Investor Relations

Press Release

Korn/Ferry International Announces Fiscal 2008 Results: The Highest Revenue and Earnings in the Company's Thirty-Eight Year History

June 11, 2008

Highlights

  • Fourth quarter fiscal 2008 fee revenue was a record $208.2 million, an increase of $28.5 million, or 16%, from $179.7 million in the same quarter last year.
  • Fourth quarter fiscal 2008 diluted earnings per share was $0.36 compared to $0.30 in Q4'07. Adjusted diluted earnings per share in Q4'07, which excludes the impact of previously announced one-time charges in Q4'07, was $0.36.

LOS ANGELES, June 11 /PRNewswire-FirstCall/ -- Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced fourth quarter fiscal 2008 diluted earnings per share of $0.36 compared to $0.30 in Q4'07. Excluding the impact of previously announced one-time charges in Q4'07, diluted earnings per share was $0.36.

"Fiscal 2008 produced the most revenue and earnings in Korn/Ferry's 38 year history," said Gary D. Burnison, Chief Executive Officer, Korn/Ferry. "Given the economically challenging environment which began with the credit crisis in the United States last summer, we are proud of our results. It is clear that we are making great progress in building a diversified talent management solutions organization. Moving forward, we will continue to manage the business in balance with the macroeconomic environment and with a focused eye toward long-term transformation of the industry and our firm."



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

                                             Fourth Quarter       Year Ended
                                              Q4'08   Q4'07      2008    2007
    Fee Revenue                              $208.2  $179.7    $790.6  $653.4
    Revenue                                  $220.5  $189.8    $835.6  $689.2
    Operating Income                          $20.2   $19.4     $91.9   $82.3
    Operating Margin                           9.7%   10.8%     11.6%   12.6%
    Net Income                                $15.7   $13.5     $66.2   $55.5
    Diluted Earnings Per Share                $0.36   $0.30     $1.46   $1.24
    Reconciliation of GAAP Net Income to
     Adjusted Results*
    Net Income, GAAP                          $15.7   $13.5     $66.2   $55.5
    Reconciling Income Items, Net of Taxes:
        Employment Contract Changes             -      $3.3         -    $3.3
        Reversal of Lease Reserve               -     ($0.4)        -   ($0.4)
    Adjusted Results:
    Net Income                                $15.7   $16.4     $66.2   $58.4
    Operating Margin                           9.7%   13.3%     11.6%   13.3%
    Diluted Earnings
     Per Share                                $0.36   $0.36     $1.46   $1.30

    * Adjusted Q4'07 results, net of taxes, exclude the effect of a $3.3
      million charge for employment contract changes and a $0.4 million
      reversal of a previously established lease restructuring reserve.  This
      is a non-GAAP measure the Company's management believes provide useful
      information regarding the ongoing results of operations because they
      have been prepared on a basis comparable to that used in prior periods.
      These measures are not intended to replace Net Income, EPS or Operating
      Margin measured in accordance with U.S. Generally Accepted Accounting
      Principles (see attached reconciliation).

Fee revenue of $208.2 million in Q4'08 increased $28.5 million, or 16%, from $179.7 million in Q4'07. Fee revenue improved globally due to an increase in revenue from all segments of the business resulting from an increase in the number of search engagements opened as well as a 7% increase in the average fee billed per executive search engagement compared to the prior year. Exchange rates impacted fee revenue in Q4'08 favorably by $11.3 million compared to Q4'07 and excluding this favorable impact revenues increased 10% over the prior year's fourth quarter.

Compensation and benefits, excluding the $6.8 million unfavorable impact of exchanges rates, were $141.3 million in Q4'08, an increase of $17.7 million, or 14%, compared to $123.6 million in Q4'07 which excludes a $5.2 million charge for executive employment contract changes. The increase is primarily attributable to productivity based compensation and, to a lesser extent, higher headcount in all segments of the Company. Actual compensation and benefits for Q4'08 was $148.1 million compared to $128.8 million in Q4'07, an increase of 15%.

General and administrative expenses, excluding the $2.4 million unfavorable impact of exchange rates, were $31.0 million in Q4'08 and increased by $5.1 million, or 20%, from $25.9 million in Q4'07. The increase is primarily attributable to costs associated with business growth such as rent and utilities, higher bad debt provisions in line with increased accounts receivable balances, advertising and promotion costs to elevate our market-leading brand. Actual general and administrative expenses were $33.4 million in Q4'08 compared to $25.9 million in Q4'07 resulting in a 29% increase.

Operating income was $20.2 million in Q4'08 compared to $19.4 million in Q4'07 resulting an increase of $0.8 million or 4% over Q4'07. The Company's results in the quarter include a modest amount of severance and related costs aimed at maintaining our record consultant productivity in the face of an uncertain macroeconomic environment.

