UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
April 30, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number
001-14505
KORN/FERRY
INTERNATIONAL
(Exact Name of Registrant as
Specified in its Charter)
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Delaware
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95-2623879
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification Number)
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1900 Avenue of the Stars, Suite 2600,
Los Angeles, California
(Address of principal
executive offices)
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90067
(Zip code)
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(310) 552-1834
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.01 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405) is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The number of shares outstanding of our common stock as of
June 26, 2009 was 44,770,089 shares. The aggregate
market value of the registrants voting and non-voting
common stock held by non-affiliates of the registrant on
October 31, 2008, the last business day of the
registrants most recently completed second fiscal quarter,
(assuming that the registrants only affiliates are its
officers, directors and 10% or greater stockholders) was
approximately $697,125,000 based upon the closing market price
of $13.89 on that date of a share of common stock as reported on
the New York Stock Exchange.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive Proxy Statement for
its 2009 Annual Meeting of Stockholders scheduled to be held on
September 10, 2009 are incorporated by reference into
Part III of this
Form 10-K.
KORN/FERRY
INTERNATIONAL
Index to
Annual Report on
Form 10-K
for the Fiscal Year Ended April 30, 2009
PART I.
Business
Overview
Korn/Ferry International (referred to herein as the
Company, Korn/Ferry, or in the first
person notations we, our, and
us) is a premier global provider of talent
management solutions that help clients to attract, develop,
retain and sustain their talent. We opened our first office in
Los Angeles in 1969 and currently operate in 70 cities in
37 countries. In 1998, we extended our market reach into middle
management with the introduction of Futurestep, our outsourced
and mid-level recruiting subsidiary. As of April 30, 2009,
we had approximately 2,100 full-time employees, including
460 executive recruitment and 155 Futurestep consultants who are
primarily responsible for client services. Our clients include
many of the worlds largest and most prestigious public and
private companies, middle market and emerging growth companies,
as well as government and nonprofit organizations. We have built
strong client loyalty with 75% of the executive recruitment
assignments we performed during the fiscal year were on behalf
of clients for whom we had conducted assignments in the previous
three fiscal years.
We were originally formed as a California corporation in
November 1969 and reincorporated as a Delaware corporation in
fiscal 2000.
We provide the following talent management solutions:
Executive Recruitment: Executive Recruitment,
our largest business, focuses on recruiting board-level, chief
executive and other senior executive positions for clients
predominantly in the consumer, financial services, industrial,
life sciences and technology industries. The relationships that
we develop through this business are valuable in introducing our
complementary service offerings to clients.
Leadership and Talent Consulting (LTC)
(formerly known as Leadership Development
Solutions): Our comprehensive blend of talent
management offerings assists clients with their ongoing
assessment, organizational and leadership development efforts.
Services address three fundamental leadership and talent
management needs strategic and organizational
alignment, leadership and executive development, and talent and
performance management. Each of Korn/Ferrys solutions is
delivered by an experienced team of leadership consultants, a
global network of top executive coaches and the intellectual
property of research-based, time-tested leadership assessment
and developmental tools.
Talent Acquisition Solutions: Our Futurestep
subsidiary draws from Korn/Ferrys nearly 40 years of
industry experience to create customized, flexible talent
acquisition solutions to meet specific workforce needs of
organizations around the world. In addition to being a pioneer
in recruitment process outsourcing (RPO), the
Companys multi-tiered portfolio of services includes
talent acquisition and management consulting services,
project-based recruitment, mid-level recruitment and interim
professionals.
We file annual, quarterly and current reports, proxy statements
and other documents with the Securities and Exchange Commission
(the SEC), pursuant to the Securities Exchange Act
of 1934 (the Exchange Act). You may read and copy
any materials that we file with the SEC at the SECs Public
Reference Room at 100 F Street N.E.,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-732-0330.
Our reports, proxy statements and other documents filed
electronically with the SEC are available at the website
maintained by the SEC at www.sec.gov.
We also make available, free of charge on our website at
www.kornferry.com, our annual, quarterly, and current
reports, and, if applicable, amendments to those reports, filed
or furnished pursuant to Section 13(a) of the Exchange Act
as soon as reasonably practicable after we electronically file
such reports with, or furnish them to, the SEC.
Our Corporate Governance Guidelines, Code of Business Conduct
and Ethics and the charters of the Audit Committee, Compensation
and Personnel Committee, and Nominating and Corporate Governance
Committee of our Board of Directors are also posted on our
website at www.kornferry.com. Stockholders may request
copies of these documents by writing to our Corporate Secretary
at 1900 Avenue of the Stars, Suite 2600, Los Angeles,
California 90067.
1
Industry
Overview
Executive Recruitment: Our executive
recruitment segment concentrates on searches for positions with
annual compensation of $150,000 or more, which may involve
board-level, chief executive and other senior executive
positions. The industry is comprised of retained and contingency
search firms. Retained firms, such as Korn/Ferry, typically
charge a fee for their services equal to approximately one-third
of the annual cash compensation for the position being filled
regardless of whether the position has been filled. Contingency
firms generally work on a non-exclusive basis and are
compensated only upon successfully placing a recommended
candidate.
Leadership and Talent Consulting: With an
increasing amount of Korn/Ferrys revenue being generated
by non-search engagements, our Leadership and Talent Consulting
services are driving our transformation into a broad-based
talent management firm. These diversified solutions help our
clients not only attract but develop and retain their best
people in the context of their organization and talent strategy.
Talent Acquisition Solutions: Futurestep, a
Korn/Ferry subsidiary, offers talent acquisition solutions for
mid- and high-level management with annual compensation
generally in the $100,000 to $150,000 range. Founded in 1998 as
Korn/Ferrys scalable, outsourced recruitment subsidiary,
Futurestep today has locations on four continents and a record
of success in securing top talent around the world.
Industry
Trends
The unprecedented economic environment has impeded business
throughout the world, including the talent management industry,
during the past fiscal year and it is unclear when economic
conditions will improve. However, we believe the long-term
business prospects for the talent management industry are still
strong due to a confluence of factors that will continue to fuel
job growth and hiring.
Consolidation of Talent Management Solution
Providers In choosing recruitment and human
resource service providers, we believe:
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Companies are actively in search of preferred providers in order
to create efficiencies and consolidate vendor relationships;
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Companies that can offer a full suite of talent management
solutions are becoming increasingly attractive; and
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Clients seek trusted advisors who understand their business and
unique organizational culture in order to manage the multiple
needs of their business on a global scale.
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Aging Population In many major economic
centers, the workforce population is aging at a rapid pace. It
is projected that there will be twice as many people retiring
this decade as there were in the previous one. Moreover, the
supply of available qualified candidates is limited, making it
more difficult for employers to secure qualified executives. We
believe this trend will have a positive impact on our business
over the long-term, as employers increasingly seek service
providers who can provide solutions for the impending talent
shortage.
Globalization of Business As the world
markets continue to integrate into one global economy, many
companies are adding strength to their internal talent with
experienced executives who can operate effectively in this
global environment. Emerging markets such as China, India and
Eastern Europe have executive talent demands that exceed the
current available supply of executive talent in these regions.
The rapidly changing competitive landscape challenges
multinational and local companies to identify and recruit
qualified executives with the right combination of skills,
experience and cultural compatibility. We believe clients are
turning to firms that combine proven expertise with specialized
knowledge of both key industries and local markets, enabling
them to address their ongoing global talent needs.
Increased Outsourcing of Recruitment
Functions We believe more companies are focusing
on core competencies and outsourcing non-core, back-office
functions to providers who can provide efficient, high-quality
services. A shortage of qualified middle management-level
candidates has made identifying and recruiting exceptional
candidates more difficult.
2
Companies increasingly rely on experienced global executive
recruitment firms to address their middle management recruitment
needs. By hiring global executive recruitment firms, companies
aim to:
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Have access to a diverse and highly qualified pool of candidates
on an as-needed basis;
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Reduce or eliminate the costs required to maintain and train an
in-house recruiting department in a rapidly changing industry;
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Benefit from the most updated industry and geographic market
information;
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Access cutting-edge search technology software; and
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Maintain management focus on core strategic business issues.
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Key Role of Advanced Technology At Korn/Ferry
we are adding more regimen and scientific research into the
recruitment process with emphasis shifting from
candidate identification to candidate assessment and placement.
Driving this initiative is enhanced technology, as the power of
the Internet, search engines and databases make it possible to
efficiently identify greater numbers of qualified candidates.
Innovative technology, when combined with world-class
intellectual property and thought leadership, creates a
compelling set of tools to manage the process of identifying,
recruiting and assessing the most desirable candidates.
Other Industry Trends In addition to the
industry trends mentioned above, we believe the following
factors will have a long-term positive impact on the talent
management industry:
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Increasing demand for managers with broader qualifications;
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Increasing desire by candidates to more actively manage their
careers;
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Increasing demand for senior executives with not just the right
technical skills, but also the right leadership characteristics
to meet the specific requirements of the position and
organizational culture;
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Increasing demand for senior executives who can exceed the high
standards of due diligence and public scrutiny as a result of
new securities legislation;
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Decreasing executive management tenure and more frequent job
changes; and
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Inadequate succession planning.
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Growth
Strategy
Our objective is to expand our position as a premier global
provider of talent management solutions. The principal elements
of our strategy include:
Recruiting
and Retaining Key Consultants
In the current environment we are operating in, our goal is to
retain our most productive consultants and maintain the quality
of service to which our clients are accustomed. Our consultants
originated from diverse backgrounds and areas of expertise and
were recruited based on their track records as top performers in
their given industry. We believe that we have continued to
upgrade our professional staff in the current year, while
decreasing the number of consultants by 69 to align our cost
structure with the current environment. We further believe that
the recruitment and retention of key consultants will be an
ongoing driver of long-term growth.
Broadening
our Product and Service Offerings
In addition to our heritage as a leading provider of executive
recruitment, we also offer clients outsourced and mid-level
recruitment, strategic and organizational alignment, leadership
and executive development, and talent and performance management
through Futurestep and LTC. We will continue to develop and add
new products and services that our clients demand and that are
consistent with our brand positioning. Our non-executive search
business generated 25% of our overall fee revenue in fiscal 2009.
3
Global
Account Management
In an effort to better coordinate global recruiting and to gain
operational efficiencies, we expect that multinational clients
increasingly will turn to strategic partners who can manage
their recruitment needs on a centralized basis. This will
require vendors with a global network of offices and
technological support systems to manage multiple hires across
geographical regions. In fiscal 2009 we launched a new firmwide
initiative the Office of the Chief Executive,
Premier Client Partnerships focused on
designing and executing global and regional client account
initiatives, enhancing Korn/Ferrys market positioning and
unlocking new areas for cross introductions and integrated
revenue growth.
Expanding
our Market Reach and Presence through Technology and Assessment
Solutions
Information technology has become a critical element of the
recruitment business. We have made significant investments in
developing a
state-of-the-art
technology infrastructure and our proprietary executive
recruitment software,
e-Korn/Ferry.
In fiscal 2009, we continued to invest in enhanced tools and
information sharing for competitive advantage. We completed the
development and global rollout of our next-generation applicant
tracking platform, Searcher Express, designed for speed,
ease of use, power and flexibility. Searcher Express is
the cornerstone of the Companys strategy to better share
knowledge, access data and improve the search process. We
launched the Client Advantage Talent Dashboard, a private
web portal where clients can monitor progress on the full range
of Korn/Ferrys search and consultative services 24/7
across all geographies. Also newly introduced in fiscal 2009 was
the Client Advantage intranet site, an online repository
of tools and best practices for serving our clients across the
full spectrum of their talent management needs. Finally, we
upgraded the technology supporting the Korn/Ferry Advantage
a comprehensive transformation of our senior
executive recruitment process.
As Futurestep continued its growth in RPO and project-based and
mid-level recruitment, information technology helped fuel all of
these lines of business. Fiscal 2009 saw several major system
enhancements, including the addition of
multi-language
capabilities on the new corporate web site and streamlining the
online registration process for candidates.
LTC also developed upgrades to its management assessment
technology. Usage of Search Assessment, an assessment
technology process for our core executive recruitment business,
increased to 51% of all search engagements. Our library of
Best-In-Class
job profiles has been enriched through the collection of
more extensive career experience information on our executive
assessment web site.
Talent Acquisition Solutions: Offers talent
acquisition solutions for positions with annual compensation
generally in the $100,000 to $150,000 range. This market has
been fundamentally transformed over the past several years
through the emergence of RPO services. This transformation has
been further driven through database technology and the
Internet, which have introduced greatly improved capabilities in
identifying, targeting and reaching potential candidates,
thereby reducing placement times.
We will continue to refine our technology, including the
integration of Lominger and Lore intellectual property into our
exclusive candidate assessment tools, in order to strengthen our
relationships with our existing clients, attract new clients,
expand into new markets and position ourselves to gain a
competitive advantage in marketing complementary services.
Leveraging
our Leadership and Brand Name in Executive
Recruitment
We believe that there are significant opportunities to extend
our market share and develop new client relationships by
aggressively marketing our global recruitment expertise. Our
leadership in executive recruitment enables us to grow our
business by increasing the number of recruitment assignments we
handle for existing clients. We also believe that our strong
relationships and well-recognized brand name will enable us to
introduce new services to our existing client base and to
potential new clients, while allowing us to build communities of
candidates to whom we can directly market our services. We plan
to consider and, where applicable, make selective acquisitions
in regions where we can gain market share and capitalize on cost
saving opportunities.
4
Our
Services and Organization
We address the global recruitment needs of our clients at all
levels of management by offering the following services:
Executive
Recruitment Services
Overview. Our executive recruitment services
are typically used to fill executive-level positions, such as
board directors, chief executive officers, chief financial
officers, chief operating officers, chief information officers
and other senior executive officers. Once we are retained by a
client to conduct a search, we assemble a team comprised of
consultants with appropriate geographic, industry and functional
expertise. Our search consultants serve as management advisors
who work closely with the client in identifying, assessing and
placing qualified candidates. In fiscal 2009, we executed more
than 9,200 executive recruitment assignments.
We utilize a unique, standardized approach to placing talent
that integrates scientific research with our practical
experience. Providing a more complete view of the candidate than
is otherwise possible, our proprietary tools are statistically
proven to generate better results in identifying the right
person for the position. We call our executive recruitment
methodology The Korn/Ferry Advantage.
We emphasize a close working relationship with the client and a
comprehensive understanding of the clients business
issues, strategy and culture, as well as an in-depth knowledge
of the skills necessary to succeed within a clients
organization. Initially, the search team consults with the
client to better understand its history, culture, structure,
expectations, challenges, future direction and operations. In
these meetings, the team identifies the specific needs of the
client and develops a profile of an ideal candidate for the
position using our proprietary Leadership Sort System, which
allows clients to select the desired leadership characteristics
for specific roles. Early in the process, the team also works
with the client to develop the general parameters of a
compensation package that will attract highly qualified
candidates.
Once the position is defined and outlined via an Enhanced Job
Specification that embodies the desired leadership
characteristics, a research team identifies through the use of
our proprietary databases and other information resources,
companies in related industries facing similar issues and with
operating characteristics similar to those of the client. In
addition, the team consults with its established network of
resources and searches our databases containing profiles of
approximately 4.2 million executives to assist in
identifying individuals with the right background, cultural fit
and abilities. These sources are a critical element in assessing
the marketplace.
An original list of candidates is carefully screened through
phone interviews, video conferences and in-person meetings,
using our proprietary behavioral interviewing approach.
Candidates also complete Search Assessment, a behavioral mapping
tool that provides clients with insights into how candidates
will lead, how they will approach and solve complex problems,
what their emotional profile is likely to be and what motivates
them to succeed. The client is then presented final qualified
candidates to interview. We conduct due diligence and background
verification of the candidate throughout the process, at times
with the assistance of an independent third party.
The finalist for the position will usually meet with the client
for a second and possibly a third round of discussions. At this
point, the compensation package will have been discussed in
detail, increasing the likelihood that an offer will be
accepted. Generally, the search consultants will participate in
the negotiations until a final offer is made and accepted.
Throughout the process, ongoing communication with the client is
critical to keep client management apprised of progress.
Industry Specialization. Consultants in our
five global markets and two regional specialty practice groups
bring an in-depth understanding of the market conditions and
strategic management issues faced by clients within their
specific industry and geography. We are continually looking to
expand our specialized expertise through internal development
and strategic hiring in targeted growth areas.
5
Percentage
of Fiscal 2009 Assignments by Industry Specialization
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Global Markets:
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Industrial
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29
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Consumer
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18
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Financial Services
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18
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%
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Technology
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14
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%
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Life Sciences
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11
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Regional Specialties:
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Healthcare Provider
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5
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Education/Not-for-profit
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5
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Functional Expertise. We have organized
executive recruitment centers of functional expertise, composed
of consultants who have extensive backgrounds in placing
executives in certain functions, such as board directors, chief
executive officers and other senior executive officers. Our
CEO & Board Services group, for example, focuses
exclusively on placing CEOs and board directors in organizations
around the world. This is a dedicated team from the most senior
ranks of the firm. Their work is with CEOs and in the board
room, and their expertise is organizational leadership and
governance. They conduct hundreds of engagements every year,
tapping talent from every corner of the globe. This work spans
all ranges of organizational scale and purpose. Members of
functional groups are located throughout our regions and across
our industry groups. We have built a proprietary database with
the names and backgrounds of every FORTUNE 1000 director,
plus a significant number of middle-market and high-growth
company board members to assist in board searches.
Percentage
of Fiscal 2009 Assignments by Functional Expertise
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Board Level/CEO/CFO/Senior Executive and General Management
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63
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Marketing and Sales
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13
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Human Resources and Administration
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8
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Manufacturing/Engineering/Research and Development/Technology
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8
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%
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Finance and Control
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6
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%
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Information Systems
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2
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%
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Regions
North America We opened our first office in
Los Angeles in 1969, and currently have 22 offices throughout
the United States and Canada. In fiscal 2009, the region
generated fee revenue of $309.5 million from more than
3,800 assignments billed, with an average of 254 consultants.
Europe, the Middle East and Africa
(EMEA) We opened our first European
office in London in 1972, and currently have 22 offices in 19
countries throughout the region. In fiscal 2009, the region
generated fee revenue of $143.2 million from more than
2,990 assignments billed, with an average of 144 consultants.
Asia Pacific We opened our first Asia Pacific
office in Tokyo in 1973, and currently have 17 offices in
10 countries throughout the region. In fiscal 2009, the
region generated fee revenue of $66.3 million from more
than 1,630 assignments billed, with an average of 88 consultants.
Latin America We opened our first Latin
America office in Brazil in 1974. We expanded our practice to
Mexico through the 1977 acquisition of a less than 50% interest
in a Mexico City company, and currently conduct operations in
Mexico through a subsidiary in which we hold a minority
interest. As of April 30, 2009, we operate a network of 7
offices in 6 countries covering the entire South American region
and two offices in Mexico. The region, excluding operations in
Mexico, generated fee revenue of $24.3 million in fiscal
2009 from more than 780 assignments billed, with an average
of 23 consultants. Our share of the earnings from our Mexico
subsidiary was $2.4 million and $3.3 million for the
years ended April 30, 2009 and 2008, respectively, and is
included in equity in earnings of unconsolidated subsidiaries on
the consolidated statements of operations.
6
Client Base. Our 4,238 clients include many of
the worlds largest and most prestigious public and private
companies, including 45% of the FORTUNE 500 companies in
the current fiscal year. In fiscal 2009, no single client
represented more than 1% of fee revenue. We have established
strong client loyalty with 75% of the executive recruitment
assignments we performed during the fiscal year were on behalf
of clients for whom we had conducted assignments in the previous
three fiscal years.
Competition. We are a premier global provider
of talent management solutions. Other multinational executive
recruitment firms include Egon Zehnder International,
Heidrick & Struggles International, Inc., Russell
Reynolds Associates and Spencer Stuart. Although these firms are
our largest competitors, we also compete with smaller boutique
firms that specialize in specific regional, industry or
functional searches. We believe our brand name, multi-product
offerings, cutting-edge technology, global network, prestigious
clientele, strong specialty practices and quality of services
are recognized worldwide. We also believe that our long-term
incentive compensation arrangements, as well as other executive
benefits, distinguish us from most of our competitors and are
important in attracting and retaining our key consultants.
Leadership and Talent Consulting. In fiscal
2009, we consolidated our strategic management assessment and
executive coaching and development services under the new name
Leadership and Talent Consulting to more accurately
reflect the array of solutions we now offer and to accommodate
further growth. We have made significant investments in these
service areas with the acquisitions of Lominger Limited, Inc.
and Lominger Consulting (the Lominger Entities) and
LeaderSource in fiscal 2007 and Lore International in fiscal
2009. Our comprehensive blend of talent management offerings
assists clients with the ongoing assessment and development of
their senior executives and management teams, and addresses
three fundamental leadership and talent management needs:
1. Strategic and Organizational Alignment: Korn/Ferry
offers solutions for aligning structure, organization and talent
with business strategy, including strategic alignment,
organization structure and design, culture alignment, and merger
and acquisition and post-merger integration.
2. Leadership and Executive Development: We offer several
powerful solutions for equipping leaders to optimize
performance, such as executive development and coaching,
executive and leadership education, executive onboarding and
senior team/board effectiveness.
3. Talent and Performance Management: Korn/Ferry can help
organizations establish and implement a scalable talent
management foundation through such services as succession
planning, competency modeling, high-potential engagement and
executive compensation.
Each of Korn/Ferrys solutions is delivered by an
experienced team of leadership consultants, a global network of
top executive coaches and the intellectual property of
research-based, time-tested leadership assessment and
developmental tools.
Talent
Acquisition Solutions Futurestep
Overview. Founded in 1998 as Korn/Ferrys
scalable, outsourced recruitment subsidiary, Futurestep offers
clients a portfolio of talent acquisition solutions, including
talent acquisition and management consulting services, RPO
solutions, project-based recruitment, mid-level recruitment and
interim professionals. Each Futurestep service benefits from the
industry and functional expertise of our global consultant
network, ensuring that clients work with professionals who
understand their business and have the relevant knowledge to
qualify candidates effectively.
Futurestep combines traditional recruitment expertise with a
multi-tiered portfolio of talent acquisition solutions.
Futurestep consultants, based in 15 countries, have access to
our databases of pre-screened, mid-level professionals. Our
global candidate pool complements our international presence and
multi-channel sourcing strategy to aid speed, efficiency and
quality service for clients worldwide.
Futurestep consulting services help companies reduce costs and
boost efficiency for talent management processes, evaluate and
select service and technology vendors, establish objectives and
metrics for success, and implement and optimize talent programs
and systems. Through our services, and through the consulting
expertise of The Newman Group, acquired by Futurestep in fiscal
2008, we help companies align people, processes and technology.
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Strategic RPO combines strategy, expertise and support from the
industrys foremost thought leaders, covering all facets of
talent acquisition. Customized solutions integrate talent
acquisition strategy, global recruiting resources,
competency-based methodologies and a flexible service delivery
model to enable clients to identify, attract and retain top
talent.
Project-based recruitment solutions offer a proven, outsourced
approach for augmenting and optimizing a companys talent
acquisition strategy to manage multiple hires within a specific
timeframe. Consultants use our proprietary recruitment
methodology to deliver seamless, workflow-driven talent
acquisition strategies that enable clients to secure the right
talent, quickly and effectively.
Futuresteps mid-level recruitment service uses multiple
sourcing channels, validated cultural assessments and our global
database of more than two million pre-screened professionals to
offer a low overhead approach that accelerates the recruitment
process and provides a diverse, qualified set of mid-level
candidates matched with specific cultural and strategic
requirements.
Futurestep offers a full suite of specialized and scalable
interim solutions that feature direct access to flexible, highly
skilled professionals in every line of business and proven
success in meeting interim talent needs.
Regions. We opened our first Futurestep office
in Los Angeles in May 1998. In January 2000, we acquired the
Executive Search & Selection business of PA Consulting
with operations in Europe and Asia Pacific. As of April 30,
2009, we had Futurestep operations in 10 cities in North
America, 7 in Europe and 14 in Asia Pacific.
Competition. Futurestep primarily competes for
business with other RPO providers such as Spherion, KellyOCG and
The Right Thing and competes for search assignments with
regional contingency recruitment firms and large national
retained search firms.
For talent acquisition and management consulting services,
Futurestep competes with boutique consulting providers such as
HRchitect, Knowledge Infusion and Capital H Group and larger
consulting firms such as Accenture, Hewitt Associates and Watson
Wyatt Worldwide.
Organization
The Company operates in two global business segments in the
retained recruitment industry, executive recruitment and
Futurestep. Our executive recruitment business is managed on a
geographic basis throughout our four regions: North America,
South America, EMEA and Asia Pacific. Futurestep is managed on a
worldwide basis with operations in North America, Europe and
Asia Pacific. We face risks associated with political
instability, legal requirements and currency fluctuations in
these international operations. Examples of such risks include
difficulties in staffing and managing global operations, social
and political instability, fluctuation in currency exchange
rates and potential adverse tax consequences.
Professional
Staff and Employees
As of April 30, 2009, we had approximately 1,583 executive
recruitment employees consisting of 460 consultants and
1,123 associates, researchers, administrative and support staff.
In addition, we had 14 consultants in our unconsolidated Mexico
office. Futurestep had 493 employees as of April 30,
2009, consisting of 155 consultants and 338 administrative and
support staff. Corporate had 48 professionals at April 30,
2009. We have not been a party to a collective bargaining
agreement and consider our relations with our employees to be
good. Korn/Ferry is an equal opportunity employer.
In Executive Recruitment, senior associates, associates and
researchers support the efforts of our consultants with
candidate sourcing and identification, but do not generally lead
assignments. We have training and professional development
programs. Promotion to senior client partner is based on a
variety of factors, including demonstrated superior execution
and business development skills, the ability to identify
solutions to complex issues, personal and professional ethics, a
thorough understanding of the market and the ability to develop
and help build effective teams. In addition, we have a program
for recruiting experienced professionals into our firm.
