Investor Relations

Press Release

Korn/Ferry International Announces a 22% Increase in Fee Revenue in the Third Quarter of Fiscal 2008

March 6, 2008
    Highlights

    - Third quarter fiscal 2008 fee revenue was $201.2 million, an increase of
      $36.0 million, or 22%, from $165.2 million in the same quarter last
      year.

    - Third quarter fiscal 2008 diluted earnings per share was $0.37, an
      increase of 12% over Q3'07 diluted earnings per share of $0.33.

LOS ANGELES, March 6 /PRNewswire-FirstCall/ -- Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced third quarter earnings today.

"As the world has flattened demand for talent worldwide has intensified," said Gary D. Burnison, Chief Executive Officer, Korn/Ferry. "Our performance this quarter has set a new industry record and is indicative of the ongoing need for organizations to recruit and develop their people. We are focused on using our global scale, our diversified services, and our strong brand to help our clients identify, hire and develop the best leaders in the world."

    Financial Results
    (dollars in millions, except per share amounts)


                                        Third Quarter        Year to date
                                        Q3'08     Q3'07    Q3'08       Q3'07
    Fee Revenue                        $201.2    $165.2   $582.4      $473.7
    Revenue                            $212.1    $173.5   $615.2      $499.4
    Operating Income                    $21.2     $21.4    $71.7       $62.9
    Operating Margin                    10.5%     13.0%    12.3%       13.3%
    Net Income                          $16.3     $14.7    $50.5       $42.0
    Basic Earnings Per Share            $0.38     $0.37    $1.14       $1.07
    Diluted Earnings Per Share          $0.37     $0.33    $1.10       $0.95


Fee revenue of $201.2 million in Q3'08 increased $36.0 million, or 22% (16% excluding the impact of exchange rates), from $165.2 million in Q3'07. Fee revenue improved globally due to an increase in revenues from all segments of the business. In Executive Recruitment, our largest segment, we experienced a 21% increase in fee revenue driven by an increase in the number of search engagements opened as well as a 14% increase in the average fee billed per search engagement compared to the prior year. In addition, Futurestep fee revenue increased 26%, compared to Q3'07 due to a 12% increase in average fee billed per engagement. Exchange rates impacted fee revenue in Q3'08 favorably by $10.0 million compared to Q3'07.

Compensation and benefits of $138.6 million in Q3'08 increased $26.3 million, or 23% (18% excluding the impact of exchange rates), from $112.3 million in Q3'07. The increase is attributable to revenue-based compensation and higher headcount in all segments of the Company. Exchange rates impacted compensation and benefits in Q3'08 unfavorably by $6.5 million compared to Q3'07.

General and administrative expenses of $35.3 million in Q3'08 increased by $8.5 million, or 32% (25% excluding the impact of exchange rates), from $26.8 million in Q3'07 as a result of an increase in business volume across all regions and segments. Exchange rates had an unfavorable impact of $1.9 million on general and administrative expenses compared to Q3'07.

Operating income was $21.2 million in Q3'08 compared to $21.4 million in Q3'07. Our financial results in the quarter include a modest amount of reserves and accruals that are aimed at reducing our cost structure to be more efficient in how we serve clients. While we may have further such amounts in the future, the intent is to lay the foundation for improved operating margins.

Balance Sheet and Liquidity

Cash, cash equivalents and marketable securities were $298.3 million at January 31, 2008 compared to $282.6 million at January 31, 2007. The increase was due primarily to improved operating cash flows offset by $56.7 million used to repurchase the Company's common shares in open market purchases during the nine months ended January 31, 2008.

Through October 31, 2007, the Company had used all of the $125 million of share repurchase funds authorized by the Board of Directors in December 2005, June 2006 and March 2007 to buy back approximately 6.1 million shares. Through March 3, 2008, the Company has used $6.5 million of the $50 million of share repurchase funds authorized in November 2007 to buy back approximately 0.4 million shares. Under this program, shares may be repurchased from time to time in open market transactions or privately negotiated transactions at the Company's discretion, subject to market conditions and other factors.

Interest expense was $1.2 million in Q3'08 compared to $2.5 million in the same period last year. Interest expense in the prior year related primarily to borrowings under Korn/Ferry's convertible securities and COLI policies. The decrease in interest expense is primarily due to the conversion of all of the Company's convertible securities to common shares during Q4'07. At January 31, 2008, Korn/Ferry had no outstanding borrowings under its credit facility.

