Investor Relations

Press Release

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

March 9, 2011

Highlights
- Third quarter fiscal 2011 fee revenue increased 27% to $186.5 million, compared to $146.8 million in the same quarter last year.
- Q3 FY'11 diluted earnings per share was $0.30, compared to diluted earnings per share of $0.17 in Q3 FY'10. Excluding certain adjustments discussed below, diluted earnings per share was $0.11 in Q3 FY'10.

LOS ANGELES, March 9, 2011 /PRNewswire via COMTEX/ --

Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced third quarter fiscal 2011 diluted earnings per share of $0.30 compared to $0.11 in Q3 FY'10 (excluding a $2.8 million tax benefit and adjustments to previously recorded restructuring charges of $0.3 million). Including these adjustments, diluted earnings per share was $0.17 in Q3 FY'10.

"I continue to be pleased with our performance. The past 90 days brought with it our seventh consecutive quarter of fee revenue growth. We have rebounded substantially faster than the industry," said Gary D. Burnison, CEO of Korn/Ferry International. "Korn/Ferry's ongoing success, in an uneven global economic recovery and multi-speed labor cycle, is a testament to the steadfast efforts of our employees across the globe. We will continue to anchor our Company in helping clients better attract, deploy, develop and reward their workforce through the delivery of enterprise-wide talent management solutions."

Financial Results

(dollars in millions, except per share amounts)



Third Quarter


Year to Date



FY'11


FY'10


FY'11


FY'10


Fee revenue

$ 186.5


$ 146.8


$ 547.0


$ 403.7


Total revenue

$ 194.1


$ 152.9


$ 570.5


$ 422.7


Operating income (loss)

$ 20.5


$ 6.4


$ 59.6


$ (16.3)


Operating margin

11.0

%

4.3

%

10.9

%

(4.1)

%

Net income (loss)

$ 13.9


$ 7.9


$ 38.5


$ (3.6)


Basic earnings (loss) per share

$ 0.31


$ 0.18


$ 0.86


$ (0.08)


Diluted earnings (loss) per share

$ 0.30


$ 0.17


$ 0.84


$ (0.08)











Adjusted Results (a):

Third Quarter


Year to Date



FY'11


FY'10


FY'11


FY'10


Operating income

$ 20.5


$ 6.0


$ 61.7


$ 4.2


Operating margin

11.0

%

4.1

%

11.3

%

1.1

%

Net income

$ 13.9


$ 4.8


$ 39.8


$ 6.8


Basic earnings per share

$ 0.31


$ 0.11


$ 0.88


$ 0.15


Diluted earnings per share

$ 0.30


$ 0.11


$ 0.87


$ 0.15











(a) Adjusted results are non-GAAP financial measures that exclude the following:











Third Quarter


Year to Date



FY'11


FY'10


FY'11


FY'10


Restructuring (reductions) charges

$ --


$ (0.3)


$ 2.1


$ 20.6


Certain tax adjustments (b)

$ --


$ (2.8)


$ --


$ (2.8)











(b)Includes reversal of a reserve previously taken against an uncertain tax position and an increased valuation allowance related to cash repatriations and foreign tax credits

Fee revenue was $186.5 million in Q3 FY'11 compared to $146.8 million in Q3 FY'10, an increase of 27% (or an increase of 28%, or $40.5 million, on a constant currency basis), which reflects increases in fee revenue from all segments of the business driven primarily by an 18% increase in the overall number of engagements billed as well as a 7% increase in the weighted-average fee billed per engagement compared to the year-ago fiscal quarter.

Compensation and benefits were $126.1 million in Q3 FY'11, an increase of $23.4 million, or 23% (on both an actual and constant currency basis), compared to $102.7 million in Q3 FY'10. This increase is attributable mainly to an increase in the variable component of compensation when compared to the year-ago fiscal quarter and an increase in worldwide headcount. Variable compensation was lower in Q3 FY'10 compared to Q3 FY'11 due to the challenging economic conditions in Q3 FY'10.

General and administrative expenses were $31.5 million in Q3 FY'11 and $31.6 million in Q3 FY'10. Changes in exchange rates impacted general and administrative expenses in Q3 FY'11 favorably by $0.3 million compared to Q3 FY'10.

