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,
2010
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OR
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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
(Do not check if a smaller reporting company)
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Smaller Reporting company o
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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 25, 2010 was 45,449,300 shares. The aggregate
market value of the registrants voting and non-voting
common stock held by non-affiliates of the registrant on
October 31, 2009, 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 $913,851,007 based upon the closing market price
of $15.96 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 2010 Annual Meeting of Stockholders scheduled to be held on
September 14, 2010 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, 2010
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 76 offices in
36 countries. As of April 30, 2010, we had approximately
2,200 full-time employees, including 473 executive
recruitment and 154 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 74% of our executive recruitment assignments
performed during fiscal 2010 being 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): 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: In 1998, we
extended our market reach into middle management with the
introduction of Futurestep, our outsourced and mid-level
recruiting subsidiary. Futurestep draws from
Korn/Ferrys
four decades 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 consulting services, project-based
recruitment and mid-level recruitment.
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) or 15(d) 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.
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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
recruitment 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 LTC services are driving our
transformation into a broad-based talent management firm. These
diversified solutions help our clients not only attract but
develop, retain and sustain 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,
Futurestep today has locations on four continents and a record
of success in helping clients achieve business impact through
effective talent operations.
Industry
Trends
The challenging macroeconomic environment continued to impede
business throughout the world in fiscal 2010, including the
talent management industry. However, we believe the long-term
business prospects for the talent management industry are strong
due to a confluence of factors that will continue to fuel job
growth and hiring. The main trends affecting our industry are as
follows:
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. The
number of retirees has more than doubled over the last decade.
Moreover, the supply of available qualified candidates is
limited, making it more difficult for employers to secure
executives. We believe this trend will have a positive impact on
our business over the long-term as employers will 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 strengthing their talent pool 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 geographies. 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. 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 More companies are focusing on core
competencies and outsourcing non-core, back-office functions to
providers who can provide efficient, high-quality services.
Third-
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party providers can apply immediate and long-term approaches for
improving all aspects of talent acquisition. Advantages to
outsourcing part or all of the recruitment function include:
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Access to a diverse and highly qualified pool of candidates on
an as-needed basis;
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Reduction or elimination of the costs required to maintain and
train an in-house recruiting department in a rapidly changing
industry;
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Access to the most updated industry and geographic market
information;
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Access to cutting-edge search technology software; and
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Ability to 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
recent securities legislation;
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Decreasing executive management tenure and more frequent job
changes;
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Inadequate succession planning; and
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Increasing impact of Internet-enabled social media on the role
of HR and the recruitment process.
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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 average number of consultants 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 strategic goals. Our non-executive
recruitment business generated 26% of our overall fee revenue in
fiscal 2010.
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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 robust technology infrastructure and a web-based
executive recruitment platform,
e-Korn/Ferry.
In fiscal 2010, we continued to invest in enhanced tools and
information sharing to gain a competitive advantage. We
introduced key enhancements to Searcher Express, our
state-of-the-art
engagement execution platform and the cornerstone of the
Companys strategy to better share knowledge, access data
and improve the search process. A new client relationship
management feature provides a global relationship view of
clients and prospective clients for improved coordination of
business development activities. We also incorporated reporting
tools in Searcher Express to recognize engagement
teams contributions to the depth and quality of our data.
Important enhancements were introduced in the Client
Advantage Talent Dashboard, a private web portal that
actively engages in the work we perform on their behalf. We
continue to expand and consolidate our worldwide technology
infrastructure with the integration of the Whitehead Mann and
Lore acquisitions into our database and communication platforms.
Looking forward, we are beginning to explore technology-enabled
extensions of our brand. Executives can now track
e-Korn/Ferry
opportunities via Twitter, and apply for opportunities and
contact Korn/Ferry consultants via our iPhone application,
K/F Connect.
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 2010 saw several major system
enhancements, including an improved registration completing
process on the candidate web site, a new private database
partition and customized recruitment web site for a major RPO
client, and introduction of the Futurestep-branded Talent
Dash board for 24/7 client access.
We also upgraded LTC technologies with the further integration
of Lominger intellectual property into our management assessment
and talent management platforms. Usage of Search
Assessment, a technology-based assessment process for our
core executive recruitment business, increased to 63% of all
search engagements.
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
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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.
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 (CEO),
chief financial officers (CFO), chief operating
officers (COO), chief information officers
(CIO) 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 2010, we executed more than 9,150 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 five 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
AssessmentSM,
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.
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Percentage
of Fiscal 2010 Assignments by Industry Specialization
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Global Markets:
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Industrial
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27
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Consumer
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19
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Financial Services
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18
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Technology
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14
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Life Sciences
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13
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Regional Specialties:
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Education/Not-for-Profit
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5
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Healthcare Provider
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4
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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
Board & CEO 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.
Percentage
of Fiscal 2010 Assignments by Functional Expertise
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Board Level/CEO/CFO/Senior Executive and General Management
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69
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Marketing and Sales
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11
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Manufacturing/Engineering/Research and Development/Technology
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7
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Human Resources and Administration
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6
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%
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Finance and Control
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5
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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 23 offices throughout
the United States and Canada. In fiscal 2010, the region
generated fee revenue of $278.8 million from more than
3,630 assignments billed, with an average of 230 consultants.
Europe, the Middle East and Africa
(EMEA) We opened our first European
office in London in 1972, and currently have 20 offices in 17
countries throughout the region. In fiscal 2010, the region
generated fee revenue of $137.5 million from more than
3,180 assignments billed, with an average of 145 consultants.
Asia Pacific We opened our first Asia Pacific
office in Tokyo in 1973, and currently have 19 offices in 11
countries throughout the region. In fiscal 2010, the region
generated fee revenue of $64.1 million from more than 1,630
assignments billed, with an average of 87 consultants.
South America We opened our first South
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, 2010, 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 $24.0 million in fiscal
2010 from more than 710 assignments billed, with an average of
20 consultants. Our share of the earnings from our Mexico
subsidiary was $0.1 million and $2.4 million for the
years ended April 30, 2010 and 2009, respectively, and is
included in equity in earnings of unconsolidated subsidiaries on
the consolidated statements of operations.
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Client Base. Our 4,277 clients include many of
the worlds largest and most prestigious public and private
companies, with 42% of the FORTUNE 500 companies being
clients in fiscal 2010. In fiscal 2010, no single client
represented more than 1% of fee revenue. We have established
strong client loyalty with 74% of the executive recruitment
assignments performed during fiscal 2010 being 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, differentiated
business model, systematic approach to client service,
cutting-edge technology, global network, prestigious clientele,
strong specialty practices and high-caliber colleagues 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, Lore International in fiscal 2009
and most recently, SENSA Solutions in fiscal 2010. 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 coaching, enterprise learning,
leadership development 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, executive compensation, competency modeling and
high-potential 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 Futurestep
Overview. Founded in 1998 as Korn/Ferrys
scalable, outsourced recruitment subsidiary, Futurestep offers
clients a portfolio of talent acquisition solutions, including
RPO, talent acquisition consulting services, project-based
recruitment, and mid-level recruitment. 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 13 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
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The Newman Group, acquired by Futurestep in fiscal 2008, we help
companies align people, processes and technology.
RPO solutions provide the expertise, services and support to
help clients address strategic and operational challenges
related to talent acquisition. Futurestep can act as or augment,
the clients recruitment function.
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.
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,
2010, we had Futurestep operations in 9 cities in North
America, 7 in Europe and 11 in Asia Pacific.
Competition. Futurestep primarily competes for
business with other RPO providers such as Spherion, KellyOCG and
The RightThing and competes for search assignments with regional
contingency recruitment firms and large national retained
recruitment 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 Towers
Watson.
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,
EMEA, Asia Pacific and South America. 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, 2010, we had 1,664 executive recruitment
employees consisting of 473 consultants, 1,025 associates,
researchers, administrative and support staff, and 166 LTC
professionals. In addition, we had 14 consultants in our
unconsolidated Mexico office. Futurestep had 487 employees
as of April 30, 2010, consisting of 154 consultants and 333
administrative and support staff. Corporate had 48 professionals
at April 30, 2010. We are not 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 2010. Financial information
regarding our business segments for fiscal 2009 and 2008 and
additional information for fiscal 2010 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, 2010
|
|
|
April 30, 2010
|
|
|
|
(Dollars in thousands)
|
|
|
Executive Recruitment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
278,746
|
|
|
$
|
42,604
|
|
|
|
23
|
|
|
|
229
|
|
EMEA
|
|
|
137,497
|
|
|
|
(15,511
|
)
|
|
|
20
|
|
|
|
139
|
|
Asia Pacific
|
|
|
64,132
|
|
|
|
7,826
|
|
|
|
19
|
|
|
|
85
|
|
South America
|
|
|
24,026
|
|
|
|
3,286
|
|
|
|
7
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Executive Recruitment
|
|
|
504,401
|
|
|
|
38,205
|
|
|
|
69
|
|
|
|
473
|
|
Futurestep(1)
|
|
|
67,979
|
|
|
|
1,291
|
|
|
|
7
|
|
|
|
154
|
|
Corporate
|
|
|
|
|
|
|
(42,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
572,380
|
|
|
$
|
(2,722
|
)
|
|
|
76
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Futurestep partially occupies 20 of the executive recruitment
offices globally in 13 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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Fee Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
270,859
|
|
|
$
|
305,472
|
|
|
$
|
368,039
|
|
Canada
|
|
|
32,115
|
|
|
|
41,861
|
|
|
|
48,646
|
|
EMEA
|
|
|
157,376
|
|
|
|
172,899
|
|
|
|
223,826
|
|
Asia Pacific
|
|
|
88,004
|
|
|
|
93,668
|
|
|
|
124,503
|
|
South America
|
|
|
24,026
|
|
|
|
24,323
|
|
|
|
25,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
572,380
|
|
|
$
|
638,223
|
|
|
$
|
790,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 recruitment business with numerous
executive recruitment firms and businesses that provide job
placement services. Traditional executive recruitment
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 recruitment
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. One such example is from Internet-enabled
professional and social networking website providers. As these
providers evolve they may develop offerings similar to ours
thereby increasing competition for our services. Increased
competition, whether as a result of these professional and
social
9
networking website providers or traditional executive
recruitment firms, 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 fee
revenue.
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 recruitment 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 fee
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 and some companies, as a cost-saving
measure, choose to rely on their own human resources departments
rather than third-party search firms to find talent. 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.
10
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 recruitment 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 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 36 countries and during the year ended
April 30, 2010, generated 47% 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
11
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.
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 a
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
and a market approach. 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
12
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.
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 and lead to negative cash flows, which in
turn might require us to obtain additional financing to meet our
capital needs.
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 76 of our executive recruitment and Futurestep offices
located in North America, EMEA, Asia Pacific and South America.
As of April 30, 2010, we leased an aggregate of
approximately 751,267 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.
|
Removed
and Reserved
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Gary D. Burnison
|
|
|
49
|
|
|
President and Chief Executive Officer
|
Michael A. DiGregorio
|
|
|
55
|
|
|
Executive Vice President and Chief Financial Officer
|
Ana Dutra
|
|
|
46
|
|
|
Executive Vice President and Chief Executive Officer of
Leadership and Talent Consulting
|
Robert H. McNabb
|
|
|
63
|
|
|
Executive Vice President, Premier Client Partnership
|
Byrne Mulrooney
|
|
|
49
|
|
|
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.
13
Gary D. Burnison has been President and Chief Executive
Officer since July 2007. He was Executive Vice President and
Chief Financial Officer from March 2002 until June 30, 2007
and 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 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, a
global management consulting, technology services and
outsourcing company, 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. In April 2010, he was appointed
to the Office of the Chief Executive, Premier Client
Partnerships initiative, which is the integrated
go-to-market
platform for Korn/Ferrys global and regional clients.
Prior to this appointment Mr. McNabb was Chief Executive
Officer for Futurestep from July 2002 to April 2010 and 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.
Byrne Mulrooney joined the Company in April 2010 as Chief
Executive Officer of Futurestep. Mr. Mulrooney has held
executive positions for over almost 20 years at EDS and IBM
in client services, sales, marketing and operations.
Mr. Mulrooney also led Spherions workforce solutions
business in North America, which included recruitment process
outsourcing and managed services, from 2003 to 2007. Prior to
joining Korn/Ferry, he was President and Chief Operating Officer
of Flynn Transportation Services, a third party logistics
company, from 2007 to 2010. Mr. Mulrooney is a graduate of
Villanova University in Pennsylvania. He holds a masters
degree in management from Northwestern Universitys J.L.
Kellogg Graduate School of Management.
14
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, 2010
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
14.29
|
|
|
$
|
9.43
|
|
Second Quarter
|
|
$
|
17.28
|
|
|
$
|
12.57
|
|
Third Quarter
|
|
$
|
18.00
|
|
|
$
|
14.31
|
|
Fourth Quarter
|
|
$
|
18.62
|
|
|
$
|
14.65
|
|
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
|
|
On June 25, 2010 the last reported sales price on the New
York Stock Exchange for the Companys common stock was
$15.07 per share and there were approximately 8,000 beneficial
holders of the Companys common stock.
15
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, 2005 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 the Securities Act of 1933 or the Securities
Exchange Act of 1934.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG
KORN/FERRY INTERNATIONAL, THE S&P 500 INDEX
AND A PEER GROUP
* $100 invested on
4/30/05 in
stock or index-including reinvestment of dividends. Fiscal year
ending April 30.
Copyright©
2010, Standard & Poors, a division of The
McGraw-Hill Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
16
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 $140.0 million of the
Companys common stock as of April 30, 2010 under
these programs. Our future dividend policy as well as any
decision 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.
