Form: 8-K

Current report filing

March 6, 2013

Exhiibt 99.1

For Immediate Release

Contacts:

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

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

Korn/Ferry International Announces Third Quarter Fiscal 2013

Results of Operations

Highlights

 

  •  

Korn/Ferry reports Q3 FY’13 fee revenue of $202.0 million, an increase of 9% (2% excluding fee revenue from the recently acquired PDI Ninth House and Global Novations) compared to the year-ago quarter.

 

  •  

Fee revenue in Leadership & Talent Consulting and Futurestep services grew 47% (5% excluding fee revenue from the recently acquired PDI Ninth House and Global Novations) and 17%, respectively, from Q3 FY’12 to Q3 FY’13.

 

  •  

Q3 FY’13 adjusted diluted earnings per share was $0.31 compared to adjusted diluted earnings per share of $0.26 in Q3 FY’12, excluding restructuring, transaction and integration, and separation costs, of $7.5 million in Q3 FY’13 and $0.9 million in Q3 FY’12. Including such costs, Q3 FY’13 diluted earnings per share was $0.20 compared to diluted earnings per share of $0.25 in Q3 FY’12.

 

  •  

The Company completed its previously announced acquisition of Minneapolis-based PDI Ninth House, a leading, globally-recognized provider of leadership assessment and development solutions.

 

  •  

The Company entered into a five-year, $75 million unsecured revolving credit facility, increasing its borrowing capacity and significantly improving the terms and conditions from the Company’s previous credit agreement.

Los Angeles, CA, March 6, 2013 - Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced third quarter adjusted diluted earnings per share of $0.31 compared to adjusted diluted earnings per share of $0.26 in the three months ended January 31, 2012, excluding restructuring, transaction and integration, and separation costs, of $7.5 million and $0.9 million, respectively. Including such costs, diluted earnings per share was $0.20 and $0.25 in the three months ended January 31, 2013 and 2012, respectively.

“I am pleased with the results of our fiscal 2013 third quarter, which once again included year over year growth within our broader talent management offerings,” said Gary D. Burnison, CEO of Korn/Ferry International. “Korn/Ferry continues to evolve from finding great people, to finding out ‘who they are,’ to helping companies design, build and develop winning teams through the right combination of talent. As the world continues to evolve, we are at the forefront—agile and committed to defining who we are, one client, one candidate at a time.”

As a global provider of talent management solutions, Korn/Ferry contributes to the success of its clients by more efficiently and effectively linking their business and talent strategies. Korn/Ferry helps create high performing organizations through three broad categories: Talent Strategy Design, Talent Development and Talent Attraction.


As part of its talent strategy design capabilities, Korn/Ferry offers organizational design, strategy and talent alignment and integrated talent management solutions. In helping clients build and develop talent capability, Korn/Ferry offers board effectiveness, succession planning, CEO and top team effectiveness, assessment, leadership and employee development, diversity and inclusion consulting and on-line and branded learning products and offerings. Talent attraction solutions include board, executive, professional and project recruitment; recruitment process outsourcing; on-boarding; and, talent communications and employer branding.

Financial Results

(dollars in millions, except per share amounts)

 

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

Fee revenue

   $ 202.0      $ 185.9      $ 584.9      $ 592.4   

Total revenue

   $ 210.3      $ 194.6      $ 611.1      $ 619.2   

Operating income

   $ 8.7      $ 16.2      $ 28.5      $ 67.5   

Operating margin

     4.3     8.7     4.9     11.4

Net income

   $ 9.5      $ 11.7      $ 21.1      $ 42.3   

Basic earnings per share

   $ 0.20      $ 0.25      $ 0.45      $ 0.91   

Diluted earnings per share

   $ 0.20      $ 0.25      $ 0.44      $ 0.90   
     Third Quarter     Year to Date  
EBITDA Results (a):    FY’13     FY’12     FY’13     FY’12  

EBITDA

   $ 17.7      $ 21.6      $ 47.0      $ 76.1   

EBITDA margin

     8.8     11.6     8.0     12.8
     Third Quarter     Year to Date  
Adjusted Results (b):    FY’13     FY’12     FY’13     FY’12  

Operating income

   $ 16.2      $ 17.1      $ 51.5      $ 68.4   

Operating margin

     8.0     9.2     8.8     11.6

EBITDA (a)

   $ 25.2      $ 22.5      $ 70.0      $ 77.0   

EBITDA margin (a)

     12.5     12.1     12.0     13.0

Net income

   $ 15.0      $ 12.3      $ 37.2      $ 42.9   

Basic earnings per share

   $ 0.32      $ 0.26      $ 0.79      $ 0.93   

Diluted earnings per share

   $ 0.31      $ 0.26      $ 0.78      $ 0.91   

 

