Investor Relations

Press Release

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

December 8, 2010

Highlights
- Second quarter fiscal 2011 fee revenue increased 32% to $185.4 million, compared to $140.1 million in the same quarter last year.
- Q2 FY'11 diluted earnings per share, excluding net adjustments to previously recorded restructuring charges was $0.33, compared to diluted earnings per share of $0.09 in Q2 FY'10. Including net restructuring charges, Q2 FY'11 diluted earnings per share was $0.30 compared to $0.06 in Q2 FY'10.

LOS ANGELES, Dec. 8, 2010 /PRNewswire via COMTEX/ --

Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced Q2 FY'11 diluted earnings per share of $0.33 compared to $0.09 in Q2 FY'10 (excluding net adjustments to previously recorded restructuring charges of $2.1 million and $2.8 million, respectively). Diluted earnings per share was $0.30 and $0.06 in Q2 FY'11 and Q2 FY'10, respectively.

"As evidenced by our sixth consecutive sequential fee revenue increase, our clients are increasingly turning to Korn/Ferry for a variety of their most important human capital needs," said Gary D. Burnison, CEO of Korn/Ferry International. "After meeting with many of our clients' CEOs over the last several months, it's evident that we are experiencing a two-speed labor recovery - global vs. local. Global enterprises are investing, hiring and expanding, while organizations more reliant on Western economies for growth have remained more cautious. Overall, I'm very pleased with our organization's results this quarter, which validate our strategy of helping clients achieve extraordinary performance through people."

Financial Results

(dollars in millions, except per share amounts)


Second Quarter


Year to Date



FY'11


FY'10


FY'11


FY'10


Fee revenue

$ 185.4


$ 140.1


$ 360.5


$ 256.9


Total revenue

$ 193.2


$ 146.5


$ 376.4


$ 269.8


Operating income (loss)

$ 19.8


$ 2.3


$ 39.1


$ (22.7)


Operating margin

10.7

%

1.6

%

10.8

%

(8.8)

%

Net income (loss)

$ 13.7


$ 2.8


$ 24.6


$ (11.5)


Basic earnings (loss) per share

$ 0.30


$ 0.06


$ 0.55


$ (0.26)


Diluted earnings (loss) per share

$ 0.30


$ 0.06


$ 0.53


$ (0.26)











Adjusted Results (a):

Second Quarter


Year to Date



FY'11


FY'10


FY'11


FY'10


Operating income (loss)

$ 21.9


$ 5.0


$ 41.2


$ (1.8)


Operating margin

11.8

%

3.6

%

11.4

%

(0.7)

%

Net income

$ 15.0


$ 4.3


$ 25.9


$ 2.0


Basic earnings per share

$ 0.33


$ 0.10


$ 0.58


$ 0.05


Diluted earnings per share

$ 0.33


$ 0.09


$ 0.56


$ 0.04






(a) Adjusted results are non-GAAP financial measures that exclude restructuring charges, net of recoveries, of $2.1 million during the three and six months ended October 31, 2010. Comparative results exclude restructuring charges, net of recoveries, of $2.8 million and $21.0 million during the three and six months ended October 31, 2009, respectively (see attached reconciliations).

Fee revenue was $185.4 million in Q2 FY'11 compared to $140.1 million in Q2 FY'10, an increase of 32% (or an increase of 33%, or $45.7 million, on a constant currency basis), which reflects increases in revenue from all segments of the business driven primarily by a 28% increase in the number of executive recruitment engagements billed as well as a 4% (5% 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 6% increase in fee revenue compared to Q1 FY'11.

Compensation and benefits were $127.6 million in Q2 FY'11, an increase of $25.5 million, or 25%, compared to $102.1 million in Q2 FY'10. This increase is attributable mainly to an increase in the variable component of compensation when compared to the year-ago fiscal quarter. Compensation and benefits were lower in Q2 FY'10 compared to Q2 FY'11 due to the challenging economic conditions in Q2 FY'10.

General and administrative expenses were $27.4 million in Q2 FY'11, an increase of $0.2 million, or 1% from $27.2 million in Q2 FY'10. This increase is due primarily to an increase in bad debt provisions as a result of higher revenues and accounts receivable, a decrease in unrealized net foreign exchange gains, partially offset by a fair value contingent consideration adjustment from a prior acquisition. Changes in exchange rates impacted general and administrative expenses in Q2 FY'11 favorably by $0.4 million compared to Q2 FY'10.

