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

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

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

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

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

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

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

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





Financial Results

(dollars in millions, except per share amounts)






Second Quarter


Year to Date


FY'13


FY'12


FY'13


FY'12

Fee revenue

$     196.2


$    200.2


$   382.9


$     406.5

Total  revenue

$     204.8


$    210.0


$   400.8


$     424.6

Operating income

$        2.8


$      25.4


$     19.8


$       51.3

Operating margin

1.4%


12.7%


5.2%


12.6%

Net income

$        1.2


$      15.2


$     11.6


$       30.6

Basic earnings per share

$      0.03


$      0.33


$     0.25


$       0.66

Diluted earnings per share

$      0.03


$      0.32


$     0.24


$       0.65









Adjusted Results (a):

Second Quarter


Year to Date


FY'13


FY'12


FY'13


FY'12

Operating income

$      18.3


$      25.4


$     35.3


$       51.3

Operating margin

9.3%


12.7%


9.2%


12.6%

Net income

$      11.8


$      15.2


$     22.2


$       30.6

Basic earnings per share

$      0.25


$      0.33


$     0.47


$       0.66

Diluted earnings per share

$      0.25


$      0.32


$     0.47


$       0.65






(a)

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




Results for the three months ended October 31, 2012

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

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

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

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

As discussed during our first quarter earnings call, during the three months ended October 31, 2012, the Company took steps to rationalize its cost structure, and as a result recorded restructuring charges of $11.3 million to reduce its workforce and $5.2 million relating to the consolidation of premises.  This restructuring expense was partially offset by a $1.0 million recovery (legal settlement related to premises) from a previous restructuring action resulting in net restructuring costs of $15.5 million.  These actions are expected to result in annualized cost savings of approximately $20 million to $23 million, with the majority of these savings starting in the third quarter.

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

Balance Sheet and Liquidity

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

Results by Segment

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





Selected Executive Recruitment Data

(dollars in millions)






Second Quarter


Year to Date


FY'13


FY'12


FY'13


FY'12

Fee revenue

$    127.8


$    142.6


$    255.2


$      292.0

Total revenue

$    133.1


$    149.1


$    266.3


$      304.6

Operating income

$      10.5


$      32.1


$      32.9


$        65.2

Operating margin

8.1%


22.5%


12.9%


22.3%









Ending number of consultants

402


417


402


417

Average number of consultants

409


425


401


429

Engagements billed

2,656


2,953


4,377


4,838

New engagements (a)

1,172


1,233


2,381


2,635









Adjusted Results (b):

Second Quarter


Year to Date


FY'13


FY'12


FY'13


FY'12

Operating income

$      21.2


$     32.1


$   43.6


$      65.2

Operating margin

16.6%


22.5%


17.1%


22.3%





(a)

Represents new engagements opened in the respective period.



(b)

Adjusted results are non-GAAP financial measures that exclude restructuring charges, net of recoveries, of $10.7 million during the three and six months ended October 31, 2012 (see attached reconciliations).  No restructuring costs were incurred during the three and six months ended October 31, 2011.

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

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

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





Selected Leadership & Talent Consulting Data

(dollars in millions)






Second Quarter


Year to Date


FY'13


FY'12


FY'13


FY'12

Fee revenue

$     38.4


$     29.0


$     66.8


$     55.7

Total revenue

$     40.6


$     30.6


$     70.4


$     58.0

Operating income

$       6.2


$       4.2


$     10.5


$       6.2

Operating margin

16.3%


14.5%


15.7%


11.1%









Ending number of consultants (a)

72


54


72


54

Staff utilization (b)

67%


62%


66%


62%









Adjusted Results (c):

Second Quarter


Year to Date


FY'13


FY'12


FY'13


FY'12

Operating income

$       6.9


$       4.2


$     11.2


$       6.2

Operating margin

18.0%


14.5%


16.7%


11.1%













(a)

Represents number of employees originating consulting services. FY'13 includes 22 consultants from the Global Novations acquisition.


(b)

Calculated by dividing the number of hours of our full-time professional staff, who recorded time to an engagement during the period, by the total available working hours for the professional staff during the same period.