    Results by Segment

    Selected Executive Recruitment Data
    (dollars in millions)


                                      Third Quarter      Year to date
                                     Q3'08     Q3'07    Q3'08      Q3'07
    Fee Revenue                     $173.0    $142.9   $501.9     $410.5
    Revenue                         $179.9    $149.2   $523.1     $430.7
    Operating Income                 $29.0     $27.3    $94.7      $80.6
    Operating Margin                 16.8%     19.1%    18.9%      19.6%
    Average number of consultants      521       482      512        469
    Engagements (a)                  1,830     1,722    5,483      5,097

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

Fee revenue was $173.0 million in Q3'08, an increase of $30.1 million, or 21%, from $142.9 million in Q3'07. Fee revenue improved in all regions due to an increase in the overall number of engagements and average fee per engagement. Exchange rates impacted fee revenue in Q3'08 favorably by $7.8 million compared to Q3'07.

Operating income improved $1.7 million in Q3'08, or 6%, to $29.0 million compared to $27.3 million in Q3'07.

    The total number of consultants at January 31, 2008 was 518, an increase
of 33 from January 31, 2007.

    Selected Futurestep Data
    (dollars in millions)


                                      Third Quarter        Year to date
                                      Q3'08   Q3'07      Q3'08      Q3'07
    Fee Revenue                       $28.2   $22.3      $80.5      $63.2
    Revenue                           $32.2   $24.3      $92.1      $68.7
    Operating Income                   $2.0    $2.3       $5.6       $5.1
    Operating Margin                   7.1%   10.3%       7.0%       8.1%

Fee revenue was $28.2 million in Q3'08, an increase of $5.9 million, or 26%, from $22.3 million in Q3'07. Improvements in fee revenue were driven by an increase in the average fee per engagement. Exchange rates impacted fee revenue in Q3'08 favorably by $2.2 million compared to Q3'07.

Operating income was $2.0 million in Q3'08 compared to $2.3 million in Q3'07.

Outlook

Assuming constant foreign exchange rates, Korn/Ferry estimates that fourth quarter fiscal 2008 fee revenue is likely to be in the range of $195 million to $210 million and diluted earnings per share is likely to be in the range of $0.34 to $0.38.

Earnings Conference Call Webcast

The earnings conference call will be held today at 9:00 AM (EST) 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 80 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 forward-looking 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, currency fluctuations in our international operations, 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.



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

                                       Three Months Ended  Nine Months Ended
                                           January 31          January 31
                                         2008      2007      2008      2007

     Fee revenue                       $201,156  $165,239  $582,366  $473,720
     Reimbursed out-of-pocket
      engagement expenses                10,935     8,269    32,826    25,721
          Total revenue                 212,091   173,508   615,192   499,441

     Compensation and benefits          138,594   112,343   391,984   318,852
     General and administrative
      expenses                           35,255    26,806   101,168    79,431
     Out-of-pocket engagement expenses   14,250    10,394    42,664    31,040
     Depreciation and amortization        2,812     2,557     7,701     7,214
          Total operating expenses      190,911   152,100   543,517   436,537
     Operating income                    21,180    21,408    71,675    62,904

     Interest and other income
      (expense), net                      3,777       664     6,074      (289)
          Income before provision
           for income taxes and
           equity in earnings of
           unconsolidated subsidiaries   24,957    22,072    77,749    62,615
     Provision for income taxes           9,353     8,100    29,753    23,184
     Equity in earnings of
      unconsolidated subsidiaries           652       758     2,469     2,528
          Net income                    $16,256   $14,730   $50,465   $41,959

     Interest expense on convertible
      securities, net of taxes               36       785       109     2,354
     Net income adjusted for
      computation of diluted EPS        $16,292   $15,515   $50,574   $44,313

     Basic earnings per common share      $0.38     $0.37     $1.14     $1.07

     Basic weighted average common
      shares outstanding                 43,247    39,650    44,273    39,229

     Diluted earnings per common share    $0.37     $0.33     $1.10     $0.95

     Diluted weighted average common
      shares outstanding                 44,303    47,449    45,839    46,860



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

                                  Three Months Ended
                                      January 31
                              2008                2007
    Fee Revenue:
    Executive
     recruitment:
       North America        $94,812              $82,177
       Europe                46,292               37,872
       Asia Pacific          25,322               18,608
       South America          6,617                4,311
    Total executive
     recruitment            173,043              142,968

