Form: 8-K/A

Current report filing

June 19, 2013

Exhibit 99.1

CORRECTION

For Immediate Release

Contacts:

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

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

Korn/Ferry International Announces Fourth Quarter and Fiscal 2013

Results of Operations

Highlights

 

  • Korn/Ferry reports record quarterly fee revenue of $227.9 million in the fourth quarter of 2013, an increase of 17% compared to Q4 FY’12, on a constant currency basis. Excluding current year acquisitions, quarterly fee revenues increased 2% on a constant currency basis.

 

  • Fee revenue in Leadership & Talent Consulting services grew 92% from Q4 FY’12 to Q4 FY’13 on a constant currency basis. Excluding current year acquisitions, fourth quarter revenues were essentially flat year-over-year, on a constant currency basis.

 

  • Fee revenue in Futurestep grew 7 %, from Q4 FY’12 to Q4 FY’13, on a constant currency basis.

 

  • For the full year of FY’13, Korn/Ferry reports record annual fee revenue of $812.8 million, an increase of 5% over FY’12, on a constant currency basis. Excluding current year acquisitions, annual fee revenues were down 1% on a constant currency basis.

Los Angeles, CA, June 17, 2013 - Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced record quarterly and annual fee revenues of $227.9 million and $812.8 million for the fourth quarter and full year of FY’13, respectively. Fourth quarter adjusted diluted earnings per share were $0.32, excluding restructuring and transaction and integration costs of $3.5 million. Full year adjusted diluted earnings per share were $1.10, excluding restructuring, transaction and integration, and separation costs of $26.5 million. Including such costs, diluted earnings per share was $0.25 and $0.70 in the three months and year ended April 30, 2013, respectively.

“I am pleased with our strategic progress and operating results for the fourth quarter, which includes accelerating the integration of our recent acquisitions as well as further diversifying and differentiating our Company. In the fourth quarter, Korn/Ferry’s broader talent management offerings accounted for 40% of fee revenue which reflects the Company’s transformation as a talent management consultancy,” said Gary D. Burnison, CEO of Korn/Ferry International. “As global companies fight for growth and relevancy in this decade, talent will be the differentiator—Korn/Ferry is the bridge between a client’s business and talent strategy—delivering solutions that help our clients with the design, building and attraction of that talent.”


Financial Results

(dollars in millions, except per share amounts)

 

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

Fee revenue

   $ 227.9      $ 198.1      $ 812.8      $ 790.5   

Total revenue

   $ 238.6      $ 207.6      $ 849.7      $ 826.8   

Operating income

   $ 15.4      $ 15.4      $ 43.9      $ 82.9   

Operating margin

     6.8     7.8     5.4     10.5

Net income

   $ 12.2      $ 12.0      $ 33.3      $ 54.3   

Basic earnings per share

   $ 0.26      $ 0.26      $ 0.71      $ 1.17   

Diluted earnings per share

   $ 0.25      $ 0.25      $ 0.70      $ 1.15   
     Fourth Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

EBITDA Results (a):

        

EBITDA

   $ 24.3      $ 22.4      $ 71.3      $ 98.5   

EBITDA margin

     10.7     11.3     8.8     12.5
     Fourth Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

Adjusted Results (b):

        

Operating income

   $ 18.9      $ 17.3      $ 70.4      $ 85.7   

Operating margin

     8.3     8.7     8.7     10.8

EBITDA (a)

   $ 27.8      $ 24.3      $ 97.8      $ 101.3   

EBITDA margin (a)

     12.2     12.2     12.0     12.8

Net income

   $ 15.6      $ 13.3      $ 52.8      $ 56.2   

Basic earnings per share

   $ 0.33      $ 0.28      $ 1.12      $ 1.21   

Diluted earnings per share

   $ 0.32      $ 0.28      $ 1.10      $ 1.19   

 

(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 costs. 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):

 

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

Restructuring charges, net of recoveries

   $ 2.9       $  —         $ 22.8       $ 0.9   

Transaction and integration costs

   $ 0.6       $ —         $ 3.1       $  —     

Separation costs

   $  —         $ 1.9       $ 0.6       $ 1.9   

Fiscal 2013 Fourth Quarter Results

Fee revenue was $227.9 million in Q4 FY’13, an increase of $29.8 million, or 15%, compared to the year-ago quarter (foreign exchange rates negatively impacted fee revenue by $2.9 million), primarily driven by a $28.5 million and a $1.7 million increase in fee revenue in Leadership & Talent Consulting and Futurestep. Excluding the PDI Ninth House and Global Novations acquisitions (the “current year acquisitions”), fee revenue was $199.1 million in Q4 FY’13, an increase of 1% compared to the year-ago quarter (2% on a constant currency basis) driven by all market sectors with the largest increases in life science/healthcare, technology and the industrial sector.

