PRESS RELEASE
Published on September 7, 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 25% increase in Fee
Revenue in the First Quarter
Highlights
| | First quarter fiscal 2007 fee revenue of $152.8 million increased $30.6 million, or 25%, from $122.2 million in the same quarter last year. |
| | Adjusted first quarter fiscal 2007 diluted earnings per share, which excludes the impact of the implementation of SFAS 123(R), was $0.33, an increase of 22% over Q106 diluted earnings per share of $0.27. Q107 actual diluted earnings per share was $0.31 compared to $0.27 in the prior year first quarter. |
Los Angeles, CA, September 7, 2006 - Korn/Ferry International (NYSE:KFY), a premier global provider of executive search, outsourced recruiting and leadership development solutions, announced first quarter fiscal 2007 diluted earnings per share of $0.31 compared to $0.27 in Q106. Diluted earnings per share was $0.33 in Q107 excluding the effect of implementation of SFAS 123(R) in the quarter.
Our business remains vibrant, largely due to the continued global economic expansion along with a growing need by organizations to retain and develop their human capital, said Paul C. Reilly, Chairman and CEO of Korn/Ferry. It is increasingly evident to me that todays leading organizations are becoming as focused on retention and development as they are on recruiting.
Financial Results
(dollars in millions, except per share amounts)
| First Quarter | ||||||||
| Q107 | Q106 | |||||||
| Fee Revenue |
$ | 152.8 | $ | 122.2 | ||||
| Revenue |
$ | 161.1 | $ | 129.1 | ||||
| Operating Income |
$ | 20.3 | $ | 18.7 | ||||
| Operating Margin |
13.3 | % | 15.3 | % | ||||
| Net Income |
$ | 13.7 | $ | 11.6 | ||||
| Basic Earnings Per Share |
$ | 0.35 | $ | 0.29 | ||||
| Diluted Earnings Per Share |
$ | 0.31 | $ | 0.27 | ||||
| Adjusted Results* |
||||||||
| Net Income |
$ | 14.8 | $ | 11.6 | ||||
| Diluted Earnings Per Share |
$ | 0.33 | $ | 0.27 | ||||
| * | Adjusted results exclude the effect of implementation of SFAS 123(R) in Q107. 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 (see attached reconciliation). |
Fee revenue of $152.8 million in Q107 increased $30.6 million, or 25%, from $122.2 million in Q106. Fee revenue improved globally due to a 25% increase in the number of search engagements opened as well as a 10% increase in the average fee billed per engagement compared to prior year. Exchange rates impacted fee revenue in Q107 favorably by $0.4 million compared to Q106.
Compensation and benefits of $104.4 million in Q107 increased $26.4 million, or 34%, compared to $78.0 million in Q106. 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 $24.4 million in Q107 increased by $1.7 million, or 7%, from $22.7 million in Q106 as a result of increased other administrative expense as compared to the same period last year.
Operating income was $20.3 million in Q107, an improvement of $1.6 million, over Q106. Adjusted for the effect of SFAS 123(R) operating margin for the quarter was 14.6%.
The Company repurchased $24.5 million of stock during Q107 and through July 31, 2006 the Company has repurchased $43.2 million under authorized buy back programs of $75 million.
Balance Sheet and Liquidity
Cash, cash equivalents and marketable securities was $210.8 million at July 31, 2006 compared to $162.1 million at July 31, 2005. The increase was due to improved operating cash flow and financing activities.
Interest expense was $2.5 million in both Q107 and Q106. Interest expense in both years related primarily to borrowings under Korn/Ferrys convertible securities and COLI policies. At July 31, 2006, Korn/Ferry had no outstanding borrowings under its credit facility.
Results by Segment
Selected Executive Recruitment Data
(dollars in millions)
| First Quarter | ||||||||
| Q107 | Q106 | |||||||
| Fee Revenue |
$ | 132.5 | $ | 105.4 | ||||
| Revenue |
$ | 139.3 | $ | 110.9 | ||||
| Operating Income |
$ | 26.7 | $ | 22.8 | ||||
| Operating Margin |
20.2 | % | 21.6 | % | ||||
| Average Number of Consultants |
453 | 409 | ||||||
| Engagements (a) |
1,719 | 1,411 | ||||||
| (a) | Represents new engagements opened in the respective period. |
Fee revenue was $132.5 million in Q107, an increase of $27.0 million, or 25.6%, from $105.4 million in Q106. 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 $3.9 million in Q107, or 17.1%, to $26.7 million compared to $22.8 million in Q106. Without the effects of SFAS 123(R) the operating margin was 21.3% in Q106.
We continue to invest in our people as we continue to secure additional engagements across various regions and industries. The total number of consultants at July 31, 2006 was 466, an increase of 45 from July 31, 2005.
