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Korn/Ferry International Announces First Quarter Fiscal 2013

Korn/Ferry International Announces First Quarter Fiscal 2013

Results of Operations- Highlights
• Q1 FY’13 fee revenue decreased 9.5% to $186.7 million, compared to $206.3 million in the same quarter last year, a 6% decline on a constant currency basis.
• Fee revenue in Leadership & Talent Consulting and Futurestep services grew 6.6% and 2.2%, respectively, from Q1 FY’12 to Q1 FY’13, a 9% and 7% increase, respectively, on a constant currency basis.
• Q1 FY’13 diluted earnings per share was $0.22, compared to diluted earnings per share of $0.33 in Q1 FY’12.

Los Angeles, CA, September 5, 2012 - Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, announced Q1 FY’13 diluted earnings per share of $0.22 compared to diluted earnings per share of $0.33 in Q1 FY’12.

“The global business environment remains challenging however I am pleased with Korn/Ferry’s overall strategic progress. The importance of our strategy and business model was further evidenced by the year over year growth of our broader talent management offerings,” said Gary D. Burnison, CEO of Korn/Ferry International.

“Continuing with the commitment to our strategy, I am excited about our recent acquisition of Global Novations, a widely respected provider of diversity, inclusion and leadership development offerings. Today’s global organizations put a high premium on cultural dexterity and diverse leaders who can motivate and move workforces across borders. With the world growing flatter, and smaller, and more diverse, Global Novations’ expertise in this fast growing market will be a strong asset to our clients.”

Financial Results

(dollars in millions, except per share amounts)

First Quarter

FY’13 FY’12

Fee revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 186.7 $ 206.3

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 196.0 $ 214.6

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17.0 $ 25.9

Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 % 12.6 %

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.4 $ 15.4

Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.22 $ 0.34

Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.22 $ 0.33

Fee revenue was $186.7 million in Q1 FY’13 compared to $206.3 million in Q1 FY’12, a decrease of $19.6 million or 10%, (of which $7.5 million related to foreign currency), which reflects a $22.0 million decrease in Executive Recruitment fee revenue partially offset by a $1.7 million and $0.7 million increase in fee revenue in Leadership & Talent Consulting and Futurestep, respectively. The decrease in fee revenue was driven by a 7% decrease in the weighted-average fee billed per engagement and a 3% decrease in the overall number of engagements billed compared to the year-ago fiscal quarter. Weighted-average fee billed per engagement is impacted by the mix of engagements by geography and segment, and fluctuating foreign currencies. The decrease in fee revenue was driven by decreases in the industrial, financial services and consumer sectors. On a constant currency basis, fee revenue decreased $12.1 million, or 6%.

Compensation and benefit expenses were $128.0 million in Q1 FY’13, a decrease of $9.4 million, or 7%, (of which $4.6 million related to foreign currency) compared to $137.4 million in Q1 FY’12. The decrease in compensation and benefit expenses was primarily due to a 6% decrease in performance related compensation expense, salaries and related payroll taxes in Q1 FY’13 compared to Q1 FY’12 primarily due to a decrease in the number of consultants compared to Q1’ FY12. On a constant currency basis, compensation and benefits decreased $4.8 million, or 3%.

General and administrative expenses were $33.4 million in Q1 FY’13, a decrease of $1.4 million, or 4%, from $34.8 million in Q1 FY’12. This decrease is attributable to a decrease in travel related expenses and bad debt expense. The decrease in travel related expenses was due to the ongoing cost control initiatives implemented by the Company to reduce costs while the decrease in bad debt expense is due to a decline in historical bad debt trends. On a constant currency basis, general and administrative expenses increased $0.7 million, or 2%.

Operating income was $17.0 million in Q1 FY’13 compared to operating income of $25.9 million in Q1

FY’12, a decrease of $8.9 million, or 34%.

Balance Sheet and Liquidity

Cash and marketable securities were $332.9 million and $281.2 million at July 31, 2012 and 2011,

respectively, compared to $417.7 million at April 30, 2012. Cash and marketable securities include $91.1 million and $82.2 million held in trust for deferred compensation plans at July 31, 2012 and April 30, 2012, respectively. Cash and marketable securities decreased by $84.8 million from April 30, 2012, mainly due to the payment of FY’12 annual bonuses in Q1 FY’13, partially offset by cash provided by operating activities.

Results by Segment

Beginning Q1 FY’13, the Company will begin 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)

First Quarter

FY’13 FY’12

Fee revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 127.4 $ 149.4

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 133.2 $ 155.5

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22.4 $ 33.1

Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6 % 22.1 %

Ending number of consultants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415 433

Average number of consultants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408 437

Engagements billed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,631 3,077

New engagements (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,210 1,403

(a) Represents new engagements opened in the respective period.

Fiscal 2013 First Quarter Results – Executive Recruitment

Fee revenue was $127.4 million in Q1 FY’13, a decrease of $22.0 million, or 15%, when compared to fee revenue of $149.4 million in Q1 FY’12. Fee revenue decreased in all regions due to a 14% decrease in the number of executive recruitment engagements billed when compared to Q1 FY’12. On a constant currency basis, fee revenue decreased $16.8 million, or 11%.

Operating income was $22.4 million in Q1 FY’13 compared to operating income of $33.1 million in Q1

FY’12, a decrease of $10.7 million or 32%. This decrease is primarily attributed to the $22.0 million

decrease in fee revenue in Q1 FY’13 as compared to Q1 FY’12, which was partially offset by a $10.3 million and $1.0 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 and a 6% decrease in salaries and related payroll taxes due in large part to a 7% decline in the average number of consultants in Q1 FY’13 as compared to Q1 FY’12. The decrease in general and administrative expense was primarily due to a decrease in premise and office expense of $0.6 million and bad debt expense of $0.5 million. The decrease in premise and office expense was due to lower maintenance costs while the decrease in bad debt expense was due to a decline in historical bad debt trends.

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