8
The following table provides information relating to each of our
business segments for fiscal 2009. Financial information
regarding our business segments for fiscal 2008 and 2007 and
additional information for fiscal 2009 is contained in the Notes
to our Consolidated Financial Statements included in this Annual
Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Number of
|
|
|
Number of
|
|
|
|
Fee
|
|
|
Income
|
|
|
Offices as of
|
|
|
Consultants as of
|
|
|
|
Revenue
|
|
|
(Loss)
|
|
|
April 30, 2009
|
|
|
April 30, 2009
|
|
|
|
(Dollars in thousands)
|
|
|
Executive Recruitment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
309,514
|
|
|
$
|
37,516
|
|
|
|
22
|
|
|
|
230
|
|
EMEA
|
|
|
143,184
|
|
|
|
2,061
|
|
|
|
22
|
|
|
|
124
|
|
Asia Pacific
|
|
|
66,332
|
|
|
|
5,396
|
|
|
|
17
|
|
|
|
84
|
|
South America
|
|
|
24,323
|
|
|
|
2,441
|
|
|
|
7
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Executive Recruitment
|
|
|
543,353
|
|
|
|
47,414
|
|
|
|
68
|
|
|
|
460
|
|
Futurestep(1)
|
|
|
94,870
|
|
|
|
(12,003
|
)
|
|
|
10
|
|
|
|
155
|
|
Corporate
|
|
|
|
|
|
|
(31,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
638,223
|
|
|
$
|
3,728
|
|
|
|
78
|
|
|
|
615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Futurestep partially occupies 21 of the executive recruitment
offices globally in 15 countries. |
The following table provides information on fee revenues for
each of the last three fiscal years attributable to the
geographical regions in which the Company operates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Fee Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
305,472
|
|
|
$
|
368,039
|
|
|
$
|
324,349
|
|
Canada
|
|
|
41,861
|
|
|
|
48,646
|
|
|
|
35,559
|
|
EMEA
|
|
|
172,899
|
|
|
|
223,826
|
|
|
|
179,974
|
|
Asia Pacific
|
|
|
93,668
|
|
|
|
124,503
|
|
|
|
96,114
|
|
South America
|
|
|
24,323
|
|
|
|
25,556
|
|
|
|
17,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
638,223
|
|
|
$
|
790,570
|
|
|
$
|
653,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The risks described below are the material risks facing our
Company. Additional risks not presently known to us or that we
currently deem immaterial may also impair our business
operations. Our business, financial condition or results of
operations could be materially adversely affected by any of
these risks.
Competition
in our industry could result in us losing market share and/or
require us to charge lower prices for services, which could
reduce our revenue.
We compete for executive search business with numerous executive
search firms and businesses that provide job placement services.
Traditional executive search competitors include Egon Zehnder
International, Heidrick & Struggles International,
Inc., Russell Reynolds Associates and Spencer Stuart. In each of
our markets, our competitors may possess greater resources,
greater name recognition and longer operating histories than we
do, which may give them an advantage in obtaining future clients
and attracting qualified professionals in these markets. There
are no extensive barriers to entry into the executive search
industry and new recruiting firms continue to enter the market.
We believe the continuing development and increased availability
of information technology will continue to attract new
competitors. Increased competition may lead to pricing pressures
that could negatively impact our business. For example,
increased competition could require us to charge lower prices,
and/or cause
us to lose market share, each of which could reduce our revenue.
9
If we
fail to attract and retain qualified and experienced
consultants, our revenue could decline and our business could be
harmed.
We compete with other executive search firms for qualified
consultants. Attracting and retaining consultants in our
industry is particularly important because, generally, a small
number of consultants have primary responsibility for a client
relationship. Because client responsibility is so concentrated,
the loss of key consultants may lead to the loss of client
relationships. This risk is heightened due to the general
portability of a consultants business. Any decrease in the
quality of our reputation, reduction in our compensation levels
or restructuring of our compensation program, whether as a
result of insufficient revenue, a decline in the market price of
our common stock or for any other reason, could impair our
ability to retain existing consultants or attract additional
qualified consultants with the requisite experience, skills and
established client relationships. Our failure to retain our most
productive consultants or maintain the quality of service to
which our clients are accustomed and the ability of a departing
consultant to move business to his or her new employer could
result in a loss of clients, which could in turn cause our
revenue to decline and our business to be harmed.
Global
economic developments and the conditions in the geographic
regions and the industries from which we derive a significant
portion of our fee revenue could negatively affect our business,
financial condition and results of operations.
Demand for our services is affected by global economic
conditions and the general level of economic activity in the
geographic regions and industries in which we operate. When
conditions in the global economy, including the credit markets,
deteriorate, or economic activity slows, many companies hire
fewer permanent employees. The geographic regions and industries
in which we operate have recently deteriorated significantly and
may remain depressed for the foreseeable future. If the national
or global economy or credit market conditions in general do not
improve or deteriorate further in the future, the demand for our
services could continue to weaken, resulting in lower cash flows
and a negative effect on our business, financial condition and
results of operations.
If we
are unable to retain our executive officers and key personnel,
or integrate new members of our senior management who are
critical to our business, we may not be able to successfully
manage our business in the future.
Our future success depends upon the continued service of our
executive officers and other key management personnel. If we
lose the services of one or more of our executives or key
employees, or if one or more of them decides to join a
competitor or otherwise compete directly or indirectly with us,
or if we are unable to integrate new members of our senior
management who are critical to our business, we may not be able
to successfully manage our business or achieve our business
objectives.
If we
are unable to maintain our professional reputation and brand
name, our business will be harmed.
We depend on our overall reputation and brand name recognition
to secure new engagements and to hire qualified professionals.
Our success also depends on the individual reputations of our
professionals. We obtain a majority of our new engagements from
existing clients or from referrals by those clients. Any client
who is dissatisfied with our assignments can adversely affect
our ability to secure new engagements.
If any factor, including poor performance, hurts our reputation,
we may experience difficulties in competing successfully for
both new engagements and qualified consultants. Failing to
maintain our professional reputation and the goodwill associated
with our brand name could seriously harm our business.
We are
subject to potential legal liability from clients, employees and
candidates for employment. Insurance coverage may not be
available to cover all of our potential liability and available
coverage may not be sufficient to cover all claims that we may
incur.
Our ability to obtain liability insurance, its coverage levels,
deductibles and premiums are all dependent on market factors,
our loss history and insurers perception of our overall
risk profile. We are exposed to potential claims with respect to
the executive search process. For example, a client could assert
a claim for matters such as breach of an off-limit agreement or
recommending a candidate who subsequently proves to be
unsuitable for the
10
position filled. Further, the current employer of a candidate
whom we placed could file a claim against us alleging
interference with an employment contract. In addition, a
candidate could assert an action against us for failure to
maintain the confidentiality of the candidates employment
search or for alleged discrimination, violations of employment
law or other matters. We cannot ensure that our insurance will
cover all claims or that insurance coverage will be available at
economically acceptable rates.
We
rely heavily on our information systems and if we lose that
technology, or fail to further develop our technology, our
business could be harmed.
Our success depends in large part upon our ability to store,
retrieve, process, manage and protect substantial amounts of
information. To achieve our strategic objectives and to remain
competitive, we must continue to develop and enhance our
information systems. This may require the acquisition of
equipment and software and the development of new proprietary
software, either internally or through independent consultants.
If we are unable to design, develop, implement and utilize, in a
cost-effective manner, information systems that provide the
capabilities necessary for us to compete effectively, or for any
reason any interruption or loss of our information processing
capabilities occurs, this could harm our business, results of
operations and financial condition.
We
face risks associated with social and political instability,
legal requirements, economic conditions and currency
fluctuations in our international operations.
We operate in 37 countries and during the year ended
April 30, 2009, generated 46% of our fee revenue from
operations outside of North America. We are exposed to the risk
of changes in social, political, legal and economic conditions
inherent in international operations. Examples of risks inherent
in transacting business worldwide that we are exposed to include:
|
|
|
|
|
changes in and compliance with applicable laws and regulatory
requirements;
|
|
|
|
difficulties in staffing and managing global operations;
|
|
|
|
social and political instability;
|
|
|
|
fluctuations in currency exchange rates;
|
|
|
|
statutory equity requirements;
|
|
|
|
repatriation controls; and
|
|
|
|
potential adverse tax consequences.
|
We have no hedging or similar foreign currency contracts and
therefore fluctuations in the value of foreign currencies could
impact our global operations. We cannot ensure that one or more
of these factors will not harm our business, financial condition
or results of operations.
We may
be limited in our ability to recruit employees from our clients
and we could lose those opportunities to our competition, which
could harm our business.
Either by agreement with clients, or for client relations or
marketing purposes, we sometimes refrain from, for a specified
period of time, recruiting candidates from a client when
conducting searches on behalf of other clients. These off-limit
agreements can generally remain in effect for up to two years
following completion of an assignment. The duration and scope of
the off-limit agreement, including whether it covers all
operations of the client and its affiliates or only certain
divisions of a client, generally are subject to negotiation or
internal policies and may depend on factors such as the scope,
size and complexity of the clients business, the length of
the client relationship and the frequency with which we have
been engaged to perform executive searches for the client. Our
inability to recruit candidates from these clients may make it
difficult for us to obtain search assignments from, or to
fulfill search assignments for, other companies in that
clients industry. We cannot ensure that off-limit
agreements will not impede our growth or our ability to attract
and serve new clients, or otherwise harm our business.
11
We
have provisions that make an acquisition of us more difficult
and expensive.
Anti-takeover provisions in our Certificate of Incorporation,
our Bylaws and under Delaware law make it more difficult and
expensive for us to be acquired in a transaction that is not
approved by our Board of Directors. Some of the provisions in
our Certificate of Incorporation and Bylaws include:
|
|
|
|
|
a classified Board of Directors;
|
|
|
|
limitations on the removal of directors;
|
|
|
|
limitation on stockholder actions;
|
|
|
|
advance notification requirements for director nominations and
actions to be taken at stockholder meetings; and
|
|
|
|
the ability to issue one or more series of preferred stock by
action of our Board of Directors.
|
These provisions could discourage an acquisition attempt or
other transaction in which stockholders could receive a premium
over the current market price for the common stock.
We
have deferred tax assets that we may not be able to use under
certain circumstances.
If we are unable to generate sufficient future taxable income in
certain jurisdictions, or if there is a significant change in
the time period within which the underlying temporary
differences become taxable or deductible, we could be required
to increase our valuation allowances against our deferred tax
assets. This would result in an increase in our effective tax
rate, and an adverse effect on our future operating results. In
addition, changes in statutory tax rates may also change our
deferred tax assets or liability balances, with either favorable
or unfavorable impact on our effective tax rate. Our deferred
tax assets may also be impacted by new legislation or regulation.
An
impairment in the carrying value of goodwill and other
intangible assets could negatively impact our consolidated
results of operations and net worth.
Goodwill is initially recorded at fair value and is not
amortized, but is reviewed for impairment at least annually or
more frequently if impairment indicators are present. In
assessing the carrying value of goodwill, we make estimates and
assumptions about revenues, operating margins, growth rates, and
discount rates based on our business plans, economic
projections, anticipated future cash flows and marketplace data.
There are inherent uncertainties related to these factors and
managements judgment in applying these factors. Goodwill
valuations have been calculated using an income approach based
on the present value of future cash flows of each reporting
unit. We could be required to evaluate the carrying value of
goodwill prior to the annual assessment if we experience further
unexpected significant declines in operating results, or
sustained market capitalization declines. These types of events
and the resulting analyses could result in goodwill impairment
charges in the future. Impairment charges could substantially
affect our results of operations and net worth in the periods of
such charges.
Acquisitions
may have an adverse effect on our business.
While we may, under certain circumstances, pursue acquisitions
in the future, we may not be able to consummate such
acquisitions on satisfactory terms or integrate the acquired
businesses effectively and profitably into our existing
operations. To the extent we consummate any acquisitions, our
future success may depend in part on our ability to complete the
integration of the acquisition target successfully into our
operations. Failure to successfully integrate new employees and
complementary businesses may adversely affect our profitability
by creating operating inefficiencies that could increase
operating expenses as a percentage of net revenues and reduce
operating income. Further, after any acquisition, the acquired
businesses clients may choose not to move their business
to us causing an adverse affect on our business, financial
condition and results of operations.
12
We may
not be able to align our cost structure with our revenue
level.
We must ensure that our costs and workforce continue to be in
proportion to demand for our services. Any failure to maintain a
balance between our cost structure and headcount and our revenue
could adversely affect our business, financial condition, and
results of operations.
We may
require additional capital in the future, which may not be
available at all or may be available only on unfavorable
terms.
Continued adverse changes in the Companys revenue could
require us to institute additional cost cutting measures, and to
the extent our efforts are insufficient, we may be required to
obtain additional financing to meet our needs. If we are unable
to secure additional financing on favorable terms or at all, our
ability to fund our operations could be impaired, which could
have a material adverse effect on our results of operations.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
Not applicable.
Our corporate office is located in Los Angeles, California. We
lease all 78 of our executive recruitment and Futurestep offices
located in North America, EMEA, Asia Pacific and South America.
As of April 30, 2009, we leased an aggregate of
approximately 671,969 square feet of office space. The
leases generally are for terms of one to 10 years and
contain customary terms and conditions. We believe that our
facilities are adequate for our current needs and we do not
anticipate any difficulty replacing such facilities or locating
additional facilities to accommodate any future growth.
|
|
Item 3.
|
Legal
Proceedings
|
From time to time, we are involved in litigation both as a
plaintiff and a defendant, relating to claims arising out of our
operations. As of the date of this report, we are not engaged in
any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on our business,
financial condition or results of operations.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of security holders during
the fourth quarter of fiscal 2009.
Executive
Officers of the Registrant
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Gary D. Burnison
|
|
|
48
|
|
|
Chief Executive Officer
|
Michael A. DiGregorio
|
|
|
54
|
|
|
Executive Vice President and Chief Financial Officer
|
Ana Dutra
|
|
|
45
|
|
|
Executive Vice President and Chief Executive Officer of
Leadership and Talent Consulting
|
Robert H. McNabb
|
|
|
62
|
|
|
Executive Vice President, Korn/Ferry and Chief Executive
Officer, Futurestep
|
Our executive officers serve at the discretion of our Board of
Directors. There is no family relationship between any executive
officer or director. The following information sets forth the
business experience for at least the past five years for each of
our executive officers as of April 30, 2009.
Gary D. Burnison has been Chief Executive Officer since
July 2007. He was the Executive Vice President and Chief
Financial Officer from March 2002 until June 30, 2007. He
was appointed Chief Operating Officer from November 2003 until
June 30, 2007. Prior to joining Korn/Ferry,
Mr. Burnison was Principal and Chief Financial Officer of
Guidance Solutions, a privately held consulting firm, from 1999
to 2001. Prior to that, he served as an
13
executive officer and a member of the board of directors of
Jefferies and Company, an investment bank and brokerage firm,
from 1995 to 1999. Earlier, Mr. Burnison was a partner at
KPMG Peat Marwick.
Michael A. DiGregorio joined the Company in June 2009 as
our Executive Vice President and Chief Financial Officer. Prior
to joining Korn/Ferry, he served as Executive Vice President and
Chief Financial Officer of St. John Knits
International, Inc., a luxury womens apparel company, from
2006 to 2009. Prior to joining St. John Knits
International, Inc. Mr. DiGregorio served in various
capacities at Jafra Cosmetics International, Inc., a multi-level
direct sales company, serving as Executive Vice President and
Chief Financial Officer from 1999 to 2004, President and Chief
Operating Officer of U.S. Operations from 1998 to 1999, and
General Manager and Chief Operating Officer of the
companys operations in Mexico from 1997 to 1998. He
started his career at Touche, Ross and Company, a pubic
accounting firm. Mr. DiGregorio received both a
bachelors degree in accounting and a masters degree
in accounting from the Wharton School of the University of
Pennsylvania.
Ana Dutra has been Executive Vice President of Korn/Ferry
and Chief Executive Officer of Leadership and Talent Consulting
since February 2008. She is responsible for driving the global
growth of our Leadership and Talent Consulting group, including
our Lominger, LeaderSource and Executive Compensation Advisors
companies. Prior to joining Korn/Ferry, Ms. Dutra led the
global organization and change strategy practice at Accenture
from 2005 to 2008. Before this role, she led the organizational
transformation practice at Mercer Management Consulting from
2001 to 2005. Earlier, Ms. Dutra was with Marakon
Associates, CSC Index, Booz Allen Hamilton and IBM Consulting
Group.
Robert H. McNabb has been Executive Vice President of
Korn/Ferry since November 2003 and was appointed Chief Executive
Officer for Futurestep in July 2002. Prior to becoming the Chief
Executive Officer for Futurestep, he was President of the
Futurestep Americas and Asia Pacific regions. Before joining
Futurestep in December 2001, he was the President and Chief
Executive Officer of Corestaff from 1998 to 2001 and President
and Chief Operating Officer at Republic Industries in 1997.
PART II.
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Common
Stock
Our common stock is listed on the New York Stock Exchange under
the symbol KFY. The following table sets forth the
high and low sales price per share of the common stock for the
periods indicated, as reported on the New York Stock Exchange:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year Ended April 30, 2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
18.88
|
|
|
$
|
15.42
|
|
Second Quarter
|
|
$
|
20.52
|
|
|
$
|
9.87
|
|
Third Quarter
|
|
$
|
14.50
|
|
|
$
|
9.28
|
|
Fourth Quarter
|
|
$
|
11.49
|
|
|
$
|
7.54
|
|
Fiscal Year Ended April 30, 2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
27.13
|
|
|
$
|
22.62
|
|
Second Quarter
|
|
$
|
24.62
|
|
|
$
|
16.27
|
|
Third Quarter
|
|
$
|
20.75
|
|
|
$
|
13.10
|
|
Fourth Quarter
|
|
$
|
18.95
|
|
|
$
|
14.42
|
|
On June 26, 2009 the last reported sales price on the New
York Stock Exchange for the common stock was $10.86 per share
and there were approximately 4,800 beneficial holders of
common stock.
14
Performance
Graph
We have presented below a graph comparing the cumulative total
stockholder return on the Companys shares with the
cumulative total stockholder return on (1) the
Standard & Poors 500 Stock Index and (2) a
company-established peer group. The following graph compares the
monthly percentage change in the Companys cumulative total
stockholder return with the cumulative total return of the
companies in the Standard & Poors 500 Stock
Index and a peer group constructed by us. Cumulative total
return for each of the periods shown in the performance graph is
measured assuming an initial investment of $100 on
April 30, 2004 and the reinvestment of any dividends paid
by any company in the peer group on the date the dividends were
declared.
The peer group is comprised of publicly traded companies, which
are engaged principally or in significant part in professional
staffing and consulting. The returns of each company have been
weighted according to their respective stock market
capitalization at the beginning of each measurement period for
purposes of arriving at a peer group average. The members of the
peer group are Caldwell Partners International Inc. (CWL/A
CN), Heidrick & Struggles International, Inc.
(HSII) and Hudson Highland Group (HHGP).
The stock price performance depicted in this graph is not
necessarily indicative of future price performance. This graph
will not be deemed to be incorporated by reference by any
general statement incorporating this
Form 10-K
into any filing by us under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent we
specifically incorporate this information by reference, and
shall not otherwise be deemed soliciting material or deemed
filed under those Acts.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG
KORN/FERRY INTERNATIONAL, THE S&P 500 INDEX
AND A PEER GROUP
* $100 invested on
4/30/04 in
stock or index-including reinvestment of dividends. Fiscal year
ending April 30.
Copyright©
2007, Standard & Poors, a division of The
McGraw-Hill Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
Dividends
and Stock Repurchases
We have not paid any cash dividends on our common stock since
April 30, 1996 and do not currently intend to pay any cash
dividends on our common stock in the foreseeable future. The
Board of Directors has authorized the Company to repurchase up
to $175.0 million of the Companys outstanding shares
of common stock pursuant to issuer repurchase programs. We have
repurchased approximately $138.6 million of the
Companys common stock as of April 30, 2009 under
these programs. Future dividend policy as well as decisions to
execute our currently outstanding issuer repurchase programs
will depend on our earnings, capital requirements, financial
condition and other factors considered relevant by our Board of
Directors. Our credit facility does not restrict our ability to
pay dividends.
15
Recent
Sales of Unregistered Securities
On September 23, October 1, October 6, and
December 8, 2008, the Company issued 84,104, 1,000, 1,500
and 19,310 shares of restricted stock, respectively, to
certain directors and vice presidents of the Company pursuant to
the Companys 2008 Stock Incentive Plan as consideration
for services performed. Each of these issuances was exempt from
the registration requirements of Section 5 of the
Securities Act of 1933, as amended (the Securities
Act) pursuant to Section 4(2) of the Securities Act
and Rule 506 of Regulation D thereunder, and each of
the recipients of such shares were accredited
investors, as such term is defined in Rule 501 of
Regulation D.
On March 7, 2007, the Company issued notice for the
redemption (the Redemption Notice) of its
7.5% Convertible Subordinated Notes (the Convertible
Notes) in an aggregate principal amount of
$40 million and its 7.5% Convertible Series A
Preferred Stock (the Convertible Preferred Stock) in
an aggregate principal price of $10 million. As of
March 7, 2007, $45.6 million of the Convertible Notes
and $11.4 million of the Convertible Preferred Stock were
outstanding. In response to the Redemption Notice, the
beneficial owner of the Convertible Notes and the Convertible
Preferred Stock exercised its option to convert (the
Conversion) the Convertible Notes and the
Convertible Preferred Stock, pursuant to the terms thereof,
which were convertible into shares of the Companys common
stock at $10.19 per share. The Conversion resulted in
(i) 5,586,187 shares of the Companys common
stock being delivered to the holder of the convertible
securities in April 2007 and (ii) the cancellation of the
Convertible Notes and Convertible Preferred Stock in April 2007.
The issuance of the shares of the Companys common stock
into which the Convertible Notes and the Convertible Preferred
Stock were converted was exempt from the registration provisions
of the Securities Act by virtue of the exemption afforded by
Section 3(a)(9) thereof. Such determination was based upon
the fact that the securities exchanged in connection with the
Conversion were made by the Company with its existing security
holder exclusively, the then beneficial owners of the
Convertible Notes and Convertible Preferred Stock, and no
commission or other remuneration was paid of given directly or
indirectly for soliciting such exchange.
Issuer
Purchases of Equity Securities
The following table summarizes common stocks repurchased by us
during the fourth quarter of fiscal 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Shares
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
that may Yet be
|
|
|
|
|
|
|
|
|
|
as Part of Publicly-
|
|
|
Purchased Under
|
|
|
|
Shares
|
|
|
Average Price
|
|
|
Announced Programs
|
|
|
the Programs
|
|
|
|
Purchased
|
|
|
Paid per Share
|
|
|
(1), (2), (3) and (4)
|
|
|
(1), (2), (3) and (4)
|
|
|
|
(Dollars in thousands)
|
|
|
February 1, 2009 February 28, 2009
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
36.4 million
|
|
March 1, 2009 March 31, 2009
|
|
|
5,749
|
(5)
|
|
$
|
8.47
|
|
|
|
|
|
|
$
|
36.4 million
|
|
April 1, 2009 April 30, 2009
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
36.4 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,749
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On December 7, 2005, the Board of Directors approved the
repurchase of up to $50 million of the Companys
common stock in a common stock repurchase program. The shares
can be repurchased in open market transactions or privately
negotiated transactions at the Companys discretion. |
|
(2) |
|
On June 8, 2006, the Board of Directors approved the
repurchase of an additional $25 million of the
Companys common stock in a common stock repurchase
program. The shares can be repurchased in open market
transactions or privately negotiated transactions at the
Companys discretion. |
|
(3) |
|
On March 6, 2007, the Board of Directors approved the
repurchase of an additional $50 million of the
Companys common stock in a common stock repurchase
program. The shares can be repurchased in open market
transactions or privately negotiated transactions at the
Companys discretion. |
|
(4) |
|
On November 2, 2007, the Board of Directors approved the
repurchase of an additional $50 million of the
Companys common stock in a common stock repurchase
program. The shares can be repurchased in open market
transactions or privately negotiated transactions at the
Companys discretion. |
|
(5) |
|
Represents withholding of a portion of restricted shares to
cover taxes on vested restricted shares. |
16
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data are qualified by reference
to, and should be read together with, our Audited
Consolidated Financial Statements and Notes to Consolidated
Financial Statements and Managements
Discussion and Analysis of Financial Condition and Results of
Operations appearing elsewhere in this Annual Report on
Form 10-K.
The selected statement of operations data set forth below for
the fiscal years ended April 30, 2009, 2008 and 2007 and
the selected balance sheet data as of April 30, 2009 and
2008 are derived from our consolidated financial statements,
audited by Ernst & Young LLP appearing elsewhere in
this
Form 10-K.
