Exhibit 99.1
| For Immediate Release | ||
| Contacts: For investors: | ||
| Gary Burnison (310) 226-2613 | ||
| For media: | ||
| Anneli S. Ballard (212) 984-9350 |
Korn/Ferry International Announces a 42% increase in
Second Quarter Fiscal 2005 Fee Revenue
Highlights:
| • | Fee revenue was $108.5 million, an increase of 42% from $76.7 million in the prior year second quarter. |
| • | Operating income tripled to $15.5 million over the prior year second quarter. |
| • | Diluted earnings per share of $0.21 improved $0.15 compared to prior year second quarter. |
Los Angeles, CA, December 8, 2004 - Korn/Ferry International (NYSE:KFY), a leading provider of recruitment and leadership development services, announced second quarter fiscal 2005 diluted earnings per share of $0.21 compared to $0.06 in Q2’04.
“Not only is overall demand for recruitment services up, but we are seeing an increase of activity in every product offering and in every region we serve,” said Paul C. Reilly, Chairman and CEO of Korn/Ferry International. “It appears that many companies are moving into growth mode and recruitment and development activity is on the rise.”
Financial Results
Actual and Adjusted Results
(dollars in millions, except per share amounts)
| Second Quarter | Year to Date | |||||||||||||||||||
| Actual | Actual | Adjusted (a) | ||||||||||||||||||
| Q2’05 | Q2’04 | Q2’05 | Q2’04 | Q2’04 | ||||||||||||||||
Fee Revenue | $ | 108.5 | $ | 76.7 | $ | 211.3 | $ | 149.2 | $ | 149.2 | ||||||||||
Revenue | $ | 113.5 | $ | 82.0 | $ | 221.7 | $ | 160.3 | $ | 160.3 | ||||||||||
Operating Income (Loss) | $ | 15.5 | $ | 5.2 | $ | 30.1 | $ | (1.7 | ) | $ | 6.8 | |||||||||
Operating Margin | 14.3 | % | 6.7 | % | 14.2 | % | (1.2 | )% | 4.5 | % | ||||||||||
Net Income (Loss) | $ | 8.7 | $ | 2.2 | $ | 17.1 | $ | (7.2 | ) | $ | 1.3 | |||||||||
Basic Earnings (Loss) Per Share | 0.23 | $ | 0.06 | 0.45 | $ | (0.19 | ) | $ | 0.03 | |||||||||||
Diluted Earnings (Loss) Per Share | 0.21 | $ | 0.06 | 0.40 | $ | (0.19 | ) | $ | 0.03 | |||||||||||
| a) | Adjusted amounts are non-GAAP financial measures and exclude restructuring charges of $8.5 million for the six months ended October 31, 2003. These charges primarily related to severance and facility charges and did not affect fee revenue or revenue. Korn/Ferry presents adjusted amounts as alternative measures to the actual amounts for comparison purposes. Korn/Ferry uses the adjusted amounts to analyze its operating results since it believes that the restructuring charges do not reflect, and make it difficult to compare, Korn/Ferry’s ongoing operations over various quarters. |
Fiscal second quarter fee revenue of $108.5 million increased $31.8 million or 42% from Q2’04 of $76.7 million. The increase in fee revenue, across all regions, is primarily attributable to an increase in the number of new engagements opened and an increase in average fees. Exchange rates impacted fee revenue favorably by $3.0 million.
Compensation and benefits expense of $69.0 million increased $17.6 million, or 34%, compared to $51.4 million in Q2’04. The increase reflects an increase in bonus expense as a result of increased profitability, an increase in existing employees’ salary base as well as an increase due to new consultants hired. Exchange rates impacted compensation and benefit expense unfavorably by $1.7 million.
General and administrative expense was $21.4 million compared to $17.5 million in Q2’04. The increase of $3.9 million, or 22%, is primarily due to the increase in provision for bad debts resulting from an increase in fee revenue as well as an increase in accounts receivable of $23.4 million from prior year. The increase was also attributed to an increase in professional fees.
Operating income of $15.5 million improved $10.3 million compared to Q2’04.
Balance Sheet and Liquidity
Cash and cash equivalents and marketable securities was $122.3 million at October 31, 2004 compared to $108.1 million at April 30, 2004.
Interest expense, primarily related to the borrowings under Company Owned Life Insurance (COLI) policies and Korn/Ferry’s convertible securities, was $2.7 million in the current quarter, consistent with prior year. At October 31, 2004, Korn/Ferry had no outstanding borrowings under its credit facility.