Operating income was $19.8 million in Q2 FY'11 compared to $2.3 million in Q2 FY'10, an increase of $17.5 million. Excluding restructuring charges of $2.1 million in Q2 FY'11 and $2.8 million in Q2 FY'10, operating income was $21.9 million in Q2 FY'11 and $5.0 million in Q2 FY'10, an increase of $16.9 million.

Balance Sheet and Liquidity

Cash and marketable securities were $264.7 million at October 31, 2010 compared to $296.5 million at April 30, 2010. Cash and marketable securities include $67.0 million and $69.0 million, held in trust for deferred compensation plans, at October 31, 2010 and April 30, 2010, respectively. Cash and marketable securities decreased by $31.8 million from April 30, 2010, mainly due to the payment of FY'10 annual bonuses in Q1 FY'11, partially offset by cash provided by operating activities in Q2 FY'11.

Results by Segment

Selected Executive Recruitment Data

(dollars in millions)


Second Quarter


Year to Date



FY'11


FY'10


FY'11


FY'10


Fee revenue

$ 164.1


$ 123.3


$ 319.0


$ 224.6


Total revenue

$ 170.5


$ 128.3


$ 331.9


$ 234.9


Operating income (loss)

$ 23.9


$ 9.7


$ 51.6


$ (3.4)


Operating margin

14.6

%

7.8

%

16.2

%

(1.5)

%










Ending number of consultants

475


497


475


497


Average number of consultants

477


499


475


486


Engagements billed

3,795


2,981


6,324


4,643


New engagements (a)

1,970


1,578


3,860


2,896











Adjusted Results (b):

Second Quarter


Year to Date



FY'11


FY'10


FY'11


FY'10


Operating income

$ 26.1


$ 14.9


$ 53.8


$ 20.0


Operating margin

15.9

%

12.1

%

16.9

%

8.9

%












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


(b) Adjusted results are non-GAAP financial measures that exclude restructuring charges, net of recoveries, of $2.2 million during the three and six months ended October 31, 2010. Comparative results exclude restructuring charges, net of recoveries, of $5.3 million and $23.4 million during the three and six months ended October 31, 2009, respectively (see attached reconciliations).

Fee revenue was $164.1 million in Q2 FY'11, an increase of $40.8 million ($41.2 million on a constant currency basis), or 33%, when compared to fee revenue of $123.3 million in Q2 FY'10. Fee revenue increased in all regions due to a 28% increase in the overall number of engagements billed and a 4% (5% excluding the impact of exchange rates) increase in the weighted-average fee per engagement billed when compared to Q2 FY'10.

Operating income was $23.9 million in Q2 FY'11 compared to $9.7 million in Q2 FY'10. Excluding restructuring charges of $2.2 million in Q2 FY'11 and $5.3 million in Q2 FY'10, operating income was $26.1 million and $14.9 million, respectively, an increase of $11.2 million compared to Q2 FY'10.

The total number of consultants at October 31, 2010 was 475, a decrease of 22 from October 31, 2009.

Selected Futurestep Data

(dollars in millions)


Second Quarter


Year to Date



FY'11


FY'10


FY'11


FY'10


Fee revenue

$ 21.3


$ 16.8


$ 41.5


$ 32.3


Total revenue

$ 22.7


$ 18.2


$ 44.5


$ 34.9


Operating income

$ 1.2


$ 2.6


$ 2.2


$ 1.8


Operating margin

5.6

%

15.5

%

5.2

%

5.6

%










Adjusted Results (a):

Second Quarter


Year to Date



FY'11


FY'10


FY'11


FY'10


Operating income (loss)

$ 1.1


$ 0.1


$ 2.1


$ (0.7)


Operating margin

5.1

%

0.8

%

5.0

%

(2.1)

%





(a)Adjusted results are non-GAAP financial measures that exclude recoveries of restructuring charges of $0.1 million during each of the three and six months ended October 31, 2010. Comparative results exclude restructuring charges, net of recoveries, of $2.5 million during each of the three and six months ended October 31, 2009, respectively (see attached reconciliations).