The selected balance sheet data as of April 30, 2007, 2006
and 2005 and the selected statement of operations data set forth
below for the fiscal years ended April 30, 2006 and 2005
are derived from consolidated financial statements and notes
thereto which are not included in this
Form 10-K
report and were audited by Ernst & Young LLP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data and other operating
data)
|
|
|
Selected Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee revenue
|
|
$
|
638,223
|
|
|
$
|
790,570
|
|
|
$
|
653,422
|
|
|
$
|
522,882
|
|
|
$
|
452,194
|
|
Reimbursed
out-of-pocket
engagement expenses
|
|
|
37,905
|
|
|
|
45,072
|
|
|
|
35,779
|
|
|
|
28,887
|
|
|
|
24,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
676,128
|
|
|
|
835,642
|
|
|
|
689,201
|
|
|
|
551,769
|
|
|
|
476,377
|
|
Compensation and benefits
|
|
|
442,632
|
|
|
|
540,056
|
|
|
|
447,692
|
|
|
|
341,196
|
|
|
|
292,913
|
|
General and administrative expenses
|
|
|
126,882
|
|
|
|
134,542
|
|
|
|
105,312
|
|
|
|
93,462
|
|
|
|
83,544
|
|
Out-of-pocket
engagement expenses
|
|
|
49,388
|
|
|
|
58,750
|
|
|
|
44,662
|
|
|
|
31,927
|
|
|
|
25,702
|
|
Depreciation and amortization
|
|
|
11,583
|
|
|
|
10,441
|
|
|
|
9,280
|
|
|
|
9,002
|
|
|
|
8,437
|
|
Restructuring charges(1)
|
|
|
41,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
672,400
|
|
|
|
743,789
|
|
|
|
606,946
|
|
|
|
475,587
|
|
|
|
410,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
3,728
|
|
|
|
91,853
|
|
|
|
82,255
|
|
|
|
76,182
|
|
|
|
65,781
|
|
Interest and other income (loss), net
|
|
|
(10,391
|
)
|
|
|
11,949
|
|
|
|
10,416
|
|
|
|
11,086
|
|
|
|
3,360
|
|
Interest expense
|
|
|
5,410
|
|
|
|
4,812
|
|
|
|
10,172
|
|
|
|
10,244
|
|
|
|
10,463
|
|
Provision for income taxes
|
|
|
384
|
|
|
|
36,081
|
|
|
|
30,164
|
|
|
|
19,594
|
|
|
|
20,251
|
|
Equity in earnings of unconsolidated subsidiaries, net
|
|
|
2,365
|
|
|
|
3,302
|
|
|
|
3,163
|
|
|
|
2,000
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(10,092
|
)
|
|
$
|
66,211
|
|
|
$
|
55,498
|
|
|
$
|
59,430
|
|
|
$
|
38,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$
|
(0.23
|
)
|
|
$
|
1.50
|
|
|
$
|
1.40
|
|
|
$
|
1.49
|
|
|
$
|
1.00
|
|
Diluted (loss) earnings per share
|
|
$
|
(0.23
|
)
|
|
$
|
1.46
|
|
|
$
|
1.24
|
|
|
$
|
1.32
|
|
|
$
|
0.90
|
|
Basic weighted average common shares outstanding
|
|
|
43,522
|
|
|
|
44,012
|
|
|
|
39,774
|
|
|
|
39,890
|
|
|
|
38,516
|
|
Diluted weighted average common shares outstanding
|
|
|
43,522
|
|
|
|
45,528
|
|
|
|
46,938
|
|
|
|
47,270
|
|
|
|
46,229
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee revenue by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive recruitment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
309,514
|
|
|
$
|
374,891
|
|
|
$
|
329,065
|
|
|
$
|
259,089
|
|
|
$
|
225,850
|
|
EMEA
|
|
|
143,184
|
|
|
|
183,042
|
|
|
|
146,155
|
|
|
|
120,059
|
|
|
|
110,455
|
|
Asia Pacific
|
|
|
66,332
|
|
|
|
95,915
|
|
|
|
74,987
|
|
|
|
57,922
|
|
|
|
51,196
|
|
South America
|
|
|
24,323
|
|
|
|
25,556
|
|
|
|
17,426
|
|
|
|
15,660
|
|
|
|
10,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total executive recruitment
|
|
|
543,353
|
|
|
|
679,404
|
|
|
|
567,633
|
|
|
|
452,730
|
|
|
|
398,329
|
|
Futurestep
|
|
|
94,870
|
|
|
|
111,166
|
|
|
|
85,789
|
|
|
|
70,152
|
|
|
|
53,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee revenue
|
|
$
|
638,223
|
|
|
$
|
790,570
|
|
|
$
|
653,422
|
|
|
$
|
522,882
|
|
|
$
|
452,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of offices (at period end)
|
|
|
78
|
|
|
|
89
|
|
|
|
82
|
|
|
|
72
|
|
|
|
70
|
|
Number of consultants (at period end)
|
|
|
615
|
|
|
|
684
|
|
|
|
601
|
|
|
|
507
|
|
|
|
474
|
|
Number of new engagements opened
|
|
|
9,630
|
|
|
|
11,106
|
|
|
|
10,415
|
|
|
|
9,608
|
|
|
|
8,062
|
|
Selected Balance Sheet Data as of April 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents(3)
|
|
$
|
255,000
|
|
|
$
|
305,296
|
|
|
$
|
226,137
|
|
|
$
|
211,753
|
|
|
$
|
178,906
|
|
Marketable securities(3)
|
|
|
75,255
|
|
|
|
83,966
|
|
|
|
98,130
|
|
|
|
66,444
|
|
|
|
28,042
|
|
Working capital(3)
|
|
|
198,250
|
|
|
|
196,259
|
|
|
|
193,716
|
|
|
|
197,540
|
|
|
|
138,179
|
|
Total assets
|
|
|
740,879
|
|
|
|
880,214
|
|
|
|
761,491
|
|
|
|
635,491
|
|
|
|
534,168
|
|
Total long-term debt(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,147
|
|
|
|
44,949
|
|
Mandatorily redeemable preferred stock(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,989
|
|
|
|
10,795
|
|
Total stockholders equity
|
|
|
459,099
|
|
|
|
496,134
|
|
|
|
432,955
|
|
|
|
323,751
|
|
|
|
252,902
|
|
17
|
|
|
(1) |
|
In response to deteriorating economic conditions encountered in
fiscal 2009, we recognized $41.9 million of restructuring
charges comprised of (a) severance charges of
$26.9 million and (b) facilities charges of
$15.0 million. |
|
(2) |
|
In the fourth quarter of fiscal 2007, we issued notice for the
redemption of our 7.5% Convertible Series Subordinated
Notes and 7.5% Convertible Series A Preferred Stock.
In response, the holder of the notes and preferred stock
exercised its option to convert the debt and preferred stock
pursuant to the terms of the original agreements. The conversion
resulted in approximately 5.6 million shares of our common
stock being delivered to the debt and preferred stock holder in
April 2007. As of April 30, 2009, we had no outstanding
amounts related to these convertible securities. Conversion of
debt is discussed in Item 7, Long-Term Debt. |
|
(3) |
|
Certain amounts in the consolidated balance sheet have been
conformed to current year presentation. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Forward-looking
Statements
This Annual Report on
Form 10-K
may contain certain statements that we believe are, or may be
considered to be, forward-looking statements, within
the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements generally can be identified by
use of statements that include phrases such as
believe, expect, anticipate,
intend, plan, foresee,
may, will, estimates,
potential, continue or other similar
words or phrases. Similarly, statements that describe our
objectives, plans or goals also are forward-looking statements.
All of these forward-looking statements are subject to risks and
uncertainties that could cause our actual results to differ
materially from those contemplated by the relevant
forward-looking statement. The principal risk factors that could
cause actual performance and future actions to differ materially
from the forward-looking statements include, but are not limited
to, those set forth above under the caption, Risk
Factors, including dependence on attracting and retaining
qualified and experienced consultants, portability of client
relationships, global, local political or economic developments
in or affecting countries where we have operations, currency
fluctuations in our international operations, ability to manage
growth, competition, reliance on information processing systems,
employment liability risk, an impairment in the carrying value
of goodwill and other intangible assets, deferred tax assets
that we may not be able to use and alignment of our cost
structure to our revenue level, and also includes risks related
to the integration of recently acquired businesses. Readers are
urged to consider these factors carefully in evaluating the
forward-looking statements. The forward-looking statements
included in this Annual Report on
Form 10-K
are made only as of the date of this Annual Report on
Form 10-K
and we undertake no obligation to publicly update these
forward-looking statements to reflect subsequent events or
circumstances.
The following presentation of managements discussion
and analysis of our financial condition and results of
operations should be read together with our consolidated
financial statements and related notes included in this Annual
Report on
Form 10-K.
Executive
Summary
Korn/Ferry is a premier global provider of talent management
solutions that help clients to attract, develop, retain and
sustain their talent. We are the largest provider of executive
recruitment, leadership and talent consulting and talent
acquisition solutions, with the broadest global presence in the
recruitment industry. Our services include executive
recruitment, middle-management recruitment (through Futurestep),
recruitment process outsourcing, leadership and talent
consulting and executive coaching. Over half of the executive
recruitment searches we performed in fiscal 2009 were for board
level, chief executive and other senior executive and general
management positions. Our 4,238 clients in fiscal 2009 included
many of the worlds largest and most prestigious public and
private companies, including approximately 45% of the FORTUNE
500 companies. We have established strong client loyalty
with 75% of the executive recruitment assignments we performed
during the fiscal year were on behalf of clients for whom we had
conducted assignments in the previous three fiscal years.
In an effort to maintain our long-term strategy of being the
leading provider of executive search, middle-management
recruitment, recruitment process outsourcing, leadership and
talent consulting and executive
18
coaching, our strategic focus for fiscal 2010 will center upon
enhancing the cross-selling of our multi-service strategy. We
plan to continue to address areas of increasing client demand,
including RPO and LTC. We plan to explore new products and
services, continue to pursue a disciplined acquisition strategy,
enhance our technology and processes and aggressively leverage
our brand through thought leadership and intellectual capital
projects as a means of delivering world-class service to our
clients.
During the second half of fiscal 2009 global economic conditions
significantly deteriorated, which caused a significant decline
in the results of our operations. Fee revenue decreased 19% in
fiscal 2009 to $638.2 million compared to
$790.6 million in fiscal 2008, with decreases in fee
revenue in all regions. The North America and Europe regions in
executive recruitment experienced the largest dollar decreases
in fee revenue. In fiscal 2009, we incurred an operating profit
of $3.7 million with operating income from executive
recruitment of $47.4 million, offset by an operating loss
of $12.0 million from Futurestep and corporate expenses of
$31.7 million. This represents a decrease of 96% over
operating income of $91.9 million in fiscal 2008.
Due to the deteriorating economic conditions, in fiscal 2009 we
implemented a restructuring of our cost structure designed to
reduce our work force by approximately 800 employees and to
consolidate premises. As a result, during fiscal 2009, we
recorded a total of $41.9 million in restructuring charges
with $26.9 million of severance costs related to a
reduction in our work force and $15.0 million relating to
the consolidation of premises.
During fiscal 2009 our cash, cash equivalents and marketable
securities decreased $59.0 million, or 15% to
$330.3 million at April 30, 2009 compared to
$389.3 million at April 30, 2008. As of April 30,
2009, we held marketable securities, to settle obligations under
the Companys Executive Capital Accumulation Plan
(ECAP) with a cost value of $70.8 million and a
fair value of $60.8 million. Our working capital increased
$2.0 million in fiscal 2009 to $198.3 million at
April 30, 2009. 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. We had no long-term debt or outstanding balance
under our credit facility at April 30, 2009.
Critical
Accounting Policies
The following discussion and analysis of our financial condition
and results of operations are based on our consolidated
financial statements. Preparation of this Annual Report on
Form 10-K
requires us to make estimates and assumptions that affect the
reported amount of assets and liabilities, disclosure of
contingent assets and liabilities at the date of our financial
statements and the reported amounts of revenue and expenses
during the reporting period. Actual results may differ from
those estimates and assumptions. In preparing our consolidated
financial statements and accounting for the underlying
transactions and balances, we apply our accounting policies as
disclosed in our notes to consolidated financial statements. We
consider the policies discussed below as critical to an
understanding of our consolidated financial statements because
their application places the most significant demands on
managements judgment. Specific risks for these critical
accounting policies are described in the following paragraphs.
Senior management has discussed the development and selection of
the critical accounting estimates with the Audit Committee of
the Board of Directors.
Revenue Recognition. Management is required to
establish policies and procedures to ensure that revenue is
recorded over the performance period for valid engagements and
related costs are matched against such revenue. We provide
recruitment services on a retained basis and generally bill
clients in three monthly installments. Since the fees are
generally not contingent upon placement of a candidate, our
assumptions primarily relate to establishing the period over
which such service is performed. These assumptions determine the
timing of revenue recognition and profitability for the reported
period. If these assumptions do not accurately reflect the
period over which revenue is earned, revenue and profit could
differ. Any services that are provided on a contingent basis are
recognized once the contingency is fulfilled.
Deferred Compensation. Estimating deferred
compensation requires assumptions regarding the timing and
probability of payments of benefits to participants and the
discount rate. Changes in these assumptions would significantly
impact the liability and related cost on our balance sheet and
statement of operations. Management engages an independent
actuary to periodically review these assumptions in order to
ensure that they reflect the population and economics of our
deferred compensation plans in all material respects and to
assist us in estimating our deferred compensation liability and
the related cost. The actuarial assumptions we use may differ
from actual
19
results due to changing market conditions or changes in the
participant population. These differences could have a
significant impact on our deferred compensation liability and
the related cost.
Carrying Values. Valuations are required under
U.S. generally accepted accounting principles to determine
the carrying value of various assets. Our most significant
assets for which management is required to prepare valuations
are goodwill, intangible assets and deferred income taxes.
Management must identify whether events have occurred that may
impact the carrying value of these assets and make assumptions
regarding future events, such as cash flows and profitability.
Differences between the assumptions used to prepare these
valuations and actual results could materially impact the
carrying amount of these assets and our operating results.
Accounting
Adjustment
In the fourth quarter of fiscal 2009, an adjustment was made to
correct compensation and benefits expenses that had been
recorded twice by the Company during the periods covering fiscal
2002 through fiscal 2009 for expenses relating to employee
contributions to flexible spending health benefit accounts. In
accordance with the Securities and Exchange Commission Staff
Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements, the
Company recorded a cumulative accounting adjustment in the
fourth quarter, the effect of which resulted in a
$3.7 million pre-tax decrease in compensation and benefits
expense, a $4.0 million increase in cash and cash
equivalents and a $0.3 million increase in accrued
compensation and benefits liability. These adjustments increased
operating profit by $3.7 million and decreased net loss by
$2.3 million, or $0.05 per basic and diluted share for the
three months and year ended April 30, 2009. The correction
of the error was not material to any individual prior period or
the current period and, accordingly, the prior period results
have not been adjusted.
Results
of Operations
The following table summarizes the results of our operations as
a percentage of fee revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Fee revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Reimbursed
out-of-pocket
engagement expenses
|
|
|
5.9
|
|
|
|
5.7
|
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
105.9
|
|
|
|
105.7
|
|
|
|
105.5
|
|
Compensation and benefits
|
|
|
69.3
|
|
|
|
68.3
|
|
|
|
68.5
|
|
General and administrative expenses
|
|
|
19.9
|
|
|
|
17.0
|
|
|
|
16.1
|
|
Out-of-pocket
engagement expenses
|
|
|
7.7
|
|
|
|
7.4
|
|
|
|
6.8
|
|
Depreciation and amortization
|
|
|
1.8
|
|
|
|
1.4
|
|
|
|
1.5
|
|
Restructuring charges
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
0.6
|
|
|
|
11.6
|
|
|
|
12.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(1.6
|
)%
|
|
|
8.4
|
%
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
The following tables summarize the results of our operations by
business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Dollars
|
|
|
%
|
|
|
Dollars
|
|
|
%
|
|
|
Dollars
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Fee revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive recruitment::
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
309,514
|
|
|
|
48.5
|
%
|
|
$
|
374,891
|
|
|
|
47.4
|
%
|
|
$
|
329,065
|
|
|
|
50.4
|
%
|
EMEA
|
|
|
143,184
|
|
|
|
22.4
|
|
|
|
183,042
|
|
|
|
23.2
|
|
|
|
146,155
|
|
|
|
22.4
|
|
Asia Pacific
|
|
|
66,332
|
|
|
|
10.4
|
|
|
|
95,915
|
|
|
|
12.1
|
|
|
|
74,987
|
|
|
|
11.5
|
|
South America
|
|
|
24,323
|
|
|
|
3.8
|
|
|
|
25,556
|
|
|
|
3.2
|
|
|
|
17,426
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total executive recruitment
|
|
|
543,353
|
|
|
|
85.1
|
|
|
|
679,404
|
|
|
|
85.9
|
|
|
|
567,633
|
|
|
|
86.9
|
|
Futurestep
|
|
|
94,870
|
|
|
|
14.9
|
|
|
|
111,166
|
|
|
|
14.1
|
|
|
|
85,789
|
|
|
|
13.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee revenue
|
|
|
638,223
|
|
|
|
100.0
|
%
|
|
|
790,570
|
|
|
|
100.0
|
%
|
|
|
653,422
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursed
out-of-pocket
engagement expense
|
|
|
37,905
|
|
|
|
|
|
|
|
45,072
|
|
|
|
|
|
|
|
35,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
676,128
|
|
|
|
|
|
|
$
|
835,642
|
|
|
|
|
|
|
$
|
689,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Dollars
|
|
|
Margin(1)
|
|
|
Dollars
|
|
|
Margin(1)
|
|
|
Dollars
|
|
|
Margin(1)
|
|
|
|
(Dollars in thousands)
|
|
|
Operating (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive recruitment::
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
37,516
|
|
|
|
12.1
|
%
|
|
$
|
70,628
|
|
|
|
18.8
|
%
|
|
$
|
69,815
|
|
|
|
21.2
|
%
|
EMEA
|
|
|
2,061
|
|
|
|
1.4
|
|
|
|
29,820
|
|
|
|
16.3
|
|
|
|
24,166
|
|
|
|
16.5
|
|
Asia Pacific
|
|
|
5,396
|
|
|
|
8.1
|
|
|
|
19,299
|
|
|
|
20.1
|
|
|
|
16,010
|
|
|
|
21.4
|
|
South America
|
|
|
2,441
|
|
|
|
10.0
|
|
|
|
2,230
|
|
|
|
8.7
|
|
|
|
1,894
|
|
|
|
10.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total executive recruitment
|
|
|
47,414
|
|
|
|
8.7
|
|
|
|
121,977
|
|
|
|
18.0
|
|
|
|
111,885
|
|
|
|
19.7
|
|
Futurestep
|
|
|
(12,003
|
)
|
|
|
(12.7
|
)
|
|
|
8,545
|
|
|
|
7.7
|
|
|
|
7,854
|
|
|
|
9.2
|
|
Corporate
|
|
|
(31,683
|
)
|
|
|
|
|
|
|
(38,669
|
)
|
|
|
|
|
|
|
(37,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
3,728
|
|
|
|
0.6
|
%
|
|
$
|
91,853
|
|
|
|
11.6
|
%
|
|
$
|
82,255
|
|
|
|
12.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Margin calculated as a percentage of fee revenue by business
segment. |
Fiscal
2009 Compared to Fiscal 2008
Fee
Revenue
Fee Revenue. Fee revenue decreased
$152.4 million, or 19%, to $638.2 million in fiscal
2009 compared to $790.6 million in fiscal 2008. The decline
in fee revenue was primarily attributable to a 12% decrease in
average fees billed per engagement during fiscal 2009 as
compared to fiscal 2008 and an 8% decrease in the number of
engagements billed during the same period, both of which were
driven by the intensification of the global economic crisis
during the second half of fiscal 2009. Exchange rates
unfavorably impacted fee revenues by $21.3 million in
fiscal 2009.
Executive Recruitment. Executive recruitment
reported fee revenue of $543.3 million, a decrease of
$136.1 million, or 20%, in fiscal 2009 compared to
$679.4 million in fiscal 2008 due to a 14% decrease in
number of engagements billed in fiscal 2009 as compared to
fiscal 2008 and to a 7% decrease in the average fees
21
billed per engagement during the same period. Exchange rates
unfavorably impacted fee revenues by $15.9 million in
fiscal 2009.
North America reported fee revenue of $309.5 million, a
decrease of $65.4 million, or 17%, in fiscal 2009 compared
to $374.9 million in fiscal 2008 primarily due to a 13%
decrease in the number of engagements billed during fiscal 2009
as compared to fiscal 2008 and a 5% decrease in the average fees
billed per engagement in the region during the same period. The
overall decline in fee revenue was driven by significant
declines in fee revenue in the financial services, technology
and consumer goods sectors. Exchange rates unfavorably impacted
North America fee revenue by $3.4 million in fiscal
2009.
EMEA reported fee revenue of $143.2 million, a decrease of
$39.8 million, or 22%, in fiscal 2009 compared to
$183.0 million in fiscal 2008. EMEAs decrease in fee
revenue was driven by a 14% decrease in the number of
engagements billed and a 9% decrease in average fees billed per
engagement. The performance in existing offices in the United
Kingdom, France, and the Netherlands were the primary
contributors to the decrease in fee revenue, although fee
revenue in most offices in the region declined in fiscal 2009 in
comparison to fiscal 2008. The financial services, consumer
goods and technology sectors experienced the largest decrease in
fee revenue in fiscal 2009 as compared to fiscal 2008. Exchange
rates unfavorably impacted EMEA fee revenue by $7.7 million
in fiscal 2009.
Asia Pacific reported fee revenue of $66.3 million, a
decrease of $29.6 million, or 31%, in fiscal 2009 compared
to $95.9 million in fiscal 2008 due to a decrease of 14% in
average fees billed per engagement and a 20% decline in the
number of engagements billed in fiscal 2009 compared to fiscal
2008. The decline in performance in Australia, China, India and
Japan were the primary contributors to the decrease in fee
revenue in fiscal 2009 over fiscal 2008. The largest decrease in
fee revenue was experienced in the financial services,
technology and consumer goods sectors. Exchange rates
unfavorably impacted fee revenue for Asia Pacific by
$3.3 million in fiscal 2009.
South America reported fee revenue of $24.3 million, a
decrease of $1.3 million, or 5%, in fiscal 2009 compared to
$25.6 million in fiscal 2008. Average fees billed per
engagement increased 7% while engagements billed decreased 11%
within the region in fiscal 2009 compared to fiscal 2008. The
decline in performance in the industrial and technology sectors
was the primary contributor to the decrease in fee revenue in
fiscal 2009 over fiscal 2008. Exchange rates unfavorably
impacted fee revenue for South America by $1.5 million in
fiscal 2009.
Futurestep. Futurestep reported fee revenue of
$94.9 million, a decrease of $16.3 million, or 15%, in
fiscal 2009 compared to $111.2 million in fiscal 2008. The
decline in Futuresteps fee revenue is due to a 20%
decrease in average fee billed per engagement offset by a 7%
increase in the number of engagements billed in fiscal 2009 as
compared to fiscal 2008. Of the total decrease in fee revenue,
Europe experienced the largest decline, with a decrease in fee
revenue of $11.1 million, or 27%, to $29.7 million;
North America fee revenue decreased by $4.0 million, or
10%, to $37.8 million and Asia fee revenue decreased
$1.2 million, or 4%, to $27.4 million. All regions
reflect decreased revenue from search engagements. Exchange
rates unfavorably impacted fee revenue by $5.4 million in
fiscal 2009.
Compensation
and Benefits
Compensation and benefits expense decreased $97.5 million,
or 18%, to $442.6 million in fiscal 2009 from
$540.1 million in fiscal 2008. The decrease in compensation
and benefits expenses is primarily due to a decrease in global
headcount, coupled with a $77.2 million decrease in
profitability based compensation in fiscal 2009 as compared to
fiscal 2008. Global headcount declined overall by a net of
460 employees, or 18% from April 30, 2008 to
April 30, 2009. As discussed below, due to the current
global economic crisis, the Company implemented a restructuring
to reduce workforce in both the third and fourth quarter of
fiscal 2009. Exchange rates favorably impacted compensation and
benefits expenses by $14.9 million during fiscal 2009.
Executive recruitment compensation and benefits costs decreased
$84.5 million, or 19%, to $356.2 million in fiscal
2009 compared to $440.7 million in fiscal 2008 primarily
due to an 11% decrease in the number of consultants and a
$73.9 million decrease in the profitability based
compensation. Exchange rates impacted executive recruitment
compensation and benefits expense favorably by
$11.4 million. Executive recruitment compensation and
benefits expenses, as a percentage of fee revenue, was 66% in
fiscal 2009 compared to 65% in fiscal 2008.
22
Futurestep compensation and benefits expense decreased
$5.3 million, or 7%, to $71.0 million in fiscal 2009
from $76.3 million in fiscal 2008 due to a decrease in
average consultant headcount during fiscal 2009 and to a
$3.6 million decline in profitability based compensation in
fiscal 2009 as compared to fiscal 2008. Exchange rates favorably
impacted Futurestep compensation and benefits expense by
$3.5 million. Futurestep compensation and benefits expense,
as a percentage of fee revenue, increased to 75% in fiscal 2009
from 69% in fiscal 2008.
Corporate compensation and benefits expense decreased
$7.7 million, or 33%, to $15.4 million in fiscal 2009
compared to $23.1 million in fiscal 2008 primarily because
of a $9.5 million decrease in certain deferred compensation
retirement plan liabilities. The Company holds marketable
securities in a trust for settlement of certain of these
deferred compensation obligations as discussed in
Note 5 Marketable Securities, in the
Notes to our Consolidated Financial Statements. The decrease was
partially offset by a $5.3 increase in certain other deferred
compensation liabilities due to a decrease in cash surrender
value of company owned life insurance policies
(COLI).
General
and Administrative Expenses
General and administrative expenses decreased $7.6 million,
or 6%, to $126.9 million in fiscal 2009 compared to
$134.5 million in fiscal 2008. Exchange rates favorably
impacted general and administrative expenses by
$4.6 million in fiscal 2009.
Executive recruitment general and administrative expenses
decreased $5.7 million, or 6%, to $91.9 million in
fiscal 2009 from $97.6 million in fiscal 2008. The decrease
in general and administrative expenses was driven by a decrease
in meeting and travel expense of $5.2 million, business
development of $1.3 million and $1.3 million in
marketing. Offsetting the overall decrease in executive
recruitment general and administrative expenses was an increase
in professional fees of $1.3 million and a
$0.5 million reduction in realized foreign exchange losses.
General expenses decreased primarily due to the decline in our
overall business activities as a result of the global economic
crisis. Executive recruitment general and administrative
expenses, as a percentage of fee revenue, was 17% in fiscal 2009
compared to 14% in fiscal 2008.
Futurestep general and administrative expenses decreased
$2.1 million, or 9%, to $20.5 million in fiscal 2009
compared to $22.6 million in fiscal 2008 primarily due to
decreases of $0.8 million in travel expenses and
$1.3 million of bad debt expenses. General expenses
decreased primarily due to the decline in our overall business
activities. Bad debt expense decreased due to an overall lower
accounts receivable balance contributing to fewer bad debt
write-offs during fiscal 2009 as compared to fiscal 2008.