Issuer
Purchases of Equity Securities
The following table summarizes common stocks repurchased by us
during the fourth quarter of fiscal 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
February 1, 2010 February 28, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
36.4 million
|
|
March 1, 2010 March 31, 2010
|
|
|
5,750
|
(5)
|
|
$
|
17.66
|
|
|
|
|
|
|
$
|
36.4 million
|
|
April 1, 2010 April 30, 2010
|
|
|
84,807
|
|
|
$
|
16.30
|
|
|
|
84,807
|
|
|
$
|
35.0 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
90,557
|
|
|
|
|
|
|
|
84,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 upon vesting of restricted shares. |
17
|
|
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, 2010, 2009 and 2008 and
the selected balance sheet data as of April 30, 2010 and
2009 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, 2008, 2007
and 2006 and the selected statement of operations data set forth
below for the fiscal years ended April 30, 2007 and 2006
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data and other operating
data)
|
|
|
Selected Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee revenue
|
|
$
|
572,380
|
|
|
$
|
638,223
|
|
|
$
|
790,570
|
|
|
$
|
653,422
|
|
|
$
|
522,882
|
|
Reimbursed
out-of-pocket
engagement expenses
|
|
|
27,269
|
|
|
|
37,905
|
|
|
|
45,072
|
|
|
|
35,779
|
|
|
|
28,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
599,649
|
|
|
|
676,128
|
|
|
|
835,642
|
|
|
|
689,201
|
|
|
|
551,769
|
|
Compensation and benefits
|
|
|
413,340
|
|
|
|
442,632
|
|
|
|
540,056
|
|
|
|
447,692
|
|
|
|
341,196
|
|
General and administrative expenses
|
|
|
115,280
|
|
|
|
126,882
|
|
|
|
134,542
|
|
|
|
105,312
|
|
|
|
93,462
|
|
Out-of-pocket
engagement expenses
|
|
|
41,585
|
|
|
|
49,388
|
|
|
|
58,750
|
|
|
|
44,662
|
|
|
|
31,927
|
|
Depreciation and amortization
|
|
|
11,493
|
|
|
|
11,583
|
|
|
|
10,441
|
|
|
|
9,280
|
|
|
|
9,002
|
|
Restructuring charges, net(1)
|
|
|
20,673
|
|
|
|
41,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
602,371
|
|
|
|
672,400
|
|
|
|
743,789
|
|
|
|
606,946
|
|
|
|
475,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(2,722
|
)
|
|
|
3,728
|
|
|
|
91,853
|
|
|
|
82,255
|
|
|
|
76,182
|
|
Other income (loss), net(3)
|
|
|
10,066
|
|
|
|
(14,738
|
)
|
|
|
4,656
|
|
|
|
2,524
|
|
|
|
6,046
|
|
Interest (expense) income, net(3)
|
|
|
(2,622
|
)
|
|
|
(1,063
|
)
|
|
|
2,481
|
|
|
|
(2,280
|
)
|
|
|
(5,204
|
)
|
(Benefit) provision for income taxes
|
|
|
(485
|
)
|
|
|
384
|
|
|
|
36,081
|
|
|
|
30,164
|
|
|
|
19,594
|
|
Equity in earnings of unconsolidated subsidiaries, net
|
|
|
91
|
|
|
|
2,365
|
|
|
|
3,302
|
|
|
|
3,163
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,298
|
|
|
$
|
(10,092
|
)
|
|
$
|
66,211
|
|
|
$
|
55,498
|
|
|
$
|
59,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earning (loss) per share
|
|
$
|
0.12
|
|
|
$
|
(0.23
|
)
|
|
$
|
1.50
|
|
|
$
|
1.40
|
|
|
$
|
1.49
|
|
Diluted earning (loss) per share
|
|
$
|
0.12
|
|
|
$
|
(0.23
|
)
|
|
$
|
1.46
|
|
|
$
|
1.24
|
|
|
$
|
1.32
|
|
Basic weighted average common shares outstanding
|
|
|
44,413
|
|
|
|
43,522
|
|
|
|
44,012
|
|
|
|
39,774
|
|
|
|
39,890
|
|
Diluted weighted average common shares outstanding
|
|
|
45,457
|
|
|
|
43,522
|
|
|
|
45,528
|
|
|
|
46,938
|
|
|
|
47,270
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee revenue by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive recruitment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
278,746
|
|
|
$
|
309,514
|
|
|
$
|
374,891
|
|
|
$
|
329,065
|
|
|
$
|
259,089
|
|
EMEA
|
|
|
137,497
|
|
|
|
143,184
|
|
|
|
183,042
|
|
|
|
146,155
|
|
|
|
120,059
|
|
Asia Pacific
|
|
|
64,132
|
|
|
|
66,332
|
|
|
|
95,915
|
|
|
|
74,987
|
|
|
|
57,922
|
|
South America
|
|
|
24,026
|
|
|
|
24,323
|
|
|
|
25,556
|
|
|
|
17,426
|
|
|
|
15,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total executive recruitment
|
|
|
504,401
|
|
|
|
543,353
|
|
|
|
679,404
|
|
|
|
567,633
|
|
|
|
452,730
|
|
Futurestep
|
|
|
67,979
|
|
|
|
94,870
|
|
|
|
111,166
|
|
|
|
85,789
|
|
|
|
70,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee revenue
|
|
$
|
572,380
|
|
|
$
|
638,223
|
|
|
$
|
790,570
|
|
|
$
|
653,422
|
|
|
$
|
522,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of offices (at period end)
|
|
|
76
|
|
|
|
78
|
|
|
|
89
|
|
|
|
82
|
|
|
|
72
|
|
Number of consultants (at period end)
|
|
|
627
|
|
|
|
615
|
|
|
|
684
|
|
|
|
601
|
|
|
|
507
|
|
Number of new engagements opened
|
|
|
9,794
|
|
|
|
9,630
|
|
|
|
11,106
|
|
|
|
10,415
|
|
|
|
9,608
|
|
Selected Balance Sheet Data as of April 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
219,233
|
|
|
$
|
255,000
|
|
|
$
|
305,296
|
|
|
$
|
226,137
|
|
|
$
|
211,753
|
|
Marketable securities
|
|
|
77,219
|
|
|
|
75,255
|
|
|
|
83,966
|
|
|
|
98,130
|
|
|
|
66,444
|
|
Working capital
|
|
|
188,368
|
|
|
|
198,250
|
|
|
|
196,259
|
|
|
|
193,716
|
|
|
|
197,540
|
|
Total assets
|
|
|
827,098
|
|
|
|
740,879
|
|
|
|
880,214
|
|
|
|
761,491
|
|
|
|
635,491
|
|
Total long-term debt(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,147
|
|
Mandatorily redeemable preferred stock(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,989
|
|
Total stockholders equity
|
|
|
491,342
|
|
|
|
459,099
|
|
|
|
496,134
|
|
|
|
432,955
|
|
|
$
|
323,751
|
|
18
|
|
|
(1) |
|
During fiscal 2010, our restructuring initiatives resulted in
restructuring charges of $25.8 million against operations,
of which $16.0 million and $9.8 million related to
severance costs and the consolidation of premises, respectively.
These restructuring charges were partially offset by
$5.1 million of reductions from previous restructuring
charges resulting in net restructuring costs of
$20.7 million during fiscal 2010. During fiscal 2009, the
restructuring charges were comprised of severance charges of
$26.9 million and 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, 2010, we had no outstanding
amounts related to these convertible securities. |
|
(3) |
|
Certain amounts in the consolidated statement of operations 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 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 helps 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 (RPO), leadership
and talent consulting (LTC) and executive coaching.
Over half of the executive recruitment searches we performed in
fiscal 2010 were for board level, chief executive and other
senior executive and general management positions. Our 4,277
clients in fiscal 2010 included many of the worlds largest
and most prestigious public and private companies, including
approximately 42% of the FORTUNE 500 companies, middle
market and emerging growth companies, as well as government and
nonprofit organizations. We have built strong
19
client loyalty with 74% of the executive recruitment assignments
performed during fiscal 2010 being 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, RPO, LTC and executive coaching, our strategic
focus for fiscal 2011 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.
Fee revenue decreased 10% in fiscal 2010 to $572.4 million
compared to $638.2 million in fiscal 2009, with decreases
in fee revenue in all regions. The North American region in
executive recruitment and Futurestep experienced the largest
dollar decreases in fee revenue. In fiscal 2010, we recorded an
operating loss of $2.7 million with operating income from
executive recruitment and Futurestep of $38.2 million and
$1.3 million, respectively and corporate expenses of
$42.2 million. This represents a decrease of 173% from
operating income of $3.7 million in fiscal 2009.
Our cash, cash equivalents and marketable securities decreased
$33.8 million, or 10% to $296.5 million at
April 30, 2010 compared to $330.3 million at
April 30, 2009. As of April 30, 2010, we held
marketable securities, to settle obligations under our Executive
Capital Accumulation Plan (ECAP) with a cost value
of $67.0 million and a fair value of $69.0 million.
Our working capital decreased $9.9 million in fiscal 2010
to $188.4 million. We believe that cash on hand and funds
from operations will be sufficient to meet our anticipated
working capital, capital expenditures and general corporate
requirements in the next twelve months. We had no long-term debt
nor any outstanding borrowings under our credit facility at
April 30, 2010.
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 and changes in the estimates are
reported in current operations. 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. Fee revenue from
LTC services is recognized as earned.
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
20
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
(GAAP) 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.
Results
of Operations
The following table summarizes the results of our operations as
a percentage of fee revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Fee revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Reimbursed
out-of-pocket
engagement expenses
|
|
|
4.8
|
|
|
|
5.9
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
104.8
|
|
|
|
105.9
|
|
|
|
105.7
|
|
Compensation and benefits
|
|
|
72.2
|
|
|
|
69.3
|
|
|
|
68.3
|
|
General and administrative expenses
|
|
|
20.2
|
|
|
|
19.9
|
|
|
|
17.0
|
|
Out-of-pocket
engagement expenses
|
|
|
7.3
|
|
|
|
7.7
|
|
|
|
7.4
|
|
Depreciation and amortization
|
|
|
2.0
|
|
|
|
1.8
|
|
|
|
1.4
|
|
Restructuring charges
|
|
|
3.6
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(0.5
|
)%
|
|
|
0.6
|
|
|
|
11.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
0.9
|
%
|
|
|
(1.6
|
)%
|
|
|
8.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize the results of our operations by
business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Dollars
|
|
|
%
|
|
|
Dollars
|
|
|
%
|
|
|
Dollars
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Fee revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive recruitment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
278,746
|
|
|
|
48.7
|
%
|
|
$
|
309,514
|
|
|
|
48.5
|
%
|
|
$
|
374,891
|
|
|
|
47.4
|
%
|
EMEA
|
|
|
137,497
|
|
|
|
24.0
|
|
|
|
143,184
|
|
|
|
22.4
|
|
|
|
183,042
|
|
|
|
23.2
|
|
Asia Pacific
|
|
|
64,132
|
|
|
|
11.2
|
|
|
|
66,332
|
|
|
|
10.4
|
|
|
|
95,915
|
|
|
|
12.1
|
|
South America
|
|
|
24,026
|
|
|
|
4.2
|
|
|
|
24,323
|
|
|
|
3.8
|
|
|
|
25,556
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total executive recruitment
|
|
|
504,401
|
|
|
|
88.1
|
|
|
|
543,353
|
|
|
|
85.1
|
|
|
|
679,404
|
|
|
|
85.9
|
|
Futurestep
|
|
|
67,979
|
|
|
|
11.9
|
|
|
|
94,870
|
|
|
|
14.9
|
|
|
|
111,166
|
|
|
|
14.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee revenue
|
|
|
572,380
|
|
|
|
100.0
|
%
|
|
|
638,223
|
|
|
|
100.0
|
%
|
|
|
790,570
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursed
out-of-pocket
engagement expense
|
|
|
27,269
|
|
|
|
|
|
|
|
37,905
|
|
|
|
|
|
|
|
45,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
599,649
|
|
|
|
|
|
|
$
|
676,128
|
|
|
|
|
|
|
$
|
835,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Dollars
|
|
|
Margin(1)
|
|
|
Dollars
|
|
|
Margin(1)
|
|
|
Dollars
|
|
|
Margin(1)
|
|
|
|
(Dollars in thousands)
|
|
|
Operating (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive recruitment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
42,604
|
|
|
|
15.3
|
%
|
|
$
|
37,516
|
|
|
|
12.1
|
%
|
|
$
|
70,628
|
|
|
|
18.8
|
%
|
EMEA
|
|
|
(15,511
|
)
|
|
|
(11.3
|
)
|
|
|
2,061
|
|
|
|
1.4
|
|
|
|
29,820
|
|
|
|
16.3
|
|
Asia Pacific
|
|
|
7,826
|
|
|
|
12.2
|
|
|
|
5,396
|
|
|
|
8.1
|
|
|
|
19,299
|
|
|
|
20.1
|
|
South America
|
|
|
3,286
|
|
|
|
13.7
|
|
|
|
2,441
|
|
|
|
10.0
|
|
|
|
2,230
|
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total executive recruitment
|
|
|
38,205
|
|
|
|
7.6
|
|
|
|
47,414
|
|
|
|
8.7
|
|
|
|
121,977
|
|
|
|
18.0
|
|
Futurestep
|
|
|
1,291
|
|
|
|
1.9
|
|
|
|
(12,003
|
)
|
|
|
(12.7
|
)
|
|
|
8,545
|
|
|
|
7.7
|
|
Corporate
|
|
|
(42,218
|
)
|
|
|
|
|
|
|
(31,683
|
)
|
|
|
|
|
|
|
(38,669
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating (loss) income
|
|
$
|
(2,722
|
)
|
|
|
(0.5
|
)%
|
|
$
|
3,728
|
|
|
|
0.6
|
%
|
|
$
|
91,853
|
|
|
|
11.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Margin calculated as a percentage of fee revenue by business
segment. |
Fiscal
2010 Compared to Fiscal 2009
Fee
Revenue
Fee Revenue. Fee revenue decreased
$65.8 million, or 10%, to $572.4 million in fiscal
2010 compared to $638.2 million in fiscal 2009. The
decrease in fee revenue was primarily attributable to an 8%
decrease in the weighted-average fees billed per engagement
during fiscal 2010 as compared to fiscal 2009 and a 2% decrease
in the number of executive search engagements billed during the
same period, both of which were driven by the depressed global
economic conditions in fiscal 2009 and the first half of fiscal
2010, which continues to have an impact on many of our
clients people initiatives. Exchange rates favorably
impacted fee revenues by $4.4 million in fiscal 2010.
