PRESS RELEASE
Published on June 6, 2006
Exhibit 99.1
For Immediate Release
Contacts: For investors:
Gary Burnison (310) 226-2613
For media:
Anneli Ballard (212) 984-9350
Korn/Ferry International announces a 17% increase in Fee
Revenue in the Fourth Quarter
Highlights
| | Fourth quarter fiscal 2006 fee revenue of $145.3 million increased $21.3 million, or 17%, from $124.0 million in the same quarter last year. Fiscal 2006 fee revenue was $522.9 million, an increase of $70.7 million, or 16%, from $452.2 million in the prior year. |
| | Adjusted fourth quarter fiscal 2006 diluted earnings per share was $0.31, which excludes the effect of a previously announced $6.5 million one time tax benefit, an increase of 15% over Q405 diluted earnings per share of $0.27. Q406 actual diluted earnings per share was $0.45 compared to $0.27 in the prior year fourth quarter. |
| | Adjusted fiscal 2006 diluted earnings per share was $1.09 excluding the tax benefit of $6.5 million realized in Q406 and a $4.5 million loss recovery on an investment sold by the company realized in Q306. Actual fiscal 2006 diluted earnings per share was $1.32 compared to $0.90 in the prior year. |
Los Angeles, CA, June 6, 2006 - Korn/Ferry International (NYSE:KFY), the leading provider of executive search, outsourced recruiting and leadership development solutions, announced fourth quarter fiscal 2006 diluted earnings per share of $0.45 compared to $0.27 in Q405. Diluted earnings per share was $0.31 in Q406 excluding the effect of a one-time tax benefit of $6.5 million related to an IRS audit settled in the quarter.
As the demand for talent continues to escalate worldwide we have experienced steady and significant growth, said Paul C. Reilly, Chairman and CEO of Korn/Ferry International. Having just completed another record quarter and record year, it is evident that our strategy is working. We are encouraged by the further opportunity which lies ahead.
Financial Results
(dollars in millions, except per share amounts)
| Fourth Quarter | Year to Date | |||||||||||||||
| Q406 | Q405 | FY06 | FY05 | |||||||||||||
| Fee Revenue |
$ | 145.3 | $ | 124.0 | $ | 522.9 | $ | 452.2 | ||||||||
| Revenue |
$ | 152.9 | $ | 131.0 | $ | 551.8 | $ | 476.4 | ||||||||
| Operating Income |
$ | 20.6 | $ | 18.6 | $ | 76.2 | $ | 65.8 | ||||||||
| Operating Margin |
14.2 | % | 15.0 | % | 14.6 | % | 14.5 | % | ||||||||
| Net Income |
$ | 20.3 | $ | 11.7 | $ | 59.4 | $ | 38.6 | ||||||||
| Basic Earnings Per Share |
$ | 0.51 | $ | 0.30 | $ | 1.49 | $ | 1.00 | ||||||||
| Diluted Earnings Per Share |
$ | 0.45 | $ | 0.27 | $ | 1.32 | $ | 0.90 | ||||||||
| Adjusted Results* |
||||||||||||||||
| Net Income |
$ | 13.8 | $ | 11.7 | $ | 48.4 | $ | 38.6 | ||||||||
| Basic Earnings Per Share |
$ | 0.35 | $ | 0.30 | $ | 1.21 | $ | 1.00 | ||||||||
| Diluted Earnings Per Share |
$ | 0.31 | $ | 0.27 | $ | 1.09 | $ | 0.90 | ||||||||
| * | Adjusted results exclude net tax benefits of $6.5 million realized in Q406 and a $4.5 million loss recovery on an investment sold by the company realized in Q306. This is a non-GAAP measure that is provided for comparative purposes and is not intended to replace Net Income or EPS measured in accordance with U.S. Generally Accepted Accounting Principles. |
Fee revenue of $145.3 million in Q406 increased $21.3 million, or 17%, from $124.0 million in Q405. Fee revenue improved globally due to a 20% increase in the number of search engagements opened compared to prior year. Exchange rates impacted fee revenue in Q406 unfavorably by $4.3 million compared to Q405.
Compensation and benefits of $95.1 million in Q406 increased $10.7 million, or 13%, compared to $84.4 million in Q405. The increase is a reflection of higher headcount in North America, Asia and Futurestep, as the Company continues to invest in its operations. Variable compensation also increased due to improved profitability.