Futurestep general and administrative expenses, as a percentage
of fee revenue, was 22% in fiscal 2009 compared to 20% in fiscal
2008.
Corporate general and administrative expenses increased
$0.2 million, or 1%, to $14.5 million in fiscal 2009
compared to $14.3 million in fiscal 2008 primarily due to
an increase in professional fees, partially offset by a decrease
in realized foreign exchange losses.
Out-of-Pocket
Engagement Expenses
Out-of-pocket
engagement expenses consist of expenses incurred by candidates
and our consultants that are generally billed to clients.
Out-of-pocket
engagement expenses decreased $9.4 million, or 16%, to
$49.4 million in fiscal 2009, compared to
$58.8 million in fiscal 2008.
Out-of-pocket
engagement expenses as a percentage of fee revenue, was 8% in
fiscal 2009 compared to 7% in fiscal 2008.
Depreciation
and Amortization Expenses
Depreciation and amortization expenses increased
$1.2 million, or 12%, to $11.6 million in fiscal 2009
compared to $10.4 million in fiscal 2008. This expense
relates mainly to computer equipment, software, furniture and
leasehold improvements. The increase in depreciation and
amortization expense is primarily associated with depreciation
of furniture and fixtures and leasehold improvements related to
amortization of software costs that added new functionality in
our corporate and executive search segments.
23
Restructuring
Charges
During fiscal 2009, the Company announced it would incur
expenses to rationalize its cost structure to the changing
economic environment. During fiscal 2009, we recorded
$41.9 million in restructuring charges with
$26.9 million of severance costs related to a reduction in
our work force and $15.0 million relating to the
consolidation of premises.
Operating
Income
Operating income decreased $88.2 million, to
$3.7 million in fiscal 2009 compared to $91.9 million
in fiscal 2008. This decrease in operating income resulted from
a $152.4 million decrease in fee revenue which was
partially offset by a decrease in operating expenses of
$71.4 million. The decrease in operating expenses is
primarily attributable to a decrease in compensation and
benefits, offset by an increase in restructuring charges of
$41.9 million, of which $17.4 million was paid in cash
as of April 30, 2009.
Executive recruitment operating income decreased
$74.6 million, or 61%, to $47.4 million in fiscal 2009
compared to $122.0 million in fiscal 2008. The decline in
executive recruitment operating income is attributable to a
decrease in revenues offset by a reduction in compensation
expenses relating to a decrease in headcount and profitability
based compensation, as well as a decrease in general and
administrative expenses. These decreases were partially offset
by an increase in restructuring charges of $30.5 million
recorded in fiscal 2009. Executive recruitment operating income
during fiscal 2009, as a percentage of fee revenue, was 9%
compared to 18% in fiscal 2008.
Futurestep operating income decreased by $20.5 million, to
an operating loss of $12.0 million in fiscal 2009 as
compared to operating income of $8.5 million in fiscal
2008. The change in Futurestep operating loss is primarily due
to a decrease in fee revenue of $16.3 million due to a
decrease in engagements billed and increased restructuring
related costs of $11.4 million during fiscal 2009 compared
to fiscal 2008. Futurestep operating loss, as a percentage of
fee revenue, was 13% in fiscal 2009, compared operating income,
as a percentage of fee revenue of 8% in fiscal 2008.
Interest
Income and Other (Loss) Income, Net
Interest income and other (loss) income, net decreased by
$22.3 million, to a loss of $10.4 million in fiscal
2009 from income of $11.9 million in fiscal 2008. The
decrease in net interest and other (loss) income, net was due to
a non-cash asset impairment charge of $15.9 million related
to marketable securities, offset by $5.9 million unrealized
gains recorded in interest income and other (loss) income, net
upon the transfer of marketable securities from
available-for-sale
to trading during fiscal 2009 and a decrease in interest and
dividend income. Interest and dividend income decreased
primarily as a result of lower average United States cash
balances, and lower overall interest rates compared to fiscal
2008.
Interest
Expense
Interest expense, primarily related to borrowings under COLI,
was $5.4 million in fiscal 2009 compared to
$4.8 million in fiscal 2008.
Provision
for Income Taxes
The provision for income taxes was $0.4 million in fiscal
2009 compared to $36.1 million in fiscal 2008. The
provision for income taxes in fiscal 2009 reflects a 3%
effective tax rate, compared to a 36% effective tax rate for
fiscal 2008. The effective income tax rate in fiscal 2009 is
significantly lower when compared to the effective income tax
rate in fiscal 2008, as the Company did not realize tax benefits
on the marketable securities asset impairment and gains on
marketable securities upon the transfer of securities from
available-for-sale
to trading.
Equity
in Earnings of Unconsolidated Subsidiary
Equity in earnings of unconsolidated subsidiary is comprised of
our less than 50% interest in our Mexican subsidiary. We report
our interest in earnings or loss of our Mexican subsidiary on
the equity basis as a one-line
24
adjustment to net income, net of taxes. Equity in earnings was
$2.4 million in fiscal 2009 compared to $3.3 million
in fiscal 2008.
Fiscal
2008 Compared to Fiscal 2007
Fee
Revenue
Fee revenue increased $137.2 million, or 21%, to
$790.6 million in fiscal 2008 compared to
$653.4 million in fiscal 2007. The improvement in fee
revenue was attributable mainly to an 8% increase in the number
of engagements billed within executive recruitment and an
increase of 13% in average fees billed per engagement in all
regions. Exchange rates favorably impacted fee revenues by
$35.4 million in fiscal 2008.
Executive Recruitment Executive recruitment
fee revenue increased $111.8 million, or 20%, to
$679.4 million in fiscal 2008 due to an increase in the
number of engagements billed, an increase in average fees billed
per engagement and $10.4 million from Lominger Limited,
Inc. and Lominger Consulting, Inc. in fiscal 2007. On a
year-to-date
basis, the number of executive recruitment engagements billed
increased 11% in fiscal 2008 as compared to fiscal 2007.
North America fee revenue increased $45.8 million, or 14%,
to $374.9 million in fiscal 2008 primarily due to a 10%
increase in the number of engagements billed as well as a 4%
increase in average fees billed per engagement as compared to
fiscal 2007. The industrial, education, life sciences and
healthcare sectors were the primary contributors to the increase
in fee revenues offset by a slight decline within the financial
services sector. Increased demand for the LTC products and
services also resulted in a $23.7 million increase in fee
revenues.
EMEA reported fee revenue of $183.0 million in fiscal 2008,
an increase of $36.8 million, or 25%, compared to
$146.2 million in fiscal 2007, which was driven by a 15%
increase in the number of engagements billed and an increase in
average fees billed per engagement of 9%. Fee revenue growth was
experienced throughout the region in fiscal 2008 with the
strongest performance from offices located in Germany, United
Arab Emirates, France and Sweden. The industrial, technology and
consumer goods sectors experienced strong growth in fiscal 2008
over fiscal 2007. Exchange rates favorably impacted EMEA fee
revenue by $15.4 million in fiscal 2008.
Asia Pacific fee revenue increased $20.9 million, or 28%,
to $95.9 million in fiscal 2008, compared to fiscal 2007
due to a 9% increase in the number of engagements billed and an
increase in average fees billed per engagement of 18%. The
offices of Greater China (Hong Kong, Shanghai and Beijing),
Australia, India and Singapore contributed 23%, 26%, 22% and
15%, respectively to the increase in fee revenue. All sectors
experienced strong growth during fiscal 2008, with the
industrial and financial services sectors providing the largest
contributions to the increase in fee revenue compared to fiscal
2007. Exchange rates favorably impacted fee revenue for Asia
Pacific by $5.3 million in fiscal 2008.
South America fee revenue was $25.6 million in fiscal 2008,
an increase of $8.1 million, or 47%, of which
$2.9 million related to the favorable impact of exchange
rates. Overall number of engagements billed within the region
were comparable to fiscal 2007 while average fees billed per
engagement increased by 32%. Every country in the region
experienced growth during fiscal 2008, except for Ecuador and
Peru which had fee revenues comparable to fiscal 2007, with
Brazil and Columbia contributing approximately 78% and 12%,
respectively, of the increase in fee revenues.
Futurestep Fee revenue increased
$25.4 million, or 30%, to $111.2 million in fiscal
2008 compared to $85.8 million in fiscal 2007. The
improvement in fee revenue, reflected across all regions, is due
to an increase in average fees resulting from our emphasis on
larger outsourced recruiting solutions. Of the total increase in
fee revenue, North America experienced the largest increase in
fee revenue of $11.0 million, or 36%, to $41.8 million
in fiscal 2008 due to the acquisition of The Newman Group in
June 2007 and growth in Canada. Asia Pacific fee revenue
increased to $28.6 million in fiscal 2008, an increase of
$7.5 million, or 36%, reflecting increased revenue from
RPO. Europe fee revenue increased $6.9 million, or 20%, to
$40.8 million in fiscal 2008, arising from increased
business across the region and a migration to larger
engagements. Exchange rates favorably impacted fee revenue by
$8.0 million in fiscal 2008.
25
Compensation
and Benefits
Compensation and benefits expense increased $92.4 million,
or 21%, to $540.1 million in fiscal 2008 from
$447.7 million in fiscal 2007. The increase in compensation
and benefits expense was primarily due to increased global
headcount of 323, or 14%, at April 30, 2008 compared to
April 30, 2007, including an 18% increase in the average
number of consultants, coupled with increased productivity and
retention awards. Exchange rates unfavorably impacted
compensation and benefits expense by $22.4 million in
fiscal 2008.
Executive recruitment compensation and benefits costs of
$440.7 million increased $75.7 million in fiscal 2008,
or 21%, compared to $365.0 million in fiscal 2007 primarily
due to the number of consultants hired in fiscal 2008. In fiscal
2008, the number of consultants increased by 24, or 5%, compared
to fiscal 2007. Exchange rates impacted executive recruitment
compensation and benefits expense unfavorably by
$17.4 million in fiscal 2008. Executive recruitment
compensation and benefits expense, as a percentage of fee
revenue, increased to 65% in fiscal 2008 compared to 64% in
fiscal 2007.
Futurestep compensation and benefits expense increased
$17.9 million, or 31%, to $76.3 million in fiscal 2008
from $58.4 million in fiscal 2007 due to significant
investments in new employees which increased Futurestep average
consultant headcount by 71% during fiscal 2008. Exchange rates
unfavorably impacted Futurestep compensation and benefits
expense by $5.0 million. Futurestep compensation and
benefits expense, as a percentage of fee revenue, increased to
69% in fiscal 2008 from 68% in fiscal 2007.
Corporate compensation and benefits expense decreased
$1.2 million, or 5%, to $23.1 million in fiscal 2008,
primarily from a $5.2 million charge for executive contract
changes recorded in the fourth quarter of fiscal 2007 that was
not present in fiscal 2008 offset by increases in salary and
stock-based compensation expenses in fiscal 2008.
General
and Administrative Expenses
General and administrative expenses increased
$29.2 million, or 28%, to $134.5 million in fiscal
2008 compared to $105.3 million in fiscal 2007. Exchange
rates unfavorably impacted general and administrative expenses
by $7.1 million in fiscal 2008.
Executive recruitment general and administrative expenses
increased $20.9 million, or 27%, from $76.7 million in
fiscal 2007 to $97.6 million in fiscal 2008. The increase
was driven by increases of $8.5 million in premise and
office expenses, $5.0 million in business development
expenses, $3.7 million in other types of general expenses
including meetings and travel expense and $3.1 million in
bad debt expense. Increased premise and office expense was
attributable to all regions due to increased rent expense, total
space leased and associated utility costs. Business development
increased primarily due to growth in the business and increased
advertising and promotion costs to elevate our brand. Executive
recruitment general and administrative expenses, as a percentage
of fee revenue, was 14% in both fiscal 2008 and 2007.
Futurestep general and administrative expenses increased
$6.4 million, or 40%, to $22.6 million, in fiscal 2008
compared to fiscal 2007, primarily due to a net increase in
premise and office expense of $2.8 million resulting from
increases in rent expense across all regions, the opening of new
offices in Europe and Asia and $0.9 million reversal of a
previously recorded lease reserve in fiscal 2007 that was not
present in fiscal 2008. Other administrative expenses increased
$1.3 million in fiscal 2008 resulting from an increase in
travel and meeting expenses. Bad debt expense increased
$0.6 million in fiscal 2008 as a result of an increase in
revenues and accounts receivable balances. Futurestep general
and administrative expenses, as a percentage of fee revenue,
increased to 20% in fiscal 2008 from 19% in fiscal 2007.
Corporate general and administrative expenses increased
$1.9 million, or 15%, to $14.3 million in fiscal 2008
primarily due to increased professional fees and premise and
office expenses related to additional office space leased in
fiscal 2007.
Out-of-Pocket
Engagement
Expenses. Out-of-pocket
engagement expenses consist of expenses incurred by candidates
and our consultants that are generally billed to clients.
Out-of-pocket
engagement expenses of $58.8 million increased
$14.1 million, or 32%, in fiscal 2008 compared to fiscal
2007. As a percentage of fee revenue,
out-of-pocket
engagement expenses increased less than 1% in fiscal 2008
compared to 7% in fiscal 2007.
26
Depreciation and Amortization
Expenses. Depreciation and amortization expense
of $10.4 million in fiscal 2008 increased
$1.1 million, or 12%, from fiscal 2007. Depreciation
expense relates mainly to computer equipment, software,
furniture and leasehold improvements. The increase in such
expenses in fiscal 2008 is attributable to an increase in fixed
asset balances primarily associated with furniture and fixtures
and leasehold improvements related to business expansion and
office buildout and amortization of software costs that add new
functionality in our corporate and executive search segments.
Operating
Income
Operating income increased $9.6 million, or 12%, to
$91.9 million in fiscal 2008 compared to $82.3 million
in fiscal 2007, resulting from increased revenue of
$146.4 million offset by a $136.8 million increase to
operating expenses, primarily compensation and benefits and
general and administrative expenses.
Executive recruitment operating income increased
$10.1 million, or 9%, to $122.0 million in fiscal 2008
compared to $111.9 million in fiscal 2007. The improvement
in executive recruitment operating income is attributable to
increased revenues offset by additional compensation expense
relating to increased headcount and variable payouts as
discussed previously, as well as increased professional fees,
premise and other general administrative expense. Executive
recruitment operating income, as a percentage of fee revenue,
decreased to 18% from 20%, due to our continued investment in
LTC and increases in productivity based compensation during
fiscal 2008.
Futurestep operating income increased by $0.6 million to
$8.5 million in fiscal 2008 as compared to operating income
of $7.9 million in fiscal 2007. The increase in Futurestep
operating income is primarily due to higher average fees in
engagements billed, offset by a $0.9 million reversal of a
previously recorded lease reserve recorded in fiscal 2007 and
not present in fiscal 2008 and an increase in compensation and
benefits and general and administrative expenses as a percentage
of fee revenue in fiscal 2008. Futurestep operating income, as a
percentage of fee revenue, declined to 8% in fiscal 2008 from 9%
in fiscal 2007.
Interest Income and Other Income,
Net. Interest income and other income, net,
increased by $1.5 million to $11.9 million in fiscal
2008 from $10.4 million in fiscal 2007. Interest and
dividend income increased as a result of higher yields on larger
balances of funds available for investment compared to fiscal
2007.
Interest Expense. Interest expense was
$4.8 million in fiscal 2008, a decrease of
$5.4 million compared to fiscal 2007. Interest expense in
fiscal 2008 primarily related to borrowings under COLI. The
decrease in interest expense is primarily due to the conversion
of the Companys convertible preferred stock and
subordinated notes to common shares in the fourth quarter of
fiscal 2007.
Provision for Income Taxes. The provision for
income taxes was $36.1 million in fiscal 2008 compared to
$30.2 million in fiscal 2007. The provision for income
taxes in fiscal 2008 reflects a 36.4% effective tax rate. The
provision for income taxes for fiscal 2007 reflects a 36.6% tax
rate.
Equity in Earnings of Unconsolidated
Subsidiaries. Equity in earnings of
unconsolidated subsidiaries is comprised of our less than 50%
interest in our Mexican subsidiaries. We report our interest in
earnings or loss of our Mexican subsidiaries on the equity basis
as a one line adjustment to net income, net of taxes. Equity in
earnings was $3.3 million in fiscal 2008 compared to
$3.2 million in fiscal 2007, resulting from increased
profitability in the Mexican subsidiaries. Dividends received
from the Companys unconsolidated subsidiaries equaled
$2.9 million in fiscal 2008, and are reflected as a
reduction in the carrying value of our investment.
Liquidity
and Capital Resources
The operating environment for the Companys suite of
services deteriorated rapidly in the second half of fiscal 2009.
In response to the uncertain economic environment and labor
markets, the Company has taken steps to align its cost structure
with anticipated revenue levels, in an effort to retain positive
cash flow. Continued adverse changes in the Companys
revenue, however, could require us to institute additional cost
cutting measures, and to the extent our efforts are not quick or
deep enough, we may incur negative cash flows, which if persist,
would require us to obtain additional financing to meet our
needs. The Company believes that the cash on hand and funds from
27
operations will be sufficient to meet anticipated working
capital, capital expenditures and general corporate requirements
during the next twelve months.
Our performance is subject to the general level of economic
activity in the geographic regions and industries in which we
operate. The economic activity in those regions and industries
have recently deteriorated significantly and may remain
depressed for the foreseeable future. If the national or global
economy or credit market conditions in general were to
deteriorate further in the future, it is possible that such
changes could put additional negative pressure on demand for our
services and affect our cash flows.
As of April 30, 2009, we held marketable securities to
settle obligations under the ECAP with a cost value of
$70.8 million and a fair value of $60.8 million. The
difference between cost and fair value has previously been
recorded as an unrealized loss in our statement of stockholders
equity. As a result of the severity and duration of the decline
in fair value of these securities the Company recorded a
$15.9 million asset impairment charge during the third
fiscal quarter ended January 31, 2009 in the statement of
operations in interest and other (loss) income, net. Because the
impaired assets mirror liabilities to participants which were
previously adjusted to the market value of the assets, this
non-cash charge did not impact the Companys operations,
operating income or liquidity. On April 30, 2009,
considering the increase in investment activity and in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities
(SFAS 115), the Company transferred certain
securities previously classified as
available-for-sale
to trading. The securities were transferred at fair value on
April 30, 2009, which became the new cost basis of the
securities. Unrealized gains of $5.9 million at the date of
the transfer were reversed from accumulated other comprehensive
income and recognized in the statement of operations.
As of April 30, 2009 we held approximately
$12.4 million par value (with a fair value of
$11.3 million) of marketable securities investments,
classified as noncurrent assets, with an auction reset feature
(auction rate securities) whose underlying assets
are generally student loans which are substantially backed by
the federal government. Continued liquidity issues in the global
credit markets caused auctions for all of our auction rate
securities to fail because the amount of securities offered for
sale exceeded the amount of bids. As a result, the liquidity of
our remaining auction rate securities has diminished. We expect
this decreased liquidity will continue for as long as the
present depressed global credit market environment persists, or
until issuers refinance and replace these securities with other
instruments. Despite the current auction market, we believe the
credit quality of our auction rate securities remains high due
to the creditworthiness of the issuers. We continue to collect
interest when due and at this time we expect to continue to do
so going forward. Additionally, we expect we will receive the
principal balance through either future successful auctions,
sales of these securities outside the auction process, the
issuers establishment of different form of financing to
replace these securities, or the maturing of the securities.
In August 2008 we received notification from one of our
investment securities firms (Investment Firm)
announcing a proposed settlement to repurchase all of our
auction rate security holdings at par value. We formally
accepted the settlement agreement and entered into a repurchase
agreement (Agreement) with the Investment Firm on
October 28, 2008 (Acceptance Date). By
accepting the Agreement, we (1) received the right
(Put Option) to sell our auction rate securities at
par value to the Investment Firm between June 30, 2010 and
July 2, 2012 and (2) gave the Investment Firm the
right to purchase the auction rate securities from us any time
after the Acceptance Date as long as we receive the par value.
The Agreement covers $12.4 million par value (fair value of
$11.3) of our auction rate securities as of April 30, 2009
and we expect to receive the entire par value upon the future
liquidation of the securities.
The net increase in our working capital of $2.0 million in
fiscal 2009 compared to fiscal 2008 is primarily attributable to
decreases in accrued compensation and benefits payable, income
taxes payable and accounts payable, offset to some extent by a
decrease in cash and cash equivalents and accounts receivable.
Compensation and benefits payable decreased due to a reduction
in worldwide headcount and a reduction in profitability based
compensation. Accounts receivable declined due to the decrease
in the number of engagements billed plus lower average fees
billed per engagement in all regions
Cash and cash equivalents and marketable securities were
approximately $330.3 million and $389.3 million as of
April 30, 2009 and 2008, respectively. Cash and cash
equivalents consisted of cash and highly liquid investments
purchased with original maturities of three months or less.
Marketable securities consist of auction rate municipal
28
securities, equity securities and fixed income mutual funds. The
primary objectives for these investments are liquidity or to
meet the obligations under certain of our deferred compensation
plans.
Cash provided by operating activities was $3.2 million in
fiscal 2009, a decrease of $106.3 million, from cash
provided in operating activities of $109.5 million in
fiscal 2008. The decrease in cash used in operating activities
is primarily due to a $76.3 million decrease in net income,
a $130.0 million decrease in accounts payable and accrued
liabilities and a $17.4 million decrease in accrued
liabilities related to deferred compensation retirement plans
and other retirement plans. The decrease in accounts payable and
accrued liabilities is attributable mainly to a reduction in
worldwide headcount and profitability based compensation.
Offsetting these amounts are decreases in accounts receivable,
which resulted in cash flows from operations of
$67.9 million over the prior year. The decrease in revenues
resulted from the global economic and financial crisis, which
led to deteriorating labor markets throughout the world and had
a resulting dampening effect on demand for our services. In
addition, as a result of the severity and duration of the
decline in the fair value of marketable securities the Company
recorded a $15.9 million
other-than-temporary
asset impairment charge in fiscal 2009, offset by
$5.9 million of unrealized gains reclassified to other
income upon the transfer of
available-for-sale
securities to trading, both of which did not occur in fiscal
2008.
Cash used in investing activities was $27.8 million for
fiscal 2009, compared to $5.5 million cash used in the
prior year. For the year ended April 30, 2009, the increase
in cash used was primarily attributable to $4.1 million of
marketable securities purchased in fiscal 2009 compared to sales
of $14.0 million in fiscal 2008. Cash used to acquire Lore
International Institute, Inc. during the fiscal year was
$12.9 million, an increase in cash used for acquisition of
$9.3 million over prior year. The increase in cash used for
the purchase of marketable securities and acquisitions was
partially offset by a decrease in spending on capital
expenditures $5.0 million, which was due to the decline in
operations during fiscal 2009.
Cash used in financing activities was $5.7 million in
fiscal 2009, a $35.7 million decrease from fiscal 2008. In
the current fiscal year, we repurchased $9.6 million of
common stock, to buy back approximately 0.7 million shares
of common stock and in fiscal 2008 we repurchased
$64.2 million of common stock, to buy back 3.1 million
shares of common stock. As of April 30, 2009,
$36.4 million remained available for repurchase under our
repurchase program, which was approved by the Board of
Directors. The Company does not intend to repurchase additional
shares for the foreseeable future. These repurchases were offset
by proceeds received from the exercise of stock options of
$3.6 million and $17.4 million in the fiscal 2009 and
2008, respectively, due in part to a decline in the number stock
options exercised and a decline in the number of shares
purchased through our employee stock purchase plan.
Off-Balance
Sheet Arrangements
We have no off-balance sheet arrangements and have not entered
into any transactions involving unconsolidated, limited purpose
entities.
Contractual
Obligations
Contractual obligations represent future cash commitments and
liabilities under agreements with third parties, and exclude
contingent liabilities for which we cannot reasonably predict
future payment. The following table represents our contractual
obligations as of April 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in:
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Note
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
|
|
(In thousands)
|
|
|
Operating lease commitments
|
|
16
|
|
$
|
90,482
|
|
|
$
|
26,717
|
|
|
$
|
29,142
|
|
|
$
|
17,570
|
|
|
$
|
17,053
|
|
Accrued restructuring charges(1)
|
|
6
|
|
|
13,642
|
|
|
|
7,439
|
|
|
|
4,325
|
|
|
|
1,487
|
|
|
|
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
104,124
|
|
|
$
|
34,156
|
|
|
$
|
33,467
|
|
|
$
|
19,057
|
|
|
$
|
17,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents rent payments, net of sublease income on an
undiscounted basis. |
29
In addition to the contractual obligations above, we have
liabilities related to certain employee benefit plans. These
liabilities are recorded in our Consolidated Balance Sheets. The
obligations related to these employee benefit plans are
described in Note 8 Deferred Compensation
and Retirement Plans, in the Notes to our Consolidated
Financial Statements.
We also make interest payments on our COLI loans. These loans
are described in Note 12 Long-Term Debt,
in the Notes to our Consolidated Financial Statements. As the
timing of these loan repayments are uncertain, we have not
included these obligations in the table above.
Lastly, we have contingent commitments under certain employment
agreements that are payable upon termination of employment.
Long-Term
Debt.
Total outstanding borrowings under our COLI policies were
$61.6 million, $60.7 million and $60.0 million as
of April 30, 2009, 2008 and 2007, respectively. Generally,
we borrow under our COLI policies to pay related premiums. Such
borrowings do not require annual principal repayments, bear
interest primarily at variable rates and are secured by the cash
surrender value of the life insurance policies of
$124.7 million, $142.1 million and $136.5 million
as of April 30, 2009, 2008 and 2007, respectively. At
April 30, 2009, the net cash value of these policies was
$63.1 million of which $48.7 million was held in a
trust.
