Investor Relations

Press Release

Korn/Ferry International Announces First Quarter Fiscal 2011 Results of Operations

September 9, 2010

Highlights
-- First quarter fiscal 2011 fee revenue increased 50% to $175.1 million, compared to $116.8 million in the same quarter last year.
-- Q1 FY'11 diluted earnings per share was $0.24, compared to diluted loss per share of $0.33 in Q1 FY'10.

LOS ANGELES, Sept 09, 2010 /PRNewswire via COMTEX/ --

Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced Q1 FY'11 diluted earnings per share of $0.24 compared to diluted loss per share of $0.33 in Q1 FY'10. Excluding restructuring charges of $18.2 million, diluted loss per share in Q1 FY'10 was $0.05.

"With our fifth consecutive sequential fee revenue increase and a year-over-year improvement of fifty percent, I am enormously proud of our organization and pleased with the results of the quarter," said Gary D. Burnison, CEO of Korn/Ferry International. "We have outperformed a seemingly directionless economy. For Korn/Ferry, the whole is truly stronger than the sum of our parts. It is our differentiation which has enabled us to outperform the industry. Our outsourcing and leadership businesses now comprise over 25% of our overall business. The combination of our complementary new offerings to our flagship executive recruiting business and our relentless focus on clients is providing the fortitude necessary for our continued success."


    Financial Results
    (dollars in millions, except per share amounts)
                                                  First Quarter
                                                  -------------
                                              FY'11         FY'10
                                              -----         -----
    Fee revenue                               $175.1        $116.8
    Total revenue                             $183.2        $123.3
    Operating income (loss)                    $19.3        $(25.0)
    Operating margin                            11.0%       (21.4)%
    Net income (loss)                          $10.9        $(14.3)
    Basic earnings (loss) per share            $0.24        $(0.33)
    Diluted earnings (loss) per share          $0.24        $(0.33)
    Adjusted Results (a):                                   First
                                                           Quarter
                                                           -------
                                                            FY'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)





        Adjusted results are non-GAAP financial measures that
        exclude restructuring charges of $18.2 million during
        Q1 FY'10 (see attached reconciliations).  No
    (a) restructuring charges were incurred during Q1 FY'11.


Fee revenue was $175.1 million in Q1 FY'11 compared to $116.8 million in Q1 FY'10, an increase of 50% (or an increase of 51%, or $59.7 million, on a constant currency basis), which reflects the positive traction that local and global economies have gained during the quarter, as well as our strong performance. Fee revenue improved globally due to an increase in revenue from all segments of the business driven primarily by a 43% increase in the number of executive recruitment engagements billed as well as a 7% (8% excluding the impact of exchange rates) increase in the weighted-average fee billed per executive recruitment engagement compared to the year-ago fiscal quarter. Furthermore, the Company experienced a 4% increase in fee revenue compared to Q4 FY'10 as a result of the improving economic conditions.

Compensation and benefits were $120.2 million in Q1 FY'11, an increase of $29.8 million, or 33%, compared to $90.4 million in Q1 FY'10. This increase is attributable mainly to an increase in the variable component of compensation when compared to the year-ago fiscal quarter, which was lower in Q1 FY'10 due to the challenging economic conditions. Changes in exchange rates impacted compensation and benefits in Q1 FY'11 favorably by $1.2 million compared to Q1 FY'10.

General and administrative expenses were $28.6 million in Q1 FY'11, an increase of $0.5 million, or 2% from $28.1 million in Q1 FY'10. This increase is attributable to an increase in bad debt provisions, in line with the increase in account receivable balances and an increase in business development expense, partially offset by a decrease in unrealized foreign exchange losses. Changes in exchange rates impacted general and administrative expenses in Q1 FY'11 favorably by $0.3 million compared to Q1 FY'10.

Operating income was $19.3 million in Q1 FY'11 compared to operating loss of $25.0 million in Q1 FY'10, an increase of $44.3 million. Excluding restructuring charges of $18.2 million in Q1 FY'10, operating loss was $6.8 million.