(c)

Adjusted results are non-GAAP financial measures that exclude restructuring charges, net of recoveries, of $0.7 million during the three and six months ended October 31, 2012 (see attached reconciliations).  No restructuring costs were incurred during the three and six months ended October 31, 2011.

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

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

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





Selected Futurestep Data

(dollars in millions)






Second Quarter


Year to Date


FY'13


FY'12


FY'13


FY'12

Fee revenue

$     30.0


$   28.6


$   60.9


$     58.8

Total revenue

$     31.1


$   30.3


$   64.1


$     62.0

Operating income

$       0.2


$     2.8


$     3.4


$       5.6

Operating margin

0.8%


9.8%


5.6%


9.6%









Engagements billed

1,665


1,604


3,193


2,865

New engagements (a)

1,084


974


2,409


1,993









Adjusted Results (b):

Second Quarter


Year to Date


FY'13


FY'12


FY'13


FY'12

Operating income

$       3.3


$     2.8


$     6.5


$       5.6

Operating margin

11.1%


9.8%


10.7%


9.6%





(a)

Represents new engagements opened in the respective period.


(b)

Adjusted results are non-GAAP financial measures that exclude restructuring charges, net of recoveries, of $3.1 million during the three and six months ended October 31, 2012 (see attached reconciliations).  No restructuring costs were incurred during the three and six months ended October 31, 2011.

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

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

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

Outlook

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

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


Q3 FY'13

Fee Revenue Outlook



Q3 FY'13

Earnings Per Share Outlook



Low


High



Low


High



(in millions)







Adjusted stand-alone fee revenue

$       188


$       201


Adjusted consolidated combined diluted earnings per share 

$            0.26


$         0.34


PDI Ninth House

6


7


Integration and transaction costs.

(0.08)


(0.06)


GAAP fee revenue

$       194


$       208


GAAP diluted earnings per share

$            0.18


$         0.28




____________________

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



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

Earnings Conference Call Webcast

The earnings conference call will be held today at 9:00 AM (EST) and hosted by CEO Gary Burnison, CFO Robert Rozek and SVP Finance Gregg Kvochak.  The conference call will be webcast and available online at www.kornferry.com, accessible through the Investor Relations section.

Korn/Ferry International (NYSE: KFY), with a presence throughout the Americas, Asia Pacific, Europe, the Middle East and Africa, is a premier global provider of talent management solutions.  Based in Los Angeles, the firm delivers an array of solutions that help clients to attract, deploy, develop and reward their talent.  Visit www.kornferry.com for more information on the Korn/Ferry International family of companies, and www.kornferryinstitute.com for thought leadership, intellectual property and research.

Forward-Looking Statements  

Statements in this press release and our conference call that relate to future results and events ("forward-looking statements") are based on Korn/Ferry's current expectations.  These statements, which include words such as "believes", "expects" or "likely" include references to our outlook and the pending acquisition of PDI Ninth House.  Readers are cautioned not to place undue reliance on such statements.  Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties that are beyond the control of Korn/Ferry.  The potential risks and uncertainties include those relating to competition, the dependence on attracting and retaining qualified and experienced consultants, maintaining our brand name and professional reputation, potential legal liability, the portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to the growth, alignment of our cost structure with our growth, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to successfully integrate acquired businesses, including PDI Ninth House, our ability to develop new products and services, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, impairment of goodwill and other intangible assets, deferred tax assets and employment liability risk.  For a detailed description of risks and uncertainties that could cause differences, please refer to Korn/Ferry's periodic filings with the Securities and Exchange Commission.  Korn/Ferry disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Measures

This press release contains financial information calculated other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP").  In particular, it includes:

  • adjusted operating income and operating margin, adjusted to exclude restructuring charges, net;
  • adjusted net income, adjusted to exclude restructuring charges, net income tax effect;
  • adjusted basic and diluted earnings per share, adjusted to exclude restructuring charges, net;
  • constant currency amounts that represent the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period;
  • adjusted stand-alone fee revenue and adjusted stand-alone diluted earnings per share, adjusted to exclude the acquisition of PDI Ninth House, incremental charges relating to the integration of PDI Ninth House and incremental legal and professional fees associated with the acquisition; and
  • adjusted consolidated combined diluted earnings per share, adjusted to exclude incremental charges relating to the integration of PDI Ninth House and incremental legal and professional fees associated with the acquisition (but assuming the completion of the acquisition).

