accounting Firm




To the Stockholders and the Board of Directors of
Heidrick & Struggles International, Inc.

Opinion on the Internal Control Over Financial Reporting
We have audited Heidrick & Struggles International, Inc.'s (the Company) internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control -— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control -— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheetsheets as of December 31, 2018,2020 and 2019, and the related consolidated statements of comprehensive income (loss), changes in stockholders’ equity and cash flows for the year then ended, of the Company for each of the three years in the period ended December 31, 2020, and our report dated February 26, 2019,24, 2021 expressed an unqualified opinion.

Basis for Opinion
The Company’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 in the accompanying Management’s 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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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.

Definition and Limitations of Internal Control Over Financial Reporting
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.

/s/ RSM US LLP

Chicago, Illinois
February 26, 201924, 2021






38
41




Report of Independent Registered Public Accounting Firm


To the Stockholders and Board of Directors
Heidrick & Struggles International, Inc.:

Opinion on the Consolidated Financial Statements

We have audited, before the effects of the adjustments to retrospectively apply the changes in accounting described in Note 2 and Note 18, the accompanying consolidated balance sheet of Heidrick & Struggles International, Inc. and subsidiaries (the Company) as of December 31, 2017, the related consolidated statements of comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). The 2017 and 2016 consolidated financial statements before the effects of the adjustments described in Note 2 and Note 18 are not presented herein. In our opinion, the consolidated financial statements, before the effects of the adjustments to retrospectively apply the changes in accounting described in Note 2 and Note 18, present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the changes in accounting described in Note 2 and Note 18 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.

Basis for Opinion

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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provides a reasonable basis for our opinion.


/s/ KPMG LLP

We served as the Company’s auditor from 2002 to 2017.

Chicago, Illinois
March 13, 2018





39


HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 
December 31,
2020		December 31,
2019
 December 31, 2018 December 31, 2017
Current assets:    
Current assetsCurrent assets
Cash and cash equivalents $279,906
 $207,534
Cash and cash equivalents$316,473 $271,719 
Accounts receivable, net 114,977
 98,700
Marketable securitiesMarketable securities19,999 61,153 
Accounts receivable, net of allowances of $6,557 and $5,140, respectivelyAccounts receivable, net of allowances of $6,557 and $5,140, respectively88,123 109,163 
Prepaid expenses 22,766
 22,003
Prepaid expenses18,956 20,185 
Other current assets 29,598
 11,620
Other current assets23,279 27,848 
Income taxes recoverable 3,620
 3,933
Income taxes recoverable5,856 4,414 
Total current assets 450,867

343,790
Total current assets472,686 494,482 
Non-current assets:    
Non-current assetsNon-current assets
Property and equipment, net 33,871
 39,514
Property and equipment, net23,492 28,650 
Operating lease right-of-use assetsOperating lease right-of-use assets92,671 99,391 
Assets designated for retirement and pension plans 15,035
 17,130
Assets designated for retirement and pension plans14,425 13,978 
Investments 19,442
 21,319
Investments31,369 25,409 
Other non-current assets 22,276
 8,999
Other non-current assets24,439 20,434 
Goodwill 122,092
 118,892
Goodwill91,643 126,831 
Other intangible assets, net 2,216
 2,158
Other intangible assets, net1,129 1,935 
Deferred income taxes 34,830
 35,402
Deferred income taxes, netDeferred income taxes, net35,958 33,063 
Total non-current assets 249,762
 243,414
Total non-current assets315,126 349,691 
Total assets $700,629
 $587,204
Total assets$787,812 $844,173 
Current liabilities:    
Current liabilitiesCurrent liabilities
Accounts payable $9,166
 $9,824
Accounts payable$8,799 $8,633 
Accrued salaries and employee benefits 227,653
 177,426
Deferred revenue, net 40,673
 31,272
Accrued salaries and benefitsAccrued salaries and benefits217,908 234,306 
Deferred revenueDeferred revenue38,050 41,267 
Operating lease liabilitiesOperating lease liabilities28,984 30,955 
Other current liabilities 33,219
 40,346
Other current liabilities23,311 26,253 
Income taxes payable 8,240
 6,924
Income taxes payable1,186 3,928 
Total current liabilities 318,951
 265,792
Total current liabilities318,238 345,342 
Non-current liabilities:    
Accrued salaries and employee benefits 57,234
 40,308
Non-current liabilitiesNon-current liabilities
Accrued salaries and benefitsAccrued salaries and benefits56,925 59,662 
Retirement and pension plans 39,865
 44,802
Retirement and pension plans53,496 46,032 
Operating lease liabilitiesOperating lease liabilities86,816 79,388 
Other non-current liabilities 17,423
 23,597
Other non-current liabilities4,735 4,634 
Total non-current liabilities 114,522
 108,707
Total non-current liabilities201,972 189,716 
Total liabilities 433,473
 374,499
Total liabilities520,210 535,058 
Commitments and contingencies (Note 20) 
 
Stockholders’ equity:    
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued at December 31, 2018 and December 31, 2017 —
 —
Common stock, $0.01 par value, 100,000,000 shares authorized, 19,585,777 shares issued, 18,954,275 and 18,781,433 shares outstanding at December 31, 2018 and December 31, 2017, respectively 196
 196
Treasury stock at cost, 631,502 and 804,344 shares at December 31, 2018 and December 31, 2017, respectively (20,298) (26,096)
Commitments and contingencies (Note 19)Commitments and contingencies (Note 19)00
Stockholders’ equityStockholders’ equity
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 0 shares issued at December 31, 2020 and December 31, 2019Preferred stock, $0.01 par value, 10,000,000 shares authorized, 0 shares issued at December 31, 2020 and December 31, 20190 0 
Common stock, $0.01 par value, 100,000,000 shares authorized, 19,585,777 shares issued, 19,359,586 and 19,165,954 shares outstanding at December 31, 2020 and December 31, 2019, respectivelyCommon stock, $0.01 par value, 100,000,000 shares authorized, 19,585,777 shares issued, 19,359,586 and 19,165,954 shares outstanding at December 31, 2020 and December 31, 2019, respectively196 196 
Treasury stock at cost, 226,191 and 419,823 shares at December 31, 2020 and December 31, 2019, respectivelyTreasury stock at cost, 226,191 and 419,823 shares at December 31, 2020 and December 31, 2019, respectively(8,041)(14,795)
Additional paid in capital 227,147
 226,006
Additional paid in capital231,048 228,807 
Retained earnings (deficit) 56,049
 (716)
Retained earningsRetained earnings40,982 91,083 
Accumulated other comprehensive income 4,062
 13,315
Accumulated other comprehensive income3,417 3,824 
Total stockholders’ equity 267,156
 212,705
Total stockholders’ equity267,602 309,115 
Total liabilities and stockholders’ equity $700,629
 $587,204
Total liabilities and stockholders’ equity$787,812 $844,173 
The accompanying notes to Consolidated Financial Statements are an integral part of these statements.

42
40



HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
 
December 31,
 December 31, 202020192018
 2018 2017 2016
Revenue:      
RevenueRevenue
Revenue before reimbursements (net revenue) $716,023
 $621,400
 $582,390
Revenue before reimbursements (net revenue)$621,615 $706,924 $716,023 
Reimbursements 19,632
 18,656
 18,516
Reimbursements7,755 18,690 19,632 
Total revenue 735,655
 640,056
 600,906
Total revenue629,370 725,614 735,655 
Operating expenses:      
Salaries and employee benefits 506,349
 434,219
 400,070
Operating expensesOperating expenses
Salaries and benefitsSalaries and benefits450,424 501,791 506,349 
General and administrative expenses 140,817
 147,316
 147,087
General and administrative expenses121,378 137,492 140,817 
Impairment charges —
 50,722
 —
Impairment charges32,970 0 0 
Restructuring charges —
 15,666
 —
Restructuring charges52,372 4,130 0 
Reimbursed expenses 19,632
 18,656
 18,516
Reimbursed expenses7,755 18,690 19,632 
Total operating expenses 666,798
 666,579
 565,673
Total operating expenses664,899 662,103 666,798 
Operating income (loss) 68,857
 (26,523) 35,233
Operating income (loss)(35,529)63,511 68,857 
Non-operating income (expense):   
  
Non-operating incomeNon-operating income
Interest, net 1,141
 385
 244
Interest, net204 2,880 1,141 
Other, net 494
 (3,280) 2,289
Other, net3,927 2,898 494 
Net non-operating income (expense) 1,635
 (2,895) 2,533
Net non-operating incomeNet non-operating income4,131 5,778 1,635 
Income (loss) before income taxes 70,492
 (29,418) 37,766
Income (loss) before income taxes(31,398)69,289 70,492 
Provision for income taxes 21,197
 19,217
 22,353
Provision for income taxes6,309 22,420 21,197 
Net income (loss) 49,295
 (48,635) 15,413
Net income (loss)(37,707)46,869 49,295 
Other comprehensive income (loss), net of tax:      Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment (3,885) 6,853
 (6,271)Foreign currency translation adjustment82 844 (3,885)
Net unrealized gain (loss) on available-for-sale investments —
 2,660
 1,035
Net unrealized gain (loss) on available-for-sale investments(13)13 0 
Pension gain (loss) adjustment 721
 480
 (701)Pension gain (loss) adjustment(476)(1,095)721 
Other comprehensive income (loss), net of tax (3,164) 9,993
 (5,937)
Other comprehensive loss, net of taxOther comprehensive loss, net of tax(407)(238)(3,164)
Comprehensive income (loss) $46,131
 $(38,642) $9,476
Comprehensive income (loss)$(38,114)$46,631 $46,131 
      
Basic weighted average common shares outstanding 18,917
 18,735
 18,540
Dilutive common shares 615
 —
 498
Diluted weighted average common shares outstanding 19,532
 18,735
 19,038
Weighted-average common shares outstandingWeighted-average common shares outstanding
BasicBasic19,301 19,103 18,917 
DilutedDiluted19,301 19,551 19,532 
      
Basic net income (loss) per common share $2.61
 $(2.60) $0.83
Diluted net income (loss) per common share $2.52
 $(2.60) $0.81
Earnings (loss) per common shareEarnings (loss) per common share
BasicBasic$(1.95)$2.45 $2.61 
DilutedDiluted$(1.95)$2.40 $2.52 
Cash dividends paid per share $0.52
 $0.52
 $0.52
Cash dividends paid per share$0.60 $0.60 $0.52 
The accompanying notes to Consolidated Financial Statements are an integral part of these statements.

43
41



HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
 Year Ended December 31, 202020192018
 2018 2017 2016
Cash flows - operating activities:      
Cash flows - operating activitiesCash flows - operating activities
Net income (loss) $49,295
 $(48,635) $15,413
Net income (loss)$(37,707)$46,869 $49,295 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 12,522
 14,774
 16,433
Depreciation and amortization26,656 10,371 12,522 
Deferred income taxes (3,496) (1,690) 2,394
Deferred income taxes(1,680)1,644 (3,496)
Stock-based compensation expense 8,947
 4,935
 6,393
Stock-based compensation expense10,199 10,298 8,947 
Accretion expense related to earnout payments 1,285
 1,038
 635
Accretion expense related to earnout payments0 668 1,285 
Impairment charges —
 50,722
 —
Impairment charges32,970 0 0 
Gain on marketable securitiesGain on marketable securities(154)(595)0 
Loss on disposal of property and equipmentLoss on disposal of property and equipment287 0 0 
Changes in assets and liabilities, net of effects of acquisitions:      Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (16,759) (1,882) (14,425)Accounts receivable22,644 6,899 (16,759)
Accounts payable (526) 1,474
 941
Accounts payable451 (994)(526)
Accrued expenses 71,526
 18,330
 (3,808)Accrued expenses(26,513)2,441 71,526 
Restructuring accrual (11,617) 13,025
 —
Restructuring accrual2,479 1,959 (11,617)
Deferred revenue (1,899) 2,010
 (1,672)Deferred revenue(3,688)175 (1,899)
Income taxes (payable) recoverable, net 757
 3,381
 1,184
Income taxes recoverable (payable), netIncome taxes recoverable (payable), net(4,016)(5,450)757 
Retirement and pension plan assets and liabilities (1,492) 3,065
 4,215
Retirement and pension plan assets and liabilities1,794 3,258 (1,492)
Prepaid expenses (893) 797
 (2,330)Prepaid expenses1,642 (455)(893)
Other assets and liabilities, net (4,748) 5,626
 (3,449)Other assets and liabilities, net(2,011)1,557 (4,748)
Net cash provided by operating activities 102,902
 66,970
 21,924
Net cash provided by operating activities23,353 78,645 102,902 
Cash flows - investing activities:      
Cash flows - investing activitiesCash flows - investing activities
Acquisition of business, net of cash acquired (3,083) (364) (27,722)Acquisition of business, net of cash acquired0 (3,520)(3,083)
Capital expenditures (5,960) (14,022) (5,351)Capital expenditures(7,322)(3,352)(5,960)
Purchases of available for sale investments (2,201) (2,269) (2,475)Purchases of available for sale investments(118,904)(130,411)(2,201)
Proceeds from sale of available for sale investments 2,995
 1,404
 535
Proceeds from sale of available for sale investments158,852 67,968 2,995 
Net cash used in investing activities (8,249) (15,251) (35,013)
Cash flows - financing activities:      
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities32,626 (69,315)(8,249)
Cash flows - financing activitiesCash flows - financing activities
Proceeds from line of credit 20,000
 40,000
 —
Proceeds from line of credit100,000 0 20,000 
Payments on line of credit (20,000) (40,000) —
Payments on line of credit(100,000)0 (20,000)
Debt issuance costs (981) —
 —
Debt issuance costs0 0 (981)
Cash dividends paid (10,181) (10,111) (9,955)Cash dividends paid(12,063)(11,835)(10,181)
Payment of employee tax withholdings on equity transactions (2,234) (2,392) (2,676)Payment of employee tax withholdings on equity transactions(1,550)(4,552)(2,234)
Acquisition earnout payments (3,592) (4,557) (4,562)Acquisition earnout payments(2,789)(1,853)(3,592)
Net cash used in financing activities (16,988) (17,060) (17,193)Net cash used in financing activities(16,402)(18,240)(16,988)
Effect of exchange rates fluctuations on cash, cash equivalents and restricted cash (5,565) 7,933
 (2,365)Effect of exchange rates fluctuations on cash, cash equivalents and restricted cash5,193 367 (5,565)
Net increase (decrease) in cash, cash equivalents and restricted cash 72,100
 42,592
 (32,647)Net increase (decrease) in cash, cash equivalents and restricted cash44,770 (8,543)72,100 
Cash, cash equivalents and restricted cash at beginning of period 208,162
 165,570
 198,217
Cash, cash equivalents and restricted cash at beginning of period271,719 280,262 208,162 
Cash, cash equivalents and restricted cash at end of period $280,262
 $208,162
 $165,570
Cash, cash equivalents and restricted cash at end of period$316,489 $271,719 $280,262 
      
Supplemental disclosures of cash flow information      Supplemental disclosures of cash flow information
Cash paid for      Cash paid for
Income taxes $22,616
 $14,814
 $16,817
Income taxes$12,154 $27,338 $22,616 
Interest $67
 $193
 $41
Interest$761 $0 $67 
The accompanying notes to Consolidated Financial Statements are an integral part of these statements.