Balance Sheet and Liquidity

Cash and marketable securities were $232.2 million at July 31, 2010 compared to $296.5 million at April 30, 2010. Cash and marketable securities include $62.4 million and $69.0 million, held in trust for deferred compensation plans, at July 31, 2010 and April 30, 2010, respectively. Cash and marketable securities decreased by $64.3 million from April 30, 2010, mainly due to payment of FY'10 annual bonuses in Q1 FY'11.


    Results by Segment

    Selected Executive Recruitment Data
    (dollars in millions)
                                                         First Quarter
                                                         -------------
                                                    FY'11          FY'10
                                                    -----          -----
    Fee revenue                                     $154.9         $101.3
    Total revenue                                   $161.4         $106.6
    Operating income (loss)                          $27.7         $(13.1)
    Operating margin                                  17.9%        (13.0)%
    Ending number of consultants                       478            501
    Average number of consultants                      476            481
    Engagements billed                               3,723          2,611

    New engagements (a)                              1,890          1,352

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





            Represents new engagements opened in the
    (a)     respective period.
            Adjusted results are non-GAAP financial measures
            that exclude restructuring charges of $18.2
            million during Q1 FY'10 (see attached
            reconciliations).  There were no restructuring
    (b)     charges during Q1 FY'11.


Fee revenue was $154.9 million in Q1 FY'11, an increase of $53.6 million, or 53%, when compared to fee revenue of $101.3 million in Q1 FY'10. On a constant currency basis, fee revenue increased by $54.9 million or 54%, when compared to the same quarter a year ago. Fee revenue increased in all regions due to a 43% increase in the overall number of engagements billed and a 7% (8% excluding the impact of exchange rates) increase in the weighted-average fee per engagement billed when compared to Q1 FY'10.

Operating income was $27.7 million in Q1 FY'11 compared to operating loss of $13.1 million in Q1 FY'10. Excluding restructuring charges of $18.2 million incurred in Q1 FY'10, operating income would have been $5.1 million in Q1 FY'10.

The total number of consultants at July 31, 2010 was 478, a decrease of 23 from July 31, 2009.

    Selected Futurestep Data
    (dollars in millions)

                               First Quarter
                               -------------
                            FY'11        FY'10
                            -----        -----
    Fee revenue              $20.2        $15.5
    Total revenue            $21.8        $16.7
    Operating income (loss)   $1.0        $(0.8)
    Operating margin           4.9%       (5.3)%




Fee revenue was $20.2 million in Q1 FY'11, an increase of $4.7 million, or 30%, from $15.5 million in Q1 FY'10. On a constant currency basis, fee revenue increased by $4.8 million, or 31%, in Q1 FY'11, compared to the same quarter a year ago. The improvement in fee revenue was driven by a 30% increase in the overall number of engagements billed.

Operating income was $1.0 million in Q1 FY'11 compared to an operating loss of $0.8 million in Q1 FY'10.

Outlook

Assuming constant foreign exchange rates and stable economic conditions, Q2 FY'11 fee revenue is likely to be in the range of $165 million to $185 million and diluted earnings per share is likely to be in the range of $0.20 to $0.27.

Earnings Conference Call Webcast

The earnings conference call will be held today at 10:00 AM (EDT) and hosted by CEO Gary Burnison, CFO Mike DiGregorio and SVP Finance Gregg Kvochak. 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 include those relating 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 integration 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 the following (each of which has been adjusted to exclude restructuring charges):

  • adjusted operating income (loss) and operating margin;
  • adjusted net income (loss);
  • adjusted basic and diluted earnings (loss) per share; and
  • constant currency amounts that represent the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period.

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.

[Tables attached]

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



                                                    Three Months Ended
                                                         July 31,
                                                         --------
                                                    2010             2009
                                                    ----             ----
                                                       (unaudited)
     Fee revenue                                $175,112         $116,803
     Reimbursed out-of-pocket
      engagement expenses                          8,050            6,485
               Total revenue                     183,162          123,288
                                                 -------          -------

     Compensation and benefits                   120,208           90,385
     General and administrative
      expenses                                    28,615           28,054
     Out-of-pocket engagement
      expenses                                    12,099            8,789
     Depreciation and
      amortization                                 2,968            2,829
     Restructuring charges                             -           18,183
               Total operating expenses          163,890          148,240
                                                 -------          -------

     Operating income (loss)                      19,272          (24,952)