Executive Recruitment. Executive recruitment
reported fee revenue of $504.4 million, a decrease of
$38.9 million, or 7%, in fiscal 2010 compared to
$543.3 million in fiscal 2009. The decline in executive
recruitment fee revenue was due to a 7% decrease in the average
fees billed per engagement in fiscal 2010 as compared to fiscal
2009 and a 1% decrease in the number of engagements billed
during the same period. Exchange rates favorably impacted fee
revenues by $2.7 million in fiscal 2010.
North America reported fee revenue of $278.8 million, a
decrease of $30.7 million, or 10%, in fiscal 2010 compared
to $309.5 million in fiscal 2009 primarily due to a 6%
decrease in the average fees billed per engagement in the region
during fiscal 2010 as compared to fiscal 2009 and a 4% decrease
in the number of engagements billed during the same period. The
overall decline in fee revenue was driven by declines in fee
revenue in the industrial, consumer goods and healthcare
sectors. Exchange rates favorably impacted North America fee
revenue by $1.5 million in fiscal 2010.
EMEA reported fee revenue of $137.5 million, a decrease of
$5.7 million, or 4%, in fiscal 2010 compared to
$143.2 million in fiscal 2009. EMEAs decrease in fee
revenue was driven by a 10% decrease in average fees billed per
engagement in fiscal 2010 as compared to fiscal 2009, offset by
a 6% increase in the number of engagements billed during the
same period. The performance in existing offices in the
Netherlands, Italy, United Arab Emirates and Germany were the
primary contributors to the decrease in fee revenue in fiscal
2010 in comparison to fiscal 2009. The technology, industrial
and financial services sectors experienced the largest decrease
in fee revenue in fiscal 2010 as compared to fiscal 2009.
Exchange rates unfavorably impacted EMEA fee revenue by
$2.0 million in fiscal 2010. The decline in EMEAs fee
revenue as a result of the global economic conditions was
partially offset by the fee revenue from the acquisition of
Whitehead Mann, which is included in EMEAs results from
June 11, 2009, the effective date of the acquisition.
22
Asia Pacific reported fee revenue of $64.1 million, a
decrease of $2.2 million, or 3%, in fiscal 2010 compared to
$66.3 million in fiscal 2009 due to a 3% decrease in
average fees billed per engagement in fiscal 2010 compared to
fiscal 2009. The decline in performance in Japan, New Zealand
and Singapore were the primary contributors to the decrease in
fee revenue in fiscal 2010 over the year-ago period. The largest
decrease in fee revenue was experienced in the industrial and
healthcare sectors. Exchange rates favorably impacted fee
revenue for Asia Pacific by $2.4 million in fiscal 2010.
South America reported fee revenue of $24.0 million, a
decrease of $0.3 million, or 1%, in fiscal 2010 compared to
$24.3 million in fiscal 2009. The number of engagements
billed decreased 10% within the region in fiscal 2010 compared
to fiscal 2009, offset by a 9% increase in the average fees
billed per engagement in the region during the same period. The
decline in performance in the financial services, consumer goods
and industrial sectors were the primary contributor to the
decrease in fee revenue in fiscal 2010 compared to fiscal 2009.
Exchange rates favorably impacted fee revenue for South America
by $0.8 million in fiscal 2010.
Futurestep. Futurestep reported fee revenue of
$68.0 million, a decrease of $26.9 million, or 28%, in
fiscal 2010 compared to $94.9 million in fiscal 2009. The
decline in Futuresteps fee revenue is due to an 18%
decrease in the number of engagements billed in fiscal 2010 as
compared to fiscal 2009 and an 11% decrease in average fees
billed per engagement during the same period. Of the total
decrease in fee revenue in fiscal 2010 compared to fiscal 2009,
North America experienced the largest dollar decline, with a
decrease in fee revenue of $13.6 million, or 36%, to
$24.2 million; Europe fee revenue decreased by
$9.8 million, or 33%, to $19.9 million and Asia fee
revenue decreased $3.5 million, or 13%, to
$23.9 million. Exchange rates favorably impacted fee
revenue for Futurestep by $1.7 million in fiscal 2010.
Compensation
and Benefits
Compensation and benefits expense decreased $29.3 million,
or 7%, to $413.3 million in fiscal 2010 from
$442.6 million in fiscal 2009. The decrease in compensation
and benefits expenses is primarily due to 1) a decrease in
the weighted-average compensation in fiscal 2010 as compared to
fiscal 2009, 2) a reduction in the bonus provision due to a
decrease in our revenue and profitability and 3) a
$3.6 million decrease of the bonus provision due to a
change in the estimate of bonus payouts. As discussed below in
Restructuring Charges, due to our acquisition of
Whitehead Mann and the reorganization of our
go-to-market
and operating structure in EMEA, we implemented a restructuring
in fiscal 2010 which further reduced our workforce. Exchange
rates unfavorably impacted compensation and benefits expenses by
$0.4 million during fiscal 2010.
Executive recruitment compensation and benefits costs decreased
$18.2 million, or 5%, to $338.0 million in fiscal 2010
compared to $356.2 million in fiscal 2009 primarily due to
a 5% decrease in the average consultant headcount in fiscal 2010
as compared to fiscal 2009. Exchange rates impacted executive
recruitment compensation and benefits expense favorably by
$0.7 million. Executive recruitment compensation and
benefits expenses, as a percentage of fee revenue, was 67% in
fiscal 2010 compared to 66% in fiscal 2009. Compensation and
benefits from the acquisition of Whitehead Mann are included in
EMEAs results from June 11, 2009, the effective date
of the acquisition.
Futurestep compensation and benefits expense decreased
$18.3 million, or 26%, to $52.7 million in fiscal 2010
from $71.0 million in fiscal 2009 primarily due to a
decline in Futurestep average consultant headcount of
approximately 17% and to a lesser extent a decline in the
weighted-average compensation in fiscal 2010 as compared to
fiscal 2009. Exchange rates unfavorably impacted Futurestep
compensation and benefits expense by $1.1 million.
Futurestep compensation and benefits expense, as a percentage of
fee revenue, increased to 78% in fiscal 2010 from 75% in fiscal
2009.
Corporate compensation and benefits expense increased
$7.2 million, or 47%, to $22.6 million in fiscal 2010
compared to $15.4 million in fiscal 2009 primarily due to a
$14.1 million increase in certain deferred compensation
liabilities during fiscal 2010. We hold marketable securities in
a trust for settlement of these deferred compensation
obligations. The change in marketable securities is included in
other income (loss), net, which offsets the increase in
compensation and benefits expense created by the change in these
deferred compensation liabilities. We have other deferred
compensation retirement plan liabilities, which decreased by
$9.9 million due to an increase in cash surrender value
(CSV) of company owned life insurance
(COLI) and a reduction in salaries.
23
General
and Administrative Expenses
General and administrative expenses decreased
$11.6 million, or 9%, to $115.3 million in fiscal 2010
compared to $126.9 million in fiscal 2009. Exchange rates
unfavorably impacted general and administrative expenses by
$0.3 million in fiscal 2010.
Executive recruitment general and administrative expenses
decreased $8.5 million, or 9%, to $83.4 million in
fiscal 2010 from $91.9 million in fiscal 2009. The decrease
in general and administrative expenses was driven by decreases
in the provision for bad debt of $5.3 million, business
development and marketing expenses of $2.1 million and
premises and office expense of $1.3 million. The decrease
in the provision for bad debts was due to a higher than normal
provision in fiscal 2009, due to the challenging macroeconomic
conditions experienced in fiscal 2009 and an improvement of
economic conditions in fiscal 2010 as compared to fiscal 2009,
which led to an improvement in the aging of accounts receivable
and lower bad debt expense. General expenses decreased primarily
due to the decline in our overall business activities as a
result of the global economic crisis, including lower premises
and office expense due to the closure of offices in the second
half of fiscal 2009. Executive recruitment general and
administrative expenses, as a percentage of fee revenue, was 17%
in both fiscal 2010 and fiscal 2009.
Futurestep general and administrative expenses decreased
$6.1 million, or 30%, to $14.4 million in fiscal 2010
compared to $20.5 million in fiscal 2009 primarily due to
decreases of $2.7 million in premises and office expense,
$2.0 million in miscellaneous expenses including
professional services and travel and meeting expenses,
$0.9 million in business development expense and
$0.4 million in bad debt expenses. Premises and office
expense decreased due to the closure of offices in the second
half of fiscal 2009 and miscellaneous expenses decreased
primarily due to the decline in Futuresteps overall
business activities. Bad debt expense decreased due to an
overall lower accounts receivable balance contributing to fewer
bad debt write-offs during fiscal 2010 as compared to the
year-ago period. Futurestep general and administrative expenses,
as a percentage of fee revenue, was 21% in fiscal 2010 compared
to 22% in fiscal 2009.
Corporate general and administrative expenses increased
$3.0 million, or 21%, to $17.5 million in fiscal 2010
compared to $14.5 million in fiscal 2009 primarily due to
an increase in legal and professional fees primarily incurred in
connection with the acquisition of Whitehead Mann and an
increase in business development expense incurred during the
last half of fiscal 2010.
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 $7.8 million, or 16%, to
$41.6 million in fiscal 2010, compared to
$49.4 million in fiscal 2009.
Out-of-pocket
engagement expenses as a percentage of fee revenue, was 7% in
fiscal 2010 compared to 8% in fiscal 2009.
Depreciation
and Amortization Expenses
Depreciation and amortization expenses decreased
$0.1 million, or 1%, to $11.5 million in fiscal 2010,
compared to $11.6 million in fiscal 2009. This expense
relates mainly to computer equipment, software, furniture and
fixtures and leasehold improvements.
Restructuring
Charges
We reorganized our
go-to-market
and operating structure in EMEA and in an effort to reduce
redundancy attributed to the acquisition of Whitehead Mann we
incurred restructuring charges in fiscal 2010 of
$25.8 million to reduce the combined work force and to
consolidate premises. This restructuring expense was partially
offset by $5.1 million of reductions from previously
estimated restructuring charges ($2.3 million in severance
costs and $2.8 million in premise and facilities costs)
resulting in net restructuring costs of $20.7 million in
fiscal 2010. During fiscal 2009, we incurred $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.
24
Operating
(Loss) Income
Operating income decreased $6.4 million, to an operating
loss of $2.7 million in fiscal 2010 compared to operating
income of $3.7 million in fiscal 2009. This decrease in
operating income resulted from a decrease in revenue during
fiscal 2010 as compared to fiscal 2009, which was partially
offset by a decrease in operating expenses during the same
period. The decrease in operating expenses is primarily
attributable to a decrease in compensation and benefits, net
restructuring charges and general and administrative expenses.
Executive recruitment operating income decreased
$9.2 million to $38.2 million in fiscal 2010 compared
to operating income of $47.4 million in fiscal 2009. 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 average
consultant headcount and weighted-average compensation, and to a
decrease in general and administrative and net restructuring
charges. Executive recruitment operating income, as a percentage
of fee revenue, was 8% during fiscal 2010 compared to 9% in
fiscal 2009.
Futurestep operating income increased by $13.3 million to
$1.3 million in fiscal 2010 as compared to an operating
loss of $12.0 million in fiscal 2009. The change in
Futurestep operating income is primarily due to a decrease in
compensation and benefits, general and administrative expenses
and $2.8 million reductions of previously recorded
restructuring expenses during fiscal 2010 relating to lower
facility lease costs than originally recorded compared to
$11.4 million of restructuring expenses recorded in fiscal
2009. The decrease in operating expenses was offset by a
decrease in fee revenue of $26.9 million as a result of a
decline in the number of engagements billed during fiscal 2010
compared to fiscal 2009. Futurestep operating income, as a
percentage of fee revenue, was 2% in fiscal 2010, compared to
operating loss, as a percentage of fee revenue of 13% in fiscal
2009.
Other
Income (Loss), Net
Other income (loss), net increased by $24.8 million, to
income of $10.1 million in fiscal 2010 compared to a loss
of $14.7 million in fiscal 2009. Other income (loss), net
is primarily due to $11.1 million of net trading gains on
marketable securities in fiscal 2010 as compared a non-cash
asset impairment of $15.9 million related to marketable
securities, offset by $5.9 million unrealized gains
recorded in other income (loss), net upon transfer of marketable
securities from
available-for-sale
to trading during fiscal 2009. There was no such impairment or
transfer of marketable securities in fiscal 2010.
Interest
(Expense) Income, Net
Interest (expense) income, net primarily relates to borrowings
under our COLI policies, which was partially offset by interest
earned on cash and cash equivalent balances and marketable
securities. Interest expense, net was $2.6 million in
fiscal 2010 compared to $1.1 million in fiscal 2009.
Interest expense, net increased primarily due to lower interest
income earned as a result of lower average United States cash
balances in fiscal 2010 compared to fiscal 2009.
Income
Tax (Benefit) Provision
The benefit for income taxes was $0.5 million in fiscal
2010 compared to a provision for income taxes of
$0.4 million in fiscal 2009. The income taxes in fiscal
2010 reflects a 10% tax benefit compared to a 3% effective
income tax rate for fiscal 2009. The effective income tax rate
in fiscal 2010 is lower when compared to the effective income
tax rate in fiscal 2009, primarily due to a $10.3 million
reversal of a reserve related to a tax position taken in fiscal
2004, offset by additional reserves of $7.5 million
set-up for
the tax impact of future repatriations of cash dividends and
additional valuation allowances on the Companys current
inventory of foreign tax credit carryforwards during fiscal 2010.
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
25
adjustment to net income (loss), net of taxes. Equity in
earnings was $0.1 million in fiscal 2010 compared to
$2.4 million in fiscal 2009.
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 a 7% decrease in the average fees 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.
26
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 1) a decrease in
global headcount, 2) a $77.2 million decrease in
weighted-average compensation in fiscal 2009 as compared to
fiscal 2008, 3) a reduction in the bonus provision due to a
decrease in our revenue and profitability and 4) a
$4.0 million decrease of the bonus provision due to a
change in the estimate of the bonus payouts. 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 weighted-average
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.
