Form: 8-K

Current report filing

December 6, 2012

Exhibit 99.1

For Immediate Release

Contacts:

Investor Relations: Gregg Kvochak, (310) 556-8550

For Media: Mike Distefano, (310) 843-4199

Korn/Ferry International Announces Second Quarter Fiscal 2013 Results of Operations

Highlights

 

  •  

Korn/Ferry reports Q2 FY’13 fee revenue of $196.2 million, a decrease of 2% (5% excluding two months of fee revenue from the recently acquired Global Novations) compared to the year-ago quarter.

 

  •  

Fee revenue in Leadership & Talent Consulting and Futurestep services grew 32% (14% excluding two months of fee revenue from the recently acquired Global Novations) and 5%, respectively, from Q2 FY’12 to Q2 FY’13, a 34% and 8% increase, respectively, on a constant currency basis.

 

  •  

Q2 FY’13 adjusted diluted earnings per share was $0.25, excluding net restructuring charges of $15.5 million compared to diluted earnings per share of $0.32 in Q2 FY’12. Including net restructuring charges, Q2 FY’13 diluted earnings per share was $0.03.

 

  •  

As discussed during our first quarter earnings call, the Company undertook actions to further rationalize its cost structure during Q2 FY’13 and as a result recorded restructuring charges of $11.3 million to reduce its workforce and a net $4.2 million charge relating to consolidation of premises.

 

  •  

The Company announced today that it has entered into a definitive agreement to acquire Minneapolis-based PDI Ninth House, a leading, globally-recognized provider of leadership solutions.

Los Angeles, CA, December 6, 2012 - Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced second quarter adjusted diluted earnings per share of $0.25 excluding net restructuring charges of $15.5 million compared to diluted earnings per share of $0.32 in the three months ended October 31, 2011. Including net restructuring charges, diluted earnings per share was $0.03 in the three months ended October 31, 2012.

“I am pleased with the sequential growth of the Company overall, and once again, year-over-year growth within our broader talent management offerings,” said Gary D. Burnison, CEO of Korn/Ferry International. “In addition, I am excited about the pending acquisition of PDI Ninth House, which greatly accelerates Korn/Ferry’s vision of being the world’s premier talent solutions advisor. CEOs today are waging a fight for growth. Their workforce is global, borderless and far more dynamic and diverse than in the past. In this decade, successful companies will be those that can more effectively link their business and talent strategies. This acquisition provides significantly more depth and scale toward Korn/Ferry being that linkage – the bridge between a CEO’s vision and their people strategy.”


Financial Results

(dollars in millions, except per share amounts)

 

     Second Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

Fee revenue

   $ 196.2      $ 200.2      $ 382.9      $ 406.5   

Total revenue

   $ 204.8      $ 210.0      $ 400.8      $ 424.6   

Operating income

   $ 2.8      $ 25.4      $ 19.8      $ 51.3   

Operating margin

     1.4     12.7     5.2     12.6

Net income

   $ 1.2      $ 15.2      $ 11.6      $ 30.6   

Basic earnings per share

   $ 0.03      $ 0.33      $ 0.25      $ 0.66   

Diluted earnings per share

   $ 0.03      $ 0.32      $ 0.24      $ 0.65   
Adjusted Results (a):    Second Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

Operating income

   $ 18.3      $ 25.4      $ 35.3      $ 51.3   

Operating margin

     9.3     12.7     9.2     12.6

Net income

   $ 11.8      $ 15.2      $ 22.2      $ 30.6   

Basic earnings per share

   $ 0.25      $ 0.33      $ 0.47      $ 0.66   

Diluted earnings per share

   $ 0.25      $ 0.32      $ 0.47      $ 0.65   

 

(a) Adjusted results are non-GAAP financial measures that exclude restructuring charges, net of recoveries, of $15.5 million during the three and six months ended October 31, 2012 (see attached reconciliations). No restructuring costs were incurred during three and six months ended October 31, 2011.

