Investor Relations

Press Release

Korn/Ferry International Announces Second Quarter Fiscal 2009 Earnings

December 10, 2008

Highlights

- Second quarter fiscal 2009 diluted earnings per share was $0.30 compared to $0.37 in Q2'08.

- Second quarter fiscal 2009 fee revenue was $189.3 million, compared to $195.9 million in the same quarter last year.

LOS ANGELES, Dec. 10 /PRNewswire-FirstCall/ -- Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced second quarter fiscal 2009 diluted earnings per share of $0.30 compared to $0.37 in Q2'08.

"Given the difficult economic environment, we are relatively pleased with our results for the second quarter," said Gary D. Burnison, CEO, Korn/Ferry. "However, recently the climate has grown increasingly challenging for our clients. Thanks to the breadth of our offerings we are well positioned to help them manage their human capital strategies through this downturn. Fortunately, we are navigating from a position of strength with $280 million of cash and marketable securities on our balance sheet, no debt, a globally recognized brand and a team of leading colleagues around the world. We plan to maneuver through this volatility seizing opportunity and taking market share."



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

                                   Second Quarter       Year to date
                                   Q2'09     Q2'08     Q2'09     Q2'08
    Fee Revenue                   $189.3    $195.9    $395.0    $381.2
    Revenue                       $199.7    $206.8    $417.2    $403.1
    Operating Income               $21.5     $25.4     $45.2     $50.5
    Operating Margin                11.4%     13.0%     11.5%     13.2%
    Net Income                     $13.6     $17.1     $29.5     $34.2
    Basic Earnings Per Share       $0.31     $0.38     $0.68     $0.76
    Diluted Earnings Per Share     $0.30     $0.37     $0.66     $0.74


Fee revenue was $189.3 million in Q2'09 compared to $195.9 million in Q2'08, a decrease of 3.4%. Fee revenue declined due to a decrease in executive search revenues in all geographies offset by an increase in Futurestep revenues. The global economic and financial crisis resulted in a decline in the number of executive search engagements opened compared to a year ago and the average fee billed per executive search engagement decreased by 4.5% compared to the prior year. Changes in exchange rates impacted fee revenue in Q2'09 unfavorably by $1.3 million from Q2'08 and excluding this unfavorable impact revenues decreased 2.7% over the prior year's second quarter.

Compensation and benefits were $129.7 million in Q2'09, a decrease of $0.7 million compared to $130.4 million in Q2'08. The decrease is primarily attributable to a reduction in profitability based compensation.

General and administrative expenses were $32.3 million in Q2'09 a decrease of $1.9 million, or 5.6% from $34.2 million in Q2'08. The decrease is primarily attributable to cost reduction efforts and realized gains on foreign exchange transactions.

Operating income was $21.5 million in Q2'09 compared to $25.4 million in Q2'08' a decrease of $3.9 million over Q2'08.

Balance Sheet and Liquidity

Cash, cash equivalents and marketable securities were $279.8 million at October 31, 2008 compared to $242.0 million at October 31, 2007. The increase was due primarily to an increase in cash provided by operating activities offset by Company stock repurchases.

Interest expense was $1.1 million in Q2'09 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. At October 31, 2008, 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
                                   Q2'09    Q2'08     Q2'09     Q2'08
    Fee Revenue                   $160.2   $169.1    $334.8    $328.8
    Revenue                       $167.8   $176.5    $350.7    $343.1
    Operating Income               $26.6    $33.0     $58.3     $65.6
    Operating Margin                16.6%    19.5%     17.4%     20.0%
    Average number of consultants    536      519       529       507
    Engagements (a)                1,669    1,879     3,589     3,653

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


Fee revenue was $160.2 million in Q2'09, a decrease of $8.9 million from $169.1 million in Q2'08. Fee revenue decreased in all regions due to a decrease in the overall number of engagements billed offset by an overall increase in the average fee per engagement. Changes in exchange rates from Q2'08 impacted fee revenue in Q2'09 unfavorably by $0.9 million.

