EXHIBIT 99.1
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HEIDRICK & STRUGGLES
NEWS FOR IMMEDIATE RELEASE
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HEIDRICK & STRUGGLES REPORTS
2003 THIRD QUARTER FINANCIAL RESULTS
View on 2003 Fourth Quarter Also Provided
CHICAGO (October 30, 2003)--Heidrick & Struggles International, Inc. (Nasdaq:
HSII), the world's premier executive search and leadership consulting firm,
today announced its financial results for the 2003 third quarter.
2003 Third Quarter Overview
. Consolidated net revenue was $76.9 million, a decrease of 12 percent
from $87.4 million in the 2002 third quarter.
. Operating income was $3.3 million, a decrease of 7 percent from $3.6
million last year.
. Net income was $1.1 million, an increase of 14 percent from $924,000
last year.
. Diluted earnings per share were $0.05, even with last
year.
. Results include a $1.4 million restructuring charge to increase the
previously established accruals for unused office space in the U.S.
In the quarter, the effects on net revenue from the continuing weakness in the
global business environment were partially offset by a positive contribution
from foreign currency exchange rate fluctuations. Excluding the positive impact
of currency of approximately $2.8 million in the 2003 third quarter, net revenue
decreased by 15 percent from the 2002 third quarter.
"Our results are mixed this quarter as evidence of an economic rebound remains
uneven across industries and regions," said Thomas J. Friel, Chairman and Chief
Executive Officer of Heidrick & Struggles. "We are encouraged, however, by the
progress we continue to make on our profitability, as all regions except Europe
were profitable in the quarter."
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Consolidated salaries and employee benefits expense in the 2003 third quarter
was $51.1 million, down 9 percent from $56.2 million in the comparable quarter
last year. Reductions in the company's workforce during the past year
contributed to the decrease. In addition, the improvement was due to a favorable
adjustment to employee benefits accruals. Partially offsetting these factors was
an increase in bonus accruals in the third quarter of 2003 compared to the same
period last year. In the 2002 third quarter the bonus accrual was unusually low,
as an adjustment was made to the annual estimate because of declining net
revenue.
Consolidated general and administrative expenses declined 24 percent to $21.1
million in the 2003 third quarter, compared to $27.6 million in the 2002 third
quarter. The decrease was due to several factors, including reduced spending on
discretionary items, lower bad debt expense, and lower infrastructure costs.
In the 2003 third quarter, the number of confirmed executive searches decreased
3 percent from the 2002 third quarter. As of September 30, 2003 the company
employed 317 consultants, compared to 318 as of June 30, 2003, and 376 as of
September 30, 2002.
Results by Segment
Net revenue in North America was $42.8 million, a decrease of 10 percent from
$47.4 million in the 2002 third quarter. The Financial Services and Professional
Services practices reported the largest increases in the 2003 third quarter
compared to the 2002 third quarter, while the Technology practice reported the
most significant decline. Operating income for the region increased 17 percent
in the quarter to $12.0 million from $10.3 million in last year's third quarter
primarily because of lower headcount, a favorable adjustment to employee
benefits accruals, and reductions in both fixed and discretionary general and
administrative spending. The operating margin increased to 28.0 percent from
21.7 percent in the 2002 third quarter.
In Latin America, net revenue was $3.3 million, an increase of 3 percent from
$3.2 million in the 2002 third quarter. Operating income in the 2003 third
quarter was $598,000, compared to an operating loss of $1.1 million in the 2002
third quarter. The prior-year loss included a one-time adjustment for
value-added taxes (VAT) and costs associated with converting certain wholly
owned subsidiaries into licensees.
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Net revenue in Europe was $25.9 million, a decrease of 17 percent from $31.2
million in the 2002 third quarter. Excluding the positive impact of currency
exchange rates of $2.6 million, net revenue decreased by 25 percent from the
same quarter in 2002. The Financial Services practice experienced a particularly
weak 2003 third quarter. The region recorded an operating loss of $2.2 million
in the 2003 third quarter, compared to operating income of $1.0 million in last
year's third quarter, due to the lower net revenue levels that were partially
offset by lower discretionary spending.
In Asia Pacific, net revenue was $5.0 million, a decrease of 10 percent from
$5.5 million in the 2002 third quarter. Operating income was $384,000 in the
2003 third quarter, a decrease of 11 percent from $431,000 in the same period of
2002.
Corporate expense declined 14 percent to $6.1 million in the 2003 third quarter,
compared to $7.1 million last year, due to lower salary and employee benefits
expense and lower systems-related spending.
Nine Month Results
For the nine months ended September 30, 2003, consolidated net revenue was
$235.9 million, a decrease of 13 percent from $272.6 million for the first nine
months of 2002. There was a loss per share of $0.46 compared to a loss per share
of $1.12 in the same period last year. The operating loss was $3.2 million
compared to an operating loss of $23.6 million in last year's comparable period.