Results for the three months ended October 31, 2012

Fee revenue was $196.2 million in the three months ended October 31, 2012, a decrease of $4.0 million, or 2%, compared to the year-ago quarter, (foreign exchange rates negatively impacted fee revenue by $4.7 million), which reflects a $14.8 million decrease in Executive Recruitment fee revenue partially offset by a $9.4 million and $1.4 million increase in fee revenue in Leadership & Talent Consulting and Futurestep, respectively. The acquisition of Global Novations on September 1, 2012, contributed $5.2 million to the increase in fee revenue in Leadership & Talent Consulting.

The decrease in fee revenue for the three months ended October 31, 2012 resulted from a 7% decrease in the overall number of engagements billed compared to the year-ago quarter, partially offset by a 6% increase in the weighted-average fee billed per engagement. While fee revenue from the technology and consumer sectors increased, the increases from these sectors was more than offset by decreases in the industrial, financial services and life science/healthcare sectors. On a constant currency basis, fee revenue increased $0.7 million.

Compensation and benefit expenses were $133.1 million in three months ended October 31, 2012, an increase of $1.6 million, or 1%, compared to the year-ago quarter. Compensation and benefit expenses increased primarily because of a $3.2 million increase due to the acquisition of Global Novations. Offsetting this increase was a decrease in salaries and related payroll taxes due to lower consultant headcount and a decline in performance related compensation expense. On a constant currency basis, compensation and benefits increased $5.3 million, or 4%.

General and administrative expenses were $33.4 million in the three months ended October 31, 2012, a decrease of $0.8 million, or 2%, from the year-ago quarter. This decrease is primarily attributable to a decrease in professional service fees and business development expenses, offset by a reduction in a contingent consideration liability relating to a prior acquisition that was recorded in the three months ended October 31, 2011. On a constant currency basis, general and administrative expenses increased $0.2 million.

As discussed during our first quarter earnings call, during the three months ended October 31, 2012, the Company took steps to rationalize its cost structure, and as a result recorded restructuring charges of $11.3 million to reduce its workforce and $5.2 million relating to the consolidation of premises. This restructuring


expense was partially offset by a $1.0 million recovery (legal settlement related to premises) from a previous restructuring action resulting in net restructuring costs of $15.5 million. These actions are expected to result in annualized cost savings of approximately $20 million to $23 million, with the majority of these savings starting in the third quarter.

Excluding these restructuring charges, operating income was $18.3 million, during the three months ended October 31, 2012, a decrease of $7.1 million, or 28%, compared to the year-ago quarter. Including restructuring charges, operating income was $2.8 million in three months ended October 31, 2012, a decrease of $22.6 million, or 89%, compared to the year-ago quarter. Adjusted operating margin declined by 3.4 percentage points primarily due to a change in mix of fee revenues by operating segment, lower operating profits in Executive Recruitment and the impact of the change in market value of certain deferred compensation liabilities, partially offset by a decline in global expenses of the Company recorded in the Corporate segment.

Balance Sheet and Liquidity

Cash and marketable securities were $331.8 million and $318.1 million at October 31, 2012 and 2011, respectively, compared to $417.7 million at April 30, 2012. Cash and marketable securities include $93.9 million and $78.4 million held in trust for deferred compensation plans at October 31, 2012 and 2011, respectively, compared to $82.2 million at April 30, 2012. Cash and marketable securities decreased by $85.9 million from April 30, 2012, mainly due to the payment of FY’12 annual bonuses in Q1 FY’13 and the payment for the acquisition of Global Novations in the three months ended October 31, 2012, partially offset by cash provided by operating activities.

Results by Segment

In Q1 FY’13, the Company began reporting its Leadership & Talent Consulting business as a separate segment. The Company now operates in three global business segments: Executive Recruitment, Leadership & Talent Consulting and Futurestep. This change has no impact on previously reported consolidated net income or earnings per share.