As of April 30, 2009, we had no outstanding Convertible
Notes or Convertible Preferred Stock. On March 7, 2007, the
Company issued notice for the redemption of its Convertible
Notes in an aggregate principal amount of $40 million and
its Convertible Preferred Stock in an aggregate principal price
of $10 million. As of March 7, 2007,
$45.6 million of the Convertible Notes and
$11.4 million of the Convertible Preferred Stock was
outstanding. The Convertible Notes and Convertible Preferred
Stock were convertible into shares of the Companys common
stock at $10.19 per share. In response to the
Redemption Notice, the holder of the Convertible Notes and
Convertible Preferred Stock exercised the Conversion of the
Convertible Notes and Convertible Preferred Stock pursuant to
the terms thereof. The Conversion resulted in
5,586,187 shares of the Companys common stock being
delivered to the holder of the convertible securities in April
2007.
In March 2008, we amended our Senior Secured Revolving Credit
Facility (the Facility) with Wells Fargo Bank. The
Facility has a $50.0 million borrowing capacity with no
borrowing base restrictions, expiring March 2011.
Borrowings under the Facility bear interest, at
managements discretion, either at the banks prime
rate or at the Eurodollar rate plus 1.00% per annum, which were
3.25% and 1.90%, respectively, at April 30, 2009. The
Company pays quarterly commitment fees of 0.20% on the
Facilitys unused balance. The Facility is secured by
substantially all of our assets, including certain accounts
receivable balances and guarantees by and pledges of the capital
stock of our significant subsidiaries. We are required to meet
certain financial condition covenants on a quarterly basis,
including a minimum fixed charge ratio, a maximum leverage ratio
and a quick ratio, which were met at April 30, 2009. During
the fourth quarter of fiscal 2009, the Company drew down
$42 million on its line of credit and subsequently repaid
the full amount in same quarter. We had no outstanding
borrowings under our Facility at April 30, 2009 and 2008.
Accounting
Developments
Recently
Adopted Accounting Standards
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106 and 132(R)
(SFAS 158). SFAS 158 retains the
previous measurement and disclosure requirements of prior
accounting guidance, but now requires the recognition of the
funded status of pension and other postretirement benefit plans
on the balance sheet (recognition provisions).
Furthermore, for fiscal years ending after December 15,
2008, SFAS 158 requires
fiscal-year-end
measurements of plan assets and benefit obligations, eliminating
the use of earlier measurement dates currently permissible. The
recognition provisions of SFAS 158 were effective for the
Company on April 30, 2007. Previously unrecognized
actuarial gains or losses, prior service cost and any remaining
unamortized transition obligation will be recognized on the
balance sheet with an offset to
30
accumulated other comprehensive (loss) income, net of any
resulting deferred tax balances. The Company adopted
SFAS 158 on April 30, 2007. The adoption did not have
a material impact on its financial position or results of
operations.
The Company adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation
of FASB Statement No. 109 (FIN 48) as
of May 1, 2007. FIN 48 clarifies the accounting for
income taxes by prescribing a minimum threshold for benefit
recognition of a tax position for financial reporting purposes.
FIN 48 also establishes tax accounting rules for
measurement, classification, interest and penalties, disclosure
and interim period accounting. As a result of the adoption of
FIN 48, the Company recorded a cumulative effect adjustment
which reduced retained earnings by $3.5 million on
May 1, 2007.
In September 2006, the Emerging Issues Task Force
(EITF) of the FASB ratified EITF Issue
No. 06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements
(EITF 06-4).
The scope of
EITF 06-4
is limited to the recognition of a liability and related
compensation costs for endorsement split-dollar life insurance
policies that provide a benefit to an employee that extends to
postretirement periods. Therefore,
EITF 06-4
would not apply to a split-dollar life insurance arrangement
that provides a specified benefit to an employee that is limited
to the employees active service period with an employer.
EITF 06-4
is effective for fiscal years beginning after December 15,
2007, with earlier adoption permitted. The Company adopted
EITF 06-4
effective May 1, 2008 and it did not have a material impact
on its financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157),
which defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value
measurements. The statement emphasizes that fair value is a
market-based measurement, not an entity-specific measurement and
establishes a fair value hierarchy. This statement also
clarifies how the assumptions of risk and the effect of
restrictions on sales or use of an asset effect the valuation.
SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years, however, the FASB staff has
approved a one year deferral for the implementation of
SFAS 157 for other non-financial assets and liabilities.
The Company adopted this statement effective May 1, 2008
and it did not have a material impact on its financial position
or results of operations.
In February, 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS 159) including an
amendment of SFAS 115. This statement provides companies
with an option to report selected financial assets and
liabilities at fair value. This statement is effective for
fiscal years beginning after November 15, 2007 with early
adoption permitted. The Company adopted this statement effective
May 1, 2008 and it did not have a material impact on its
financial position or results of operations.
Recently
Issued Accounting Standards
In December 2007, the FASB issued SFAS No. 141
(Revised 2007), Business Combinations
(SFAS 141R). SFAS 141R expands the
definition of transactions and events that qualify as business
combinations; requires that the acquired assets and liabilities
including contingencies and any noncontrolling interests in the
acquiree, be recorded at the fair value determined on the
acquisition date and changes thereafter be reflected in
earnings, rather than goodwill; changes the recognition timing
for restructuring costs; and requires acquisition costs to be
expensed as incurred. SFAS 141R also includes a substantial
number of new disclosure requirements. Adoption of
SFAS 141R is required for combinations occurring in fiscal
years beginning on or after December 15, 2008, earlier
adoption is not permitted. The Company expects SFAS 141R
will have an impact on accounting for business combinations but
the effect is dependent upon acquisitions at that time. For
acquisitions completed prior to May 1, 2009, the new
standard requires that changes in deferred tax valuation
allowances and acquired income tax uncertainties after the
measurement period must be recognized in earnings rather than as
an adjustment to the cost of the acquisition. The impact of the
adoption of SFAS 141R on the Companys consolidated
financial position and results of operations will largely be
dependent on the size and nature of the business combinations
completed after the adoption of this statement.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51
(SFAS 160). SFAS 160 establishes new
accounting and reporting
31
standards for the noncontrolling interest in a subsidiary and
for the deconsolidation of a subsidiary. Specifically, this
statement requires the recognition of a noncontrolling interest
(minority interest) as equity in the consolidated financial
statements and separate from the parents equity. The
amount of net income attributable to the noncontrolling interest
will be included in consolidated net income on the face of the
income statement. SFAS 160 clarifies that changes in a
parents ownership interest in a subsidiary that do not
result in deconsolidation are equity transactions if the parent
retains its controlling financial interest. In addition, this
statement requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. Such gain or loss
will be measured using the fair value of the noncontrolling
equity investment on the deconsolidation date. SFAS 160
also includes expanded disclosure requirements regarding the
interests of the parent and its noncontrolling interest.
SFAS 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after
December 15, 2008, earlier adoption is not permitted. The
Company currently does not have significant minority interests
in its consolidated subsidiaries.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principle
(SFAS 162). SFAS 162 identifies the
sources of accounting principles and the framework, or
hierarchy, for selecting the accounting principles used in
preparing financial statements that are presented in conformity
with GAAP by nongovernmental entities. This statement is
effective 60 days following the SEC approval of the Public
Company Accounting Oversight Board (PCAOB)
amendments to AU Section 411, The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting
Principle (Section 411). As of the date of
this report, the SEC had not approved the PCAOB amendments to AU
Section 411. Adoption of SFAS 162 will not have a
material impact on the Companys consolidated financial
position, results of operations or cash flows.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
As a result of our global operating activities, we are exposed
to certain market risks, including foreign currency exchange
fluctuations and fluctuations in interest rates. We manage our
exposure to these risks in the normal course of our business as
described below. We have not utilized financial instruments for
trading, hedging or other speculative purposes nor do we trade
in derivative financial instruments.
Foreign
Currency Risk.
Substantially all our foreign subsidiaries operations are
measured in their local currencies. Assets and liabilities are
translated into U.S. dollars at the rates of exchange in
effect at the end of each reporting period and revenue and
expenses are translated at average rates of exchange during the
reporting period. Resulting translation adjustments are reported
as a component of comprehensive income on our consolidated
Statement of Stockholders Equity accumulated other
comprehensive income on our consolidated Balance Sheets.
Transactions denominated in a currency other than the reporting
entitys functional currency may give rise to transaction
gains and losses that impact our results of operations.
Historically, we have not realized significant foreign currency
gains or losses on such transactions. During the year ended
April 30, 2009, we recognized foreign currency losses,
before income taxes, of $0.35 million primarily related to
our EMEA and Asia Pacific operations.
Our primary exposure to exchange losses is based on outstanding
intercompany loan balances denominated in U.S. dollars. If
the U.S. dollar strengthened 15%, 25% and 35% against the
Pound Sterling, the Euro, the Canadian dollar, the Australian
dollar and the Yen, our exchange loss would have been
$3.2 million, $5.3 million and $7.5 million,
respectively, based on outstanding balances at April 30,
2009. If the U.S. dollar weakened by the same increments
against Pound Sterling, the Euro, the Canadian dollar, the
Australian dollar and the Yen, our exchange gain would have been
$3.2 million, $5.3 million and $7.5 million,
respectively, based on outstanding balances at April 30,
2009.
Interest
Rate Risk.
We primarily manage our exposure to fluctuations in interest
rates through our regular financing activities, which generally
are short term and provide for variable market rates. As of
April 30, 2009, we had no outstanding balance on our credit
facility. We have $61.6 million of borrowings against the
cash surrender value of COLI contracts as of April 30, 2009
bearing interest primarily at variable rates. The risk of
fluctuations in these variable
32
rates is minimized by the fact that we receive a corresponding
adjustment to our borrowed funds crediting rate on the cash
surrender value on our COLI contracts.
As of April 30, 2009, we held approximately
$12.4 million par value (fair valued of $11.3 million)
of auction rate securities. Continued liquidity issues in the
global credit markets caused auctions for all of our auction
rate securities to fail, and there is no assurance that
currently successful auctions on the other auction rate
securities in our investment portfolio will continue to succeed.
As a result of the current situation in the auction markets, our
ability to liquidate our investment in auction rate securities
and fully recover the carrying value of our investment in the
near term may be limited or impossible. An auction failure means
that the parties wishing to sell securities cannot. If in the
future the issuers are unable to successfully close future
auctions and their credit ratings deteriorate, we may be
required to record an impairment charge on these investments. We
believe we will be able to liquidate our investment without
significant loss within the next year, however, it could take
until the final maturity of the underlying notes (up to
30 years) to realize our investments recorded value.
Based on our expected operating cash flows, and our other
sources of cash, we do not anticipate the potential lack of
liquidity on these investments will affect our ability to
execute our current business plan.
Equity
Risk.
As of April 30, 2009, we held marketable securities (to
settle obligations under the ECAP) with a cost value of
$70.8 million and a fair value of $60.8 million. The
difference between cost and fair value has previously been
recorded as an unrealized loss in our statement of stockholders
equity. As a result of the severity and duration of the decline
in fair value of these securities the Company recorded a
$15.9 million asset impairment charge during the third
fiscal quarter ended January 31, 2009 in the statement of
operations in interest and other (loss) income, net. Because the
impaired assets mirror liabilities to participants which were
previously adjusted to the market value of the assets, this
non-cash charge did not impact the Companys operations,
operating income or liquidity. On April 30, 2009,
subsequent to the asset impairment charge and in accordance with
SFAS 115, the Company transferred certain securities
previously classified as
available-for-sale
to trading. The securities were transferred at fair value on
April 30, 2009, which became the new cost basis of the
securities. Unrealized gains of $5.9 million at the date of
the transfer were reversed from accumulated other comprehensive
income and recognized in the statement of operations.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
See Consolidated Financial Statements beginning on
page F-1
of this Annual Report on
Form 10-K.
Supplemental Financial Information regarding quarterly results
is contained in Note 17 Quarterly
Results, in the Notes to our Consolidated Financial
Statements.
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Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
No changes or disagreements were noted in the current fiscal
year.
|
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Item 9A.
|
Controls
and Procedures
|
(a) Evaluation of Disclosure Controls and Procedures.
Based on their evaluation of our disclosure controls and
procedures conducted as of the end of the period covered by this
Annual Report on
Form 10-K,
our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures (as
defined in
Rules 13a-15(e)
and
15d-15(e)
promulgated under the Exchange Act) are effective.
(b) Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial
reporting during the fourth fiscal quarter that have materially
affected or are reasonably likely to materially affect our
internal control over financial reporting, including any
corrective actions with regard to significant deficiencies and
material weaknesses. See Managements
33
Report on Internal Control Over Financial Reporting and Report
of Independent Registered Public Accounting Firm on Internal
Control Over Financial Reporting on pages F-2 and F-3,
respectively.
Annual
Certifications
The Company filed the CEO and CFO Certifications required by
Section 302 of the Sarbanes-Oxley Act as exhibits to its
Annual Report on
Form 10-K
for the years ended April 30, 2009 and 2008.
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|
Item 9B.
|
Other
Information
|
Restructuring
Charges
Due to further deteriorating economic conditions encountered in
the third quarter of fiscal 2009, we implemented a second
restructuring of our cost structure in the fourth quarter of
fiscal 2009 designed to reduce our work force by approximately
an additional 400 employees and to further consolidate
premises. This initiative resulted in a total charge of
$25.1 million against operations in the three months ended
April 30, 2009 of which $13.4 million and
$11.7 million related to severance costs (of which
approximately $4.9 million was paid in cash during the
fourth quarter of fiscal 2009) and the consolidation of
premises, respectively.
Renewal
and Modification of McNabb Employment Agreement
On June 25, 2009, the Company and Mr. Robert McNabb
entered into a letter agreement (the Letter
Agreement) renewing and modifying certain terms of that
certain Employment Agreement (the Employment
Agreement) between the Company and Mr. McNabb dated
as of October 1, 2003. Pursuant to the Letter Agreement,
the term of Mr. McNabbs employment with the Company,
which was set to automatically expire on September 30,
2009, has been extended for a three year period ending on
September 30, 2012 (the Renewal Term). During
such period, Mr. McNabb will continue to serve as Chief
Executive Officer of Futurestep, and Executive Vice President of
the Company, subject to the Companys right to change
Mr. McNabbs titles and roles at any time, and will
continue to receive the same base salary (which may reflect an
adjustment made for current economic conditions) and incentive
opportunities as set forth in the Employment Agreement. The
Letter Agreement modifies certain of the termination provisions
set forth in the Employment Agreement and entitles
Mr. McNabb to certain severance payments if the Company
terminates his employment without Cause (as defined in the
Employment Agreement) prior to the expiration of the Renewal
Term.
Modification
to Burnison Compensation
In response to the current economic environment, on
June 25, 2009, the Company and Mr. Gary D. Burnison,
the Companys Chief Executive Officer, entered into a
letter agreement pursuant to which Mr. Burnison voluntarily
agreed to a $75,000 ratable reduction in base salary and two
weeks of unpaid leave, which will result in Mr. Burnison
forgoing approximately an additional $25,000 in base salary, for
an aggregate ratable base salary reduction of $100,000,
effective July 1, 2009 through April 30, 2010.
PART III.
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this Item will be included under the
captions The Board of Directors and
Section 16(a) Beneficial Ownership Reporting
Compliance and elsewhere in our 2009 Proxy Statement, and
is incorporated herein by reference. The information under the
heading Executive Officers of the Registrant in
Part I, Item 1 of this Annual Report on
Form 10-K
is also incorporated by reference in this section.
We have adopted a Code of Business Conduct and
Ethics, which is applicable to our directors, chief
executive officer and senior financial officers, including our
principal accounting officer. The Code of Business Conduct and
Ethics is available on our website at www.kornferry.com. We
intend to post amendments to or waivers to this Code of Business
Conduct and Ethics on our website when adopted. Upon written
request, we will provide a
34
copy of the Code of Business Conduct and Ethics free of charge.
Requests should be directed to Korn/Ferry International, 1900
Avenue of the Stars, Suite 2600, Los Angeles, California
90067, Attention: Peter Dunn.
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Item 11.
|
Executive
Compensation
|
The information required by this Item will be included in our
2009 Proxy Statement, and is incorporated herein by this
reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this Item will be included under the
caption Security Ownership of Certain Beneficial Owners
and Management and elsewhere in our 2009 Proxy Statement,
and is incorporated herein by reference.
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|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this Item will be included under the
caption Certain Relationships and Related
Transactions and elsewhere in our 2009 Proxy Statement,
and is incorporated herein by reference.
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|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this Item will be included under the
captions Audit Fees, Audit-Related Fees,
Tax Fees and All Other Fees and
elsewhere in our 2009 Proxy Statement, and is incorporated
herein by reference.
35
PART IV.
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|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
Financial
Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
1.
|
|
|
Index to Financial Statements:
|
|
|
|
|
|
|
|
|
See Consolidated Financial Statements included as part of this
Form 10-K.
Pursuant to
Rule 7-05
of
Regulation S-X,
the schedules have been omitted as the information to be set
forth therein is included in the notes of the audited
consolidated financial statements.
|
|
|
F-1
|
|
Exhibits:
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1+
|
|
Certificate of Incorporation of the Company, filed as
Exhibit 3.1 to the Companys Quarterly Report on
Form 10-Q,
filed December 15, 1999.
|
|
3
|
.2+
|
|
Certificate of Designations of 7.5% Convertible Preferred
Stock, filed as Exhibit 3.1 to the Companys Current
Report on
Form 8-K,
filed June 18, 2002.
|
|
3
|
.3+
|
|
Second Amended and Restated Bylaws of the Company, filed as
Exhibit 3.1 to the Companys Current Report on
Form 8-K,
filed April 29, 2009.
|
|
4
|
.1+
|
|
Form of Common Stock Certificate of the Company, filed as
Exhibit 4.1 to the Companys Registration Statement on
Form S-3
(No. 333-49286),
filed November 3, 2000.
|
|
4
|
.2+
|
|
Form of 7.5% Convertible Subordinated Note Due 2010, filed
as Exhibit 4.1 to the Companys Current Report on
Form 8-K,
filed June 18, 2002.
|
|
4
|
.3+
|
|
Form of Stock Purchase Warrant, filed as Exhibit 4.2 to the
Companys Current Report on
Form 8-K,
filed June 18, 2002.
|
|
4
|
.4+
|
|
Subordination Agreement, dated as of June 13, 2002, made by
Korn/Ferry International, a Delaware corporation, Friedman
Fleischer & Lowe Capital Partners, L.P., a Delaware
limited partnership, and FFL Executive Partners, L.P., a
Delaware limited partnership in favor of Bank of America, N.A.,
filed as Exhibit 4.3 to the Companys Current Report
on
Form 8-K,
filed June 18, 2002.
|
|
10
|
.1*+
|
|
Form of Indemnification Agreement between the Company and some
of its executive officers and Directors, filed as
Exhibit 10.1 to the Companys Registration Statement
on
Form S-1
(No. 333-61697),
effective February 10, 1999.
|
|
10
|
.2*+
|
|
Form of U.S. and International Worldwide Executive Benefit
Retirement Plan, filed as Exhibit 10.3 to the
Companys Registration Statement of
Form S-1
(No. 333-61697),
effective February 10, 1999.
|
|
10
|
.3*+
|
|
Form of U.S. and International Worldwide Executive Benefit Life
Insurance Plan, filed as Exhibit 10.4 to the Companys
Registration Statement on
Form S-1
(No. 333-61697),
effective February 10, 1999.
|
|
10
|
.4*+
|
|
Worldwide Executive Benefit Disability Plan (in the form of
Long-Term Disability Insurance Policy), filed as
Exhibit 10.5 to the Companys Registration Statement
on
Form S-1
(No. 333-61697),
effective February 10, 1999.
|
|
10
|
.5*+
|
|
Form of U.S. and International Enhanced Executive Benefit and
Wealth Accumulation Plan, filed as Exhibit 10.6 to the
Companys Registration Statement on
Form S-1
(No. 333-61697),
effective February 10, 1999.
|
|
10
|
.6*+
|
|
Form of U.S. and International Senior Executive Incentive Plan,
filed as Exhibit 10.7 to the Companys Registration
Statement on
Form S-1
(No. 333-61697),
effective February 10, 1999.
|
|
10
|
.7*+
|
|
Executive Salary Continuation Plan, filed as Exhibit 10.8
to the Companys Registration Statement on
Form S-1
(No. 333-61697),
effective February 10, 1999.
|
|
10
|
.8*+
|
|
Form of Amended and Restated Stock Repurchase Agreement, filed
as Exhibit 10.10 to the Companys Registration
Statement on
Form S-1
(No. 333-61697),
effective February 10, 1999.
|
|
10
|
.9*+
|
|
Form of Standard Employment Agreement, filed as
Exhibit 10.11 to the Companys Registration Statement
on
Form S-1
(No. 333-61697),
effective February 10, 1999.
|
|
10
|
.10*+
|
|
Form of U.S. and Foreign Executive Participation Program, filed
as Exhibit 10.27 to the Companys Registration
Statement on
Form S-1
(No. 333-61697),
effective February 10, 1999.
|
36
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.11*+
|
|
Employment Agreement between the Company and Paul C. Reilly,
dated May 24, 2001, filed as Exhibit 10.14 to the
Companys Annual Report on
Form 10-K,
filed July 30, 2001.
|
|
10
|
.12*+
|
|
Amendment to Employment Agreement between the Company and Paul
C. Reilly, dated December 1, 2001, filed as
Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q,
filed December 17, 2001.
|
|
10
|
.13*+
|
|
Second Amendment to Employment Agreement between the Company and
Paul C. Reilly, dated July 1, 2003 filed as
Exhibit 10.13 to the Companys Annual Report on
Form 10-K,
filed July 22, 2003.
|
|
10
|
.14*+
|
|
Letter from the Company to Paul C. Reilly, dated June 6,
2001, filed as Exhibit 10.2 to the Companys Quarterly
Report on
Form 10-Q,
filed December 17, 2001.
|
|
10
|
.15*+
|
|
Employment Agreement between the Company and
Gary C. Hourihan effective March 6, 2000, filed
as Exhibit 10.22 to the Companys Annual Report on
Form 10-K,
filed July 31, 2000.
|
|
10
|
.16*+
|
|
Korn/Ferry International Special Severance Pay Policy, dated
January 1, 2000, filed as Exhibit 10.2 to the
Companys Quarterly Report on
Form 10-Q,
filed March 19, 2001.
|
|
10
|
.17*+
|
|
Korn/Ferry International Second Amended and Restated Performance
Award Plan, filed as Appendix A to the Companys
Definitive Proxy Statement, filed August 12, 2004.
|
|
10
|
.18+
|
|
Investor Rights Agreement, dated as of June 13, 2002, by
and among Korn/Ferry International, a Delaware corporation,
Friedman Fleischer & Lowe Capital Partners, L.P., a
Delaware limited partnership, and FFL Executive Partners, L.P.,
a Delaware limited partnership, filed as Exhibit 10.1 to
the Companys Current Report on
Form 8-K,
filed June 18, 2002.
|
|
10
|
.19*+
|
|
Letter from Korn/Ferry International Futurestep, Inc. to Robert
H. McNabb, dated December 3, 2001, filed as
Exhibit 10.29 to the Companys Amended Annual Report
on
Form 10-K/A,
filed August 12, 2002.
|
|
10
|
.20*+
|
|
Letter from the Company to Robert H. McNabb, dated
November 29, 2001, filed as Exhibit 10.30 to the
Companys Amended Annual Report on
Form 10-K/A,
filed August 12, 2002.
|
|
10
|
.21*+
|
|
Employment Agreement between the Company and Robert H. McNabb,
dated October 1, 2003, filed as Exhibit 10.2 to the
Companys Quarterly Report on
Form 10-Q,
filed December 12, 2003.
|
|
10
|
.22*+
|
|
Employee Stock Purchase Plan filed as Exhibit 10.29 to the
Companys Annual Report on
Form 10-K,
filed July 22, 2003.
|
|
10
|
.23*+
|
|
Employment Agreement between the Company and Gary D. Burnison,
dated October 1, 2003, filed as Exhibit 10.2 to the
Companys Quarterly Report on
Form 10-Q,
filed March 12, 2004.
|
|
10
|
.24+
|
|
Letter Agreement, dated December 31, 2003, among the
Company, Friedman Fleischer & Lowe Capital Partners,
L.P. and FFL Executive Partners, L.P., filed as
Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q,
filed March 12, 2004.
|
|
10
|
.25*+
|
|
Third Amendment to the Employment Agreement between the Company
and Paul C. Reilly, dated March 10, 2004, filed as
Exhibit 10.3 to the Companys Quarterly Report on
Form 10-Q,
filed March 12, 2004.
|
|
10
|
.26*+
|
|
Form of Indemnification Agreement between the Company and some
of its executive officers and directors, filed as
Exhibit 10.4 to the Companys Quarterly Report on
Form 10-Q,
filed March 12, 2004.
|
|
10
|
.27*+
|
|
Fourth Amendment to the Employment Agreement between the Company
and Paul C. Reilly, dated March 7, 2005, filed as
Exhibit 10.32 to the Companys Annual Report on
Form 10-K,
filed July 14, 2005.
|
|
10
|
.28+
|
|
Summary of Non-Employee Director Compensation, filed as
Exhibit 10.1 to the Companys Current Report on
Form 8-K,
filed January 12, 2006.
|
|
10
|
.29*+
|
|
Fifth Amendment to the Employment Agreement between the Company
and Paul C. Reilly, dated April 26, 2006, filed as
Exhibit 10.32 to the Companys Annual Report on
Form 10-K,
filed July 14, 2006.
|
|
10
|
.30*+
|
|
Form of Restricted Stock Award Agreement to Employees Under the
Performance Award Plan filed as Exhibit 10.1 to the
Companys Current Report on
Form 8-K,
filed June 29, 2006.
|
|
10
|
.31*+
|
|
Form of Restricted Stock Award Agreement to Non-Employee
Directors Under the Performance Award Plan filed as
Exhibit 10.2 to the Companys Current Report on
Form 8-K,
filed June 29, 2006.
|
|
10
|
.32*+
|
|
Stock and Asset Purchase Agreement dated as of August 8,
2006 by and among Lominger Limited, Inc., Lominger Consulting,
Inc., Michael M. Lombardo, Robert W. Eichinger, and the Company
filed as Exhibit 10.1 to the Companys Quarterly
Report on
Form 10-Q,
filed September 8, 2006.
|
|
10
|
.33*+
|
|
Letter Agreement between the Company and Robert H. McNabb dated
as of September 29, 2006, filed as Exhibit 10.1 to the
Companys Quarterly Report on
Form 10-Q,
filed December 11, 2006.
|
37
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.34*+
|
|
Letter Agreement dated December 14, 2006 by and among the
Company and Gary C. Hourihan, Executive Vice President of
the Company and President of Leadership Development Solutions,
modifying the terms of Mr. Hourihans Employment
Agreement, dated March 6, 2000, filed as Exhibit 10.1
to the Companys Quarterly Report on
Form 10-Q,
filed March 12, 2007.
|
|
10
|
.35*+
|
|
Letter from the Company to Gary Burnison, dated March 30,
2007, filed as Exhibit 10.38 to the Companys Annual
Report on
Form 10-K,
filed June 29, 2007.
|
|
10
|
.36*+
|
|
Non Renewal of Employment Agreement between the Company and Paul
C. Reilly, dated April 24, 2007, filed as
Exhibit 10.39 to the Companys Annual Report on
Form 10-K,
filed June 29, 2007.
|
|
10
|
.37*+
|
|
Employment Agreement between the Company and Paul C. Reilly,
dated April 24, 2007, filed as Exhibit 10.40 to the
Companys Annual Report on
Form 10-K,
filed June 29, 2007.
|
|
10
|
.38*+
|
|
Employment Agreement between the Company and Gary Burnison,
dated April 24, 2007, filed as Exhibit 10.41 to the
Companys Annual Report on
Form 10-K,
filed June 29, 2007.
|
|
10
|
.39*+
|
|
Employment Agreement between the Company and Stephen J. Giusto,
dated October 10, 2007, filed as Exhibit 10.1 to the
Companys Quarterly Report on
Form 10-Q,
filed December 10, 2007.
|
|
10
|
.40*+
|
|
Form of Restricted Stock Unit Award Agreement to Directors Under
the Performance Award Plan, filed as Exhibit 10.2 to the
Companys Quarterly Report on
Form 10-Q,
filed December 10, 2007.
|
|
10
|
.41*+
|
|
Letter from the Company to Ana Dutra, dated January 16,
2008, filed as Exhibit 10.1 to the Companys Quarterly
Report on
Form 10-Q,
filed March 11, 2008.
|
|
10
|
.42*+
|
|
Offer of Employment Letter between the Company and Paul C.