Compensation and benefit expenses were $154.4 million in Q4 FY’13, an increase of $14.8 million, or 11%, compared to the year-ago quarter. The current year acquisitions contributed $18.6 million to the increase in compensation and benefit expenses, offset by a reduction of $3.8 million primarily in salaries and related payroll taxes due to lower average headcount in Executive Recruitment.

General and administrative expenses were $40.1 million in Q4 FY’13, an increase of $5.4 million, or 16%, from the year-ago quarter, resulting primarily from the current year acquisitions.


As previously disclosed, during Q4 FY’13, the Company took steps to integrate PDI Ninth House by consolidating and eliminating redundant office space around the world. As a result, the Company recorded net restructuring charges of $2.9 million in Q4 FY’13 and incurred transaction and integration costs of $0.6 million in Q4 FY’13. Excluding these costs, adjusted EBITDA was $27.8 million during Q4 FY’13, an increase of $3.5 million, or 14%, compared to Q4 FY’12. Adjusted EBITDA margin was 12.2% in both periods.

On a GAAP basis, operating income was $15.4 million in both Q4 FY’13 and Q4 FY’12 resulting in a margin of 6.8% in the current quarter compared to 7.8% in the year-ago quarter.

Fiscal 2013 Results

Fee revenue was $812.8 million in FY’13, an increase of $22.3 million, or 3%, compared to FY’12 (foreign exchange rates negatively impacted fee revenue by $15.1 million). Excluding current year acquisitions, fee revenue was $767.2 million in FY’13, a decrease of 3% (1% on a constant currency basis) compared to FY’12.

As previously disclosed, during FY’13, the Company took steps to rationalize its cost structure and to integrate the current year acquisitions. As a result, the Company recorded restructuring charges of $22.8 million to reduce its workforce and consolidate premises and incurred acquisition-related transaction and integration costs of $3.1 million in FY’13.

Adjusted EBITDA was $97.8 million during FY’13, a decrease of $3.5 million, or 3%, compared to FY’12. Adjusted EBITDA margin was 12.0%, down 80 basis points from the prior year. This decrease was primarily associated with the change in business mix and costs associated with incremental infrastructure and support services relating to the newly acquired businesses.

On a GAAP basis, operating income was $43.9 million in FY’13, a decrease of $39.0 million, or 47%, compared to FY’12 resulting in an operating margin of 5.4% in the current year compared to 10.5% in the prior year.

Balance Sheet and Liquidity

Cash and marketable securities were $366.0 million at April 30, 2013, compared to $417.7 million at April 30, 2012. Cash and marketable securities include $98.0 million held in trust for deferred compensation plans at April 30, 2013, compared to $82.2 million at April 30, 2012. Cash and marketable securities decreased by $51.7 million from April 30, 2012, mainly due to the payment of FY’12 annual bonuses in Q1 FY’13 and the payment for the current year acquisitions, 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)

 

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

Fee revenue

   $ 136.8      $ 137.2      $ 522.5      $ 561.2   

Total revenue

   $ 142.8      $ 143.4      $ 544.8      $ 586.5   

Operating income

   $ 26.5      $ 22.4      $ 81.0      $ 109.9   

Operating margin

     19.4     16.3     15.5     19.6

Ending number of consultants

     399        400        399        400   

Average number of consultants

     395        399        400        420   

Engagements billed

     2,718        2,692        7,554        7,879   

New engagements (a)

     1,231        1,175        4,750        4,963   
     Fourth Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

EBITDA Results (b):

        

EBITDA

   $ 29.4      $ 24.9      $ 91.2      $ 118.1   

EBITDA margin

     21.5     18.2     17.5     21.0
     Fourth Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

Adjusted Results (c):

        

Operating income

   $ 23.9      $ 22.4      $ 89.7      $ 110.7   

Operating margin

     17.5     16.3     17.2     19.7

EBITDA (a)