Selected Executive Recruitment Data

(dollars in millions)

 

     Second Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

Fee revenue

   $ 127.8      $ 142.6      $ 255.2      $ 292.0   

Total revenue

   $ 133.1      $ 149.1      $ 266.3      $ 304.6   

Operating income

   $ 10.5      $ 32.1      $ 32.9      $ 65.2   

Operating margin

     8.1     22.5     12.9     22.3

Ending number of consultants

     402        417        402        417   

Average number of consultants

     409        425        401        429   

Engagements billed

     2,656        2,953        4,377        4,838   

New engagements (a)

     1,172        1,233        2,381        2,635   
Adjusted Results (b):    Second Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

Operating income

   $ 21.2      $ 32.1      $ 43.6      $ 65.2   

Operating margin

     16.6     22.5     17.1     22.3

 

(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 $10.7 million during the three and six months ended October 31, 2012 (see attached reconciliations). No restructuring costs were incurred during the three and six months ended October 31, 2011.


Results for the three months ended October 31, 2012 – Executive Recruitment

Fee revenue was $127.8 million in the three months ended October 31, 2012, a decrease of $14.8 million, or 10%, when compared with the year-ago quarter. Fee revenue decreased in all regions due to a 10% decrease in the number of executive recruitment engagements billed when compared to the year-ago quarter. On a constant currency basis, fee revenue decreased $11.5 million, or 8%.

Excluding restructuring charges, operating income was $21.2 million in the three months ended October 31, 2012, a decrease of $10.9 million, or 34%, compared year-ago quarter. This decrease is primarily attributable to the decrease in fee revenue in the three months ended October 31, 2012 as compared to the year-ago quarter, partially offset by a $2.3 million and $1.8 million decrease in compensation and benefits expense and general and administrative expenses, respectively, in the same period. The decrease in compensation and benefits expense primarily resulted from a decrease in performance related compensation expense due to a decline in the average number of consultants and a decline in fee revenue in the three months ended October 31, 2012 compared to the year-ago quarter. The decrease in general and administrative expenses was primarily due to a decrease in bad debt expense, due to a decline in historical bad debt trends, and a decline in travel expenses due to the ongoing cost control initiatives. Including restructuring charges of $10.7 million, operating income was $10.5 million in three months ended October 31, 2012, a decrease of $21.6 million, or 67%, compared to the year-ago quarter.

Selected Leadership & Talent Consulting Data

(dollars in millions)

 

     Second Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

Fee revenue

   $ 38.4      $ 29.0      $ 66.8      $ 55.7   

Total revenue

   $ 40.6      $ 30.6      $ 70.4      $ 58.0   

Operating income

   $ 6.2      $ 4.2      $ 10.5      $ 6.2   

Operating margin

     16.3     14.5     15.7     11.1

Ending number of consultants (a)

     72        54        72        54   

Staff utilization (b)

     67     62     66     62
Adjusted Results (c):    Second Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

Operating income

   $ 6.9      $ 4.2      $ 11.2      $ 6.2   

Operating margin

     18.0     14.5     16.7     11.1

 

(a) Represents number of employees originating consulting services. FY’13 includes 22 consultants from the Global Novations acquisition.
(b) Calculated by dividing the number of hours of our full-time professional staff, who recorded time to an engagement during the period, by the total available working hours for the professional staff during the same period.
(c) Adjusted results are non-GAAP financial measures that exclude restructuring charges, net of recoveries, of $0.7 million during the three and six months ended October 31, 2012 (see attached reconciliations). No restructuring costs were incurred during the three and six months ended October 31, 2011.


Results for the three months ended October 31, 2012 – Leadership & Talent Consulting

Leadership & Talent Consulting serves as a bridge between a client’s business strategy and their talent strategy. Leadership & Talent Consulting utilizes intellectual property in the delivery of talent management consulting services including CEO and top team effectiveness, leadership development and enterprise learning. Fee revenue was $38.4 million in the three months ended October 31, 2012, an increase of $9.4 million, or 32%, from the year-ago quarter. The improvement in fee revenue was driven by an increase in consulting fee revenue mainly in Europe and Latin America and broad based client demand as demonstrated by the increase in the number of consulting clients. Also contributing to the increase in fee revenue was the acquisition of Global Novations on September 1, 2012 which contributed $5.2 million in fee revenue for the three months ended October 31, 2012. On a constant currency basis, fee revenue increased $10.0 million, or 34%.

