Korn/Ferry International Announces a 22% Increase in Fee Revenue in the Third Quarter of Fiscal 2008

LOS ANGELES, March 6 /PRNewswire-FirstCall/ -- Korn/Ferry International , a premier global provider of talent management solutions, announced third quarter earnings today.

"As the world has flattened demand for talent worldwide has intensified," said Gary D. Burnison, Chief Executive Officer, Korn/Ferry. "Our performance this quarter has set a new industry record and is indicative of the ongoing need for organizations to recruit and develop their people. We are focused on using our global scale, our diversified services, and our strong brand to help our clients identify, hire and develop the best leaders in the world."

Financial Results (dollars in millions, except per share amounts) Third Quarter Year to date Q3'08 Q3'07 Q3'08 Q3'07 Fee Revenue $201.2 $165.2 $582.4 $473.7 Revenue $212.1 $173.5 $615.2 $499.4 Operating Income $21.2 $21.4 $71.7 $62.9 Operating Margin 10.5% 13.0% 12.3% 13.3% Net Income $16.3 $14.7 $50.5 $42.0 Basic Earnings Per Share $0.38 $0.37 $1.14 $1.07 Diluted Earnings Per Share $0.37 $0.33 $1.10 $0.95

Fee revenue of $201.2 million in Q3'08 increased $36.0 million, or 22% (16% excluding the impact of exchange rates), from $165.2 million in Q3'07. Fee revenue improved globally due to an increase in revenues from all segments of the business. In Executive Recruitment, our largest segment, we experienced a 21% increase in fee revenue driven by an increase in the number of search engagements opened as well as a 14% increase in the average fee billed per search engagement compared to the prior year. In addition, Futurestep fee revenue increased 26%, compared to Q3'07 due to a 12% increase in average fee billed per engagement. Exchange rates impacted fee revenue in Q3'08 favorably by $10.0 million compared to Q3'07.

Compensation and benefits of $138.6 million in Q3'08 increased $26.3 million, or 23% (18% excluding the impact of exchange rates), from $112.3 million in Q3'07. The increase is attributable to revenue-based compensation and higher headcount in all segments of the Company. Exchange rates impacted compensation and benefits in Q3'08 unfavorably by $6.5 million compared to Q3'07.

General and administrative expenses of $35.3 million in Q3'08 increased by $8.5 million, or 32% (25% excluding the impact of exchange rates), from $26.8 million in Q3'07 as a result of an increase in business volume across all regions and segments. Exchange rates had an unfavorable impact of $1.9 million on general and administrative expenses compared to Q3'07.

Operating income was $21.2 million in Q3'08 compared to $21.4 million in Q3'07. Our financial results in the quarter include a modest amount of reserves and accruals that are aimed at reducing our cost structure to be more efficient in how we serve clients. While we may have further such amounts in the future, the intent is to lay the foundation for improved operating margins.

Balance Sheet and Liquidity

Cash, cash equivalents and marketable securities were $298.3 million at January 31, 2008 compared to $282.6 million at January 31, 2007. The increase was due primarily to improved operating cash flows offset by $56.7 million used to repurchase the Company's common shares in open market purchases during the nine months ended January 31, 2008.

Through October 31, 2007, the Company had used all of the $125 million of share repurchase funds authorized by the Board of Directors in December 2005, June 2006 and March 2007 to buy back approximately 6.1 million shares. Through March 3, 2008, the Company has used $6.5 million of the $50 million of share repurchase funds authorized in November 2007 to buy back approximately 0.4 million shares. Under this program, shares may be repurchased from time to time in open market transactions or privately negotiated transactions at the Company's discretion, subject to market conditions and other factors.

Interest expense was $1.2 million in Q3'08 compared to $2.5 million in the same period last year. Interest expense in the prior year related primarily to borrowings under Korn/Ferry's convertible securities and COLI policies. The decrease in interest expense is primarily due to the conversion of all of the Company's convertible securities to common shares during Q4'07. At January 31, 2008, Korn/Ferry had no outstanding borrowings under its credit facility.