   $ 26.8      $ 24.9      $ 99.9      $ 118.9   

EBITDA margin (a)

     19.6     18.2     19.1     21.2

 

(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):

 

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

Restructuring charges, net of recoveries

   $ (2.6   $ —         $ 8.1       $ 0.8   

Separation costs

   $  —        $  —         $ 0.6       $  —     

Executive Recruitment

Fee revenue was $136.8 million in Q4 FY’13, essentially flat with the year-ago quarter (foreign exchange rates negatively impacted fee revenue by $1.9 million). Fee revenue increases in North America were offset by decreases in Europe, Asia and Latin America. Fee revenues were impacted by a 1% decrease in the weighted-average fee billed per engagement, offset by a 1% increase in the number of executive recruitment engagements billed compared to the year-ago quarter.

On a GAAP basis, operating income was $26.5 million in Q4 FY’13, an increase of $4.1 million, or 18%, compared to Q4 FY’12 resulting in an operating margin of 19.4% in the current quarter compared to 16.3% in the year-ago quarter.

Adjusted EBITDA was $26.8 million during Q4 FY’13, an increase of $1.9 million, or 8%, compared to Q4 FY’12. This increase is primarily attributable to a decrease in the average headcount and associated compensation and benefits costs during the quarter compared to the year-ago quarter. For the full year, adjusted EBITDA declined by $19.0 million due to a 5% decrease in fee revenue on a constant currency basis offset by reduced compensation and benefits and general and administrative expenses.


Selected Leadership & Talent Consulting Data

(dollars in millions)

 

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

Fee revenue

   $ 60.1      $ 31.6      $ 168.1      $ 115.4   

Total revenue

   $ 63.1      $ 33.2      $ 176.6      $ 120.3   

Operating (loss) income

   $ (1.3   $ 5.0      $ 6.4      $ 16.4   

Operating margin

     (2.1 )%      15.7     3.8     14.2

Ending number of consultants (a)

     133        51        133        51   

Staff utilization (b)

     67     67     64     62
     Fourth Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

EBITDA Results (c):

        

EBITDA

   $ 1.2      $ 5.6      $ 12.4      $ 19.1   

EBITDA margin

     2.0     17.9     7.4     16.6
     Fourth Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

Adjusted Results (d):

        

Operating income

   $ 3.8      $ 5.0      $ 16.6      $ 16.4   

Operating margin

     6.3     15.7     9.9     14.2

EBITDA (c)

   $ 6.3      $ 5.6      $ 22.6      $ 19.1   

EBITDA margin (c)

     10.4     17.9     13.4     16.6

 

(a) Represents number of employees originating consulting services. FY’13 includes approximately 81 consultants from the current year acquisitions.
(b) Calculated by dividing the number of hours of our full-time LTC professional staff, who recorded time to an engagement during the period, by the total available working hours during the same period. Excluding the current year acquisitions, staff utilization was 64% and 63% for the three months and year ended April 30, 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):

 

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

Restructuring charges, net of recoveries

   $ 5.1       $ —         $ 10.2       $ —     

Leadership & Talent Consulting

Fee revenue was $60.1 million in Q4 FY’13, an increase of $28.5 million, or 90%, from the year-ago quarter. Excluding the current year acquisitions, fee revenue in Q4 FY’13 was essentially flat compared to Q4 FY’12.

On a GAAP basis, operating loss was $1.3 million, a decrease of $6.3 million compared to the year-ago quarter resulting in an operating margin of (2.1%) in the current quarter compared to 15.7% in the year-ago quarter.

Adjusted EBITDA was $6.3 million during Q4 FY’13, an increase of $0.7 million, or 13%, compared to Q4 FY’12, primarily due to the current year acquisitions. Adjusted EBITDA margin was 10.4% compared to 17.9% in Q4 FY’12 and was negatively impacted, in part, by the incremental infrastructure and support services costs related to the current year acquisitions. For the full year, adjusted EBITDA increased from $19.1 million in FY’12 to $22.6 million in FY’13 due to the current year acquisitions, offset by the incremental infrastructure costs described above.