This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial information determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Management believes the presentation of non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn/Ferry's performance by excluding certain charges and other items that may not be indicative of Korn/Ferry's ongoing operating results.  The use of these non-GAAP financial measures facilitate comparisons to Korn/Ferry's historical performance.  Korn/Ferry includes these non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn/Ferry's ongoing operations and financial and operational decision-making.  In the case of constant currency amounts, management believes the presentation of such information provides meaningful supplemental information regarding Korn/Ferry's performance as excluding the impact of exchange rate changes on Korn/Ferry's financial performance allows investors to make more meaningful period-to-period comparisons of the Company's operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn/Ferry's ongoing operations and financial and operational decision-making.  In the case of adjusted stand-alone results, management believes the presentation of such information provides investors with the ability to make period-to-period comparisons of Korn/Ferry's operating results, net of the acquisition of PDI Ninth House.  Management believes the presentation of adjusted consolidated combined diluted earnings per share provides investors with greater visibility into the impact of the PDI Ninth House acquisition without regard to incremental charges and transaction costs.

[Tables attached]


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME 

 (in thousands, except per share amounts) 













 Three Months Ended 


 Six Months Ended 



 October 31, 


 October 31, 



2012


2011


2012


2011



 (unaudited) 

 Fee revenue 


$ 196,231


$ 200,136


$ 382,925


$ 406,467

 Reimbursed out-of-pocket engagement expenses 


8,568


9,852


17,897


18,111

           Total revenue 


204,799


209,988


400,822


424,578










 Compensation and benefits 


133,035


131,481


261,071


268,852

 General and administrative expenses 


33,317


34,189


66,760


68,962

 Engagement expenses 


15,886


15,436


29,679


28,571

 Depreciation and amortization 


4,297


3,475


8,039


6,844

 Restructuring charges, net 


15,495


-


15,495


-

           Total operating expenses 


202,030


184,581


381,044


373,229










 Operating income  


2,769


25,407


19,778


51,349

 Other income (loss), net 


1,529


(2,617)


512


(4,639)

 Interest expense, net 


(762)


(389)


(1,361)


(970)

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


3,536


22,401


18,929


45,740

 Income tax provision  


2,684


7,726


8,289


16,161

 Equity in earnings of unconsolidated subsidiaries, net 


344


472


974


979

            Net income 


$    1,196


$  15,147


$  11,614


$  30,558










 Earnings per common share: 









      Basic 


$      0.03


$      0.33


$      0.25


$      0.66

      Diluted 


$      0.03


$      0.32


$      0.24


$      0.65










 Weighted-average common shares outstanding: 









      Basic 


47,269


46,499


47,040


46,234

      Diluted 


47,834


47,114


47,658


47,151










KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

 (unaudited) 

























Three Months Ended October 31,


Six Months Ended October 31,



2012




2011


% Change


2012




2011


% Change


















Fee Revenue:
















Executive recruitment:

















North America

$   69,441




$   77,525


(10%)


$ 141,547




$ 157,449


(10%)


EMEA 

33,142




35,408


(6%)


62,965




74,239


(15%)


Asia Pacific

18,338




21,827


(16%)


35,721




44,323


(19%)


South America

6,827




7,707


(11%)


14,961




15,948


(6%)

Total executive recruitment

127,748




142,467


(10%)


255,194




291,959


(13%)

Leadership & Talent Consulting

38,452




29,085


32%


66,844




55,726


20%

Futurestep

30,031




28,584


5%


60,887




58,782


4%


Total fee revenue

196,231




200,136


(2%)


382,925




406,467


(6%)

 Reimbursed out-of-pocket engagement expenses 

8,568




9,852


(13%)


17,897




18,111


(1%)


Total revenue

$ 204,799




$ 209,988


(2%)


$ 400,822




$ 424,578


(6%)


















Reconciliation of Operating Income (GAAP) to Adjusted Operating Income
























Operating Income:



Margin




Margin




Margin




Margin

Executive recruitment:

















North America

$     9,017


13.0%


$   21,291


27.5%


$   27,091


19.1%


$   42,816


27.2%


EMEA

(929)


