Investor Relations

Press Release

Korn/Ferry International Announces First Quarter Fiscal 2010 Results of Operations

September 9, 2009

Highlights

LOS ANGELES, Sept. 9 /PRNewswire-FirstCall/ -- Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced first quarter fiscal 2010 diluted loss per share of $0.05 (excluding an $18.2 million restructuring charge recorded in the period) compared to diluted earnings per share of $0.36 in Q1'09. Diluted loss per share was $0.33 including the restructuring charge in Q1'10.

"Despite an extremely challenging economic environment we are encouraged by our ability to achieve a 9% sequential increase in fee revenue during our first quarter," said Gary Burnison, Chief Executive Officer, Korn/Ferry International. "Backed by the diversification of our model, we are beginning to see some green shoots emerging for our business. As the market continues to stabilize, I am confident that the bold moves we made during the downturn will yield significant growth in the future. During this difficult operating environment, we continue to make significant progress toward our goal of becoming a diversified talent management organization."

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

                                                 First Quarter
                                                 -------------
                                             Q1'10           Q1'09
                                             -----           -----
    Fee revenue                              $116.8         $205.7
    Total revenue                            $123.3         $217.5
    Operating (loss) income                  $(25.0)         $23.8
    Operating margin                          (21.4)%         11.5%
    Net (loss) income                        $(14.3)         $15.9
    Basic (loss) earnings per share          $(0.33)         $0.37
    Diluted (loss) earnings per share        $(0.33)         $0.36

                                              First
    Adjusted Results (a):                    Quarter
                                             -------
                                              Q1'10
                                             -------
    Operating loss                            $(6.8)
    Operating margin                           (5.8)%
    Net loss                                  $(2.3)
    Basic loss per share                     $(0.05)
    Diluted loss per share                   $(0.05)

    ----------------------
    (a)  Adjusted results are non-GAAP financial measures that exclude
         restructuring charges of $18.2 million during Q1'10 (see attached
         reconciliations).  No restructuring costs were incurred during Q1'09.

Fee revenue was $116.8 million in Q1'10 compared to $205.7 million in Q1'09, a decrease of 38.9% on a constant currency basis (a decrease of 43.2% including the impact of exchange rates). During the same period, the number of executive search engagements opened declined 29.6% and the average fee billed per engagement decreased by 15.6% (a decrease of 9.3% excluding the impact of exchange rates). The global economy, however, showed signs of stabilization during the quarter, and the Company experienced a 3.7% increase in fee revenue, excluding fee revenue from the acquisition of Whitehead Mann, compared to Q4'09.

Compensation and benefits were $90.4 million in Q1'10, a decrease of $51.7 million, or 36.4%, compared to $142.1 million in Q1'09. This decrease is attributable mainly to a reduction in worldwide headcount and a reduction in the variable component of compensation, which is largely due to lower fee revenue and operating results. Changes in exchange rates impacted compensation and benefits in Q1'10 favorably by $6.3 million from Q1'09.

General and administrative expenses were $28.1 million in Q1'10, a decrease of $5.9 million, or 17.4% from $34.0 million in Q1'09. This decrease is attributable to the Company's cost control initiatives. Changes in exchange rates impacted general and administrative expenses in Q1'10 favorably by $2.2 million from Q1'09.

In an effort to eliminate redundancy as a result of the Whitehead Mann acquisition, the Company incurred additional restructuring charges in Q1'10 to reduce the combined work force and to consolidate premises. As a result, in Q1'10, we recorded a total of $18.2 million in restructuring charges with $8.4 million of severance costs related to the reduction in work force and $9.8 million relating to the consolidation of premises.

Excluding the previously mentioned restructuring costs of $18.2 million, operating loss was $6.8 million in Q1'10. Including the restructuring charge, the Company recorded an operating loss of $25.0 million in Q1'10 compared to operating income of $23.8 million in Q1'09, a decrease of $48.8 million.

Balance Sheet and Liquidity

Cash and marketable securities were $265.9 million at July 31, 2009 compared to $330.3 million at April 30, 2009. Cash and marketable securities decreased by $64.4 million in Q1'10 from Q4'09, mainly due to the payment of annual bonuses in Q1'10.

Interest expense was $1.4 million in Q1'10 and $1.2 million in the same period last year. Interest expense in both years related primarily to borrowings under Korn/Ferry's COLI policies.

