SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report: November 13, 2003
(Date of earliest event reported)
HEIDRICK & STRUGGLES INTERNATIONAL, INC.
(Exact name of registrant as specified in the charter)
| Delaware | 000-25837 | 36-2681268 | ||
| (State or other jurisdiction of incorporation) |
(Commission File No.) | (IRS Employer Identification No.) |
233 South Wacker Drive, Suite 4200
Chicago, Illinois 60606-6303
(Address of Principal Executive Offices)
312-496-1200
(Registrant’s telephone number including area code)
n/a
(Former name or former address, if changed since last report)
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
| Exhibit Number |
Description | |
| 99.1 | Heidrick & Struggles International, Inc. | |
| SunTrust RH Investor Presentation | ||
Item 9. Regulation FD Disclosure
Additional information of the registrant is attached as Exhibit 99.1 to this report and is incorporated herein by reference. The registrant undertakes no obligation to update this information including any forward-looking statements, to reflect subsequently occurring events or circumstances.
NOTE: The information in this report (including the exhibit) is furnished pursuant to Item 9 and shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section. The inclusion of the information contained herein will not be deemed an admission as to the materiality of any of this information.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| HEIDRICK & STRUGGLES INTERNATIONAL, INC. | ||
| By: | /s/ FRITZ E. FREIDINGER | |
| Fritz E. Freidinger, Secretary | ||
Dated: November 13, 2003
HEIDRICK & STRUGGLES
SunTrust Robinson Humphrey
Business & Technology Services Conference
November 13, 2003
Safe Harbor Statement
This presentation 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.
Business Overview
Heidrick & Struggles
World’s premiere executive search and
leadership consulting firm
Executive Search
Includes interim executive placement
Leadership Services
Executive assessment
Coaching
Global network of approximately 320
consultants working from 52 offices in
principal cities of the world
Global Presence
Atlanta
Boston
Chicago
Cleveland
Dallas
Denver
Greenwich
Houston
Los Angeles
Menlo Park
New York
Philadelphia
Shanghai
Singapore
Sydney
Taipei
Tokyo
Amsterdam
Barcelona
Berlin
Brussels
Copenhagen
Dusseldorf
Frankfurt
Hamburg
North America
Latin America
Europe
Bogota*
Buenos Aires
Caracas*
Lima*
Paris
Rome
Stockholm
Vienna
Warsaw
Zurich
Asia Pacific
Beijing
Hong Kong
Melbourne
Mumbai
New Delhi
Seoul
Mexico City
Miami
Santiago
Sao Paulo
Helsinki
Istanbul*
Johannesburg*
Lisbon
London
Madrid
Milan
Munich
San Francisco
Toronto
Tyson's Corner
Wall Street (NY)
* Affiliate relationship
Diverse Geographic Mix*
* YTD net revenue through September 30, 2003
North America
55%
Europe
35%
Asia Pacific
7%
Latin America
3%
Diverse Industry Practice Mix*
Financial Services
26%
Education/Nonprofit; Other
3%
Industrial
20%
Technology
15%
Consumer
17%
Healthcare
10%
Professional
Services
9%
* YTD net revenue through September 30, 2003
World’s Largest Search Firms
Firm 2002 Revenue
Heidrick & Struggles $ 350.7 M
Korn/Ferry 338.3 M
Spencer Stuart 269.4 M
Egon Zehnder 264.9 M
Russell Reynolds 196.1 M
Ray & Berndtson 103.1 M
Amrop Hever Group 102.5 M
Whitehead Mann 94.0 M
Hudson Highland Group 66.1 M
L.L.C. Partners 50.2 M
Source: Kennedy Information
Our Mission
We help our clients build the best
leadership teams in the world
Focus on Top-Level Services
Board, CEO and other senior-level searches
generate the majority of our revenue
Advantages of top-level searches
Provides access and influence
with decision
makers
Strengthens the Heidrick & Struggles brand
Generates higher fees per search
Establishes barriers to entry
Attracts and retains high-caliber consultants
Increases probability of downstream work
Representative
CEO/Board
Searches in 2002-2003
Economics of the Firm
Fees
For executive
search it is one-third of placement’s first year
cash compensation
Includes salary and bonus
Billed in three monthly installments
Project based for board services, leadership services
Consultant compensation
Primarily cash
70% based on
revenue generation (formula based) and 30%
on quality and other firm building behaviors
Formula-based component structured on progressive tiers
structure
Financial Performance
Revenue
Performance
& Consultant Headcount
Average Number
of Consultants
Annual
Revenue
in Millions
Number of
Consultants
Revenue
Realigned Cost Structure
Reduced costs by over $200 million
Reduced workforce by 40%
Eliminated excess real estate, bringing the
number of offices down from a high of 80 in
2001 to 52 today
Reduced management roles by 30%
Implemented centralized purchasing programs
Nine Months Ended Sept. 30,
2003 2002 $ Change
Net Revenue $ 235.9 $ 272.6 $ (36.7)
Operating
Income
(Loss)
$ 10.7 $ (0.5)
$ 11.2
Pro Forma Financial Results*
(Dollars in millions)
Columns may not foot due to rounding.