Selected Futurestep Data

(dollars in millions)

 

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

Fee revenue

   $ 31.0      $ 29.3      $ 122.2      $ 113.9   

Total revenue

   $ 32.7      $ 31.0      $ 128.3      $ 120.0   

Operating income

   $ 3.9      $ 1.4      $ 11.0      $ 8.5   

Operating margin

     12.4     4.6     9.0     7.4

Engagements billed

     1,703        1,611        5,605        4,916   

New engagements (a)

     863        998        4,434        3,924   
     Fourth Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

EBITDA Results (b):

        

EBITDA

   $ 4.1      $ 1.7      $ 12.2      $ 9.6   

EBITDA margin

     13.3     5.6     10.0     8.4
     Fourth Quarter     Year to Date  
     FY’13     FY’12     FY’13     FY’12  

Adjusted Results (c):

        

Operating income

   $ 4.3      $ 2.3      $ 14.5      $ 9.5   

Operating margin

     13.8     7.7     11.9     8.4

EBITDA (b)

   $ 4.5      $ 2.6      $ 15.7      $ 10.6   

EBITDA margin (b)

     14.7     8.7     12.9     9.3

 

(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):

 

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

Restructuring charges, net of recoveries

   $ 0.4       $  —         $ 3.5       $ 0.1   

Separation costs

   $  —         $ 0.9       $  —         $ 0.9   

Futurestep

Fee revenue was $31.0 million in Q4 FY’13, an increase of $1.7 million, or 6%, compared to the year-ago quarter (foreign exchange rates negatively impacted fee revenue by $0.4 million). The increase in fee revenue was due to an increase in recruitment process outsourcing and recruitment.

On a GAAP basis, operating income was $3.9 million in Q4 FY’13, an increase of $2.5 million, compared to Q4 FY’12 resulting in an operating margin of 12.4% in the current quarter compared to 4.6% in the year-ago quarter.

Adjusted EBITDA was $4.5 million during Q4 FY’13, an increase of $1.9 million, or 73%, compared to Q4 FY’12, due primarily to the increase in fee revenue and a decrease in performance related bonus expenses. For the full year, adjusted EBITDA increased $5.1 million due to the $8.3 million increase in fee revenue.


Outlook

Assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, fee revenue is expected to be in the range of $215 million to $227 million in Q1 FY’14. Also during FY’14, we are continuing with our efforts to integrate the newly acquired businesses and to reduce the incremental infrastructure and support services costs in an effective and thoughtful manner, which will be enabled through investments to align and enhance our technology platform. In line with this, in Q1 FY’14, we expect to incur charges associated with these cost reduction efforts in the range of $3.8 million to $5.0 million which will yield $4.7 million to $5.5 million in annual savings starting late in the fiscal first quarter. Excluding these charges, adjusted diluted earnings per share in the first quarter are likely to be in the range of $0.26 to $0.32 with diluted earnings per share as measured by generally accepted accounting principles likely to be in the range of $0.19 to $0.27.

Earnings Conference Call Webcast

The earnings conference call will be held today at 5:00 PM (EDT) 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, our ability to successfully integrate acquired businesses, including current year acquisitions, 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 develop new products and services, consolidation of industries we serve, 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 of income tax effect;

 

  • adjusted basic and diluted earnings per share, adjusted to exclude restructuring, transaction and integration and separation costs, net of income tax effect;

 

  • 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;

 

  • 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. 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.

[Tables attached]


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

     Three Months Ended     Year Ended  
     April 30,     April 30,  
     2013     2012     2013     2012  
     (unaudited)              

Fee revenue

   $ 227,902      $ 198,087      $ 812,831      $ 790,505   

Reimbursed out-of-pocket engagement expenses

     10,705        9,471        36,870        36,254   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     238,607        207,558        849,701        826,759   
  

 

 

   

 

 

   

 

 

   

 

 

 

Compensation and benefits

     154,487        139,593        555,346        534,186   

General and administrative expenses

     40,096        34,668        142,771        138,872   

Engagement expenses

     19,834        14,295        65,847        55,889   

Depreciation and amortization

     5,877        3,650        19,004        14,017   

Restructuring charges, net

     2,921        —          22,857        929   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     223,215        192,206        805,825        743,893   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     15,392        15,352        43,876        82,866   

Other income (loss), net

     2,501        2,761        6,309        (271

Interest expense, net

     (644     (511     (2,365     (1,791
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     17,249        17,602        47,820        80,804   

Income tax provision

     5,595        6,152        16,637        28,351   

Equity in earnings of unconsolidated subsidiaries, net

     543        578        2,110        1,850   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 12,197      $ 12,028      $ 33,293      $ 54,303   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share:

        

Basic

   $ 0.26      $ 0.26      $ 0.71      $ 1.17   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.25      $ 0.25      $ 0.70      $ 1.15   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding:

        

Basic

     47,452        46,591        47,224        46,397   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     48,345        47,524        47,883        47,261   
  

 

 

   

 

 

   

 

 

   

 

 

 


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

(unaudited)

 

    Three Months Ended April 30,     Year Ended April 30,  
    2013           2012     % Change     2013           2012     % Change  

Fee Revenue:

               

Executive recruitment:

               

North America

  $ 77,511        $ 76,268        2   $ 290,317        $ 305,717        (5 %) 

EMEA

    32,242          32,728        (1 %)      128,807          141,409        (9 %) 

Asia Pacific

    19,199          19,524        (2 %)      73,221          82,230        (11 %) 

South America

    7,839          8,642        (9 %)      30,134          31,846        (5 %) 
 

 

 

     

 

 

     

 

 

     

 

 

   

Total executive recruitment

    136,791          137,162        (0 %)      522,479          561,202        (7 %) 

Leadership & Talent Consulting

    60,116          31,650        90     168,115          115,407        46

Futurestep

    30,995          29,275        6     122,237          113,896        7
 

 

 

     

 

 

     

 

 

     

 

 

   

Total fee revenue

    227,902          198,087        15     812,831          790,505        3

Reimbursed out-of-pocket engagement expenses

    10,705          9,471        13     36,870          36,254        2
 

 

 

     

 

 

     

 

 

     

 

 

   

Total revenue

  $ 238,607        $ 207,558        15   $ 849,701        $ 826,759        3
 

 

 

     

 

 

     

 

 

     

 

 

   

Reconciliation of Operating Income (GAAP) to Adjusted Operating Income

               
          Margin           Margin           Margin           Margin  

Operating Income:

               

Executive recruitment:

               

North America

  $ 17,104        22.1   $ 17,148        22.5   $ 58,832        20.3   $ 75,580        24.7

EMEA

    4,137        12.8     (266     (0.8 %)      9,173        7.1     13,288        9.4

Asia Pacific

    3,482        18.1     3,001        15.4     6,973        9.5     11,859        14.4

South America

    1,761        22.5     2,536        29.3     5,987        19.9     9,207        28.9
 

 

 

     

 

 

     

 

 

     

 

 

   

Total executive recruitment

    26,484        19.4     22,419        16.3     80,965        15.5     109,934        19.6

Leadership & Talent Consulting

    (1,292     (2.1 %)      4,971        15.7     6,424        3.8     16,360        14.2

Futurestep

    3,834        12.4     1,333        4.6     10,975        9.0     8,445        7.4

Corporate

    (13,634       (13,371       (54,488       (51,873  
 

 

 

     

 

 

     

 

 

     

 

 

   

Total operating income

  $ 15,392        6.8   $ 15,352        7.8   $ 43,876        5.4   $ 82,866        10.5
 

 

 

     

 

 

     

 

 

     

 

 

   

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

               

Executive recruitment:

               

North America

  $ (1,853     (2.4 %)    $ —          —        $ 3,583        1.2   $ (15     (0.0 %) 

EMEA

    (770     (2.4 %)      —          —          4,498        3.5     897        0.6

Asia Pacific

    16        0.1     —          —          629        0.9     —          —     

South America

    —          —          —          —          —          —          (99     (0.3 %) 
 

 

 

     

 

 

     

 

 

     

 

 

   

Total executive recruitment

    (2,607     (1.9 %)      —          —          8,710        1.7     783        0.1

Leadership & Talent Consulting

    5,080        8.4     —          —          10,198        6.1     —          —     

Futurestep

    441        1.4     920        3.1     3,527        2.9     1,066        1.0

Corporate

    598          999          4,044          999     
 

 

 

     

 

 

     

 

 

     

 

 

   

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

  $ 3,512        1.5   $ 1,919        0.9   $ 26,479        3.3   $ 2,848        0.3
 

 

 

     

 

 

     

 

 

     

 

 

   

Adjusted Operating Income:

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

  

  

 
          Margin           Margin           Margin           Margin  

Executive recruitment:

               

North America

  $ 15,251        19.7   $ 17,148        22.5   $ 62,415        21.5   $ 75,565        24.7