     Interest and other (loss)
      income, net                                 (2,309)           3,291
                                                  ------            -----
               Income (loss) before
                provision (benefit) for
                income taxes
                      and equity in earnings of
                       unconsolidated
                       subsidiaries               16,963          (21,661)
     Income tax provision
      (benefit)                                    6,521           (7,365)
     Equity in earnings of
      unconsolidated
      subsidiaries, net                              462               23
                Net income (loss)                $10,904         $(14,273)
                                                 =======         ========

     Earnings (loss) per common
      share:
          Basic                                    $0.24           $(0.33)
                                                   =====           ======
          Diluted                                  $0.24           $(0.33)
                                                   =====           ======

     Weighted-average common
      shares outstanding:
          Basic                                   44,642           43,776
                                                  ======           ======
          Diluted                                 45,755           43,776
                                                  ======           ======


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


                                      Three Months Ended
                                           July 31,
                                           --------
                                         2010                2009  % Change
                                         ----                ----  --------

    Fee Revenue:
    Executive recruitment:
      North America                   $89,975             $55,292        62.7%
      EMEA                             36,268              29,221        24.1%
      Asia Pacific                     21,142              12,371        70.9%
      South America                     7,486               4,445        68.4%
                                        -----               -----
    Total executive recruitment       154,871             101,329        52.8%
    Futurestep                         20,241              15,474        30.8%
                                       ------              ------
      Total fee revenue               175,112             116,803        49.9%
    Reimbursed out-of-pocket
     engagement expenses                8,050               6,485        24.1%
                                        -----               -----
      Total revenue                  $183,162            $123,288        48.6%
                                     ========            ========


    Adjusted Operating Income
     (Loss):
      (Excluding Restructuring
       Charges)                                Margin               Margin
                                               ------               ------
    Executive recruitment:
      North America                   $19,675     21.9%    $4,207         7.6%
      EMEA                              3,053      8.4%       563         1.9%
      Asia Pacific                      3,069     14.5%       975         7.9%
      South America                     1,879     25.1%      (686)     (15.4%)
                                        -----                ----
    Total executive recruitment        27,676     17.9%     5,059         5.0%
    Futurestep                            989      4.9%      (815)      (5.3%)
    Corporate                          (9,393)            (11,013)
                                       ------             -------
       Total adjusted operating
        income (loss)                 $19,272     11.0%   $(6,769)      (5.8%)
                                      =======             =======


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


    Operating Income (Loss):                   Margin               Margin
                                               ------               ------
    Executive recruitment:
      North America                   $19,675     21.9%    $4,207         7.6%
      EMEA                              3,053      8.4%   (17,620)     (60.3%)
      Asia Pacific                      3,069     14.5%       975         7.9%
      South America                     1,879     25.1%      (686)     (15.4%)
                                        -----                ----
    Total executive recruitment        27,676     17.9%   (13,124)     (13.0%)
    Futurestep                            989      4.9%      (815)      (5.3%)
    Corporate                          (9,393)            (11,013)
                                       ------             -------
       Total operating income (loss)  $19,272     11.0%  $(24,952)     (21.4%)
                                      =======            ========


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



                                                         July 31,   April 30,
                                                             2010      2010
                                                             ----      ----
    ASSETS                                            (unaudited)
    ------
    Cash and cash equivalents                            $146,016  $219,233
    Marketable securities                                  12,919     4,114
    Receivables due from clients, net of
     allowance for doubtful accounts
        of $7,035 and $5,983, respectively                127,948   107,215
    Income taxes and other receivables                      9,024     6,292
    Deferred income taxes                                  20,313    20,844
    Prepaid expenses and other assets                      27,583    23,166
                                                           ------    ------
           Total current assets                           343,803   380,864
                                                          -------   -------

    Marketable securities, non-current                     73,253    73,105
    Property and equipment, net                            34,237    24,963
    Cash surrender value of company owned life
     insurance policies, net of loans                      69,281    69,069
    Deferred income taxes                                  53,334    59,742
    Goodwill                                              170,785   172,273
    Intangible assets, net                                 24,875    25,425
    Investments and other assets                           29,752    21,657
                                                           ------    ------
           Total assets                                  $799,320  $827,098
                                                         ========  ========