(a) EBITDA refers to earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA to exclude restructuring charges, transaction and integration costs and separation charges. EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliation).
(b) Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):

 

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

Restructuring charges

   $ 4.4       $ 0.9       $ 19.9       $ 0.9   

Transaction and integration costs

   $ 2.5       $  —         $ 2.5       $  —     

Separation charges

   $ 0.6       $ —         $ 0.6       $ —     

Results for the three months ended January 31, 2013

Fee revenue was $202.0 million in the three months ended January 31, 2013, an increase of $16.1 million, or 9%, compared to the year-ago quarter, due to a $13.1 million and $4.5 million increase in fee revenue in Leadership & Talent Consulting and Futurestep, respectively, partially offset by a decrease in fee revenue of $1.5 million in Executive Recruitment. The increase in fee revenue was driven by increases in the majority of market sectors with the largest increases in financial services, life science/healthcare, consumer and technology sectors, partially offset by a decrease in the industrial sector.


Excluding PDI Ninth House and Global Novations, fee revenue was $190.4 million in the three months ended January 31, 2013, an increase of $4.5 million, or 2% compared to the year-ago quarter. This increase in fee revenue was primarily attributable to an increase in Futurestep fee revenue and to a lesser extent, an increase in Leadership & Talent Consulting fee revenue, offset by a decrease in Executive Recruitment fee revenue as described in the following results for each segment below.

Compensation and benefit expenses were $139.8 million in three months ended January 31, 2013, an increase of $14.1 million, or 11%, compared to the year-ago quarter. The acquisitions of PDI Ninth House and Global Novations contributed 7% to the increase in compensation and benefit expenses. Compensation and benefit expenses were also higher due to an increase in performance related bonus expense. Also included in compensation and benefits expenses was a decrease in salaries and related payroll taxes due to lower consultant headcount in Executive Recruitment and Futurestep mainly due to our restructuring efforts in Q2 FY’13. This decrease was primarily offset by an increase in outside contractor expense (temporary service personnel) and an increase in the fair value of amounts owed under certain deferred compensation plans, which was partially offset by an increase in the fair value of marketable securities classified as trading recorded in other income (loss).

General and administrative expenses were $35.9 million in the three months ended January 31, 2013, an increase of $0.7 million, or 2%, from the year-ago quarter. PDI Ninth House and Global Novations contributed $2.0 million to the increase in general and administrative expenses for the three months ended January 31, 2013 and the Company incurred transaction and integration cost of $2.5 million as a result of the acquisition of PDI Ninth House. These increases in general and administrative expenses were offset by a decrease in legal and other professional service fees and a foreign exchange gain in the current quarter compared to a foreign exchange loss in the year-ago quarter.

As previously disclosed, during the three months ended January 31, 2013, the Company took steps to integrate PDI Ninth House. As a result, the Company recorded restructuring charges of $4.4 million in order to eliminate redundant positions.

Excluding restructuring, transaction and integration, and separation costs, adjusted operating income was $16.2 million, during the three months ended January 31, 2013, a decrease of $0.9 million, or 5%, compared to the year-ago quarter. Adjusted operating margin declined by 1.2 percentage points primarily due to a change in mix of fee revenues and various expense items described above. On a GAAP basis, including restructuring, transaction and integration, and separation charges, operating income was $8.7 million in three months ended January 31, 2013, a decrease of $7.5 million, or 46%, compared to the year-ago quarter.

Balance Sheet and Liquidity

Cash and marketable securities were $305.3 million and $352.4 million at January 31, 2013 and 2012, respectively, compared to $417.7 million at April 30, 2012. Cash and marketable securities include $95.8 million and $80.5 million held in trust for deferred compensation plans at January 31, 2013 and 2012, respectively, compared to $82.2 million at April 30, 2012. Cash and marketable securities decreased by $112.4 million from April 30, 2012, mainly due to the payment of FY’12 annual bonuses in Q1 FY’13 and the payment for the acquisitions of PDI Ninth House and Global Novations in the nine months ended January 31, 2013, 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 reports its results 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)

 

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

Fee revenue

   $ 130.5      $ 132.0      $ 385.7      $ 424.0   

Total revenue

   $ 135.7      $ 138.5      $ 402.0      $ 443.1   

Operating income

   $ 21.6      $ 22.3      $ 54.5      $ 87.5   

Operating margin

     16.6     16.9     14.1     20.6

Ending number of consultants

     390        398        390        398   

Average number of consultants

     396        408        395        419   

Engagements billed

     2,670        2,735        5,944        6,397   

New engagements (a)

     1,138        1,181        3,519        3,817   
     Third Quarter     Year to Date  
EBITDA Results (b):    FY’13     FY’12     FY’13     FY’12  