EMEA

    3,367        10.4     (266     (0.8 %)      13,671        10.6     14,185        10.0

Asia Pacific

    3,498        18.2     3,001        15.4     7,602        10.4     11,859        14.4

South America

    1,761        22.5     2,536        29.3     5,987        19.9     9,108        28.6
 

 

 

     

 

 

     

 

 

     

 

 

   

Total executive recruitment (1)

    23,877        17.5     22,419        16.3     89,675        17.2     110,717        19.7

Leadership & Talent Consulting

    3,788        6.3     4,971        15.7     16,622        9.9     16,360        14.2

Futurestep (1)

    4,275        13.8     2,253        7.7     14,502        11.9     9,511        8.4

Corporate

    (13,036       (12,372       (50,444       (50,874  
 

 

 

     

 

 

     

 

 

     

 

 

   

Total adjusted operating income

  $ 18,904        8.3   $ 17,271        8.7   $ 70,355        8.7   $ 85,714        10.8
 

 

 

     

 

 

     

 

 

     

 

 

   

 

(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 $2.2 million offset by a decrease in Executive Recruitment operating income in the three months and year ended April 30, 2012, respectively.


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

     April 30,  
     2013     2012  

ASSETS

    

Cash and cash equivalents

   $ 224,066      $ 282,005   

Marketable securities

     20,347        40,936   

Receivables due from clients, net of allowance for doubtful accounts of $9,097 and $9,437 respectively

     161,508        126,579   

Income taxes and other receivables

     8,944        11,902   

Deferred income taxes

     3,511        10,830   

Prepaid expenses and other assets

     28,724        27,815   
  

 

 

   

 

 

 

Total current assets

     447,100        500,067   
  

 

 

   

 

 

 

Marketable securities, non-current

     121,569        94,798   

Property and equipment, net

     53,628        49,808   

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

     85,873        77,848   

Deferred income taxes

     63,203        57,290   

Goodwill

     257,293        176,338   

Intangible assets, net

     58,187        20,413   

Investments and other assets

     28,376        38,127   
  

 

 

   

 

 

 

Total assets

   $ 1,115,229      $ 1,014,689   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Accounts payable

   $ 19,460      $ 14,667   

Income taxes payable

     5,502        8,720   

Compensation and benefits payable

     160,298        160,810   

Other accrued liabilities

     83,291        37,527   
  

 

 

   

 

 

 

Total current liabilities

     268,551        221,724   
  

 

 

   

 

 

 

Deferred compensation and other retirement plans

     159,706        142,577   

Other liabilities

     22,504        20,912   
  

 

 

   

 

 

 

Total liabilities

     450,761        385,213   
  

 

 

   

 

 

 

Stockholders’ equity

    

Common stock: $0.01 par value, 150,000 shares authorized, 61,022 and 59,975 shares issued and 48,734 and 47,913 shares outstanding, respectively

     431,508        419,998   

Retained earnings

     236,090        202,797   

Accumulated other comprehensive (loss) income, net

     (2,631     7,191   
  

 

 

   

 

 

 

Stockholders’ equity

     664,967        629,986   

Less: notes receivable from stockholders

     (499     (510
  

 

 

   

 

 

 

Total stockholders’ equity

     664,468        629,476   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,115,229      $ 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  
    April 30, 2013     April 30, 2012  
    As Reported     Adjustments     As Adjusted     As Reported     Adjustments     As Adjusted  

Fee revenue

  $ 227,902        $ 227,902      $ 198,087        $ 198,087   

Reimbursed out-of-pocket engagement expenses

    10,705          10,705        9,471          9,471   
 

 

 

     

 

 

   

 

 

     

 

 

 

Total revenue

    238,607          238,607        207,558          207,558   
 

 

 

     

 

 

   

 

 

     

 

 

 

Compensation and benefits

    154,487          154,487        139,593        (1,919     137,674   

General and administrative expenses

    40,096        (591     39,505        34,668          34,668   

Engagement expenses

    19,834          19,834        14,295          14,295   

Depreciation and amortization

    5,877          5,877        3,650          3,650   

Restructuring charges, net

    2,921        (2,921     —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    223,215        (3,512     219,703        192,206        (1,919     190,287   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    15,392        3,512        18,904        15,352        1,919        17,271   

Other income, net

    2,501          2,501        2,761          2,761   

Interest expense, net

    (644       (644     (511       (511
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    17,249        3,512        20,761        17,602        1,919        19,521   