44
42



HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
 
Common StockTreasury StockAdditional
Paid in
Capital		Retained
Earnings (Deficit)		Accumulated
Other
Comprehensive
Income		Total
 Common Stock Treasury Stock Additional
Paid in
Capital		 Retained
Earnings (Deficit)		 Accumulated
Other
Comprehensive
Income		 Total SharesAmountSharesAmount
 Shares Amount Shares Amount 
Balance at December 31, 2015 19,586
 $196
 1,206
 $(39,583) $232,358
 $52,572
 $9,259
 $254,802
Net income —
 —
 —
 —
 —
 15,413
 —
 15,413
Other comprehensive loss, net of tax —
 —
 —
 —
 —
 —
 (5,937) (5,937)
Treasury and common stock transactions:                
Stock-based compensation —
 —
 —
 —
 6,393
 —
 —
 6,393
Vesting of equity, net of tax withholdings —
 —
 (167) 5,636
 (8,324) —
 —
 (2,688)
Re-issuance of treasury stock —
 —
 (31) 1,032
 (470) —
 —
 562
Cash dividends declared ($0.52 per share) —
 —
 —
 —
 —
 (9,668) —
 (9,668)
Dividend equivalents on restricted stock units —
 —
 —
 —
 —
 (287) —
 (287)
Balance at December 31, 2016 19,586
 196
 1,008
 (32,915) 229,957
 58,030
 3,322
 258,590
Net loss —
 —
 —
 —
 —
 (48,635) —
 (48,635)
Other comprehensive income, net of tax —
 —
 —
 —
 —
 —
 9,993
 9,993
Treasury and common stock transactions:                
Stock-based compensation —
 —
 —
 —
 4,935
 —
 —
 4,935
Vesting of equity, net of tax withholdings —
 —
 (188) 6,311
 (8,716) —
 —
 (2,405)
Re-issuance of treasury stock —
 —
 (15) 508
 (170) —
 —
 338
Cash dividends declared ($0.52 per share) —
 —
 —
 —
 —
 (9,762) —
 (9,762)
Dividend equivalents on restricted stock units —
 —
 —
 —
 —
 (349) 

 (349)
Balance at December 31, 2017 19,586
 196
 805
 (26,096) 226,006
 (716) 13,315
 212,705
Balance at December 31, 201719,586 $196 805 $(26,096)$226,006 $(716)$13,315 $212,705 
Net income 

 

 

 

 

 49,295
 

 49,295
Net income— — — — — 49,295 — 49,295 
Adoption of accounting standards —
 —
 —
 —
 —
 15,043
 (6,089) 8,954
Adoption of accounting standards— — — — — 15,043 (6,089)8,954 
Other comprehensive loss, net of tax —
 —
 —
 —
 —
 —
 (3,164) (3,164)Other comprehensive loss, net of tax— — — — — — (3,164)(3,164)
Treasury and common stock transactions:                
Common and treasury stock transactions:Common and treasury stock transactions:
Stock-based compensation —
 —
 —
 —
 8,947
 —
 —
 8,947
Stock-based compensation— — — — 8,947 — — 8,947 
Vesting of equity, net of tax withholdings —
 —
 (167) 5,604
 (7,837) —
 —
 (2,233)Vesting of equity, net of tax withholdings— — (167)5,604 (7,837)— — (2,233)
Re-issuance of treasury stock —
 —
 (6) 194
 31
 —
 —
 225
Re-issuance of treasury stock— — (6)194 31 — — 225 
Cash dividends declared ($0.39 per share) —
 —
 —
 —
 —
 (7,389) —
 (7,389)Cash dividends declared ($0.39 per share)— — — — — (7,389)— (7,389)
Dividend equivalents on restricted stock units —
 —
 —
 —
 —
 (184) —
 (184)Dividend equivalents on restricted stock units— — — — — (184)— (184)
Balance at December 31, 2018 19,586
 $196
 632
 $(20,298) $227,147
 $56,049
 $4,062
 $267,156
Balance at December 31, 201819,586 196 632 (20,298)227,147 56,049 4,062 267,156 
Net incomeNet income— — — — — 46,869 — 46,869 
Other comprehensive loss, net of taxOther comprehensive loss, net of tax— — — — — — (238)(238)
Common and treasury stock transactions:Common and treasury stock transactions:
Stock-based compensationStock-based compensation— — — — 10,298 — — 10,298 
Vesting of equity, net of tax withholdingsVesting of equity, net of tax withholdings— — (163)5,154 (9,706)— — (4,552)
Re-issuance of treasury stockRe-issuance of treasury stock— — (49)349 1,068 — — 1,417 
Cash dividends declared ($0.60 per share)Cash dividends declared ($0.60 per share)— — — — — (11,461)— (11,461)
Dividend equivalents on restricted stock unitsDividend equivalents on restricted stock units— — — — — (374)— (374)
Balance at December 31, 2019Balance at December 31, 201919,586 196 420 (14,795)228,807 91,083 3,824 309,115 
Net lossNet loss— — — — — (37,707)— (37,707)
Adoption of accounting standardsAdoption of accounting standards— — — — — (332)— (332)
Other comprehensive loss, net of taxOther comprehensive loss, net of tax— — — — — — (407)(407)
Common and treasury stock transactions:Common and treasury stock transactions:
Stock-based compensationStock-based compensation— — — — 10,199 — — 10,199 
Vesting of equity, net of tax withholdingsVesting of equity, net of tax withholdings— — (179)6,225 (7,775)— — (1,550)
Re-issuance of treasury stockRe-issuance of treasury stock— — (15)529 (183)— — 346 
Cash dividends declared ($0.60 per share)Cash dividends declared ($0.60 per share)— — — — — (11,576)— (11,576)
Dividend equivalents on restricted stock unitsDividend equivalents on restricted stock units— — — — — (486)— (486)
Balance at December 31, 2020Balance at December 31, 202019,586 $196 226 $(8,041)$231,048 $40,982 $3,417 $267,602 
The accompanying notes to Consolidated Financial Statements are an integral part of these statements.

45
43



HEIDRICK & STRUGGLES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands, except share and per share figures)
 
1.
Basis of Presentation

1.    Basis of Presentation

Heidrick & Struggles International, Inc. and subsidiaries (the “Company”) is engaged in providing executive search and consulting services to clients on a retained basis. The Company operates in the Americas, Europe and Asia Pacific regions.


The consolidated financial statements include Heidrick & Struggles International, Inc. and its wholly-ownedwholly owned subsidiaries and have been prepared using accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Significant items subject to estimates and assumptions include revenue recognition, allowances for deferred tax assets and liabilities, and assessment of goodwill, and other intangible assets and long-lived assets for impairment. Estimates are subject to a degree of uncertainty and actual results could differ from these estimates.
 
2.
Summary of Significant Accounting Policies

2.    Summary of Significant Accounting Policies

Cash and Cash Equivalents


The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents.


Marketable Securities

The Company’s marketable securities consist of available-for-sale debt securities with original maturities exceeding three months.

Concentration of Risk


The Company is potentially exposed to concentrations of risk associated with its accounts receivable. However, this risk is limited due to the Company’s large number of clients and their dispersion across many different industries and geographies. At December 31, 20182020 and 2017,2019, the Company had no significant concentrations of risk.


Accounts Receivable


The Company’s accounts receivable consistconsists of trade receivables. The Company’s expected credit loss allowance methodology for doubtful accounts receivable is developed based upon several factors including the ageusing historical collection experience, current and future economic and market conditions and a review of the Company’scurrent status of customers' trade accounts receivable, historical write-off experience and specific account analysis.receivables. These factors may change over time, impacting the allowance level. See Note 4, Credit Losses.


Fair Value of Financial Instruments


Cash equivalents are stated at cost, which approximates fair value. The carrying value for receivables from clients, accounts payable, deferred revenue and other accrued liabilities reasonably approximate fair value due to the nature of the financial instruments and the short termshort-term nature of the items.


Property and Equipment


Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful life of the asset or, for leasehold improvements, the shorter of the lease term or the estimated useful life of the asset, as follows:    
Office furniture, fixtures and equipment5–10 years
Computer equipment and software3–7 years


46


Leasehold improvements are depreciated over the lesser of the lease term or life of the asset improvement, which typically range from three to ten years.


Depreciation is calculated for tax purposes using accelerated methods, where applicable.



44


Long-livedOther Intangible Assets and Long Lived Assets


The Company reviews its other intangible assets and long-lived assets, including property and equipment and right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of assetsasset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset.asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge, equal to the amount by which the carrying amount of the asset group exceeds the fair value of the asset group, is recognized. The Company evaluated the recoverability of its other intangible assets and long-lived assets during the three months ended June 30, 2020 and determined that the other intangible assets and long-lived assets were recoverable. The Company continues to monitor the impact of the economic downturn resulting from COVID-19 for additional potential impairment indicators related to other intangible assets and long-lived assets.


Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in Operating Lease Right-of-Use Assets, Operating Lease Liabilities - Current and Operating Lease Liabilities - Non-Current in our Consolidated Balance Sheets. The Company does not have any leases that meet the finance lease criteria.

Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, an incremental borrowing rate based on the information available at the commencement date is used in determining the present value of lease payments. The operating lease right-of-use asset also includes any lease payments made in advance and any accrued rent expense balances. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components. For office leases, the Company accounts for the lease and non-lease components as a single lease component. For equipment leases, such as vehicles and office equipment, the Company accounts for the lease and non-lease components separately.

Investments


The Company’s investments consist primarily of available-for-sale investments within the U.S. non-qualified deferred compensation plan (the “Plan”).


Available-for-sale investments are reported at fair value with changes in unrealized gains (losses) and realized gains (losses), resulting from an employee’s termination from the Plan, recorded as a non-operating expense in Other, net in the Consolidated Statements of Comprehensive Income (Loss).


Goodwill and Other Intangible Assets


Goodwill represents the difference between the purchase price of acquired companies and the related fair value of the net assets acquired, which is accounted for by the acquisition method of accounting. Other intangible assets include client relationships and employee non-compete agreements. The Company performs assessments of the carrying value of goodwill at least annually and of its goodwill and other intangible assets whenever events occur or circumstances indicate that a carrying amount of these assetsgoodwill may not be recoverable. These circumstances include a significant change in business climate, attrition of key personnel, changes in financial condition or results of operations, a prolonged decline in the Company’s stock price and market capitalization, competition, and other factors.


The goodwill impairment test compares the fair value of a reporting unit to its carrying amount, including goodwill. The Company operates four reporting units: Americas, Europe (which includes Africa), Asia Pacific (which includes the Middle East) and Heidrick Consulting. The goodwill impairment test is completed by comparing the fair value of a reporting unit with its carrying amount. The fair value of each of the Company’s reporting units is determined using a discounted cash flow
47


methodology. An impairment charge is recognized for the amount by which the carrying value of the reporting unit exceeds its fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit.


During the three months ended June 30, 2020, and as a direct result of the economic impact of the COVID-19 pandemic, the Company experienced a decline in demand for our executive search and consulting services, a lengthening of the executive search process due to a slow-down in client decision making and an inability to execute in-person consulting engagements, which had a material negative impact on our results of operations. As a result, the Company identified a triggering event and performed an interim goodwill impairment evaluation during the three months ended June 30, 2020.

During the impairment evaluation process, the Company used a discounted cash flow methodology to estimate the fair value of its reporting units. The discounted cash flow approach is dependent on a number of factors, including estimates of future market growth and trends, forecasted revenue and costs, capital investments, appropriate discount rates, certain assumptions to allocate shared costs, assets and liabilities, historical and projected performance of the reporting unit, and the macroeconomic conditions affecting each of the Company’s reporting units. The assumptions used in the determination of fair value were (1) a forecast of growth in the near and long term; (2) the discount rate; (3) working capital investments; (4) macroeconomic conditions and (5) other intangible assetfactors.

Based on the results of the impairment review comparesevaluation, the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated byCompany determined that the asset. Ifgoodwill within the carrying amount of an asset exceeds its estimated future cash flows,Europe and Asia Pacific reporting units was impaired, which resulted in an impairment charge equalof $24.5 million in Europe and $8.5 million in Asia Pacific to the amount by which the carrying amountwrite-off all of the asset exceeds the fair value, is recognized.

Other intangible assets acquired are amortized either using the straight-line method over their estimated useful lives or based on the projected cash flowgoodwill associated with each reporting unit. The impairment charge is recorded within Impairment charges in the respective intangible assets.Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2020. The impairment was non-cash in nature and did not affect our current liquidity, cash flows, borrowing capability or operations; nor did it impact the debt covenants under our credit agreement.


The Company continues to monitor potential triggering events for its Americas reporting unit including changes in the business climate in which it operates, the Company’s market capitalization compared to its book value, and the Company’s recent operating performance. Any changes in these factors could result in a further impairment charge.

Restructuring Charges


The Company accounts for restructuring charges by recognizing a liability at fair value when the costs are incurred.


Revenue Recognition


As a result of the adoption of ASU No. 2014-09, Revenue from Contracts with Customers, the Company's accounting policy for revenue recognition has been updated. See Note 3, Revenue.


Reimbursements


The Company incurs certain out-of-pocket expenses that are reimbursed by its clients, which are accounted for as revenue and expense in its Consolidated Statements of Comprehensive Income (Loss).


Salaries and Employee Benefits


Salaries and employee benefits consist of compensation and benefits paid to consultants, executive officers, and administrative and support personnel, of which the most significant elements are salaries and annual performance-related bonuses. Other items

45


in this category are expenses related to sign-on bonuses, forgivable employee loans and minimum guaranteed bonuses (often incurred in connection with the hiring of new consultants), restricted stock unit and performance share unit amortization, payroll taxes, profit sharing and retirement benefits, and employee insurance benefits.


Salaries and employee benefits are recognized on an accrual basis. Certain sign-on bonuses, retention awards, and minimum guaranteed compensation are capitalized and amortized in accordance with the terms of the respective agreements.


A portion of the Company’s consultants’ and management cash bonuses are deferred and paid over a three-yearthree-year vesting period. The portion of the bonus is approximately 15% depending on the employee’s level or position. The compensation expense related to the amounts being deferred is recognized on a graded vesting attribution method over the requisite service period. This service period begins on January 1 of the respective fiscal year and continues through the deferral date, which coincides with the Company’s bonus payments in the first quarter of the following year and for an additional three-yearthree-year vesting period. The deferrals are recorded in Accrued salaries and employee benefits within both Current liabilities and Non-current liabilities in the Consolidated Balance Sheets.

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Historically, the Company's consultants participated in the same cash bonus deferral program as management. In 2020, the Company terminated the cash bonus deferral for consultants and now pays 100% of the cash bonuses earned by consultants in the first quarter of the following year. Consultant cash bonuses earned prior to 2020 will continue to be paid under the terms of the cash bonus deferral program.

Income Taxes


Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the tax differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Reclassifications

Certain prior year amounts have been recast as a result of the change in the Company's operating segments and adoption of ASU No. 2016-18, Statement of Cash Flows: Restricted Cash. The reclassifications had no impact on net income, net cash flows or stockholders' equity.

Earnings per Common Share


Basic earnings per common share is computed by dividing net income by weighted average common shares outstanding for the year. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Common equivalent shares are excluded from the determination of diluted earnings per share in periods in which they have an anti-dilutive effect.


The following table sets forth the computation of basic and diluted earnings (loss) per share:
December 31,
202020192018
Net income (loss)$(37,707)$46,869 $49,295 
Weighted average shares outstanding:
Basic19,301 19,103 18,917 
Effect of dilutive securities:
Restricted stock units0 285 406 
Performance stock units0 163 209 
Diluted19,301 19,551 19,532 
Basic earnings (loss) per share$(1.95)$2.45 $2.61 
Diluted earnings (loss) per share$(1.95)$2.40 $2.52 
 December 31,
 2018 2017 2016
Net income (loss)$49,295
 $(48,635) $15,413
Weighted average shares outstanding:     
Basic18,917
 18,735
 18,540
Effect of dilutive securities:     
Restricted stock units406
 —
 347
Performance stock units209
 —
 151
Diluted19,532
 18,735
 19,038
Basic earnings (loss) per share$2.61
 $(2.60) $0.83
Diluted earnings (loss) per share$2.52
 $(2.60) $0.81


Weighted average restricted stock units and performance stock units outstanding that could be converted into approximately 327,000472,000 and 80,000120,000 common shares, respectively, for the year ended December 31, 2017,2020, were not included in the computation of diluted earnings per share because the effects would be anti-dilutive.


Translation of Foreign Currencies


The Company generally designates the local currency for all its subsidiaries as the functional currency. The Company translates the assets and liabilities of its subsidiaries into U.S. dollars at the current rate of exchange prevailing at the balance sheet date.

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Revenue and expenses are translated at a monthly average exchange rate for the period. Translation adjustments are reported as a component of Accumulated other comprehensive income.


Restricted Cash


ThePeriodically, the Company has leaseis party to agreements and business licenses with terms that requirerequired the Company to restrict cash through the termination dates of the agreements, which extend through 2024.agreements. Current and non-current restricted cash is included in Other current assets and Other non-current assets,, respectively, onin the Consolidated Balance Sheet.Sheets.