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 weighted-average 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. We hold marketable securities in a
trust for settlement of these deferred compensation obligations.
The change in marketable securities is included in other income
(loss), net, which offsets the decrease in compensation and
benefits expense created by the change in these deferred
compensation liabilities. We have other deferred compensation
retirement plan liabilities, which increased by a
$5.3 million due to a decrease in CSV of COLI and an
increase in salaries.
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 marketing of
$1.3 million. 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.
27
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.
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
weighted-average 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 to operating
income, as a percentage of fee revenue of 8% in fiscal 2008.
Other
(Loss) Income, Net
Other (loss) income, net decreased by $19.4 million, to a
loss of $14.7 million in fiscal 2009 from income of
$4.7 million in fiscal 2008. The decrease in 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 other (loss)
income, net upon the transfer of marketable securities from
available-for-sale
to trading during fiscal 2009.
Interest
(Expense) Income, Net
Interest (expense) income, net, primarily relates to borrowings
under COLI and interest earned on cash and cash equivalents and
marketable securities. Interest expense, net was
$1.1 million in fiscal 2009 compared to
28
interest income, net of $2.5 million in fiscal 2008.
Interest expense, net decreased primarily as a result of lower
average United States cash balances, and lower overall interest
rates compared to 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 in fiscal 2009.
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 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.
Liquidity
and Capital Resources
Although global economic conditions and demand for our services
continued to show signs of improvement during the latter half of
fiscal 2010, the demand for executive searches remains well
below its peak level. In response to the uncertain economic
environment and labor markets, we took steps to align our cost
structure with anticipated revenue levels, in an effort to
retain positive cash flows. Continued adverse changes in our fee
revenue, however, could require us to institute additional cost
cutting measures. To the extent our efforts are insufficient, we
may incur negative cash flows, and if such conditions persist
over an extended period of time, it might require us to obtain
additional financing to meet our capital needs. We believe that
our cash on hand and funds from 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 shown improvement in the second half of fiscal 2010 but
total recovery may be long and gradual. 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, 2010 and 2009, our marketable securities
included $69.0 million (net of unrealized gains of
$2.0 million) and $60.8 million (net of unrealized
losses of $10.0 million) respectively, held in trust for
settlement of our obligations under certain deferred
compensation plans, of which $64.9 million and
$58.5 million, respectively, are classified as noncurrent.
Our obligations for which these assets were held in trust
totaled $69.0 million and $60.7 million as of
April 30, 2010 and 2009, respectively.
The net decrease in our working capital of $9.9 million as
of April 30, 2010 compared to April 30, 2009 is
primarily attributable to a net decrease in cash and cash
equivalents, offset to some extent by an increase in accounts
receivable and a decrease in accrued compensation and benefits
payable. Cash and cash equivalents decreased due to payments
made for the acquisitions of Whitehead Mann and Sensa Solutions.
Accounts receivable increased due to an increase in the number
of engagements billed during the latter half of fiscal 2010
compared to the year-ago period.
Cash and cash equivalents and marketable securities were
approximately $296.5 million and $330.3 million as of
April 30, 2010 and April 30, 2009, respectively. Cash
and cash equivalents consisted of cash and highly liquid
investments purchased with original maturities of three months
or less. Marketable securities consist primarily of mutual funds
with some auction rate municipal securities. The primary
objectives of these mutual funds are liquidity or to meet the
obligations under certain of our deferred compensation plans.
29
Cash used in operating activities was $30.8 million in
fiscal 2010, an increase of $34.0 million, from cash
provided in operating activities of $3.2 million in fiscal
2009. The increase in cash used in operating activities is
primarily due to an increase in receivables of
$78.2 million, deferred income taxes of $16.5 million
offset by a decrease in cash used to settle accounts payable,
accrued liabilities and other of $52.3 million. The
increase in receivables is due to an increase in fee revenue
during the latter half of fiscal 2010 compared to fiscal 2009.
The increase in cash used related to deferred income taxes is a
result of a reversal of a reserve previously taken against an
uncertain tax position and an increased valuation allowance
related to cash repatriations and foreign tax credits. The
decrease in accounts payable and accrued liabilities is
attributable mainly to a reduction in worldwide headcount and
weighted-average compensation. In addition, $8.1 million in
bonuses due to be paid in fiscal 2010 were deferred due to
economic conditions, and are now due to be paid in fiscal 2011.
The deferral had the effect of decreasing cash used in operating
activities for fiscal 2010 by $8.1 million.
Cash used in investing activities was $23.4 million in
fiscal 2010, a decrease of $4.4 million, from cash used in
investing activities of $27.8 million in fiscal 2009. The
decrease is primarily attributable to $13.3 million in net
proceeds received from the sale of marketable securities offset
by a $5.8 million, $3.5 million and $2.4 million
increase in cash used for acquisitions, purchase of intangible
assets and payments made on earn-outs from previous
acquisitions, respectively.
Cash provided by financing activities was $8.1 million in
fiscal 2010, an increase of $13.8 million from cash used in
financing activities of $5.7 million in fiscal 2009.
Borrowings under life insurance policies increased
$3.8 million in fiscal 2010 as compared to fiscal 2009 and
proceeds from the exercise of stock options increased
$2.9 million during the same period. In addition, cash used
to repurchase shares of common stock decreased $6.5 million
during fiscal 2010 as compared to fiscal 2009. As of
April 30, 2010, $35.0 million remained available for
repurchase under our repurchase program, approved by the Board
of Directors on November 2, 2007.
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, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in:
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Note
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
|
|
(In thousands)
|
|
|
Operating lease commitments
|
|
15
|
|
$
|
222,716
|
|
|
$
|
28,878
|
|
|
$
|
56,380
|
|
|
$
|
50,547
|
|
|
$
|
86,911
|
|
Accrued restructuring charges(1)
|
|
6
|
|
|
14,318
|
|
|
|
6,197
|
|
|
|
4,089
|
|
|
|
3,070
|
|
|
|
962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
237,034
|
|
|
$
|
35,075
|
|
|
$
|
60,469
|
|
|
$
|
53,617
|
|
|
$
|
87,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents rent payments, net of sublease income on an
undiscounted basis. |
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 7 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 11 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.
30
Long-Term
Debt
Total outstanding borrowings against the CSV of COLI contracts
were $66.9 million, $61.6 million and
$60.7 million as of April 30, 2010, 2009, and 2008,
respectively. Generally, we borrow under our COLI contracts to
pay related premiums. Such borrowings do not require annual
principal repayments, bear interest primarily at variable rates
and are secured by the CSV of the COLI contracts of
$136.0 million, $124.7 million and $142.1 million
as of April 30, 2010, 2009 and 2008, respectively. At
April 30, 2010, the net cash value of these policies was
$69.1 million of which $54.6 million was held in trust.
In January 2010, we amended our Senior Secured Revolving Credit
facility (the Facility), with Wells Fargo Bank,
N.A., to, among other things, modify certain covenants and
borrowing base requirements. The aggregate commitments under the
Facility are $50 million, with a $15 million sublimit
for letters of credit, subject to satisfaction of borrowing base
requirements based on eligible domestic accounts receivable and
cash held on deposit. As of April 30, 2010, the borrowing
base was $33.2 million and we pledged $9.0 million in
cash. The maturity date of the Facility remains unchanged at
March 14, 2011. Borrowings under the Facility bear
interest, at our election, at either the base rate or the
Eurodollar rate in effect at such time plus, in each case, the
applicable margin. The applicable margins for base rate loans
and Eurodollar rate loans are 3.00% and 4.00%, respectively. As
of April 30, 2010, the interest rates were 6.25% and 4.30%,
respectively. We pay quarterly commitment fees of 0.50% on the
Facilitys unused commitments. The Facility is secured by
substantially all of our assets and assets of significant
subsidiaries, including certain accounts receivable balances and
guarantees by and pledges of the capital stock of significant
subsidiaries. The financial covenants include a maximum
consolidated leverage ratio, minimum consolidated quick ratio
and minimum consolidated earnings before taxes, interest and
depreciation and amortization tests. As of April 30, 2010
and 2009 we had no borrowings under our Facility; however, at
April 30, 2010, and 2009 there were $8.2 million and
$5.2 million of standby letters of credit issued under this
Facility, respectively.
We are not aware of any other trends, demand or commitments that
would materially affect liquidity or those that relate to our
resources.
Accounting
Developments
Recently
Adopted Accounting Standards
In July 2009, the Financial Accounting Standards Board
(FASB) implemented the FASB Accounting Standards
Codification (the Codification) as the single source
of authoritative GAAP. The Codification establishes a common
referencing system for accounting standards and is generally
organized by subject matter. Use of the Codification is
effective for interim and annual periods ending after
September 15, 2009. We began to use the Codification on its
effective date and it had no impact on our consolidated
financial statements. In connection with the use of the
Codification, this
Form 10-K
no longer makes reference to specific accounting standards by
number or title, instead, accounting standards are referred to
in terms of the applicable subject matter.
In December 2007, the FASB issued guidance on the accounting and
reporting of business combinations which requires recognition of
all assets acquired, liabilities assumed and any noncontrolling
interest in an acquiree at fair value as of the date of
acquisition. In addition, this guidance requires that
acquisition-related transaction and restructuring costs be
charged to expense as incurred, and changes the recognition and
measurement criteria for certain assets and liabilities
including those arising from contingencies, contingent
consideration, and bargain purchases. This guidance is effective
for business combinations with an effective date beginning
January 1, 2009 or later. We applied this new guidance to
our acquisition of Whitehead Mann and SENSA Solutions, Inc,
which were acquired in fiscal 2010.
In December 2007, the FASB issued guidance on the accounting and
reporting of noncontrolling interests in consolidated financial
statements which requires entities report noncontrolling
interests in subsidiaries as equity in the consolidated
financial statements and to account for the transactions with
noncontrolling interest owners as equity transactions provided
the parent retains controlling interests in the subsidiary. The
guidance also requires new and expanded disclosure and is
effective from fiscal years beginning on or after
December 15, 2008. We currently do not have significant
minority interest in our consolidated subsidiaries and, as such,
the guidance did not have an impact on our consolidated
financial position and results of operations.
31
In April 2009, the FASB issued guidance that fair value
disclosures required for financial instruments on an annual
basis be presented for all interim reporting periods beginning
with the first interim period ending after June 15, 2009
with earlier application permitted. The adoption of this
guidance did not have a material impact on our consolidated
financial position and results of operations.
In April 2009, the FASB issued additional guidance for
estimating fair value when the volume and level of activity for
the asset and liability have significantly decreased and also on
identifying circumstances that indicate a transaction is not
orderly. This guidance also requires expanded disclosure about
how fair value is measured, changes to valuation methodologies,
and additional disclosures for debt and equity securities. This
guidance was effective for reporting periods ending after
June 15, 2009 with earlier adoption permitted. The adoption
of this guidance did not have a material impact on our
consolidated financial position and results of operations.
In May 2009, the FASB issued guidance which establishes general
standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are
issued or available to be issued. In addition, it requires
entities to disclose the date through which subsequent events
were evaluated as well as the rationale for why that date was
selected. This guidance was effective for interim or annual
financial periods ending after June 15, 2009, and shall be
applied prospectively. Adoption did not have an impact on our
consolidated financial position and results of operations.
Subsequent events through the filing date of this
Form 10-K
have been evaluated for disclosure and recognition and we
concluded that no subsequent events have occurred that would
require recognition in the consolidated financial statements.
Recently
Issued Accounting Standards
In January 2010, the FASB issued guidance on, Fair Value
Measurements and Disclosures: Improving Disclosures about Fair
Value Measurements, which amends the disclosure guidance with
respect to fair value measurements. Specifically, the new
guidance requires disclosure of amounts transferred in and out
of Levels 1 and 2 fair value measurements, a reconciliation
presented on a gross basis rather than a net basis of activity
in Level 3 fair value measurements, greater disaggregation
of the assets and liabilities for which fair value measurements
are presented and more robust disclosure of the valuation
techniques and inputs used to measure Level 2 and 3 fair
value measurements. The guidance is effective for interim and
annual reporting periods beginning after December 15, 2009,
with the exception of the new guidance around the Level 3
activity reconciliation, which is effective for fiscal years
beginning after December 15, 2010. We adopted the new
guidance on February 1, 2010. The adoption did not impact
our financial position, results of operations or liquidity.
|
|
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 and 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 fiscal 2010, 2009,
and 2008, we recognized foreign currency losses, on an after tax
basis, of $2.0 million, $0.4 million, and
$0.6 million, respectively, primarily related to our South
America, Asia Pacific and EMEA operations.
32
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
$1.6 million, $2.6 million and $3.6 million,
respectively, based on outstanding balances at April 30,
2010. If the U.S. dollar weakened by the same increments
against the Pound Sterling, the Euro, the Canadian dollar, the
Australian dollar and the Yen, our exchange gain would have been
$1.6 million, $2.6 million and $3.6 million,
respectively, based on outstanding balances at April 30,
2010.
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, 2010 and 2009, we had no outstanding borrowings
under our Facility. We had $66.9 million and
$61.6 million of borrowings against the CSV of COLI
contracts as of April 30, 2010 and 2009, respectively
bearing interest primarily at variable rates. The risk of
fluctuations in these variable rates is minimized by the fact
that we receive a corresponding adjustment to our borrowed funds
crediting rate on the CSV on our COLI contracts.
As of April 30, 2010, we held approximately
$8.2 million par value (fair value of $7.5 million) of
auction rate securities (ARS), of which all were
securities collateralized by student loan portfolios, and are
guaranteed by the United States government. Due to events in the
global credit markets, the ARS held by the Company experienced
failed auctions during fiscal 2010 and 2009. As a result, our
ability to liquidate our investment in ARS in the near term may
be limited or impossible. An auction failure means that the
parties wishing to sell securities cannot sell these types of
securities. In August 2008, we received a settlement offer and
entered into a repurchase agreement with an investment security
firm, which gave us the right (Put Option) to sell
our auction rate securities at par value to the investment
security firm between June 30, 2010 and July 2, 2012
and (2) gave the investment security firm the right to
purchase the auction rate securities from us any time after
October 28, 2008 as long as we receive the par 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.
|
|
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 16 Quarterly
Results, in the Notes to our Consolidated Financial
Statements.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
No changes or disagreements were noted in the current fiscal
year.
|
|
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. See Managements
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.