Results by Segment Selected Executive Recruitment Data (dollars in millions) Third Quarter Year to date Q3'08 Q3'07 Q3'08 Q3'07 Fee Revenue $173.0 $142.9 $501.9 $410.5 Revenue $179.9 $149.2 $523.1 $430.7 Operating Income $29.0 $27.3 $94.7 $80.6 Operating Margin 16.8% 19.1% 18.9% 19.6% Average number of consultants 521 482 512 469 Engagements (a) 1,830 1,722 5,483 5,097 (a) Represents new engagements opened in the respective period.

Fee revenue was $173.0 million in Q3'08, an increase of $30.1 million, or 21%, from $142.9 million in Q3'07. Fee revenue improved in all regions due to an increase in the overall number of engagements and average fee per engagement. Exchange rates impacted fee revenue in Q3'08 favorably by $7.8 million compared to Q3'07.

Operating income improved $1.7 million in Q3'08, or 6%, to $29.0 million compared to $27.3 million in Q3'07.

The total number of consultants at January 31, 2008 was 518, an increase of 33 from January 31, 2007.

Selected Futurestep Data (dollars in millions) Third Quarter Year to date Q3'08 Q3'07 Q3'08 Q3'07 Fee Revenue $28.2 $22.3 $80.5 $63.2 Revenue $32.2 $24.3 $92.1 $68.7 Operating Income $2.0 $2.3 $5.6 $5.1 Operating Margin 7.1% 10.3% 7.0% 8.1%

Fee revenue was $28.2 million in Q3'08, an increase of $5.9 million, or 26%, from $22.3 million in Q3'07. Improvements in fee revenue were driven by an increase in the average fee per engagement. Exchange rates impacted fee revenue in Q3'08 favorably by $2.2 million compared to Q3'07.

Operating income was $2.0 million in Q3'08 compared to $2.3 million in Q3'07.

Outlook

Assuming constant foreign exchange rates, Korn/Ferry estimates that fourth quarter fiscal 2008 fee revenue is likely to be in the range of $195 million to $210 million and diluted earnings per share is likely to be in the range of $0.34 to $0.38.

Earnings Conference Call Webcast

The earnings conference call will be held today at 9:00 AM (EST) and hosted by Gary Burnison, Chief Executive Officer, and Stephen Giusto, Chief Financial Officer. The conference call will be webcast and available online at http://www.kornferry.com/, accessible through the Investor Relations section.

Korn/Ferry International , with more than 80 offices in 39 countries, is a premier global provider of talent management solutions. Based in Los Angeles, the firm delivers an array of solutions that help clients to identify, deploy, develop, retain and reward their talent. For more information on the Korn/Ferry International family of companies, visit http://www.kornferry.com/.

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. Readers are cautioned not to place undue reliance on such forward-looking statements. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties which are beyond the control of Korn/Ferry. The potential risks and uncertainties relate to competition, the dependence on attracting and retaining qualified and experienced consultants, the portability of client relationships, local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to the growth and results of Futurestep, restrictions imposed by off-limits agreements, reliance on information systems 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.