Operating income was $20.5 million in Q3 FY'11 compared to $6.4 million in Q3 FY'10 (or $6.0 million excluding recoveries of previously recorded restructuring charges in Q3 FY'10), an increase of $14.1 million (or $14.5 million excluding recoveries of previously recorded restructuring charges in Q3 FY'10).

Balance Sheet and Liquidity

Cash and marketable securities were $303.6 million at January 31, 2011 compared to $296.5 million at April 30, 2010. Cash and marketable securities include $68.6 million and $69.0 million, held in trust for deferred compensation plans, at January 31, 2011 and April 30, 2010, respectively. Cash and marketable securities increased by $7.1 million from April 30, 2010, mainly due to cash provided by operating activities partially offset by bonuses earned in FY'10 and paid in FY'11.

Results by Segment


Selected Executive Recruitment Data

(dollars in millions)



Third Quarter


Year to Date



FY'11


FY'10


FY'11


FY'10


Fee revenue

$ 163.1


$ 129.2


$ 482.1


$ 353.8


Total revenue

$ 169.6


$ 134.3


$ 501.5


$ 369.2


Operating income

$ 29.1


$ 18.5


$ 80.7


$ 15.1


Operating margin

17.8

%

14.3

%

16.7

%

4.3

%










Ending number of consultants

474


483


474


483


Average number of consultants

475


490


475


486


Engagements billed

3,930


3,281


8,853


6,786


New engagements (a)

1,914


1,683


5,774


4,580











Adjusted Results (b):

Third Quarter


Year to Date



FY'11


FY'10


FY'11


FY'10


Operating income

$ 29.1


$ 18.5


$ 82.9


$ 38.5


Operating margin

17.8

%

14.3

%

17.2

%

10.9

%



(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 and $23.4 million during the nine months ended January 31, 2011 and 2010, respectively (see attached reconciliations). There were no adjustments during the three months ended January 31, 2011 and 2010.

Fee revenue was $163.1 million in Q3 FY'11, an increase of $33.9 million ($34.7 million on a constant currency basis), or 26%, when compared to fee revenue of $129.2 million in Q3 FY'10. Fee revenue increased in all regions due to a 20% increase in the number of executive recruitment engagements billed and a 5% increase in the weighted-average fee per engagement billed when compared to Q3 FY'10.

Operating income was $29.1 million in Q3 FY'11 compared to $18.5 million in Q3 FY'10.

The total number of consultants at January 31, 2011 was 474, a decrease of 9 from January 31, 2010.

Selected Futurestep Data

(dollars in millions)



Third Quarter


Year to Date



FY'11


FY'10


FY'11


FY'10


Fee revenue

$ 23.4


$ 17.6


$ 64.9


$ 49.9


Total revenue

$ 24.5


$ 18.6


$ 69.0


$ 53.5


Operating income

$ 1.3


$ 0.6


$ 3.5


$ 2.4


Operating margin

5.4

%

3.2

%

5.3

%

4.7

%










Adjusted Results (a):

Third Quarter


Year to Date



FY'11


FY'10


FY'11


FY'10


Operating income (loss)

$ 1.3


$ 0.2


$ 3.4


$ (0.5)


Operating margin

5.4

%

1.1

%

5.2

%

(1.0)

%



(a) Adjusted results are non-GAAP financial measures that exclude recoveries of restructuring charges of $0.1 million and $2.8 million during nine months ended January 31, 2011 and 2010, respectively. Adjusted results for the three months ended January 31, 2010 exclude recoveries of restructuring charges of $0.3 million (see attached reconciliations). There were no adjustments during the three months ended January 31, 2011.

Fee revenue was $23.4 million in Q3 FY'11, an increase of $5.8 million, or 33%, from $17.6 million in Q3 FY'10. The improvement in fee revenue was driven by a 16% increase in the weighted-average fee billed per engagement, as well as a 14% increase in the number of engagements billed.

Operating income was $1.3 million in Q3 FY'11 compared to $0.6 million in Q3 FY'10. Q3 FY'10 operating income includes recoveries of restructuring costs of $0.3 million which primarily relates to lower facility lease costs than originally recorded; without which operating income would have been $0.2 million.