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The following table provides a reconciliation of the cash and cash equivalents between the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statement of Cash Flows as of December 31, 2018, 20172020, 2019 and 2016:2018:
December 31,
202020192018
Cash and cash equivalents$316,473 $271,719 $279,906 
Restricted cash included within other current assets0 0 108 
Restricted cash included within other non-current assets16 0 248 
Total cash, cash equivalents and restricted cash$316,489 $271,719 $280,262 
 December 31,
 2018 2017 2016
Cash and cash equivalents$279,906
 $207,534
 $165,011
Restricted cash included within other current assets108
 526
 139
Restricted cash included within other non-current assets248
 102
 420
Total cash, cash equivalents and restricted cash$280,262
 $208,162
 $165,570


Recently Issued Financial Accounting Standards


In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02, Leases, intended to improve financial reporting about leasing transactions. The guidance requires entities that lease assets to recognize on their balance sheets the assets and liabilities for the rights and obligations created by those leases and to disclose key information about the leasing arrangements. In July 2018,March 2020, the FASB issued ASU No. 2018-10, Codification Improvements2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance is intended to Topic 842 (Leases), which provides narrow amendmentsprovide temporary optional expedients and exceptions to clarify howthe guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this accounting guidance. The effect is not known or reasonably estimable at this time.

In December 2019, the FASB, issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. The guidance simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also simplifies aspects of the new lease standard,accounting for franchise taxes and ASU No. 2018-11, Targeted Improvements to Topic 842 (Leases), which provides an additional, optional transition methodenacted changes in tax laws or rates and clarifies the accounting for transactions that allows entities to initially apply the requirements by recognizingresult in a cumulative-effect adjustment to the opening balance of retained earningsstep-up in the periodtax basis of adoption. An entity that adopts this method must report comparative periods in accordance with current guidance (Topic 840).goodwill. The guidance is effective for fiscal years, and interim and annual periods within those fiscal years, beginning after December 15, 2018 with early2021. Early adoption is permitted.

The Company will adopt the guidance on January 1, 2019 using the modified retrospective method without restatement of the prior periods. As such, prior periods will continue to be presented under the existing guidance in Topic 840. The Company is currently performing its evaluation of the guidance. The Company's lease portfolio is primarily comprised of office leases, which are currently classified as operating leases and will continue to be classified as operating leases under the new guidance. The adoption of the guidance will have a material impact on the Company's Consolidated Balance Sheets with respect to recording a right-of-use asset and lease liability for each of the Company's leases. The Company will utilize the available practical expedient to not separate the non-lease components from the lease components in its office leases. The Company is currently assessingevaluating the impact of utilizing the practical expedient, however,the use of the practical expedient will increase the total lease liability.this accounting guidance. The Company doeseffect is not anticipate a significant change in expense recognition as it relates to the new guidance.known or reasonably estimable at this time.


Recently Adopted Financial Accounting Standards


In 2018,On January 1, 2020, the Company adopted ASU No. 2018-02, Income Statement - Reporting Comprehensive Income, intended2016-13, Measurement of Credit Losses on Financial Instruments, and all related ASU amendments, using the modified retrospective method. The guidance amends the impairment model by requiring entities to improve the usefulnessuse a forward-looking approach based on expected losses to estimate credit losses on certain types of information reported as a result of the Tax Cuts and Jobs Act. The new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. ASU 2018-02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company elected not to utilize the available option to reclassify stranded tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act to retained earnings.

On January 1, 2018, the Company adopted ASU No. 2017-09, Compensation - Stock Compensation, Scope of Modification Accounting, which is intended to provide clarity and reduce diversity in practice, cost and complexity when implementing a change in the terms or conditions of a share-based payment award. ASU No. 2017-09 requires that an entity should account for the effects of a modification unless the fair value, vesting conditions and whether the award is classified as a liability instrument or an equity instrument remain unchanged in the modification.financial instruments, including trade receivables. The adoption of this guidance did not havehad an immaterial impact on the Company's financial statements. The future impact of this accounting guidance will be dependent on future modification events including the number of awards modified.


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On January 1, 2018, the Company adopted ASU No. 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost, which is intended to improve the consistency, transparency and usefulness of net benefit cost disclosures. ASU No. 2017-07 requires that an employer report the service cost component of net benefit cost in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Additionally, the other components of net benefit costs are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The adoption of this guidance did not have an impact on the Company's financial statements.

On January 1, 2018, the Company adopted ASU No. 2016-18,Consolidated Statement of Cash Flows: Restricted Cash, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. The adoption of this guidance increased the Company's beginning and ending balances of cash, cash equivalents and restricted cash in the CondensedComprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Cash Flows by approximately $0.4 million and $0.6 million, respectivelyConsolidated Statement of Changes in Stockholders' Equity for the year ended December 31, 2018. Beginning and ending balances of cash, cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows increased by approximately $0.6 million and $0.6 million, respectively for the year ended December 31, 2017. Beginning and ending balances of cash, cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows increased by approximately $7.8 million and $0.6 million, respectively for the year ended December 31, 2016.2020.

On January 1, 2018, the Company adopted ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice as to how certain cash receipts and cash payments should be presented and classified. The adoption of this guidance did not have a material impact on the Company's financial statements for the years ended December 31, 2018 and 2017. For the year ended December 31, 2016, the Company reclassified approximately $2.9 million of earnout payments from cash flows used in financing activities to cash flows provided by operating activities. The reclassified amount represents the amount of the earnout payement that is in excess of the earnout accrual established at the acquisition date.

On January 1, 2018, the Company adopted ASU No. 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments including the recognition of unrealized changes in fair value within net income. The adoption of this guidance resulted in a reclassification of accumulated unrealized gains of approximately $6.1 million from accumulated other comprehensive income to retained earnings. The impact of the adoption of this guidance on the Company's Condensed Consolidated Statement of Comprehensive Income for the year ended December 31, 2018, was not material. The comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods.

On January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers, using the modified retrospective method. The Company applied the guidance to all contracts that were not complete as of the adoption date. The guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for these goods or services. The Company recognized the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of retained earnings. The comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods. See Note 3, Revenue in the Notes to Consolidated Financial Statements.



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Impacts on Financial Statements of Recently Adopted Financial Accounting Standards

The cumulative effect of the changes made to our Condensed Consolidated Balance Sheet as of January 1, 2018, as a result of the adoption of ASU No. 2014-09, Revenue from Contracts with Customers, and ASU No. 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets Financial Liabilities was as follows:
 December 31,
2017		 ASU 2014-09 Adjustments ASU 2016-01 Adjustments January 1,
2018
Current assets       
Other current assets$11,620
 $14,689
 $—
 $26,309
Total current assets343,790
 14,689
 —
 358,479
        
Non-current assets       
Deferred income taxes35,402
 (3,099) —
 32,303
Total non-current assets243,414
 (3,099) —
 240,315
        
Total assets$587,204
 $11,590
 $—
 $598,794
        
Current liabilities       
Deferred revenue31,272
 (1,059) —
 30,213
Other current liabilities40,346
 3,695
 —
 44,041
Total current liabilities265,792
 2,636
 —
 268,428
        
Total liabilities$374,499
 $2,636
 $—
 $377,135
        
Stockholders' equity       
Retained earnings (deficit)(716) 8,954
 6,089
 14,327
Accumulated other comprehensive income13,315
 —
 (6,089) 7,226
Total stockholders’ equity212,705
 8,954
 —
 221,659
        
Total liabilities and stockholders’ equity$587,204
 $11,590
 $—
 $598,794


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The impact of ASU No. 2014-09, Revenue from Contracts with Customers, on our Condensed Consolidated Balance Sheet as of December 31, 2018, was as follows:

 December 31, 2018
 As Reported Balances Without Adoption of ASU 2014-09 Effect of Adoption Higher/(Lower)
Current assets     
Other current assets$29,598
 $11,461
 $18,137
Total current assets450,867
 432,730
 18,137
      
Non-current assets     
Deferred income taxes34,830
 37,929
 (3,099)
Total non-current assets249,762
 252,861
 (3,099)
      
Total assets$700,629
 $685,591
 $15,038
      
Current liabilities     
Accrued salaries and employee benefits227,653
 224,657
 2,996
Deferred revenue40,673
 43,823
 (3,150)
Other current liabilities33,219
 28,224
 4,995
Income taxes payable8,240
 7,866
 374
Total current liabilities318,951
 313,736
 5,215
      
Total liabilities$433,473
 $428,258
 $5,215
      
Stockholders' equity     
Retained earnings (deficit)56,049
 46,227
 9,822
Total stockholders’ equity267,156
 257,334
 9,822
      
Total liabilities and stockholders’ equity$700,629
 $685,591
 $15,038


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The impact of ASU No. 2014-09, Revenue from Contracts with Customers, on our Condensed Consolidated Statement of Comprehensive Income for the three and twelve months ended December 31, 2018, was as follows:
 
Three Months Ended December 31, 2018
(Unaudited)
 Twelve Months Ended December 31, 2018
 As Reported Balances Without Adoption of ASU 2014-09 
Effect of Adoption
Higher/(Lower)
 As Reported Balances Without Adoption of ASU 2014-09 
Effect of Adoption
Higher/(Lower)
Revenue           
Revenue before reimbursements (net revenue)$185,305
 $182,413
 $2,892
 $716,023
 $711,785
 $4,238
Reimbursements5,662
 5,662
 —
 19,632
 19,632
 —
Total revenue190,967
 188,075
 2,892
 735,655
 731,417
 4,238
            
Operating expenses           
Salaries and employee benefits133,328
 131,278
 2,050
 506,349
 503,353
 2,996
General and administrative expenses35,285
 35,285
 —
 140,817
 140,817
 —
Reimbursed expenses5,662
 5,662
 —
 19,632
 19,632
 —
Total operating expenses174,275
 172,225
 2,050
 666,798
 663,802
 2,996
            
Operating income16,692
 15,850
 842
 68,857
 67,615
 1,242
            
Non-operating income (expense)           
Interest, net645
 645
 —
 1,141
 1,141
 —
Other, net(1,355) (1,355) —
 494
 494
 —
Net non-operating income (expense)(710) (710) —
 1,635
 1,635
 —
            
Income before income taxes15,982
 15,140
 842
 70,492
 69,250
 1,242
            
Provision for income taxes4,787
 4,533
 254
 21,197
 20,823
 374
            
Net income$11,195
 $10,607
 $588
 $49,295
 $48,427
 $868
            
Basic earnings per share$0.59
 $0.56
 $0.03
 $2.61
 $2.56
 $0.05
Diluted earnings per share$0.58
 $0.55
 $0.03
 $2.52
 $2.48
 $0.04

The impact of ASU 2014-09, Revenue from Contracts with Customers, on our Condensed Consolidated Statement of Cash Flows for the twelve months ended December 31, 2018, was as follows:
 Twelve Months Ended December 31, 2018
 As Reported Balances Without Adoption of ASU 2014-09 
Effect of Adoption
Higher/(Lower)
Cash flows - operating activities     
Net income$49,295
 $48,427
 $868
Changes in assets and liabilities, net of effects of acquisitions:     
Accrued expenses71,526
 62,372
 9,154
Deferred revenue(1,899) 3,248
 (5,147)
Income taxes payable, net757
 383
 374
Other assets and liabilities, net(4,748) (663) (4,085)
Net cash provided by operating activities$102,902
 $102,902
 $—


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3.Revenue
3.
Revenue


Executive Search


Revenue is recognized as we satisfy our performance obligations are satisfied by transferring a good or service to a client. Generally, each of our executive search contracts containcontract contains one performance obligation which is the process of identifying potentially qualified candidates for a specific client position. In most contracts, the transaction price includes both fixed and variable consideration. Fixed compensation is comprised of a retainer, equal to approximately one-third of the estimated first year compensation for the position to be filled, and indirect expenses, equal to a specified percentage of the retainer, as defined in the contract. The Company generally bills its clients for itsthe retainer and indirect expenses in one-third increments over a three-month period commencing in the month of a client’s acceptance of the contract. If actual compensation of a placed candidate exceeds the original compensation estimate, the Company is often authorized to bill the client for one-third of the excess compensation. The Company refers to this additional billing as uptick revenue. In most contracts, variable consideration is comprised of uptick revenue and direct expenses. The Company bills its clients for uptick revenue upon completion of the executive search, and direct expenses are billed as incurred.


As required under ASU No. 2014-09, theThe Company now estimates uptick revenue at contract inception, based on a portfolio approach, utilizing the expected value method based on a historical analysis of uptick revenue realized in the Company’s geographic regions and industry practices, and initially records a contract’s uptick revenue in an amount that is probable not to result in a significant reversal of cumulative revenue recognized when the actual amount of uptick revenue for thatthe contract is known. Differences between the estimated and
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actual amounts of variable consideration are recorded when known. The Company does not estimate revenue for direct expenses as it is not materially different than recognizing revenue as direct expenses are incurred.


Revenue from our executive search engagement performance obligation isobligations are recognized over time as our clients simultaneously receive and consume the benefits provided by the Company's performance. Revenue from executive search engagements is recognized over the expected average period of performance, in proportion to the estimated personnel time incurred to fulfill ourthe obligations under the executive search contract. Revenue is generally recognized over a period of approximately six months.


OurThe Company's executive search contracts contain a replacement guarantee which provides for an additional search to be completed, free of charge except for expense reimbursements, should the candidate presented by the Company be hired by the client and subsequently terminated by the client for performance reasons within a specified period of time. The replacement guarantee is an assurance warranty, which is not a performance obligation under the terms of the executive search contract, as the Company does not provide any services under the terms of the guarantee that transfer benefits to the client in excess of assuring that the identified candidate complies with the agreed-upon specifications. The Company accounts for the replacement guarantee under the relevant warranty guidance in ASC 460 - Guarantees.


Heidrick Consulting


Revenue is recognized as we satisfy our performance obligations are satisfied by transferring a good or service to a client. Heidrick Consulting enters into contracts with clients that outline the general terms and conditions of the assignment to provide succession planning, executive assessment, top team and board effectiveness and culture shaping programs. The consideration the Company expects to receive under each contract is generally fixed. Most of our consulting contracts contain one performance obligation, which is the overall process of providing the consulting service requested by the client. The majority of our consulting revenue is recognized over time utilizing both input and output methods. Contracts that contain coaching sessions, training sessions or the completion of assessments are recognized using the output method as each session or assessment is delivered to the client. Contracts that contain general consulting work are recognized using the input method utilizing a measure of progress that is based on time incurred on the project.

The Company enters into enterprise agreements with clients to provide a license for online access, via the Company's SDCulture Connect platform, to training and other proprietary material related to the Company's culture shaping programs. The consideration the Company expects to receive under the terms of an enterprise agreement is comprised of a single fixed fee. OurThe enterprise agreements contain multiple performance obligations, the delivery of materials via SDCulture Connect and material rights related to options to renew enterprise agreements at a significant discount. The Company allocates the transaction price to the performance obligations in the contract on a stand-alone selling price basis. The stand-alone selling price for the initial term of the enterprise agreement is outlined in the contract and is equal to the price paid by the client for the agreement over the initial term of the contract. The stand-alone selling price for the options to renew, or material right, are not directly observable and must be estimated. This estimate is required to reflect the discount the client would obtain when exercising the option to renew, adjusted for the likelihood that the option will be exercised. The Company estimates the likelihood of renewal using a historical analysis of client renewals. Access to SDCulture Connect represents a right to access the Company’s intellectual property that the client simultaneously receives and consumes as the Company performs under the agreement, and therefore the Company recognizes revenue over time.

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Given the continuous nature of this commitment, the Company utilizes straight-line ratable revenue recognition over the estimated subscription period as the Company's clients will receive and consume the benefits from SDCulture Connect equally throughout the contract period. Revenue related to client renewals of enterprise agreements is recognized over the term of the renewal, which is generally twelve months. Enterprise agreements do not comprise a significant portion of the Company's revenue.


Contract Balances


Contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. Contract assets and liabilities are classified as current due to the nature of the Company's contracts, which are completed within one year. Contract assets are included within Other Current Assets on the Condensed Consolidated Balance Sheets.


Unbilled receivables: Unbilled revenue represents contract assets from revenue recognized over time in excess of the amount billed to the client and the amount billed to the client is solely dependent upon the passage of time. This amount includes revenue recognized in excess of billed executive search retainers and Heidrick Consulting fees.


Contract assets: Contract assets represent revenue recognized over time in excess of the amount billed to the client and the amount billed to the client is not solely subject to the passage of time. This amount primarily includes revenue recognized for upticks and contingent placement fees in executive search contracts.

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Deferred revenue: Contract liabilities consist of deferred revenue, which is equal to billings in excess of revenue recognized.