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) (unaudited) Three Months Ended Nine Months Ended January 31 January 31 2008 2007 2008 2007 Fee revenue $201,156 $165,239 $582,366 $473,720 Reimbursed out-of-pocket engagement expenses 10,935 8,269 32,826 25,721 Total revenue 212,091 173,508 615,192 499,441 Compensation and benefits 138,594 112,343 391,984 318,852 General and administrative expenses 35,255 26,806 101,168 79,431 Out-of-pocket engagement expenses 14,250 10,394 42,664 31,040 Depreciation and amortization 2,812 2,557 7,701 7,214 Total operating expenses 190,911 152,100 543,517 436,537 Operating income 21,180 21,408 71,675 62,904 Interest and other income (expense), net 3,777 664 6,074 (289) Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries 24,957 22,072 77,749 62,615 Provision for income taxes 9,353 8,100 29,753 23,184 Equity in earnings of unconsolidated subsidiaries 652 758 2,469 2,528 Net income $16,256 $14,730 $50,465 $41,959 Interest expense on convertible securities, net of taxes 36 785 109 2,354 Net income adjusted for computation of diluted EPS $16,292 $15,515 $50,574 $44,313 Basic earnings per common share $0.38 $0.37 $1.14 $1.07 Basic weighted average common shares outstanding 43,247 39,650 44,273 39,229 Diluted earnings per common share $0.37 $0.33 $1.10 $0.95 Diluted weighted average common shares outstanding 44,303 47,449 45,839 46,860 KORN/FERRY INTERNATIONAL AND SUBSIDIARIES FINANCIAL SUMMARY BY SEGMENT (in thousands) (unaudited) Three Months Ended January 31 2008 2007 Fee Revenue: Executive recruitment: North America $94,812 $82,177 Europe 46,292 37,872 Asia Pacific 25,322 18,608 South America 6,617 4,311 Total executive recruitment 173,043 142,968 Futurestep 28,113 22,271 Total fee revenue 201,156 165,239 Reimbursed out-of-pocket engagement expenses 10,935 8,269 Total revenue $212,091 $173,508 Operating Income (Loss): Margin Margin Executive recruitment: North America $16,167 17.1% $17,428 21.2% Europe 7,116 15.4% 5,996 15.8% Asia Pacific 5,444 21.5% 3,622 19.5% South America 291 4.4% 231 5.4% Total executive recruitment 29,018 16.8% 27,277 19.1% Futurestep 2,026 7.2% 2,252 10.1% Corporate (9,864) (8,121) Total operating income $21,180 10.5% $21,408 13.0% Nine Months Ended January 31 2008 2007 Fee Revenue: Executive recruitment: North America $276,988 $237,667 Europe 133,072 104,878 Asia Pacific 72,639 55,169 South America 19,184 12,777 Total executive recruitment 501,883 410,491 Futurestep 80,483 63,229 Total fee revenue 582,366 473,720 Reimbursed out-of-pocket engagement expenses 32,826 25,721 Total revenue $615,192 $499,441 Operating Income (Loss): Margin Margin Executive recruitment: North America $57,346 20.7% $51,286 21.6% Europe 20,871 15.7% 17,391 16.6% Asia Pacific 14,595 20.1% 10,609 19.2% South America 1,836 9.6% 1,329 10.4% Total executive recruitment 94,648 18.9% 80,615 19.6% Futurestep 5,642 7.0% 5,141 8.1% Corporate (28,615) (22,852) Total operating income $71,675 12.3% $62,904 13.3% KORN/FERRY INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (unaudited) As of As of January 31, 2008 April 30, 2007 ASSETS Cash and cash equivalents $223,654 $232,531 Marketable securities 74,691 91,736 Receivables due from clients, net of allowance for doubtful accounts of $14,062 and $9,822, respectively 139,965 107,751 Income taxes and other receivables 5,987 6,357 Deferred income taxes 10,074 9,524 Prepaid expenses 18,864 16,861 Total current assets 473,235 464,760 Property and equipment, net 31,138 25,999 Cash surrender value of company owned life insurance policies, net of loans 79,458 76,478 Deferred income taxes 46,065 42,013 Goodwill 139,392 124,268 Intangible assets, net 15,638 18,040 Investments and other 10,736 9,933 Total assets $795,662 $761,491 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $12,104 $10,383 Income taxes payable 24,468 22,432 Compensation and benefits payable 148,387 158,145 Other accrued liabilities 35,385 38,529 Total current liabilities 220,344 229,489 Deferred compensation and other retirement plans 104,144 91,360 Other liabilities 5,831 7,687 Total liabilities 330,319 328,536 Stockholders' equity: Common stock: $0.01 par value, 150,000 shares authorized, 54,226 and 52,323 shares issued and 46,374 and 47,174 shares outstanding, respectively 388,370 400,126 Retained earnings 79,268 32,344 Unearned restricted stock compensation (34,675) (19,567) Accumulated other comprehensive income 32,927 20,605 Stockholders' equity 465,890 433,508 Less: Notes receivable from stockholders (547) (553) Total stockholders' equity 465,343 432,955 Total liabilities and stockholders' equity $795,662 $761,491