EBITDA

   $ 24.4      $ 24.3      $ 61.8      $ 93.2   

EBITDA margin

     18.7     18.4     16.0     22.0
     Third Quarter     Year to Date  
Adjusted Results (c):    FY’13     FY’12     FY’13     FY’12  

Operating income

   $ 22.2      $ 23.1      $ 65.8      $ 88.3   

Operating margin

     17.0     17.5     17.1     20.8

EBITDA (b)

   $ 25.0      $ 25.1      $ 73.1      $ 94.0   

EBITDA margin (b)

     19.1     19.0     19.0     22.2

 

(a) Represents new engagements opened in the respective period.
(b) EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(c) Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):

 

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

Restructuring charges

   $  —         $ 0.8       $ 10.7       $ 0.8   

Separation charges

   $ 0.6       $  —         $ 0.6       $  —     

Results for the three months ended January 31, 2013 – Executive Recruitment

Within our Executive Recruitment segment, we offer Board of Director and C-level recruitment as well as a robust set of research-based interviewing and onboarding solutions. Our industry leading executive recruitment offering is backed by the strength of our statistically validated assessment tools, which have been proven to improve candidate fit as well as the results of our search process. Korn/Ferry provides its offerings in over 75 offices on six continents.

Fee revenue was $130.5 million in the three months ended January 31, 2013, a decrease of $1.5 million, or 1%, when compared with the year-ago quarter. Fee revenue decreased slightly in Europe and North America while Asia and Latin America were relatively flat compared to the year-ago quarter. The decrease in fee revenues was due to a 2% decrease in the number of executive recruitment engagements billed, offset by a 1% increase in the weighted-average fee billed per engagement compared to the year-ago quarter.

Excluding restructuring and separation charges, adjusted operating income was $22.2 million in the three months ended January 31, 2013, a decrease of $0.9 million, or 4%, compared year-ago quarter. This decrease is primarily attributable to an increase in compensation and benefits expense of $1.9 million in the three months ended January 31, 2013 compared to the year-ago quarter and a decrease in fee revenue of $1.5 million, offset by a decrease in general and administrative expense of $3.2 million. The increase in compensation and benefits expense primarily resulted from an increase in performance related bonus expense and an increase in the fair value of amounts owed under certain compensation plans during the period, offset by a decrease salaries and related payroll taxes due to lower consultant headcount. The decrease in general and administrative expenses was primarily due to favorable foreign exchange rates in the current quarter compared to the year-ago quarter, a decrease in bad debt expense due to a decline in historical bad debt trends, and a reduction in premise expense due to our restructuring in Q2 FY’13.

 


Selected Leadership & Talent Consulting Data

(dollars in millions)

 

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

Fee revenue

   $ 41.2      $ 28.1      $ 108.0      $ 83.8   

Total revenue

   $ 43.1      $ 29.1      $ 113.5      $ 87.1   

Operating (loss) income

   $ (2.8   $ 5.2      $ 7.7      $ 11.4   

Operating margin

     (6.8 )%      18.5     7.1     13.6

Ending number of consultants (a)

     149        52        149        52   

Staff utilization (b)

     58     58     63     60

 

                                           
     Third Quarter     Year to Date  
EBITDA Results (c):    FY’13     FY’12     FY’13     FY’12  

EBITDA

   $ (1.0   $ 6.0      $ 11.2      $ 13.5   

EBITDA margin

     (2.4 )%      21.4     10.3     16.1

 

                                           
     Third Quarter     Year to Date  
Adjusted Results (d):    FY’13     FY’12     FY’13     FY’12  

Operating income

   $ 1.6      $ 5.2      $ 12.8      $ 11.4   

Operating margin

     4.0     18.5     11.9     13.6

EBITDA (c)

   $ 3.4      $ 6.0      $ 16.3      $ 13.5   

EBITDA margin (c)

     8.4     21.4     15.1     16.1

 

(a) Represents number of employees originating consulting services. FY’13 includes 20 consultants from the Global Novations acquisition and 72 consultants from the PDI 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. Excluding professional staff from the recent acquisitions of PDI Ninth House and Global Novations, staff utilization was 57% and 62% for the three and nine months ended January 31, 2013, respectively.
(c) EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(d) Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):

 

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

Restructuring charges

   $ 4.4       $ —         $ 5.1       $ —     

Results for the three months ended January 31, 2013 – Leadership & Talent Consulting

As a preeminent leadership firm, we help teams and organizations drive accelerated business results and achieve sustainable change. Our Leadership & Talent Consulting segment, operating in 19 countries around the world with 979 colleagues, includes both consulting services and product revenue. Service and product offerings in this segment include: Leadership Strategy, Board, CEO and Top Team Effectiveness, Succession Planning, Assessment, Leadership and Employee Development, Diversity and Inclusion as well as a rich library of online and blended learning modules.