    Results by Segment
    Selected Executive Recruitment Data
    (dollars in millions)
                                               First Quarter
                                               -------------
                                            Q1'10          Q1'09
                                            -----          -----
    Fee revenue                            $101.3         $174.5
    Total revenue                          $106.6         $182.9
    Operating (loss) income                $(13.1)         $31.7
    Operating margin                        (13.0)%         18.1%
    Ending number of consultants              501            537
    Average number of consultants             481            522
    New engagements (a)                     1,352          1,920

                                             First
    Adjusted Results (b):                   Quarter
                                            -------
                                             Q1'10
                                            -------
    Operating income                         $5.1
    Operating margin                          5.0%

    (a)  Represents new engagements opened in the respective period.
    (b)  Adjusted results are non-GAAP financial measures that exclude
         restructuring charges of $18.2 million during Q1'10 (see attached
         reconciliation).  No restructuring costs were incurred during Q1'09.

Fee revenue was $101.3 million in Q1'10, a decrease of $73.2 million, or 37.8% on a constant currency basis from $174.5 million in Q1'09 (a decrease of 41.9% including the impact of exchange rates). Fee revenue decreased in all regions due to a 31.4% decrease in the overall number of engagements billed and a decrease of 15.3% in the average fee per engagement billed (a decrease of 9.2% excluding the impact of exchange rates).

Operating income in Q1'10 was $5.1 million, excluding restructuring costs of $18.2 million. Executive search recorded an operating loss of $13.1 million in Q1'10 including restructuring costs compared to operating income of $31.7 million in Q1'09 or a decrease of $44.8 million from the prior year.

The total number of consultants at July 31, 2009 was 501, a decrease of 36 from July 31, 2008 and an increase of 41 from April 30, 2009. The increase in the current quarter was driven by the addition of 52 consultants from closing of the previously announced acquisition of Whitehead Mann.

    Selected Futurestep Data
    (dollars in millions)
                                          First Quarter
                                          -------------
                                       Q1'10         Q1'09
                                       -----         -----
    Fee revenue                        $15.5         $31.2
    Total revenue                      $16.7         $34.6
    Operating (loss) income            $(0.8)         $2.9
    Operating margin                    (5.3)%         9.2%

Fee revenue was $15.5 million in Q1'10, a decrease of $15.7 million, or 45.5% on a constant currency basis (a decrease of 50.3% including the impact of exchange rates), from $31.2 million in Q1'09. Reductions in fee revenue were driven by a decrease in the number of engagements billed and to a lesser extent by a decrease in the average fee per engagement billed.

Operating loss was $0.8 million in Q1'10 compared to operating income of $2.9 million in Q1'09.

Outlook

The global economic crisis continues to have a significant impact on many of our client's people initiatives. Demand for executive searches and leadership and talent consulting services declined precipitously throughout the world during the second half of Fiscal 2009. Although demand for the Company's services began to stabilize in Q1'10, the macroeconomic climate and labor markets remain uncertain. Based on new business confirmed subsequent to the end of Q1'10 and anticipating a decline in new business due to summer seasonality, we expect fee revenue will be approximately $110 million to $120 million in Q2'10. Given the uncertain economic environment and labor markets making a meaningful prediction about earnings remains impractical. Given these business conditions, the Company's primary operating goal in the short run is to maintain positive cash flows as measured by earnings before interest, taxes, depreciation and amortization and non-cash long-term incentive compensation.

Earnings Conference Call Webcast

The earnings conference call will be held today at 12:00 PM (EDT) and hosted by Gary Burnison, Chief Executive Officer, Mike DiGregorio, Chief Financial Officer and Gregg Kvochak, Vice President of Finance. The conference call will be webcast and available online at www.kornferry.com, accessible through the Investor Relations section.

Korn/Ferry International (NYSE:KFY), with a presence throughout the Americas, Asia Pacific, Europe, the Middle East and Africa, is a premier global provider of talent management solutions. Based in Los Angeles, the firm delivers an array of solutions that help clients to attract, develop, retain and sustain their talent. Visit www.kornferry.com for more information on the Korn/Ferry International family of companies, and www.kornferryinstitute.com for thought leadership, intellectual property and research.

Forward-Looking Statements

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 that 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, global economic developments, restrictions imposed by off-limits agreements, reliance on information systems, the successful intergration of acquired businesses 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.

Use of Non-GAAP Financial Measures

This press release contains financial information calculated other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). These non-GAAP financial measures include adjusted operating loss, operating margin, net loss, basic loss per share and diluted loss per share, adjusted to exclude restructuring charges.

This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial information determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Management believes the presentation of non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn/Ferry's performance by excluding certain charges that may not be indicative of Korn/Ferry's ongoing operating results. The use of these non-GAAP financial measures facilitate comparisons to Korn/Ferry's historical performance. Korn/Ferry includes these non-GAAP financial measures because management believes it is useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn/Ferry's ongoing operations and financial and operational decision-making.

