Korn/Ferry International Reports Operating Results (10-Q)
Korn/ferry International has a market cap of $679 million; its shares were traded at around $14.94 with a P/E ratio of 43.9 and P/S ratio of 1.1. KFY is in the portfolios of Robert Olstein of Olstein Financial Alert Fund, Chuck Royce of Royce& Associates, James Barrow of Barrow, Hanley, Mewhinney & Strauss, Paul Tudor Jones of The Tudor Group, Bruce Kovner of Caxton Associates, Arnold Van Den Berg of Century Management, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:Fee revenue increased 50% in the three months ended July 31, 2010 to $175.1 million compared to $116.8 million in the three months ended July 31, 2009, with increases in fee revenue in all regions of executive search and Futurestep. The North America and Asia Pacific regions in executive recruitment experienced the largest dollar increases in fee revenue. During the three months ended July 31, 2010, we recorded operating income of $19.3 million with operating income from executive recruitment and Futurestep of $27.7 million and $1.0 million, respectively and corporate expenses of $9.4 million. This represents an increase from an operating loss of $25.0 million in the three months ended July 31, 2009.
Our cash, cash equivalents and marketable securities decreased $64.3 million, or 22% to $232.2 million at July 31, 2010 compared to $296.5 million at April 30, 2010. As of July 31, 2010, we held marketable securities, to settle obligations under our Executive Capital Accumulation Plan (ECAP) with a cost value of $61.9 million and a fair value of $62.4 million. Our working capital increased $5.0 million in the three months ended July 31, 2010 to $187.8 million. We believe that cash on hand and funds from operations will be sufficient to meet our anticipated working capital, capital expenditures and general corporate requirements in the next twelve months. We had no long-term debt nor any outstanding borrowings under our credit facility at July 31, 2010.
Futurestep. Futurestep reported fee revenue of $20.2 million, an increase of $4.7 million, or 30%, in the three months ended July 31, 2010 compared to $15.5 million in the three months ended July 31, 2009. The increase in Futuresteps fee revenue was due to a 30% increase in the number of engagements billed in the three months ended July 31, 2010 as compared to the three months ended July 31, 2009. The increase in Futuresteps fee revenue consisted of North America fee revenue increase of $1.9 million, or 35%, to $7.3 million; Europe fee revenue increase of $1.9 million, or 43%, to $6.3 million; and an increase in Asia Pacific fee revenue of $0.9 million, or 16%, to $6.6 million. Improvement in Futurestep fee revenue is attributed to increases in middle-management recruitment and RPO. Exchange rates unfavorably impacted fee revenue for Futurestep by $0.1 million in the three months ended July 31, 2010.
Executive recruitment general and administrative expenses increased $1.2 million, or 6%, to $21.3 million in the three months ended July 31, 2010 from $20.1 million in the three months ended July 31, 2009. The increase in general and administrative expenses was driven by an increase in business development expense of $0.3 million, premises and office expense of $0.2 million, $1.1 million in bad debt expense, and other general and administrative expense of $0.6 million, which was partially offset by $1.0 million decrease in unrealized foreign exchange loss. Business development expense increased primarily due to the increase in our overall business activities. The increase in bad debt expense was in line with the increase in our account receivable balances and revenues. Executive recruitment general and administrative expenses, as a percentage of fee revenue, was 14% in the three months ended July 31, 2010 compared to 20% in the three months ended July 31, 2009.
As of July 31, 2010 and April 30, 2010, our marketable securities of $86.2 million and $77.2 million, respectively, included $62.4 million (net of unrealized gains of $0.5 million) and $69.0 million (net of unrealized gains of $2.0 million), respectively, held in trust for settlement of our obligations under certain deferred compensation plans, of which $56.7 million and $64.9 million, respectively, are classified as non-current. Our obligations for which these assets were held in trust totaled $62.8 million and $69.0 million as of July 31, 2010 and April 30, 2010, respectively. In addition, during the three months ended July 31, 2010, we purchased marketable securities classified as available-for-sale, which represents excess cash invested under our investment policy.
Cash used in investing activities was $22.9 million in the three months ended July 31, 2010, an increase of $12.3 million, from cash used in investing activities of $10.6 million in the three months ended July 31, 2009. This increase in cash used in investing activities is attributable to an $11.5 million increase in net purchases of marketable securities, a $10.5 million increase in the purchase of property and equipment and a $0.7 million increase in cash payments on earn-outs from previous acquisitions. These increases were partially offset by a reduction of $10.3 million in cash used for acquisitions in the three months ended July 31, 2009. Other liabilities increased by approximately $6.6 million during the three months ended for tenant improvement allowances, which represent reimbursements by landlords for costs incurred on leasehold improvements.
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