Fee revenue was $41.2 million in the three months ended January 31, 2013, an increase of $13.1 million, or 47%, from the year-ago quarter. The improvement in fee revenue was driven by the acquisitions of PDI Ninth House and Global Novations. Also contributing to the increase in fee revenue was an increase in product revenue and consulting fee revenue due to an increase in consulting fee revenue per client. Excluding PDI Ninth House and Global Novations, the fee revenue increased 5%, which was driven by increases in fee revenue in North America and Asia.

Excluding restructuring charges, adjusted operating income was $1.6 million in the three months ended January 31, 2013, a decrease of $3.6 million, or 69%, compared to the year-ago quarter. The decrease is primarily attributed to lower billable hours resulting from the ongoing integration activities associated with integrating both PDI Ninth House and Global Novations into our legacy Leadership & Talent Consulting business. Fee revenues and operating income were also adversely affected by lower realized revenue per billable hour and lower new business volumes. In addition, amortization increased by $0.9 million due to the acquisitions of PDI Ninth House and Global Novations, bad debt expense increased and the use of contractors increased due to the mix of work in the current quarter compared to the year earlier quarter. On a GAAP basis, and thus including restructuring charges of $4.4 million in the three months January 31, 2013, operating loss was $2.8 million, a decrease of $8.0 million compared to the year-ago quarter.

Selected Futurestep Data

(dollars in millions)

 

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

Fee revenue

   $ 30.3      $ 25.8      $ 91.2      $ 84.6   

Total revenue

   $ 31.5      $ 27.0      $ 95.6      $ 89.0   

Operating income

   $ 3.7      $ 1.5      $ 7.1      $ 7.1   

Operating margin

     12.3     5.6     7.8     8.4

Engagements billed

     1,813        1,588        4,419        3,849   

New engagements (a)

     1,163        905        3,571        2,898   

 

                                           
     Third Quarter     Year to Date  
EBITDA Results (b):    FY’13     FY’12     FY’13     FY’12  

EBITDA

   $ 4.1      $ 1.7      $ 8.1      $ 7.9   

EBITDA margin

     13.3     6.6     8.9     9.4

 

                                           
     Third Quarter     Year to Date  
Adjusted Results (c):    FY’13     FY’12     FY’13     FY’12  

Operating income

   $ 3.7      $ 1.6      $ 10.2      $ 7.2   

Operating margin

     12.3     6.1     11.2     8.6

EBITDA (b)

   $ 4.1      $ 1.8      $ 11.2      $ 8.0   

EBITDA margin (b)

     13.3     7.2     12.3     9.5

 

(a) Represents new engagements opened in the respective period.
(b) EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).
(c) Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):

 

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

Restructuring charges

   $ —         $ 0.1       $ 3.1       $ 0.1   


Results for the three months ended January 31, 2013 – Futurestep

Futurestep is a global industry leader in high impact enterprise wide consulting and recruitment solutions. Operating in 17 countries with 792 colleagues, Futurestep can meet a variety of workforce requirements; from Recruitment Process Outsourcing (RPO) and project recruitment to professional and knowledge worker search to talent consulting offerings. This segment also includes revenue from helping organizations design and develop their Employer Brand as well as build robust pools of future employees through our Talent Communities and Communications offering.

Fee revenue was $30.3 million in the three months ended January 31, 2013, an increase of $4.5 million, or 17%, compared to the year-ago quarter. The improvement in fee revenue was driven by a 14% increase in the number of engagements billed and a 2% increase in the weighted average fee per engagement. The increase in fee revenue was due to an increase in recruitment process outsourcing and middle management recruitment.

Excluding restructuring charges, adjusted operating income was $3.7 million in the three months ended January 31, 2013, an increase of $2.1 million, or 131%, 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 of $1.3 million due in large part to the increase in performance related bonus expense.

Outlook

In looking ahead to Q4 FY’13, assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, Q4 FY’13 fee revenue is likely to be in the range of $210 million to $230 million. In Q4 FY’13, as we drive the next phase of our worldwide integration with PDI-Ninth House which involves the consolidation and elimination of redundant office space around the world, lease termination, fixed asset write-offs and other charges associated with the consolidation are estimated to be in the range of $3.5 million to $5.5 million and are estimated to result in $2.0 million to $3.0 million of annual savings starting primarily in FY’14. Excluding these estimated charges, adjusted diluted earnings per share in the fourth quarter are likely to be in the range of $0.28 to $0.34 with diluted earnings per share as measured by generally accepted accounting principles likely to be in the range of $0.21 to $0.29.