The net loss was $8.3 million, compared to a net loss of $20.2 million for the
first nine months of 2002.
Despite a pre-tax loss of $2.6 million during the nine months ended September
30, 2003, the company recorded $5.7 million in income tax expense. This includes
a $4.3 million deferred tax asset write-off required to be recorded upon the
vesting of restricted stock units during the first half of the year, and $1.4
million of income tax expense primarily related to certain non-U.S. operations.
2003 Fourth Quarter Outlook and Restructuring Charge
For the 2003 fourth quarter, net revenue is anticipated to be in the range of
$70 million to $80 million. At those net revenue levels, the company estimates
that the corresponding results would range from a loss per share of $0.07 to
diluted earnings per share of $0.10, excluding the effects of the restructuring
charge discussed below.
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The company expects to record a restructuring charge of $15 million to $20
million in the 2003 fourth quarter to better align the cost structure in Europe
with its current net revenue level and also to increase the previously
established accruals for unused office space. The company also is updating its
evaluation of goodwill impairment, which may result in an additional charge.
Webcast of Investor Call Available Today
The company will provide a real-time webcast of its investor call on Thursday,
October 30, 2003 at 9:00 a.m. Chicago Time to review its 2003 third quarter
financial results. The call will last up to one hour and will feature remarks by
Chairman and CEO Thomas J. Friel and Chief Financial Officer Kevin J. Smith. The
webcast will be available online, along with any slides accompanying
management's remarks, at www.heidrick.com or through CCBN's individual investor
center at www.companyboardroom.com. Listeners should log on approximately ten
minutes in advance to ensure they are set up to receive the webcast. A replay
will be available for up to 30 days following the investor call.
About Heidrick & Struggles International, Inc.
Heidrick & Struggles International, Inc. is the world's premier provider of
senior-level executive search, interim executive placement, and leadership
services, including executive assessment and professional development. For 50
years, we have focused on quality service and built strong leadership teams
through our relationships with clients and individuals worldwide. Today,
Heidrick & Struggles leadership experts operate from principal business centers
in North America, Latin America, Europe, and Asia Pacific. For more information
about Heidrick & Struggles, visit www.heidrick.com.
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Safe Harbor Statement
This news release contains forward-looking statements. The forward-looking
statements are based on current expectations, estimates, forecasts and
projections about the industry in which we operate and management's beliefs and
assumptions. Forward-looking statements may be identified by the use of words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," and similar expressions. Forward-looking statements are not
guarantees of future performance and involve certain known and unknown risks,
uncertainties and assumptions that are difficult to predict. Actual outcomes and
results may differ materially from what is expressed, forecasted or implied in
the forward-looking statements. Factors that may affect the outcome of the
forward-looking statements include, among other things, our ability to attract
and retain qualified executive search consultants; continuing weakness of the
economies in the United States, Europe, or elsewhere; social or political
instability in markets where we operate; price competition; an inability to
achieve the planned cost savings from our cost-reduction initiatives; an
inability to sublease or assign unused office space; our ability to generate
profits in order to ensure that our deferred tax assets are realizable; and
delays in the development and/or implementation of new technology and systems.
Our reports filed with the U.S. Securities and Exchange Commission also include
information on factors that may affect the outcome of forward-looking
statements. We undertake no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
# # #
Contact
Eric Sodorff (media)
312-496-1613 or esodorff@heidrick.com
Lynn McHugh (analysts)
312-496-1593 or lmchugh@heidrick.com
Heidrick & Struggles International, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended
September 30,
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2003 2002 $ Change Change
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Revenue:
Revenue before reimbursements (net revenue) $76,941 $87,356 (10,415) -11.9%
Reimbursements 5,531 6,507 (976) -15.0%
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Total revenue 82,472 93,863 (11,391) -12.1%
Operating expenses:
Salaries and employee benefits 51,148 56,244 (5,096) -9.1%
General and administrative expenses 21,081 27,558 (6,477) -23.5%
Reimbursed expenses 5,531 6,507 (976) -15.0%
Restructuring charges (1) 1,413 - 1,413
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Total operating expenses 79,173 90,309 (11,136) -12.3%
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Operating income 3,299 3,554 (255) -7.2%
Non-operating income (expense):
Interest income 383 479
Interest expense (20) (71)
Net realized and unrealized gains (losses) on
equity and warrant portfolio (2) 199 (801)
Other, net 115 (576)
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Net non-operating income (expense) 677 (969)
Income before income taxes 3,976 2,585
Provision for income taxes 2,924 1,661
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Net income $ 1,052 $924
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Basic earnings per common share $ 0.06 $ 0.05
Basic weighted average common shares outstanding 18,261 18,129
Diluted earnings per common share $ 0.05 $ 0.05
Diluted weighted average common shares outstanding 19,141 19,008
Salaries and employee benefits as a percentage of
net revenue 66.5% 64.4%
General and administrative expenses as a
percentage of net revenue 27.4% 31.5%
Effective tax rate 73.5% 64.3%
Heidrick & Struggles International, Inc.
