Investor Relations

Press Release

Korn/Ferry International Announces a 26% Increase in Fee Revenue in the Second Quarter of Fiscal 2008

December 6, 2007
    Highlights

    - Second quarter fiscal 2008 fee revenue was $195.9 million, an increase
      of $40.2 million, or 26%, from $155.7 million in the same quarter last
      year.

    - Second quarter fiscal 2008 diluted earnings per share was $0.37, an
      increase of 19% over Q2'07 diluted earnings per share of $0.31.

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

"As companies grapple with the challenges of attracting and retaining talent, demand for Korn/Ferry's solutions continue to be strong," said Gary Burnison, Chief Executive Officer. "We are pleased with our results in the second quarter and believe that our record revenues and profits reflect the strength of our business and the soundness of our strategy to provide our clients with world class solutions to attract, retain, develop and reward talent for their organizations. We are continuing to invest in all areas of our business to address the long-term opportunities we see to serve our clients."



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

                              Second Quarter              Year to date
                             Q2'08        Q2'07        Q2'08        Q2'07
    Fee Revenue             $195.9       $155.7       $381.2       $308.5
    Revenue                 $206.8       $164.8       $403.1       $325.9
    Operating Income         $25.4        $21.1        $50.5        $41.5
    Operating Margin         13.0%        13.6%        13.2%        13.5%
    Net Income               $17.1        $13.6        $34.2        $27.2
    Basic Earnings Per Share $0.38        $0.35        $0.76        $0.70
    Diluted Earnings Per
     Share                   $0.37        $0.31        $0.74        $0.62


Fee revenue of $195.9 million in Q2'08 increased $40.2 million, or 25.8% (20.5% excluding the impact of exchange rates), from $155.7 million in Q2'07. 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 25% increase in fee revenue driven by an increase in the number of search engagements opened as well as a 21% increase in the average fee billed per search engagement compared to the prior year. In addition, Futurestep fee revenue increased 30.1%, compared to Q2'07 due to a 30% increase in average fee billed per engagement. Exchange rates impacted fee revenue in Q2'08 favorably by $8.3 million compared to Q2'07.

Compensation and benefits of $130.4 million in Q2'08 increased $28.3 million, or 27.7% (22.2% excluding the impact of exchange rates), from $102.1 million in Q2'07. The increase is attributable to revenue-based compensation and higher headcount in all segments of the Company. Exchange rates impacted compensation and benefits in Q2'08 unfavorably by $5.6 million compared to Q2'07.

General and administrative expenses of $34.2 million in Q2'08 increased by $5.9 million, or 20.8% (14.8% excluding the impact of exchange rates), from $28.3 million in Q2'07 as a result of an increase in business volume across all regions and segments. Exchange rates had an unfavorable impact of $1.7 million on general and administrative expenses compared to Q2'07.

Operating income was $25.4 million in Q2'08, an increase of $4.3 million or 20.4%, over Q2'07.

Balance Sheet and Liquidity

Cash, cash equivalents and marketable securities were $242.0 million at October 31, 2007 compared to $229.4 million at October 31, 2006. The increase was due primarily to improved operating cash flows offset by $50.2 million used to repurchase the Company's common shares in open market purchases during the six months ended October 31, 2007.

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. On November 2, 2007 the Board of Directors authorized the repurchase of up to an additional $50 million of the Company's common stock in a common stock repurchase program. 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 Q2'08 compared to $2.6 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 October 31, 2007, Korn/Ferry had no outstanding borrowings under its credit facility.


    Results by Segment

    Selected Executive Recruitment Data
    (dollars in millions)

                               Second Quarter             Year to date
                             Q2'08        Q2'07        Q2'08        Q2'07
    Fee Revenue             $169.1       $135.1       $328.8       $267.5
    Revenue                 $176.5       $142.2       $343.1       $281.6
    Operating Income         $33.0        $26.6        $65.6        $53.3
    Operating Margin         19.5%        19.7%        20.0%        19.9%
    Average number of
     consultants               519          472          507          461
    Engagements (a)          1,879        1,656        3,653        3,375

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

Fee revenue was $169.1 million in Q2'08, an increase of $34.0 million, or 25.2%, from $135.1 million in Q2'07. 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 Q2'08 favorably by $6.5 million compared to Q2'07.

Operating income improved $6.4 million in Q2'08, or 24.1%, to $33.0 million compared to $26.6 million in Q2'07.


    The total number of consultants at October 31, 2007 was 523, an increase
of 45 from October 31, 2006.



    Selected Futurestep Data
    (dollars in millions)

                               Second Quarter             Year to date
                             Q2'08        Q2'07        Q2'08        Q2'07
    Fee Revenue              $26.8        $20.6        $52.4        $41.0
    Revenue                  $30.4        $22.6        $60.0        $44.4
    Operating Income          $1.5        $ 1.8         $3.6         $2.9
    Operating Margin          5.7%         9.0%         6.9%         7.1%

Fee revenue was $26.8 million in Q2'08, an increase of $6.2 million, or 30.1%, from $20.6 million in Q2'07. Improvements in fee revenue were driven by an increase in the average fee per engagement. Exchange rates impacted fee revenue in Q2'08 favorably by $1.8 million compared to Q2'07.

Operating income decreased $0.3 million to $1.5 million compared to $1.8 million in Q2'07. Operating margin for the quarter decreased from 9.0% in Q2'07 to 5.7% in Q2'08.

Outlook

Assuming constant foreign exchange rates, Korn/Ferry estimates that third quarter fiscal 2008 fee revenue is likely to be in the range of $190 million to $200 million and diluted earnings per share is likely to be in the range of $0.34 to $0.39.