Earnings Conference Call Webcast

The earnings conference call will be held today at 4:30 PM (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. 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, transaction and integration and separation costs;

 

  •  

adjusted net income, adjusted to exclude restructuring, transaction and integration and separation costs, net income tax effect;

 

  •  

adjusted basic and diluted earnings per share, adjusted to exclude restructuring, transaction and integration and separation costs;

 

  •  

EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin; and

 

  •  

adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring, transaction and integration and separation costs, and adjusted EBITDA margin.

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.

[Tables attached]


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

     Three Months Ended     Nine Months Ended  
     January 31,     January 31,  
     2013     2012     2013     2012  
     (unaudited)  

Fee revenue

   $ 202,004      $ 185,951      $ 584,929      $ 592,418   

Reimbursed out-of-pocket engagement expenses

     8,268        8,672        26,165        26,783   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     210,272        194,623        611,094        619,201   
  

 

 

   

 

 

   

 

 

   

 

 

 

Compensation and benefits

     139,788        125,741        400,859        394,593   

General and administrative expenses

     35,915        35,242        102,675        104,204   

Engagement expenses

     16,334        13,023        46,013        41,594   

Depreciation and amortization

     5,088        3,523        13,127        10,367   

Restructuring charges, net

     4,441        929        19,936        929   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     201,566        178,458        582,610        551,687   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     8,706        16,165        28,484        67,514   

Other income (loss), net

     3,296        1,607        3,808        (3,032

Interest expense, net

     (360     (310     (1,721     (1,280
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     11,642        17,462        30,571        63,202   

Income tax provision

     2,753        6,038        11,042        22,199   

Equity in earnings of unconsolidated subsidiaries, net

     593        293        1,567        1,272   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 9,482      $ 11,717      $ 21,096      $ 42,275   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share:

        

Basic

   $ 0.20      $ 0.25      $ 0.45      $ 0.91   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.20      $ 0.25      $ 0.44      $ 0.90   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding:

        

Basic

     47,367        46,528        47,149        46,332   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     48,015        47,345        47,742        47,193   
  

 

 

   

 

 

   

 

 

   

 

 

 


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)

 

     Three Months Ended January 31,     Nine Months Ended January 31,  
     2013           2012     % Change     2013           2012     % Change  

Fee Revenue:

                

Executive recruitment:

                

North America

   $ 71,259        $ 72,000        (1 %)    $ 212,806        $ 229,449        (7 %) 

EMEA

     33,600          34,442        (2 %)      96,565          108,681        (11 %) 

Asia Pacific

     18,301          18,383        (0 %)      54,022          62,706        (14 %) 

South America

     7,334          7,256        1     22,295          23,204        (4 %) 
  

 

 

     

 

 

     

 

 

     

 

 

   

Total executive recruitment

     130,494          132,081        (1 %)      385,688          424,040        (9 %) 

Leadership & Talent Consulting

     41,155          28,031        47     107,999          83,757        29

Futurestep

     30,355          25,839        17     91,242          84,621        8
  

 

 

     

 

 

     

 

 

     

 

 

   

Total fee revenue

     202,004          185,951        9     584,929          592,418        (1 %) 

Reimbursed out-of-pocket engagement expenses

     8,268          8,672        (5 %)      26,165          26,783        (2 %) 
  

 

 

     

 

 

     

 

 

     

 

 

   

Total revenue

   $ 210,272        $ 194,623        8   $ 611,094        $ 619,201        (1 %) 
  

 

 

     

 

 

     

 

 

     

 

 

   

Reconciliation of Operating Income (GAAP) to Adjusted Operating Income

  

   
            Margin           Margin           Margin           Margin  

Operating Income:

                

Executive recruitment:

                

North America

   $ 14,637        20.5   $ 15,616        21.7   $ 41,728        19.6   $ 58,432        25.5

EMEA

     4,177        12.4     3,522        10.2     5,036        5.2     13,554        12.5

Asia Pacific

     1,913        10.5     1,397        7.6     3,491        6.5     8,858        14.1

South America

     920        12.5     1,786        24.6     4,226        19.0     6,671        28.7
  

 

 

     

 

 

     

 

 

     

 

 

   

Total executive recruitment

     21,647        16.6     22,321        16.9     54,481        14.1     87,515        20.6

Leadership & Talent Consulting

     (2,798     (6.8 %)      5,195        18.5     7,716        7.1     11,389        13.6

Futurestep

     3,722        12.3     1,441        5.6     7,141        7.8     7,112        8.4

Corporate

     (13,865       (12,792       (40,854       (38,502  
  

 

 

     

 

 

     

 

 

     

 

 

   

Total operating income

   $ 8,706        4.3   $ 16,165        8.7   $ 28,484        4.9   $ 67,514        11.4
  

 

 

     

 

 

     

 

 

     

 

 

   

Restructuring, Transaction and Integration, and Separation Costs, net:

                

Executive recruitment:

                

North America

   $ —          —        $ (15     (0.0 %)    $ 5,436        2.6   $ (15     (0.0 %) 

