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,
2011
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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 þ 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. o
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 27, 2011 was 47,083,285 shares. The aggregate
market value of the registrants voting and non-voting
common stock held by non-affiliates of the registrant on
October 29, 2010, 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 $929,025,508 based upon the closing market price
of $17.63 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 2011 Annual Meeting of Stockholders scheduled to be held on
September 28, 2011 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, 2011
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, deploy,
develop and reward their talent. We opened our first office in
Los Angeles in 1969 and currently operate in 76 offices in 35
countries. As of April 30, 2011, we had
2,463 full-time employees, including 471 executive
recruitment and 162 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 78% of our executive recruitment assignments
performed during fiscal 2011 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/healthcare provider 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 five fundamental needs board
effectiveness, Chief Executive Officer (CEO) &
senior management effectiveness, leadership development and
enterprise learning, organization transformation and talent
portfolio 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 Services: Our executive
recruitment services concentrates on searches for positions with
annual compensation of $250,000 or more, or comparable in
foreign locations, 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 first
year annual cash compensation for the position being filled
regardless of whether the position is filled. Contingency firms
generally work on a non-exclusive basis and are compensated only
upon successfully placing a recommended candidate.
Leadership and Talent Consulting
Services: 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 to not only attract but to deploy,
develop and reward 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
As the global economy continues to recover and expand, we
believe the business outlook for the talent management industry
is positive. Contributing to this is a confluence of market
trends that will continue to fuel job growth and hiring, which
include the following:
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 strengthening 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-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 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. In order to meet this
objective, we will continue to pursue five strategic initiatives:
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1.
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Drive
an Integrated, Solutions-Based
Go-to-Market
Strategy
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Differentiating Client Value Proposition
Korn/Ferry offers its clients a global, integrated,
enterprise-wide talent management solution. To that end, we have
made progress in helping clients more effectively and
efficiently, attract, deploy, develop and reward their workforce.
In analyzing talent management across the
attract-deploy-develop-reward value chain, Korn/Ferry has
developed clear, industry-differentiating strengths through its
market leading position in Executive Recruitment and RPO
solutions, with distinct, diversified capabilities along the
rest of the value chain through the Companys LTC service
line.
Our synergistic
go-to-market
strategy, utilizing all three of our service lines, is
systematically driving more integrated, scalable client
relationships, while accelerating our evolution to a
consultative solutions-based organization. This is evidenced by
the fact that nearly 86% of our top 50 clients utilize at least
two of our service lines.
We are an increasingly diversified enterprise with a unique
presence in the world of human capital services and products,
which represents an estimated $400 billion global market
opportunity.
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
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manage multiple hires across geographical regions. In fiscal
2009, we established our Premier Client Partnership
(PCP) program to act as a catalyst for change as
we transform our Company from individual operators to an
integrated talent solutions provider, in an effort to drive
major global and regional strategic account development as well
as to provide a framework for all of our client development
activities. Today, the PCP program consists of global colleagues
from every line of business and geography. Our goal is to
cascade this methodology throughout every market, country and
office.
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Deliver
Unparalleled Client Excellence
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World-class Intellectual Property
Korn/Ferry continues to scale and more deeply embed its
industry-leading intellectual property within the talent
management process of our global clients.
Our
IP-driven
Lominger tools and services are being utilized by our clients
for everything from organizational development and job profiling
to selection, training, individual and team development,
succession planning and more. We have almost doubled the
Lominger business since we acquired it in 2006. As a
product-focused offering, Lominger technology helps us to
generate long-term relationships with clients. We continue to
seek ways to scale the Lominger product offering to our global
clients.
Global organizations utilizing our firms validated
assessment capability are realizing the power and benefits of
Korn/Ferry IP in their talent evaluation process. Our assessment
capability, currently utilized by more than 60% of our clients,
can improve executive retention and prospects of promotion. We
believe companies that use Korn/Ferrys assessments to
choose executives are more likely to find candidates that they
would not only retain, but soon promote.
Technology. Information technology has become
a critical element of the executive talent management business.
We have made significant investments in developing a robust
technology infrastructure and a web-based executive recruitment
platform,
e-Korn/Ferry.
In fiscal 2011, we continued to invest in enhanced tools and
knowledge management 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 in Searcher Express provides a global
business development opportunity tracking system for all lines
of business.