33
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, 2010 and 2009.
|
|
Item 9B.
|
Other
Information
|
None
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 2010 Proxy Statement, and
is incorporated herein by reference. The information under the
heading Executive Officers of the Registrant in
Part I 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 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.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item will be included in our
2010 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 2010 Proxy Statement,
and is incorporated herein by reference.
|
|
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 2010 Proxy Statement,
and is incorporated herein by reference.
|
|
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 2010 Proxy Statement, and is incorporated
herein by reference.
34
PART IV.
|
|
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 Stock Purchase Warrant, filed as Exhibit 4.2 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.
|
|
10
|
.11*+
|
|
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
|
.12*+
|
|
Korn/Ferry International Second Amended and Restated Performance
Award Plan, filed as Appendix A to the Companys
Definitive Proxy Statement, filed August 12, 2004.
|
35
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.13*+
|
|
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
|
.14*+
|
|
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
|
.15*+
|
|
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
|
.16*+
|
|
Employee Stock Purchase Plan filed as Exhibit 10.29 to the
Companys Annual Report on
Form 10-K,
filed July 22, 2003.
|
|
10
|
.17*+
|
|
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
|
.18+
|
|
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
|
.19*+
|
|
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
|
.20+
|
|
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
|
.21*+
|
|
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
|
.22*+
|
|
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
|
.23*+
|
|
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
|
.24*+
|
|
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.
|
|
10
|
.25*+
|
|
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
|
.26*+
|
|
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
|
.27*+
|
|
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
|
.28*+
|
|
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
|
.29*+
|
|
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
|
.30*+
|
|
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
|
.31*+
|
|
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
|
.32*+
|
|
Employment Agreement between the Company and Stephen J. Giusto
dated March 17, 2009.
|
|
10
|
.33*+
|
|
Employment Agreement between the Company and Michael A.
DiGregorio.
|
|
10
|
.34*+
|
|
Korn/Ferry Amended and Restated 2008 Stock Incentive Plan, filed
as Exhibit 99.1 to the Companys Registration
Statement on
Form S-8
(No. 333-161844),
filed September 10, 2009.
|
|
10
|
.35*+
|
|
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
|
.36*+
|
|
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.
|
36
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.37*+
|
|
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
|
.38*+
|
|
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
|
.39*+
|
|
Letter Agreement between the Company and Gary D. Burnison dated
June 25, 2009.
|
|
10
|
.40*
|
|
Employment Agreement between the Company and Byrne Mulrooney
dated March 5, 2010.
|
|
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. |
37
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, 2010
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, 2010
|
|
|
|
|
|
/s/ Gary
D. Burnison
Gary
D. Burnison
|
|
President, Chief Executive Officer (Principal Executive
Officer) and Director
|
|
June 29, 2010
|
|
|
|
|
|
/s/ Michael
A. DiGregorio
Michael
A. DiGregorio
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
June 29, 2010
|
|
|
|
|
|
/s/ Mark
Neal
Mark
Neal
|
|
Vice President, Finance (Principal Accounting Officer)
|
|
June 29, 2010
|
|
|
|
|
|
/s/ Denise
Kingsmill
Denise
Kingsmill
|
|
Director
|
|
June 29, 2010
|
38
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Edward
D. Miller
Edward
D. Miller
|
|
Director
|
|
June 29, 2010
|
|
|
|
|
|
/s/ Debra
Perry
Debra
Perry
|
|
Director
|
|
June 29, 2010
|
|
|
|
|
|
/s/ Gerhard
Schulmeyer
Gerhard
Schulmeyer
|
|
Director
|
|
June 29, 2010
|
|
|
|
|
|
/s/ George
T. Shaheen
George
T. Shaheen
|
|
Director
|
|
June 29, 2010
|
|
|
|
|
|
/s/ Harry
L. You
Harry
L. You
|
|
Director
|
|
June 29, 2010
|
39
APRIL 30,
2010
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-9
|
|
F-1
MANAGEMENTS
REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
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 issuers 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,
2010 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, 2010.
Ernst & Young, LLP, the independent registered public
accounting firm that audited the Companys financial
statements for the year ended April 30, 2010 included in
this Annual Report on
Form 10-K,
has issued an audit report on the effectiveness of the
Companys internal control over financial reporting as of
April 30, 2010, a copy of which is included in this Annual
Report on
Form 10-K.
June 29, 2010
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, 2010 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, 2010, 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, 2010 and 2009, and the related
consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period
ended April 30, 2010 and our report dated June 29,
2010 expressed an unqualified opinion thereon.
Los Angeles, California
June 29, 2010
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, 2010 and 2009, and the
related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended April 30, 2010. 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, 2010 and 2009, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended April 30, 2010, in conformity
with U.S. generally accepted accounting principles.
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, 2010, 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 29, 2010, expressed an unqualified
opinion thereon.
Los Angeles, California
June 29, 2010
F-4
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
219,233
|
|
|
$
|
255,000
|
|
Marketable securities
|
|
|
4,114
|
|
|
|
4,263
|
|
Receivables due from clients, net of allowance for doubtful
accounts of $5,983 and $11,197, respectively
|
|
|
107,215
|
|
|
|
67,308
|
|
Income taxes and other receivables
|
|
|
6,292
|
|
|
|
9,001
|
|
Deferred income taxes
|
|
|
20,844
|
|
|
|
14,583
|
|
Prepaid expenses and other assets
|
|
|
28,753
|
|
|
|
21,442
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
386,451
|
|
|
|
371,597
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, non-current
|
|
|
73,105
|
|
|
|
70,992
|
|
Property and equipment, net
|
|
|
24,963
|
|
|
|
27,970
|
|
Cash surrender value of company owned life insurance policies,
net of loans
|
|
|
69,069
|
|
|
|
63,108
|
|
Deferred income taxes
|
|
|
59,742
|
|
|
|
45,141
|
|
Goodwill
|
|
|
172,273
|
|
|
|
133,331
|
|
Intangible assets, net
|
|
|
25,425
|
|
|
|
16,928
|
|
Investments and other assets
|
|
|
16,070
|
|
|
|
11,812
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
827,098
|
|
|
$
|
740,879
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Accounts payable
|
|
$
|
11,148
|
|
|
$
|
10,282
|
|
Income taxes payable
|
|
|
6,323
|
|
|
|
2,059
|
|
Compensation and benefits payable
|
|
|
131,550
|
|
|
|
116,705
|
|
Other accrued liabilities
|
|
|
49,062
|
|
|
|
44,301
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
198,083
|
|
|
|
173,347
|
|
Deferred compensation and other retirement plans
|
|
|
123,794
|
|
|
|
99,238
|
|
Other liabilities
|
|
|
13,879
|
|
|
|
9,195
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
335,756
|
|
|
|
281,780
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock: $0.01 par value, 150,000 shares
authorized, 57,614 and 56,185 shares issued and 45,979 and
44,729 shares outstanding, respectively
|
|
|
388,717
|
|
|
|
368,430
|
|
Retained earnings
|
|
|
90,220
|
|
|
|
84,922
|
|
Accumulated other comprehensive income, net
|
|
|
12,934
|
|
|
|
6,285
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
491,871
|
|
|
|
459,637
|
|
Less: notes receivable from stockholders
|
|
|
(529
|
)
|
|
|
(538
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
491,342
|
|
|
|
459,099
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
827,098
|
|
|
$
|
740,879
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Fee revenue
|
|
$
|
572,380
|
|
|
$
|
638,223
|
|
|
$
|
790,570
|
|
Reimbursed
out-of-pocket
engagement expenses
|
|
|
27,269
|
|
|
|
37,905
|
|
|
|
45,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
599,649
|
|
|
|
676,128
|
|
|
|
835,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
413,340
|
|
|
|
442,632
|
|
|
|
540,056
|
|
General and administrative expenses
|
|
|
115,280
|
|
|
|
126,882
|
|
|
|
134,542
|
|
Out-of-pocket
engagement expenses
|
|
|
41,585
|
|
|
|
49,388
|
|
|
|
58,750
|
|
Depreciation and amortization
|
|
|
11,493
|
|
|
|
11,583
|
|
|
|
10,441
|
|
Restructuring charges, net
|
|
|
20,673
|
|
|
|
41,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
602,371
|
|
|
|
672,400
|
|
|
|
743,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(2,722
|
)
|
|
|
3,728
|
|
|
|
91,853
|
|
Other income (loss), net
|
|
|
10,066
|
|
|
|
(14,738
|
)
|
|
|
4,656
|
|
Interest (expense) income, net
|
|
|
(2,622
|
)
|
|
|
(1,063
|
)
|
|
|
2,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before (benefit) provision for income taxes and
equity in earnings of unconsolidated subsidiaries
|
|
|
4,722
|
|
|
|
(12,073
|
)
|
|
|
98,990
|
|
Income tax (benefit) provision
|
|
|
(485
|
)
|
|
|
384
|
|
|
|
36,081
|
|
Equity in earnings of unconsolidated subsidiaries, net
|
|
|
91
|
|
|
|
2,365
|
|
|
|
3,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,298
|
|
|
$
|
(10,092
|
)
|
|
$
|
66,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.12
|
|
|
$
|
(0.23
|
)
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.12
|
|
|
$
|
(0.23
|
)
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
44,413
|
|
|
|
43,522
|
|
|
|
44,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
45,457
|
|
|
|
43,522
|
|
|
|
45,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
Income, Net
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at May 1, 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 adjustment for accounting change in income tax
uncertainties
|
|
|
|
|
|
|
|
|
|
|
(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 expense from exercise of stock options
|
|
|
|
|
|
|
(654
|
)
|
|
|
|
|
|
|
|
|
|
|
(654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2009
|
|
|
44,729
|
|
|
|
368,430
|
|
|
|
84,922
|
|
|
|
6,285
|
|
|
|
459,637
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
5,298
|
|
|
|
|
|
|
|
5,298
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,377
|
|
|
|
15,377
|
|
Defined benefit plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,728
|
)
|
|
|
(8,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of stock
|
|
|
(226
|
)
|
|
|
(3,136
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,136
|
)
|
Issuance of stock
|
|
|
1,476
|
|
|
|
6,526
|
|
|
|
|
|
|
|
|
|
|
|
6,526
|
|
Stock-based compensation
|
|
|
|
|
|
|
17,508
|
|
|
|
|
|
|
|
|
|
|
|
17,508
|
|
Tax expense from exercise of stock options
|
|
|
|
|
|
|
(611
|
)
|
|
|
|
|
|
|
|
|
|
|
(611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2010
|
|
|
45,979
|
|
|
$
|
388,717
|
|
|
$
|
90,220
|
|
|
$
|
12,934
|
|
|
$
|
491,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,298
|
|
|
$
|
(10,092
|
)
|
|
$
|
66,211
|
|
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11,493
|
|
|
|
11,583
|
|
|
|
10,441
|
|
Stock-based compensation expense
|
|
|
17,729
|
|
|
|
16,301
|
|
|
|
15,949
|
|
Loss on disposition of property and equipment
|
|
|
323
|
|
|
|
3,740
|
|
|
|
561
|
|
Provision for doubtful accounts
|
|
|
3,340
|
|
|
|
9,127
|
|
|
|
10,299
|
|
(Gain) loss on cash surrender value of life insurance policies
|
|
|
(9,558
|
)
|
|
|
3,578
|
|
|
|
(3,780
|
)
|
Gain on marketable securities classified as trading
|
|
|
(11,137
|
)
|
|
|
|
|
|
|
|
|
Realized loss (gain) on
available-for-sale
marketable securities
|
|
|
|
|
|
|
5,040
|
|
|
|
(5,555
|
)
|
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
|
|
|
(20,862
|
)
|
|
|
(4,354
|
)
|
|
|
(5,992
|
)
|
Change in other assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
15,828
|
|
|
|
(3,085
|
)
|
|
|
14,359
|
|
Receivables
|
|
|
(33,516
|
)
|
|
|
44,639
|
|
|
|
(23,214
|
)
|
Prepaid expenses
|
|
|
(4,198
|
)
|
|
|
(1,340
|
)
|
|
|
(3,143
|
)
|
Investment in unconsolidated subsidiaries
|
|
|
(91
|
)
|
|
|
(2,365
|
)
|
|
|
(4,180
|
)
|
Income taxes payable
|
|
|
2,844
|
|
|
|
(18,909
|
)
|
|
|
(5,282
|
)
|
Accounts payable and accrued liabilities
|
|
|
(783
|
)
|
|
|
(82,236
|
)
|
|
|
47,802
|
|
Other
|
|
|
(7,556
|
)
|
|
|
21,577
|
|
|
|
(4,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(30,846
|
)
|
|
|
3,171
|
|
|
|
109,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(7,282
|
)
|
|
|
(11,947
|
)
|
|
|
(16,976
|
)
|
Purchase of intangible assets
|
|
|
(3,481
|
)
|
|
|
|
|
|
|
|
|
Proceeds from (purchase of) marketable securities, net
|
|
|
9,211
|
|
|
|
(4,104
|
)
|
|
|
14,038
|
|
Cash paid for acquisitions, net of cash acquired and earn-outs
|
|
|
(18,734
|
)
|
|
|
(12,900
|
)
|
|
|
(3,622
|
)
|
Payment of earn-outs from acquisitions
|
|
|
(2,405
|
)
|
|
|
|
|
|
|
|
|
Premiums on life insurance policies
|
|
|
(1,711
|
)
|
|
|
(1,781
|
)
|
|
|
(1,835
|
)
|
Dividends received from unconsolidated subsidiaries
|
|
|
958
|
|
|
|
2,952
|
|
|
|
2,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(23,444
|
)
|
|
|
(27,780
|
)
|
|
|
(5,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on life insurance policy loans
|
|
|
(183
|
)
|
|
|
(770
|
)
|
|
|
(1,012
|
)
|
Borrowings under life insurance policies
|
|
|
5,500
|
|
|
|
1,721
|
|
|
|
1,736
|
|
Purchase of common stock
|
|
|
(3,136
|
)
|
|
|
(9,588
|
)
|
|
|
(64,162
|
)
|
Proceeds from issuance of common stock upon exercise of employee
stock options and in connection with an employee stock purchase
plan
|
|
|
6,526
|
|
|
|
3,609
|
|
|
|
17,436
|
|
Tax (expense) benefit from exercise of stock options
|
|
|
(611
|
)
|
|
|
(654
|
)
|
|
|
4,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
8,096
|
|
|
|
(5,682
|
)
|
|
|
(41,390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
10,427
|
|
|
|
(20,005
|
)
|
|
|
16,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(35,767
|
)
|
|
|
(50,296
|
)
|
|
|
79,159
|
|
Cash and cash equivalents at beginning of year
|
|
|
255,000
|
|
|
|
305,296
|
|
|
|
226,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
219,233
|
|
|
$
|
255,000
|
|
|
$
|
305,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used to pay interest
|
|
$
|
3,992
|
|
|
$
|
5,969
|
|
|
$
|
4,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used to pay income taxes
|
|
$
|
8,111
|
|
|
$
|
24,369
|
|
|
$
|
47,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2010
|
|
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 recruitment, outsourced
recruiting and leadership and talent consulting on a retained
basis. The Companys worldwide network of 76 offices in 36
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
$1.0 million, $3.0 million and $2.9 million
during fiscal 2010, 2009 and 2008, respectively.