Balance Sheet and Liquidity

Cash, cash equivalents and marketable securities were $389.3 million at April 30, 2008 compared to $324.3 million at April 30, 2007. The increase was due primarily to improved operating cash flows.

Through April 30, 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 $1.1 million in Q4'08 compared to $2.5 million in the same period last year. Interest expense in both years 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 the Company's convertible preferred stock and subordinates notes to common shares during Q4'07. At April 30, 2008, Korn/Ferry had no outstanding borrowings under its credit facility.



    Results by Segment

    Selected Executive Recruitment Data
    (dollars in millions)

                                        Fourth Quarter          Year Ended
                                        Q4'08    Q4'07        2008      2007
    Fee Revenue                        $177.5    157.1      $679.4     $567.6
    Revenue                            $185.7    164.2      $708.8     $594.9
    Operating Income                    $27.3    $31.3      $122.0     $111.9
    Operating Margin                    15.4%    19.9%       18.0%      19.7%
    Average number of consultants         516      488         515        474
    Engagements (a)                     1,794    1,797       7,276      6,894

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

Fee revenue was $177.5 million in Q4'08, an increase of $20.4 million, or 13%, from $157.1 million in Q4'07. Fee revenue improved in all regions due to an increase in the overall number of engagements billed and average fee per engagement. Exchange rates impacted fee revenue in Q4'08 favorably by $8.6 million compared to Q4'07.

Operating income was $27.3 million in Q4'08 compared to $31.3 million in Q4'07 resulting in a decrease of $4.0 million or 13% from the prior year.

    The total number of consultants at April 30, 2008 was 514, an increase of
24 from April 30, 2007.



    Selected Futurestep Data
    (dollars in millions)

                                   Fourth Quarter           Year Ended
                                  Q4'08      Q4'07       2008        2007
    Fee Revenue                   $30.7      $22.6      $111.2      $85.8
    Revenue                       $34.7      $25.5      $126.9      $94.3
    Operating Income               $2.9       $2.7        $8.5       $7.9
    Operating Margin               9.5%      11.9%        7.7%       9.2%


Fee revenue was $30.7 million in Q4'08, an increase of $8.1 million, or 36%, from $22.6 million in Q4'07. Improvements in fee revenue were driven by an increase in the average fee for engagements. Exchange rates impacted fee revenue in Q4'08 favorably by $2.6 million compared to Q4'07.

Operating income was $2.9 million in Q4'08 compared to $2.7 million in Q4'07.

Outlook

Assuming constant foreign exchange rates, Korn/Ferry estimates that first quarter fiscal 2009 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 $0.28 to $0.32.

Earnings Conference Call Webcast

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

Korn/Ferry International (NYSE: KFY), with more than 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 statements. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties which are beyond the control of Korn/Ferry. The potential risks and uncertainties relate to competition, the dependence on attracting and retaining qualified and experienced consultants, the portability of client relationships, local political or economic developments in or affecting countries where we have operations, including fluctuations in exchange rates, risks related to the growth and results of Futurestep, restrictions imposed by off-limits agreements, reliance on information systems and employment liability risk. For a detailed description of risks and uncertainties that could cause differences, please refer to Korn/Ferry's periodic filings with the Securities and Exchange Commission. Korn/Ferry disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

                              [Tables attached]



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

                                        Three Months Ended      Year Ended
                                             April 30,           April 30,
                                          2008      2007      2008      2007
                                      (unaudited)(unaudited)

     Fee revenue                        $208,204  $179,702  $790,570  $653,422
     Reimbursed out-of-pocket
      engagement expenses                 12,246    10,058    45,072    35,779
         Total revenue                   220,450   189,760   835,642   689,201

     Compensation and benefits           148,072   128,840   540,056   447,692
     General and administrative expense   33,374    25,881   134,542   105,312
     Out-of-pocket engagement expenses    16,086    13,622    58,750    44,662
     Depreciation and amortization         2,740     2,066    10,441     9,280
         Total operating expense         200,272   170,409   743,789   606,946
     Operating income                     20,178    19,351    91,853    82,255

     Interest and other income, net        1,063       533     7,137       244
         Income before provision for
          income taxes and equity in
          earnings of unconsolidated
          subsidiaries                    21,241    19,884    98,990    82,499
     Provision for income taxes            6,328     6,980    36,081    30,164
     Equity in earnings of unconsolidated
      subsidiaries, net                      833       635     3,302     3,163
         Net income                      $15,746   $13,539   $66,211   $55,498

     Interest expense on convertible
      securities, net of taxes                36       509       145     2,863
     Net income adjusted for computation
      of diluted EPS                     $15,782   $14,048   $66,356   $58,361