Fee revenue was $21.3 million in Q2 FY'11, an increase of $4.5 million (also $4.5 million on a constant currency basis), or 27%, from $16.8 million in Q2 FY'10. The improvement in fee revenue was driven by a 30% increase in the overall number of engagements billed, partially offset by a 3% decrease in the weighted-average fee billed per engagement.

Operating income was $1.2 million in Q2 FY'11 compared to $2.6 million in Q2 FY'10. Operating income includes recovery of restructuring costs of $0.1 million and $2.5 million, during Q2 FY'11 and Q2 FY'10, respectively, which in Q2 FY'10 primarily relates to lower facility lease costs than originally recorded; without which operating income would have been $1.1 million and $0.1 million, respectively.

Outlook

Assuming constant foreign exchange rates, stable economic conditions and steady financial markets, Q3 FY'11 fee revenue is likely to be in the range of $175 million to $190 million and diluted earnings per share is likely to be in the range of $0.25 to $0.32.

Earnings Conference Call Webcast

The earnings conference call will be held today at 9:00 AM (EST) 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


Six Months Ended



October 31,


October 31,



2010


2009


2010


2009



(unaudited)

Fee revenue


$ 185,350


$ 140,145


$ 360,462


$ 256,948

Reimbursed out-of-pocket engagement expenses


7,854


6,411


15,904


12,896

Total revenue


193,204


146,556


376,366


269,844










Compensation and benefits


127,555


102,076


247,763


192,461

General and administrative expenses


27,363


27,164


55,978


55,218

Out-of-pocket engagement expenses


13,237


9,464


25,336


18,253

Depreciation and amortization


3,144


2,860


6,112


5,689

Restructuring charges, net


2,130


2,774


2,130


20,957

Total operating expenses


173,429


144,338


337,319


292,578










Operating income (loss)


19,775


2,218


39,047


(22,734)










Interest and other income (loss), net


1,657


1,180


(652)


4,471

Income (loss) before provision (benefit) for income taxes









and equity in earnings of unconsolidated subsidiaries


21,432


3,398


38,395


(18,263)

Income tax provision (benefit)


8,288


879


14,809


(6,486)

Equity in earnings of unconsolidated subsidiaries, net


512


226


974


249

Net income (loss)


$ 13,656


$ 2,745


$ 24,560


$ (11,528)










Earnings (loss) per common share:









Basic


$ 0.30


$ 0.06


$ 0.55


$ (0.26)

Diluted


$ 0.30


$ 0.06


$ 0.53


$ (0.26)










Weighted-average common shares outstanding:









Basic


45,130


44,470


44,886


44,123

Diluted


45,918


45,291


46,061


44,123

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)




















Three Months Ended


Six Months Ended



October 31,


October 31,



2010




2009


% Change


2010




2009


% Change


















Fee Revenue:
















Executive recruitment:

















North America

$ 94,066




$ 68,230


38%


$ 184,041




$ 123,522


49%


EMEA

37,424




35,376


6%


73,692




64,597


14%


Asia Pacific

24,098




13,563


78%


45,240




25,934


74%


South America

8,478




6,122


38%


15,964




10,567


51%

Total executive recruitment

164,066




123,291


33%


318,937




224,620


42%

Futurestep

21,284




16,854


26%


41,525




32,328


28%


Total fee revenue

185,350




140,145


32%


360,462




256,948


40%

Reimbursedout-of-pocketengagementexpenses

7,854




6,411


23%


15,904




12,896


23%


Total revenue

$ 193,204




$ 146,556


32%


$ 376,366




$ 269,844


39%



































Adjusted Operating Income (Loss):
















(Excluding Restructuring Charges)



Margin




Margin




Margin




Margin

Executive recruitment:

















North America

$ 19,255


20.5%


$ 11,250


16.5%


$ 38,930


21.2%


$ 15,457


12.5%


EMEA

2,653


7.1%


2,411


6.8%


5,706


7.7%


2,974


4.6%


Asia Pacific

1,561


6.5%


61


0.4%


4,630


10.2%


1,036


4.0%


South America

2,698


31.8%


1,202


19.6%


4,577


28.7%


516


4.9%

Total executive recruitment

26,167


15.9%


14,924


12.1%


53,843


16.9%


19,983


8.9%

Futurestep

1,084


5.1%


141


0.8%


2,073


5.0%


(674)


(2.1%)

Corporate (1)

(5,346)




(10,073)




(14,739)




(21,086)