The following table outlines the changes in our contract asset and liability balances duringfor the period:years ended:
December 31,
20202019Change
Contract assets
Unbilled receivables$9,907 $7,585 $2,322 
Contract assets9,745 14,672 (4,927)
Total contract assets19,652 22,257 (2,605)
Contract liabilities
Deferred revenue$38,050 $41,267 $(3,217)
 January 1,
2018		 December 31,
2018		 Variance
Contract assets     
Unbilled receivables$5,487
 $8,684
 $3,197
Contract assets12,398
 15,291
 2,893
      
Contract liabilities     
Deferred revenue$30,213
 $40,673
 $10,460


During the year ended December 31, 2018,2020, we recognized revenue of $28.0$36.2 million that was included in the contract liabilities balance at the beginning of the period. The amount of revenue recognized during the year ended December 31, 2018,2020, from performance obligations partially satisfied in previous periods as a result of changes in the estimates of variable consideration was $21.8$16.7 million.


Each of the Company's contracts has an expected duration of one year or less.Accordingly, the Company has elected to utilize the available practical expedient related to the disclosure of the transaction price allocated to the remaining performance obligations under its contracts. The Company has also elected the available practical expedients related to adjusting for the effects of a significant financing component and the capitalization of contract acquisition costs. The Company charges and collects from its clients, sales tax and value added taxes as required by certain jurisdictions. The Company has made an accounting policy election to exclude these items from the transaction price in its contracts.


4.
Allowance for Doubtful Accounts
4.    Credit Losses

The Company is exposed to credit losses primarily through the provision of its executive search and consulting services. The Company’s expected credit loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables. Due to the short-term nature of such receivables, the estimate of amount of accounts receivable that may not be collected is primarily based on historical loss-rate experience. When required, the Company adjusts the loss-rate methodology to account for current conditions and reasonable and supportable expectations of future economic and market conditions. The Company generally assesses future economic conditions for a period of sixty to ninety days, which corresponds with the contractual life of its accounts receivables. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted.

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The activity ofin the allowance for doubtful accounts forcredit losses on the years ended:Company's trade receivables is as follows:
 December 31, December 31,
 2018 2017 2016 202020192018
Balance at January 1, $2,534
 $2,575
 $5,376
Balance at January 1,$5,140 $3,502 $2,534 
Provision charged to income 3,790
 963
 1,407
Provision for credit lossesProvision for credit losses6,696 5,900 3,790 
Write-offs (2,708) (1,134) (4,106)Write-offs(5,418)(4,270)(2,708)
Foreign currency translation (114) 130
 (102)Foreign currency translation139 8 (114)
Balance at December 31, $3,502
 $2,534
 $2,575
Balance at December 31,$6,557 $5,140 $3,502 
 

The fair value and unrealized losses on available for sale debt securities, aggregated by investment category and the length of time the security has been in an unrealized loss position, are as follows:
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Less Than 12 MonthsBalance Sheet Classification
Balance at December 31, 2020Fair ValueUnrealized LossCash and Cash EquivalentsMarketable Securities
U.S. Treasury securities$31,997 $1 $31,997 $0 



The unrealized loss on one investment in U.S. Treasury securities at December 31, 2020 was caused by fluctuations in market interest rates. The contractual cash flows of these investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the investments would not be settled at a price less than the amortized cost basis. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before the recovery of the amortized cost basis. There were no investments with unrealized losses at December 31, 2019.
5.
Property and Equipment, net


5.    Property and Equipment, net

The components of the Company’s property and equipment are as follows:
 December 31,
 20202019
Leasehold improvements$40,320 $47,269 
Office furniture, fixtures and equipment14,816 17,740 
Computer equipment and software25,544 27,531 
Property and equipment, gross80,680 92,540 
Accumulated depreciation(57,188)(63,890)
Property and equipment, net$23,492 $28,650 
  December 31,
  2018 2017
Leasehold improvements $48,455
 $48,216
Office furniture, fixtures and equipment 17,919
 17,732
Computer equipment and software 27,063
 28,300
Property and equipment, gross 93,437
 94,248
Accumulated depreciation (59,566) (54,734)
Property and equipment, net $33,871
 $39,514


Depreciation expense for the years ended December 31, 2020, 2019 and 2018, 2017was $8.1 million, $9.5 million and 2016, was $11.0 million, $10.4respectively.

Additionally, as part of the Company's restructuring plan, property and equipment located at certain of the Company's offices was abandoned and the useful life of the assets were shortened to correspond with the cease-use date. As a result of the change in the useful life, approximately $4.2 million of depreciation expense was accelerated and recorded in Restructuring charges in the Consolidated Statements of Comprehensive Income (Loss) and Depreciation and amortization in the Consolidated Statements of Cash Flows during the year ended December 31, 2020.
6.    Leases

The Company's lease portfolio is comprised of operating leases for office space and equipment. The majority of the Company's leases include both lease and non-lease components, which the Company accounts for differently depending on the underlying class of asset. Certain of the Company's leases include one or more options to renew or terminate the lease at the Company's discretion. Generally, the renewal and termination options are not included in the right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal and termination options and when they are reasonably certain of exercise, includes the renewal or termination option in our lease term.

As most of the Company's leases do not provide an implicit interest rate, the Company utilizes its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The
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Company has a centrally managed treasury function; therefore, a portfolio approach is applied in determining the incremental borrowing rate. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a fully collateralized basis over a similar term in an amount equal to the total lease payments in a similar economic environment.

Office leases have remaining lease terms that range from less than 1 year to 12.5 years, some of which also include options to extend or terminate the lease. Most office leases contain both fixed and variable lease payments. Variable lease costs consist primarily of rent escalations based on an established index or rate and taxes, insurance, and common area or other maintenance costs, which are paid based on actual costs incurred by the lessor. The Company has elected to utilize the available practical expedient to not separate lease and non-lease components for office leases.

As part of the Company's restructuring plan, lease components related to certain of the Company's offices were abandoned and the useful life of the associated right-of-use asset was shortened to correspond with the cease-use date. As a result of the change in the useful life, approximately $13.7 million of right-of-use asset amortization was accelerated and recorded in Restructuring charges in the Consolidated Statements of Comprehensive Income (Loss) and Depreciation and amortization in the Consolidated Statements of Cash Flows during the year ended December 31, 2020.

Equipment leases, which are comprised of vehicle and office equipment leases, have remaining terms that range from less than 1 year to 5.0 years, some of which also include options to extend or terminate the lease. The Company's equipment leases do not contain variable lease payments. The Company separates the lease and non-lease components for its equipment leases. Equipment leases do not comprise a significant portion of the Company's lease portfolio.

Lease cost components included within General and Administrative Expenses in our Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, were as follows:
December 31,
20202019
Operating lease cost$22,227 $24,928 
Variable lease cost6,047 7,932 
Total lease cost$28,274 $32,860 

Rent expense, as previously defined under ASC 840, which includes the base rent, maintenance costs, operating expenses and real estate taxes, and the costs of equipment leases for the year ended December 31, 2018, was $33.2 million.

Supplemental cash flow information related to the Company's operating leases for the year ended December 31, is as follows:
December 31,
20202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$31,573 $33,797 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$31,829 $19,640 

The weighted average remaining lease term and weighted average discount rate for our operating leases as of December 31, is as follows:
December 31,
20202019
Weighted Average Remaining Lease Term
Operating leases6.0 years4.7 years
Weighted Average Discount Rate
Operating leases3.5 %3.9 %
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The future maturities of the Company's operating lease liabilities for the years ended December 31, is as follows:
Operating Lease Maturity
2021$28,089 
202225,803 
202323,822 
202414,030 
20256,726 
Thereafter30,226 
Total lease payments128,696 
Less: Interest(12,896)
Present value of lease liabilities$115,800 

The Company has an obligation at the end of the lease term to return certain offices to the landlord in its original condition, which is recorded at fair value at the time the liability is incurred. The Company had $3.3 million and $9.4$3.0 million respectively.of asset retirement obligations as of December 31, 2020 and 2019, respectively, which are recorded within Other current liabilities and Other non-current liabilities in the Consolidated Balance Sheets.
6.
Investments


7.    Financial Instruments and Fair Value

Cash, Cash Equivalents and Marketable Securities

The Company's investments in marketable debt securities, which consist of U.S. Treasury bills and commercial paper, are classified and accounted for as available-for-sale. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument's underlying contractual maturity date. Unrealized gains and losses on marketable debt securities classified as available-for-sale are recognized in Accumulated other comprehensive income in the Consolidated Balance Sheets until realized.

The Company's cash, cash equivalents, and marketable securities by significant investment category are as follows:
Fair ValueBalance Sheet Classification
Amortized CostUnrealized GainsUnrealized LossesFair ValueCash and Cash EquivalentsMarketable Securities
Balance at December 31, 2020
Cash$230,490 $— 
Level 1(1):
Money market funds53,986 
U.S. Treasury securities51,996 1 (1)51,996 31,997 19,999 
Total Level 151,996 1 (1)51,996 85,983 19,999 
Total$51,996 $1 $(1)$51,996 $316,473 $19,999 

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Fair ValueBalance Sheet Classification
Amortized CostUnrealized GainsUnrealized LossesFair ValueCash and Cash EquivalentsMarketable Securities
Balance at December 31, 2019
Cash$177,493 $— 
Level 1(1):
Money market funds15,661 — 
U.S. Treasury securities139,705 13 — 139,718 78,565 61,153 
Total Level 1139,705 13 — 139,718 94,226 61,153 
Total$139,705 $13 $— $139,718 $271,719 $61,153 

(1)Level 1 – Quoted prices in active markets for identical assets and liabilities.

Investments, Assets Designated for Retirement and Pension Plans and Associated Liabilities

The Company has a U.S. non-qualified deferred compensation plan that consists primarily of U.S. marketable securities and mutual funds, all of which are valued using Level 1 inputs (See Note 7, Fair Value Measurements). The fair value for these investments was $19.4 million and $21.3 million as of December 31, 2018 and 2017, respectively.funds. The aggregate cost basis for these investments was $14.6$19.5 million and $14.6$17.2 million as of December 31, 20182020 and 2017,December 31, 2019, respectively.

7.
Fair Value Measurements

The Company also maintains a pension plan for certain current and former employees in Germany. The pensions are individually fixed Euro amounts that vary depending on the function and the eligible years of service of the employee. The Company’s investment strategy is to support its pension obligations through reinsurance contracts. The BaFin—German Federal Financial Supervisory Authority—supervises the insurance companies and the reinsurance contracts. The BaFin requires each reinsurance contract to guarantee a fixed minimum return. The Company’s pension benefits are fully reinsured by group insurance contracts with ERGO Lebensversicherung AG, and the group insurance contracts are measured in accordance with BaFin guidelines (including mortality tables and discount rates) which are considered Level 2 inputs.
Fair value is defined as
The following tables provide a summary of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the usemeasurements for each major category of observable inputsinvestments, assets designated for retirement and minimize the use of unobservable inputs. The three levels of inputs used to measurepension plans and associated liabilities measured at fair value are as follows:on a recurring basis:
Balance Sheet Classification
Fair ValueOther Current AssetsGoodwillAssets Designated for Retirement and Pension PlansInvestmentsOther Current LiabilitiesRetirement and Pension Plans
Balance at December 31, 2020
Measured on a recurring basis:
Level 1(1):
U.S. non-qualified deferred compensation plan$31,369 $— — $— $31,369 $— $— 
Level 2(2):
Retirement and pension plan assets15,859 1,434 — 14,425 — — — 
Pension benefit obligation(22,351)— — — — (1,434)(20,917)
Total Level 2(6,492)1,434 — 14,425 — (1,434)(20,917)
Measured on a non-recurring basis:
Level 3(3)(4):
Goodwill91,643 91,643 
Total$116,520 $1,434 91,643 $14,425 $31,369 $(1,434)$(20,917)
•
56



Balance Sheet Classification
Fair ValueOther Current AssetsAssets Designated for Retirement and Pension PlansInvestmentsOther Current LiabilitiesRetirement and Pension Plans
Balance at December 31, 2019
Level 1(1):
U.S. non-qualified deferred compensation plan$25,409 $— $— $25,409 $— $— 
Level 2(2):
Retirement and pension plan assets15,296 1,318 13,978 — — — 
Pension benefit obligation(20,918)— — — (1,318)(19,600)
Total Level 2(5,622)1,318 13,978 — (1,318)(19,600)
Total$19,787 $1,318 $13,978 $25,409 $(1,318)$(19,600)

(1)Level 1 – Quoted prices in active markets for identical assets and liabilities.
•(2)Level 2 – Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
•(3)Level 3 –- Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

(4)In accordance with Subtopic 350-20, goodwill with a carrying value of $33.0 million was written down to its implied fair value of zero, resulting in the revised total goodwill of $91.6 million and an impairment charge of $33.0 million in earnings.

Contingent Consideration

The following tables provide a summaryformer owners of the Company's acquisitions are eligible to receive additional cash consideration based on the attainment of certain operating metrics in the periods subsequent to acquisition. Contingent consideration is valued using significant inputs that are not observable in the market which are defined as Level 3 inputs pursuant to fair value measurement accounting. The Company determines the fair value measurements at December 31, 2018 and 2017, for each major category of assets and liabilities measured at fair value on a recurring basis:
  Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total
At December 31, 2018        
U.S. non-qualified deferred compensation plan $19,442
 $—
 $—
 $19,442
Assets designated for retirement and pension plans —
 16,384
 —
 16,384
Pension benefit obligation —
 (20,908) —
 (20,908)
Acquisition earnout accruals —
 —
 (6,627) (6,627)
  $19,442
 $(4,524) $(6,627) $8,291

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  Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total
At December 31, 2017        
U.S. non-qualified deferred compensation plan $21,319
 $—
 $—
 $21,319
Assets designated for retirement and pension plans —
 18,590
 —
 18,590
Pension benefit obligation —
 (23,886) —
 (23,886)
Acquisition earnout accruals —
 —
 (7,213) (7,213)
  $21,319
 $(5,296) $(7,213) $8,810

The Level 2 assets above are reinsurance contracts fair valued in accordance with BaFin - German Federal Financial Supervisory Authority guidelines, which utilize observable inputs including mortality tables and discount rates. The Level 3 liabilities are accruals for future earnout payments related to prior year acquisitions, the values of which are determined based oncontingent consideration using discounted cash flow models. The Company considersContingent consideration is recorded within non-current Accrued salaries and benefits in the recorded value of its financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, and accounts payable, to approximate the fair value of the respective assets and liabilities at December 31, 2018 and 2017, based upon the short-term nature of the assets and liabilities.Consolidated Balance Sheets.


The following table provides a reconciliation of the beginning and ending balance of Level 3 liabilities for the year ended December 31, 2018:2020:
Acquisition
Earnout
Accruals		Contingent Compensation Accruals
Balance at December 31, 2019$(5,278)$(618)
Earnout accretion/compensation expense0 (1,942)
Payments5,051 0 
Foreign currency translation227 170 
Balance at December 31, 2020$0 $(2,390)

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  Acquisition
Earnout
Accruals
Balance at December 31, 2017 $(7,213)
Acquisition earnouts (Note 8) (3,054)
Earnout accretion (1,285)
Earnout payments 3,592
Earnout adjustment (1) 888
Foreign currency translation 445
Balance at December 31, 2018 $(6,627)
Goodwill

(1)During the twelve months ended December 31, 2018, the Company determined that certain financial targets related to earnout agreements for the DSI and Philosophy IB acquisitions would not be achieved. As such, the Company reduced the earnout accrual accordingly.


8.
Acquisitions

Decision Strategies International, Inc.

On February 29, 2016,Goodwill represents the Companydifference between the purchase price of acquired substantially allcompanies and the related fair value of the net assets acquired, which is accounted for by the acquisition method of Decision Strategies International, Inc. ("DSI"), a Pennsylvania-based business consulting firm and its wholly owned subsidiary, Decision Strategies International (UK) Limited.accounting. The former owners of DSI are eligible to receive an additional cash consideration payment in 2019 based on revenue targets to be achieved in 2017 and 2018. During the year ended December 31, 2018, the Company determined that the final earnout achieved was $2.4 million, and reduced the existing accrual by $0.3 million.
Philosophy IB, LLP

On September 1, 2016 the Company acquired substantially allperforms assessments of the assetscarrying value of Philosophy IB, LLP ("Philosophy IB"),goodwill at least annually and whenever events occur or circumstances indicate that a New Jersey-based leadership, organization development and management consulting firm. The former ownerscarrying amount of Philosophy IB are eligible to receive additional cash consideration based on two components: (i) achieving revenue milestones generated from its software products from September 2016 through August 2019, and (ii) percentage of consulting revenue achieved over the period September 2016 to August 2019, subject to a profitability test.goodwill may not be recoverable. During the three months ended SeptemberJune 30, 2017,2020, an interim goodwill impairment evaluation was conducted to determine the fair value of goodwill resulting in an impairment of $33.0 million. On October 31, 2020, the Company determinedconducted its annual goodwill impairment evaluation in accordance with ASU No. 2017-04, Intangibles - Goodwill and Other, which indicated that the softwarefair value of the Americas reporting unit was in excess of its carrying value and consulting revenue targetsno impairment was necessary. Goodwill is valued using significant inputs that are not observable in the market which are defined as Level 3 inputs pursuant to fair value measurement accounting. The Company determines the fair value of goodwill using discounted cash flow models.