(2.8%)


5,028


14.2%


859


1.4%


10,032


13.5%


Asia Pacific

1,080


5.9%


3,590


16.4%


1,578


4.4%


7,461


16.8%


South America

1,217


17.8%


2,215


28.7%


3,306


22.1%


4,885


30.6%

Total executive recruitment

10,385


8.1%


32,124


22.5%


32,834


12.9%


65,194


22.3%

Leadership & Talent Consulting

6,252


16.3%


4,227


14.5%


10,514


15.7%


6,194


11.1%

Futurestep

237


0.8%


2,815


9.8%


3,419


5.6%


5,671


9.6%

Corporate

(14,105)




(13,759)




(26,989)




(25,710)




 Total operating income

$     2,769


1.4%


$   25,407


12.7%


$   19,778


5.2%


$   51,349


12.6%



































Restructuring Charges, net:
















Executive recruitment:

















North America

$     5,436


7.8%


$          -


-


$     5,436


3.9%


$          -


-


EMEA

4,752


14.3%


-


-


4,752


7.5%


-


-


Asia Pacific

613


3.3%


-


-


613


1.7%


-


-


South America

-


-


-


-


-


-


-


-

Total executive recruitment

10,801


8.5%


-


-


10,801


4.2%


-


-

Leadership & Talent Consulting

677


1.7%


-


-


677


1.0%


-


-

Futurestep

3,086


10.3%


-


-


3,086


5.1%


-


-

Corporate

931




-




931




-




 Total restructuring charges, net

$   15,495


7.9%


$          -


-


$   15,495


4.0%


$          -


-



































Adjusted Operating Income:
















  (Excluding Restructuring Charge, net)



Margin




Margin




Margin




Margin

Executive recruitment:

















North America

$   14,453


20.8%


$   21,291


27.5%


$   32,527


23.0%


$   42,816


27.2%


EMEA

3,823


11.5%


5,028


14.2%


5,611


8.9%


10,032


13.5%


Asia Pacific

1,693


9.2%


3,590


16.4%


2,191


6.1%


7,461


16.8%


South America

1,217


17.8%


2,215


28.7%


3,306


22.1%


4,885


30.6%

Total executive recruitment

21,186


16.6%


32,124


22.5%


43,635


17.1%


65,194


22.3%

Leadership & Talent Consulting

6,929


18.0%


4,227


14.5%


11,191


16.7%


6,194


11.1%

Futurestep (1)

3,323


11.1%


2,815


9.8%


6,505


10.7%


5,671


9.6%

Corporate 

(13,174)




(13,759)




(26,058)




(25,710)




 Total adjusted operating income 

$   18,264


9.3%


$   25,407


12.7%


$   35,273


9.2%


$   51,349


12.6%
























(1)

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

 

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (in thousands, except per share amounts) 













 October 31, 


 April 30, 



2012


2012

ASSETS


 (unaudited) 



Cash and cash equivalents


$     192,916


$    282,005

Marketable securities


30,242


40,936

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


153,544


126,579

Income taxes and other receivables


13,677


11,902

Deferred income taxes


8,557


10,830

Prepaid expenses and other assets


29,900


27,815

Total current assets


428,836


500,067






Marketable securities, non-current


108,692


94,798

Property and equipment, net


48,024


49,808

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


80,464


77,848

Deferred income taxes


54,389


57,290

Goodwill


195,189


176,338

Intangible assets, net


31,169


20,413

Investments and other assets


37,112


38,127

Total assets


$     983,875


$ 1,014,689






LIABILITIES AND STOCKHOLDERS' EQUITY





Accounts payable


$       15,081


$      14,667

Income taxes payable


5,118


8,720

Compensation and benefits payable


98,253


160,810

Other accrued liabilities


57,917


37,527

Total current liabilities


176,369


221,724






Deferred compensation and other retirement plans


144,495


142,577

Other liabilities


20,434


20,912

Total liabilities


341,298


385,213






Stockholders' equity





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


424,835


419,998

Retained earnings


214,411


202,797

Accumulated other comprehensive income, net


3,836


7,191

Stockholders' equity


643,082


629,986

Less:  notes receivable from stockholders


(505)