Reilly, dated June 26, 2008, filed as Exhibit 10.1 to
the Companys Quarterly Report on
Form 10-Q,
filed September 9, 2008.
|
|
10
|
.43*+
|
|
Reimbursement Letter Agreement between the Company and Paul C.
Reilly, dated March 1, 2008, filed as Exhibit 10.2 to
the Companys Quarterly Report on
Form 10-Q,
filed September 9, 2008.
|
|
10
|
.44*
|
|
Employment Agreement between the Company and Stephen J. Giusto
dated March 17, 2009.
|
|
10
|
.45*
|
|
Employment Agreement between the Company and Michael A.
DiGregorio.
|
|
10
|
.46*+
|
|
Korn/Ferry 2008 Stock Incentive Plan, filed as Exhibit 99.1
to the Companys Registration Statement on
Form S-8
(No. 333-158632),
filed April 17, 2009.
|
|
10
|
.47*+
|
|
Form of Restricted Stock Award Agreement to Employees and
Non-Employee Directors Under the Korn/Ferry International 2008
Stock Incentive Plan, filed as Exhibit 10.2 to the
Companys Current Report on
Form 8-K,
filed June 12, 2009.
|
|
10
|
.48*+
|
|
Form of Stock Option Agreement to Employees and Non-Employee
Directors Under the Korn/Ferry International 2008 Stock
Incentive Plan, filed as Exhibit 10.3 to the Companys
Current Report on
Form 8-K,
filed June 12, 2009.
|
|
10
|
.49*+
|
|
Korn/Ferry International Executive Capital Accumulation Plan,
filed as Exhibit 4.1 to the Companys Registration
Statement on
Form S-8
(No. 333-111038),
filed December 10, 2003.
|
|
10
|
.50*
|
|
Letter Agreement dated June 25, 2009, by and among the
Company and Robert McNabb, modifying the terms of
Mr. McNabbs Employment Agreement, dated
October 1, 2003, as renewed and amended on September on
September 29, 2006.
|
|
10
|
.51*
|
|
Letter Agreement between the Company and Gary D. Burnison dated
June 25, 2009.
|
|
21
|
.1
|
|
Subsidiaries of Korn/Ferry International.
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP, Independent Registered
Public Accounting Firm.
|
|
24
|
.1
|
|
Power of Attorney (contained on signature page).
|
|
31
|
.1
|
|
Chief Executive Officer Certification pursuant to
Rule 13a-14(a)
under the Exchange Act.
|
|
31
|
.2
|
|
Chief Financial Officer Certification pursuant to
Rule 13a-14(a)
under the Exchange Act.
|
|
32
|
.1
|
|
Chief Executive Officer and Chief Financial Officer
Certification pursuant to 18 U.S.C. Section 1350.
|
|
|
|
* |
|
Management contract, compensatory plan or arrangement. |
|
+ |
|
Incorporated herein by reference. |
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Korn/Ferry International
|
|
|
|
By:
|
/s/ Michael
A. DiGregorio
|
Michael A. DiGregorio
Executive Vice President and
Chief Financial Officer
Date: June 29, 2009
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
officers and directors of the registrant hereby constitutes and
appoints Peter L. Dunn and Gary D. Burnison, and each of them,
as lawful attorney-in-fact and agent for each of the undersigned
(with full power of substitution and resubstitution, for and in
the name, place and stead of each of the undersigned officers
and directors), to sign and file with the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
as amended, any and all amendments, supplements and exhibits to
this report and any and all other documents in connection
therewith, hereby granting unto said attorneys-in-fact, and each
of them, full power and authority to do and perform each and
every act and thing necessary or desirable to be done in order
to effectuate the same as fully and to all intents and purposes
as each of the undersigned might or could do if personally
present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Kenneth
Whipple
Kenneth
Whipple
|
|
Chairman of the Board and Director
|
|
June 29, 2009
|
|
|
|
|
|
/s/ Gary
D. Burnison
Gary
D. Burnison
|
|
Chief Executive Officer (Principal Executive Officer) and
Director
|
|
June 29, 2009
|
|
|
|
|
|
/s/ Michael
A. Digregorio
Michael
A. DiGregorio
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
June 29, 2009
|
|
|
|
|
|
/s/ Mark
Neal
Mark
Neal
|
|
Vice President, Finance (Principal Accounting Officer)
|
|
June 29, 2009
|
|
|
|
|
|
/s/ James
E. Barlett
James
E. Barlett
|
|
Director
|
|
June 29, 2009
|
39
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Patti
S. Hart
Patti
S. Hart
|
|
Director
|
|
June 29, 2009
|
|
|
|
|
|
/s/ Edward
D. Miller
Edward
D. Miller
|
|
Director
|
|
June 29, 2009
|
|
|
|
|
|
/s/ Debra
Perry
Debra
Perry
|
|
Director
|
|
June 29, 2009
|
|
|
|
|
|
/s/ Ihno
Schneevoigt
Ihno
Schneevoigt
|
|
Director
|
|
June 29, 2009
|
|
|
|
|
|
/s/ Gerhard
Schulmeyer
Gerhard
Schulmeyer
|
|
Director
|
|
June 29, 2009
|
|
|
|
|
|
/s/ Harry
L. You
Harry
L. You
|
|
Director
|
|
June 29, 2009
|
40
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
APRIL 30,
2009
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-9
|
|
F-1
Management of Korn/Ferry International (the Company)
is responsible for establishing and maintaining adequate
internal control over financial reporting and for the assessment
of the effectiveness of internal control over financial
reporting. As defined by the Securities and Exchange Commission,
internal control over financial reporting is a process designed
by, or supervised by, the Companys principal executive and
principal financial officers, and effected by the issuers
board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with U.S. generally
accepted accounting principles.
The Companys internal control over financial reporting is
supported by written policies and procedures, that
(1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the Companys assets;
(2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of the
Companys management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that control may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In connection with the preparation of the Companys annual
financial statements, management of the Company has undertaken
an assessment of the effectiveness of the Companys
internal control over financial reporting as of April 30,
2009 based on criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO Framework). Managements assessment
included an evaluation of the design of the Companys
internal control over financial reporting and testing of the
operational effectiveness of the Companys internal control
over financial reporting.
Based on this assessment, management did not identify any
material weakness in the Companys internal control over
financial reporting, and management has concluded that the
Companys internal control over financial reporting was
effective as of April 30, 2009.
Ernst & Young, LLP, the independent registered public
accounting firm that audited the Companys financial
statements for the year ended April 30, 2009 included in
this annual report, has issued an audit report on the
effectiveness of the Companys internal control over
financial reporting as of April 30, 2009, a copy of which
is included in this Annual Report on
Form 10-K.
June 26, 2009
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Stockholders and Board of Directors
Korn/Ferry International
We have audited Korn/Ferry International and subsidiaries
(the Company) internal control over financial
reporting as of April 30, 2009 based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). The Companys
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Korn/Ferry International and subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of April 30, 2009, based on the
COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Korn/Ferry International and
subsidiaries as of April 30, 2009 and 2008, and the related
consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period
ended April 30, 2009 and our report dated June 26,
2009 expressed an unqualified opinion thereon.
Los Angeles, California
June 26, 2009
F-3
REPORT OF
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
Korn/Ferry International
We have audited the accompanying consolidated balance sheets of
Korn/Ferry International and subsidiaries (the
Company) as of April 30, 2009 and 2008, and the
related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended April 30, 2009. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Korn/Ferry International and subsidiaries
at April 30, 2009 and 2008, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended April 30, 2009, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, the Company adopted the provisions of Financial
Accounting Standards Board Interpretation No. 48 on
May 1, 2007. Also as discussed in Note 1, the Company
changed its method of accounting for defined benefit pension and
other post retirement plans in accordance with Statement of
Financial Accounting Standards No. 158 on April 30,
2007.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
April 30, 2009, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated June 26, 2009, expressed an unqualified
opinion thereon.
Los Angeles, California
June 26, 2009
F-4
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
255,000
|
|
|
$
|
305,296
|
|
Marketable securities
|
|
|
4,263
|
|
|
|
5,940
|
|
Receivables due from clients, net of allowance for doubtful
accounts of $11,197 and $11,504, respectively
|
|
|
67,308
|
|
|
|
119,952
|
|
Income taxes and other receivables
|
|
|
9,001
|
|
|
|
7,071
|
|
Deferred income taxes
|
|
|
14,583
|
|
|
|
10,401
|
|
Prepaid expenses and other assets
|
|
|
21,442
|
|
|
|
20,057
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
371,597
|
|
|
|
468,717
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, noncurrent
|
|
|
70,992
|
|
|
|
78,026
|
|
Property and equipment, net
|
|
|
27,970
|
|
|
|
32,462
|
|
Cash surrender value of company owned life insurance policies,
net of loans
|
|
|
63,108
|
|
|
|
81,377
|
|
Deferred income taxes
|
|
|
45,141
|
|
|
|
47,128
|
|
Goodwill
|
|
|
133,331
|
|
|
|
142,699
|
|
Intangible assets, net
|
|
|
16,928
|
|
|
|
15,519
|
|
Investments and other assets
|
|
|
11,812
|
|
|
|
14,286
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
740,879
|
|
|
$
|
880,214
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Accounts payable
|
|
$
|
10,282
|
|
|
$
|
15,309
|
|
Income taxes payable
|
|
|
2,059
|
|
|
|
20,948
|
|
Compensation and benefits payable
|
|
|
116,705
|
|
|
|
199,081
|
|
Other accrued liabilities
|
|
|
44,301
|
|
|
|
37,120
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
173,347
|
|
|
|
272,458
|
|
Deferred compensation and other retirement plans
|
|
|
99,238
|
|
|
|
105,719
|
|
Other liabilities
|
|
|
9,195
|
|
|
|
5,903
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
281,780
|
|
|
|
384,080
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock: $0.01 par value, 150,000 shares
authorized, 56,185 and 54,786 shares issued and 44,729 and
44,593 shares outstanding, respectively
|
|
|
368,430
|
|
|
|
358,568
|
|
Retained earnings
|
|
|
84,922
|
|
|
|
95,014
|
|
Accumulated other comprehensive income, net
|
|
|
6,285
|
|
|
|
43,097
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
459,637
|
|
|
|
496,679
|
|
Less: notes receivable from stockholders
|
|
|
(538
|
)
|
|
|
(545
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
459,099
|
|
|
|
496,134
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
740,879
|
|
|
$
|
880,214
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Fee revenue
|
|
$
|
638,223
|
|
|
$
|
790,570
|
|
|
$
|
653,422
|
|
Reimbursed
out-of-pocket
engagement expenses
|
|
|
37,905
|
|
|
|
45,072
|
|
|
|
35,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
676,128
|
|
|
|
835,642
|
|
|
|
689,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
442,632
|
|
|
|
540,056
|
|
|
|
447,692
|
|
General and administrative expenses
|
|
|
126,882
|
|
|
|
134,542
|
|
|
|
105,312
|
|
Out-of-pocket
engagement expenses
|
|
|
49,388
|
|
|
|
58,750
|
|
|
|
44,662
|
|
Depreciation and amortization
|
|
|
11,583
|
|
|
|
10,441
|
|
|
|
9,280
|
|
Restructuring charges
|
|
|
41,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
672,400
|
|
|
|
743,789
|
|
|
|
606,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
3,728
|
|
|
|
91,853
|
|
|
|
82,255
|
|
Interest and other (loss) income, net
|
|
|
(10,391
|
)
|
|
|
11,949
|
|
|
|
10,416
|
|
Interest expense
|
|
|
5,410
|
|
|
|
4,812
|
|
|
|
10,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before provision for income taxes and equity in
earnings of unconsolidated subsidiaries
|
|
|
(12,073
|
)
|
|
|
98,990
|
|
|
|
82,499
|
|
Provision for income taxes
|
|
|
384
|
|
|
|
36,081
|
|
|
|
30,164
|
|
Equity in earnings of unconsolidated subsidiaries, net
|
|
|
2,365
|
|
|
|
3,302
|
|
|
|
3,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(10,092
|
)
|
|
$
|
66,211
|
|
|
$
|
55,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.23
|
)
|
|
$
|
1.50
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.23
|
)
|
|
$
|
1.46
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
43,522
|
|
|
|
44,012
|
|
|
|
39,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
43,522
|
|
|
|
45,528
|
|
|
|
46,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Retained
|
|
|
Stock
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Income, Net
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at May 1, 2006
|
|
|
41,201
|
|
|
$
|
344,285
|
|
|
$
|
(23,154
|
)
|
|
$
|
(7,731
|
)
|
|
$
|
10,910
|
|
|
$
|
324,310
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
55,498
|
|
|
|
|
|
|
|
|
|
|
|
55,498
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on marketable securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
844
|
|
|
|
844
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,186
|
|
|
|
9,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment from adoption of SFAS No. 123(R)
|
|
|
|
|
|
|
(7,731
|
)
|
|
|
|
|
|
|
7,731
|
|
|
|
|
|
|
|
|
|
Purchase of stock
|
|
|
(2,722
|
)
|
|
|
(57,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,622
|
)
|
Issuance of stock
|
|
|
1,975
|
|
|
|
22,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,986
|
|
Conversion of 7.5% Convertible Series A Preferred Stock
|
|
|
1,117
|
|
|
|
11,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,257
|
|
Conversion of 7.5% Convertible Subordinated Notes
|
|
|
4,469
|
|
|
|
45,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,043
|
|
Variable stock-based compensation
|
|
|
|
|
|
|
(339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(339
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
15,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,669
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
7,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,011
|
|
Adjustment from adoption of SFAS No. 158, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(335
|
)
|
|
|
(335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2007
|
|
|
46,040
|
|
|
|
380,559
|
|
|
|
32,344
|
|
|
|
|
|
|
|
20,605
|
|
|
|
433,508
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
66,211
|
|
|
|
|
|
|
|
|
|
|
|
66,211
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,516
|
)
|
|
|
(3,516
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,894
|
|
|
|
24,894
|
|
Defined benefit plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,114
|
|
|
|
1,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of stock
|
|
|
(3,099
|
)
|
|
|
(60,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,950
|
)
|
Issuance of stock
|
|
|
1,652
|
|
|
|
18,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,736
|
|
Variable stock-based compensation
|
|
|
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
15,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,429
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
5,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,096
|
|
Cumulative effect of the adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
(3,541
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,541
|
)
|
Purchase of minority shares
|
|
|
|
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2008
|
|
|
44,593
|
|
|
|
358,568
|
|
|
|
95,014
|
|
|
|
|
|
|
|
43,097
|
|
|
|
496,679
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(10,092
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,092
|
)
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,624
|
)
|
|
|
(3,624
|
)
|
Reclassification of unrealized losses on marketable securities,
net of taxes to
other-than-temporary
impairment and upon transfer of securities from
available-for-sale
to trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,514
|
|
|
|
5,514
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,685
|
)
|
|
|
(40,685
|
)
|
Defined benefit plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,983
|
|
|
|
1,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of stock
|
|
|
(709
|
)
|
|
|
(9,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,588
|
)
|
Issuance of stock
|
|
|
845
|
|
|
|
3,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,609
|
|
Stock-based compensation
|
|
|
|
|
|
|
16,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,495
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
(654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2009
|
|
|
44,729
|
|
|
$
|
368,430
|
|
|
$
|
84,922
|
|
|
$
|
|
|
|
$
|
6,285
|
|
|
$
|
459,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(10,092
|
)
|
|
$
|
66,211
|
|
|
$
|
55,498
|
|
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11,583
|
|
|
|
10,441
|
|
|
|
9,280
|
|
Stock-based compensation expense
|
|
|
16,301
|
|
|
|
15,949
|
|
|
|
15,556
|
|
Interest paid in kind and amortization of discount on
convertible securities
|
|
|
|
|
|
|
|
|
|
|
915
|
|
Loss on disposition of property and equipment
|
|
|
3,740
|
|
|
|
561
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
9,127
|
|
|
|
10,299
|
|
|
|
6,583
|
|
Loss (gain) on cash surrender value of life insurance policies
|
|
|
3,578
|
|
|
|
(3,780
|
)
|
|
|
(5,647
|
)
|
Realized loss (gain) on marketable securities
|
|
|
5,040
|
|
|
|
(5,555
|
)
|
|
|
(2,138
|
)
|
Other-than-temporary
impairment on
available-for-sale
securities, net of unrealized gains reclassified to other income
upon the transfer of
available-for-sale
securities to trading
|
|
|
9,967
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(4,354
|
)
|
|
|
(5,992
|
)
|
|
|
(12,571
|
)
|
Change in other assets and liabilities, net of effect of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
(3,085
|
)
|
|
|
14,359
|
|
|
|
19,570
|
|
Receivables
|
|
|
44,639
|
|
|
|
(23,214
|
)
|
|
|
(25,966
|
)
|
Prepaid expenses
|
|
|
(1,340
|
)
|
|
|
(3,143
|
)
|
|
|
(2,332
|
)
|
Investment in unconsolidated subsidiaries
|
|
|
(2,365
|
)
|
|
|
(4,180
|
)
|
|
|
(3,668
|
)
|
Income taxes payable
|
|
|
(18,909
|
)
|
|
|
(5,282
|
)
|
|
|
5,178
|
|
Accounts payable and accrued liabilities
|
|
|
(82,236
|
)
|
|
|
47,802
|
|
|
|
44,328
|
|
Other
|
|
|
21,577
|
|
|
|
(4,965
|
)
|
|
|
(2,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,171
|
|
|
|
109,511
|
|
|
|
102,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(11,947
|
)
|
|
|
(16,976
|
)
|
|
|
(14,108
|
)
|
(Purchase of) proceeds from marketable securities, net
|
|
|
(4,104
|
)
|
|
|
14,038
|
|
|
|
(28,049
|
)
|
Cash paid for acquisitions, net of cash acquired
|
|
|
(12,900
|
)
|
|
|
(3,622
|
)
|
|
|
(24,129
|
)
|
Premiums on life insurance policies
|
|
|
(1,781
|
)
|
|
|
(1,835
|
)
|
|
|
(1,844
|
)
|
Dividends received from unconsolidated subsidiaries
|
|
|
2,952
|
|
|
|
2,923
|
|
|
|
2,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(27,780
|
)
|
|
|
(5,472
|
)
|
|
|
(65,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on life insurance policy loans
|
|
|
(770
|
)
|
|
|
(1,012
|
)
|
|
|
|
|
Borrowings under life insurance policies
|
|
|
1,721
|
|
|
|
1,736
|
|
|
|
1,617
|
|
Purchase of common stock
|
|
|
(9,588
|
)
|
|
|
(64,162
|
)
|
|
|
(57,622
|
)
|
Proceeds from issuance of common stock upon exercise of employee
stock options and in connection with an employee stock purchase
plan
|
|
|
3,609
|
|
|
|
17,436
|
|
|
|
22,975
|
|
Tax benefit from exercise of stock options
|
|
|
(654
|
)
|
|
|
4,612
|
|
|
|
7,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(5,682
|
)
|
|
|
(41,390
|
)
|
|
|
(26,019
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(20,005
|
)
|
|
|
16,510
|
|
|
|
3,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(50,296
|
)
|
|
|
79,159
|
|
|
|
14,384
|
|
Cash and cash equivalents at beginning of year
|
|
|
305,296
|
|
|
|
226,137
|
|
|
|
211,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
255,000
|
|
|
$
|
305,296
|
|
|
$
|
226,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used to pay interest
|
|
$
|
5,969
|
|
|
$
|
4,379
|
|
|
$
|
10,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used to pay income taxes
|
|
$
|
24,369
|
|
|
$
|
47,760
|
|
|
$
|
27,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt to equity
|
|
$
|
|
|
|
$
|
|
|
|
$
|
56,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2009
|
|
1.
|
Organization
and Summary of Significant Accounting Policies
|
Nature
of Business
Korn/Ferry International, a Delaware corporation (the
Company), and its subsidiaries are engaged in the
business of providing executive search, outsourced recruiting
and leadership and talent consulting on a retained basis. The
Companys worldwide network of over 78 offices in 37
countries enables it to meet the needs of its clients in all
industries.
Basis
of Consolidation and Presentation
The consolidated financial statements include the accounts of
the Company and its wholly and majority owned/controlled
domestic and international subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
The preparation of the consolidated financial statements conform
with United States (U.S.) generally accepted
accounting principles (GAAP) and prevailing practice
within the industry.
Investments in affiliated companies which are 50% or less owned
and where the Company exercises significant influence over
operations are accounted for using the equity method. Dividends
and other distributions of earnings from cost-method investments
are included in other income when declared. Dividends received
from our unconsolidated subsidiary in Mexico were approximately
$3.0 million, $2.9 million and $2.4 million
during fiscal 2009, 2008 and 2007, respectively.
Use of
Estimates and Uncertainties
The preparation of the consolidated financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual
results could differ from these estimates. The most significant
areas that require management judgment are revenue recognition,
deferred compensation, marketable securities, evaluation of the
carrying value of receivables, goodwill and other intangible
assets and deferred income taxes.
Revenue
Recognition
Substantially all professional fee revenue is derived from fees
for professional services related to executive recruitment,
middle-management recruitment and related services performed on
a retained basis. Fee revenue from recruitment activities is
generally one-third of the estimated first year compensation
plus a percentage of the fee to cover indirect expenses. Fee
revenue is recognized as earned. The Company generally bills
clients in three monthly installments commencing the month of
client acceptance. Fees earned in excess of the initial contract
amount are billed upon completion of the engagement. Any
services that are provided on a contingent basis are recognized
once the contingency is fulfilled.
Reimbursements
The Company incurs certain
out-of-pocket
expenses that are reimbursed by its clients. The Company
accounts for its reimbursed
out-of-pocket
expenses as revenue in its consolidated statements of operations
in accordance with Emerging Issues Task Force (EITF)
Issue
No. 01-14,
Income Statement Characterization of Reimbursements Received
for
Out-of-Pocket
Expenses Incurred.
Allowance
for Doubtful Accounts
A provision is established for doubtful accounts through a
charge to general and administrative expenses based on
historical loss experience. After all collection efforts have
been exhausted, the Company reduces the allowance
F-9
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
for doubtful accounts for balances identified as uncollectible.
Total write-offs of accounts receivable were $7.0 million,
$8.1 million and $5.7 million during fiscal 2009, 2008
and 2007, respectively.
Cash
and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents.
Marketable
Securities
The Company classifies its marketable securities as either
trading securities or
available-for-sale
as defined in Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities
(SFAS 115). These investments are recorded
at fair value and are classified as marketable securities in the
accompanying consolidated balance sheets as of April 30,
2009 and 2008. Certain investments, which the Company intends to
sell within the next twelve months, are carried as current.
Investments are made based on the Companys investment
policy which restricts the types of investments that can be made.
In accordance with SFAS 115 and considering the increase in
investment activity, on April 30, 2009, the Company
transferred certain securities previously classified as
available-for-sale
to trading. The securities were transferred at fair value on
April 30, 2009, which became the new cost basis of the
securities. Unrealized gains of $5.9 million at the date of
the transfer were reversed from accumulated other comprehensive
income and recognized in the statement of operations. The
transfer did not have an impact on the Companys financial
position.
Trading securities consist of the Companys investments,
which are held in trust to satisfy obligations under the
Companys deferred compensation plans (see Note 5).
The changes in fair values on trading securities are recorded as
a component of net (loss) income in interest and other (loss)
income.