The following table provides a reconciliation of the beginning and ending balance of Level 3 assets for the period from September 2016 to August 2017, or first installment, would not be achieved. As such, the Company reduced the first installment earnout accrual by $0.7 million. During the three months ended September 30, 2018, the Company determined that the software and consulting revenue targets for the period September 2017 to August 2018, or second installment, were not achieved. As such, the Company reduced the second installment by $0.4 million. During the threetwelve months ended December 31, 2018, the Company determined that the software and consulting2020:

55


revenue targets for the period from September 2018 to August 2019, or third installment, would not be achieved. As such, the Company reduced the third installment earnout accrual by $0.1 million.

Amrop A/S

On January 4, 2018, the Company acquired Amrop A/S ("Amrop"), a Denmark-based provider of executive search services for 24.3 million Danish Kroner (equivalent to $3.9 million on the acquisition date) of initial consideration which was funded from existing cash. The former owners of Amrop are expected to receive additional cash consideration based on fee revenue generated during the two-year period following the completion of the acquisition. When estimating the value of future cash consideration, the Company accrued $3.1 million on the acquisition date. The Company recorded $1.7 million of intangible assets related to customer relationships and $5.5 million of goodwill. The goodwill is primarily related to the acquired workforce and strategic fit.

Goodwill
Balance at December 31, 2019$126,831 
9.
Impairment
Goodwill and Other Intangible Assets
(32,970)
Foreign currency translation(2,218)
Balance at December 31, 2020$91,643 


8.    Goodwill and Other Intangible Assets

Goodwill


The Company's goodwill by segment is as follows:
December 31, 2020December 31, 2019
Executive Search
Americas$91,643 $92,497 
Europe0 25,579 
Asia Pacific0 8,755 
Total goodwill$91,643 $126,831 

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 December 31, 2018 December 31, 2017
Executive Search   
Americas$88,410
 $88,690
Europe24,924
 20,900
Asia Pacific8,758
 9,302
Total Executive Search122,092
 118,892
Heidrick Consulting36,257
 36,257
Goodwill, gross158,349
 155,149
Accumulated impairment(36,257) (36,257)
Goodwill, net$122,092
 $118,892


Changes in the carrying amount of goodwill by segment for the years ended December 31, 2018, 2017,2020, 2019, and 20162018 were as follows:
Executive Search
AmericasEuropeAsia PacificTotal
Goodwill$88,690 $20,900 $9,302 $118,892 
Accumulated impairment losses0 0 0 0 
Balance at December 31, 201788,690 20,900 9,302 118,892 
Amrop acquisition0 5,478 0 5,478 
Foreign currency translation(280)(1,454)(544)(2,278)
Balance at December 31, 201888,410 24,924 8,758 122,092 
2GET acquisition3,793 0 0 3,793 
Foreign currency translation294 655 (3)946 
Balance at December 31, 201992,497 25,579 8,755 126,831 
Impairment0 (24,475)(8,495)(32,970)
Foreign currency translation(854)(1,104)(260)(2,218)
Goodwill91,643 24,475 8,495 124,613 
Accumulated impairment losses0 (24,475)(8,495)(32,970)
Balance at December 31, 2020$91,643 $0 $0 $91,643 
  Executive Search    
  Americas Europe Asia Pacific Heidrick Consulting Total
Balance at December 31, 2015 $81,626
 $10,745
 $9,211
 $29,540
 $131,122
DSI acquisition 5,673
 —
 —
 —
 5,673
Philosophy IB acquisition 2,357
 —
 —
 —
 2,357
JCA Group acquisition —
 15,769
 —
 —
 15,769
Segment reallocation (1) (1,670) (4,517) (347) 6,534
 —
Exchange rate fluctuations 115
 (2,905) 29
 (316) (3,077)
Balance at December 31, 2016 88,101
 19,092
 8,893
 35,758
 151,844
Philosophy IB acquisition 357
 —
 —
 7
 364
Exchange rate fluctuations 232
 1,808
 409
 492
 2,941
Impairment —
 —
 —
 (36,257) (36,257)
Balance at December 31, 2017 88,690
 20,900
 9,302
 —
 118,892
Amrop acquisition —
 5,478
 —
 —
 5,478
Foreign currency translation (280) (1,454) (544) —
 (2,278)
Balance at December 31, 2018 $88,410
 $24,924
 $8,758
 $—
 $122,092

(1)Due to the Company's change in segment reporting during the year ended December 31, 2016, goodwill amounts included in the Company's Americas, Europe and Asia Pacific segments in the prior year have been reallocated to the Heidrick Consulting segment utilizing the relative fair value method.

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During the twelve months ended December 31, 2017, the Company determined that the goodwill within the Culture Shaping and Leadership Consulting reporting units was impaired, which resulted in impairment charges of $29.3 million and $6.9 million, respectively, to write off all of the goodwill associated with each of the reporting units. The impairment charges are recorded within Impairment charges in the Condensed Consolidated Statements of Comprehensive Income (Loss) for the twelve months ended December 31, 2017. The impairments were non-cash in nature and did not affect our current liquidity, cash flows, borrowing capability or operations, nor did they impact the debt covenants under our credit agreement. Effective January 1, 2018, the Company completed its integration of the Culture Shaping and Leadership Consulting reporting units into the newly created Heidrick Consulting reporting unit.

On January 4, 2018, the Company acquired Amrop and included the fair value of the acquired assets and liabilities as of the acquisition date in the Condensed Consolidated Balance Sheets. The Company included $5.5 million of goodwill related to the acquisition in the Europe segment.

During the 2018 fourth quarter,three months ended June 30, 2020, and as a direct result of the economic impact of COVID-19, the Company conducted its annualexperienced a decline in demand for our executive search services and a lengthening of the executive search process due to a slow-down in client decision making, which had a material adverse impact on our results of operations. As a result, the Company identified a triggering event and performed an interim goodwill impairment evaluation as of October 31, 2018 in accordance with ASU No. 2017-04, Intangibles - Goodwill and Other. The goodwill impairment test is completed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value of the reporting unit exceeds its fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit.evaluation.

The impairment test is considered for each of the Company’s reporting units that has goodwill as defined in the accounting standard for goodwill and intangible assets. The Company operates four reporting units: Americas, Europe (which includes Africa), Asia Pacific (which includes the Middle East) and Heidrick Consulting. As of October 31, 2018, only the Americas, Europe and Asia Pacific reporting units had recorded goodwill.


During the impairment evaluation process, the Company used a discounted cash flow methodology to estimate the fair value of each of its reporting units with goodwill.units. The discounted cash flow approach is dependent on a number of factors, including estimates of future market growth and trends, forecasted revenue and costs, capital investments, appropriate discount rates, certain assumptions to allocate shared costs, assets and liabilities, historical and projected performance of the reporting unit, and the macroeconomic conditions affecting each of the Company’s reporting units. The assumptions used in the determination of fair value were (1) a forecast of growth in the near and long term; (2) the discount rate; (3) working capital investments; (4) macroeconomic conditions and (4)(5) other factors.


Based on the results of the impairment evaluation, the Company determined that the goodwill within the Europe and Asia Pacific reporting units was impaired, which resulted in an impairment charge of $24.5 million in Europe and $8.5 million in Asia Pacific to write-off all of the goodwill associated with each reporting unit. The impairment charge is recorded within Impairment charges in the Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2020. The impairment was non-cash in nature and did not affect our current liquidity, cash flows, borrowing capability or operations; nor did it impact the debt covenants under our credit agreement.

During the 2020 fourth quarter, the Company conducted its annual goodwill impairment evaluation as of October 31, 2020 in accordance with ASU No. 2017-04, Intangibles - Goodwill and Other for the Company's remaining goodwill in the Americas reporting unit. The goodwill impairment test is completed by comparing the fair value of a reporting unit, calculated as described above, with its carrying amount. An impairment charge is recognized for the amount by which the carrying value of the reporting unit exceeds its fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit. 

Based on the results of the impairment analysis, the fair valuesvalue of the Americas Europe,reporting unit exceeded its carrying value by an amount in excess of 100%.

The Company continues to monitor potential triggering events for its Americas reporting unit including changes in the business climate in which it operates, the Company’s market capitalization compared to its book value, and Asia Pacific reporting units exceeded their carrying values by 335%, 19% and 13%, respectively.the Company’s recent operating performance. Any changes in these factors could result in a further impairment charge.

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Other Intangible Assets, net


The Company’s other intangible assets, net by segment, are as follows:
 
December 31, 2020December 31, 2019
Executive Search
Americas$225 $557 
Europe852 1,314 
Asia Pacific52 64 
Total Other Intangible Assets, Net$1,129 $1,935 
  December 31, 2018 December 31, 2017
Executive Search    
Americas $52
 $252
Europe 2,086
 1,799
Asia Pacific 78
 107
Total Executive Search 2,216
 2,158
Heidrick Consulting —
 —
Total Other Intangible Assets, Net $2,216
 $2,158


During the twelve months ended December 31, 2017, the Company determined that the intangible assets within the Culture Shaping and Leadership Consulting reporting units were impaired, which resulted in impairment charges of $9.9 million and $4.6 million, respectively, to write off all intangible assets associated with each reporting unit. The impairment charges are recorded within Impairment charges in the Condensed Consolidated Statement of Comprehensive Income (Loss) for the twelve months ended December 31, 2017. The impairment charges were non-cash in nature and did not affect current liquidity, cash flows, borrowing capability or operations, nor did they impact the debt covenants under our credit agreement.

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Effective January 1, 2018, the Company completed its integration of the Culture Shaping and Leadership Consulting reporting units into the newly created Heidrick Consulting reporting unit.






The carrying amount of amortizable intangible assets and the related accumulated amortization were as follows:
   December 31, 2018 December 31, 2017  December 31, 2020December 31, 2019
 Weighted
Average
Life (in
years)		 Gross Carrying Amount Accumulated Amortization Net
Carrying
Amount		 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted
Average
Life (in
years)		Gross Carrying AmountAccumulated AmortizationNet
Carrying
Amount		Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
Client relationships 6.8 $15,910
 $(13,694) $2,216
 $13,703
 $(11,612) $2,091
Client relationships6.6$16,600 $(15,587)$1,013 $16,302 $(14,683)$1,619 
Trade name 0.0 434
 (434) —
 459
 (459) —
Trade name5.0280 (164)116 362 (46)316 
Non-compete 0.0 217
 (217) —
 230
 (163) 67
Total intangible assets 6.8 $16,561
 $(14,345) $2,216
 $14,392
 $(12,234) $2,158
Total intangible assets6.4$16,880 $(15,751)$1,129 $16,664 $(14,729)$1,935 


Intangible asset amortization expense for the years ended December 31, 2020, 2019 and 2018, 2017was $0.7 million, $0.9 million and 2016, was $1.5 million, $4.4 million and $7.1 million, respectively.


The Company's estimated future amortization expense related to intangible assets as of December 31, 20182020 for the years ended December 31st31, is as follows:
2021496 
2022318 
2023189 
202477 
202549 
Total1,129 

9.    Other Current Assets
2019$846
2020529
2021356
2022241
2023147
Thereafter97
Total$2,216

10.
Other Current Assets and Liabilities and Non-Current Liabilities


The components of other current assets are as follows:
December 31, 2020December 31, 2019
Contract assets$19,652 $22,257 
Other3,627 5,591 
Total other current assets$23,279 $27,848 
  December 31, 2018 December 31, 2017
Contract assets $23,975
 $3,538
Other 5,623
 8,082
Total other current assets $29,598
 $11,620

The components of other current liabilities are as follows:
  December 31, 2018 December 31, 2017
Restructuring charges $1,287
 $13,023
Other 31,932
 27,323
Total other current liabilities $33,219
 $40,346

The components of other non-current liabilities are as follows:
  December 31, 2018 December 31, 2017
Premise related costs $15,473
 $18,360
Accrued earnout payments —
 3,076
Restructuring charges —
 10
Other 1,950
 2,151
Total other non-current liabilities $17,423
 $23,597


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10.    Line of Credit
11.
Line of Credit


On October 26, 2018, the Company entered into a new Credit Agreement (the "2018 Credit Agreement") to replace the Second Amended and Restated Credit Agreement (the "Restated Credit Agreement") executed on June 30, 2015. The 2018 Credit Agreement provides the Company with a senior unsecured revolving line of credit with an aggregate commitment of $175 million, which includes a sublimit of $25 million for letters of credit, and a $10 million swingline loan sublimit. The agreement also includes a $75 million expansion feature. The 2018 Credit Agreement will mature in October 2023. Borrowings under the 2018 Credit Agreement bear interest at the Company's election of the Alternate Base Rate (as defined in the 2018 Credit Agreement) or Adjusted LIBOR (as defined in the 2018 Credit Agreement) plus a spread as determined by the Company’s leverage ratio.

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Borrowings under the 2018 Credit Agreement may be used for working capital, capital expenditures, Permitted Acquisitions (as defined in the 2018 Credit Agreement) and for other general purposes of the Company and its subsidiaries. The obligations under the 2018 Credit Agreement are guaranteed by certain of the Company's subsidiaries.


The Company capitalized approximately $1.0 million of loan acquisition costs related to the 2018 Credit Agreement, which will be amortized over the remaining term of the agreement.


Before October 26, 2018,During the three months ended March 31, 2020, the Company was partyborrowed $100.0 million under the 2018 Credit Agreement. The Company elected to its Restated Credit Agreement, which was executed on June 30, 2015. The Restated Credit Agreement provideddraw down a single senior unsecuredportion of the available funds from its revolving line of credit with an aggregate commitmentas a precautionary measure to increase its cash position and further enhance its financial flexibility in light of up to $100 million, which includes a sublimit of $25 million for letters of credit, and a $50 million expansion feature (the “Replacement Facility”). Borrowings under the Restated Credit Agreement bore interest at the Company’s election of the existing Alternate Base Rate (as definedcurrent uncertainty in the Restated Credit Agreement) or Adjusted LIBOR Rate (as defined inglobal markets resulting from the Restated Credit Agreement) plus a spread as determined byCOVID-19 outbreak. The Company subsequently repaid $100.0 million during the Company’s leverage ratio.three months ended September 30, 2020.

During the three months ended March 31, 2018, the Company borrowed $20 million under the Restated Credit Agreement and elected the Adjusted LIBOR Rate.rate. The Company subsequently repaid $8 million during the three months ended March 31, 2018 and $12 million during the three months ended June 30, 2018.

During the three months ended March 31, 2017, the Company borrowed $40 million under the Restated Credit Agreement and elected the Adjusted LIBOR rate. The Company subsequently repaid $15 million during the three months ended March 31, 2017 and $25 million during the three months ended June 30, 2017.


As of December 31, 20182020, and 2017,2019, the Company had no0 outstanding borrowings under either the 2018 Credit Agreement or the Restated Credit Agreement. The Company was in compliance with the financial and other covenants under both facilitiesthe 2018 Credit Agreement and no event of default existed.


12.
Employee Benefit Plans

11.    Employee Benefit Plans

Qualified Retirement Plan


The Company has a defined contribution retirement plan (the “Plan”) for all eligible employees in the United States. Eligible employees may begin participating in the Plan upon their hire date. The Plan contains a 401(k) provision, which provides for employee pre-tax and/or after-tax contributions, from 1% to 50% of their eligible compensation up to a combined maximum permitted by law. The Company matched employee contributions on a dollar-for-dollar basis per participant up to the greater of $6,000, or 6.0%, of eligible compensation for the years ended December 31, 2018, 20172020, 2019 and 2016. Beginning in 2016, employees2018. Employees are eligible for the Company match immediately upon entry into the plan. Those contributions vest annually, provided that they are workingthe employee is employed by the Company on the last day of the Plan year in which the match is made. Previously, employees were eligible for the Company match after satisfying a one-year service requirement provided that they were working on the last day of the Plan year in which the match was made. The Plan also provides for employees who retire, die or become disabled during the Plan year to receive the Company match for that Plan year. The Plan provides that forfeitures will be used to reduce the Company’s contributions. Forfeitures are created annually by participants who terminate employment before becoming entitled to the Company’s matching contribution under the Plan. The Company also has the option of making discretionary contributions. There were no0 discretionary contributions made for the years ended December 31, 2018, 20172020, 2019 and 2016.2018. The expense that the Company incurred for matching employee contributions for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, was $5.7 million, $5.6$6.3 million and $4.8$5.7 million, respectively.