* Pro forma
results exclude restructuring charges, separation expense for former executives, other severance expense,
and a favorable adjustment to employee benefits accruals. A full reconciliation of U.S. GAAP and pro forma results is
provided on the company website, www.heidrick.com.
Pro Forma Results By Geography*
(Dollars in millions)
Columns may not foot due to rounding.
* Pro forma results exclude restructuring charges, separation expense for former executives, other severance expense,
and a favorable adjustment to employee benefits accruals.
A full reconciliation of U.S. GAAP and pro forma results is
provided on the company website, www.heidrick.com.
Nine Months Ended Sept. 30,
2003
2002
2003
2002
$ Change
Margin
Margin
Net Revenue
North America
$129.3
$149.5
$
(20.2)
Latin America
8.2
8.7
(0.5)
Europe
82.3
97.5
(15.2)
Asia Pacific
16.1
16.9
(0.8)
Total Company
$235.9
$272.6
$
(36.7)
Operating Income (Loss)
North America
$ 27.8
$ 22.9
$
4.9
21.5%
15.3%
Latin America
0.6
(2.6)
3.2
7.1%
Europe
(1.6)
(0.2)
(1.4)
Asia Pacific
2.1
1.5
0.6
13.3%
9.0%
Total regions
28.9
21.5
7.4
12.3%
7.9%
Corporate
(18.2)
(22.0)
3.8
Total Company
$ 10.7
$
(0.5)
$
11.2
4.6%
Fourth Quarter 2003
Expected
restructuring charge of
$15-20 million
to better align the European cost structure with
current net revenue levels
to increase previously established accruals for
unused office space
Expected revenue range of $70-80 million
Corresponding results would range from a loss
per share of $0.07 to diluted earnings per share
of $0.10, excluding restructuring charges
Strong Balance Sheet
Strongest in the industry
Cash flow
positive in 2002 despite
significant restructuring activity
Ended third quarter of 2003 with
$110 million cash and no debt
Expect $85-90 million cash at end of 2003,
after first tranche of bonuses are paid
Strategic Initiatives
Strategic Focus
Some ongoing work on the cost structure
Majority of attention will be spent on
market-facing activities
Strategic Initiatives
Expand
aggressively our share of senior-
level search, supported by our capabilities
in complementary leadership services
Strategic Initiatives
Expand
aggressively our share of senior-
level search, supported by our capabilities
in complementary leadership services
Build broader, deeper client relationships
Strategic Initiatives
Expand
aggressively our share of senior-
level search, supported by our capabilities
in complementary leadership services
Build broader, deeper client relationships
Attract and retain the best consultants
Strategic Initiatives
Expand
aggressively our share of senior-
level search, supported by our capabilities
in complementary leadership services
Build broader, deeper client relationships
Attract and retain the best consultants
Improve profitability and cash flow
This Is A Growth Business
The past four years have been aberrations
1999 and 2000 saw hyper-growth
2001 and 2002 saw severe contraction
Cyclicality more pronounced than previous
recessions
1993-1998 CAGR was 24%
Double-digit growth
rates should return
when the economy improves
Fundamentals remain strong
Fundamentals Are Strong
Shortage of management talent
Higher-caliber talent is aspirant and
mobile
Executive management tenures are at an all
time low
Focus on corporate governance will create
opportunities
Cash compensation of placements
will
continue to rise
Summary
Strengths
Premier brand name in executive search
Unparalleled group of consultants
Outstanding client base
Strongest balance sheet in the sector
Goals
Capitalize on our strengths
Improve margins and cash flow
Continue to invest in people and initiatives
HEIDRICK & S TRUGGLES
Reconciliation
of
Pro Forma Results
The
following is a reconciliation of the
company’s actual and pro forma financial
information.
The pro forma financial information is
included because the company believes that it
more accurately reflects its core operations.