Results by Segment
Selected Executive Recruitment Data - Actual and Adjusted
(dollars in millions)
| Second Quarter | Year to Date | |||||||||||||||||||
| Actual | Actual | Adjusted (a) | ||||||||||||||||||
| Q2’05 | Q2’04 | Q2’05 | Q2’04 | Q2’04 | ||||||||||||||||
Fee revenue | $ | 95.5 | $ | 69.2 | $ | 186.6 | $ | 133.7 | $ | 133.7 | ||||||||||
Revenue | $ | 99.8 | $ | 73.5 | $ | 195.4 | $ | 142.9 | $ | 142.9 | ||||||||||
Operating Income | $ | 19.3 | $ | 9.2 | $ | 38.5 | $ | 10.7 | $ | 16.1 | ||||||||||
Operating Margin | 20.2 | % | 13.2 | % | 20.6 | % | 8.0 | % | 12.0 | % | ||||||||||
Average number of consultants | 395 | 384 | 395 | 388 | 388 | |||||||||||||||
Engagements (b) | 1,485 | 1,348 | 3,007 | 2,501 | 2,501 | |||||||||||||||
| a) | Adjusted amounts are non-GAAP financial measures and exclude restructuring charges of $5.4 million for the six months ended October 31, 2003. These charges primarily related to severance and facility charges and did not affect fee revenue or revenue. Korn/Ferry presents adjusted amounts as alternative measures to the actual amounts for comparison purposes. Korn/Ferry uses the adjusted amounts to analyze its operating results since it believes that the restructuring charges do not reflect, and make it difficult to compare, Korn/Ferry’s ongoing operations over various quarters. |
| b) | Represents new engagements opened in the respective period. |
Second quarter fee revenue was $95.5 million, an increase of $26.3 million or 38% from $69.2 million in Q2’04. The increase in fee revenue is due to an increase in the number of new engagements opened and an increase in average fees. Exchange rates impacted fee revenue favorably by $2.4 million.
Executive recruitment operating income was $19.3 million in the current quarter, an increase of $10.1 million compared to Q2’04 of $9.2 million.
The total number of consultants at October 31, 2004 was 398, an increase of 13 consultants compared to October 31, 2003.
Selected Futurestep Data - Actual and Adjusted
(dollars in millions)
| Second Quarter | Year to Date | |||||||||||||||||||
| Actual | Actual | Adjusted (a) | ||||||||||||||||||
| Q2’05 | Q2’04 | Q2’05 | Q2’04 | Q2’04 | ||||||||||||||||
Fee revenue | $ | 13.0 | $ | 7.5 | $ | 24.7 | $ | 15.6 | $ | 15.6 | ||||||||||
Revenue | $ | 13.8 | $ | 8.4 | $ | 26.4 | $ | 17.4 | $ | 17.4 | ||||||||||
Operating Income (loss) | $ | 2.4 | $ | 0.5 | $ | 4.3 | $ | (3.0 | ) | — | ||||||||||
Operating Margin | 18.4 | % | 6.4 | % | 17.4 | % | (19.6 | )% | — | % | ||||||||||
| a) | Adjusted amounts are non-GAAP financial measures and exclude restructuring charges of $3.0 million for the six months ended October 31, 2003. These charges related to severance and write-off of assets and facility charges and did not affect fee revenue or revenue. Korn/Ferry presents adjusted amounts as alternative measures to the actual amounts for comparison purposes. Korn/Ferry uses the adjusted amounts to analyze its operating results since it believes that the restructuring charges do not reflect, and make it difficult to compare, Korn/Ferry’s ongoing operations over various quarters. |
Second quarter fee revenue was $13.0 million, an increase of $5.5 million, or 73%, from Q2’04. Fee revenue increased in all regions driven by Futurestep’s strategic movement toward outsourced recruiting solutions.
Futurestep operating income was $2.4 million compared to $0.5 million in Q2’04.
Outlook
Assuming constant foreign exchange rates, Korn/Ferry estimates that third quarter fiscal 2005 fee revenue is likely to be in the range of $100 million to $108 million and earnings per share is likely to be in the range of $0.16 to $0.21.
Earnings Conference Call Webcast
The earnings conference call will be held today at 10:00 AM (EST) and hosted by Paul Reilly, Chairman and CEO, and Gary Burnison, Chief Operating Officer. 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 70 offices in 35 countries, is a leading provider of executive search and leadership development solutions. Based in Los Angeles, the firm partners with clients worldwide to deliver unparalleled senior-level search, management assessment, coaching and development and middle management recruitment services through its Futurestep subsidiary. For more information, visit the Korn/Ferry International Web site atwww.kornferry.com or the Futurestep Web site atwww.futurestep.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 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, 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.