General and administrative expense of $25.4 million in Q406 increased by $6.8 million, or 37%, from $18.6 million in Q405 as a result of increased other administrative expense as compared to the same period last year.
Operating income was $20.6 million in Q406, an improvement of $2.0 million, or 11%, compared to $18.6 million in Q405. Operating margin for the quarter decreased slightly to 14.2% from 15.0% in the prior year quarter, due primarily to increased compensation and benefits costs resulting from increased headcount, as well as internal consultant promotions. The Company continues to expand the business across industries worldwide along with recognizing employees who contribute to the Companys overall growth.
The Company repurchased $18.6 million of stock during Q406 under the $50 million stock buyback program announced in December 2005. Through June 1, 2006, the Company has repurchased a total of $27.9 million of stock.
Balance Sheet and Liquidity
Cash, cash equivalents and marketable securities was $278.2 million at April 30, 2006 compared to $206.9 million at April 30, 2005. The increase in cash at April 30, 2006 was due to improved operating cash flow and financing activities.
Interest expense in Q406 was $2.7 million, compared to $2.4 million in the same period last year. Interest expense in both years primarily related to borrowings under Korn/Ferrys convertible securities and COLI policies. At April 30, 2006, Korn/Ferry had no outstanding borrowings under its credit facility.
Results by Segment
Selected Executive Recruitment Data
(dollars in millions)
| Fourth Quarter | Year to Date | |||||||||||||||
| Q406 | Q405 | FY06 | FY05 | |||||||||||||
| Fee Revenue |
$ | 126.7 | $ | 109.1 | $ | 452.7 | $ | 398.3 | ||||||||
| Revenue |
$ | 132.7 | $ | 114.6 | $ | 474.9 | $ | 417.9 | ||||||||
| Operating Income |
$ | 29.4 | $ | 24.6 | $ | 100.7 | $ | 84.1 | ||||||||
| Operating Margin |
23.2 | % | 22.5 | % | 22.2 | % | 21.1 | % | ||||||||
| Average Number of Consultants |
438 | 394 | 419 | 388 | ||||||||||||
| Engagements (a) |
1,750 | 1,536 | 6,291 | 5,710 | ||||||||||||
| (a) | Represents new engagements opened in the respective period. |
Fee revenue was $126.7 million in Q406, an increase of $17.6 million, or 16%, from $109.1 million in Q405. Fee revenue improved in all regions due to an increase in the number of engagements, as compared to the same quarter last year.
Executive recruitment operating income improved $4.8 million in Q406, or 20%, to $29.4 million compared to $24.6 million in Q405. Operating margin for the quarter improved to 23.2% compared to 22.5% in the prior year.
We continue to invest in our people as we continue to secure engagements across various regions and industries. The total number of consultants at April 30, 2006 was 440, an increase of 42 from April 30, 2005.
Selected Futurestep Data
(dollars in millions)
| Fourth Quarter | Year to Date | |||||||||||||||
| Q406 | Q405 | FY06 | FY05 | |||||||||||||
| Fee Revenue |
$ | 18.6 | $ | 14.9 | $ | 70.2 | $ | 53.9 | ||||||||
| Revenue |
$ | 20.3 | $ | 16.4 | $ | 76.8 | $ | 58.5 | ||||||||
| Operating Income (Loss) |
($1.4 | ) | $ | 1.5 | $ | 3.4 | $ | 6.5 | ||||||||
| Operating Margin |
(7.8 | %) | 9.9 | % | 4.8 | % | 12.1 | % | ||||||||
Fee revenue was $18.6 million in Q406, an increase of $3.7 million, or 25%, from $14.9 million in Q405. Improvements in fee revenue were driven by an increase in the number of new engagements opened and continuing development of Futuresteps recruitment process outsourcing operations.
Futurestep had an operating loss of $1.4 million in Q406, a decrease of $2.9 million from operating income of $1.5 million in Q405 primarily due to one-time write offs of certain receivables and personnel related costs as the company has continued to invest in its employees.
Outlook
Assuming constant foreign exchange rates, Korn/Ferry estimates that first quarter fiscal 2007 fee revenue is likely to be in the range of $138 million to $145 million and diluted earnings per share is likely to be in the range of $0.28 to $0.33, excluding FAS123(R) options expense, $0.26 to $0.31 including FAS123(R) options expense.