Actual
Adjustments
Pro forma
Actual
Adjustments
Pro forma
Revenue:
Revenue before reimbursements (net revenue)
235,926
-
$
$
235,926
$
272,555
$
-
$
272,555
$
Reimbursements (1)
17,417
(17,417)
-
19,824
(19,824)
-
Total revenue
253,343
(17,417)
235,926
292,379
(19,824)
272,555
Operating expenses:
Salaries and employee benefits (2)
168,215
(7,076)
161,139
189,414
-
189,414
General and administrative expenses
64,041
-
64,041
83,618
-
83,618
Reimbursed expenses (1)
17,417
(17,417)
-
19,824
(19,824)
-
Restructuring charges (3)
6,913
(6,913)
-
23,169
(23,169)
-
Total operating expenses
256,586
(31,406)
225,180
316,025
(42,993)
273,032
Operating income (loss)
(3,243)
$
13,989
$
10,746
$
(23,646)
$
23,169
$
(477)
$
2003
2002
Heidrick & Struggles International, Inc.
Consolidated Statements of Operations
(Dollars in thousands)
Nine Months Ended September 30,
Separation
Employee
and
Benefit
Reimbursed
Severance
Accrual
Restructuring
Pro forma
Expenses
Charges
Adjustment
Charges
Actual
Revenue
North America
129,332
$
-
$
-
$
-
$
-
$
129,332
$
Latin America
8,235
-
-
-
-
8,235
Europe
82,293
-
-
-
-
82,293
Asia Pacific
16,066
-
-
-
-
16,066
Revenue before reimbursements (net revenue)
235,926
-
-
-
-
235,926
Reimbursements
-
17,417
-
-
-
17,417
Total Company
235,926
$
17,417
$
-
$
-
$
-
$
253,343
$
Operating Income (Loss)
North America
27,786
$
-
$
(509)
$
752
$
-
$
28,029
$
Latin America
587
-
(9)
-
-
578
Europe
(1,582)
-
(1,960)
-
-
(3,542)
Asia Pacific
2,144
-
(231)
-
-
1,913
Total regions
28,935
-
(2,709)
752
-
26,978
Corporate
(18,189)
-
(5,307)
188
-
(23,308)
Operating income (loss) before restructuring charges
10,746
-
(8,016)
940
-
3,670
Restructuring charges
-
-
-
-
(6,913)
(6,913)
Total Company
10,746
$
-
$
(8,016)
$
940
$
(6,913)
$
(3,243)
$
Results By Geography
(Dollars in thousands)
Nine Months Ended September 30, 2003
Reimbursed
Restructuring
Pro forma
Expenses
Charges
Actual
Revenue
North America
149,487
$
-
$
-
$
149,487
$
Latin America
8,670
-
-
8,670
Europe
97,477
-
-
97,477
Asia Pacific
16,921
-
-
16,921
Revenue before reimbursements (net revenue)
272,555
-
-
272,555
Reimbursements
-
19,824
-
19,824
Total Company
272,555
$
19,824
$
-
$
292,379
$
Operating Income (Loss)
North America
22,883
$
-
$
-
$
22,883
$
Latin America
(2,648)
-
-
(2,648)
Europe
(229)
-
-
(229)
Asia Pacific
1,522
-
-
1,522
Total regions
21,528
-
-
21,528
Corporate
(22,005)
-
-
(22,005)
Operating income (loss) before restructuring charges
(477)
-
-
(477)
Restructuring charges
-
-
(23,169)
(23,169)
Total Company
(477)
$
-
$
(23,169)
$
(23,646)
$
Results By Geography
Nine Months Ended September 30, 2002
(Dollars in thousands)
Schedule Notes:
(1)
Emerging Issues Task Force Issue No. 01-14, "Income Statement Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses Incurred,"
(EITF 01-14) establishes that reimbursements received for certain out-of-pocket expenses should be reported as revenue. Historically, the Company
classified reimbursements of out-of-pocket expenses as a reduction of operating expenses. The Company adopted this guidance in 2002. The pro
forma results exclude the impact of adopting EITF 01-14.
(2)
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. The pro forma results exclude the impact of these separation charges.
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. The pro forma results exclude the impact of these
severance charges.
In the third quarter of 2003, the Company adjusted certain employee benefit accruals by $0.9 million due to favorable experience. By segment, this
adjustment is $0.7 million in North America and $0.2 million in Corporate. The pro forma results exclude the impact of this adjustment.
(3)
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 restructuring charges of $5.5 million to increase accruals for leased properties that had been identified
as excess in previous office consolidation charges. The accruals were increased to reflect the expectation of longer vacancy periods due primarily to
weakness in the real estate markets in which leased properties are located. By segment, North America recorded charges of $0.4 million and Europe
recorded $5.1 million of charges.
In the third quarter of 2003, the Company recorded restructuring charges of $1.4 million in North America to increase previously established accruals for
a leased properties that had been identified as excess in previous office consolidation charges. The accruals were increased to reflect the expectation of
a longer vacancy period due primarily to weakness in the real estate market in which the leased property is located.
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.
The pro forma results exclude the impact of these restructuring charges.