[Tables attached]
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| Three Months Ended October 31, | Six Months Ended October 31, | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
Fee revenue | $ | 108,506 | $ | 76,650 | $ | 211,313 | $ | 149,237 | ||||||||
Reimbursed out-of-pocket engagement expense | 5,036 | 5,315 | 10,412 | 11,061 | ||||||||||||
Total revenue | 113,541 | 81,965 | 221,724 | 160,298 | ||||||||||||
Compensation and benefits | 69,009 | 51,355 | 133,885 | 102,673 | ||||||||||||
General and administrative expense | 21,402 | 17,492 | 42,246 | 34,302 | ||||||||||||
Out-of-pocket engagement expense | 5,520 | 5,460 | 11,158 | 11,256 | ||||||||||||
Depreciation and amortization | 2,140 | 2,500 | 4,382 | 5,287 | ||||||||||||
Restructuring charges | — | — | — | 8,526 | ||||||||||||
Total operating expense | 98,071 | 76,807 | 191,671 | 162,044 | ||||||||||||
Operating income (loss) | 15,470 | 5,158 | 30,053 | (1,746 | ) | |||||||||||
Interest and other (expense) income, net | (2,348 | ) | (2,705 | ) | (4,497 | ) | (4,953 | ) | ||||||||
Income (Loss) before provision for income taxes and equity in earnings of unconsolidated subsidiaries | 13,123 | 2,453 | 25,557 | (6,699 | ) | |||||||||||
Provision for income taxes | 4,905 | 475 | 9,391 | 931 | ||||||||||||
Equity in earnings of unconsolidated subsidiaries | 492 | 243 | 915 | 414 | ||||||||||||
Net income (loss) | $ | 8,710 | $ | 2,221 | $ | 17,081 | $ | (7,216 | ) | |||||||
Interest expense on convertible securities, net of taxes | 785 | 254 | 1,560 | $ | 1,010 | |||||||||||
Net income (loss) adjusted for computation of diluted EPS | $ | 9,495 | $ | 2,475 | $ | 18,641 | $ | (6,206 | ) | |||||||
Basic net income (loss) per common share | $ | 0.23 | $ | 0.06 | $ | 0.45 | $ | (0.19 | ) | |||||||
Basic weighted average common shares outstanding | 38,399 | 37,491 | 38,100 | 37,457 | ||||||||||||
Diluted net income (loss) per common share | $ | 0.21 | $ | 0.06 | $ | 0.40 | $ | (0.19 | ) | |||||||
Diluted weighted average common shares outstanding | 46,262 | 39,669 | 46,349 | 37,457 | ||||||||||||
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
FINANCIAL SUMMARY BY SEGMENT
(in thousands)
Three Months Ended October 31, | Six Months Ended October 31, | |||||||||||||||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||||||||||||||
Fee Revenue: | ||||||||||||||||||||||||||||
Executive recruitment: | ||||||||||||||||||||||||||||
North America | $ | 55,657 | $ | 40,615 | $ | 107,313 | $ | 77,022 | ||||||||||||||||||||
Europe | 23,837 | 17,860 | 48,655 | 36,015 | ||||||||||||||||||||||||
Asia/Pacific | 13,554 | 8,314 | 26,056 | 16,321 | ||||||||||||||||||||||||
South America | 2,497 | 2,380 | 4,603 | 4,301 | ||||||||||||||||||||||||
Total executive recruitment | 95,546 | 69,169 | 186,628 | 133,659 | ||||||||||||||||||||||||
Futurestep | 12,960 | 7,481 | 24,685 | 15,578 | ||||||||||||||||||||||||
Total fee revenue | 108,506 | 76,650 | 211,313 | 149,237 | ||||||||||||||||||||||||
Reimbursed out-of-pocket engagement expenses | 5,036 | 5,315 | 10,412 | 11,061 | ||||||||||||||||||||||||
Total revenue | $ | 113,541 | $ | 81,965 | $ | 221,724 | $ | 160,298 | ||||||||||||||||||||
| Margin | Margin | Margin | Margin | |||||||||||||||||||||||||
Operating Income (Loss): | ||||||||||||||||||||||||||||
Executive recruitment: | ||||||||||||||||||||||||||||
North America | $ | 11,957 | 21 | % | $ | 8,260 | 20 | % | $ | 24,057 | 22 | % | $ | 14,074 | 18 | % | ||||||||||||
Europe | 4,022 | 17 | % | 324 | 2 | % | 8,583 | 18 | % | (4,563 | ) | (13 | )% | |||||||||||||||
Asia/Pacific | 3,064 | 23 | % | 217 | 3 | % | 5,262 | 20 | % | 816 | 5 | % | ||||||||||||||||
South America | 272 | 11 | % | 350 | 15 | % | 552 | 12 | % | 342 | 8 | % | ||||||||||||||||
Total executive recruitment | 19,314 | 20 | % | 9,151 | 13 | % | 38,453 | 21 | % | 10,669 | 8 | % | ||||||||||||||||
