Investor Relations

Press Release

Korn/Ferry International Announces an 11% Increase in Fee Revenue in the First Quarter

September 9, 2008
     Highlights

     - First quarter fiscal 2009 fee revenue was $205.7 million, an increase
       of $20.3 million, or 11%, from $185.4 million in the same quarter last
       year.

     - First quarter fiscal 2009 diluted earnings per share was $0.36 compared
       to $0.36 in Q1'08.

LOS ANGELES, Sept. 9 /PRNewswire-FirstCall/ -- Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced first quarter fiscal 2009 diluted earnings per share of $0.36 compared to $0.36 in Q1'08.

"In the face of continued economic uncertainty, we believe our solid first quarter results reflect the long-term needs of our clients to attract and develop talent," said Gary D. Burnison, CEO, Korn/Ferry. "The combination of our proprietary talent management solutions, expansive geographic presence and world class colleagues create a unique platform from which we will continue to pursue our strategy of becoming the leading diversified human capital solutions company in the world."



    Financial Results
    (dollars in millions, except per share amounts)
                                                            First Quarter
                                                          Q1'09        Q1'08

    Fee Revenue                                          $205.7       $185.4
    Revenue                                              $217.5       $196.3
    Operating Income                                      $23.8        $25.1
    Operating Margin                                      11.5%        13.5%
    Net Income                                            $15.9        $17.1
    Basic Earnings Per Share                              $0.37        $0.38
    Diluted Earnings Per Share                            $0.36        $0.36


Fee revenue of $205.7 million in Q1'09 increased $20.3 million, or 10.9%, from $185.4 million in Q1'08. Fee revenue improved due to an increase in revenue from all segments of the business including an increase in the number of search engagements opened as well as a 15% increase in the average fee billed per executive search engagement compared to the prior year. Exchange rates impacted fee revenue in Q1'09 favorably by $9.4 million compared to Q1'08 and excluding this favorable impact revenues increased 5.9% over the prior year's first quarter.

Compensation and benefits, excluding the $6.0 million unfavorable impact of exchange rates, were $136.1 million in Q1'09, an increase of $13.1 million, or 10.7%, compared to $123.0 million in Q1'08. The increase is attributable to profitability based compensation, modest investments in strategic business activities and to a lesser extent severance and related costs with the intention of maintaining consultant productivity. Actual compensation and benefits for Q1'09 was $142.1, an increase of 15.5% when compared to Q1'08.

General and administrative expenses, excluding the $1.8 million unfavorable impact of exchange rates, were $32.2 million in Q1'09 and increased by $0.5 million, or 1.6% from $31.7 million in Q1'08. The increase is primarily attributable to costs associated with business growth such as rent and utilities, and business development activities. Actual general and administrative expenses were $34.0 million in Q1'09 resulting in a 7.3% increase when compared to Q1'08.

Operating income was $23.8 million in Q1'09 compared to $25.1 million in Q1'08' a decrease of $1.3 million or 5.2% over Q1'08.

Balance Sheet and Liquidity

Cash, cash equivalents and marketable securities were $295.0 million at July 31, 2008 compared to $245.3 million at July 31, 2007. The increase was due primarily to improved operating cash flows.

Interest expense was $1.2 million in Q1'09 compared to $1.2 million in the same period last year. Interest expense in both years related primarily to borrowings under Korn/Ferry's COLI policies. At July 31, 2008, Korn/Ferry had no outstanding borrowings under its credit facility.



    Results by Segment

    Selected Executive Recruitment Data
    (dollars in millions)
                                                           First Quarter
                                                         Q1'09       Q1'08

    Fee Revenue                                         $174.5       $159.8
    Revenue                                             $182.9       $166.7
    Operating Income                                     $31.7        $32.7
    Operating Margin                                     18.1%        20.5%
    Average number of consultants                          522          512
    Engagements (a)                                      1,920        1,774

    (a) Represents new engagements opened in the respective period.


Fee revenue was $174.5 million in Q1'09, an increase of $14.7 million, or 9.2%, from $159.8 million in Q1'08. Fee revenue improved in the majority of regions due to an increase in the overall number of engagements billed and average fee per engagement. Exchange rates impacted fee revenue in Q1'09 favorably by $7.3 million compared to Q1'08.

Operating income was $31.7 million in Q1'09 compared to $32.7 million in Q1'08 resulting in a decrease of $1.0 million or 3.1% from the prior year.

The total number of consultants at July 31, 2008 was 537, an increase of 21 from July 31, 2007 due primarily to the Company's annual promotion process.



    Selected Futurestep Data
    (dollars in millions)
                                                          First Quarter
                                                        Q1'09        Q1'08

    Fee Revenue                                         $31.2        $25.6
    Revenue                                             $34.6        $29.6
    Operating Income                                     $2.9         $2.1
    Operating Margin                                     9.2%         8.1%


Fee revenue was $31.2 million in Q1'09, an increase of $5.6 million, or 21.9%, from $25.6 million in Q1'08. Improvements in fee revenue were driven by an increase in the number of engagements billed and offset by a slight decrease in the average fee per engagement. Exchange rates impacted fee revenue in Q1'09 favorably by $2.1 million compared to Q1'08.

Operating income was $ 2.9 million in Q1'09 compared to $2.1 million in Q1'08.

Outlook

Assuming constant foreign exchange rates, Korn/Ferry estimates that second quarter fiscal 2009 fee revenue is likely to be in the range of $185 million to $200 million and diluted earnings per share is likely to be in the range of $0.26 to $0.32.

Earnings Conference Call Webcast

The earnings conference call will be held today at 9:00 AM (EDT) and hosted by Gary Burnison, Chief Executive Officer, and Stephen Giusto, Chief Financial Officer. The conference call will be webcast and available online at http://www.kornferry.com, accessible through the Investor Relations section.