(510)

Total stockholders' equity


642,577


629,476

Total liabilities and stockholders' equity


$     983,875


$ 1,014,689







 

 

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME 

 RECONCILIATION OF AS REPORTED (GAAP) TO AS ADJUSTED (NON-GAAP) 

 (in thousands, except per share amounts) 

 (unaudited) 





























 Three Months Ended 


 Three Months Ended 



October 31, 2012


October 31, 2011



As Reported


Adjustments


As Adjusted


As Reported


Adjustments


As Adjusted














 Fee revenue 


$ 196,231




$ 196,231


$ 200,136




$ 200,136

 Reimbursed out-of-pocket engagement expenses 


8,568




8,568


9,852




9,852

           Total revenue 


204,799




204,799


209,988




209,988














 Compensation and benefits 


133,035




133,035


131,481




131,481

 General and administrative expenses 


33,317




33,317


34,189




34,189

 Engagement expenses 


15,886




15,886


15,436




15,436

 Depreciation and amortization 


4,297




4,297


3,475




3,475

 Restructuring charges, net 


15,495


(15,495)


-


-


-


-

           Total operating expenses 


202,030


(15,495)


186,535


184,581


-


184,581














 Operating income 


2,769


15,495


18,264


25,407


-


25,407














 Other income (loss), net 


1,529




1,529


(2,617)




(2,617)

 Interest expense, net 


(762)




(762)


(389)




(389)

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


3,536


15,495


19,031


22,401


-


22,401

 Income tax provision (1) 


2,684


4,889


7,573


7,726


-


7,726

 Equity in earnings of unconsolidated subsidiaries, net 


344




344


472




472

            Net income 


$     1,196


$      10,606


$   11,802


$   15,147


$             -


$   15,147














 Earnings per common share: 













      Basic 


$      0.03




$      0.25


$      0.33




$      0.33

      Diluted 


$      0.03




$      0.25


$      0.32




$      0.32














 Weighted-average common shares outstanding: 













      Basic 


47,269




47,269


46,499




46,499

      Diluted 


47,834




47,834


47,114




47,114

 

 Explanation of Non-GAAP Adjustments 

(1)

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

 

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME 

 RECONCILIATION OF AS REPORTED (GAAP) TO AS ADJUSTED (NON-GAAP) 

 (in thousands, except per share amounts) 

 (unaudited) 





























 Six Months Ended 


 Six Months Ended 



October 31, 2012


October 31, 2011



As Reported


Adjustments


As Adjusted


As Reported


Adjustments


As Adjusted














 Fee revenue 


$ 382,925




$ 382,925


$ 406,467




$ 406,467

 Reimbursed out-of-pocket engagement expenses 


17,897




17,897


18,111




18,111

           Total revenue 


400,822




400,822


424,578




424,578














 Compensation and benefits 


261,071


-


261,071


268,852




268,852

 General and administrative expenses 


66,760




66,760


68,962




68,962

 Engagement expenses 


29,679




29,679


28,571




28,571

 Depreciation and amortization 


8,039




8,039


6,844




6,844

 Restructuring charges, net 


15,495


(15,495)


-


-


-


-

           Total operating expenses 


381,044


(15,495)


365,549


373,229


-


373,229














 Operating income 


19,778


15,495


35,273


51,349


-


51,349














 Other income (loss), net 


512




512


(4,639)




(4,639)

 Interest expense, net 


(1,361)




(1,361)


(970)




(970)

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


18,929


15,495


34,424


45,740


-


45,740

 Income tax provision (1) 


8,289


4,889


13,178


16,161


-


16,161

 Equity in earnings of unconsolidated subsidiaries, net 


974




974


979




979

            Net income  


$   11,614


$      10,606


$   22,220


$   30,558


$             -


$   30,558














 Earnings per common share: 













      Basic 


$       0.25




$       0.47


$       0.66




$       0.66

      Diluted 


$       0.24




$       0.47


$       0.65




$       0.65














 Weighted-average common shares outstanding: 













      Basic 


47,040




47,040


46,234




46,234

      Diluted 


47,658




47,658


47,151




47,151















 Explanation of Non-GAAP Adjustments 

(1)

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


SOURCE Korn/Ferry International



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