Excluding restructuring charges, operating income was $6.9 million in the three months ended October 31, 2012, an increase of $2.7 million, or 64%, compared to the year-ago quarter. The increase is primarily attributed to the increase in fee revenue, offset by an increase in compensation and benefits expense primarily from the acquisition of Global Novations and an increase in performance related compensation expense due to an increase in the average number of consultants and the increase in fee revenue. General and administrative expenses also increased during the same period primarily due to an increase in premise and office expense due in large part to the acquisition of Global Novations. Including restructuring charges of $0.7 million, operating income was $6.2 million, an increase of $2.0 million, or 48%, compared to the year-ago quarter.

Selected Futurestep Data

(dollars in millions)

 

     Second Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

Fee revenue

   $ 30.0      $ 28.6      $ 60.9      $ 58.8   

Total revenue

   $ 31.1      $ 30.3      $ 64.1      $ 62.0   

Operating income

   $ 0.2      $ 2.8      $ 3.4      $ 5.6   

Operating margin

     0.8     9.8     5.6     9.6

Engagements billed

     1,665        1,604        3,193        2,865   

New engagements (a)

     1,084        974        2,409        1,993   
Adjusted Results (b):    Second Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

Operating income

   $ 3.3      $ 2.8      $ 6.5      $ 5.6   

Operating margin

     11.1     9.8     10.7     9.6

 

(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 $3.1 million during the three and six months ended October 31, 2012 (see attached reconciliations). No restructuring costs were incurred during the three and six months ended October 31, 2011.

Results for the three months ended October 31, 2012 – Futurestep

Fee revenue was $30.0 million in the three months ended October 31, 2012, an increase of $1.4 million, or 5%, compared to the year-ago quarter. The improvement in fee revenue was driven by a 4% increase in the number of engagements billed and a 1% increase in the weighted average fee per engagement. The increase in fee revenue was due to an increase in recruitment process outsourcing and in middle management recruitment. On a constant currency basis, fee revenue increased $2.2 million, or 8%.

Excluding restructuring charges, operating income was $3.3 million in the three months ended October 31, 2012, an increase of $0.5 million, or 18%, compared to the year-ago quarter. The increase in operating income was due primarily to the increase in fee revenue, partially offset by an increase in compensation and benefit expenses due in large part to the increase in performance related compensation expense. Including restructuring charges of $3.1 million, operating income was $0.2 million, a decrease of $2.6 million, or 93%, compared to the year-ago quarter.


Outlook

Assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, and excluding the impact of the pending acquisition of PDI Ninth House, Q3 FY’13 adjusted stand-alone fee revenue is likely to be in the range of $188 million to $201 million, and adjusted stand-alone diluted earnings per share is likely to be in the range of $0.26 to $0.34.(1) Assuming a December 31st close, we expect to begin the integration of PDI Ninth House into our global Leadership & Talent Consulting segment in January 2013. For the month of January 2013 (a seasonally low month), PDI Ninth House is expected to contribute between $6 million and $7 million of fee revenue and, prior to the effects of purchase accounting amortization, if any, breakeven operating earnings. The integration of PDI Ninth House will involve workforce alignment, consolidation of office space and elimination of redundant general and administrative expenses. In order to achieve these synergies, we estimate in Q3 FY’13 we will incur incremental charges relating to the integration between $2.5 million and $3.5 million. In addition to these incremental charges, we also expect to incur incremental legal and professional fees associated with the acquisition in Q3 FY’13 of approximately $2.5 million (an aggregate of $0.06 to $0.08 on a per share basis).

On a consolidated combined basis, assuming the pending addition of PDI Ninth House, Q3 FY’13 consolidated fee revenue as measured by generally accepted accounting principles is likely to be in the range of $194 million to $208 million, and excluding the $0.06 to $0.08 of estimated incremental charges relating to the integration as well as the incremental legal and professional fees associated with the pending acquisition, adjusted consolidated combined diluted earnings per share is likely to be in the range of $0.26 to $0.34(2), with diluted earnings per share as measured by generally accepted accounting principles likely to be in the range of $0.18 to $0.28.