EMEA

     516        1.6     897        2.6     5,268        5.5     897        0.8

Asia Pacific

     —           —           —           0.0     613        1.1     —           0.0

South America

     —           —           (99     (1.4 %)      —           —           (99     (0.4 %) 
  

 

 

     

 

 

     

 

 

     

 

 

   

Total executive recruitment

     516        0.4     783        0.6     11,317        3.0     783        0.2

Leadership & Talent Consulting

     4,441        10.8     —           0.0     5,118        4.8     —           0.0

Futurestep

     —           —           146        0.5     3,086        3.4     146        0.2

Corporate

     2,515          —             3,446          —        
  

 

 

     

 

 

     

 

 

     

 

 

   

Total restructuring, transaction and integration, and separation charges, net

   $ 7,472        3.7   $ 929        0.5   $ 22,967        3.9   $ 929        0.2
  

 

 

     

 

 

     

 

 

     

 

 

   
           Margin           Margin           Margin           Margin  

Adjusted Operating Income:

(Excluding Restructuring, Transaction and Integration, and Separation Costs, net)

                

Executive recruitment:

                

North America

   $ 14,637        20.5   $ 15,601        21.7   $ 47,164        22.2   $ 58,417        25.5

EMEA

     4,693        14.0     4,419        12.8     10,304        10.7     14,451        13.3

Asia Pacific

     1,913        10.5     1,397        7.6     4,104        7.6     8,858        14.1

South America

     920        12.5     1,687        23.2     4,226        19.0     6,572        28.3
  

 

 

     

 

 

     

 

 

     

 

 

   

Total executive recruitment

     22,163        17.0     23,104        17.5     65,798        17.1     88,298        20.8

Leadership & Talent Consulting

     1,643        4.0     5,195        18.5     12,834        11.9     11,389        13.6

Futurestep (1)

     3,722        12.3     1,587        6.1     10,227        11.2     7,258        8.6

Corporate

     (11,350       (12,792       (37,408       (38,502  
  

 

 

     

 

 

     

 

 

     

 

 

   

Total adjusted operating income

   $ 16,178        8.0   $ 17,094        9.2   $ 51,451        8.8   $ 68,443        11.6
  

 

 

     

 

 

     

 

 

     

 

 

   

 

(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 $1.7 million offset by a decrease in Executive Recruitment operating income in the three and nine months ended January 31, 2012, respectively.


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

     January 31,     April 30,  
     2013     2012  
     (unaudited)        

ASSETS

    

Cash and cash equivalents

   $ 168,235      $ 282,005   

Marketable securities

     23,318        40,936   

Receivables due from clients, net of allowance for doubtful accounts of $11,027 and $9,437 respectively

     164,870        126,579   

Income taxes and other receivables

     20,923        11,902   

Deferred income taxes

     7,971        10,830   

Prepaid expenses and other assets

     30,513        27,815   
  

 

 

   

 

 

 

Total current assets

     415,830        500,067   
  

 

 

   

 

 

 

Marketable securities, non-current

     113,793        94,798   

Property and equipment, net

     50,466        49,808   

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

     83,534        77,848   

Deferred income taxes

     49,143        57,290   

Goodwill

     261,182        176,338   

Intangible assets, net

     59,734        20,413   

Investments and other assets

     29,708        38,127   
  

 

 

   

 

 

 

Total assets

   $ 1,063,390      $ 1,014,689   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Accounts payable

   $ 16,476      $ 14,667   

Income taxes payable

     5,576        8,720   

Compensation and benefits payable

     127,179        160,810   

Other accrued liabilities

     85,116        37,527   
  

 

 

   

 

 

 

Total current liabilities

     234,347        221,724   
  

 

 

   

 

 

 

Deferred compensation and other retirement plans

     148,651        142,577   

Other liabilities

     22,169        20,912   
  

 

 

   

 

 

 

Total liabilities

     405,167        385,213   
  

 

 

   

 

 

 

Stockholders’ equity

    

Common stock: $0.01 par value, 150,000 shares authorized, 60,912 and 59,975 shares issued and 48,630 and 47,913 shares outstanding, respectively

     427,693        419,998   

Retained earnings

     223,893        202,797   

Accumulated other comprehensive income, net

     7,139        7,191   
  

 

 

   

 

 

 

Stockholders’ equity

     658,725        629,986   

Less: notes receivable from stockholders

     (502     (510
  

 

 

   

 

 

 

Total stockholders’ equity

     658,223        629,476   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,063,390      $ 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  
     January 31, 2013     January 31, 2012  
     As Reported     Adjustments     As Adjusted     As Reported     Adjustments     As Adjusted  

