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, March 6, 2013 /PRNewswire/ -- 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





EBITDA Results (a):

Third Quarter


Year to Date


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%





Adjusted Results (b):

Third Quarter


Year to Date


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 benefit 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







EBITDA Results (b):

Third Quarter


Year to Date



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%







Adjusted Results (c):

Third Quarter


Year to Date




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%







EBITDA Results (c):

Third Quarter


Year to Date



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%







Adjusted Results (d):

Third Quarter


Year to Date



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







EBITDA Results (b):

Third Quarter


Year to Date



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%







Adjusted Results (c):

Third Quarter


Year to Date



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


















Operating Income:



Margin




Margin




Margin




Margin

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%



































Adjusted Operating Income:

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




Margin




Margin




Margin




Margin

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

ASSETS


 (unaudited) 



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 


 Nine Months Ended 



January 31, 2013


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