Selected Futurestep Data
(dollars in millions)
| First Quarter | ||||||||
| Q107 | Q106 | |||||||
| Fee Revenue |
$ | 20.3 | $ | 16.8 | ||||
| Revenue |
$ | 21.8 | $ | 18.2 | ||||
| Operating Income |
$ | 1.0 | $ | 1.9 | ||||
| Operating Margin |
5.1 | % | 11.5 | % | ||||
Fee revenue was $20.3 million in Q107, an increase of $3.5 million, or 21%, from $16.8 million in Q106. 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 operating income of $1.0 million in Q107, a decrease of $0.9 million from operating income of $1.9 million in Q106 primarily due to increased personnel related costs as the company has continued to invest in its employees and expand its geographic reach.
Outlook
Assuming constant foreign exchange rates, Korn/Ferry estimates that second quarter fiscal 2007 fee revenue is likely to be in the range of $147 million to $157 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 10:00 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 more than 70 offices in 40 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 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/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)
(unaudited)
| Quarter Ended July 31, | ||||||||
| 2006 | 2005 | |||||||
| Fee revenue |
$ | 152,763 | $ | 122,201 | ||||
| Reimbursed out-of-pocket engagement expenses |
8,383 | 6,894 | ||||||
| Total revenue |
161,146 | 129,095 | ||||||
| Compensation and benefits |
104,437 | 77,955 | ||||||
| General and administrative expense |
24,365 | 22,717 | ||||||
| Out-of-pocket engagement expense |
9,707 | 7,478 | ||||||
| Depreciation and amortization |
2,289 | 2,201 | ||||||
| Total operating expense |
140,798 | 110,351 | ||||||
| Operating income |
20,348 | 18,744 | ||||||
| Interest and other income (expense), net |
(81 | ) | (1,126 | ) | ||||
| Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries |
20,267 | 17,618 | ||||||
| Provision for income taxes |
7,600 | 6,448 | ||||||
| Equity in earnings of unconsolidated subsidiaries |
996 | 443 | ||||||
| Net income |
$ | 13,663 | $ | 11,613 | ||||
| Interest expense on convertible securities, net of taxes |
784 | 785 | ||||||
| Net income adjusted for computation of diluted EPS |
$ | 14,447 | $ | 12,398 | ||||
| Basic earnings per common share |
$ | 0.35 | $ | 0.29 | ||||
| Basic weighted average common shares outstanding |
39,021 | 39,384 | ||||||
| Diluted earnings per common share |
$ | 0.31 | $ | 0.27 | ||||
| Diluted weighted average common shares outstanding |
46,768 | 46,686 | ||||||
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
EXCLUDING IMPACT OF 123(R)
(in thousands, except per share amounts)
(unaudited)
| Quarter Ended July 31, |
||||||||||||||
| 2006 - As Reported |
123(R) Expense |
2006 - As Adjusted |
2005 | |||||||||||
| Fee revenue |
$ | 152,763 | $ | 152,763 | $ | 122,201 | ||||||||
| Reimbursed out-of-pocket engagement expenses |
8,383 | 8,383 | 6,894 | |||||||||||
| Total revenue |
161,146 | 161,146 | 129,095 | |||||||||||
| Compensation and benefits |
104,437 | 1,882 | 102,555 | 77,955 | ||||||||||
| General and administrative expense |
24,365 | 24,365 | 22,717 | |||||||||||
| Out-of-pocket engagement expense |
9,707 | 9,707 | 7,478 | |||||||||||
| Depreciation and amortization |
2,289 | 2,289 | 2,201 | |||||||||||
| Total operating expense |
140,798 | 1,882 | 138,916 | 110,351 | ||||||||||
| Operating income |
20,348 | 22,230 | 18,744 | |||||||||||
| Interest and other income (expense), net |
(81 | ) | (81 | ) | (1,126 | ) | ||||||||
| Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries |
20,267 | 22,149 | 17,618 | |||||||||||
| Provision for income taxes |
7,600 | 708 | 8,308 | 6,448 | ||||||||||
| Equity in earnings of unconsolidated subsidiaries |
996 | 996 | 443 | |||||||||||
| Net income |
$ | 13,663 | $ | 14,837 | $ | 11,613 | ||||||||
| Interest expense on convertible securities, net of taxes |
784 | 784 | 785 | |||||||||||
| Net income adjusted for computation of diluted EPS |
$ | 14,447 | $ | 15,621 | $ | 12,398 | ||||||||