The Company maintains additional retirement plans in the Americas, Europe and Asia Pacific regions which the Company does not consider as material and, therefore, additional disclosure has not been presented.

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Deferred Compensation Plans


The Company has a deferred compensation plan for certain U.S. employees (the “U.S. Plan”) that became effective on January 1, 2006. The U.S. Plan allows participants to defer up to 25% of their base compensation and up to the lesser of $500,000 or 25% of their eligible bonus compensation into several different investment vehicles. These deferrals are immediately vested and are not subject to a risk of forfeiture. In 20182020 and 2017,2019, all deferrals in the U.S. Plan were funded. The compensation deferred in the U.S. Plan was $18.3$30.5 million and $19.2$23.8 million at December 31, 20182020 and 2017,2019, respectively. The assets of the U.S. Plan are included in Investments and the liabilities of the U.S. Plan are included in Retirement and pension plans in the Consolidated Balance Sheets as of December 31, 20182020 and 2017.2019.


The Company has a Non-Employee Directors Voluntary Deferred Compensation Plan whereby non-employee members of the Company’s Board of Directors may elect to defer up to 100% of the cash component of their directors’ fees into several different investment vehicles. As of December 31, 20182020, and 2017,2019, the total amounts deferred under the plan were $1.1$0.9 million and $2.2$1.6 million, respectively, all of which were funded. The assets of the plan are included in Investments and the liabilities of the plan are included in Retirement and pension plans in the Consolidated Balance Sheets at December 31, 20182020 and 2017.2019.


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The U.S. and Non-Employee Directors Voluntary Deferred Compensation Plans consist primarily of marketable securities and mutual funds, all of which are valued using Level 1 inputs (See Note 7, Financial Instruments and Fair Value Measurements).


13.
Pension Plan and Life Insurance Contract

12.    Pension Plan and Life Insurance Contract

The Company maintains a pension plan for certain current and former employees in Germany. The pensions are individually fixed Euro amounts that vary depending on the function and the eligible years of service of the employee.
20202019
Benefit obligation at January 1,$20,918 $20,908 
Interest cost212 338 
Actuarial loss790 1,506 
Benefits paid(1,402)(1,375)
Cumulative translation adjustment1,833 (459)
Benefit obligation at December 31,$22,351 $20,918 
  2018 2017
Benefit obligation at January 1, $23,886
 $22,128
Interest cost 373
 362
Actuarial (gain) loss (886) (371)
Benefits paid (1,450) (1,453)
Cumulative translation adjustment (1,015) 3,220
Benefit obligation at December 31, $20,908
 $23,886



The benefit obligation amounts recognized in the Consolidated Balance Sheets are as follows:
 December 31,
 20202019
Current liabilities$1,434 $1,318 
Noncurrent liabilities20,917 19,600 
Total$22,351 $20,918 
  December 31,
  2018 2017
Current liabilities $1,349
 $1,461
Noncurrent liabilities 19,559
 22,425
Total $20,908
 $23,886

The accumulated benefit obligation amounts at December 31, 2018 and 2017, are $20.9 million and $23.9 million, respectively.


The components of and assumptions used to determine the net periodic benefit cost are as follows:
 December 31,
202020192018
Net period benefit cost:
Interest cost$212 $338 $373 
Amortization of net loss140 35 92 
Net periodic benefit cost$352 $373 $465 
Weighted average assumptions
Discount rate (1)1.03 %1.71 %1.64 %
Rate of compensation increase0 %0 %0 %
  December 31,
  2018 2017 2016
Net period benefit cost:      
Interest cost $373
 $362
 $453
Amortization of net loss 92
 111
 17
Net periodic benefit cost $465
 $473
 $470
Weighted average assumptions      
Discount rate (1) 1.64% 1.49% 2.15%
Rate of compensation increase —% —% —%


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Assumptions to determine the Company’s benefit obligation are as follows:
 December 31, December 31,
 2018 2017 2016202020192018
Discount rate (1) 1.71% 1.64% 1.53%Discount rate (1)0.72 %1.03 %1.71 %
Rate of compensation increase —% —% —%Rate of compensation increase0 %0 %0 %
Measurement Date 12/31/2018
 12/31/2017
 12/31/2016
Measurement Date12/31/202012/31/201912/31/2018
 
(1)The discount rates are based on long-term bond indices adjusted to reflect the longer duration of the benefit obligation.

(1)The discount rates are based on long-term bond indices adjusted to reflect the longer duration of the benefit obligation.

The amounts in Accumulated other comprehensive income as of December 31, 20182020 and 2017,2019, that had not yet been recognized as components of net periodic benefit cost were $2.6$5.1 million and $3.7$4.0 million, respectively. As of December 31, 2018,2020, an insignificant amount of the accumulated other comprehensive income is expected to be recognized as a component of net periodic benefit cost in 2019.2021.


The Company’s investment strategy is to support its pension obligations through reinsurance contracts. The BaFin—German Federal Financial Supervisory Authority—supervises the insurance companies and the reinsurance contracts. The BaFin requires each reinsurance contract to guarantee a fixed minimum return. The Company’s pension benefits are fully reinsured by group insurance contracts with ERGO Lebensversicherung AG, and the group insurance contracts are measured in accordance with BaFin guidelines (including mortality tables and discount rates) which are considered Level 2 inputs (See Note 7, Financial Instruments and Fair Value Measurements). The fair value at December 31, 20182020 and 2017,2019, was $16.4$15.9 million and $18.6$15.3 million, respectively. The expected contribution to be paid into the plan in 2019 is $1.3 million.


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Since the pension assets are not segregated in trust from the Company’s other assets, the pension assets are not shown as an offset against the pension liabilities in the Consolidated Balance Sheets. These assets are included in the Consolidated Balance Sheets at December 31, 20182020 and 2017,2019, as a component of Other current assets and Assets designated for retirement and pension plans.


The benefits expected to be paid in each of the next five years, and in the aggregate for the five years thereafter are as follows:
20211,434 
20221,415 
20231,393 
20241,367 
20251,335 
2025 through 20296,034 

13.    Stock-Based Compensation
2019$1,349
20201,339
20211,326
20221,309
20231,289
2024 through 20286,001


14.
Stock-Based Compensation

TheOn May 28, 2020, the stockholders of the Company approved an amendment to the Company's Second Amended and Restated 2012 Heidrick & Struggles GlobalShare Program ((as so amended, the "2012 Program'"Third A&R 2012 Program") to increase the number of shares of Common Stock reserved for issuance under the 2012 Program by 500,000 shares. The Third A&R 2012 Program provides for grants of stock options, stock appreciation rights, and other stock-based compensation awards that are valued based upon the grant date fair value of shares. These awards may be granted to directors, selected employees and independent contractors. The 2012 Program originally authorized 1,300,000 shares of Common Stock for issuance pursuant to awards under the plan.


On May 22, 2014, the stockholders of the Company approved an amendment to the 2012 Program to increase the number of shares of Common Stock reserved for issuance under the 2012 Program by 700,000 shares. On May 24, 2018, the stockholders of the Company approved an amendment to the 2012 Program to increase the number of shares of Common Stock reserved for issuance under the 2012 Program by 850,000 shares. As of December 31, 2018, 2,149,864 shares2020, 3,001,357 awards have been issued under the Third A&R 2012 Program and 1,375,1051,057,037 shares remain available for future awards, which includes 674,969including 708,394 forfeited shares.awards. The Third A&R 2012 Program provides that no awards can be granted after May 24, 2028.

In September 2017, the Company entered into an agreement with its former Chief Executive Officer pursuant to which Mr. Wolstencroft voluntarily agreed, with the concurrence of the Board of Directors, to forfeit 100 percent of his 2017 restricted stock unit and performance stock unit grants. Mr. Wolstencroft remains eligible to continue vesting in 100 percent of his 2014 sign-on restricted stock unit grant, without proration, subject to his continued service on the board through the future scheduled vesting dates. With respect to his outstanding 2015 and 2016 restricted stock unit and performance stock unit grants, Mr. Wolstencroft remains eligible to earn an agreed upon pro-rata portion of the tranches scheduled to vest in 2017, 2018 and 2019, subject to his continued service as a director through the scheduled vesting dates (and with the performance goals for

61


performance stock units deemed to have been achieved at target level performance), and he agreed to forfeit the remaining portions of such 2015 and 2016 restricted stock unit and performance stock unit awards.

The Company measures its stock-based compensation costs based on the grant date fair value of the awards and recognizes these costs in the financial statements over the requisite service period.


A summary of information with respect to stock-based compensation is as follows:
 December 31,
 202020192018
Salaries and employee benefits (1)$12,968 $12,857 $9,548 
General and administrative expenses460 460 562 
Income tax benefit related to stock-based compensation included in net income3,571 3,529 2,674 
  December 31,
  2018 2017 2016
Salaries and employee benefits (1) $9,548
 $4,597
 $5,830
General and administrative expenses 562
 338
 563
Income tax benefit related to stock-based compensation included in net income 2,674
 1,948
 2,523


(1) Includes $3.2 million, $3.0 million and $1.2 million of expense related to cash settled restricted stock units for the yearyears ended December 31, 2018.2020, 2019 and 2018, respectively.


Restricted Stock Units


Restricted stock units are generally subject to ratable vesting over a three-yearthree-year period. Beginning in 2018, a portion of the Company's restricted stock units are subject to ratable vesting over a four-yearfour-year period. Compensation expense related to service-based restricted stock units is recognized on a straight-line basis over the vesting period.


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Restricted stock unit activity as offor the years ended December 31, 2018, 20172020, 2019 and 20162018 is as follows:
Number of
Restricted
Stock Units		Weighted-
Average
Grant-date
Fair Value
Outstanding on December 31, 2018512,446 $28.83 
Granted270,488 33.55
Vested and converted to common stock(175,792)24.19
Forfeited(8,154)34.29
Outstanding on December 31, 2019598,988 32.25
Granted329,068 22.20
Vested and converted to common stock(194,921)29.67
Forfeited(25,271)30.62
Outstanding on December 31, 2020707,864 $28.35 
  Number of
Restricted
Stock Units		 Weighted-
Average
Grant-date
Fair Value
Outstanding on December 31, 2015 473,935
 $19.98
Granted 207,405
 22.92
Vested and converted to common stock (119,455) 20.02
Forfeited (24,612) 22.81
Outstanding on December 31, 2016 537,273
 20.97
Granted 243,306
 24.18
Vested and converted to common stock (217,028) 21.39
Forfeited (72,397) 24.05
Outstanding on December 31, 2017 491,154
 21.92
Granted 297,664
 34.64
Vested and converted to common stock (199,550) 21.66
Forfeited (76,822) 25.76
Outstanding on December 31, 2018 512,446
 28.83


As of December 31, 2018,2020, there was $5.9$7.1 million of pre-tax unrecognized compensation expense related to unvested restricted stock units, which is expected to be recognized over a weighted average of 2.62.3 years.


Performance Stock Units


The Company grants performance stock units to certain of its senior executives. The performance stock units are generally subject to a cliff vesting at the end of a three-yearthree-year period. The vesting will vary between 0% - 200% based on the attainment of operating income goals over the three-yearthree-year vesting period. The performance stock units are expensed on a straight-line basis over the three-yearthree-year vesting period.



Beginning in 2019, performance stock units were granted to certain employees of the Company and are subject to a cliff vesting period of three years and certain other performance conditions. Half of the award is based on the achievement of certain operating margin thresholds and half of the award is based on the Company's total shareholder return, relative to a peer group. The fair value of the awards based on total shareholder return was determined using the Monte-Carlo simulation model. A Monte Carlo simulation model uses stock price volatility and other variables to estimate the probability of satisfying the performance conditions and the resulting fair value of the award. 
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Performance share unit activity as offor the years ended December 31, 2018, 20172020, 2019 and 20162018 is as follows:
Number of
Performance
Stock Units		Weighted-
Average
Grant-date
Fair Value
Outstanding on December 31, 2018197,117 $24.88 
Granted81,661 35.58
Vested and converted to common stock(99,219)25.04
Forfeited0 0 
Outstanding on December 31, 2019179,559 32.63
Granted105,847 23.52 
Vested and converted to common stock(50,472)26.69 
Forfeited0 0 
Outstanding on December 31, 2020234,934 $29.80 
  Number of
Performance
Stock Units		 Weighted-
Average
Grant-date
Fair Value
Outstanding on December 31, 2015 272,024
 $18.28
Granted 125,388
 22.98
Vested and converted to common stock (160,600) 15.51
Forfeited —
 —
Outstanding on December 31, 2016 236,812
 22.64
Granted 88,415
 23.83
Vested and converted to common stock (70,652) 19.65
Forfeited (68,684) 24.07
Outstanding on December 31, 2017 185,891
 23.82
Granted 102,138
 25.81
Vested and converted to common stock (43,361) 23.64
Forfeited (47,551) 23.87
Outstanding on December 31, 2018 197,117
 24.88


As of December 31, 2018,2020, there was $2.0$4.0 million of pre-tax unrecognized compensation expense related to unvested performance stock units, which is expected to be recognized over a weighted average of 21.7 years.


Phantom Stock Units


Phantom stock units are grants of phantom stock with respect to shares of the Company's common stock that are settled in cash and are subject to various restrictions, including restrictions on transferability, vesting and forfeiture provisions. Shares of phantom stock that do not vest for any reason will be forfeited by the recipient and will revert to the Company.


During the year ended December 31, 2018, phantomPhantom stock with respect to 111,673 shares of common stock were granted to certain employees of the Company, andunits are subject to vesting over a period of 4four years and certain other conditions, including continued service to the Company. As a result of the cash-settlement feature of the awards, the Company considers the awards to be liability awards, which are measured at fair value at each reporting date and the vested portion of the award is recognized as a
64


liability to the extent that the service condition is deemed probable. As of December 31, 2018, the Company has recorded a liability of approximately $1.2 million related to the phantom stock units, which is recorded in non-current Accrued salaries and employee benefits in the Consolidated Balance Sheets. The fair value of the phantom stock awards as of December 31, 2018,on the balance sheet date, was determined using the closing share price of the Company's common stock on that date.


The Company recorded phantom stock-based compensation expense of $3.2 million and $3.0 million for the years ended December 31, 2020 and December 31, 2019, respectively.

Phantom stock unit activity as offor the years ended December 31, 2020, 2019, and 2018 is as follows:
Number of
Phantom
Stock Units
Number of
Phantom
Stock Units
Outstanding on December 31, 2017—
Granted111,673
Vested—
Forfeited—
Outstanding on December 31, 2018111,673
111,673 
Granted154,387 
Vested0 
Forfeited0 
Outstanding on December 31, 2019266,060 
Granted118,596 
Vested(21,346)
Forfeited(11,676)
Outstanding on December 31, 2020351,634 


Expense associated with the phantom stock units was $1.2 million for the year ended December 31, 2018. As of December 31, 2018,2020, there was $2.0$4.1 million of pre-tax unrecognized compensation expense related to unvested phantom stock units, which is expected to be recognized over a weighted average of 3.62.9 years. No phantom stock units were granted during the years ended December 31, 2017 and 2016.


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15.
Changes in Accumulated Other Comprehensive Income

14.Restructuring
The changes in Accumulated other comprehensive income (“AOCI”) by component for
Restructuring Charges

During the year ended December 31, 2018, are summarized below:2020, the Company implemented a restructuring plan to optimize future growth and profitability. The primary components of the restructuring included a workforce reduction, a reduction of the Company's real estate expenses and professional fees, and the elimination of certain deferred compensation programs. The Company recorded restructuring charges of $30.5 million in the Americas, $8.6 million in Europe, $4.6 million in Asia Pacific, $4.7 million in Heidrick Consulting and $4.0 million in Global Operations Support. The Company anticipates future restructuring charges of $7.0 million to $10.0 million related to further real estate optimization will be recognized in 2021.