Total adjusted operating income (loss)

$ 21,905


11.8%


$ 4,992


3.6%


$ 41,177


11.4%


$ (1,777)


(0.7%)



































Restructuring Charges (Reductions), net:
















Executive recruitment:

















North America

$ (340)


(0.3%)


$ (1,279)


(1.9%)


$ (340)


(0.1%)


$ (1,279)


(1.0%)


EMEA

2,569


6.9%


6,615


18.7%


2,569


3.4%


24,798


38.4%


Asia Pacific

-


0.0%


87


0.6%


-


0.0%


87


0.3%


South America

-


0.0%


(173)


(2.9%)


-


0.0%


(173)


(1.6%)

Total executive recruitment

2,229


1.3%


5,250


4.3%


2,229


0.7%


23,433


10.4%

Futurestep

(99)


(0.5%)


(2,476)


(14.7%)


(99)


(0.2%)


(2,476)


(7.7%)

Corporate

-




-




-




-




Totalrestructuringcharges(reductions),net

$ 2,130


1.1%


$ 2,774


2.0%


$ 2,130


0.6%


$ 20,957


8.1%



































Operating Income (Loss):



Margin




Margin




Margin




Margin

Executive recruitment:

















North America

$ 19,595


20.8%


$ 12,529


18.4%


$ 39,270


21.3%


$ 16,736


13.5%


EMEA

84


0.2%


(4,204)


(11.9%)


3,137


4.3%


(21,824)


(33.8%)


Asia Pacific

1,561


6.5%


(26)


(0.2%)


4,630


10.2%


949


3.7%


South America

2,698


31.8%


1,375


22.5%


4,577


28.7%


689


6.5%

Total executive recruitment

23,938


14.6%


9,674


7.8%


51,614


16.2%


(3,450)


(1.5%)

Futurestep

1,183


5.6%


2,617


15.5%


2,172


5.2%


1,802


5.6%

Corporate (1)

(5,346)




(10,073)




(14,739)




(21,086)




Total operating income (loss)

$ 19,775


10.7%


$ 2,218


1.6%


$ 39,047


10.8%


$ (22,734)


(8.8%)



































(1) Improvement primarily due to a decrease in net expenses related to the change in amounts due under deferred compensation plans determined by an increase (or decrease ) in market values, and adjustment to the fair value of contingent consideration for a prior acquisition, totaling $4.3 million and $3.8 million during the three and six months ended October 31, 2010 compared to the three and six months ended October 31, 2009, respectively.

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)




October 31,


April 30,



2010


2010

ASSETS


(unaudited)



Cash and cash equivalents


$ 151,118


$ 219,233

Marketable securities


16,189


4,114

Receivables due from clients, net of allowance for doubtful accounts





of $8,106 and $5,983, respectively


145,043


107,215

Income taxes and other receivables


8,476


6,292

Deferred income taxes


21,375


20,844

Prepaid expenses and other assets


27,940


23,166

Total current assets


370,141


380,864






Marketable securities, non-current


97,410


73,105

Property and equipment, net


37,470


24,963

Cash surrender value of company owned life insurance policies, net of loans


71,929


69,069

Deferred income taxes


53,526


59,742

Goodwill


177,562


172,273

Intangible assets, net


24,310


25,425

Investments and other assets


31,931


21,657

Total assets


$ 864,279


$ 827,098






LIABILITIES AND STOCKHOLDERS' EQUITY





Accounts payable


$ 11,308


$ 11,148

Income taxes payable


8,487


6,323

Compensation and benefits payable


121,894


131,550

Other accrued liabilities


50,762


49,062

Total current liabilities


192,451


198,083






Deferred compensation and other retirement plans


131,009


123,794

Other liabilities


21,706


13,879

Total liabilities


345,166


335,756






Stockholders' equity





Common stock: $0.01 par value, 150,000 shares authorized, 58,548 and





57,614 shares issued and 46,388 and 45,979 shares outstanding, respectively


387,909


388,717

Retained earnings


114,780


90,220

Accumulated other comprehensive income, net


16,949


12,934

Stockholders' equity


519,638


491,871

Less: notes receivable from stockholders


(525)


(529)

Total stockholders' equity


519,113


491,342

Total liabilities and stockholders' equity


$ 864,279


$ 827,098

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

RECONCILIATION OF AS REPORTED (GAAP) TO AS ADJUSTED (NON-GAAP)