The Company considers events or transactions that occur after
the balance sheet date but before the financial statements are
issued to provide additional evidence relative to certain
estimates or to identify matters that require additional
disclosures. Subsequent events have been evaluated through the
date of issuance of these consolidated financial statements.
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 consolidated financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from these estimates and
changes in the estimates are reported in current operations. The
most significant areas that require management judgment are
revenue recognition, deferred compensation, evaluation of the
carrying value of receivables, marketable securities, 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
performed on a retained basis, middle-management recruitment and
leadership and talent consulting services. Fee revenue from
recruitment activities is generally one-third of the estimated
first year cash compensation plus a percentage of the fee to
cover indirect expenses. Fee revenue from leadership and talent
consulting services 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, which are accounted
for as revenue in its consolidated statements of operations.
F-9
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 for doubtful
accounts for balances identified as uncollectible. Write-offs of
accounts receivable were $7.4 million, $7.0 million
and $8.1 million during fiscal 2010, 2009 and 2008,
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.
These investments are recorded at fair value and are classified
as marketable securities in the accompanying consolidated
balance sheets. Certain investments, which the Company intends
to sell within the next twelve months, are carried as current
assets. Investments are made based on the Companys
investment policy which restricts the types of investments that
can be made.
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 income (loss) in interest and other income
(loss), net.
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.
Available-for-sale
securities consist of time deposits. The changes in fair values,
net of applicable taxes, are recorded as unrealized (losses)
gains as a component of accumulated other comprehensive 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 income (loss),
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 2010 and 2008, no
other-than-temporary
impairment was recognized, compared to a write-down of
$15.9 million during fiscal 2009 (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 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. 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 is 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 is 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. The annual goodwill impairment test performed
as of January 31, 2010, 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 2010.
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. For intangible assets subject to amortization,
an impairment loss is recognized if the carrying amount of the
intangible assets is not recoverable and exceeds fair value. The
carrying amount of the intangible assets is considered not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from use of the asset. As of April 30,
2010 and 2009, there were no indicators of impairment with
respect to the Companys intangible assets.
Compensation
and Benefits Expense
Compensation and benefits expense in the accompanying statements
of operations consist of compensation and benefits paid to
consultants, executive officers, and administrative and support
personnel. The most significant portions of this expense are
salaries and the annual performance related bonus paid to
consultants. Compensation and benefits are recognized when
incurred. Management makes certain estimates related to the
annual performance related bonus, which is generally paid within
twelve months following the fiscal year end. Management
reevaluates the estimates up to the payment date, and any
changes in the estimate are reported in current operations.
Other expenses included in this line item are changes in the
deferred compensation liabilities and cash surrender value
(CSV) of company owned life insurance
(COLI) contracts, amortization of stock compensation
awards, payroll taxes and employee insurance benefits.
Deferred
Compensation and Pension Plans
For financial accounting purposes, the Company estimates the
present value of the future benefits payable under the deferred
compensation and pension 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 Senior Executive Incentive
Plan (SEIP), Wealth Accumulation Plan
(WAP) and Enhanced Wealth Accumulation Plan
(EWAP) and the projected unit credit
method for the Worldwide Executive Benefit Plan
(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.
F-11
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
Surrender Value of Life Insurance
The change in the CSV of company COLI contracts, net of
insurance premiums paid and gains realized, is reported in
compensation and benefits expense. As of April 30, 2010 and
2009, the Company held contracts with gross CSV of
$136.0 million and $124.7 million, offset by
outstanding policy loans of $66.9 million and
$61.6 million, respectively. If these insurance companies
were to become insolvent, the Company would be considered a
general creditor for $32.3 and $31.9 million of net CSV as
of April 30, 2010 and April 30, 2009, respectively;
therefore these assets are subject to risk. Management routinely
monitors the credit ratings of these insurance companies.
Restructuring
Charges
The Company accounts for its restructuring charges as a
liability when the costs are incurred and are recorded at fair
value. Changes in the estimates of the restructuring charges are
recorded in the period the change is determined.
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, SARs, restricted stock and an
Employee Stock Purchase Plan (ESPP). The Company
recognizes compensation expense related to restricted stock and
SARs and the estimated fair value of stock options and stock
purchases under the ESPP.
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 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 income (loss),
were $2.0 million, $0.4 million and $0.6 million
during fiscal 2010, 2009 and 2008, respectively.
Income
Taxes
There are 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.
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 sustained upon
settlement. The difference between the benefit recognized for a
position and the tax benefit claimed on a tax return is referred
to as an unrecognized tax benefit. The Company records income
tax related interest and penalties within income tax expense.
F-12
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Value of Financial Instruments
The Company measures the fair values of its financial
instruments in accordance with accounting guidance that defines
fair value, provides guidance for measuring fair value and
requires certain disclosures. The guidance also 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 guidance
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, 2010 and 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, auction rate securities (ARS) 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 ARS and put option, 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, 2010 and 2009, the Company had no other
significant credit concentrations.
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 of fiscal 2009, 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.
F-13
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Recently
Adopted Accounting Standards
In July 2009, the Financial Accounting Standards Board
(FASB) implemented the FASB Accounting Standards
Codification (the Codification) as the single source
of authoritative GAAP. The Codification establishes a common
referencing system for accounting standards and is generally
organized by subject matter. Use of the Codification is
effective for interim and annual periods ending after
September 15, 2009. The Company began to use the
Codification on its effective date and it had no impact on its
consolidated financial statements. In connection with the use of
the Codification, this
Form 10-K
no longer makes reference to specific accounting standards by
number or title, instead, accounting standards are referred to
in terms of the applicable subject matter.
In December 2007, the FASB issued guidance on the accounting and
reporting of business combinations which requires recognition of
all assets acquired, liabilities assumed and any noncontrolling
interest in an acquiree at fair value as of the date of
acquisition. In addition, this guidance requires that
acquisition-related transaction and restructuring costs be
charged to expense as incurred, and changes the recognition and
measurement criteria for certain assets and liabilities
including those arising from contingencies, contingent
consideration, and bargain purchases. This guidance is effective
for business combinations with an effective date beginning
January 1, 2009 or later. The Company applied this new
guidance to its acquisition of Whitehead Mann and SENSA
Solutions, Inc, which were acquired in fiscal 2010.
In December 2007, the FASB issued guidance on the accounting and
reporting of noncontrolling interests in consolidated financial
statements which requires entities report noncontrolling
interests in subsidiaries as equity in the consolidated
financial statements and to account for the transactions with
noncontrolling interest owners as equity transactions provided
the parent retains controlling interests in the subsidiary. The
guidance also requires new and expanded disclosure and is
effective from fiscal years beginning on or after
December 15, 2008. The Company currently does not have
significant minority interest in its consolidated subsidiaries
and, as such, the guidance did not have an impact on the
Companys consolidated financial position and results of
operations.
In April 2009, the FASB issued guidance that fair value
disclosures required for financial instruments on an annual
basis be presented for all interim reporting periods beginning
with the first interim period ending after June 15, 2009
with earlier application permitted. The adoption of this
guidance did not have a material impact on the Companys
consolidated financial position and results of operations.
In April 2009, the FASB issued additional guidance for
estimating fair value when the volume and level of activity for
the asset and liability have significantly decreased and also on
identifying circumstances that indicate a transaction is not
orderly. This guidance also requires expanded disclosure about
how fair value is measured, changes to valuation methodologies,
and additional disclosures for debt and equity securities. This
guidance was effective for reporting periods ending after
June 15, 2009 with earlier adoption permitted. The adoption
of this guidance did not have a material impact on the
Companys consolidated financial position and results of
operations.
In May 2009, the FASB issued guidance which establishes general
standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are
issued or available to be issued. In addition, it requires
entities to disclose the date through which subsequent events
were evaluated as well as the rationale for why that date was
selected. This guidance was effective for interim or annual
financial periods ending after June 15, 2009, and shall be
applied prospectively. Adoption did not have an impact on the
Companys consolidated financial position and results of
operations. Subsequent events through the filing date of this
Form 10-K
have been evaluated for disclosure and recognition and the
Company concluded that no subsequent events have occurred that
would require recognition in the consolidated financial
statements.
Recently
Issued Accounting Standards
In January 2010, the FASB issued guidance on Fair Value
Measurements and Disclosures: Improving Disclosures about Fair
Value Measurements, which amends the disclosure guidance with
respect to fair value measurements. Specifically, the new
guidance requires disclosure of amounts transferred in and out
of Levels 1 and
F-14
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2 fair value measurements, a reconciliation presented on a gross
basis rather than a net basis of activity in Level 3 fair
value measurements, greater disaggregation of the assets and
liabilities for which fair value measurements are presented and
more robust disclosure of the valuation techniques and inputs
used to measure Level 2 and 3 fair value measurements. The
guidance is effective for interim and annual reporting periods
beginning after December 15, 2009, with the exception of
the new guidance around the Level 3 activity
reconciliation, which is effective for fiscal years beginning
after December 15, 2010. The Company adopted the new
guidance on February 1, 2010. The adoption did not impact
the Companys financial position, results of operations or
liquidity.
|
|
2.
|
Basic and
Diluted Earnings (Loss) Per Share
|
Basic earnings (loss) per common share was computed by dividing
net earnings (loss) by the weighted-average number of common
shares outstanding. Diluted earnings per common share reflects
the potential dilution that 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
earnings (loss) attributable to common stockholders by the
weighted-average number of common shares outstanding plus
dilutive common equivalent shares. During fiscal 2010 and fiscal
2008, stock appreciation rights (SARs) and option to
purchase 1.48 million shares and 0.59 million shares
were outstanding but not included in the computation of diluted
earnings per share because they were anti-dilutive. 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.
The following table summarizes basic and diluted earnings (loss)
per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Net earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
5,298
|
|
|
$
|
(10,092
|
)
|
|
$
|
66,211
|
|
Interest expense on convertible securities, net of related tax
effects
|
|
|
|
|
|
|
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to common stockholders
|
|
$
|
5,298
|
|
|
$
|
(10,092
|
)
|
|
$
|
66,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average number of common shares outstanding
|
|
|
44,413
|
|
|
|
43,522
|
|
|
|
44,012
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
53
|
|
|
|
|
|
|
|
109
|
|
Restricted stock
|
|
|
587
|
|
|
|
|
|
|
|
319
|
|
Stock options
|
|
|
401
|
|
|
|
|
|
|
|
1,078
|
|
Employee stock purchase plan
|
|
|
3
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average number of common shares outstanding
|
|
|
45,457
|
|
|
|
43,522
|
|
|
|
45,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.12
|
|
|
$
|
(0.23
|
)
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) earnings per share
|
|
$
|
0.12
|
|
|
$
|
(0.23
|
)
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Comprehensive
Income (Loss)
|
Comprehensive income (loss) is comprised of net income (loss)
and all changes to stockholders equity, except those
changes resulting from investments by stockholders (changes in
paid in capital) and distributions to stockholders (dividends),
and is reported in the accompanying consolidated statements of
stockholders equity.
The components of accumulated other comprehensive income were as
follows:
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Foreign currency translation adjustments
|
|
$
|
18,900
|
|
|
$
|
3,523
|
|
Defined benefit pension adjustments, net of taxes
|
|
|
(5,966
|
)
|
|
|
2,762
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
12,934
|
|
|
$
|
6,285
|
|
|
|
|
|
|
|
|
|
|
Stock-Based
Compensation
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Restricted stock
|
|
$
|
16,470
|
|
|
$
|
15,633
|
|
|
$
|
13,590
|
|
Stock options and SARs
|
|
|
853
|
|
|
|
210
|
|
|
|
1,806
|
|
ESPP
|
|
|
406
|
|
|
|
458
|
|
|
|
553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense, pre-tax
|
|
|
17,729
|
|
|
|
16,301
|
|
|
|
15,949
|
|
Tax benefit from stock-based compensation expense
|
|
|
(6,471
|
)
|
|
|
(5,950
|
)
|
|
|
(5,821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense, net of tax
|
|
$
|
11,258
|
|
|
$
|
10,351
|
|
|
$
|
10,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Expected volatility
|
|
|
48.91
|
%
|
|
|
44.11
|
%
|
|
|
44.42
|
%
|
Risk-free interest rate
|
|
|
2.53
|
%
|
|
|
3.27
|
%
|
|
|
4.60
|
%
|
Expected option life (in years)
|
|
|
5.00
|
|
|
|
4.25
|
|
|
|
4.00
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
F-16
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
Stock
Incentive Plans
The Korn/Ferry International 2008 Stock Incentive Plan (the
2008 Plan) was amended by the Companys
stockholders on September 10, 2009, at the 2009 Annual
Stockholder Meeting. The amendment made available an additional
2,360,000 shares of the Companys common stock for
stock-based compensation awards. The 2008 Plan, as amended,
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. The maximum number of
shares of common stock available for stock option issuance under
the 2008 Plan is 3,980,000 shares, subject to adjustment
for certain changes in the Companys capital structure and
other extraordinary events.