  Available-
for-
Sale
Securities		 Foreign
Currency
Translation		 Pension AOCI
Balance at December 31, 2017 $6,089
 $9,143
 $(1,917) $13,315
Other comprehensive income before classification, net of tax —
 (3,885) 721
 (3,164)
Amount reclassified from AOCI —
 —
 —
 —
Net current period other comprehensive income —
 (3,885) 721
 (3,164)
Adoption of accounting standards (1) (6,089) —
 —
 (6,089)
Balance at December 31, 2018 —
 $5,258
 $(1,196) $4,062
(1)Upon adoption of ASC 2016-01, unrealized gains (losses) on available for sale securities were reclassified from AOCI to retained earnings

16.
Restructuring

Restructuring Charges

In 2017,During the year ended December 31, 2019, the Company recorded restructuring charges of $15.7$4.1 million in connection with initiativesrelated to reduce overall costs and improve operational efficiencies. The primary componentsthe closing of the Company's legacy Brazil operations due to the acquisition of 2GET Holdings Limited. The restructuring included: the elimination of two executive officer roles for a flatter leadership structure, a workforce reduction as the firm aligned its support resources to better meet operational needs and recognize synergies with the combination of Leadership Consulting and Culture Shaping, a reduction of the firm’s real estate expenses and support costs by consolidating or closing three of its locations across its global footprint and the acceleration of future expenses under certain contractual obligations.

These charges consisted of $13.1 millionprimarily consist of employee-related costs including severance associated with reductionsfor the Company's legacy Brazil operations. The America's incurred $4.1 million in our workforce of 251 employees globally, $2.3restructuring charges, while Global Operations Support incurred less than $0.1 million of other professional and consulting fees and $0.3 million of expenses associated with closing three office locations. in restructuring charges.

65


Restructuring charges by operating segment for the yearyears ended December 31, 2017, are2020, 2019, and 2018 were as follows:
December 31,
202020192018
Executive Search
Americas$30,479 $4,102 $0 
Europe8,603 0 0 
Asia Pacific4,614 0 0 
Total Executive Search43,696 4,102 0 
Heidrick Consulting4,657 0 0 
Global Operations Support4,019 28 0 
Total restructuring$52,372 $4,130 $0 
  Restructuring Charges
Executive Search  
Americas $784
Europe 3,993
Asia Pacific 2,046
Total Executive Search 6,823
Heidrick Consulting 3,393
Global Operations Support 5,450
Total restructuring $15,666


The accrued restructuring charges at December 31, 2018, primarily consists of employee-related costs that require cash payments based on individual severance agreements. These accruals are included within Other current liabilities Changes in the Consolidated Balance Sheets at December 31, 2018.


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The table below outlines the restructuring charges along with related cash paymentsaccrual for the years ended December 31, 2020, 2019, and 2018 were as follows:
Employee RelatedOffice RelatedOtherTotal
Accrual balance at December 31, 201711,866 148 1,011 13,025 
Cash payments(8,689)(248)(993)(9,930)
Non-cash write-offs0 195 0 195 
Other(1,843)(95)5 (1,933)
Exchange rate fluctuations(65)0 (6)(71)
Accrual balance at December 31, 20181,269 0 17 1,286 
Restructuring charges4,130 0 0 4,130 
Cash payments(2,213)0 0 (2,213)
Non-cash write-offs0 0 (17)(17)
Other4 0 0 4 
Exchange rate fluctuations55 0 0 55 
Accrual balance at December 31, 20193,245 0 0 3,245 
Restructuring charges32,780 18,910 682 52,372 
Cash payments(11,443)(138)(682)(12,263)
Non-cash write-offs(1,633)(17,823)0 (19,456)
Other(173)0 0 (173)
Exchange rate fluctuations(464)4 0 (460)
Accrual balance at December 31, 2020$22,312 $953 $0 $23,265 

Restructuring accruals of are recorded within Other current liabilities in the Consolidated Balance Sheets with the exception of certain employee related accruals. Accruals associated with the elimination of certain deferred compensation programs of $7.2 million and 2017:$11.3 million are recorded within current and non-current Accrued salaries and benefits, respectively, as of December 31, 2020.

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  Employee Related Office Related Other Total
Accrual balance at December 31, 2016 $—
 $—
 $—
 $—
Restructuring charges 13,065
 308
 2,293
 15,666
Cash payments (1,199) (5) (1,282) (2,486)
Non cash write-offs —
 (155) —
 (155)
Accrual balance at December 31, 2017 $11,866
 $148
 $1,011
 $13,025
Cash payments (8,689) (248) (993) (9,930)
Non cash write-offs —
 195
 —
 195
Other (1,843) (95) 5
 (1,933)
Exchange rate fluctuations (65) —
 (6) (71)
Accrual balance at December 31, 2018 $1,269
 $—
 $17
 $1,286


15.Income Taxes
17.
Income Taxes


The sources of income (loss) before income taxes are as follows:
 December 31,
 202020192018
United States$11,346 $53,461 $47,191 
Foreign(42,744)15,828 23,301 
Income (loss) before income taxes$(31,398)$69,289 $70,492 
  December 31,
  2018 2017 2016
United States $47,191
 $(28,577) $30,696
Foreign 23,301
 (841) 7,070
Income (loss) before income taxes $70,492
 $(29,418) $37,766


The provision for (benefit from) income taxes are as follows:
 December 31,
 202020192018
Current
Federal$4,469 $11,311 $12,311 
State and local1,948 4,422 4,843 
Foreign2,172 4,423 6,907 
Current provision for income taxes8,589 20,156 24,061 
Deferred
Federal(2,416)2,031 6,403 
State and local(697)698 (354)
Foreign833 (465)(8,913)
Deferred provision (benefit) for income taxes(2,280)2,264 (2,864)
Total provision for income taxes$6,309 $22,420 $21,197 
  December 31,
  2018 2017 2016
Current      
Federal $12,311
 $10,107
 $12,261
State and local 4,843
 2,372
 3,219
Foreign 6,907
 8,257
 5,668
Current provision for income taxes 24,061
 20,736
 21,148
Deferred      
Federal 6,403
 5,642
 727
State and local (354) (2,951) (370)
Foreign (8,913) (4,210) 848
Deferred provision (benefit) for income taxes (2,864) (1,519) 1,205
Total provision for income taxes $21,197
 $19,217
 $22,353


65



A reconciliation of the provision for income taxes to income taxes at the statutory U.S. federal income tax rate of 21% is as follows:
 December 31,
 202020192018
Income tax provision (benefit) at the statutory U.S. federal rate$(6,594)$14,551 $14,803 
State income tax provision, net of federal tax benefit735 3,509 3,242 
Nondeductible expenses, net7,065 1,570 1,651 
Foreign taxes (includes rate differential and changes in foreign valuation allowance)4,470 698 (35)
Establishment (release) of valuation allowance566 (117)(43)
Additional U.S. tax on foreign operations0 2,550 1,628 
Current/deferred items(505)(157)(1,199)
Other, net572 (184)1,150 
Total provision for income taxes$6,309 $22,420 $21,197 
67

  December 31,
  2018 2017 2016
Income tax provision (benefit) at the statutory U.S. federal rate $14,803
 $(10,296) $13,218
State income tax provision (benefit), net of federal tax benefit 3,242
 (593) 1,904
Nondeductible expenses, net 2,587
 3,282
 1,410
Foreign taxes (includes rate differential and changes in foreign valuation allowance) (35) 5,465
 (2,133)
Establishment (release) of valuation allowance (43) (3,200) 340
U.S. tax on foreign dividends 765
 —
 5,898
Current/deferred true-up (1,199) 567
 1,226
Tax reform —
 23,732
 —
Other, net 1,077
 260
 490
Total provision for income taxes $21,197
 $19,217
 $22,353


The deferred tax assets and liabilities are attributable to the following components:
 December 31,
 20202019
Deferred tax assets attributable to:
Operating lease liability and accrued rent$22,765 $20,371 
Foreign net operating loss carryforwards19,721 17,940 
Accrued compensation and employee benefits18,553 14,506 
Deferred compensation17,376 17,110 
Foreign tax credit carryforwards5,196 6,493 
Other accrued expenses4,350 5,882 
Deferred tax assets, before valuation allowance87,961 82,302 
Valuation allowance(25,218)(24,200)
Deferred tax assets, after valuation allowance62,743 58,102 
Deferred tax liabilities attributable to:
Operating lease, right-of-use, assets17,526 17,716 
Goodwill7,625 5,440 
Depreciation on property and equipment1,172 1,652 
Other533 533 
Deferred tax liabilities26,856 25,341 
Net deferred tax assets$35,887 $32,761 
  December 31,
  2018 2017
Deferred tax assets attributable to:    
Foreign net operating loss carryforwards $18,259
 $31,960
Accrued compensation and employee benefits 15,442
 15,809
Deferred compensation 15,587
 13,600
Foreign tax credit carryforwards 8,163
 8,128
Accrued rent 3,096
 3,607
Other accrued expenses 6,290
 2,179
Deferred tax assets, before valuation allowance 66,837
 75,283
Valuation allowance (26,460) (35,624)
Deferred tax assets, after valuation allowance 40,377
 39,659
Deferred tax liabilities attributable to:    
Goodwill 2,203
 306
Taxes provided on unremitted earnings 765
 129
Depreciation on property and equipment 2,040
 3,216
Other 686
 606
Deferred tax liabilities 5,694
 4,257
Net deferred tax assets $34,683
 $35,402


The recognition of deferred tax assets is based on management’s belief that it is more likely than not that the tax benefits associated with temporary differences, net operating loss carryforwards and tax credits will be utilized. The Company assesses the recoverability of the deferred tax assets on an ongoing basis. In making this assessment, the Company considers all positive and negative evidence, and all potential sources of taxable income including scheduled reversals of deferred tax liabilities, tax-planning strategies, projected future taxable income and recent financial performance. Certain of the Company’s deferred tax liabilities, based on jurisdictional netting, of $0.1 million and $0.3 million are included in Other non-current liabilities on the Consolidated Balance Sheets at December 31, 2020 and 2019, respectively.


The valuation allowance decreasedincreased from $35.6$24.2 million at December 31, 20172019 to $26.5$25.2 million at December 31, 2018.2020. The valuation allowance at December 31, 20182020 was related to foreign net operating loss carryforwards, foreign tax credit carryforwards, and certain foreign deferred tax assets. The Company intends to maintain these valuation allowances until sufficient evidence exists to support their reversal.


At December 31, 2018,2020, the Company had a net operating loss carryforward of $118.0$128.1 million related to its foreign tax filings and $0.1 million related to its U.S. state tax filings. Of the $118.0$128.1 million net operating loss carryforward, $59.8$87.9 million is subject to a valuation allowance. Depending on the tax rules of the tax jurisdictions, the losses can be carried forward indefinitely or for periods ranging from five to twenty years. The Company also has a foreign tax credit carryforward of $8.2$5.2 million subject to a valuation allowance of $8.2$5.2 million.


66



At December 31, 2017,2019, the Company had a net operating loss carryforward of $126.0$116.1 million related to its foreign tax filings and $0.1 million related to its U.S. state tax filings. Of the $126.0$116.1 million net operating loss carryforward, $95.4$76.9 million iswas subject to a valuation allowance. Depending on the tax rules of the tax jurisdictions, the losses can be carried forward indefinitely or for periods ranging from five to twenty years. The Company also has a foreign tax credit carryforward of $8.1$6.5 million subject to a valuation allowance of $8.1$6.5 million.


As of December 31, 2018,2019, the Company had unremitted earnings held in its foreign subsidiaries of approximately $75.5 million, of which the company has provided $0.9 million of tax on $7.2 million of earnings that are intended to be remitted. The Company did not recognize a tax liability for income taxes and foreign withholding taxes related to the unremitted earnings of its foreign operations because the Company intends to reinvest those earnings indefinitely, net of any allowable deductions. An estimate of these taxes, however, is not practicable. A tax liability will be recognized if and when the Company is no longer able to demonstrate that it plans to permanently reinvest unremitted earnings.

As of December 31, 2017, the Company had unremitted earnings held in its foreign subsidiaries of approximately $74.1 million, of which the company has provided $1.6 million of tax on $15.7 million of earnings that are intended to be remitted. The Company did not recognize a tax liability for income taxes and foreign withholding taxes related to the unremitted earnings of its foreign operations because the Company intends to reinvest those earnings indefinitely, net of any allowable deductions. An estimate of these taxes, however, is not practicable. A tax liability will be recognized if and when the Company is no longer able to demonstrate that it plans to permanently reinvest unremitted earnings.

As of January 1, 2018, the Company had $0.7$0.1 million of unrecognized tax benefits. As of December 31, 2018,2020, the Company had $1.1$0.4 million of unrecognized tax benefits of which, if recognized, would be recorded as a component of income tax expense.


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A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:
 December 31,
 202020192018
Gross unrecognized tax benefits at January 1,$130 $1,128 $740 
Gross increases for tax positions of prior years500 389 608 
Gross decreases for tax positions of prior years(31)(377)0 
Settlements(183)(1,010)(220)
Gross unrecognized tax benefits at December 31,$416 $130 $1,128 
  December 31,
  2018 2017 2016
Gross unrecognized tax benefits at January 1, $740
 $1,038
 $130
Gross increases for tax positions of prior years 608
 167
 2,146
Gross decreases for tax positions of prior years —
 —
 (4)
Settlements (220) (465) (1,234)
Lapse of statute of limitations —
 —
 —
Gross unrecognized tax benefits at December 31, $1,128
 $740
 $1,038


In many cases the Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant taxable authorities. Years 20152017 through 20172019 are subject to examination by the state taxing authorities. The years 2015 and 2017 through 2019 are also subject to examination by the federal taxing authority.There are certain foreign jurisdictions that are subject to examination for years prior to 2014.2017.


The Company is currently under audit by some jurisdictions. It is likely that the examination phase of several of these audits will conclude in the next twelve months. No significant increases or decreases in unrecognized tax benefits are expected to occur by December 31, 2019.2021.


Estimated interest and penalties related to the underpayment of income taxes are classified as a component of the provision for income taxes in the Consolidated Statements of Comprehensive Income (Loss). Accrued interest and penalties are $0.4less than $0.1 million as of December 31, 2018.2020.
 
The Global Intangible Low-Taxed Income ("GILTI"(“GILTI”) provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company becamewill be subject to incremental U.S. tax on GILTI income beginning in 2018, due to expense allocations required by the U.S. foreign tax credit rules. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the year ended December 31, 2018.2020.
 
The Base Erosion and Anti-Abuse Tax ("BEAT"(“BEAT”) provisions in the Tax Reform Act eliminates the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The Company does not expect it will be subject to this tax and therefore has not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2018.2020.


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18.Segment Information

16.Changes in Accumulated Other Comprehensive Income
In 2018, the Company completed the integration of its Leadership Consulting and Culture Shaping businesses into one combined service offering, Heidrick Consulting. In conjunction with the integration, the Company reorganized its Management Committee, which the Company considers to be its chief operating decision maker, so as to regularly assess performance and make resource allocations decisions
The changes in Accumulated other comprehensive income (“AOCI”) by component for the Heidrick Consulting business. Therefore, the Company now reports Leadership Consulting and Culture Shaping as one operating segment, Heidrick Consulting. In conjunction with the change in operating segments, the Company modified its corporate cost allocation methodology. Previously reported operating segment results for the twelve monthsyear ended December 31, 2017 and 2016, have been recast to conform to the new operating segment structure and corporate cost allocation methodology.2020, are summarized below:

Available-
for-
Sale
Securities		Foreign
Currency
Translation		PensionAOCI
Balance at December 31, 2019$13 $6,102 $(2,291)$3,824 
Other comprehensive income (loss) before classification, net of tax(13)82 (476)(407)
Balance at December 31, 20200 $6,184 $(2,767)$3,417 

17.    Segment Information

The Company has four4 operating segments. The executive search business operates in the Americas, Europe (which includes Africa) and Asia Pacific (which includes the Middle East), and the Heidrick Consulting business operates globally.


For segment purposes, reimbursements of out-of-pocket expenses classified as revenue and other operating income are reported separately and, therefore, are not included in the results of each segment. The Company believes that analyzing trends in revenue before reimbursements (net revenue), analyzing operating expenses as a percentage of net revenue, and analyzing operating income (loss) more appropriately reflects its core operations.