 

     Q3 FY’13
Fee Revenue Outlook
          Q3 FY’13
Earnings Per Share Outlook
 
     Low      High           Low     High  
     (in millions)                    

Adjusted stand-alone

fee revenue

  

$

188

  

  

$

201

  

  

Adjusted consolidated combined diluted earnings per share

   $ 0.26      $ 0.34   

PDI Ninth House

     6         7       Integration and transaction costs      (0.08     (0.06
  

 

 

    

 

 

       

 

 

   

 

 

 

GAAP fee revenue

   $ 194       $ 208       GAAP diluted earnings per share    $ 0.18      $ 0.28   
  

 

 

    

 

 

       

 

 

   

 

 

 

 

(1) Adjusted stand-alone fee revenue and adjusted stand-alone diluted earnings per share are non-GAAP financial measures that exclude PDI Ninth House, incremental charges relating to the integration of PDI Ninth House and incremental legal and professional fees associated with the acquisition.
(2) Adjusted consolidated combined diluted earnings per share is a non-GAAP financial measure that excludes incremental charges relating to the integration of PDI Ninth House and incremental legal and professional fees associated with the acquisition. Adjusted consolidated combined diluted earnings per share assumes the completion of the pending acquisition of PDI Ninth House.

Earnings Conference Call Webcast

The earnings conference call will be held today at 9:00 AM (EST) and hosted by CEO Gary Burnison, CFO Robert Rozek 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. These statements, which include words such as “believes”, “expects” or “likely” include references to our outlook and the pending acquisition of PDI Ninth House. 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, cyber security vulnerabilities, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to successfully integrate acquired businesses, including PDI Ninth House, our ability to develop new products and services, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, 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”). In particular, it includes:

 

  •  

adjusted operating income and operating margin, adjusted to exclude restructuring charges, net;

 

  •  

adjusted net income, adjusted to exclude restructuring charges, net income tax effect;

 

  •  

adjusted basic and diluted earnings per share, adjusted to exclude restructuring charges, net;

 

  •  

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;

 

  •  

adjusted stand-alone fee revenue and adjusted stand-alone diluted earnings per share, adjusted to exclude the acquisition of PDI Ninth House, incremental charges relating to the integration of PDI Ninth House and incremental legal and professional fees associated with the acquisition; and

 

  •  

adjusted consolidated combined diluted earnings per share, adjusted to exclude incremental charges relating to the integration of PDI Ninth House and incremental legal and professional fees associated with the acquisition (but assuming the completion of the acquisition).

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 and other items 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 they are 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. In the case of constant currency amounts, management believes the presentation


of such information provides meaningful supplemental information regarding Korn/Ferry’s performance as excluding the impact of exchange rate changes on Korn/Ferry’s financial performance allows investors to make more meaningful period-to-period comparisons of the Company’s operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn/Ferry’s ongoing operations and financial and operational decision-making. In the case of adjusted stand-alone results, management believes the presentation of such information provides investors with the ability to make period-to-period comparisons of Korn/Ferry’s operating results, net of the acquisition of PDI Ninth House. Management believes the presentation of adjusted consolidated combined diluted earnings per share provides investors with greater visibility into the impact of the PDI Ninth House acquisition without regard to incremental charges and transaction costs.

[Tables attached]


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

     Three Months Ended     Six Months Ended  
     October 31,     October 31,  
     2012     2011     2012     2011  
     (unaudited)  

Fee revenue

   $ 196,231      $ 200,136      $ 382,925      $ 406,467   

Reimbursed out-of-pocket engagement expenses

     8,568        9,852        17,897        18,111   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     204,799        209,988        400,822        424,578   
  

 

 

   

 

 

   

 

 

   

 

 

 

Compensation and benefits

     133,035        131,481        261,071        268,852   

General and administrative expenses

     33,317        34,189        66,760        68,962   

Engagement expenses

     15,886        15,436        29,679        28,571   

Depreciation and amortization

     4,297        3,475        8,039        6,844   

Restructuring charges, net

     15,495        —          15,495        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     202,030        184,581        381,044        373,229   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     2,769        25,407        19,778        51,349   

Other income (loss), net

     1,529        (2,617     512        (4,639

Interest expense, net

     (762     (389     (1,361     (970
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries

     3,536        22,401        18,929        45,740   

Income tax provision

     2,684        7,726        8,289        16,161   

Equity in earnings of unconsolidated subsidiaries, net

     344        472        974        979   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 1,196      $ 15,147      $ 11,614      $ 30,558   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share:

        

Basic

   $ 0.03      $ 0.33      $ 0.25      $ 0.66   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.03      $ 0.32      $ 0.24      $ 0.65   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding:

        

Basic

     47,269        46,499        47,040        46,234   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     47,834        47,114        47,658        47,151   
  

 

 

   

 

 

   

 

 

   

 

 

 


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)

 

     Three Months Ended October 31,     Six Months Ended October 31,  
     2012           2011     % Change     2012           2011     % Change  

Fee Revenue:

                

Executive recruitment:

                

North America

   $ 69,441        $ 77,525        (10 %)    $ 141,547        $ 157,449        (10 %) 

EMEA

     33,142          35,408        (6 %)      62,965          74,239        (15 %) 

Asia Pacific

     18,338          21,827        (16 %)      35,721          44,323        (19 %) 

South America

     6,827          7,707        (11 %)      14,961          15,948        (6 %) 
  

 

 

     

 

 

     

 

 

     

 

 

   

Total executive recruitment

     127,748          142,467        (10 %)      255,194          291,959        (13 %) 

Leadership & Talent Consulting

     38,452          29,085        32     66,844          55,726        20

Futurestep

     30,031          28,584        5     60,887          58,782        4
  

 

 

     

 

 

     

 

 

     

 

 

   

Total fee revenue

     196,231          200,136        (2 %)      382,925          406,467        (6 %) 

Reimbursed out-of-pocket engagement expenses

     8,568          9,852        (13 %)      17,897          18,111        (1 %) 
  

 

 

     

 

 

     

 

 

     

 

 

   

Total revenue

   $ 204,799        $ 209,988        (2 %)    $ 400,822        $ 424,578        (6 %) 
  

 

 

     

 

 

     

 

 

     

 

 

   

Reconciliation of Operating Income (GAAP) to Adjusted Operating Income

                

Operating Income:

       Margin          Margin          Margin          Margin   

Executive recruitment:

                

North America

   $ 9,017        13.0   $ 21,291        27.5   $ 27,091        19.1   $ 42,816        27.2

EMEA

     (929     (2.8 %)      5,028        14.2     859        1.4     10,032        13.5

Asia Pacific

     1,080        5.9     3,590        16.4     1,578        4.4     7,461        16.8

South America

     1,217        17.8     2,215        28.7     3,306        22.1     4,885        30.6
  

 

 

     

 

 

     

 

 

     

 

 

   

Total executive recruitment

     10,385        8.1     32,124        22.5     32,834        12.9     65,194        22.3

Leadership & Talent Consulting

     6,252        16.3     4,227        14.5     10,514        15.7     6,194        11.1

Futurestep

     237        0.8     2,815        9.8     3,419        5.6     5,671        9.6

Corporate

     (14,105       (13,759       (26,989       (25,710  
  

 

 

     

 

 

     

 

 

     

 

 

   

Total operating income

   $ 2,769        1.4   $ 25,407        12.7   $ 19,778        5.2   $ 51,349        12.6
  

 

 

     

 

 

     

 

 

     

 

 

   

Restructuring Charges, net:

                

Executive recruitment:

                

North America

   $ 5,436        7.8   $ —          —        $ 5,436        3.9   $ —          —     

EMEA

     4,752        14.3     —          —          4,752        7.5     —          —     

Asia Pacific

     613        3.3     —          —          613        1.7     —          —     

South America

     —          —          —          —          —          —          —          —     
  

 

 

     

 

 

     

 

 

     

 

 

   

Total executive recruitment

     10,801        8.5     —          —          10,801        4.2     —          —     

Leadership & Talent Consulting

     677        1.7     —          —          677        1.0     —          —     

Futurestep

     3,086        10.3     —          —          3,086        5.1     —          —     

Corporate

     931          —            931          —       
  

 

 

     

 

 

     

 

 

     

 

 

   

Total restructuring charges, net

   $ 15,495        7.9   $ —          —        $ 15,495        4.0   $ —          —     
  

 

 

     

 

 

     