Options granted to officers, non-employee directors and other
key employees generally vest over a three to four 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.
Stock
Incentive Plans
Stock options and SARs transactions under the Companys
stock incentive plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
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
|
|
|
3,113
|
|
|
$
|
14.83
|
|
|
|
3,564
|
|
|
$
|
14.79
|
|
|
|
4,738
|
|
|
$
|
14.52
|
|
Granted
|
|
|
621
|
|
|
$
|
11.26
|
|
|
|
6
|
|
|
$
|
14.54
|
|
|
|
6
|
|
|
$
|
21.11
|
|
Exercised
|
|
|
(531
|
)
|
|
$
|
8.21
|
|
|
|
(127
|
)
|
|
$
|
8.91
|
|
|
|
(1,095
|
)
|
|
$
|
13.29
|
|
Forfeited/expired
|
|
|
(480
|
)
|
|
$
|
18.14
|
|
|
|
(330
|
)
|
|
$
|
16.61
|
|
|
|
(85
|
)
|
|
$
|
19.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
2,723
|
|
|
$
|
14.72
|
|
|
|
3,113
|
|
|
$
|
14.83
|
|
|
|
3,564
|
|
|
$
|
14.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year
|
|
|
2,142
|
|
|
$
|
15.68
|
|
|
|
3,042
|
|
|
$
|
14.74
|
|
|
|
3,257
|
|
|
$
|
14.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2010, the aggregate intrinsic value of
options outstanding and options exercisable were
$8.9 million and $6.0 million, respectively.
Included in the table above are 45,235 SARs outstanding and
exercisable as of April 30, 2010 with a weighted-average
exercise price of $11.87. As of April 30, 2010, there was
$2.4 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 1.8 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.
F-17
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Outstanding stock options and SARs are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2010
|
|
|
|
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)
|
|
|
$ 6.26 - $ 8.10
|
|
|
650
|
|
|
|
2.6
|
|
|
$
|
7.72
|
|
|
|
650
|
|
|
|
2.6
|
|
|
$
|
7.72
|
|
$ 8.11 - $14.93
|
|
|
628
|
|
|
|
5.9
|
|
|
$
|
10.84
|
|
|
|
77
|
|
|
|
3.4
|
|
|
$
|
10.85
|
|
$14.94 - $19.10
|
|
|
709
|
|
|
|
4.0
|
|
|
$
|
17.60
|
|
|
|
681
|
|
|
|
3.9
|
|
|
$
|
17.60
|
|
$19.11 - $36.19
|
|
|
736
|
|
|
|
2.5
|
|
|
$
|
21.45
|
|
|
|
734
|
|
|
|
2.5
|
|
|
$
|
21.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,723
|
|
|
|
3.7
|
|
|
$
|
14.72
|
|
|
|
2,142
|
|
|
|
3.0
|
|
|
$
|
15.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information pertaining to stock options and SARs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Weighted-average fair value of stock options granted
|
|
$
|
5.07
|
|
|
$
|
5.77
|
|
|
$
|
8.54
|
|
Total fair value of stock options and SARs vested
|
|
|
612
|
|
|
|
1,986
|
|
|
|
4,103
|
|
Total intrinsic value of stock options exercised
|
|
|
2,631
|
|
|
|
640
|
|
|
|
12,552
|
|
Total intrinsic value of SARs paid
|
|
|
75
|
|
|
|
|
|
|
|
|
|
Restricted
Stock
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.
Restricted stock activity is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
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
|
|
|
2,387
|
|
|
$
|
15.50
|
|
|
|
1,952
|
|
|
$
|
22.01
|
|
|
|
1,356
|
|
|
$
|
19.26
|
|
Granted
|
|
|
1,017
|
|
|
$
|
10.57
|
|
|
|
1,288
|
|
|
$
|
17.57
|
|
|
|
1,216
|
|
|
$
|
24.16
|
|
Vested
|
|
|
(754
|
)
|
|
$
|
20.43
|
|
|
|
(602
|
)
|
|
$
|
21.25
|
|
|
|
(506
|
)
|
|
$
|
19.88
|
|
Forfeited/expired
|
|
|
(170
|
)
|
|
$
|
17.91
|
|
|
|
(251
|
)
|
|
$
|
19.67
|
|
|
|
(114
|
)
|
|
$
|
22.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested, end of year
|
|
|
2,480
|
|
|
$
|
9.93
|
|
|
|
2,387
|
|
|
$
|
15.50
|
|
|
|
1,952
|
|
|
$
|
22.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2010, there was $24.6 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 2.2 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. During fiscal 2010 and
2009, 151,864 shares and
F-18
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
135,994 shares of restricted stock totaling
$1.8 million and $2.2 million, respectively, were
repurchased by the Company at the option of the employee to pay
for taxes related to vesting of restricted stock.
Employee
Stock Purchase Plan
The Company has 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
2010, 2009, and 2008, employees purchased 209,840 shares at
$10.66 per share, 209,510 shares at $11.78 per share, and
151,132 shares at $19.06 per share, respectively. At
April 30, 2010, the ESPP had approximately 0.4 million
shares available for future issuance.
As of April 30, 2010 marketable securities consisted of the
following:
|
|
|
|
|
|
|
Trading
|
|
|
|
(In thousands)
|
|
|
Auction rate securities
|
|
$
|
7,455
|
|
Auction rate securities put option
|
|
|
745
|
|
Mutual funds(1)
|
|
|
69,019
|
|
|
|
|
|
|
Total
|
|
|
77,219
|
|
Less: current portion of marketable securities
|
|
|
(4,114
|
)
|
|
|
|
|
|
Non-current marketable securities
|
|
$
|
73,105
|
|
|
|
|
|
|
As of April 30, 2009 marketable securities consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-
|
|
|
|
|
|
|
Trading
|
|
|
Sale(2)
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Auction rate securities
|
|
$
|
11,329
|
|
|
$
|
|
|
|
$
|
11,329
|
|
Auction rate securities put option
|
|
|
1,096
|
|
|
|
|
|
|
|
1,096
|
|
Mutual funds(1)
|
|
|
60,828
|
|
|
|
|
|
|
|
60,828
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current marketable securities
|
|
$
|
70,992
|
|
|
$
|
|
|
|
$
|
70,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These investments are held in trust for settlement of the
Companys obligations under certain of its deferred
compensation plans with $4.1 million and $2.3 million
classified as current assets as of April 30, 2010 and 2009,
respectively (see Note 7). |
|
(2) |
|
Due to the short maturities for these instruments fair value
approximates amortized cost. |
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 mutual funds for which market prices
are readily available. The Companys investments in
marketable
F-19
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
securities also include student loan portfolios (auction
rate securities), which are classified as non-current
marketable securities and reflected at fair value.
As of April 30, 2010 and 2009, the Companys
marketable securities included $69.0 million (net of
unrealized gains of $2.0 million) and $60.8 million
(net of unrealized losses of $10.0 million) respectively,
held in trust for settlement of the Companys obligations
under certain of its deferred compensation plans, of which
$64.9 million and $58.5 million are classified as
non-current, respectively. The Companys obligations for
which these assets were held in trust totaled $69.0 million
and $60.7 million as of April 30, 2010 and 2009,
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 fiscal 2009, the
Company recorded an
other-than-temporary
impairment charge of $15.9 million in the accompanying
statement of operations interest and other income
(loss), net. As of April 30, 2010 and 2009, these
securities were classified as trading (see Note 1).
As of April 30, 2010 and 2009, $8.2 million par value
(with a fair value of $7.5 million) and $12.4 million
par value (with a fair value of $11.3 million),
respectively, of the Companys marketable securities
consisted of ARS, of which all were securities collateralized by
student loan portfolios, and are guaranteed by the United States
government. The Company continues to earn interest on all of its
ARS as of April 30, 2010. Due to events in credit markets,
the ARS held by the Company have experienced failed auctions
during fiscal 2010 and 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 ARS held by the Company as of April 30, 2010 and 2009.
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 ARS as of
April 30, 2010 and 2009.
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 ARS 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 ARS 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
ARS from the Company any time after the Acceptance Date as long
as the Company receives the par value. The Agreement covers
$8.2 million par value (fair value of $7.5 million) of
the Companys ARS as of April 30, 2010.
The Company accounted for the Put Option as a freestanding
financial instrument and elected to record the value under fair
value option. 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 to transfer
these ARS from
available-for-sale
to trading securities. The transfer resulted in the reversal of
prior unrealized losses, net of taxes, on the ARS from
accumulated other comprehensive income (loss) and the
recognition of the unrealized losses as a charge to income of
$1.6 million during fiscal 2009. During fiscal 2009, the
Company recognized realized gains on its ARS of
$0.5 million offset by the fair value loss adjustment to
the Put Option, respectively. During fiscal 2010, the Company
realized losses on its ARS of $0.4 million.
F-20
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, 2010
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
|
Cash equivalents
|
|
$
|
148,238
|
|
|
$
|
148,238
|
|
|
$
|
|
|
|
$
|
|
|
Auction rate securities
|
|
|
7,455
|
|
|
|
|
|
|
|
|
|
|
|
7,455
|
|
Auction rate securities put option
|
|
|
745
|
|
|
|
|
|
|
|
|
|
|
|
745
|
|
Mutual funds
|
|
|
69,019
|
|
|
|
69,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
225,457
|
|
|
$
|
217,257
|
|
|
$
|
|
|
|
$
|
8,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Mutual funds
|
|
|
60,828
|
|
|
|
60,828
|
|
|
|
|
|
|
|
|
|
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) during the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
Auction Rate Securities
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
12,425
|
|
|
$
|
20,475
|
|
Auction rate securities put option
|
|
|
(351
|
)
|
|
|
1,096
|
|
Reversal of unrealized loss associated with transfer of
securities to trading
|
|
|
|
|
|
|
780
|
|
Unrealized gain (loss) included in operations
|
|
|
351
|
|
|
|
(1,096
|
)
|
Unrealized loss included in accumulated other comprehensive
income (loss)
|
|
|
|
|
|
|
(586
|
)
|
Sale of securities
|
|
|
(4,225
|
)
|
|
|
(9,025
|
)
|
Reversal of unrealized loss associated with sales of securities
at par
|
|
|
|
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
8,200
|
|
|
$
|
12,425
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2009, the global economic and financial crisis led
to a deterioration of the labor markets and a reduction in the
Companys fee revenue. To align its cost structure with the
new environment the Company implemented two restructuring plans
to reduce its cost structure by reducing the work force and
consolidating premises. 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.
During fiscal 2010, the Company implemented a restructuring plan
to eliminate redundancies as a result of the acquisition of
Whitehead Mann and reorganized its
go-to-market
and operating structure in Europe, Middle East
F-21
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and Africa (EMEA) region. These initiatives resulted
in restructuring charges of $25.8 million against
operations during fiscal 2010, of which $16.0 million and
$9.8 million related to severance costs and the
consolidation of premises, respectively. These restructuring
charges were partially offset by $5.1 million of reductions
from previous restructuring charges resulting in net
restructuring costs of $20.7 million during fiscal 2010.
The Companys basic and diluted earnings per share for
fiscal 2010 would have decreased by $0.07 per share had
reductions of previously recorded restructuring charges of
$5.1 million (or $3.2 million, net of taxes) not been
recorded.
Changes in the restructuring liability are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Facilities
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
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
|
|
Additions charged to expense
|
|
|
15,940
|
|
|
|
9,835
|
|
|
|
25,775
|
|
Reductions
|
|
|
(2,331
|
)
|
|
|
(2,771
|
)
|
|
|
(5,102
|
)
|
Non-cash items
|
|
|
(370
|
)
|
|
|
(452
|
)
|
|
|
(822
|
)
|
Reductions for cash payments
|
|
|
(21,849
|
)
|
|
|
(8,691
|
)
|
|
|
(30,540
|
)
|
Exchange rate fluctuations
|
|
|
770
|
|
|
|
367
|
|
|
|
1,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability as of April 30, 2010
|
|
$
|
2,714
|
|
|
$
|
11,095
|
|
|
$
|
13,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2010 and 2009, the restructuring liability
is included in current portion of other accrued liabilities on
the consolidated balance sheet, except for $5.2 million and
$5.4 million, respectively, of facilities costs which
primarily relate to commitments under operating leases, net of
sublease income, which are included in other non-current
liabilities and will be paid over the next eight years.
The restructuring liability by segment is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2010
|
|
|
|
Severance
|
|
|
Facilities
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Executive Recruitment
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
5
|
|
|
$
|
845
|
|
|
$
|
850
|
|
EMEA
|
|
|
2,429
|
|
|
|
7,816
|
|
|
|
10,245
|
|
Asia Pacific
|
|
|
|
|
|
|
773
|
|
|
|
773
|
|
South America
|
|
|
115
|
|
|
|
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Executive Recruitment
|
|
|
2,549
|
|
|
|
9,434
|
|
|
|
11,983
|
|
Futurestep
|
|
|
165
|
|
|
|
1,661
|
|
|
|
1,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability as of April 30, 2010
|
|
$
|
2,714
|
|
|
$
|
11,095
|
|
|
$
|
13,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2009
|
|
|
|
Severance
|
|
|
Facilities
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Executive Recruitment
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
3,052
|
|
|
$
|
3,187
|
|
|
$
|
6,239
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability as of April 30, 2009
|
|
$
|
10,554
|
|
|
$
|
12,807
|
|
|
$
|
23,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
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 or
contributions made by the Company subject to vesting and
retirement or termination provisions.
The total long-term benefit liability for these plans were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Deferred compensation plans
|
|
$
|
60,890
|
|
|
$
|
48,367
|
|
Pension plan
|
|
|
3,483
|
|
|
|
2,974
|
|
Retirement plans
|
|
|
2,611
|
|
|
|
2,854
|
|
Executive Capital Accumulation Plan
|
|
|
56,810
|
|
|
|
45,043
|
|
|
|
|
|
|
|
|
|
|
Total long-term benefit obligation
|
|
$
|
123,794
|
|
|
$
|
99,238
|
|
|
|
|
|
|
|
|
|
|
Deferred
Compensation Plans
The EWAP was established in fiscal 1994, which replaced the WAP.