Income tax provision (1) (2)

    5,595        119        5,714        6,152        671        6,823   

Equity in earnings of unconsolidated subsidiaries, net

    543          543        578          578   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 12,197      $ 3,393      $ 15,590      $ 12,028      $ 1,248      $ 13,276   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share:

           

Basic

  $ 0.26        $ 0.33      $ 0.26        $ 0.28   
 

 

 

     

 

 

   

 

 

     

 

 

 

Diluted

  $ 0.25        $ 0.32      $ 0.25        $ 0.28   
 

 

 

     

 

 

   

 

 

     

 

 

 

Weighted-average common shares outstanding:

           

Basic

    47,452          47,452        46,591          46,591   
 

 

 

     

 

 

   

 

 

     

 

 

 

Diluted

    48,345          48,345        47,524          47,524   
 

 

 

     

 

 

   

 

 

     

 

 

 

Explanation of Non-GAAP Adjustments

 

(1) The adjustments result in an effective tax rate of 28% and 35% for the as adjusted amounts for the three months ended April 30, 2013 and 2012, respectively.
(2) The three months ended April 30, 2013 includes the tax effect on restructuring charges and transaction & integration costs associated with the acquisition of PDI Ninth House, while the three months ended April 30, 2012 includes the tax effect on the separation costs related to changes in certain leadership positions.


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)

 

     Year Ended     Year Ended  
     April 30, 2013     April 30, 2012  
     As Reported     Adjustments     As Adjusted     As Reported     Adjustments     As Adjusted  

Fee revenue

   $ 812,831        $ 812,831      $ 790,505        $ 790,505   

Reimbursed out-of-pocket engagement expenses

     36,870          36,870        36,254          36,254   
  

 

 

     

 

 

   

 

 

     

 

 

 

Total revenue

     849,701          849,701        826,759          826,759   
  

 

 

     

 

 

   

 

 

     

 

 

 

Compensation and benefits

     555,346        (516     554,830        534,186        (1,919     532,267   

General and administrative expenses

     142,771        (3,106     139,665        138,872          138,872   

Engagement expenses

     65,847          65,847        55,889          55,889   

Depreciation and amortization

     19,004          19,004        14,017          14,017   

Restructuring charges, net

     22,857        (22,857     —           929        (929     —      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     805,825        (26,479     779,346        743,893        (2,848     741,045   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     43,876        26,479        70,355        82,866        2,848        85,714   

Other income (loss), net

     6,309          6,309        (271       (271

Interest expense, net

     (2,365       (2,365     (1,791       (1,791
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     47,820        26,479        74,299        80,804        2,848        83,652   

Income tax provision (1) (2)

     16,637        6,953        23,590        28,351        999        29,350   

Equity in earnings of unconsolidated subsidiaries, net

     2,110          2,110        1,850          1,850   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 33,293      $ 19,526      $ 52,819      $ 54,303      $ 1,849      $ 56,152   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share:

            

Basic

   $ 0.71        $ 1.12      $ 1.17        $ 1.21   
  

 

 

     

 

 

   

 

 

     

 

 

 

Diluted

   $ 0.70        $ 1.10      $ 1.15        $ 1.19   
  

 

 

     

 

 

   

 

 

     

 

 

 

Weighted-average common shares outstanding:

            

Basic

     47,224          47,224        46,397          46,397   
  

 

 

     

 

 

   

 

 

     

 

 

 

Diluted

     47,883          47,883        47,261          47,261   
  

 

 

     

 

 

   

 

 

     

 

 

 

Explanation of Non-GAAP Adjustments

 

(1) The adjustments result in an annual effective tax rate of 32% and 35% for the as adjusted amounts for the year ended April 30, 2013 and 2012, respectively.
(2) The year ended April 30, 2013 includes the tax effect on restructuring charges, transaction and integration costs associated with the acquisition of PDI Ninth House, and separation costs, while the year ended April 30, 2012 includes the tax effect on the separation costs related to changes in certain leadership positions and 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 April 30, 2013  
     Executive
Recruitment
    Leadership
& Talent
Consulting
    Futurestep     Corporate     Consolidated  

Fee revenue

   $ 136,791      $ 60,116      $ 30,995      $ —        $ 227,902   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