Fee revenue

   $ 202,004        $ 202,004      $ 185,951        $ 185,951   

Reimbursed out-of-pocket engagement expenses

     8,268          8,268        8,672          8,672   
  

 

 

     

 

 

   

 

 

     

 

 

 

Total revenue

     210,272          210,272        194,623          194,623   
  

 

 

     

 

 

   

 

 

     

 

 

 

Compensation and benefits

     139,788        (516     139,272        125,741          125,741   

General and administrative expenses

     35,915        (2,515     33,400        35,242          35,242   

Engagement expenses

     16,334          16,334        13,023          13,023   

Depreciation and amortization

     5,088          5,088        3,523          3,523   

Restructuring charges, net

     4,441        (4,441     —           929        (929     —      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     201,566        (7,472     194,094        178,458        (929     177,529   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     8,706        7,472        16,178        16,165        929        17,094   

Other income, net

     3,296          3,296        1,607          1,607   

Interest expense, net

     (360       (360     (310       (310
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     11,642        7,472        19,114        17,462        929        18,391   

Income tax provision (1) (2)

     2,753        1,945        4,698        6,038        328        6,366   

Equity in earnings of unconsolidated subsidiaries, net

     593          593        293          293   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 9,482      $ 5,527      $ 15,009      $ 11,717      $ 601      $ 12,318   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share:

            

Basic

   $ 0.20        $ 0.32      $ 0.25        $ 0.26   
  

 

 

     

 

 

   

 

 

     

 

 

 

Diluted

   $ 0.20        $ 0.31      $ 0.25        $ 0.26   
  

 

 

     

 

 

   

 

 

     

 

 

 

Weighted-average common shares outstanding:

            

Basic

     47,367          47,367        46,528          46,528   
  

 

 

     

 

 

   

 

 

     

 

 

 

Diluted

     48,015          48,015        47,345          47,345   
  

 

 

     

 

 

   

 

 

     

 

 

 

Explanation of Non-GAAP Adjustments

 

(1) The adjustments result in an effective tax rate of 25% and 35% for the as adjusted amounts for the three months ended January 31, 2013 and 2012, respectively.
(2) The three months ended January 31, 2013 includes the tax effect on restructuring charges, transaction and integration costs associated with the acquisition of PDI Ninth House, and separation charges, while the three months ended January 31, 2012 includes the tax effect on restructuring charges.


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)

 

    Nine Months Ended
January 31, 2013
    Nine Months Ended
January 31, 2012
 
    As Reported     Adjustments     As Adjusted     As Reported     Adjustments     As Adjusted  

Fee revenue

  $ 584,929        $ 584,929      $ 592,418        $ 592,418   

Reimbursed out-of-pocket engagement expenses

    26,165          26,165        26,783          26,783   
 

 

 

     

 

 

   

 

 

     

 

 

 

Total revenue

    611,094          611,094        619,201          619,201   
 

 

 

     

 

 

   

 

 

     

 

 

 

Compensation and benefits

    400,859        (516     400,343        394,593          394,593   

General and administrative expenses

    102,675        (2,515     100,160        104,204          104,204   

Engagement expenses

    46,013          46,013        41,594          41,594   

Depreciation and amortization

    13,127          13,127        10,367          10,367   

Restructuring charges, net

    19,936        (19,936     —           929        (929     —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    582,610        (22,967     559,643        551,687        (929     550,758   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    28,484        22,967        51,451        67,514        929        68,443   

Other income (loss), net

    3,808          3,808        (3,032       (3,032

Interest expense, net

    (1,721       (1,721     (1,280       (1,280
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    30,571        22,967        53,538        63,202        929        64,131   

Income tax provision (1) (2)

    11,042        6,834        17,876        22,199        328        22,527   

Equity in earnings of unconsolidated subsidiaries, net

    1,567          1,567        1,272          1,272   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 21,096      $ 16,133      $ 37,229      $ 42,275      $ 601      $ 42,876   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share:

           

Basic

  $ 0.45        $ 0.79      $ 0.91        $ 0.93   
 

 

 

     

 

 

   

 

 

     

 

 

 

Diluted

  $ 0.44        $ 0.78      $ 0.90        $ 0.91   
 

 

 

     

 

 

   

 

 

     

 

 

 

Weighted-average common shares outstanding:

           

Basic

    47,149          47,149        46,332          46,332   
 

 

 

     

 

 

   

 

 

     

 

 

 

Diluted

    47,742          47,742        47,193          47,193   
 

 

 

     

 

 

   

 

 

     

 

 

 

Explanation of Non-GAAP Adjustments

 

(1) The adjustments result in an annual effective tax rate of 33% and 35% for the as adjusted amounts for the nine months ended January 31, 2013 and 2012, respectively.
(2) The nine months ended January 31, 2013 includes the tax effect on restructuring charges, transaction and integration costs associated with the acquisition of PDI Ninth House, and separation charges, while the nine months ended January 31, 2012 includes the tax effect on restructuring charges.