    Futurestep               28,113               22,271
       Total fee revenue    201,156              165,239
    Reimbursed
     out-of-pocket
     engagement expenses     10,935                8,269
       Total revenue       $212,091             $173,508

    Operating Income (Loss):            Margin                  Margin
    Executive recruitment:
       North America        $16,167     17.1%      $17,428       21.2%
       Europe                 7,116     15.4%        5,996       15.8%
       Asia Pacific           5,444     21.5%        3,622       19.5%
       South America            291      4.4%          231        5.4%
    Total executive
     recruitment             29,018     16.8%       27,277       19.1%
    Futurestep                2,026      7.2%        2,252       10.1%
    Corporate                (9,864)                (8,121)
        Total operating
         income             $21,180     10.5%       $21,408      13.0%



                                     Nine Months Ended
                                        January 31
                                 2008               2007
    Fee Revenue:
    Executive recruitment:
       North America          $276,988            $237,667
       Europe                  133,072             104,878
       Asia Pacific             72,639              55,169
       South America            19,184              12,777
    Total executive
     recruitment               501,883             410,491
    Futurestep                  80,483              63,229
       Total fee revenue       582,366             473,720
    Reimbursed
     out-of-pocket
     engagement expenses        32,826              25,721
       Total revenue          $615,192            $499,441

    Operating Income (Loss):             Margin                 Margin
    Executive recruitment:
       North America           $57,346   20.7%      $51,286      21.6%
       Europe                   20,871   15.7%       17,391      16.6%
       Asia Pacific             14,595   20.1%       10,609      19.2%
       South America             1,836    9.6%        1,329      10.4%
    Total executive
     recruitment                94,648   18.9%       80,615      19.6%
    Futurestep                   5,642    7.0%        5,141       8.1%
    Corporate                  (28,615)            (22,852)
        Total operating
         income                $71,675   12.3%      $62,904      13.3%



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

                                                 As of             As of
                                          January 31, 2008    April 30, 2007

                  ASSETS
    Cash and cash equivalents                     $223,654          $232,531
    Marketable securities                           74,691            91,736
    Receivables due from clients, net of
     allowance for doubtful accounts of
     $14,062 and $9,822, respectively              139,965           107,751
    Income taxes and other receivables               5,987             6,357
    Deferred income taxes                           10,074             9,524
    Prepaid expenses                                18,864            16,861
        Total current assets                       473,235           464,760

    Property and equipment, net                     31,138            25,999
    Cash surrender value of company owned
     life insurance policies, net of
     loans                                          79,458            76,478
    Deferred income taxes                           46,065            42,013
    Goodwill                                       139,392           124,268
    Intangible assets, net                          15,638            18,040
    Investments and other                           10,736             9,933
        Total assets                              $795,662          $761,491

       LIABILITIES AND STOCKHOLDERS'
                  EQUITY
    Accounts payable                               $12,104           $10,383
    Income taxes payable                            24,468            22,432
    Compensation and benefits payable              148,387           158,145
    Other accrued liabilities                       35,385            38,529
        Total current
         liabilities                               220,344           229,489
    Deferred compensation and other
     retirement plans                              104,144            91,360
    Other liabilities                                5,831             7,687
        Total liabilities                          330,319           328,536

    Stockholders' equity:
      Common stock: $0.01 par value,
       150,000 shares authorized, 54,226
       and 52,323 shares issued and 46,374 and
       47,174 shares outstanding,
       respectively                                388,370           400,126
      Retained earnings                             79,268            32,344
      Unearned restricted stock
       compensation                                (34,675)          (19,567)
      Accumulated other comprehensive income        32,927            20,605
        Stockholders' equity                       465,890           433,508
      Less:  Notes receivable from
       stockholders                                   (547)             (553)
        Total stockholders' equity                 465,343           432,955
        Total liabilities and stockholders'
         equity                                   $795,662          $761,491
SOURCE  Korn/Ferry International
    -0-                             03/06/2008
    /CONTACT:  Investor Relations, Stephen Giusto, +1-310-843-4144, or Gregg
Kvochak, +1-310-556-8550, or Media, Anneli Ballard, +1-212-984-9350, all for
Korn/Ferry International/
    /Web site:  http://www.kornferry.com /
    (KFY)

CO:  Korn/Ferry International
ST:  California
IN:  WRK
SU:  ERN CCA

AX-KQ
-- LATH502 --
7060 03/06/2008 07:50 EST http://www.prnewswire.com

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