Segment Information
(In thousands)
Three Months Ended September 30,
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2003 2002
2003 2002 $ Change % Change Margin * Margin *
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Revenue:
North America $42,786 $47,426 $ (4,640) -9.8%
Latin America 3,299 3,199 100 3.1%
Europe 25,855 31,182 (5,327) -17.1%
Asia Pacific 5,001 5,549 (548) -9.9%
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Revenue before reimbursements (net revenue) 76,941 87,356 (10,415) -11.9%
Reimbursements 5,531 6,507 (976) -15.0%
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Total revenue $82,472 $93,863 $(11,391) -12.1%
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Operating Income (Loss):
North America $11,987 $10,274 $ 1,713 16.7% 28.0% 21.7%
Latin America 598 (1,071) 1,669 18.1%
Europe (2,158) 1,028 (3,186) 3.3%
Asia Pacific 384 431 (47) -10.9% 7.7% 7.8%
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Total regions 10,811 10,662 149 1.4% 14.1% 12.2%
Corporate (6,099) (7,108) 1,009 14.2%
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Operating income before restructuring charges 4,712 3,554 1,158 32.6% 6.1% 4.1%
Restructuring charges (1) (1,413) - (1,413)
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Operating income $3,299 $3,554 $ (255)
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* Margin based on revenue before reimbursements (net revenue)
Heidrick & Struggles International, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
Nine Months Ended
September 30,
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2003 2002 $ Change % Change
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Revenue:
Revenue before reimbursements (net revenue) $235,926 $272,555 (36,629) -13.4%
Reimbursements 17,417 19,824 (2,407) -12.1%
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Total revenue 253,343 292,379 (39,036) -13.4%
Operating expenses:
Salaries and employee benefits (4) 168,215 189,414 (21,199) -11.2%
General and administrative expenses 64,041 83,618 (19,577) -23.4%
Reimbursed expenses 17,417 19,824 (2,407) -12.1%
Restructuring charges (1) 6,913 23,169 (16,256)
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Total operating expenses 256,586 316,025 (59,439) -18.8%
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Operating loss (3,243) (23,646) 20,403 -86.3%
Non-operating income (expense):
Interest income 1,343 1,390
Interest expense (110) (159)
Net realized and unrealized gains (losses) on equity
and warrant portfolio (2) 447 (2,043)
Write-down of long-term investment (5) - (5,000)
Other, net (1,022) (469)
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Net non-operating income (expense) 658 (6,281)
Loss before income taxes (2,585) (29,927)
Provision for (benefit from) income taxes (3) 5,709 (9,719)
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Net loss $ (8,294) $(20,208)
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Basic loss per common share $(0.46) $(1.12)
Basic weighted average common shares outstanding 18,186 18,093
Diluted loss per common share $(0.46) $(1.12)
Diluted weighted average common shares outstanding 18,186 18,093
Salaries and employee benefits as a percentage of net revenue 71.3% 69.5%
General and administrative expense as a percentage of net revenue 27.1% 30.7%
Effective tax rate - 32.5%
Heidrick & Struggles International, Inc.