(in thousands, except per share amounts)

(unaudited)





























Three Months Ended


Three Months Ended



October 31, 2010


October 31, 2009



As Reported


Adjustments


As Adjusted


As Reported


Adjustments


As Adjusted





Fee revenue


$ 185,350




$ 185,350


$ 140,145




$ 140,145

Reimbursed out-of-pocket engagement expenses


7,854




7,854


6,411




6,411

Total revenue


193,204




193,204


146,556




146,556














Compensation and benefits


127,555




127,555


102,076




102,076

General and administrative expenses


27,363




27,363


27,164




27,164

Out-of-pocket engagement expenses


13,237




13,237


9,464




9,464

Depreciation and amortization


3,144




3,144


2,860




2,860

Restructuring charges, net


2,130


(2,130)


-


2,774


(2,774)


-

Total operating expenses


173,429


(2,130)


171,299


144,338


(2,774)


141,564














Operating income


19,775


2,130


21,905


2,218


2,774


4,992














Interest and other income, net


1,657




1,657


1,180




1,180

Income before provision for income taxes













andequityinearningsofunconsolidatedsubsidiaries


21,432


2,130


23,562


3,398


2,774


6,172

Income tax provision (1)


8,288


821


9,109


879


1,260


2,139

Equity inearningsofunconsolidatedsubsidiaries,net


512




512


226




226

Net income


$ 13,656


$ 1,309


$ 14,965


$ 2,745


$ 1,514


$ 4,259














Earnings per common share:













Basic


$ 0.30




$ 0.33


$ 0.06




$ 0.10

Diluted


$ 0.30




$ 0.33


$ 0.06




$ 0.09














Weighted-average common shares outstanding:













Basic


45,130




45,130


44,470




44,470

Diluted


45,918




45,918


45,291




45,291














Explanation of Non-GAAP Adjustments

(1) Calculated using an annual effective tax rate of 39% and 35% on operating expenses, adjusted for the three months ended October 31, 2010 and 2009, respectively.


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

RECONCILIATION OF AS REPORTED (GAAP) TO AS ADJUSTED (NON-GAAP)

(in thousands, except per share amounts)

(unaudited)





























Six Months Ended


Six Months Ended



October 31, 2010


October 31, 2009



As Reported


Adjustments


As Adjusted


As Reported


Adjustments


As Adjusted





Fee revenue


$ 360,462




$ 360,462


$ 256,948




$ 256,948

Reimbursed out-of-pocket engagement expenses


15,904




15,904


12,896




12,896

Total revenue


376,366




376,366


269,844




269,844














Compensation and benefits


247,763




247,763


192,461




192,461

General and administrative expenses


55,978




55,978


55,218




55,218

Out-of-pocket engagement expenses


25,336




25,336


18,253




18,253

Depreciation and amortization


6,112




6,112


5,689




5,689

Restructuring charges, net


2,130


(2,130)


-


20,957


(20,957)


-

Total operating expenses


337,319


(2,130)


335,189


292,578


(20,957)


271,621














Operating income (loss)


39,047


2,130


41,177


(22,734)


20,957


(1,777)














Interest and other (loss) income, net


(652)




(652)


4,471


-


4,471

Income (loss) before provision (benefit) for income taxes













andequityinearningsofunconsolidatedsubsidiaries


38,395


2,130


40,525


(18,263)


20,957


2,694

Income tax provision (benefit) (1)


14,809


821


15,630


(6,486)


7,442


956

Equity in earnings of unconsolidated subsidiaries, net


974




974


249




249

Net income (loss)


$ 24,560


$ 1,309


$ 25,869


$ (11,528)


$ 13,515


$ 1,987














Earnings (loss) per common share:













Basic


$ 0.55




$ 0.58


$ (0.26)




$ 0.05

Diluted


$ 0.53




$ 0.56


$ (0.26)




$ 0.04














Weighted-average common shares outstanding:













Basic


44,886




44,886


44,123




44,123

Diluted


46,061




46,061


44,123




44,824














Explanation of Non-GAAP Adjustments

(1) Calculated using an annual effective tax rate of 39% and 35% on operating expenses, adjusted for the six months ended October 31, 2010 and 2009, respectively.


SOURCE Korn/Ferry International

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