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

 

    Three Months Ended January 31, 2013  
    Executive
Search
    Leadership
& Talent
Consulting
    Futurestep     Corporate     Consolidated  

Fee revenue

  $ 130,494      $ 41,155      $ 30,355      $ —        $ 202,004   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

          $ 9,482   

Other income, net

            3,296   

Interest expense, net

            (360

Income tax provision

            2,753   

Equity in earnings of unconsolidated subsidiaries, net

            593   
         

 

 

 

Operating income (loss)

  $ 21,647      $ (2,798   $ 3,722      $ (13,865     8,706   

Depreciation and amortization

    2,247        1,764        324        753        5,088   

Other income, net

    325        37        5        2,929        3,296   

Equity in earnings of unconsolidated subsidiaries, net

    148        —           —           445        593   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    24,367        (997     4,051        (9,738     17,683   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

    18.7     (2.4 %)      13.3       8.8

Restructuring charges, net

    —           4,441        —           —           4,441   

Transaction and integration costs

    —           —           —           2,515        2,515   

Separation costs

    516        —           —           —           516   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 24,883      $ 3,444      $ 4,051      $ (7,223   $ 25,155   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

    19.1     8.4     13.3       12.5
    Three Months Ended January 31, 2012  
    Executive
Search
    Leadership
& Talent
Consulting
    Futurestep     Corporate     Consolidated  

Fee revenue

  $ 132,081      $ 28,031      $ 25,839      $ —        $ 185,951   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

          $ 11,717   

Other income, net

            1,607   

Interest expense, net

            (310

Income tax provision

            6,038   

Equity in earnings of unconsolidated subsidiaries, net

            293   
         

 

 

 

Operating income (loss)

  $ 22,321      $ 5,195      $ 1,441      $ (12,792     16,165   

Depreciation and amortization

    2,057        661        253        552        3,523   

Other (loss) income, net

    (29     145        15        1,476        1,607   

Equity in earnings of unconsolidated subsidiaries, net

    —           —           —           293        293   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    24,349        6,001        1,709        (10,471     21,588   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

    18.4     21.4     6.6       11.6

Restructuring charges, net

    783        —           146        —           929   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 25,132      $ 6,001      $ 1,855      $ (10,471   $ 22,517   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

    19.0     21.4     7.2       12.1


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

 

     Nine Months Ended January 31, 2013  
     Executive
Search
    Leadership
& Talent
Consulting
    Futurestep     Corporate     Consolidated  

Fee revenue

   $ 385,688      $ 107,999      $ 91,242      $ —        $ 584,929   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

           $ 21,096   

Other income, net

             3,808   

Interest expense, net

             (1,721

Income tax provision

             11,042   

Equity in earnings of unconsolidated subsidiaries, net

             1,567   
          

 

 

 

Operating income (loss)

   $ 54,481      $ 7,716      $ 7,141      $ (40,854     28,484   

Depreciation and amortization

     6,748        3,387        940        2,052        13,127   

Other income, net

     275        71        15        3,447        3,808   

Equity in earnings of unconsolidated subsidiaries, net

     305        —           —           1,262        1,567   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     61,809        11,174        8,096        (34,093     46,986   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     16.0     10.3     8.9       8.0

Restructuring charges, net

     10,801        5,118        3,086        931        19,936   

Transaction and integration costs

     —           —           —           2,515        2,515   

Separation costs

     516        —           —           —           516   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 73,126      $ 16,292      $ 11,182      $ (30,647   $ 69,953   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

     19.0     15.1     12.3       12.0
     Nine Months Ended January 31, 2012  
     Executive
Search
    Leadership
& Talent
Consulting
    Futurestep     Corporate     Consolidated  

Fee revenue

   $ 424,040      $ 83,757      $ 84,621      $ —        $ 592,418   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

           $ 42,275   

Other loss, net

             (3,032

Interest expense, net

             (1,280

Income tax provision

             22,199   

Equity in earnings of unconsolidated subsidiaries, net

             1,272   
          

 

 

 

Operating income (loss)

   $ 87,515      $ 11,389      $ 7,112      $ (38,502     67,514   

Depreciation and amortization

     6,037        1,942        785        1,603        10,367   

Other (loss) income, net

     (363     128        32        (2,829     (3,032

Equity in earnings of unconsolidated subsidiaries, net

     —           —           —           1,272        1,272   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     93,189        13,459        7,929        (38,456     76,121   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     22.0     16.1     9.4       12.8

Restructuring charges, net

     783        —           146        —           929   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 93,972      $ 13,459      $ 8,075      $ (38,456   $ 77,050   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

     22.2     16.1     9.5       13.0