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69





The revenue, operating income, depreciation and amortization, and capital expenditures, by segment, are as follows:
 December 31,
 202020192018
Revenue
Executive Search
Americas$361,416 $415,455 $405,267 
Europe124,243 135,070 145,348 
Asia Pacific79,511 95,827 102,276 
Total Executive Search565,170 646,352 652,891 
Heidrick Consulting56,445 60,572 63,132 
Revenue before reimbursements621,615 706,924 716,023 
Reimbursements7,755 18,690 19,632 
Total revenue$629,370 $725,614 $735,655 
Operating income (loss)
Executive Search
Americas (1)$62,806 $100,833 $96,880 
Europe (2)(22,827)3,026 5,849 
Asia Pacific (3)(6,724)13,590 15,999 
Total Executive Search33,255 117,449 118,728 
Heidrick Consulting (4)(28,369)(18,499)(13,619)
Total segments4,886 98,950 105,109 
Global Operations Support (5)(40,415)(35,439)(36,252)
Total operating income (loss)$(35,529)$63,511 $68,857 
Depreciation and amortization
Executive Search
Americas$20,937 $4,204 $4,605 
Europe2,270 2,784 3,735 
Asia Pacific1,837 1,472 1,646 
Total Executive Search25,044 8,460 9,986 
Heidrick Consulting953 1,079 1,577 
Total segments25,997 9,539 11,563 
Global Operations Support659 832 959 
Total depreciation and amortization$26,656 $10,371 $12,522 
Capital expenditures
Executive Search
Americas$4,258 $1,121 $601 
Europe409 1,070 3,557 
Asia Pacific2,015 295 440 
Total Executive Search6,682 2,486 4,598 
Heidrick Consulting116 541 581 
Total segments6,798 3,027 5,179 
Global Operations Support524 325 1,006 
Total capital expenditures$7,322 $3,352 $6,185 
  December 31,
  2018 2017 2016
Revenue      
Executive Search      
Americas $405,267
 $339,793
 $313,292
Europe 145,348
 125,346
 108,754
Asia Pacific 102,276
 86,905
 85,319
Total Executive Search 652,891
 552,044
 507,365
Heidrick Consulting 63,132
 69,356
 75,025
Revenue before reimbursements 716,023
 621,400
 582,390
Reimbursements 19,632
 18,656
 18,516
Total revenue $735,655
 $640,056
 $600,906
       
Operating Income (Loss)      
Executive Search      
Americas (1) $96,880
 $75,337
 $71,993
Europe (2) 5,849
 13
 5,943
Asia Pacific (3) 15,999
 537
 3,944
Total Executive Search 118,728
 75,887
 81,880
Heidrick Consulting (4) (13,619) (62,368) (5,322)
Total segments 105,109
 13,519
 76,558
Global Operations Support (5) (36,252) (40,042) (41,325)
Total operating income (loss) $68,857
 $(26,523) $35,233
       
Depreciation and Amortization      
Executive Search      
Americas $4,605
 $4,794
 $3,892
Europe 3,735
 3,328
 2,478
Asia Pacific 1,646
 1,565
 1,774
Total Executive Search 9,986
 9,687
 8,144
Heidrick Consulting 1,577
 4,099
 6,842
Total segments 11,563
 13,786
 14,986
Global Operations Support 959
 988
 1,447
Total depreciation and amortization $12,522
 $14,774
 $16,433
       
Capital Expenditures      
Executive Search      
Americas $601
 $7,123
 $2,221
Europe 3,557
 1,460
 835
Asia Pacific 440
 2,633
 3,346
Total Executive Search 4,598
 11,216
 6,402
Heidrick Consulting 581
 1,172
 659
Total segments 5,179
 12,388
 7,061
Global Operations Support 1,006
 3,298
 1,321
Total capital expenditures $6,185
 $15,686
 $8,382


(1)Operating income for the Americas includes $0.8 million of restructuring charges in 2017.
(2)Operating income for Europe includes $4.0 million of restructuring charges in 2017.
(3)Operating income for Asia Pacific includes $2.0 million of restructuring charges in 2017.
(4)Operating loss for Heidrick Consulting includes $50.7 million of impairment charges and $3.4 million of restructuring charges in 2017.
(5)Operating loss for Global Operations Support includes $5.5 million of restructuring charges in 2017.

(1)Includes $30.5 million of restructuring charges in 2020 and $4.1 million of restructuring charges in 2019.

(2)Includes $8.6 million of restructuring charges and $24.5 million of impairment charges in 2020.
(3)Includes $4.6 million of restructuring charges and $8.5 million of impairment charges in 2020.
(4)Includes $4.7 million of restructuring charges in 2020.
(5)Includes $4.0 million of restructuring charges in 2020 and less than $0.1 million of restructuring charges in 2019.

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70




Identifiable assets, and goodwill and other intangible assets, net, by segment, are as follows:
 December 31, December 31,
 2018 2017 20202019
Current assets    Current assets
Executive Search    Executive Search
Americas $255,889
 $171,985
Americas$284,837 $286,818 
Europe 85,355
 84,405
Europe84,841 96,230 
Asia Pacific 74,169
 55,196
Asia Pacific76,523 78,967 
Total Executive Search 415,413
 311,586
Total Executive Search446,201 462,015 
Heidrick Consulting 34,174
 31,116
Heidrick Consulting24,546 30,628 
Total segments 449,587
 342,702
Total segments470,747 492,643 
Global Operations Support 1,280
 1,088
Global Operations Support1,939 1,839 
Total allocated current assets 450,867
 343,790
Total allocated current assets472,686 494,482 
Unallocated non-current assets 125,454
 122,364
Unallocated non-current assets222,354 220,925 
Goodwill and other intangible assets, net 
 
Goodwill and other intangible assets, net
Executive Search    Executive Search
Americas 88,462
 88,942
Americas91,868 93,054 
Europe 27,010
 22,699
Europe852 26,893 
Asia Pacific 8,836
 9,409
Asia Pacific52 8,819 
Total Executive Search 124,308
 121,050
Total Executive Search92,772 128,766 
Heidrick Consulting —
 —
Heidrick Consulting0 0 
Total goodwill and other intangible assets, net 124,308
 121,050
Total goodwill and other intangible assets, net92,772 128,766 
Total assets $700,629
 $587,204
Total assets$787,812 $844,173 
 
19.
Guarantees

18.Guarantees

The Company has issued cash collateralized bank guarantees and letterutilized letters of credit backed bank guarantees supportingto support certain obligations, primarily the payment of office lease obligations and business license requirements for certain of its subsidiaries in Europe and Asia Pacific. The bank guaranteesletters of credit were made to secure the respective agreements and are for the terms of the agreements, which extend through 2024.2033. For each bank guaranteeletter of credit issued, the Company would have use cash to perform underfulfill the guaranteeobligation if the subsidiary defaults on a lease payment. The maximum amount of undiscounted payments the Company would be required to make in the event of default on all outstanding bank guaranteesletters of credit is approximately $2.6$5.4 million as of December 31, 2018.2020. The Company has not accrued for these arrangements as no event of default exists or is expected to exist.
 
20.
Commitments and Contingencies

Operating Leases19.Commitments and Contingencies

The Company leases office space in 49 cities in 25 countries. The terms of these office-related leases provide that the Company pay base rent and a share of operating expenses and real estate taxes in excess of defined amounts. These leases expire at various dates through 2026. The Company also leases certain computer equipment and cars, the terms of which are accounted for as operating leases. Rent expense, which includes the base rent, maintenance costs, operating expenses and real estate taxes, and the costs of equipment leases for the years ended December 31, 2018, 2017 and 2016, was $33.2 million, $32.2 million and $30.8 million, respectively.

Minimum future operating lease payments due in each of the next five years and thereafter are as follows:
2019$34,456
202031,808
202127,381
202223,445
202320,087
Thereafter14,448
Total$151,625

The aggregate minimum future payments on office leases are $150.1 million. The Company has contractual arrangements to receive aggregate sublease income of $0.2 million related to certain leases that expire at various dates through 2019. This sublease income primarily relates to properties that were part of prior office consolidations and closings.

70


Certain leases provide for renewal options and payments of real estate taxes and other occupancy costs. In addition, certain leases contain rent escalation clauses that require additional rental amounts in later years of the term. Rent expense for leases with rent escalation clauses is recognized on a straight-line basis over the minimum lease term.

The Company has an obligation at the end of the lease term to return certain offices to the landlord in its original condition, which is recorded at fair value at the time the liability is incurred. The Company had $2.7 million and $2.9 million of asset retirement obligations as of December 31, 2018 and 2017, respectively, which are recorded within Other current liabilities and Other non-current liabilities in the Consolidated Balance Sheets.


Litigation


The Company has contingent liabilities from various pending claims and litigation matters arising in the ordinary course of the Company’s business, some of which involve claims for damages that are substantial in amount. Some of these matters are covered by insurance. Based upon information currently available, the Company believes the ultimate resolution of such claims and litigation will not have a material adverse effect on its financial condition, results of operations or liquidity.



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PART II (continued)


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


The Audit and Finance Committee of the Board of Directors (the “Audit Committee”) of the Company conducted a competitive process to select a firm to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018. The Audit Committee invited several firms to participate in this process.Not applicable.


As a result of this process, on June 13, 2018, the Audit Committee appointed RSM US LLP (“RSM”) as the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2018. In conjunction with the selection of RSM to serve as the Company’s independent registered public accounting firm, the Audit Committee dismissed KPMG LLP (“KPMG”) from that role effective on June 13, 2018.

KPMG’s audit reports on the consolidated financial statements of the Company as of and for the fiscal years ended December 31, 2017, and December 31, 2016, did not contain any adverse opinion or disclaimers of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During the fiscal years ended December 31, 2017, and December 31, 2016, respectively, and the interim period through June 13, 2018, there were (i) no disagreements between the Company and KPMG on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG would have caused KPMG to make reference to the subject matter of the disagreement in their reports on the Company’s consolidated financial statements for such years, and (ii) no “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
ITEM 9A. CONTROLS AND PROCEDURES


(a) Evaluation of Disclosure Controls and Procedures


The Company maintains disclosure controls and procedures as defined in Securities Exchange Act of 1934, as amended, (the “Exchange Act”) Rules 13a-15(e) and 15d-15(e), that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission (the “SEC”) rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.


Management of the Company, with the participation of the principal executive officer and the principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2018.2020. Based on the evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2018.2020.


(b) Management’s report on internal control over financial reporting


Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and 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 U.S. GAAP, 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.


72



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 and procedures may deteriorate.


Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013. Based on this evaluation, management concluded that the Company’s system of internal control over financial reporting was effective as of December 31, 2018.2020.


The Company’s independent registered public accounting firm, RSM LLP, has issued a report on the Company’s internal control over financial reporting. The report on the audit of internal control over financial reporting appears in Part II, Item 8 of this Form 10-K.


72


(c) Changes in Internal Control over Financial Reporting


Effective January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers, and implemented changes to the relevant business processes, and related control activities within them, in order to monitor and maintain appropriate controls over financial reporting. There werehave been no other changes in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-KCompany's fiscal quarter ended December 31, 2020, that have materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 9B. OTHER INFORMATION


None.



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PART III
 
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


Information relating to our directors, executive officers and corporate governance will be included in the 2019Company's definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 27, 2021 (the "2021 Proxy Statement") and is incorporated herein by reference.
 
ITEM 11. EXECUTIVE COMPENSATION


Information relating to our executive officer and director compensation and the compensation committee of the Board of Directors will be included in the 20192021 Proxy Statement and is incorporated herein by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


Information relating to security ownership of certain beneficial owners of our common stock and information relating to the security ownership of our management will be included in the 20192021 Proxy Statement and is incorporated herein by reference.


Equity Compensation Plan Information


The following table sets forth additional information as of December 31, 2018,2020, about shares of our common stock that may be issued upon the vesting of restricted stock units and performance stock units and the exercise of options under our existing equity compensation plans and arrangements, divided between plans approved by our stockholders and plans or arrangements not submitted to the stockholders for approval. For a description of the types of securities that may be issued under our Third Amended and Restated 2012 Heidrick & Struggles GlobalShare Program. See Note 14, 13, Stock-Based Compensation.
 (a) (b) (c)(a)(b)(c)
Plan Category 
Number of
securities
to be
issued upon
exercise of
outstanding
options
 
Weighted-
average
exercise
price of
outstanding
options
 
Number of securities
remaining available for
future issuance under
equity compensation
plans
(excluding securities
reflected in column (a))
Plan CategoryNumber of
securities
to be
issued upon
exercise of
outstanding
options		 Weighted-
average
exercise
price of
outstanding
options		Number of securities
remaining available for
future issuance under
equity compensation
plans
(excluding securities
reflected in column (a))
Equity compensation plans approved by stockholders 709,563
(1) 
$—
 1,375,105
Equity compensation plans approved by stockholders942,798 (1)$— 1,057,037 
Equity compensation plans not approved stockholders —
  —
 —
Equity compensation plans not approved stockholders—   — — 
Total equity compensation plans 709,563
  $—
 1,375,105
Total equity compensation plans942,798   — 1,057,037 
 
(1)Includes 512,446 restricted stock units and 197,117 performance stock units at their target levels and no options. The performance stock units represent the maximum amount of shares to be awarded at target levels, and accordingly, may overstate expected dilution.

(1)Includes 707,864 restricted stock units and 234,934 performance stock units at their target levels and no options. The performance stock units represent the maximum amount of shares to be awarded at target levels, and accordingly, may overstate expected dilution.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE


Information regarding certain relationships and related transactions and director independence will be in included the 20192021 Proxy Statement and is incorporated herein by reference.
 
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES


The information required by this Item is incorporated by reference to the discussion under the caption “Audit Fees” in our 20192021 Proxy Statement.



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PART IV
 
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
(a)THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:

(a)THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:

1.    Index to Consolidated Financial Statements:


See Consolidated Financial Statements included as part of this Form 10-K beginning on page 35.


2.    Exhibits:

Exhibit
No.
Description
3.01
3.02
3.023.03
4.01
10.014.02
10.01
10.02
10.03
10.04
10.05
10.06
10.07
10.08
10.09
10.10
10.11
10.12
75


10.13

75


10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29


10.30
10.31
76


10.32

76


10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
*21.0110.51
10.52
77


10.53
10.54
10.55
10.56
10.57
*10.58
*21.01
*23.01
*23.0231.1
*31.1
Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2
*32.1

77


*32.2
*101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
*101.SCHInline XBRL Taxonomy Extension Schema Document
*101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
*101.LABInline XBRL Taxonomy Extension Label Linkbase Document
*101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
*104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
 
*    Filed herewith.


**    Denotes a management contract or compensatory plan or arrangement.
 
(b)SEE EXHIBIT INDEX ABOVE

(b)SEE EXHIBIT INDEX ABOVE
(c)FINANCIAL STATEMENTS NOT PART OF ANNUAL REPORT


(c)FINANCIAL STATEMENTS NOT PART OF ANNUAL REPORT

None.



ITEM 16. FORM 10-K SUMMARY

None.
78




SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on.
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
/s/ Stephen A. Bondi
By:Stephen A. Bondi
Title:Vice President, Controller

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 indicated on February 26, 2019.24, 2021.
SignatureTitle
/s/ Krishnan RajagopalanChief Executive Officer & Director
Krishnan Rajagopalan
(Principal Executive Officer)
/s/ Mark R. HarrisExecutive Vice President, Chief Financial Officer
Mark R. Harris
(Principal Financial Officer)
/s/ Stephen A. BondiVice President, Controller
Stephen A. Bondi
(Principal Accounting Officer)
/s/ Elizabeth L. AxelrodDirector
Elizabeth L. Axelrod
Signature/s/ Laszlo BockTitleDirector
Laszlo Bock
/s/ Krishnan RajagopalanChief Executive Officer & Director
Krishnan Rajagopalan
(Principal Executive Officer)
/s/ Mark R. HarrisExecutive Vice President, Chief Financial Officer
Mark R. Harris
(Principal Financial Officer)
/s/ Stephen A. BondiVice President, Controller
Stephen A. Bondi
(Principal Accounting Officer)
/s/ Elizabeth L. AxelrodDirector
Elizabeth L. Axelrod
/s/ Clare M. ChapmanDirector
Clare M. Chapman
/s/ Gary E. KnellDirector
Gary E. Knell
/s/ Lyle LoganDirector
Lyle Logan
/s/ T. Willem MesdagDirector
T. Willem Mesdag
/s/ Stacey RauchDirector
Stacey Rauch
/s/ Adam WarbyDirector
Adam Warby
/s/ Tracy R. WolstencroftDirector
Tracy R. Wolstencroft
/s/ Stacey RauchDirector
Stacey Rauch

79