Segment Information
(In thousands)
Nine Months Ended September 30,
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2003 2002
2003 2002 $ Change % Change Margin * Margin *
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Revenue:
North America $129,332 $149,487 $(20,155) -13.5%
Latin America 8,235 8,670 (435) -5.0%
Europe 82,293 97,477 (15,184) -15.6%
Asia Pacific 16,066 16,921 (855) -5.1%
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Revenue before reimbursements (net revenue) 235,926 272,555 (36,629) -13.4%
Reimbursements 17,417 19,824 (2,407) -12.1%
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Total revenue $253,343 $292,379 $(39,036) -13.4%
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Operating Income (Loss):
North America (4) $ 28,029 $ 22,883 $ 5,146 22.5% 21.7% 15.3%
Latin America 578 (2,648) 3,226 7.0%
Europe (4) (3,542) (229) (3,313)
Asia Pacific (4) 1,913 1,522 391 25.7% 11.9% 9.0%
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Total regions 26,978 21,528 5,450 25.3% 11.4% 7.9%
Corporate (4) (23,308) (22,005) (1,303) -5.9%
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Operating income (loss) before restructuring charges 3,670 (477) 4,147 1.6%
Restructuring charges (1) (6,913) (23,169) 16,256
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Operating loss $ (3,243) $(23,646) $ 20,403
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* Margin based on revenue before reimbursements (net revenue)
Heidrick & Struggles International, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
September 30, December 31,
2003 2002
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Current assets:
Cash and cash equivalents $ 110,164 $ 110,220
Accounts receivable, net of allowance for doubtful accounts 50,403 41,774
Other receivables 3,236 3,552
Prepaid expenses 9,433 11,881
Income taxes recoverable - 6,125
Deferred income taxes, net 22,262 24,924
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Total current assets 195,498 198,476
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Property and equipment, net 34,684 38,230
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Other non-current assets:
Assets designated for retirement and pension plans 26,489 21,196
Investments 2,576 3,007
Other non-current assets 4,145 9,478
Deferred income taxes, net 25,592 32,176
Goodwill, net 50,648 50,271
Other intangibles, net 9,140 10,230
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Total other non-current assets 118,590 126,358
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Total assets $ 348,772 $ 363,064
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Heidrick & Struggles International, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
September 30, December 31,
2003 2002
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Current liabilities:
Current maturities of long-term debt $ 660 $ 1,161
Accounts payable 6,665 8,887
Accrued expenses:
Salaries and employee benefits 62,921 67,514
Other 18,591 20,704
Current portion of accrued restructuring charges 13,263 20,705
Income taxes payable 3,350 -
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Total current liabilities 105,450 118,971
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Non-current liabilities:
Long-term debt, less current maturities 78 294
Retirement and pension plans 29,584 25,234
Non-current portion of accrued restructuring charges 16,275 18,531
Other non-current liabilities 1,460 323
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Total non-current liabilities 47,397 44,382
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Stockholders' equity 195,925 199,711
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Total liabilities and stockholders' equity $348,772 $363,064
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Schedule Notes:
(1) In June 2001, October 2001 and October 2002 the Company announced
reductions in its workforce and the consolidation and closing of offices
and as a result recorded restructuring charges of $53.2 million and $48.5
million in 2001 and 2002, respectively.
In the first quarter of 2003, the Company recorded an additional $5.5
million of restructuring charges to increase previously established
accruals for unused office space. By segment, the restructuring charges
recorded in the 2003 first quarter are: North America $0.4 million; Europe
$5.1 million.
In the third quarter of 2003, the Company recorded an additional $1.4
million of restructuring charges to increase previously established
accruals for unused office space in North America.
In the first quarter of 2002, the Company recorded $23.2 million of
restructuring charges related to reductions in its workforce and the
consolidation and closing of offices. The 2002 first quarter restructuring
charges include $10.4 million of severance and other employee-related costs
and $12.8 million related to the consolidation and closing of offices. By
segment, the restructuring charges recorded in the first quarter of 2002
are as follows: North America $13.3 million; Latin America $0.1 million;
Europe $7.0 million; Asia Pacific $0.3 million; Corporate $2.5 million.
(2) The Company receives warrants for equity securities in its client
companies, in addition to its cash fee, for services rendered on some
searches. The warrants are recorded at fair value, net of consultants'
bonuses. Some of the warrants meet the definition of a derivative
instrument under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," and its subsequent amendments. In accordance with SFAS
No. 133, changes in the fair value of the derivative instruments are
recorded in the Consolidated Statements of Operations. Other warrants
received and which do not meet the definition of a derivative under SFAS
No. 133 are regularly reviewed for declines in fair value. Upon a value
event such as an initial public offering or an acquisition, the equity
securities arising from the exercise of the warrants are monetized,
resulting in a realized gain, net of consultants' bonuses and other costs.
(3) The Company's year-to-date tax provision reflects the write-down of $4.3
million of deferred tax assets, related to the excess of expense for
accounting purposes over the related deduction for tax purposes, required
to be recorded upon the vesting of restricted stock units in the first half
of 2003, and $1.4 million of income tax expense primarily related to
certain non-U.S. operations.
(4) In the second quarter of 2003, Mr. Piers Marmion resigned as Chief
Executive Officer. In addition, Mr. David Anderson, who was previously the
President and Chief Operating Officer, also resigned. As a result, the
Company recorded a charge of $5.2 million in the second quarter of 2003 for
their separation agreements. These charges are included in the Corporate
segment.
Also in the second quarter of 2003, the Company recorded other severance
costs of $2.8 million. By segment, these severance charges are as follows:
North America $0.5 million; Europe $2.0 million; Asia Pacific $0.2 million;
Corporate $0.1 million.
(5) During the second quarter of 2002, the Company wrote down its remaining
investment in ETF Group, incurring a non-cash charge of $5.0 million.