Operating income was $26.6 million in Q2'09 compared to $33.0 million in Q2'08 resulting in a decrease of $6.4 million from the prior year.

    The total number of consultants at October 31, 2008 was 535, an increase
of 12 from October 31, 2007.



    Selected Futurestep Data
    (dollars in millions)

                                   Second Quarter      Year to date
                                   Q2'09    Q2'08     Q2'09    Q2'08
    Fee Revenue                    $29.1    $26.8     $60.3    $52.4
    Revenue                        $31.9    $30.4     $66.5    $60.0
    Operating Income                $1.2     $1.5      $4.1     $3.6
    Operating Margin                 4.2%     5.7%      6.8%     6.9%


Fee revenue was $29.1 million in Q2'09, an increase of $2.3 million, or 8.9%, from $26.8 million in Q2'08. Improvements in fee revenue were driven by an increase in the number of engagements billed, offset by a slight decrease in the average fee per engagement. Changes in exchange rates from Q2'08 impacted fee revenue in Q2'09 unfavorably by $0.4 million.

Operating income was $1.2 million in Q2'09 compared to $1.5 million in Q2'08.

Outlook

Assuming constant foreign exchange rates, Korn/Ferry estimates that third quarter fiscal 2009 fee revenue is likely to be in the range of $140 million to $160 million and diluted earnings per share is likely to be in the range of $0.08 to $0.18, prior to approximately $11 million to $15 million in expenses related to rationalizing the cost structure to the current economic environment. However, due to the current extraordinary economic conditions, the ability to predict new business is more difficult than normal. If new business deteriorates, the Company's results may be below the guidance provided above.

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 90 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 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 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)
                                 (unaudited)

                                        Three Months Ended   Six Months Ended
                                            October 31,        October 31,
                                          2008      2007      2008      2007

    Fee revenue                         $189,300  $195,857  $395,033  $381,210
    Reimbursed out-of-pocket
     engagement expenses                  10,437    10,967    22,176    21,891
      Total revenue                      199,737   206,824   417,209   403,101

    Compensation and benefits            129,748   130,404   271,871   253,390
    General and administrative expense    32,323    34,212    66,353    65,913
    Out-of-pocket engagement expenses     13,297    14,287    28,030    28,414
    Depreciation and amortization          2,881     2,539     5,713     4,889
      Total operating expense            178,249   181,442   371,967   352,606
    Operating income                      21,488    25,382    45,242    50,495

    Interest and other income, net        (1,184)      799      (804)    2,297
      Income before provision for
       income taxes and equity in
       earnings of unconsolidated
       subsidiaries                       20,304    26,181    44,438    52,792
    Provision for income taxes             7,583     9,966    16,876    20,400
    Equity in earnings of
     unconsolidated subsidiaries, net        839       894     1,902     1,817
      Net income                         $13,560   $17,109   $29,464   $34,209

    Basic earnings per common share        $0.31     $0.38     $0.68     $0.76

    Basic weighted average common
     shares outstanding                   43,776    44,529    43,604    44,785

    Diluted earnings per common share      $0.30     $0.37     $0.66     $0.74

    Diluted weighted average common
     shares outstanding                   44,676    45,841    44,590    46,573



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

                                            Three Months Ended
                                                October 31,
                                        2008                  2007
    Fee Revenue:
    Executive recruitment:
      North America                    $91,697              $94,862
      EMEA                              40,486               42,058
      Asia Pacific                      21,187               24,656
      South America                      6,828                7,497
    Total executive recruitment        160,198              169,073
    Futurestep                          29,102               26,784
      Total fee revenue                189,300              195,857
    Reimbursed out-of-pocket
     engagement expenses                10,437               10,967
      Total revenue                   $199,737             $206,824