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

                                                             Quarter Ended
                                                                July 31,
                                                               ----------
                                                              2009      2008
                                                              ----      ----
                                                               (unaudited)

    Fee revenue                                            $116,803  $205,733
    Reimbursed out-of-pocket engagement expenses              6,485    11,739
                                                              -----    ------
          Total revenue                                     123,288   217,472

    Compensation and benefits                                90,385   142,123
    General and administrative expenses                      28,054    34,030
    Out-of-pocket engagement expenses                         8,789    14,733
    Depreciation and amortization                             2,829     2,832
    Restructuring charges                                    18,183         -
                                                             ------       ---
          Total operating expenses                          148,240   193,718
                                                            -------   -------
    Operating (loss) income                                 (24,952)   23,754

    Interest and other income, net                            3,291       380
                                                              -----       ---
          (Loss) income before (benefit) provision
           for income taxes and equity in earnings
           of unconsolidated subsidiaries                   (21,661)   24,134
    (Benefit) provision for income taxes                     (7,365)    9,293
    Equity in earnings of unconsolidated
     subsidiaries, net                                           23     1,063
                                                                ---     -----
          Net (loss) income                                $(14,273)  $15,904
                                                           ========   =======

    (Loss) earnings per common share:
        Basic                                                $(0.33)    $0.37
                                                             ======     =====
        Diluted                                              $(0.33)    $0.36
                                                             ======     =====

    Weighted-average common shares outstanding:
        Basic                                                43,776    43,432
                                                             ======    ======
        Diluted                                              43,776    44,549
                                                             ======    ======



                     KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                           EXCLUDING NON-GAAP ADJUSTMENTS
                    (in thousands, except per share amounts)
                                  (unaudited)

                                                      Quarter Ended
                                                      July 31, 2009
                                                      -------------
                                                As                     As
                                             Reported  Adjustments  Adjusted
                                             --------  -----------  --------
    Fee revenue                              $116,803               $116,803
    Reimbursed out-of-pocket engagement
     expenses                                   6,485                  6,485
                                                -----                 -----
          Total revenue                       123,288                123,288
                                              -------                -------

    Compensation and benefits                  90,385                 90,385
    General and administrative expenses        28,054                 28,054
    Out-of-pocket engagement expenses           8,789                  8,789
    Depreciation and amortization               2,829                  2,829
    Restructuring charges (1)                  18,183    (18,183)          -
                                               ------                    ---
          Total operating expenses            148,240    (18,183)    130,057
                                              -------                -------

    Operating loss                            (24,952)                (6,769)

    Interest and other income, net              3,291                  3,291
                                                -----                  -----
          Loss before (benefit) provision
           for income taxes and equity in
           earnings of unconsolidated
           subsidiaries                       (21,661)                (3,478)
    (Benefit) provision for income taxes(2)    (7,365)     6,182      (1,183)
    Equity in earnings of unconsolidated
     subsidiaries, net                             23                     23
                                                  ---                    ---
          Net loss                           $(14,273)               $(2,272)
                                             ========                =======

    Loss per common share:
        Basic                                  $(0.33)                $(0.05)
                                                ======                ======
        Diluted                                $(0.33)                $(0.05)
                                               ======                 ======

    Weighted-average common shares
     outstanding:
        Basic                                  43,776                 43,776
                                               ======                 ======
        Diluted                                43,776                 43,776
                                               ======                 ======

    Explanation of Non-GAAP Adjustments
    -----------------------------------
    For the three months ended July 31, 2009:
     (1) Restructuring charges
     (2) Tax effect related to net operating expense adjustments



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

                                                Quarter Ended
                                                   July 31,
                                                -------------
                                            2009               2008
                                            ----               ----
    Fee Revenue:
    Executive recruitment:
      North America                       $55,292            $93,974
      EMEA                                 29,221             51,590
      Asia Pacific                         12,371             21,403
      South America                         4,445              7,585
                                            -----              -----
    Total executive recruitment           101,329            174,552
    Futurestep                             15,474             31,181
                                           ------             ------
      Total fee revenue                   116,803            205,733
    Reimbursed out-of-pocket
     engagement expenses                    6,485             11,739
                                            -----             ------
      Total revenue                      $123,288           $217,472
                                         ========           ========