Available-for-sale
securities consist of time deposits. The changes in fair values,
net of applicable taxes, on
available-for-sale
marketable securities are recorded as unrealized (losses) gains
as a component of accumulated other comprehensive (loss) income
in stockholders equity. When, in the opinion of
management, a decline in the fair value of an investment below
its cost or amortized cost is considered to be
other-than-temporary,
the investments cost or amortized cost is written-down to
its fair value and the amount written-down is recorded in the
statement of operations in interest and other (loss) income,
net. The determination of
other-than-temporary
decline includes, in addition to other relevant factors, a
presumption that if the market value is below cost by a
significant amount for a period of time, a write-down may be
necessary. The amount of any write-down is determined by the
difference between cost or amortized cost of the investment and
its fair value at the time the
other-than-temporary
decline is identified. During fiscal 2009, the Company recorded
a write-down of $15.9 million related to an
other-than-temporary
decline in fair value of marketable securities (see Note 5).
Property
and Equipment
Property and equipment is carried at cost, less accumulated
depreciation. Leasehold improvements are amortized on a
straight-line basis over the estimated useful life of the asset,
or the lease term, whichever is shorter. Software development
costs for internal use are capitalized in accordance with
Statement of Position
98-1,
Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use and, once placed in service,
amortized using the straight-line method over the estimated
useful life, generally three to seven years. All other property
and equipment is depreciated or amortized on a straight-line
basis over the estimated useful lives of three to ten years.
The Company reviews long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable.
F-10
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
and Intangible Assets
Goodwill represents the excess of the purchase price over the
fair value of assets acquired. Purchased intangible assets
primarily consist of customer lists, non-compete agreements,
proprietary databases, intellectual property and trademarks, and
are recorded at the estimated fair value at the date of
acquisition and are amortized using the straight-line method
over their estimated useful lives of five to 24 years.
In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS 142), the
Companys annual goodwill impairment test was performed as
of January 31, 2009. The goodwill impairment test compares
the fair value of a reporting unit with its carrying amount,
including goodwill. If the carrying amount of a reporting unit
exceeds its fair value, goodwill of the reporting unit would be
considered impaired. To measure the amount of the impairment
loss, the implied fair value of a reporting units goodwill
is compared to the carrying amount of that goodwill. The implied
fair value of goodwill shall be determined in the same manner as
the amount of goodwill recognized in a business combination. If
the carrying amount of a reporting units goodwill exceeds
the implied fair value of that goodwill, an impairment loss
shall be recognized in an amount equal to that excess. For each
of these tests, the fair value of each of the Companys
reporting units was determined using a combination of valuation
techniques, including a discounted cash flow methodology. These
impairment tests indicated that the fair value of each reporting
unit exceeded its carrying amount. As a result, no impairment
charge was recognized. There was also no indication of
impairment in the fourth quarter of fiscal 2009.
As of April 30 2009, there were no indicators of impairment with
respect to the Companys intangible assets.
Stock-Based
Compensation
The Company has employee compensation plans under which various
types of stock-based instruments are granted. These instruments,
principally include stock options, stock appreciation rights
(SARs), restricted stock and an Employee Stock
Purchase Plan (ESPP). The Company accounts for
stock-based instruments in accordance with
SFAS No. 123(R), Share-Based Payments
(SFAS 123(R)). In addition to recognizing
compensation expense related to restricted stock and SARs,
SFAS 123(R) also requires the Company to recognize
compensation expense related to the estimated fair value of
stock options and for purchases under the ESPP.
The following table summarizes the components of stock-based
compensation expense recognized in the Companys
consolidated statements of operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Stock options and SARs
|
|
$
|
210
|
|
|
$
|
1,806
|
|
|
$
|
4,974
|
|
Restricted stock
|
|
|
15,633
|
|
|
|
13,590
|
|
|
|
10,086
|
|
ESPP
|
|
|
458
|
|
|
|
553
|
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense, pre-tax
|
|
|
16,301
|
|
|
|
15,949
|
|
|
|
15,556
|
|
Tax benefit from stock-based compensation expense
|
|
|
(5,950
|
)
|
|
|
(5,821
|
)
|
|
|
(5,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense, net of tax
|
|
$
|
10,351
|
|
|
$
|
10,128
|
|
|
$
|
9,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company uses the Black-Scholes option valuation model to
estimate the grant date fair value of employee stock options.
The expected volatility reflects the consideration of the
historical volatility in the Companys publicly traded
instruments during the period the option is granted. The Company
believes historical volatility in these instruments is more
indicative of expected future volatility than the implied
volatility in the price of the Companys common stock. The
expected life of each option is estimated using historical data.
The risk-free interest rate is based on the U.S. Treasury
zero-coupon issue with a remaining term approximating the
expected term of the
F-11
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
option. The Company uses historical data to estimate forfeiture
rates applied to the gross amount of expense determined using
the option valuation model.
The weighted-average assumptions used to estimate the fair value
of each employee stock option and SARs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Expected volatility
|
|
|
44.11
|
%
|
|
|
44.42
|
%
|
|
|
48.05
|
%
|
Risk-free interest rate
|
|
|
3.27
|
%
|
|
|
4.60
|
%
|
|
|
4.95
|
%
|
Expected option life (in years)
|
|
|
4.25
|
|
|
|
4.00
|
|
|
|
4.00
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The Black-Scholes option pricing model was developed for use in
estimating the fair value of traded options. The assumptions
used in option valuation models are highly subjective,
particularly the expected stock price volatility of the
underlying stock.
Restructuring
Charges
The Company accounts for its restructuring charges in accordance
with SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities
(SFAS 146). Under SFAS 146, a
liability is recognized when the costs are incurred and are
recorded at fair value.
Translation
of Foreign Currencies
Generally, financial results of the Companys foreign
subsidiaries are measured in their local currencies. Assets and
liabilities are translated into U.S. dollars at year-end
exchange rates, while revenue and expenses are translated at
weighted-average exchange rates during the fiscal year.
Resulting translation adjustments are recorded as a component of
accumulated comprehensive (loss) income. Gains and losses from
foreign currency transactions of these subsidiaries and the
translation of the financial results of subsidiaries operating
in highly inflationary economies are included in general and
administrative expense in the period incurred. Foreign currency
losses, on an after tax basis, included in net (loss) income,
were $0.35 million, $0.56 million and
$0.15 million during fiscal 2009, 2008 and 2007,
respectively.
Income
Taxes
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes
(SFAS 109) as interpreted by Financial
Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109
(FIN 48), resulting in two components of
income tax expense: current and deferred. Current income tax
expense approximates taxes to be paid or refunded for the
current period. Deferred income tax expense results from changes
in deferred tax assets and liabilities between periods. These
gross deferred tax assets and liabilities represent decreases or
increases in taxes expected to be paid in the future because of
future reversals of temporary differences in the bases of assets
and liabilities as measured by tax laws and their bases as
reported in the financial statements. Deferred tax assets are
also recognized for tax attributes such as net operating loss
carryforwards and tax credit carryforwards. Valuation allowances
are then recorded to reduce deferred tax assets to the amounts
management concludes are more-likely-than-not to be realized.
Under FIN 48, income tax benefits are recognized and
measured based upon a two-step model: (1) a tax position
must be more-likely-than-not to be sustained based solely on its
technical merits in order to be recognized, and (2) the
benefit is measured as the largest dollar amount of that
position that is more-likely-than-not to be
F-12
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
sustained upon settlement. The difference between the benefit
recognized for a position in accordance with this FIN 48
model and the tax benefit claimed on a tax return is referred to
as an unrecognized tax benefit
Fair
Value of Financial Instruments
Effective May 1, 2008, the Company adopted SFAS 157,
Fair Value Measurements (SFAS 157) for
financial assets and liabilities, which defines fair value,
provides guidance for measuring fair value and requires certain
disclosures. SFAS 157 discusses valuation techniques, such
as the market approach (comparable market prices), the income
approach (present value of future income or cash flow) and the
cost approach (cost to replace the service capacity of an asset
or replacement cost). The statement establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value into three broad levels. The
following is a brief description of those three levels:
|
|
|
|
|
Level 1: Observable inputs such as quoted
prices (unadjusted) in active markets that are accessible at the
measurement date for identical, unrestricted assets or
liabilities.
|
|
|
|
Level 2: Inputs other than quoted prices
that are observable for the asset or liability, either directly
or indirectly. These include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or
similar assets or liabilities in markets that are not active.
|
|
|
|
Level 3: Unobservable inputs that reflect
the reporting entitys own assumptions.
|
As of April 30, 2009, the Company held certain assets that
are required to be measured at fair value on a recurring basis.
These included cash equivalents, marketable securities and a put
option. The carrying amount of cash, cash equivalents and
accounts receivable approximates fair value due to the short
maturity of these instruments. The fair values of marketable
securities, other than auction rate securities
(ARS), are obtained from quoted market prices. The
fair value of the ARS and put option are determined by the use
of pricing models (see Note 5).
Concentration
of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of receivables
due from clients and net cash surrender value due from insurance
companies, which is discussed below. Concentrations of credit
risk with respect to receivables are limited due to the
Companys large number of clients and their dispersion
across many different industries and countries worldwide. At
April 30, 2009 and 2008, the Company had no significant
credit concentrations.
Cash
Surrender Value of Life Insurance
The change in the cash surrender value (CSV) of
company owned life insurance (COLI) contracts, net
of insurance premiums paid and gains realized, is reported in
compensation and benefits expense. As of April 30, 2009 and
2008, the Company held gross CSV of these contracts of
$124.7 million and $142.1 million, offset by
outstanding policy loans of $61.6 million and
$60.7 million, respectively. If these insurance companies
were to become insolvent, the Company would be considered a
general creditor for $31.9 million of net cash surrender
value as of April 30, 2009, therefore these assets are
subject to risk. Management routinely monitors the credit
ratings of these insurance companies.
Accounting
Adjustment
In the fourth quarter of fiscal 2009, an adjustment was made to
correct compensation and benefits expenses that had been
recorded twice by the Company during the periods covering fiscal
2002 through fiscal 2009 for expenses relating to employee
contributions to flexible spending health benefit accounts. In
accordance with the Securities and Exchange Commission Staff
Accounting Bulletin No. 108, Considering the
Effects of Prior Year
F-13
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Misstatements when Quantifying Misstatements in Current Year
Financial Statements, the Company recorded a cumulative
accounting adjustment in the fourth quarter, the effect of which
resulted in a $3.7 million pre-tax decrease in compensation
and benefits expense, a $4.0 million increase in cash and
cash equivalents and a $0.3 million increase in accrued
compensation and benefits liability. These adjustments increased
operating profit by $3.7 million and decreased net loss by
$2.3 million, or $0.05 per basic and diluted share for the
three months and year ended April 30, 2009. The correction
of the error was not material to any individual prior period or
the current period and, accordingly, the prior period results
have not been adjusted.
Reclassifications
Certain prior year amounts have been reclassified to conform to
the current year presentation.
Recently
Adopted Accounting Standards
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106 and 132(R)
(SFAS 158). SFAS 158 retains the
previous measurement and disclosure requirements of prior
accounting guidance, but now requires the recognition of the
funded status of pension and other postretirement benefit plans
on the balance sheet (recognition provisions).
Furthermore, for fiscal years ending after December 15,
2008, SFAS 158 requires
fiscal-year-end
measurements of plan assets and benefit obligations, eliminating
the use of earlier measurement dates currently permissible. The
recognition provisions of SFAS 158 were effective for the
Company on April 30, 2007. Previously unrecognized
actuarial gains or losses, prior service cost and any remaining
unamortized transition obligation will be recognized on the
balance sheet with an offset to accumulated other comprehensive
(loss) income, net of any resulting deferred tax balances. The
Company adopted SFAS 158 on April 30, 2007. The
adoption did not have a material impact on its financial
position or results of operations.
The Company adopted FIN 48 as of May 1, 2007.
FIN 48 clarifies the accounting for income taxes by
prescribing a minimum threshold for benefit recognition of a tax
position for financial reporting purposes. FIN 48 also
establishes tax accounting rules for measurement,
classification, interest and penalties, disclosure and interim
period accounting. As a result of the adoption of FIN 48,
the Company recorded a cumulative effect adjustment which
reduced retained earnings by $3.5 million on May 1,
2007.
In September 2006, the EITF of the FASB ratified EITF Issue
No. 06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements
(EITF 06-4).
The scope of
EITF 06-4
is limited to the recognition of a liability and related
compensation costs for endorsement split-dollar life insurance
policies that provide a benefit to an employee that extends to
postretirement periods. Therefore,
EITF 06-4
would not apply to a split-dollar life insurance arrangement
that provides a specified benefit to an employee that is limited
to the employees active service period with an employer.
EITF 06-4
is effective for fiscal years beginning after December 15,
2007, with earlier adoption permitted. The Company adopted
EITF 06-4
effective May 1, 2008 and it did not have a material impact
on its financial position or results of operations.
In September 2006, the FASB issued SFAS 157, which defines
fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. The statement
emphasizes that fair value is a market-based measurement, not an
entity-specific measurement and establishes a fair value
hierarchy. This statement also clarifies how the assumptions of
risk and the effect of restrictions on sales or use of an asset
effect the valuation. SFAS 157 is effective for financial
statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal
years, however, the FASB staff has approved a one year deferral
for the implementation of SFAS 157 for other non-financial
assets and liabilities. The Company adopted this statement
effective May 1, 2008 and it did not have a material impact
on its financial position or results of operations.
F-14
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In February, 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS 159) including an
amendment of SFAS 115. This statement provides companies
with an option to report selected financial assets and
liabilities at fair value. This statement is effective for
fiscal years beginning after November 15, 2007 with early
adoption permitted. The Company adopted this statement effective
May 1, 2008 and it did not have a material impact on its
financial position or results of operations.
Recently
Issued Accounting Standards
In December 2007, the FASB issued SFAS No. 141
(Revised 2007), Business Combinations
(SFAS 141R). SFAS 141R expands the
definition of transactions and events that qualify as business
combinations; requires that the acquired assets and liabilities
including contingencies and any noncontrolling interests in the
acquiree, be recorded at the fair value determined on the
acquisition date and changes thereafter be reflected in
earnings, rather than goodwill; changes the recognition timing
for restructuring costs; and requires acquisition costs to be
expensed as incurred. SFAS 141R also includes a substantial
number of new disclosure requirements. Adoption of
SFAS 141R is required for combinations occurring in fiscal
years beginning on or after December 15, 2008, earlier
adoption is not permitted. The Company expects SFAS 141R
will have an impact on accounting for business combinations but
the effect is dependent upon acquisitions at that time. For
acquisitions completed prior to May 1, 2009, the new
standard requires that changes in deferred tax valuation
allowances and acquired income tax uncertainties after the
measurement period must be recognized in earnings rather than as
an adjustment to the cost of the acquisition. The impact of the
adoption of SFAS 141R on the Companys consolidated
financial position and results of operations will largely be
dependent on the size and nature of the business combinations
completed after the adoption of this statement.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51
(SFAS 160). SFAS 160 establishes new
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, this statement requires the
recognition of a noncontrolling interest (minority interest) as
equity in the consolidated financial statements and separate
from the parents equity. The amount of net income
attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement.
SFAS 160 clarifies that changes in a parents
ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions if the parent retains
its controlling financial interest. In addition, this statement
requires that a parent recognize a gain or loss in net income
when a subsidiary is deconsolidated. Such gain or loss will be
measured using the fair value of the noncontrolling equity
investment on the deconsolidation date. SFAS 160 also
includes expanded disclosure requirements regarding the
interests of the parent and its noncontrolling interest.
SFAS 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after
December 15, 2008, earlier adoption is not permitted. The
Company currently does not have significant minority interests
in its consolidated subsidiaries.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principle
(SFAS 162). SFAS 162 identifies the
sources of accounting principles and the framework, or
hierarchy, for selecting the accounting principles used in
preparing financial statements that are presented in conformity
with GAAP by nongovernmental entities. This statement is
effective 60 days following the SEC approval of the Public
Company Accounting Oversight Board (PCAOB)
amendments to AU Section 411, The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting
Principle (Section 411). As of the date of
this report, the SEC had not approved the PCAOB amendments to AU
Section 411. Adoption of SFAS 162 will not have a
material impact on the Companys consolidated financial
position, results of operations or cash flows.
|
|
2.
|
Basic and
Diluted (Loss) Earnings Per Share
|
Basic (loss) earnings per common share was computed by dividing
net (loss) earnings by the weighted-average number of common
shares outstanding. Diluted earnings per common share reflects
the potential dilution that
F-15
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
would occur if all
in-the-money
outstanding options or other contracts to issue common stock
were exercised or converted and was computed by dividing net
(loss) earnings attributable to common stockholders, after
assumed conversion of subordinated notes and preferred stock, by
the weighted-average number of common shares outstanding plus
dilutive common equivalent shares. Due to the loss attributable
to common stockholders during fiscal 2009, no potentially
dilutive shares are included in the loss per share calculation
as including such shares in the calculation would be
anti-dilutive. During the year ended April 30, 2008 and
2007, stock appreciation rights and option to purchase
0.59 million shares and 0.69 million shares,
respectively, were outstanding but not included in the
computation of diluted earnings per share because they were
anti-dilutive.
The following table summarizes basic and diluted (loss) earnings
per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Net (loss) earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(10,092
|
)
|
|
$
|
66,211
|
|
|
$
|
55,498
|
|
Interest expense on convertible securities, net of related tax
effects
|
|
|
|
|
|
|
145
|
|
|
|
2,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings attributable to common stockholders
|
|
$
|
(10,092
|
)
|
|
$
|
66,356
|
|
|
$
|
58,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average number of common shares outstanding
|
|
|
43,522
|
|
|
|
44,012
|
|
|
|
39,774
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible subordinated notes
|
|
|
|
|
|
|
|
|
|
|
4,083
|
|
Convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
1,016
|
|
Warrants
|
|
|
|
|
|
|
109
|
|
|
|
123
|
|
Restricted stock
|
|
|
|
|
|
|
319
|
|
|
|
274
|
|
Stock options
|
|
|
|
|
|
|
1,078
|
|
|
|
1,665
|
|
Employee stock purchase plan
|
|
|
|
|
|
|
10
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average number of common shares outstanding
|
|
|
43,522
|
|
|
|
45,528
|
|
|
|
46,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$
|
(0.23
|
)
|
|
$
|
1.50
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share
|
|
$
|
(0.23
|
)
|
|
$
|
1.46
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Comprehensive
(Loss) Income
|
Comprehensive (loss) income is comprised of net (loss) income
and all changes to stockholders equity, except those
changes resulting from investments by stockholders (changes in
paid in capital) and distributions to stockholders (dividends).
Total comprehensive (loss) income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net (loss) income
|
|
$
|
(10,092
|
)
|
|
$
|
66,211
|
|
|
$
|
55,498
|
|
Unrealized (loss) gain on marketable securities, net of taxes
|
|
|
(3,624
|
)
|
|
|
(1,890
|
)
|
|
|
1,626
|
|
Reclassification of unrealized losses (gains) on marketable
securities, net of taxes to other-than-temporary impairment and
upon the transfer of available-for-sale securities to trading
|
|
|
5,514
|
|
|
|
(1,626
|
)
|
|
|
(782
|
)
|
Foreign currency translation adjustments
|
|
|
(40,685
|
)
|
|
|
24,894
|
|
|
|
9,186
|
|
Defined benefit plans
|
|
|
1,983
|
|
|
|
1,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$
|
(46,904
|
)
|
|
$
|
88,703
|
|
|
$
|
65,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income were as
follows:
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Foreign currency translation adjustments
|
|
$
|
3,523
|
|
|
$
|
44,208
|
|
Unrealized losses on available-for-sale marketable securities,
net of taxes
|
|
|
|
|
|
|
(1,890
|
)
|
SFAS 158 adjustments, net of taxes
|
|
|
2,762
|
|
|
|
779
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
6,285
|
|
|
$
|
43,097
|
|
|
|
|
|
|
|
|
|
|
Stock
Option Plans
The Korn/Ferry International 2008 Stock Incentive Plan (the
2008 Plan) was adopted by the Companys
stockholders on September 23, 2008, at the Annual
Stockholder Meeting, and replaced the Companys former
stock incentive plan, the Performance Award Plan, which expired
on August 8, 2008. The Performance Award Plan provided for,
and the 2008 Plan provides for, the grant of awards to eligible
participants, designated as either nonqualified or incentive
stock options, SARs, restricted stock and restricted stock
units, any of which may be performance-based, and incentive
bonuses, which may be paid in cash or a combination thereof.
Options granted to officers, non-employee directors and other
key employees generally vest over a three to five year period
and generally expire seven to ten years from the date of grant.
Stock options are granted at a price equal to the fair market
value of the common stock on the date of grant. Key employees
are eligible to receive a grant of stock options annually with
the number of options determined by the employees
performance level. In addition, certain key management members
typically receive stock option grants upon commencement of
employment. The maximum number of shares of common stock
available for stock option issuance under the 2008 Plan is
1.62 million, subject to adjustment for certain changes in
the Companys capital structure and other extraordinary
events.
F-17
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock options and SARs transactions under the plans are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
|
(In thousands, except per share data)
|
|
|
Outstanding, beginning of year
|
|
|
3,564
|
|
|
$
|
14.79
|
|
|
|
4,738
|
|
|
$
|
14.52
|
|
|
|
6,742
|
|
|
$
|
13.42
|
|
Granted
|
|
|
6
|
|
|
$
|
14.54
|
|
|
|
6
|
|
|
$
|
21.11
|
|
|
|
113
|
|
|
$
|
21.09
|
|
Exercised
|
|
|
(127
|
)
|
|
$
|
8.91
|
|
|
|
(1,095
|
)
|
|
$
|
13.29
|
|
|
|
(1,945
|
)
|
|
$
|
10.88
|
|
Forfeited/expired
|
|
|
(330
|
)
|
|
$
|
16.61
|
|
|
|
(85
|
)
|
|
$
|
19.71
|
|
|
|
(172
|
)
|
|
$
|
16.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
3,113
|
|
|
$
|
14.83
|
|
|
|
3,564
|
|
|
$
|
14.79
|
|
|
|
4,738
|
|
|
$
|
14.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year
|
|
|
3,042
|
|
|
$
|
14.74
|
|
|
|
3,257
|
|
|
$
|
14.41
|
|
|
|
3,973
|
|
|
$
|
13.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2009, the aggregate intrinsic value of
options outstanding and options exercisable were both
$3.3 million.
Included in the table above are 59 SARs outstanding and
exercisable as of April 30, 2009 with a weighted-average
exercise price of $12.26. As of April 30, 2009, there was
$0.2 million of total unrecognized compensation cost
related to non-vested awards of stock options and SARs. That
cost is expected to be recognized over a weighted-average period
of 1.3 years. For stock option awards subject to graded
vesting, the Company recognizes the total compensation cost on a
straight-line basis over the service period for the entire award.
Outstanding stock options and SARs are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2009
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted-
|
|
|
|
|
|
Remaining
|
|
|
Weighted-
|
|
|
|
|
|
|
Contractual
|
|
|
Average
|
|
|
|
|
|
Contractual
|
|
|
Average
|
|
|
|
|
|
|
Life
|
|
|
Exercise
|
|
|
|
|
|
Life
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
Shares
|
|
|
(In years)
|
|
|
Price
|
|
|
Shares
|
|
|
(In Years)
|
|
|
Price
|
|
|
|
(In thousands, except per share data)
|
|
|
$ 6.28 - $ 8.08
|
|
|
538
|
|
|
|
2.9
|
|
|
$
|
7.40
|
|
|
|
538
|
|
|
|
2.9
|
|
|
$
|
7.40
|
|
$ 8.09 - $15.50
|
|
|
866
|
|
|
|
3.8
|
|
|
$
|
9.71
|
|
|
|
863
|
|
|
|
3.8
|
|
|
$
|
9.70
|
|
$15.51 - $19.25
|
|
|
815
|
|
|
|
5.1
|
|
|
$
|
17.63
|
|
|
|
766
|
|
|
|
5.0
|
|
|
$
|
17.55
|
|
$19.26 - $36.19
|
|
|
894
|
|
|
|
3.5
|
|
|
$
|
21.73
|
|
|
|
875
|
|
|
|
3.4
|
|
|
$
|
21.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,113
|
|
|
|
3.9
|
|
|
$
|
14.83
|
|
|
|
3,042
|
|
|
|
3.8
|
|
|
$
|
14.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information pertaining to stock options and SARs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Weighted-average fair value of stock options granted
|
|
$
|
5.77
|
|
|
$
|
8.54
|
|
|
$
|
9.12
|
|
Total fair value of stock options and SARs vested
|
|
|
1,986
|
|
|
|
4,103
|
|
|
|
10,245
|
|
Total intrinsic value of stock options exercised
|
|
|
640
|
|
|
|
12,552
|
|
|
|
20,422
|
|
Total intrinsic value of SARs paid
|
|
|
|
|
|
|
|
|
|
|
319
|
|
F-18
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Stock Plan
The Company grants restricted stock to executive officers and
other senior employees generally vesting over a three to four
year period. Restricted stock is granted at a price equal to the
fair market value of the Companys common stock on the date
of grant. Employees may receive restricted stock annually in
conjunction with the Companys performance review as well
as upon commencement of employment. The fair value of restricted
stock is determined based on the closing price of the
Companys common stock on the date of grant.
Restricted stock activity is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(In thousands, except per share data)
|
|
|
Non-vested, beginning of year
|
|
|
1,952
|
|
|
$
|
22.01
|
|
|
|
1,356
|
|
|
$
|
19.26
|
|
|
|
687
|
|
|
$
|
16.63
|
|
Granted
|
|
|
1,288
|
|
|
$
|
17.57
|
|
|
|
1,216
|
|
|
$
|
24.16
|
|
|
|
1,187
|
|
|
$
|
19.64
|
|
Vested
|
|
|
(602
|
)
|
|
$
|
21.25
|
|
|
|
(506
|
)
|
|
$
|
19.88
|
|
|
|
(444
|
)
|
|
$
|
16.35
|
|
Forfeited/expired
|
|
|
(251
|
)
|
|
$
|
19.67
|
|
|
|
(114
|
)
|
|
$
|
22.49
|
|
|
|
(74
|
)
|
|
$
|
18.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested, end of year
|
|
|
2,387
|
|
|
$
|
15.50
|
|
|
|
1,952
|
|
|
$
|
22.01
|
|
|
|
1,356
|
|
|
$
|
19.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2009, there was $33.4 million of total
unrecognized compensation cost related to non-vested awards of
restricted stock, which is expected to be recognized over a
weighted-average period of 2.5 years. For restricted stock
awards subject to graded vesting, the Company recognizes the
total compensation cost on a straight-line basis over the
service period for the entire award.