Earnings Conference Call Webcast
The earnings conference call will be held today at 8:00 AM (EDT) and hosted by Paul C. Reilly, Chairman and CEO, and Gary Burnison, Chief Operating Officer. 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 72 offices in 37 countries, is the leading provider of executive search, outsourced recruiting and leadership development solutions. Based in Los Angeles, the firm partners with clients worldwide to deliver unparalleled senior-level search, management assessment, coaching and development and middle management recruitment services through its Futurestep subsidiary. For more information, visit the Korn/Ferry International Web site at www.kornferry.com or the Futurestep Web site at www.futurestep.com.
Statements in this press release and our conference call that relate to future results and events (forward-looking statements) are based on Korn/Ferrys 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, 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/Ferrys 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)
| Quarter Ended April 30, |
Year Ended April 30, |
||||||||||||||
| 2006 | 2005 | 2006 | 2005 | ||||||||||||
| Fee revenue |
$ | 145,266 | $ | 123,996 | $ | 522,882 | $ | 452,194 | |||||||
| Reimbursed out-of-pocket engagement expenses |
7,658 | 7,035 | 28,887 | 24,183 | |||||||||||
| Total revenue |
152,924 | 131,031 | 551,769 | 476,377 | |||||||||||
| Compensation and benefits |
95,096 | 84,412 | 341,196 | 292,913 | |||||||||||
| General and administrative expense |
25,428 | 18,562 | 93,462 | 83,544 | |||||||||||
| Out-of-pocket engagement expense |
9,358 | 7,719 | 31,927 | 25,702 | |||||||||||
| Depreciation and amortization |
2,405 | 1,714 | 9,002 | 8,437 | |||||||||||
| Total operating expense |
132,287 | 112,407 | 475,587 | 410,596 | |||||||||||
| Operating income |
20,637 | 18,624 | 76,182 | 65,781 | |||||||||||
| Interest and other income (expense), net |
(434 | ) | (719 | ) | 842 | (7,103 | ) | ||||||||
| Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries |
20,203 | 17,905 | 77,024 | 58,678 | |||||||||||
| Provision for income taxes |
430 | 4,963 | 19,594 | 20,251 | |||||||||||
| Equity in earnings of unconsolidated subsidiaries |
527 | (1,227 | ) | 2,000 | 193 | ||||||||||
| Net income |
$ | 20,300 | $ | 11,715 | $ | 59,430 | $ | 38,620 | |||||||
| Interest expense on convertible securities, net of taxes |
759 | 759 | 3,113 | 3,103 | |||||||||||
| Net income adjusted for computation of diluted EPS |
$ | 21,059 | $ | 12,474 | $ | 62,543 | $ | 41,723 | |||||||
| Basic earnings per common share |
$ | 0.51 | $ | 0.30 | $ | 1.49 | $ | 1.00 | |||||||
| Basic weighted average common shares outstanding |
39,874 | 39,139 | 39,889 | 38,516 | |||||||||||
| Diluted earnings per common share |
$ | 0.45 | $ | 0.27 | $ | 1.32 | $ | 0.90 | |||||||
| Diluted weighted average common shares outstanding |
47,209 | 46,675 | 47,270 | 46,229 | |||||||||||
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
FINANCIAL SUMMARY BY SEGMENT
(in thousands)
| Quarter Ended April 30, |
Year Ended April 30, |
|||||||||||||||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||||||||||||||
| Fee Revenue: |
||||||||||||||||||||||||||||
| Executive recruitment: |
||||||||||||||||||||||||||||
| North America |
$ | 70,237 | $ | 63,208 | 259,089 | $ | 225,850 | |||||||||||||||||||||
| Europe |
36,258 | 30,590 | 120,059 | 110,455 | ||||||||||||||||||||||||
| Asia/Pacific |
15,981 | 12,015 | 57,922 | 51,196 | ||||||||||||||||||||||||
| South America |
4,210 | 3,327 | 15,660 | 10,828 | ||||||||||||||||||||||||
| Total executive recruitment |
126,686 | 109,140 | 452,730 | 398,329 | ||||||||||||||||||||||||