Outlook

Assuming constant foreign exchange rates, stable economic conditions and steady financial markets, Q4 FY'11 fee revenue is likely to be in the range of $183 million to $197 million and diluted earnings per share is likely to be in the range of $0.30 to $0.36.

Earnings Conference Call Webcast

The earnings conference call will be held today at 1:00 PM (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, deploy, develop and reward 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. The statements, which include words such as "believes", "expects" or "likely" include references to our outlook. 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,maintaining our brand name and professional reputation, potential legal liability, the portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to the growth, alignment of our cost structure with our growth, restrictions imposed by off-limits agreements, reliance on information processing systems, our ability to enhance and develop new technology, the successful integration of acquired businesses, our ability to develop new products and services, impairment of goodwill and other intangible assets, deferred tax assets 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:

  • adjusted operating income (loss) and operating margin, adjusted to exclude charges (recoveries) of restructuring charges, net;
  • adjusted net income (loss), adjusted to exclude charges (recoveries) of restructuring charges, net and certain tax adjustments;
  • adjusted basic and diluted earnings (loss) per share, adjusted to exclude charges (recoveries) of restructuring charges, net and certain tax adjustments; 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

Nine Months Ended



January 31,


January 31,



2011


2010


2011


2010



(unaudited)

Fee revenue


$ 186,489


$ 146,742


$ 546,951


$ 403,690

Reimbursed out-of-pocket engagement expenses


7,620


6,158


23,524


19,054

Total revenue


194,109


152,900


570,475


422,744










Compensation and benefits


126,088


102,654


373,851


295,115

General and administrative expenses


31,534


31,635


87,512


86,853

Out-of-pocket engagement expenses


12,756


9,837


38,092


28,090

Depreciation and amortization


3,239


2,755


9,351


8,444

Restructuring (reductions) charges, net


-


(364)


2,130


20,593

Total operating expenses


173,617


146,517


510,936


439,095










Operating income (loss)


20,492


6,383


59,539


(16,351)










Interest and other income, net


1,547


893


895


5,364

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









and equity in earnings of unconsolidated subsidiaries


22,039


7,276


60,434


(10,987)

Income tax provision (benefit)


8,598


(244)


23,407


(6,730)

Equity in earnings of unconsolidated subsidiaries, net


534


390


1,508


639

Net income (loss)


$ 13,975


$ 7,910


$ 38,535


$ (3,618)










Earnings (loss) per common share:









Basic


$ 0.31


$ 0.18


$ 0.86


$ (0.08)

Diluted


$ 0.30


$ 0.17


$ 0.84


$ (0.08)










Weighted-average common shares outstanding:









Basic


45,349


44,622


45,040


44,290

Diluted


46,720


45,811


46,026


44,290

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)




















Three Months Ended


Nine Months Ended



January 31,


January 31,



2011




2010


% Change


2011




2010


% Change


















Fee Revenue:
















Executive recruitment:

















North America

$ 94,991




$ 70,187


35%


$ 279,032




$ 193,709


44%


EMEA

40,068




36,643


9%


113,760




101,240


12%


Asia Pacific

20,445




16,503


24%


65,685




42,437


55%


South America

7,638




5,829


31%


23,602




16,396


44%

Total executive recruitment

163,142




129,162


26%


482,079




353,782


36%

Futurestep

23,347




17,580


33%


64,872




49,908


30%


Total fee revenue

186,489




146,742


27%


546,951




403,690


35%

Reimbursed out-of-pocket engagement expenses

7,620




6,158


24%


23,524




19,054


23%


Total revenue

$ 194,109




$ 152,900


27%


$ 570,475




$ 422,744


35%



































Adjusted Operating Income (Loss):
















(Excluding Restructuring Charges)



Margin




Margin




Margin




Margin

Executive recruitment:

















North America

$ 21,650


22.8%


$ 13,353


19.0%


$ 60,580


21.7%


$ 28,810


14.9%


EMEA

3,360


8.4%


2,935


8.0%


9,066


8.0%


5,909


5.8%


Asia Pacific

2,487


12.2%


1,203


7.3%


7,117


10.8%


2,239


5.3%


South America

1,559


20.4%


1,010


17.3%


6,136


26.0%


1,526


9.3%

Total executive recruitment

29,056


17.8%


18,501


14.3%


82,899


17.2%


38,484


10.9%

Futurestep

1,268


5.4%


191


1.1%


3,341


5.2%


(483)