Korn/Ferry International (NYSE: KFY), with more than 90 offices in 39 countries, is a premier global provider of talent management solutions. Based in Los Angeles, the firm delivers an array of solutions that help clients to identify, deploy, develop, retain and reward their talent. For more information on the Korn/Ferry International family of companies, visit http://www.kornferry.com.

Statements in this press release and our conference call that relate to future results and events ("forward-looking statements") are based on Korn/Ferry's current expectations. Readers are cautioned not to place undue reliance on such statements. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties which are beyond the control of Korn/Ferry. The potential risks and uncertainties relate to competition, the dependence on attracting and retaining qualified and experienced consultants, the portability of client relationships, local political or economic developments in or affecting countries where we have operations, including fluctuations in exchange rates, risks related to the growth and results of Futurestep, restrictions imposed by off-limits agreements, reliance on information systems and employment liability risk. For a detailed description of risks and uncertainties that could cause differences, please refer to Korn/Ferry's periodic filings with the Securities and Exchange Commission. Korn/Ferry disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

                              [Tables attached]



                    KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                    (in thousands, except per share amounts)

                                                        Quarter Ended
                                                           July 31,
                                                    2008              2007
                                                 (unaudited)       (unaudited)

     Fee revenue                                  $205,733          $185,353
     Reimbursed out-of-pocket engagement expenses   11,739            10,924
       Total revenue                               217,472           196,277

     Compensation and benefits                     142,123           122,986
     General and administrative expense             34,030            31,701
     Out-of-pocket engagement expenses              14,733            14,127
     Depreciation and amortization                   2,832             2,350
       Total operating expense                     193,718           171,164
     Operating income                               23,754            25,113

     Interest and other income, net                    380             1,498
       Income before provision for income taxes
        and equity in earnings of unconsolidated
        subsidiaries                                24,134            26,611
     Provision for income taxes                      9,293            10,434
     Equity in earnings of unconsolidated
      subsidiaries, net                              1,063               923
       Net income                                  $15,904           $17,100

     Basic earnings per common share                 $0.37             $0.38

     Basic weighted average common shares
      outstanding                                   43,432            45,041

     Diluted earnings per common share               $0.36             $0.36

     Diluted weighted average common
      shares outstanding                            44,549            47,063



                    KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
                           FINANCIAL SUMMARY BY SEGMENT
                                  (in thousands)

                                                 Quarter Ended
                                                    July 31,
                                            2008               2007
                                        (unaudited)        (unaudited)
    Fee Revenue:
    Executive recruitment:
        North America                      $93,974            $87,314
        EMEA                                51,590             44,722
        Asia Pacific                        21,403             22,661
        South America                        7,585              5,070
    Total executive recruitment            174,552            159,767
    Futurestep                              31,181             25,586
        Total fee revenue                  205,733            185,353
    Reimbursed out-of-pocket
     engagement expenses                    11,739             10,924
        Total revenue                     $217,472           $196,277

    Operating Income (Loss):                        Margin             Margin
    Executive recruitment:
        North America                      $18,637   19.8%    $19,791   22.7%
        EMEA                                 8,486   16.4%      7,691   17.2%
        Asia Pacific                         3,476   16.2%      4,537   20.0%
        South America                        1,080   14.2%        661   13.0%
    Total executive recruitment             31,679   18.1%     32,680   20.5%
    Futurestep                               2,855    9.2%      2,084    8.1%
    Corporate                              (10,780)            (9,651)
         Total operating income            $23,754   11.5%    $25,113   13.5%



                    KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (in thousands, except per share amounts)

                                                   As of             As of
                                              July 31, 2008     April 30, 2008
                                                (unaudited)
    ASSETS
    Cash and cash equivalents                     $205,949          $305,296
    Marketable securities                            2,865             5,940
    Receivables due from clients, net of
     allowance for doubtful accounts
     of $12,558 and $11,504, respectively          138,716           119,952
    Income taxes and other receivables               6,516             7,071
    Deferred income taxes                            9,817            10,401
    Prepaid expenses                                22,613            20,057
      Total current assets                         386,476           468,717

    Marketable securities, non-current              86,215            78,026
    Property and equipment, net                     32,631            32,462
    Cash surrender value of company owned
     life insurance policies, net of loans          81,556            81,377
    Deferred income taxes                           43,338            47,128
    Goodwill                                       142,126           142,699
    Intangible assets, net                          15,399            15,519
    Other assets                                    15,046            14,286
      Total assets                                $802,787          $880,214

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Accounts payable                               $11,796           $15,309
    Income taxes payable                            18,755            20,948
    Compensation and benefits payable              106,463           199,081
    Other accrued liabilities                       35,953            37,120
      Total current liabilities                    172,967           272,458

    Deferred compensation and other
     retirement plans                              111,153           105,719
    Other liabilities                                5,660             5,903
      Total liabilities                            289,780           384,080

    Shareholders' equity
      Common stock: $0.01 par value,
       150,000 shares authorized, 55,945
       and 54,786 shares issued and 45,028 and
       44,593 shares outstanding, respectively     362,351           358,568
      Retained earnings                            110,918            95,014
      Accumulated other comprehensive income        40,282            43,097
           Shareholders' equity                    513,551           496,679
    Less:  Notes receivable from shareholders         (544)             (545)
           Total shareholders' equity              513,007           496,134
           Total liabilities and shareholders'
            equity                                $802,787          $880,214

CONTACT:
Investors, Stephen Giusto, +1-310-843-4144,
or Gregg Kvochak, +1-310-556-8550,
or Media, Anneli Ballard, +1-212-984-9350,
all of Korn|Ferry International

SOURCE Korn/Ferry International

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