 

 

     

 

 

   

Adjusted Operating Income: (Excluding Restructuring Charge, net)

       Margin          Margin          Margin          Margin   

Executive recruitment:

                

North America

   $ 14,453        20.8   $ 21,291        27.5   $ 32,527        23.0   $ 42,816        27.2

EMEA

     3,823        11.5     5,028        14.2     5,611        8.9     10,032        13.5

Asia Pacific

     1,693        9.2     3,590        16.4     2,191        6.1     7,461        16.8

South America

     1,217        17.8     2,215        28.7     3,306        22.1     4,885        30.6
  

 

 

     

 

 

     

 

 

     

 

 

   

Total executive recruitment

     21,186        16.6     32,124        22.5     43,635        17.1     65,194        22.3

Leadership & Talent Consulting

     6,929        18.0     4,227        14.5     11,191        16.7     6,194        11.1

Futurestep (1)

     3,323        11.1     2,815        9.8     6,505        10.7     5,671        9.6

Corporate

     (13,174       (13,759       (26,058       (25,710  
  

 

 

     

 

 

     

 

 

     

 

 

   

Total adjusted operating income

   $ 18,264        9.3   $ 25,407        12.7   $ 35,273        9.2   $ 51,349        12.6
  

 

 

     

 

 

     

 

 

     

 

 

   

 

(1) The Company revised the presentation for expenses that are not directly associated with Futurestep, resulting in an increase in Futurestep’s operating income of $0.6 million and $1.1 million offset by a decrease in Executive Recruitment operating income in the three and six months ended October 31, 2011, respectively.


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

     October 31,     April 30,  
     2012     2012  
     (unaudited)        

ASSETS

    

Cash and cash equivalents

   $ 192,916      $ 282,005   

Marketable securities

     30,242        40,936   

Receivables due from clients, net of allowance for doubtful accounts of $9,623 and $9,437 respectively

     153,544        126,579   

Income taxes and other receivables

     13,677        11,902   

Deferred income taxes

     8,557        10,830   

Prepaid expenses and other assets

     29,900        27,815   
  

 

 

   

 

 

 

Total current assets

     428,836        500,067   
  

 

 

   

 

 

 

Marketable securities, non-current

     108,692        94,798   

Property and equipment, net

     48,024        49,808   

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

     80,464        77,848   

Deferred income taxes

     54,389        57,290   

Goodwill

     195,189        176,338   

Intangible assets, net

     31,169        20,413   

Investments and other assets

     37,112        38,127   
  

 

 

   

 

 

 

Total assets

   $ 983,875      $ 1,014,689   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Accounts payable

   $ 15,081      $ 14,667   

Income taxes payable

     5,118        8,720   

Compensation and benefits payable

     98,253        160,810   

Other accrued liabilities

     57,917        37,527   
  

 

 

   

 

 

 

Total current liabilities

     176,369        221,724   
  

 

 

   

 

 

 

Deferred compensation and other retirement plans

     144,495        142,577   

Other liabilities

     20,434        20,912   
  

 

 

   

 

 

 

Total liabilities

     341,298        385,213   
  

 

 

   

 

 

 

Stockholders’ equity

    

Common stock: $0.01 par value, 150,000 shares authorized, 60,934 and 59,975 shares issued and 48,590 and 47,913 shares outstanding, respectively

     424,835        419,998   

Retained earnings

     214,411        202,797   

Accumulated other comprehensive income, net

     3,836        7,191   
  

 

 

   

 

 

 

Stockholders’ equity

     643,082        629,986   

Less: notes receivable from stockholders

     (505     (510
  

 

 

   

 

 

 

Total stockholders’ equity

     642,577        629,476   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 983,875      $ 1,014,689   
  

 

 

   

 

 

 


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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, 2012     October 31, 2011  
     As Reported     Adjustments     As Adjusted     As Reported     Adjustments      As Adjusted  

Fee revenue

   $ 196,231        $ 196,231      $ 200,136         $ 200,136   

Reimbursed out-of-pocket engagement expenses

     8,568          8,568        9,852           9,852   
  

 

 

     

 

 

   

 

 

      

 

 

 