| Basic earnings per common share |
$ | 0.35 | $ | 0.38 | $ | 0.29 | ||||||||
| Basic weighted average common shares outstanding |
39,021 | 39,021 | 39,384 | |||||||||||
| Diluted earnings per common share |
$ | 0.31 | $ | 0.33 | $ | 0.27 | ||||||||
| Diluted weighted average common shares outstanding |
46,768 | 46,768 | 46,686 | |||||||||||
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
FINANCIAL SUMMARY BY SEGMENT
(in thousands)
(unaudited)
| Quarter Ended July 31, |
||||||||||||||
| 2006 | 2005 | |||||||||||||
| Fee Revenue: |
||||||||||||||
| Executive recruitment: |
||||||||||||||
| North America |
$ | 75,484 | $ | 61,727 | ||||||||||
| Europe |
34,187 | 27,021 | ||||||||||||
| Asia/Pacific |
18,264 | 13,319 | ||||||||||||
| South America |
4,479 | 3,371 | ||||||||||||
| Total executive recruitment |
132,414 | 105,438 | ||||||||||||
| Futurestep |
20,349 | 16,763 | ||||||||||||
| Total fee revenue |
152,763 | 122,201 | ||||||||||||
| Reimbursed out-of-pocket engagement expenses |
8,383 | 6,894 | ||||||||||||
| Total revenue |
$ | 161,146 | $ | 129,095 | ||||||||||
| Margin | Margin | |||||||||||||
| Operating Income (Loss): |
||||||||||||||
| Executive recruitment: |
||||||||||||||
| North America |
$ | 17,080 | 23 | % | $ | 14,313 | 23 | % | ||||||
| Europe |
5,204 | 15 | % | 5,087 | 19 | % | ||||||||
| Asia/Pacific |
3,690 | 20 | % | 2,691 | 20 | % | ||||||||
| South America |
738 | 16 | % | 666 | 20 | % | ||||||||
| Total executive recruitment |
26,712 | 20 | % | 22,757 | 22 | % | ||||||||
| Futurestep |
1,044 | 5 | % | 1,931 | 12 | % | ||||||||
| Corporate |
(7,408 | ) | (5,944 | ) | ||||||||||
| Total operating income |
$ | 20,348 | 13 | % | $ | 18,744 | 15 | % | ||||||
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
| As of July 31, 2006 |
As of April 30, 2006 |
|||||||
| ASSETS |
||||||||
| Cash and cash equivalents |
$ | 185,419 | $ | 257,543 | ||||
| Marketable securities |
25,422 | 20,654 | ||||||
| Receivables due from clients, net of allowance for doubtful accounts of $9,501 and $8,818, respectively |
103,084 | 87,287 | ||||||
| Income taxes and other receivables |
5,305 | 5,328 | ||||||
| Deferred income taxes |
9,987 | 9,669 | ||||||
| Prepaid expenses |
16,037 | 14,019 | ||||||
| Total current assets |
345,254 | 394,500 | ||||||
| Property and equipment, net |
21,267 | 20,533 | ||||||
| Cash surrender value of company owned life insurance policies, net of loans |
70,763 | 70,592 | ||||||
| Deferred income taxes |
35,387 | 32,267 | ||||||
| Goodwill |
109,043 | 109,484 | ||||||
| Deferred financing costs, investments and other |
8,111 | 8,115 | ||||||
| Total assets |
$ | 589,825 | $ | 635,491 | ||||
| LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
| Accounts payable |
$ | 10,147 | $ | 9,731 | ||||
| Income taxes payable |
19,903 | 17,138 | ||||||
| Compensation and benefits payable |
68,919 | 121,885 | ||||||
| Other accrued liabilities |
26,116 | 27,537 | ||||||
| Total current liabilities |
125,085 | 176,291 | ||||||
| Deferred compensation and other retirement plans |
78,905 | 71,790 | ||||||
| Long-term debt |
45,197 | 45,147 | ||||||
| Other liabilities |
7,207 | 7,523 | ||||||
| 7.5% Convertible mandatorily redeemable preferred stock, net of unamortized discount and issuance costs, redemption value $11,387 |
11,039 | 10,989 | ||||||
| Total liabilities |
267,433 | 311,740 | ||||||
| Shareholders equity |
||||||||
| Common stock: $0.01 par value, 150,000 shares authorized, 45,095 and 43,628 shares issued and 41,325 and 41,201 shares outstanding, respectively |
346,458 | 344,285 | ||||||
| Retained deficit |
(9,491 | ) | (23,154 | ) | ||||
| Unearned restricted stock compensation |
(25,683 | ) | (7,731 | ) | ||||
| Accumulated other comprehensive income |
11,666 | 10,910 | ||||||
| Shareholders equity |
322,950 | 324,310 | ||||||
| Less: Notes receivable from shareholders |
(558 | ) | (559 | ) | ||||
| Total shareholders equity |
322,392 | 323,751 | ||||||
| Total liabilities and shareholders equity |
$ | 589,825 | $ | 635,491 | ||||