    Operating (Loss) Income:                       Margin             Margin
                                                   ------             ------
    Executive recruitment:
      North America                        $4,207     7.6%   $18,637    19.8%
      EMEA                                (17,620)  (60.3%)    8,486    16.4%
      Asia Pacific                            975     7.9%     3,476    16.2%
      South America                          (686)  (15.4%)    1,080    14.2%
                                             ----              -----
    Total executive recruitment           (13,124)  (13.0%)   31,679    18.1%
    Futurestep                               (815)   (5.3%)    2,855     9.2%
    Corporate(1)                          (11,013)           (10,780)
                                          -------            -------
      Total operating (loss) income      $(24,952)  (21.4%)  $23,754    11.5%
                                         ========            =======


    Restructuring Charges:
    Executive recruitment:
      North America                            $-     0.0%        $-     0.0%
      EMEA                                 18,183    62.2%         -     0.0%
      Asia Pacific                              -     0.0%         -     0.0%
      South America                             -     0.0%         -     0.0%
                                              ---                ---
    Total executive recruitment            18,183    18.0%         -     0.0%
    Futurestep                                  -     0.0%         -     0.0%
    Corporate                                   -                  -
                                              ---                ---
      Total restructuring charges         $18,183    15.6%        $-     0.0%
                                          =======                ===


    Adjusted Operating (Loss) Income:
     (Excluding Restructuring Charges)             Margin             Margin
                                                   ------             ------
    Executive recruitment:
      North America                        $4,207     7.6%   $18,637    19.8%
      EMEA                                    563     1.9%     8,486    16.4%
      Asia Pacific                            975     7.9%     3,476    16.2%
      South America                          (686)  (15.4%)    1,080    14.2%
                                             ----              -----
    Total executive recruitment             5,059     5.0%    31,679    18.1%
    Futurestep                               (815)   (5.3%)    2,855     9.2%
    Corporate (1)                         (11,013)           (10,780)
                                          -------            -------
      Total adjusted operating (loss)
       income                             $(6,769)   (5.8%)  $23,754    11.5%
                                          =======            =======

    (1)  Increase primarily due to $3.3 million in expenses related to a
         change in amounts due under a benefit plan with obligations
         determined by an increase (or decrease) in market values.



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


                                                      July 31,     April 30,
                                                        2009         2009
                                                        ----         ----
    ASSETS                                          (unaudited)
    ------
    Cash and cash equivalents                        $187,569     $255,000
    Marketable securities                               4,425        4,263
    Receivables due from clients, net of
     allowance for doubtful accounts of
     $9,466 and $11,197, respectively                  86,287       67,308
    Income taxes and other receivables                  8,776        9,001
    Deferred income taxes                              18,487       14,583
    Prepaid expenses and other assets                  28,043       21,442
                                                       ------       ------
          Total current assets                        333,587      371,597
                                                      -------      -------

    Marketable securities, non-current                 73,858       70,992
    Property and equipment, net                        28,553       27,970
    Cash surrender value of company owned
     life insurance policies, net of loans             63,816       63,108
    Deferred income taxes                              44,277       45,141
    Goodwill                                          160,901      133,331
    Intangible assets, net                             18,667       16,928
    Investments and other assets                       14,926       11,812
                                                       ------       ------
          Total assets                               $738,585     $740,879
                                                     ========     ========

    LIABILITIES AND SHAREHOLDERS' EQUITY
    ------------------------------------
    Accounts payable                                  $11,816      $10,282
    Income taxes payable                                5,617        2,059
    Compensation and benefits payable                  77,362      116,705
    Other accrued liabilities                          52,762       44,301
                                                       ------       ------
          Total current liabilities                   147,557      173,347
                                                      -------      -------

    Deferred compensation and other retirement
     plans                                            113,088       99,238
    Other liabilities                                  15,526        9,195
                                                       ------        -----
          Total liabilities                           276,171      281,780

    Shareholders' equity
      Common stock: $0.01 par value, 150,000
       shares authorized, 57,348 and 56,185
       shares issued and 45,659 and 44,729
       shares outstanding, respectively               373,732      368,430
      Retained earnings                                70,649       84,922
      Accumulated other comprehensive income           18,569        6,285
                                                       ------        -----
          Shareholders' equity                        462,950      459,637
      Less:  notes receivable from shareholders          (536)        (538)
                                                         ----         ----
          Total shareholders' equity                  462,414      459,099
                                                      -------      -------
          Total liabilities and shareholders'
           equity                                    $738,585     $740,879
                                                     ========     ========

SOURCE Korn/Ferry International

Investor Relations, Gregg Kvochak, +1-310-556-8550, or Media, Mike Distefano, +1-310-843-4199, both of Korn/Ferry International

Take a Closer Look