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. 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 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.
F-23
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pension
Plan
The Company has a defined benefit pension plan, referred to as
the WEB, covering certain executives in the U.S. 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 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
During fiscal 2010, the Company recorded an increase in deferred
compensation and pension plan liabilities of $13.4 million,
a decrease in accumulated other comprehensive income of
$8.7 million and a net decrease of $4.7 million in
deferred taxes.
During fiscal 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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
52,149
|
|
|
$
|
54,749
|
|
|
$
|
54,873
|
|
Service cost
|
|
|
339
|
|
|
|
696
|
|
|
|
1,067
|
|
Interest cost
|
|
|
3,557
|
|
|
|
3,432
|
|
|
|
3,140
|
|
Plan participants contributions with interest
|
|
|
194
|
|
|
|
367
|
|
|
|
561
|
|
Actuarial loss (gain)
|
|
|
12,848
|
|
|
|
(3,263
|
)
|
|
|
(1,560
|
)
|
Benefits paid
|
|
|
(4,197
|
)
|
|
|
(3,832
|
)
|
|
|
(3,332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
|
64,890
|
|
|
|
52,149
|
|
|
|
54,749
|
|
Less: current portion of benefit obligation
|
|
|
(4,000
|
)
|
|
|
(3,782
|
)
|
|
|
(3,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current benefit obligation
|
|
$
|
60,890
|
|
|
$
|
48,367
|
|
|
$
|
51,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net periodic benefits costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
339
|
|
|
$
|
696
|
|
|
$
|
1,067
|
|
Interest cost
|
|
|
3,557
|
|
|
|
3,432
|
|
|
|
3,140
|
|
Amortization of net transition obligation
|
|
|
|
|
|
|
212
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
3,896
|
|
|
$
|
4,340
|
|
|
$
|
4,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The weighted-average assumptions used in calculating the benefit
obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Discount rate, beginning of year
|
|
|
7.10
|
%
|
|
|
6.50
|
%
|
|
|
5.90
|
%
|
Discount rate, end of year
|
|
|
5.61
|
%
|
|
|
7.10
|
%
|
|
|
6.50
|
%
|
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
3,125
|
|
|
$
|
3,119
|
|
|
$
|
3,300
|
|
Interest cost
|
|
|
214
|
|
|
|
196
|
|
|
|
188
|
|
Actuarial loss (gain)
|
|
|
503
|
|
|
|
(4
|
)
|
|
|
(152
|
)
|
Benefits paid
|
|
|
(212
|
)
|
|
|
(186
|
)
|
|
|
(217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
|
3,630
|
|
|
|
3,125
|
|
|
|
3,119
|
|
Less: current portion of benefit obligation
|
|
|
(147
|
)
|
|
|
(151
|
)
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current benefit obligation
|
|
$
|
3,483
|
|
|
$
|
2,974
|
|
|
$
|
2,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net periodic benefits costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Interest cost
|
|
$
|
214
|
|
|
$
|
196
|
|
|
$
|
188
|
|
Amortization of actuarial gain
|
|
|
(78
|
)
|
|
|
(84
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
136
|
|
|
$
|
112
|
|
|
$
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average assumptions used in calculating the benefit
obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Discount rate, beginning of year
|
|
|
7.10
|
%
|
|
|
6.50
|
%
|
|
|
5.90
|
%
|
Discount rate, end of year
|
|
|
5.61
|
%
|
|
|
7.10
|
%
|
|
|
6.50
|
%
|
Rate of compensation increase
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
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)
|
|
|
2011
|
|
$
|
5,158
|
|
|
$
|
253
|
|
2012
|
|
|
5,039
|
|
|
|
260
|
|
2013
|
|
|
5,210
|
|
|
|
276
|
|
2014
|
|
|
5,654
|
|
|
|
291
|
|
2015
|
|
|
5,513
|
|
|
|
302
|
|
2016-2020
|
|
|
25,762
|
|
|
|
1,315
|
|
F-25
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
International
Retirement Plans
The Company also maintains various retirement plans and other
miscellaneous deferred compensation arrangements in six foreign
jurisdictions. The aggregate of the long-term benefit obligation
accrued at April 30, 2010 and 2009 is $2.6 million for
80 participants and $2.9 million for 108 participants,
respectively. The Companys contribution to these plans was
$0.4 million and $0.7 million in fiscal 2010 and 2009,
respectively.
Executive
Capital Accumulation Plan (ECAP)
The Company has an 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 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 Asia Pacific and Canada.
The Company made contributions to the ECAP during fiscal 2010,
2009 and 2008, of $1.9 million, $15.1 million and
$18.4 million, respectively. The Company expects to make an
ECAP contribution of approximately $2.0 million in fiscal
year 2011. In addition, the Company may make additional ECAP
contributions in fiscal 2011 if key employees are hired.
The ECAP is accounted for 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. During fiscal 2010 and fiscal 2008, the deferred
compensation liability increased; therefore, the Company
recognized compensation expense of $8.1 million and
$0.3 million, respectively. During fiscal 2009, the
deferred compensation liability decreased; therefore, the
Company reduced compensation expense by $9.5 million.
Changes in the ECAP liability were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
45,102
|
|
|
$
|
48,655
|
|
Employee contributions
|
|
|
2,493
|
|
|
|
5,071
|
|
Amortization of employer contributions
|
|
|
8,456
|
|
|
|
6,692
|
|
Gain (loss) on investment
|
|
|
8,875
|
|
|
|
(10,468
|
)
|
Employee distributions
|
|
|
(7,627
|
)
|
|
|
(4,929
|
)
|
Exchange rate translations
|
|
|
572
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
57,871
|
|
|
|
45,102
|
|
Current portion
|
|
|
(1,061
|
)
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
Non-current portion, end of year
|
|
$
|
56,810
|
|
|
$
|
45,043
|
|
|
|
|
|
|
|
|
|
|
Company
Owned Life Insurance
The Company purchased COLI contracts insuring employees eligible
to participate in the deferred compensation and pension plans.
The gross CSV of these contracts of $136.0 million and
$124.7 million is offset by outstanding policy loans of
$66.9 million and $61.6 million in the accompanying
consolidated balance sheets as of April 30, 2010 and 2009,
respectively. Total death benefits payable, net of loans under
COLI contracts, were $197.4 million and $197.7 million
at April 30, 2010 and 2009, respectively. Management
intends to use the future
F-26
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 2010,
COLI contracts with a net CSV of $54.6 million and death
benefits payable, net of loans, of $113.3 million were held
in trust for these purposes.
The (benefit) provision for income taxes is based on reported
income (loss) 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.
The (benefit) provision for domestic and foreign income taxes
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Current income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
862
|
|
|
$
|
3,378
|
|
|
$
|
14,788
|
|
State
|
|
|
2,281
|
|
|
|
601
|
|
|
|
5,658
|
|
Foreign
|
|
|
6,738
|
|
|
|
4,859
|
|
|
|
21,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current provision for income taxes
|
|
|
9,881
|
|
|
|
8,838
|
|
|
|
42,073
|
|
Deferred income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,729
|
)
|
|
|
(4,459
|
)
|
|
|
(1,699
|
)
|
State
|
|
|
(1,303
|
)
|
|
|
(1,002
|
)
|
|
|
(1,805
|
)
|
Foreign
|
|
|
(6,334
|
)
|
|
|
(2,993
|
)
|
|
|
(2,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred benefit for income taxes
|
|
|
(10,366
|
)
|
|
|
(8,454
|
)
|
|
|
(5,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (benefit) provision for income taxes
|
|
$
|
(485
|
)
|
|
$
|
384
|
|
|
$
|
36,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The domestic and foreign components of income (loss) 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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Domestic
|
|
$
|
10,669
|
|
|
$
|
(7,806
|
)
|
|
$
|
38,865
|
|
Foreign
|
|
|
(5,947
|
)
|
|
|
(4,267
|
)
|
|
|
60,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before (benefit) provision for income taxes and
equity in earnings of unconsolidated subsidiaries
|
|
$
|
4,722
|
|
|
$
|
(12,073
|
)
|
|
$
|
98,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reconciliation of the statutory federal income tax rate to
the effective consolidated tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
U.S. federal statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Foreign source income, net of credits used
|
|
|
52.9
|
|
|
|
1.8
|
|
|
|
2.1
|
|
Income subject to net differing foreign tax rates
|
|
|
52.6
|
|
|
|
(27.8
|
)
|
|
|
(1.9
|
)
|
Foreign tax credits generated
|
|
|
|
|
|
|
47.0
|
|
|
|
|
|
COLI increase, net
|
|
|
(69.8
|
)
|
|
|
(1.3
|
)
|
|
|
(1.7
|
)
|
Repatriation of foreign earnings
|
|
|
38.5
|
|
|
|
|
|
|
|
0.3
|
|
State income taxes, net of federal benefit
|
|
|
13.8
|
|
|
|
2.2
|
|
|
|
3.9
|
|
Adjustments for contingencies and valuation allowance
|
|
|
52.7
|
|
|
|
(54.7
|
)
|
|
|
(1.5
|
)
|
Tax exempt interest income
|
|
|
(0.7
|
)
|
|
|
2.0
|
|
|
|
(0.5
|
)
|
Expense disallowances
|
|
|
7.5
|
|
|
|
(3.4
|
)
|
|
|
0.5
|
|
Uncertain tax position reserve reversal
|
|
|
(208.8
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
16.0
|
|
|
|
(4.0
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(10.3
|
)%
|
|
|
(3.2
|
)%
|
|
|
36.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net effects of temporary
difference between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Components of the deferred tax
assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
$
|
64,984
|
|
|
$
|
40,861
|
|
Loss and credit carryforwards
|
|
|
48,142
|
|
|
|
24,513
|
|
Allowance for doubtful accounts
|
|
|
1,020
|
|
|
|
1,658
|
|
Property and equipment
|
|
|
739
|
|
|
|
1,315
|
|
Unrealized losses
|
|
|
20
|
|
|
|
4,130
|
|
Other
|
|
|
5,761
|
|
|
|
8,198
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
120,666
|
|
|
|
80,675
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangibles
|
|
|
(6,340
|
)
|
|
|
(5,513
|
)
|
Other
|
|
|
|
|
|
|
(5,703
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(6,340
|
)
|
|
|
(11,216
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowances
|
|
|
(33,740
|
)
|
|
|
(9,735
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
80,586
|
|
|
$
|
59,724
|
|
|
|
|
|
|
|
|
|
|
Certain deferred tax amounts and valuation allowances were
adjusted during fiscal 2010 based on differences between fiscal
2009 provision and related tax return filings. Changes to the
valuation allowance balances are recorded through the provision
for income taxes in the respective year.
F-28
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The deferred tax amounts have been classified in the
consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
21,974
|
|
|
$
|
15,447
|
|
Deferred tax liabilities
|
|
|
(1,130
|
)
|
|
|
(864
|
)
|
|
|
|
|
|
|
|
|
|
Current deferred tax asset, net
|
|
|
20,844
|
|
|
|
14,583
|
|
|
|
|
|
|
|
|
|
|
Non-current:
|
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
|
117,244
|
|
|
|
65,228
|
|
Deferred tax liabilities
|
|
|
(23,762
|
)
|
|
|
(10,352
|
)
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax asset, gross
|
|
|
93,482
|
|
|
|
54,876
|
|
Valuation allowance
|
|
|
(33,740
|
)
|
|
|
(9,735
|
)
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax asset, net
|
|
|
59,742
|
|
|
|
45,141
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
80,586
|
|
|
$
|
59,724
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets are reduced by a valuation allowance if it
is more likely than not that some portion or all of the deferred
tax asset will not be realized. Management believes uncertainty
exists regarding the realizability of certain foreign tax credit
carry-forwards and capital losses and has, therefore,
established a valuation allowance for this portion of the
deferred tax asset. Realization of the deferred income tax asset
is dependent on the Company generating sufficient taxable income
of the appropriate nature in future years as the deferred income
tax charges become currently deductible for tax reporting
purposes. Although realization is not assured, management
believes that it is more likely than not that the net deferred
income tax asset will be realized.
At April 30, 2010, the Company had state net operating loss
carryforwards of approximately $14.5 million to offset
future tax liabilities. The losses attributable to the various
states may be carried forward 5 to 20 years.
During fiscal 2010 and fiscal 2008, the Company made an accrual
to reflect the Companys decision to repatriate an
additional portion of its previously undistributed foreign
earnings, which resulted in a tax expense of $3.5 million
and $1.6 million, respectively. No accrual was made in
fiscal 2009. Other than these amounts, the Company has not
provided for U.S. deferred income taxes on approximately
$91.9 million of undistributed earnings and associated
withholding taxes of the foreign subsidiaries as the Company has
taken the position that its foreign earnings will be permanently
reinvested offshore. If a distribution of these earnings were to
be made, the Company might be subject to both foreign
withholding taxes and U.S. income taxes, net of any
allowable foreign tax credits or deductions. However, an
estimate of these taxes is not practicable.
The Companys income tax returns are subject to audit by
the Internal Revenue Services and various state and foreign tax
authorities. Significant disputes may arise with these tax
authorities involving issues of the timing and amount of
deductions and allocations of income among various tax
jurisdictions because of differing interpretations of tax laws
and regulations. The Company periodically evaluates its
exposures associated with tax filing positions. While management
believes its positions comply with applicable laws, the Company
records liabilities based upon estimates of the ultimate
outcomes of these matters. During fiscal 2010, the Company
reversed a $10.3 million reserve for a previous uncertain
tax position, as the federal statute of limitations expired. As
of April 30, 2010 and 2009, the Company had unrecognized
tax benefits of $3.5 and $13.4 million, which are included
in the accompanying consolidated balance sheet
income taxes payable. This amount, if recognized, would have a
favorable impact on the Companys effective tax rate.
F-29
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)