| Futurestep |
18,580 | 14,856 | 70,152 | 53,865 | ||||||||||||||||||||||||
| Total fee revenue |
145,266 | 123,996 | 522,882 | 452,194 | ||||||||||||||||||||||||
| Reimbursed out-of-pocket engagement expenses |
7,658 | 7,035 | 28,887 | 24,183 | ||||||||||||||||||||||||
| Total revenue |
$ | 152,924 | $ | 131,031 | $ | 551,769 | $ | 476,377 | ||||||||||||||||||||
| Operating Income (Loss): | Margin | Margin | Margin | Margin | ||||||||||||||||||||||||
| Executive recruitment: |
||||||||||||||||||||||||||||
| North America |
$ | 17,458 | 25 | % | $ | 18,156 | 29 | % | $ | 62,124 | 24 | % | $ | 53,635 | 24 | % | ||||||||||||
| Europe |
6,296 | 17 | % | 4,081 | 13 | % | 22,361 | 19 | % | 19,531 | 18 | % | ||||||||||||||||
| Asia/Pacific |
4,742 | 30 | % | 1,989 | 17 | % | 13,374 | 23 | % | 9,594 | 19 | % | ||||||||||||||||
| South America |
951 | 23 | % | 337 | 10 | % | 2,839 | 18 | % | 1,320 | 12 | % | ||||||||||||||||
| Total executive recruitment |
29,447 | 23 | % | 24,563 | 23 | % | 100,698 | 22 | % | 84,080 | 21 | % | ||||||||||||||||
| Futurestep |
(1,442 | ) | (8 | %) | 1,476 | 10 | % | 3,351 | 5 | % | 6,483 | 12 | % | |||||||||||||||
| Corporate |
(7,368 | ) | (7,415 | ) | (27,867 | ) | (24,782 | ) | ||||||||||||||||||||
| Total operating income |
$ | 20,637 | 14 | % | $ | 18,624 | 14 | % | $ | 76,182 | 15 | % | $ | 65,781 | 14 | % | ||||||||||||
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
| As of April 30, 2006 |
As of April 30, 2005 |
|||||||
| ASSETS |
||||||||
| Cash and cash equivalents |
$ | 257,543 | $ | 199,133 | ||||
| Marketable securities |
20,654 | 7,815 | ||||||
| Receivables due from clients, net of allowance for doubtful accounts of $8,818 and $7,307, respectively |
87,287 | 68,942 | ||||||
| Income taxes and other receivables |
5,328 | 6,004 | ||||||
| Deferred income taxes |
8,934 | 8,864 | ||||||
| Prepaid expenses |
14,019 | 13,710 | ||||||
| Total current assets |
393,765 | 304,468 | ||||||
| Property and equipment, net |
20,533 | 18,287 | ||||||
| Cash surrender value of company owned life insurance policies, net of loans |
70,592 | 65,047 | ||||||
| Deferred income taxes |
33,002 | 30,889 | ||||||
| Goodwill |
109,484 | 107,014 | ||||||
| Deferred financing costs, investments and other |
8,115 | 8,463 | ||||||
| Total assets |
$ | 635,491 | $ | 534,168 | ||||
| LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
| Accounts payable |
$ | 9,731 | $ | 7,196 | ||||
| Income taxes payable |
17,138 | 15,400 | ||||||
| Compensation and benefits payable |
121,885 | 107,009 | ||||||
| Other accrued liabilities |
27,537 | 28,792 | ||||||
| Total current liabilities |
176,291 | 158,397 | ||||||
| Deferred compensation and other retirement plans |
71,790 | 59,134 | ||||||
| Long-term debt |
45,147 | 44,949 | ||||||
| Other liabilities |
7,523 | 7,991 | ||||||
| 7.5% Convertible mandatorily redeemable preferred stock, net of unamortized discount and issuance costs, redemption value $11,387 |
10,989 | 10,795 | ||||||
| Total liabilities |
311,740 | 281,266 | ||||||
| Shareholders equity |
||||||||
| Common stock: $0.01 par value, 150,000 shares authorized, 43,628 and 41,268 shares issued and 41,201 and 39,888 shares outstanding, respectively |
344,285 | 330,745 | ||||||
| Retained deficit |
(23,154 | ) | (82,584 | ) | ||||
| Unearned restricted stock compensation |
(7,731 | ) | (4,355 | ) | ||||
| Accumulated other comprehensive income |
10,910 | 9,679 | ||||||
| Shareholders equity |
324,310 | 253,485 | ||||||
| Less: Notes receivable from shareholders |
(559 | ) | (583 | ) | ||||
| Total shareholders equity |
323,751 | 252,902 | ||||||
| Total liabilities and shareholders equity |
$ | 635,491 | $ | 534,168 | ||||