Employee
Stock Purchase Plan
In October 2003, the Company implemented an ESPP that, in
accordance with Section 423 of the Internal Revenue Code,
allows eligible employees to authorize payroll deductions of up
to 15% of their salary to purchase shares of the Companys
common stock at 85% of the fair market price of the common stock
on the last day of the enrollment period. The maximum number of
shares of common stock reserved for ESPP issuance is
1.5 million shares, subject to adjustment for certain
changes in the Companys capital structure and other
extraordinary events. During fiscal 2009, 2008, and 2007,
employees purchased 0.2 million shares at $11.78 per share,
0.15 million shares at $19.06 per share, and
0.14 million shares at $17.81 per share, respectively. At
April 30, 2009, the ESPP had approximately 0.6 million
shares available for future issuance.
F-19
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of April 30, 2009 marketable securities consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2009
|
|
|
|
|
|
|
Available-for-
|
|
|
|
|
|
|
Trading
|
|
|
Sale(1)
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Auction rate securities
|
|
$
|
11,329
|
|
|
$
|
|
|
|
$
|
11,329
|
|
Auction rate securities put option
|
|
|
1,096
|
|
|
|
|
|
|
|
1,096
|
|
Equity securities(2)
|
|
|
23,816
|
|
|
|
|
|
|
|
23,816
|
|
Fixed income mutual fund(2)
|
|
|
14,320
|
|
|
|
|
|
|
|
14,320
|
|
Non-current money market(2)
|
|
|
22,692
|
|
|
|
|
|
|
|
22,692
|
|
Time deposits
|
|
|
|
|
|
|
2,002
|
|
|
|
2,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
73,253
|
|
|
|
2,002
|
|
|
|
75,255
|
|
Less: current portion of marketable securities
|
|
|
(2,261
|
)
|
|
|
(2,002
|
)
|
|
|
(4,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term marketable securities
|
|
$
|
70,992
|
|
|
$
|
|
|
|
$
|
70,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Due to the short maturities for these instruments fair value
approximates amortized cost. |
|
(2) |
|
These investments are held in trust for settlement of the
Companys obligations under certain of its deferred
compensation plans with $2.3 million classified as current
assets (see Note 8). |
As of April 30, 2008, marketable securities were classified
as available-for-sale and amortized cost and fair values of
available-for-sale investments were are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2008
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses(2)
|
|
|
Fair Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Auction rate securities
|
|
$
|
21,450
|
|
|
$
|
|
|
|
$
|
(975
|
)
|
|
$
|
20,475
|
|
|
|
|
|
Equity securities(1)
|
|
|
39,469
|
|
|
|
529
|
|
|
|
(2,459
|
)
|
|
|
37,539
|
|
|
|
|
|
Fixed income mutual fund(1)
|
|
|
11,993
|
|
|
|
337
|
|
|
|
|
|
|
|
12,330
|
|
|
|
|
|
Non-current money market(1)
|
|
|
13,622
|
|
|
|
|
|
|
|
|
|
|
|
13,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
86,534
|
|
|
$
|
866
|
|
|
$
|
(3,434
|
)
|
|
$
|
83,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These investments are held in trust for settlement of the
Companys obligations under certain of its deferred
compensation plans with $5.9 million classified as current
assets (see Note 8). |
|
(2) |
|
The Companys gross unrealized losses of $3.4 million
related to its ARS and equity securities as of April 30,
2008 had been in a loss position for less than twelve months. |
Investments in marketable securities are made based on the
Companys investment policy which restricts the types of
investments that can be made. The Companys investments
associated with cash equivalents and marketable securities
consist of money market funds, United States government and
government agency bonds and equity securities for which market
prices are readily available. Our investments in marketable
securities also include student loan portfolios (auction
rate securities), which are classified as noncurrent
marketable securities and reflected at fair value.
As of April 30, 2009 and 2008, the Companys
marketable securities included $60.8 million (net of
unrealized losses of $10.0 million) and $63.5 million
(net of unrealized losses of $1.6 million) respectively,
held in trust for
F-20
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
settlement of the Companys obligations under certain of
its deferred compensation plans, of which $58.5 million and
$57.6 million are classified as noncurrent. The
Companys obligations for which these assets were held in
trust totaled $60.7 million and $62.9 million as of
April 30, 2009 and 2008, respectively. During fiscal 2009,
based on a review of the Companys available-for-sale
securities, the Company determined that the unrealized losses
were other-than-temporary as a result of the severity and
duration of the change in fair value of these securities.
Therefore, during the year ended April 30, 2009, the
Company recorded an other-than-temporary impairment charge of
$15.9 million in the accompanying statement of operations
in interest and other (loss) income, net. As of April 30,
2009, these securities are now classified as trading (see
Note 1).
As of April 30, 2009, $12.4 million par value (with a
fair value of $11.3 million) of the Companys
marketable securities consisted of auction rate securities, of
which all were securities collateralized by student loan
portfolios, which are guaranteed by the United States
government. The Company continues to earn interest on all of its
auction rate securities as of April 30, 2009. Due to events
in credit markets, the auction rate securities held by the
Company have experienced failed auctions during calendar year
2008 and in 2009. As such, quoted prices in active markets are
not readily available at this time. A third-party investment
institution provided an estimate of the fair value of the
auction rate securities held by the Company as of April 30,
2009 and 2008. Therefore, in order to validate the fair value
estimate of these securities for reporting, the Company
considered the institutions pricing model which included
factors such as tax status, credit quality, duration, insurance
wraps, portfolio composition, assumptions about future cash
flows and likelihood of redemption. The Company concluded that
the pricing model, given the lack of market available pricing,
provided a reasonable basis for determining fair value of the
auction rate securities as of April 30, 2009 and 2008.
In August 2008, the Company received notification from one of
its investment securities firms (Investment Firm)
announcing a proposed settlement to repurchase all of the
Companys auction rate security holdings at par value. The
Company formally accepted the settlement agreement and entered
into a repurchase agreement (Agreement) with the
Investment Firm on October 28, 2008 (Acceptance
Date). By accepting the Agreement, the Company
(1) received the right (Put Option) to sell its
auction rate securities at par value to the Investment Firm
between June 30, 2010 and July 2, 2012 and
(2) gave the Investment Firm the right to purchase the
auction rate securities from the Company any time after the
Acceptance Date as long as the Company receives the par value.
The Agreement covers $12.4 million par value (fair value of
$11.3 million) of the Companys auction rate
securities as of April 30, 2009. The Company has accounted
for the Put Option as a freestanding financial instrument and
elected to record the value under the fair value option of
SFAS 159. This resulted in the recording of a receivable
with a corresponding credit to income for the value of the Put
Option. Simultaneously, the Company made an election pursuant to
SFAS 115 to transfer these auction rate securities from
available-for-sale to trading securities. The transfer resulted
in the reversal of prior unrealized losses, net of taxes, on the
auction rate securities from accumulated other comprehensive
(loss) income and the recognition of the unrealized losses as a
charge to income of $1.6 million in the six months ended
October 31, 2008. During the year ended April 30,
2009, the Company recognized realized gains on its trading
securities of $0.5 million offset by the fair value loss
adjustment to the Put Option.
F-21
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table represents the Companys fair value
hierarchy for financial assets measured at fair value on a
recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2009
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Cash equivalents
|
|
$
|
165,590
|
|
|
$
|
165,590
|
|
|
$
|
|
|
|
$
|
|
|
Auction rate securities
|
|
|
11,329
|
|
|
|
|
|
|
|
|
|
|
|
11,329
|
|
Auction rate securities put option
|
|
|
1,096
|
|
|
|
|
|
|
|
|
|
|
|
1,096
|
|
Equity securities
|
|
|
23,816
|
|
|
|
23,816
|
|
|
|
|
|
|
|
|
|
Fixed income mutual fund
|
|
|
14,320
|
|
|
|
14,320
|
|
|
|
|
|
|
|
|
|
Noncurrent money market mutual funds
|
|
|
22,692
|
|
|
|
22,692
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
2,002
|
|
|
|
2,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
240,845
|
|
|
$
|
228,420
|
|
|
$
|
|
|
|
$
|
12,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys assets measured
at fair value on a recurring basis using significant
unobservable inputs (Level 3) as defined in
SFAS 157 during fiscal 2009:
|
|
|
|
|
|
|
Auction Rate
|
|
|
|
Securities
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
20,475
|
|
Auction rate securities put option
|
|
|
1,096
|
|
Reversal of unrealized loss associated with transfer of
securities to trading
|
|
|
780
|
|
Unrealized gain (loss) included income
|
|
|
(1,096
|
)
|
Unrealized loss included in accumulated other comprehensive
(loss) income
|
|
|
(586
|
)
|
Sale of securities
|
|
|
(9,025
|
)
|
Reversal of unrealized loss associated with sales of securities
at par
|
|
|
781
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
12,425
|
|
|
|
|
|
|
Due to deteriorating economic conditions encountered in the
third quarter of fiscal 2009, the Company implemented a
restructuring plan to reduce its cost structure by reducing the
work force and consolidating premises. In the fourth quarter of
fiscal 2009, the global economic and financial crisis persisted,
which led to a further deterioration of the labor markets, and
the Companys fee revenue further declined. To align its
cost structure with the new environment the Company implemented
a second restructuring plan in the fourth quarter. These
initiatives resulted in a reduction in workforce by
approximately 800 employees and a total charge of
$41.9 million against operations during fiscal 2009 of
which $26.9 million and $15.0 million related to
severance costs and the consolidation of premises, respectively.
As of April 30, 2009, $15.7 million of the
restructuring charge relating to severance was paid in cash.
F-22
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Changes in the restructuring liability are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Facilities
|
|
|
Total
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Liability as of May 1, 2007
|
|
$
|
60
|
|
|
$
|
2,963
|
|
|
$
|
3,023
|
|
Reductions for cash payments
|
|
|
(60
|
)
|
|
|
(699
|
)
|
|
|
(759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability as of April 30, 2008
|
|
|
|
|
|
|
2,264
|
|
|
|
2,264
|
|
Additions charged to expense
|
|
|
26,857
|
|
|
|
15,058
|
|
|
|
41,915
|
|
Non-cash items
|
|
|
(678
|
)
|
|
|
(2,921
|
)
|
|
|
(3,599
|
)
|
Reductions for cash payments
|
|
|
(15,668
|
)
|
|
|
(1,692
|
)
|
|
|
(17,360
|
)
|
Exchange rate fluctuations
|
|
|
43
|
|
|
|
98
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability as of April 30, 2009
|
|
$
|
10,554
|
|
|
$
|
12,807
|
|
|
$
|
23,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accrued liability is included in current portion of other
accrued liabilities on the consolidated balance sheet, except
for $5.4 million of facilities costs which primarily relate
to commitments under operating leases, net of sublease
income, which are included in other long-term liabilities, and
will be paid over the next eight years.
Restructuring liability by segment is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2009
|
|
|
|
Severance
|
|
|
Facilities
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Executive Recruitment
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
3,052
|
|
|
$
|
3,187
|
|
|
$
|
6,239
|
|
Europe, Middle East and Africa (EMEA)
|
|
|
4,714
|
|
|
|
2,514
|
|
|
|
7,228
|
|
Asia Pacific
|
|
|
48
|
|
|
|
1,243
|
|
|
|
1,291
|
|
South America
|
|
|
787
|
|
|
|
334
|
|
|
|
1,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Executive Recruitment
|
|
|
8,601
|
|
|
|
7,278
|
|
|
|
15,879
|
|
Futurestep
|
|
|
1,953
|
|
|
|
5,529
|
|
|
|
7,482
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability as of April 30, 2009
|
|
$
|
10,554
|
|
|
$
|
12,807
|
|
|
$
|
23,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2008
|
|
|
|
Severance
|
|
|
Facilities
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Executive Recruitment
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
|
|
|
$
|
768
|
|
|
$
|
768
|
|
EMEA
|
|
|
|
|
|
|
489
|
|
|
|
489
|
|
Asia Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Executive Recruitment
|
|
|
|
|
|
|
1,257
|
|
|
|
1,257
|
|
Futurestep
|
|
|
|
|
|
|
1,007
|
|
|
|
1,007
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability as of April 30, 2009
|
|
$
|
|
|
|
$
|
2,264
|
|
|
$
|
2,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
Employee
Tax Deferred Savings Plan
|
The Company has an Employee Tax Deferred Savings Plan that
covers eligible employees in the U.S. The discretionary
accrued contribution to this plan was $1.5 million and
$1.2 million during fiscal 2008 and 2007, respectively. As
of April 30, 2009 there was no accrued contribution to the
plan.
|
|
8.
|
Deferred
Compensation and Retirement Plans
|
The Company has several deferred compensation and retirements
plans for vice-presidents that provide defined benefits to
participants based on the deferral of current compensation
subject to vesting and retirement or termination provisions. The
total long-term benefit liability for these plans were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Deferred compensation plans
|
|
$
|
48,367
|
|
|
$
|
51,465
|
|
Pension plans
|
|
|
2,974
|
|
|
|
2,986
|
|
Retirement plans
|
|
|
2,854
|
|
|
|
3,701
|
|
ECAP
|
|
|
45,043
|
|
|
|
47,567
|
|
|
|
|
|
|
|
|
|
|
Total long-term benefit obligation
|
|
$
|
99,238
|
|
|
$
|
105,719
|
|
|
|
|
|
|
|
|
|
|
Deferred
Compensation Plans
The Enhanced Wealth Accumulation Plan (EWAP) was
established in fiscal 1994. Certain vice presidents elected to
participate in a deferral unit that required the
participant to contribute a portion of their compensation for an
eight year period, or in some cases, make an after tax
contribution, in return for defined benefit payments from the
Company over a fifteen year period generally at retirement age
of 65 or later. Participants were able to acquire additional
deferral units every five years. The EWAP replaced
the Wealth Accumulation Plan (WAP) in fiscal 1994
and vice presidents who did not choose to roll over their WAP
units into the EWAP continue to be covered under the earlier
version in which participants generally vest and commence
receipt of benefit payments at retirement age of 65. In June
2003, the Company amended the EWAP and WAP plans, so as not to
allow new participants or the purchase of additional deferral
units by existing participants.
The Company also maintains a Senior Executive Incentive Plan
(SEIP) for participants approved by the Board.
Generally, to be eligible, the vice president must be
participating in the EWAP. Participation in the SEIP required
the participant to contribute a portion of their compensation
during a four-year period, or in some cases make an after tax
contribution, in return for a defined benefit paid by the
Company generally over a fifteen year period after ten years of
participation in the plan or such later date as elected by the
participant. In June 2003, the Company amended the SEIP plan, so
as not to allow new participants or the purchase of additional
deferral units by existing participants.
Pension
Plan
The Company has a defined benefit pension plan, referred to as
the Worldwide Executive Benefit Plan (WEB), covering
certain executives in the United States and foreign countries.
The WEB is designed to integrate with government sponsored and
local benefits and provide a monthly benefit to vice presidents
upon retirement from the Company. Each year a plan participant
accrued and was fully vested in one-twentieth of the targeted
benefits expressed as a percentage set by the Company for that
year. Upon retirement, a participant receives a monthly benefit
payment equal to the sum of the percentages accrued over such
participants term of employment, up to a maximum of
20 years, multiplied by the participants highest
average monthly salary during the
F-24
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
36 consecutive months in the final 72 months of active
full-time employment through June 2003. In June 2003, the
Company froze the WEB, so as to not allow new participants,
future accruals and future salary increases.
Accounting
for Deferred Compensation and Pension Plans
For financial accounting purposes, the Company estimates the
present value of the future benefits payable under these plans
as of the estimated payment commencement date. The Company also
estimates the remaining number of years a participant will be
employed by the Company. Then, each year during the period of
estimated employment, the Company accrues a liability and
recognizes expense for a portion of the future benefit using the
benefit/years of service attribution method for
SEIP, WAP and EWAP and the projected unit credit
method for the WEB.
In calculating the accrual for future benefit payments,
management has made assumptions regarding employee turnover,
participant vesting, violation of non-competition provisions and
the discount rate. Management periodically reevaluates all
assumptions. If assumptions change in future reporting periods,
the changes may impact the measurement and recognition of
benefit liabilities and related compensation expense.
The Company adopted SFAS 158 on April 30, 2007 which
resulted in an increase in deferred compensation and pension
plan liabilities of $0.71 million, a decrease in
accumulated other comprehensive income of $0.34 million and
a net increase of $0.38 million in deferred taxes.
During the year ended April 30, 2009, the Company recorded
a decrease in deferred compensation and pension plan liabilities
of $3.4 million, an increase in accumulated other
comprehensive income of $2.0 million and a net decrease of
$1.4 million in deferred taxes.
Deferred
Compensation Plan
The following tables reconcile the benefit obligation for the
deferred compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
54,749
|
|
|
$
|
54,873
|
|
|
$
|
50,031
|
|
Service cost
|
|
|
696
|
|
|
|
1,067
|
|
|
|
1,210
|
|
Interest cost
|
|
|
3,432
|
|
|
|
3,140
|
|
|
|
3,030
|
|
Plan participants contributions with interest
|
|
|
367
|
|
|
|
561
|
|
|
|
798
|
|
Actuarial (gain) loss
|
|
|
(3,263
|
)
|
|
|
(1,560
|
)
|
|
|
3,199
|
|
Benefits paid
|
|
|
(3,832
|
)
|
|
|
(3,332
|
)
|
|
|
(3,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
|
52,149
|
|
|
|
54,749
|
|
|
|
54,873
|
|
Less: current portion of benefit obligation
|
|
|
(3,782
|
)
|
|
|
(3,284
|
)
|
|
|
(3,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term benefit obligation
|
|
$
|
48,367
|
|
|
$
|
51,465
|
|
|
$
|
51,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of net periodic benefits costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
696
|
|
|
$
|
1,067
|
|
|
$
|
1,210
|
|
Interest cost
|
|
|
3,432
|
|
|
|
3,140
|
|
|
|
3,030
|
|
Amortization of net transition obligation
|
|
|
212
|
|
|
|
212
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
4,340
|
|
|
$
|
4,419
|
|
|
$
|
4,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average assumptions used in calculating the benefit
obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Discount rate, beginning of year
|
|
|
6.50
|
%
|
|
|
5.90
|
%
|
|
|
6.25
|
%
|
Discount rate, end of year
|
|
|
7.10
|
%
|
|
|
6.50
|
%
|
|
|
5.90
|
%
|
Rate of compensation increase
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Pension
Plan
The following tables reconcile the benefit obligation for the
pension plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
3,119
|
|
|
$
|
3,300
|
|
|
$
|
3,098
|
|
Interest cost
|
|
|
196
|
|
|
|
188
|
|
|
|
188
|
|
Actuarial (gain) loss
|
|
|
(4
|
)
|
|
|
(152
|
)
|
|
|
136
|
|
Benefits paid
|
|
|
(186
|
)
|
|
|
(217
|
)
|
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
|
3,125
|
|
|
|
3,119
|
|
|
|
3,300
|
|
Less: current portion of benefit obligation
|
|
|
(151
|
)
|
|
|
(133
|
)
|
|
|
(140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term benefit obligation
|
|
$
|
2,974
|
|
|
$
|
2,986
|
|
|
$
|
3,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net periodic benefits costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Interest cost
|
|
$
|
196
|
|
|
$
|
188
|
|
|
$
|
188
|
|
Amortization of actuarial gain
|
|
|
(84
|
)
|
|
|
(71
|
)
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
112
|
|
|
$
|
117
|
|
|
$
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average assumptions used in calculating the benefit
obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Discount rate, beginning of year
|
|
|
6.50
|
%
|
|
|
5.90
|
%
|
|
|
6.25
|
%
|
Discount rate, end of year
|
|
|
7.10
|
%
|
|
|
6.50
|
%
|
|
|
5.90
|
%
|
Rate of compensation increase
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
F-26
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid over the next
ten years as follows:
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
Compensation
|
|
|
Pension
|
|
Year Ending April 30,
|
|
Plans
|
|
|
Benefits
|
|
|
|
(In thousands)
|
|
|
2010
|
|
$
|
4,026
|
|
|
$
|
216
|
|
2011
|
|
|
4,511
|
|
|
|
246
|
|
2012
|
|
|
4,514
|
|
|
|
256
|
|
2013
|
|
|
4,657
|
|
|
|
265
|
|
2014
|
|
|
4,869
|
|
|
|
282
|
|
2015-2019
|
|
|
23,613
|
|
|
|
1,310
|
|
International
Retirement Plans
The Company also maintains various retirement plans statutorily
required in five foreign jurisdictions. The aggregate of the
long-term benefit obligation accrued at April 30, 2009 and
2008 is $2.9 million for 108 participants and
$3.7 million for 101 participants, respectively. The
Companys contribution to these plans was $0.7 million
and $0.84 million in fiscal 2009 and 2008, respectively.
Executive
Capital Accumulation Plan (ECAP)
In January 2004, the Company implemented the ECAP, which is
intended to provide certain employees an opportunity to defer
salary
and/or bonus
on a pre-tax basis, or make an after-tax contribution. Company
contributions into this plan are discretionary and are granted
to key employees annually based on the employees
performance. In addition, certain key management may receive
Company ECAP contributions upon commencement of employment.
Participants generally vest in Company contributions over a
three to four year period. Participants have the ability to
allocate their deferrals among a number of investment options
and may receive their benefits at termination, retirement or
in service either in a lump sum or in quarterly
installments over five, ten or fifteen years. The Company
operates two similar plans in the Companys Asia Pacific
and Canadian regions.
The Company made contributions to the ECAP during fiscal 2009,
2008 and 2007, of $15.1 million, $18.4 million and
$7.7 million, respectively. The Company expects to make an
ECAP contribution of approximately $10.0 million in fiscal
year 2010. In addition, the Company may make additional ECAP
contributions in fiscal 2010 if key employees are hired.
The ECAP is accounted for in accordance with
EITF 97-14,
Accounting for Deferred Compensation Arrangements Where
Amounts Earned Are Held in a Rabbi Trust and Invested
(EITF 97-14),
whereby the changes in the fair value of the vested amounts owed
to the participants are adjusted with a corresponding charge (or
credit) to compensation and benefits costs. The reduction in the
deferred compensation liability recognized in income during
fiscal 2009 was $9.5 million. In fiscal 2008 and 2007,
deferred compensation liability increased, therefore the Company
recognized a loss of $0.3 million and $3.3 million,
respectively.
F-27
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Changes in the ECAP liability are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
48,655
|
|
|
$
|
33,732
|
|
Employee contributions
|
|
|
5,071
|
|
|
|
6,985
|
|
Amortization of employer contributions
|
|
|
6,692
|
|
|
|
8,935
|
|
(Loss) gain on investment
|
|
|
(10,468
|
)
|
|
|
115
|
|
Employee distributions
|
|
|
(4,929
|
)
|
|
|
(1,112
|
)
|
Exchange rate translations
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
45,102
|
|
|
|
48,655
|
|
Current portion
|
|
|
(59
|
)
|
|
|
(1,088
|
)
|
|
|
|
|
|
|
|
|
|
Long-term portion, end of year
|
|
$
|
45,043
|
|
|
$
|
47,567
|
|
|
|
|
|
|
|
|
|
|
Company
Owned Life Insurance (COLI)
The Company purchased COLI contracts insuring employees eligible
to participate in the deferred compensation and pension plans.
The gross CSV of these contracts of $124.7 million and
$142.1 million is offset by outstanding policy loans of
$61.6 million and $60.7 million in the accompanying
consolidated balance sheets as of April 30, 2009 and 2008,
respectively. Total death benefits payable, net of loans under
COLI contracts, were $197.7 million and $227.0 million
at April 30, 2009 and 2008, respectively. Management
intends to use the future death benefits from these insurance
contracts to fund the deferred compensation and pension
arrangements; however, there may not be a direct correlation
between the timing of the future cash receipts and disbursements
under these arrangements. In addition, certain policies are held
in trusts to provide additional benefit security for the
deferred compensation and pension plans, excluding the WEB. As
of April 30, 2009, COLI contracts with a net cash surrender
value of $48.7 million and death benefits payable, net of
loans, of $111.5 million were held in trust for these
purposes.
The provision for income taxes is based on reported income
before income taxes. Deferred income tax assets and liabilities
reflect the impact of temporary differences between the amounts
of assets and liabilities recognized for financial reporting
purposes and the amounts recognized for tax purposes, as
measured by applying the currently enacted tax laws.
F-28
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The (benefit) provision for domestic and foreign income taxes
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Current income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
3,378
|
|
|
$
|
14,788
|
|
|
$
|
18,353
|
|
State
|
|
|
601
|
|
|
|
5,658
|
|
|
|
6,543
|
|
Foreign
|
|
|
4,859
|
|
|
|
21,627
|
|
|
|
14,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current provision for income taxes
|
|
|
8,838
|
|
|
|
42,073
|
|
|
|
39,765
|
|
Deferred income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(4,459
|
)
|
|
|
(1,699
|
)
|
|
|
(5,525
|
)
|
State
|
|
|
(1,002
|
)
|
|
|
(1,805
|
)
|
|
|
(1,543
|
)
|
Foreign
|
|
|
(2,993
|
)
|
|
|
(2,488
|
)
|
|
|
(2,533
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred (benefit) provision for income taxes
|
|
|
(8,454
|
)
|
|
|
(5,992
|
)
|
|
|
(9,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
384
|
|
|
$
|
36,081
|
|
|
$
|
30,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The domestic and foreign components of income from continuing
operations before domestic and foreign income and other taxes
and equity in earnings of unconsolidated subsidiaries were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|