     Basic earnings per common share       $0.36     $0.33     $1.50     $1.40

     Basic weighted average common shares
      outstanding                         43,230    41,408    44,012    39,774

     Diluted earnings per common share     $0.36     $0.30     $1.46     $1.24

     Diluted weighted average common
      shares outstanding                  44,333    47,252    45,528    46,938



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

                                        Three Months Ended
                                             April 30,
                                    2008                  2007
    Fee Revenue:
    Executive recruitment:
        North America             $97,903               $91,398
        EMEA                       49,970                41,277
        Asia Pacific               23,276                19,818
        South America               6,372                 4,649
    Total executive recruitment   177,521               157,142
    Futurestep                     30,683                22,560
        Total fee revenue         208,204               179,702
    Reimbursed out-of-pocket
     engagement expenses           12,246                10,058
        Total revenue            $220,450              $189,760

    Operating Income (Loss):                 Margin                Margin
    Executive recruitment:
        North America             $13,282     13.6%     $18,529     20.3%
        EMEA                        8,949     17.9%       6,775     16.4%
        Asia Pacific                4,704     20.2%       5,401     27.3%
        South America                 394      6.2%         565     12.2%
    Total executive recruitment    27,329     15.4%      31,270     19.9%
    Futurestep                      2,903      9.5%       2,713     12.0%
    Corporate                     (10,054)              (14,632)
        Total operating income    $20,178      9.7%     $19,351     10.8%


                                           Year Ended
                                            April 30,
                                    2008                  2007
    Fee Revenue:
    Executive recruitment:
        North America            $374,891              $329,065
        EMEA                      183,042               146,155
        Asia Pacific               95,915                74,987
        South America              25,556                17,426
    Total executive recruitment   679,404               567,633
    Futurestep                    111,166                85,789
        Total fee revenue         790,570               653,422
    Reimbursed out-of-pocket
     engagement expenses           45,072                35,779
        Total revenue            $835,642              $689,201

    Operating Income (Loss):                 Margin                Margin
    Executive recruitment:
        North America             $70,628     18.8%     $69,815     21.2%
        EMEA                       29,820     16.3%      24,166     16.5%
        Asia Pacific               19,299     20.1%      16,010     21.4%
        South America               2,230      8.7%       1,894     10.9%
    Total executive recruitment   121,977     18.0%     111,885     19.7%
    Futurestep                      8,545      7.7%       7,854      9.2%
    Corporate                     (38,669)              (37,484)
        Total operating income    $91,853     11.6%     $82,255     12.6%



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

                                                            As of April 30,
                                                           2008         2007
    ASSETS
    Cash and cash equivalents                            $318,918    $232,531
    Marketable securities                                  49,869      91,736
    Receivables due from clients, net of allowance
     for doubtful accounts of $11,504 and $9,822,
     respectively                                         119,952     107,751
    Income taxes and other receivables                      7,071       6,357
    Deferred income taxes                                  10,401       9,524
    Prepaid expenses                                       20,057      16,861
          Total current assets                            526,268     464,760

    Marketable securities, non-current                     20,475         -
    Property and equipment, net                            32,462      25,999
    Cash surrender value of company owned life
     insurance policies, net of loans                      81,377      76,478
    Deferred income taxes                                  43,587      42,013
    Goodwill                                              142,699     124,268
    Intangible assets, net                                 15,519      18,040
    Deferred financing costs and other assets              14,286       9,933
          Total assets                                   $876,673    $761,491

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Accounts payable                                      $15,309     $10,383
    Income taxes payable                                   17,407      22,432
    Compensation and benefits payable                     199,081     158,145
    Other accrued liabilities                              37,120      38,529
          Total current liabilities                       268,917     229,489

    Deferred compensation and other retirement plans      105,719      91,360
    Other liabilities                                       5,903       7,687
          Total liabilities                               380,539     328,536

    Shareholders' equity
      Common stock: $0.01 par value, 150,000 shares
       authorized, 54,786 and 53,323 shares issued and
       46,412 and 47,174 shares outstanding, respectively 389,844     400,126
      Retained earnings                                    95,014      32,344
      Unearned restricted stock compensation              (31,276)    (19,567)
      Accumulated other comprehensive income               43,097      20,605
          Shareholders' equity                            496,679     433,508
      Less:  Notes receivable from shareholders              (545)       (553)
          Total shareholders' equity                      496,134     432,955
          Total liabilities and shareholders' equity     $876,673    $761,491



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

                                          Three Months Ended
                                              April 30,
                         2008-As  Adjust- 2008-As   2007-As  Adjust-  2007-As
                        Reported   ments  Adjusted  Reported  ments  Adjusted