Futurestep | 2,383 | 18 | % | 479 | 6 | % | 4,293 | 17 | % | (3,052 | ) | (20 | )% | |||||||||||||||
Corporate | (6,227 | ) | (4,472 | ) | (12,693 | ) | (9,363 | ) | ||||||||||||||||||||
Total operating income (loss) | $ | 15,470 | 14 | % | $ | 5,158 | 7 | % | $ | 30,053 | 14 | % | $ | (1,746 | ) | (1 | )% | |||||||||||
| Margin | Margin | Margin | Margin | |||||||||||||||||||||||||
*Adjusted Operating Income (Loss): | ||||||||||||||||||||||||||||
Executive recruitment: | ||||||||||||||||||||||||||||
North America | $ | 11,957 | 21 | % | $ | 8,260 | 20 | % | $ | 24,057 | 22 | % | $ | 14,338 | 19 | % | ||||||||||||
Europe | 4,022 | 17 | % | 324 | 2 | % | 8,583 | 18 | % | 347 | 1 | % | ||||||||||||||||
Asia/Pacific | 3,064 | 23 | % | 217 | 3 | % | 5,262 | 20 | % | 976 | 6 | % | ||||||||||||||||
South America | 272 | 11 | % | 350 | 15 | % | 552 | 12 | % | 400 | 9 | % | ||||||||||||||||
Total executive recruitment | 19,314 | 20 | % | 9,151 | 13 | % | 38,453 | 21 | % | 16,061 | 12 | % | ||||||||||||||||
Futurestep | 2,383 | 18 | % | 479 | 6 | % | 4,293 | 17 | % | (70 | ) | (0 | )% | |||||||||||||||
Corporate | (6,227 | ) | (4,472 | ) | (12,693 | ) | (9,211 | ) | ||||||||||||||||||||
Total adjusted operating income | $ | 15,470 | 14 | % | $ | 5,158 | 7 | % | $ | 30,053 | 14 | % | $ | 6,780 | 5 | % | ||||||||||||
| * | Adjusted operating income (loss) excludes restructuring charges related to severance and facilities of $8.5 million for the three and six months ended October 31, 2003. Executive recruitment, Futurestep and Corporate restructuring charges were $5.4 million, $3.0 million and $0.1 million, respectively, for the three and six months ended October 31, 2003. |
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
| As of October 31, 2004 | As of April 30, 2004 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 116,219 | $ | 108,102 | ||||
Marketable Securities | 6,092 | — | ||||||
Receivables due from clients, net of allowance for doubtful accounts of $8,894 and $6,159 | 71,858 | 52,306 | ||||||
Income taxes and other receivables | 6,743 | 5,812 | ||||||
Deferred income taxes | 9,320 | 9,320 | ||||||
Prepaid expenses | 11,938 | 10,128 | ||||||
Total current assets | 222,170 | 185,668 | ||||||
Property and equipment, net | 19,209 | 19,603 | ||||||
Cash surrender value of company owned life insurance policies, net of loans | 60,503 | 58,868 | ||||||
Deferred income taxes | 27,996 | 27,352 | ||||||
Goodwill | 101,945 | 98,481 | ||||||
Deferred financing costs, investments and other | 8,177 | 7,670 | ||||||
Total assets | $ | 440,000 | $ | 397,642 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Accounts payable | $ | 8,530 | $ | 8,676 | ||||
Income taxes payable | 10,569 | 2,956 | ||||||
Compensation and benefits payable | 56,076 | 60,957 | ||||||
Other accrued liabilities | 29,115 | 24,785 | ||||||
Total current liabilities | 104,290 | 97,374 | ||||||
Deferred compensation and other retirement plans | 56,676 | 53,018 | ||||||
Long-term debt | 44,852 | 44,400 | ||||||
Other liabilities | 8,649 | 11,456 | ||||||
7.5% Convertible mandatorily redeemable preferred stock, net of unamortized discount and issuance costs, redemption value $11,674 | 10,698 | 10,512 | ||||||
Total liabilities | 225,165 | 216,760 | ||||||
Shareholders’ equity | ||||||||
Common stock: $0.01 par value, 150,000 shares authorized, 40,223 and 39,363 shares issued and 39,074 and 38,170 shares outstanding | 318,782 | 307,003 | ||||||
Retained deficit | (104,123 | ) | (121,204 | ) | ||||
Unearned restricted stock compensation | (4,982 | ) | (2,341 | ) | ||||
Accumulated other comprehensive loss | 5,932 | (1,596 | ) | |||||
Shareholders’ equity | 215,609 | 181,862 | ||||||
Less: Notes receivable from shareholders | (774 | ) | (980 | ) | ||||
Total shareholders’ equity | 214,835 | 180,882 | ||||||
Total liabilities and shareholders’ equity | $ | 440,000 | $ | 397,642 | ||||