           $ 12,197   

Other income, net

             2,501   

Interest expense, net

             (644

Income tax provision

             5,595   

Equity in earnings of unconsolidated subsidiaries, net

             543   
          

 

 

 

Operating income (loss)

   $ 26,484      $ (1,292   $ 3,834      $ (13,634     15,392   

Depreciation and amortization

     2,243        2,625        240        769        5,877   

Other income (loss), net

     518        (146     36        2,093        2,501   

Equity in earnings of unconsolidated subsidiaries, net

     129        —          —          414        543   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     29,374        1,187        4,110        (10,358     24,313   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     21.5     2.0     13.3       10.7

Restructuring (recoveries) charges, net

     (2,607     5,080        441        7        2,921   

Transaction and integration costs

     —          —          —          591        591   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 26,767      $ 6,267      $ 4,551      $ (9,760   $ 27,825   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

     19.6     10.4     14.7       12.2

 

     Three Months Ended April 30, 2012  
     Executive
Recruitment
    Leadership
& Talent
Consulting
    Futurestep     Corporate     Consolidated  

Fee revenue

   $ 137,162      $ 31,650      $ 29,275      $ —        $ 198,087   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

           $ 12,028   

Other income, net

             2,761   

Interest expense, net

             (511

Income tax provision

             6,152   

Equity in earnings of unconsolidated subsidiaries, net

             578   
          

 

 

 

Operating income (loss)

   $ 22,419      $ 4,971      $ 1,333      $ (13,371     15,352   

Depreciation and amortization

     2,103        671        285        591        3,650   

Other income, net

     218        18        9        2,516        2,761   

Equity in earnings of unconsolidated subsidiaries, net

     159        —          —          419        578   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     24,899        5,660        1,627        (9,845     22,341   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     18.2     17.9     5.6       11.3

Separation costs

     —          —          920        999        1,919   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 24,899      $ 5,660      $ 2,547      $ (8,846   $ 24,260   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

     18.2     17.9     8.7       12.2


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)

 

     Year Ended April 30, 2013  
     Executive
Recruitment
    Leadership
& Talent
Consulting
    Futurestep     Corporate     Consolidated  

Fee revenue

   $ 522,479      $ 168,115      $ 122,237      $ —        $ 812,831   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

           $ 33,293   

Other income, net

             6,309   

Interest expense, net

             (2,365

Income tax provision

             16,637   

Equity in earnings of unconsolidated subsidiaries, net

             2,110   
          

 

 

 

Operating income (loss)

   $ 80,965      $ 6,424      $ 10,975      $ (54,488     43,876   

Depreciation and amortization

     8,991        6,012        1,180        2,821        19,004   

Other income (loss), net

     793        (75     51        5,540        6,309   

Equity in earnings of unconsolidated subsidiaries, net

     434        —          —          1,676        2,110   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     91,183        12,361        12,206        (44,451     71,299   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     17.5     7.4     10.0       8.8

Restructuring charges, net

     8,194        10,198        3,527        938        22,857   

Transaction and integration costs

     —          —          —          3,106        3,106   

Separation costs

     516        —          —          —          516   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 99,893      $ 22,559      $ 15,733      $ (40,407   $ 97,778   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

     19.1     13.4     12.9       12.0

 

     Year Ended April 30, 2012  
     Executive
Recruitment
    Leadership
& Talent
Consulting
    Futurestep     Corporate     Consolidated  

Fee revenue

   $ 561,202      $ 115,407      $ 113,896      $ —        $ 790,505   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

           $ 54,303   

Other loss, net

             (271

Interest expense, net

             (1,791

Income tax provision

             28,351   

Equity in earnings of unconsolidated subsidiaries, net

             1,850   
          

 

 

 

Operating income (loss)

   $ 109,934      $ 16,360      $ 8,445      $ (51,873     82,866   

Depreciation and amortization

     8,140        2,613        1,070        2,194        14,017   

Other (loss) income, net

     (145     146        41        (313     (271

Equity in earnings of unconsolidated subsidiaries, net

     159        —          —          1,691        1,850   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     118,088        19,119        9,556        (48,301     98,462   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     21.0     16.6     8.4       12.5

Restructuring charges, net

     783        —          146        —          929   

Separation costs

     —          —          920        999        1,919   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 118,871      $ 19,119      $ 10,622      $ (47,302   $ 101,310   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

     21.2     16.6     9.3       12.8