(1.0%)

Corporate (1)

(9,832)




(12,673)




(24,571)




(33,759)




Total adjusted operating income (loss)

$ 20,492


11.0%


$ 6,019


4.1%


$ 61,669


11.3%


$ 4,242


1.1%



































Restructuring (Reductions) Charges, net:
















Executive recruitment:

















North America

$ -


0.0%


$ -


0.0%


$ (340)


(0.1%)


$ (1,279)


(0.6%)


EMEA

-


0.0%


-


0.0%


2,569


2.3%


24,798


24.5%


Asia Pacific

-


0.0%


-


0.0%


-


0.0%


87


0.2%


South America

-


0.0%


-


0.0%


-


0.0%


(173)


(1.1%)

Total executive recruitment

-


0.0%


-


0.0%


2,229


0.5%


23,433


6.6%

Futurestep

-


0.0%


(364)


(2.1%)


(99)


(0.1%)


(2,840)


(5.7%)

Corporate

-




-




-




-




Total restructuring (reductions) charges, net

$ -


0.0%


$ (364)


(0.2%)


$ 2,130


0.4%


$ 20,593


5.2%



































Operating Income (Loss):



Margin




Margin




Margin




Margin

Executive recruitment:

















North America

$ 21,650


22.8%


$ 13,353


19.0%


$ 60,920


21.8%


$ 30,089


15.5%


EMEA

3,360


8.4%


2,935


8.0%


6,497


5.7%


(18,889)


(18.7%)


Asia Pacific

2,487


12.2%


1,203


7.3%


7,117


10.8%


2,152


5.1%


South America

1,559


20.4%


1,010


17.3%


6,136


26.0%


1,699


10.4%

Total executive recruitment

29,056


17.8%


18,501


14.3%


80,670


16.7%


15,051


4.3%

Futurestep

1,268


5.4%


555


3.2%


3,440


5.3%


2,357


4.7%

Corporate (1)

(9,832)




(12,673)




(24,571)




(33,759)




Total operating income (loss)

$ 20,492


11.0%


$ 6,383


4.3%


$ 59,539


10.9%


$ (16,351)


(4.1%)




































(1) Lower net expenses primarily 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 $1.1 million and $4.9 million during the three and nine months ended January 31, 2011 compared to the three and nine months ended January 31, 2010, respectively.

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)




January 31,


April 30,



2011


2010

ASSETS


(unaudited)



Cash and cash equivalents


$ 181,309


$ 219,233

Marketable securities


19,949


4,114

Receivables due from clients, net of allowance for doubtful accounts





of $9,081 and $5,983, respectively


137,408


107,215

Income taxes and other receivables


11,859


6,292

Deferred income taxes


16,251


20,844

Prepaid expenses and other assets


27,898


23,166

Total current assets


394,674


380,864






Marketable securities, non-current


102,301


73,105

Property and equipment, net


39,903


24,963

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


73,257


69,069

Deferred income taxes


62,385


59,742

Goodwill


176,988


172,273

Intangible assets, net


23,697


25,425

Investments and other assets


34,312


21,657

Total assets


$ 907,517


$ 827,098






LIABILITIES AND STOCKHOLDERS' EQUITY





Accounts payable


$ 11,072


$ 11,148

Income taxes payable


11,786


6,323

Compensation and benefits payable


143,037


131,550

Other accrued liabilities


45,300


49,062

Total current liabilities


211,195


198,083






Deferred compensation and other retirement plans


128,552


123,794

Other liabilities


24,518


13,879

Total liabilities


364,265


335,756






Stockholders' equity





Common stock: $0.01 par value, 150,000 shares authorized, 58,958 and





57,614 shares issued and 46,817 and 45,979 shares outstanding, respectively


398,618


388,717

Retained earnings


128,455


90,220

Accumulated other comprehensive income, net


16,701


12,934

Stockholders' equity


543,774


491,871

Less: notes receivable from stockholders


(522)


(529)