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   Six Months Ended
                                          October 31,         October 31,
                                         2007      2006      2007      2006

     Fee revenue                       $195,857  $155,718  $381,210  $308,481
     Reimbursed out-of-pocket
      engagement expenses                10,967     9,069    21,891    17,452
       Total revenue                    206,824   164,787   403,101   325,933

     Compensation and benefits          130,404   102,072   253,390   206,509
     General and administrative
      expense                            34,212    28,260    65,913    52,625
     Out-of-pocket engagement expense    14,287    10,939    28,414    20,646
     Depreciation and amortization        2,539     2,368     4,889     4,657
       Total operating expense          181,442   143,639   352,606   284,437
     Operating income                    25,382    21,148    50,495    41,496

     Interest and other income
      (expense), net                        799      (872)    2,297      (953)
       Income before provision
        for income taxes and equity
        in earnings of unconsolidated
        subsidiaries                     26,181    20,276    52,792    40,543
     Provision for income taxes           9,966     7,484    20,400    15,084
     Equity in earnings of
      unconsolidated subsidiaries           894       774     1,817     1,770
       Net income                       $17,109   $13,566   $34,209   $27,229

     Interest expense on convertible
      securities, net of taxes               36       785        73     1,570
     Net income adjusted for
      computation of diluted EPS        $17,145   $14,351   $34,282   $28,799

     Basic earnings per common share      $0.38     $0.35     $0.76     $0.70

     Basic weighted average common
      shares outstanding                 44,529    39,018    44,785    39,019

     Diluted earnings per common share    $0.37     $0.31     $0.74     $0.62

     Diluted weighted average common
      shares outstanding                 45,841    46,568    46,573    46,667



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

                         Three Months Ended         Six Months Ended
                            October 31,                October 31,
                         2007         2006         2007          2006


    Fee Revenue:
    Executive
     recruitment:
      North America   $94,862        $80,006      $182,176      $155,490
      Europe           42,058         32,819        86,780        67,006
      Asia Pacific     24,656         18,297        47,317        36,561
      South America     7,497          3,987        12,567         8,466
    Total executive
     recruitment      169,073        135,109       328,840       267,523
    Futurestep         26,784         20,609        52,370        40,958
      Total fee
       revenue        195,857        155,718       381,210       308,481
    Reimbursed
     out-of-pocket
     engagement
     expenses          10,967          9,069        21,891        17,452
      Total revenue  $206,824       $164,787      $403,101      $325,933

    Operating Income
     (Loss):                  Margin        Margin        Margin        Margin
    Executive recruitment:
      North America   $21,388  22.5% $16,778 21.0% $41,179 22.6% $33,858 21.8%
      Europe            6,064  14.4%   6,191 18.9%  13,755 15.9%  11,395 17.0%
      Asia Pacific      4,614  18.7%   3,297 18.0%   9,151 19.3%   6,987 19.1%
      South America       884  11.8%     360  9.0%   1,545 12.3%   1,098 13.0%
    Total executive
     recruitment       32,950  19.5%  26,626 19.7%  65,630 20.0%  53,338 19.9%
    Futurestep          1,532   5.7%   1,845  9.0%   3,616  6.9%   2,889  7.1%
    Corporate          (9,100)        (7,323)      (18,751)      (14,731)
      Total operating
       income         $25,382  13.0%  21,148 13.6% $50,495 13.2% $41,496 13.5%



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

                                                   As of           As of
                                             October 31, 2007  April 30, 2007

                  ASSETS
    Cash and cash equivalents                       $166,908       $232,531
    Marketable securities                             75,089         91,736
    Receivables due from clients, net of allowance
     for doubtful accounts of $12,874 and $9,822,
     respectively                                    144,803        107,751
    Income taxes and other receivables                 7,393          6,357
    Deferred income taxes                              9,914          9,524
    Prepaid expenses                                  18,219         16,861
    Total current assets                             422,326        464,760

    Property and equipment, net                       29,459         25,999
    Cash surrender value of company owned life
     insurance policies, net of loans                 80,480         76,478
    Deferred income taxes                             44,691         42,013
    Goodwill                                         139,308        124,268
    Intangible assets, net                            15,794         18,040
    Investments and other                             11,763          9,933
    Total assets                                    $743,821       $761,491

           LIABILITIES AND STOCKHOLDERS' EQUITY
    Accounts payable                                 $11,305        $10,383
    Income taxes payable                              24,406         22,432
    Compensation and benefits payable                109,264        158,145
    Other accrued liabilities                         35,237         38,529
      Total current liabilities                      180,212        229,489
    Deferred compensation and other retirement plans 104,145         91,360
    Other liabilities                                  5,680          7,687
      Total liabilities                              290,037        328,536

    Stockholders' equity:
      Common stock: $0.01 par value, 150,000
       shares authorized, 54,466 and 45,453 shares
       issued and 46,615 and 47,174
       shares outstanding, respectively              392,045        400,126
      Retained earnings                               63,012         32,344
      Unearned restricted stock compensation        (38,251)       (19,567)
      Accumulated other comprehensive income          37,527         20,605
        Stockholders' equity                         454,333        433,508
      Less: Notes receivable from stockholders         (549)          (553)
        Total stockholders' equity                   453,784        432,955
        Total liabilities and stockholders' equity  $743,821       $761,491

SOURCE  Korn/Ferry International
    -0-                             12/06/2007
    /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 of
Korn-Ferry International/
    /Web site:  http://www.kornferry.com /
    (KFY)

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

PD-AE
-- LATH003 --
8435 12/06/2007 07:50 EST http://www.prnewswire.com

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