    LIABILITIES AND STOCKHOLDERS' EQUITY
    ------------------------------------
    Accounts payable                                      $10,754   $11,148
    Income taxes payable                                    5,298     6,323
    Compensation and benefits payable                      94,868   131,550
    Other accrued liabilities                              45,099    49,062
                                                                     ------
           Total current liabilities                      156,019   198,083
                                                          -------   -------

    Deferred compensation and other retirement
     plans                                                127,770   123,794
    Other liabilities                                      20,647    13,879
                                                           ------    ------
           Total liabilities                              304,436   335,756

    Stockholders' equity
        Common stock: $0.01 par value, 150,000
         shares authorized, 58,448 and
           57,614 shares issued and 46,435 and 45,979
            shares outstanding, respectively              385,138   388,717
        Retained earnings                                 101,124    90,220
        Accumulated other comprehensive income, net         9,149    12,934
                                                            -----    ------
           Stockholders' equity                           495,411   491,871
        Less:  notes receivable from stockholders            (527)     (529)
                                                             ----      ----
           Total stockholders' equity                     494,884   491,342
           Total liabilities and stockholders' equity    $799,320  $827,098
                                                         ========  ========


               KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF OPERATIONS
     RECONCILIATION OF AS REPORTED (GAAP) TO AS ADJUSTED (NON-GAAP)
                         JULY 31, 2010 and 2009
                (in thousands, except per share amounts)
                               (unaudited)



                                              Three Months Ended
                                                July 31, 2010
                                                -------------
                                           As                         As
                                       Reported      Adjustments  Adjusted
                                      ---------      ----------- ---------

     Fee revenue                        $175,112                   $175,112
     Reimbursed out-
      of-pocket
      engagement
      expenses                             8,050                      8,050
                                           -----                      -----
               Total revenue             183,162                    183,162
                                         -------                    -------

     Compensation
      and benefits                       120,208                    120,208
     General and
      administrative
      expenses                            28,615                     28,615
     Out-of-pocket
      engagement
      expenses                            12,099                     12,099
     Depreciation
      and
      amortization                         2,968                      2,968
     Restructuring
      charges                                  -               -          -
                                                             ---
               Total operating
                expenses                 163,890               -    163,890
                                         -------             ---    -------

     Operating
      income (loss)                       19,272               -     19,272

     Interest and
      other (loss)
      income, net                         (2,309)                    (2,309)
                                          ------                     ------
               Income (loss)
                before
                provision
                (benefit) for
                income taxes
                      and equity in
                       earnings of
                       unconsolidated
                       subsidiaries       16,963               -     16,963
     Income tax
      provision
      (benefit) (1)                        6,521               -      6,521
     Equity in
      earnings of
      unconsolidated
      subsidiaries,
      net                                 462          462
                Net income
                 (loss)                  $10,904              $-    $10,904
                                         =======             ===    =======

     Earnings (loss)
      per common
      share:
          Basic                            $0.24                      $0.24
                                           =====                      =====
          Diluted                          $0.24                      $0.24
                                           =====                      =====

     Weighted-
      average common
      shares
      outstanding:
          Basic                           44,642                     44,642
                                          ======                     ======
          Diluted                         45,755                     45,755
                                          ======                     ======



                                                 Three Months 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                            18,183           (18,183)          -
                                                          -------
               Total operating
                expenses                148,240           (18,183)    130,057
                                        -------           -------     -------

     Operating income
      (loss)                            (24,952)           18,183      (6,769)

     Interest and
      other (loss)
      income, net                         3,291                 -       3,291
                                          -----               ---       -----
               Income (loss)
                before
                provision
                (benefit) for
                income taxes
                      and equity in
                       earnings of
                       unconsolidated
                       subsidiaries     (21,661)           18,183      (3,478)
     Income tax
      provision
      (benefit) (1)                      (7,365)            6,182      (1,183)
     Equity in
      earnings of
      unconsolidated
      subsidiaries,
      net                                 23            23
                Net income
                 (loss)                $(14,273)          $12,001     $(2,272)
                                       ========           =======     =======

     Earnings (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
    -----------------------------------
       (1) Calculated using an annual effective tax rate of 34% on operating
       expenses adjustments for the three months ended July 31, 2009

SOURCE Korn/Ferry International

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