Total stockholders' equity


543,252


491,342

Total liabilities and stockholders' equity


$ 907,517


$ 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



January 31, 2011


January 31, 2010



AsReported


Adjustments


AsAdjusted


AsReported


Adjustments


AsAdjusted





Fee revenue


$ 186,489




$ 186,489


$ 146,742




$ 146,742

Reimbursed out-of-pocket engagement expenses


7,620




7,620


6,158




6,158

Total revenue


194,109




194,109


152,900




152,900














Compensation and benefits


126,088




126,088


102,654




102,654

General and administrative expenses


31,534




31,534


31,635




31,635

Out-of-pocket engagement expenses


12,756




12,756


9,837




9,837

Depreciation and amortization


3,239




3,239


2,755




2,755

Restructuring reductions, net


-


-


-


(364)


364


-

Total operating expenses


173,617


-


173,617


146,517


364


146,881














Operating income


20,492


-


20,492


6,383


(364)


6,019














Interest and other income, net


1,547




1,547


893




893

Income before provision (benefit) for income taxes













andequityinearningsofunconsolidatedsubsidiaries


22,039


-


22,039


7,276


(364)


6,912

Income tax provision (benefit) (1) (2)


8,598


-


8,598


(244)


2,698


2,454

Equity in earnings of unconsolidated subsidiaries, net


534




534


390




390

Net income


$ 13,975


$ -


$ 13,975


$ 7,910


$ (3,062)


$ 4,848














Earnings per common share:













Basic


$ 0.31




$ 0.31


$ 0.18




$ 0.11

Diluted


$ 0.30




$ 0.30


$ 0.17




$ 0.11














Weighted-average common shares outstanding:













Basic


45,349




45,349


44,622




44,622

Diluted


46,720




46,720


45,811




45,811














Explanation of Non-GAAP Adjustments













(1) Calculated using an annual effective tax rate of 39% and 36%, adjusted for the three months ended January 31, 2011 and 2010, respectively.

(2) The three months ended January 31, 2010 includes reversal of a reserve previously taken against an uncertain tax position

and an increased valuation allowance related to cash repatriations and foreign tax credits.

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)
















Nine Months Ended


Nine Months Ended



January 31, 2011


January 31, 2010



AsReported


Adjustments


AsAdjusted


AsReported


Adjustments


AsAdjusted





Fee revenue


$ 546,951




$ 546,951


$ 403,690




$ 403,690

Reimbursed out-of-pocket engagement expenses


23,524




23,524


19,054




19,054

Total revenue


570,475




570,475


422,744




422,744














Compensation and benefits


373,851




373,851


295,115




295,115

General and administrative expenses


87,512




87,512


86,853




86,853

Out-of-pocket engagement expenses


38,092




38,092


28,090




28,090

Depreciation and amortization


9,351




9,351


8,444




8,444

Restructuring charges, net


2,130


(2,130)


-


20,593


(20,593)


-

Total operating expenses


510,936


(2,130)


508,806


439,095


(20,593)


418,502














Operating income (loss)


59,539


2,130


61,669


(16,351)


20,593


4,242














Interest and other income, net


895




895


5,364




5,364

Income(loss)beforeprovision(benefit)forincometaxes













and equity in earnings of unconsolidated subsidiaries


60,434


2,130


62,564


(10,987)


20,593


9,606

Income tax provision (benefit) (1) (2)


23,407


821


24,228


(6,730)


10,140


3,410

Equity in earnings of unconsolidated subsidiaries, net


1,508




1,508


639




639

Net income (loss)


$ 38,535


$ 1,309


$ 39,844


$ (3,618)


$ 10,453


$ 6,835














Earnings (loss) per common share:













Basic


$ 0.86




$ 0.88


$ (0.08)




$ 0.15

Diluted


$ 0.84




$ 0.87


$ (0.08)




$ 0.15














Weighted-average common shares outstanding:













Basic


45,040




45,040


44,290




44,290

Diluted


46,026




46,026


44,290




45,209














Explanation of Non-GAAP Adjustments














(1) Calculated using an annual effective tax rate of 39% and 36%, adjusted for the nine months ended January 31, 2011 and 2010, respectively.

(2) The nine months ended January 31, 2010 includes reversal of a reserve previously taken against an uncertain tax position

and an increased valuation allowance related to cash repatriations and foreign tax credits.

SOURCE Korn/Ferry International

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