    Operating Income (Loss):                       Margin               Margin
    Executive recruitment:
      North America                    $16,197     17.7%    $21,388     22.5%
      EMEA                               5,910     14.6%      6,064     14.4%
      Asia Pacific                       3,267     15.4%      4,614     18.7%
      South America                      1,214     17.8%        884     11.8%
    Total executive recruitment         26,588     16.6%     32,950     19.5%
    Futurestep                           1,221      4.2%      1,532      5.7%
    Corporate                           (6,321)              (9,100)
      Total operating income           $21,488     11.4%    $25,382     13.0%


                                               Six Months Ended
                                                 October 31,
                                         2008                  2007

    Fee Revenue:
    Executive recruitment:
      North America                   $185,671             $182,176
      EMEA                              92,076               86,780
      Asia Pacific                      42,590               47,317
      South America                     14,413               12,567
    Total executive recruitment        334,750              328,840
    Futurestep                          60,283               52,370
      Total fee revenue                395,033              381,210
    Reimbursed out-of-pocket
     engagement expenses                22,176               21,891
      Total revenue                   $417,209             $403,101

    Operating Income (Loss):                       Margin               Margin
    Executive recruitment:
      North America                    $34,834     18.8%    $41,179     22.6%
      EMEA                              14,396     15.6%     13,755     15.9%
      Asia Pacific                       6,743     15.8%      9,151     19.3%
      South America                      2,294     15.9%      1,545     12.3%
    Total executive recruitment         58,267     17.4%     65,630     20.0%
    Futurestep                           4,076      6.8%      3,616      6.9%
    Corporate                          (17,101)             (18,751)
      Total operating income           $45,242     11.5%    $50,495     13.2%



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

                                                         As of         As of
                                                       October 31,   April 30,
                                                          2008         2008
                                                       (unaudited)
    ASSETS
    Cash and cash equivalents                           $199,228     $305,296
    Marketable securities                                  2,377        5,940
    Receivables due from clients, net of allowance
     for doubtful accounts of $11,937 and $11,504,
     respectively                                        125,453      119,952
    Income taxes and other receivables                     5,753        7,071
    Deferred income taxes                                  9,714       10,401
    Prepaid expenses                                      24,316       20,057
             Total current assets                        366,841      468,717

    Marketable securities, non-current                    78,237       78,026
    Property and equipment, net                           31,504       32,462
    Cash surrender value of company owned life
     insurance policies, net of loans                     77,753       81,377
    Deferred income taxes                                 42,258       47,128
    Goodwill                                             124,228      142,699
    Intangible assets, net                                15,243       15,519
    Other assets                                          15,643       14,286
             Total assets                               $751,707     $880,214

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Accounts payable                                     $10,550      $15,309
    Income taxes payable                                   9,270       20,948
    Compensation and benefits payable                    112,872      199,081
    Other accrued liabilities                             32,565       37,120
             Total current liabilities                   165,257      272,458

    Deferred compensation and other retirement plans     101,490      105,719
    Other liabilities                                      4,963        5,903
             Total liabilities                           271,710      384,080

    Shareholders' equity
      Common stock: $0.01 par value, 150,000 shares
       authorized, 56,077 and 54,786 shares issued
       and 44,734 and 44,593 shares outstanding,
       respectively                                      361,938      358,568
      Retained earnings                                  124,478       95,014
      Accumulated other comprehensive income              (5,877)      43,097
             Shareholders' equity                        480,539      496,679
      Less:  Notes receivable from shareholders             (542)        (545)
             Total shareholders' equity                  479,997      496,134
             Total liabilities and shareholders'
              equity                                    $751,707     $880,214

SOURCE Korn/Ferry International -0- 12/10/2008

CONTACT:
Investor Relations, Stephen Giusto, +1-310-843-4144, or Gregg Kvochak, +1-310-556-8550, or
Media, Mike Distefano, +1-310-843-4199, all for Korn|Ferry International/
Web site: http://www.kornferry.com

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