Total revenue

     204,799          204,799        209,988           209,988   
  

 

 

     

 

 

   

 

 

      

 

 

 

Compensation and benefits

     133,035          133,035        131,481           131,481   

General and administrative expenses

     33,317          33,317        34,189           34,189   

Engagement expenses

     15,886          15,886        15,436           15,436   

Depreciation and amortization

     4,297          4,297        3,475           3,475   

Restructuring charges, net

     15,495        (15,495     —          —          —           —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total operating expenses

     202,030        (15,495     186,535        184,581        —           184,581   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating income

     2,769        15,495        18,264        25,407        —           25,407   

Other income (loss), net

     1,529          1,529        (2,617        (2,617

Interest expense, net

     (762       (762     (389        (389
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries

     3,536        15,495        19,031        22,401        —           22,401   

Income tax provision (1)

     2,684        4,889        7,573        7,726        —           7,726   

Equity in earnings of unconsolidated subsidiaries, net

     344          344        472           472   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income

   $ 1,196      $ 10,606      $ 11,802      $ 15,147      $ —         $ 15,147   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Earnings per common share:

             

Basic

   $ 0.03        $ 0.25      $ 0.33         $ 0.33   
  

 

 

     

 

 

   

 

 

      

 

 

 

Diluted

   $ 0.03        $ 0.25      $ 0.32         $ 0.32   
  

 

 

     

 

 

   

 

 

      

 

 

 

Weighted-average common shares outstanding:

             

Basic

     47,269          47,269        46,499           46,499   
  

 

 

     

 

 

   

 

 

      

 

 

 

Diluted

     47,834          47,834        47,114           47,114   
  

 

 

     

 

 

   

 

 

      

 

 

 

Explanation of Non-GAAP Adjustments

 

(1) The adjustments result in an effective tax rate of 40% for the as adjusted amounts for the three months ended October 31, 2012.


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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, 2012     October 31, 2011  
     As Reported     Adjustments     As Adjusted     As Reported     Adjustments      As Adjusted  

Fee revenue

   $ 382,925        $ 382,925      $ 406,467         $ 406,467   

Reimbursed out-of-pocket engagement expenses

     17,897          17,897        18,111           18,111   
  

 

 

     

 

 

   

 

 

      

 

 

 

Total revenue

     400,822          400,822        424,578           424,578   
  

 

 

     

 

 

   

 

 

      

 

 

 

Compensation and benefits

     261,071        —          261,071        268,852           268,852   

General and administrative expenses

     66,760          66,760        68,962           68,962   

Engagement expenses

     29,679          29,679        28,571           28,571   

Depreciation and amortization

     8,039          8,039        6,844           6,844   

Restructuring charges, net

     15,495        (15,495     —          —          —           —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total operating expenses

     381,044        (15,495     365,549        373,229        —           373,229   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating income

     19,778        15,495        35,273        51,349        —           51,349   

Other income (loss), net

     512          512        (4,639        (4,639

Interest expense, net

     (1,361       (1,361     (970        (970
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries

     18,929        15,495        34,424        45,740        —           45,740   

Income tax provision (1)

     8,289        4,889        13,178        16,161        —           16,161   

Equity in earnings of unconsolidated subsidiaries, net

     974          974        979           979   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income

   $ 11,614      $ 10,606      $ 22,220      $ 30,558      $ —         $ 30,558   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Earnings per common share:

             

Basic

   $ 0.25        $ 0.47      $ 0.66         $ 0.66   
  

 

 

     

 

 

   

 

 

      

 

 

 

Diluted

   $ 0.24        $ 0.47      $ 0.65         $ 0.65   
  

 

 

     

 

 

   

 

 

      

 

 

 

Weighted-average common shares outstanding:

             

Basic

     47,040          47,040        46,234           46,234   
  

 

 

     

 

 

   

 

 

      

 

 

 

Diluted

     47,658          47,658        47,151           47,151   
  

 

 

     

 

 

   

 

 

      

 

 

 

Explanation of Non-GAAP Adjustments

 

(1) The adjustments result in an annual effective tax rate of 38% for the as adjusted amounts for the six months ended October 31, 2012.