    Fee revenue         $208,204         $208,204  $179,702         $179,702
    Reimbursed
     out-of-pocket
     engagement
     expenses             12,246           12,246    10,058           10,058
        Total revenue    220,450          220,450   189,760          189,760

    Compensation and
     benefits (1)        148,072    -     148,072   128,840 (5,187)  123,653
    General and
     administrative
     expense (2)          33,374    -      33,374    25,881    606    26,487
    Out-of-pocket
     engagement
     expenses             16,086           16,086    13,622           13,622
    Depreciation and
     amortization          2,740            2,740     2,066            2,066
        Total operating
         expense         200,272          200,272   170,409 (4,581)  165,828
    Operating income      20,178           20,178    19,351           23,932

    Interest and other
     income, net           1,063            1,063       533              533
        Income before
         provision for
         income taxes and
         equity in earnings
         of unconsolidated
         subsidiaries     21,241           21,241    19,884           24,465
    Provision for
     income taxes (3)      6,328    -       6,328     6,980  1,672     8,652
    Equity in earnings
     of unconsolidated
     subsidiaries, net       833              833       635              635
        Net income       $15,746          $15,746   $13,539          $16,448

    Interest expense on
     convertible
     securities, net of
     taxes                    36               36       509              509
    Net income adjusted
     for computation of
     diluted EPS         $15,782          $15,782   $14,048          $16,957

    Basic earnings per
     common share          $0.36            $0.36     $0.33            $0.40

    Basic weighted
     average common
     shares outstanding   43,230           43,230    41,408           41,408

    Diluted earnings
     per common share      $0.36            $0.36     $0.30            $0.36

    Diluted weighted
     average common
     shares outstanding   44,333           44,333    47,252           47,252

    Explanation of Non-GAAP Adjustments
    For the Three Months Ended April 30, 2008:
      No adjustments
    For the Three Months Ended April 30, 2007:
      (1) $5,187 executive compensation contract termination charge
      (2) Credit adjustment to previously recorded lease restructuring reserve
      (3) Tax effect related to net operating expense adjustments of $4,581



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

                                              Year Ended
                                              April 30,
                        2008-As  Adjust-  2008-As   2007-As  Adjust-  2007-As
                        Reported  ments   Adjusted  Reported  ments  Adjusted

    Fee revenue         $790,570         $790,570  $653,422         $653,422
    Reimbursed out-of-
     pocket engagement
     expenses             45,072           45,072    35,779           35,779
        Total
         revenue         835,642          835,642   689,201          689,201

    Compensation and
     benefits (1)        540,056    -     540,056   447,692 (5,187)  442,505
    General and
     administrative
     expense (2)         134,542    -     134,542   105,312    606   105,918
    Out-of-pocket
     engagement
     expenses             58,750           58,750    44,662           44,662
    Depreciation and
     amortization         10,441           10,441     9,280            9,280
        Total operating
         expense         743,789          743,789   606,946 (4,581)  602,365
    Operating income      91,853           91,853    82,255           86,836

    Interest and other
     income, net           7,137            7,137       244              244
    Income before
     provision for income
     taxes and equity
     in earnings of
     unconsolidated
      subsidiaries        98,990           98,990    82,499           87,080
    Provision for
     income taxes (3)     36,081    -      36,081    30,164  1,672    31,836
    Equity in earnings
     of unconsolidated
     subsidiaries, net     3,302            3,302     3,163            3,163
        Net income       $66,211          $66,211   $55,498          $58,407

    Interest expense on
     convertible
     securities, net of
     taxes                   145              145     2,863            2,863
    Net income adjusted
     for computation of
     diluted EPS         $66,356          $66,356   $58,361          $61,270

    Basic earnings per
     common share          $1.50            $1.50     $1.40            $1.47

    Basic weighted
     average common
     shares outstanding   44,012           44,012    39,774           39,774

    Diluted earnings
     per common share      $1.46            $1.46     $1.24            $1.30

    Diluted weighted
     average common
     shares outstanding   45,528           45,528    46,938           46,938

    Explanation of Non-GAAP Adjustments
    For the Year Ended April 30, 2008:
      No adjustments
    For the Year Ended April 30, 2007:
      (1) $5,187 executive compensation contract termination charge recorded
          in Q4'07
      (2) Credit adjustment to previously recorded lease restructuring
          reserve recorded in Q4'07
      (3) Tax effect related to net operating expense adjustments of $4,581

SOURCE Korn/Ferry International
CONTACT: Investor Relations, Stephen Giusto, +1-310-843-4144, or Gregg
Kvochak, +1-310-556-8550, or Media, Stephanie Mitchell, +1-650-508-7465, all
of Korn/Ferry International
Web site: http://www.kornferry.com

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