We also embarked on a worldwide upgrade of our desktop and
network infrastructure to provide
best-in-class
tools for our staff, including the rollout of a new intranet
platform, Inside K/F, for enhanced information sharing
and collaboration across markets and geographies. The new
intranet also includes a project calendar function that
organizes activities by individuals and lines of business, and a
utilization management system to track client bookings via
consultants
Outlook®
calendars. We also rolled out major enhancements to our client
engagement collaboration portal, the Talent Dashboard, adding a
talent pipeline feature as well as a voting tool to facilitate
committee-based candidate selection.
The technology supporting LTC continued to evolve in fiscal 2011
through the integration of Lomingers intellectual property
into our assessment and talent management products. Our
newly-developed intellectual property platform consolidates a
rich set of assessment instruments and reports into a common web
portal for our LTC clients. Usage of Korn/Ferry
Advantage, a technology-based assessment process for our
core executive recruitment business, stands at 64% of all search
engagements.
The Korn/Ferry Advantage: When launched in
2007, the goal of the Korn/Ferry Advantage was to
establish a strategic leadership framework to engage with
clients as they think about their own strategic plan and the
candidate profiles that will be required to make their plans a
reality. The Korn/Ferry Advantage offers a distinct
Korn/Ferry Way for conducting executive search and
ensuring quality control globally. After nearly four years of
implementation, the Korn/Ferry Advantage has become
firmly embedded in our culture and serves as a foundation of the
Korn/Ferry search process. It has also emerged as a key
competitive differentiator.
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Information technology is a key driver of Futuresteps
growth in RPO, project-based and mid-level recruitment. Database
technology and the Internet have greatly improved capabilities
in identifying, targeting and reaching potential candidates,
thereby reducing placement times. Fiscal 2011 saw major system
enhancements, including the upgrade of Futurestep to our
enterprise engagement management and customer relationship
management platform, Searcher Express, and the
integration of advanced, Internet-based sourcing, assessment and
selection technologies in the engagement workflow.
In fiscal 2011 we renewed our commitment to invest in technology
across all lines of business extending the
Companys brand through integration with social
networks and delivering our unique intellectual
property through smart phones and tablets. We will continue to
enhance our technology in order to strengthen our relationships
with our existing clients, attract new clients, expand our
markets through new delivery channels and maintain a competitive
advantage in offering the full range of executive talent
management services.
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3.
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Extend
and Elevate the Korn/Ferry Brand
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Next to our people, the Korn/Ferry brand is the strongest asset
of the Company. Since inception, Korn/Ferry has always
maintained an extremely aggressive stance in building our global
presence and supporting our vision and ongoing growth through a
robust and comprehensive marketing approach. At the highest
level, we will continue to extend and elevate the Korn/Ferry
brand to raise awareness and drive higher market share within
key segments.
Our leadership in executive recruitment enables us to grow our
business by increasing the number of recruitment assignments we
handle for existing clients. We also believe that our strong
relationships and well-recognized brand name will enable us to
introduce new services to our existing client base and to
potential new clients, while allowing us to build communities of
candidates to whom we can directly market our services.
For example, we will leverage the work our Board & CEO
Services practice performs at the top of our clients
organizations to promote awareness of our various solutions at
the highest levels. We believe these engagements will create
significant trickle-down revenue opportunities
across all of our lines of business and also lead to the
expansion of other high-level, consultative relationships within
the board and CEO community.
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4.
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Advance
Korn/Ferry as a Premier Career Destination
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As our business strategy evolves, so should our talent strategy
in order to drive the growth we need and the culture we want, at
a pace we can absorb. Our talent strategy is what we do to
ensure that we attract, deploy, develop, and reward the best
talent for ourselves (and, by extension, for our clients) to
achieve our business potential.
We believe that the recruitment and retention of key consultants
will be an ongoing driver of long-term growth. Our consultants
bring with them diverse backgrounds and areas of expertise and
were recruited based on their track records as top performers in
their given industry.
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5.
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Pursue
Transformational Opportunities Along the Broad Human Resources
Spectrum
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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 continue
to pursue a disciplined acquisition strategy, both of which are
consistent with our strategic goals. Our non-executive
recruitment businesses generated 26% of our overall fee revenue
in fiscal 2011.
Our
Services and Organization
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
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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.
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 2011, we executed 11,501 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 one 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 2011 Assignments by Industry Specialization
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Global Markets:
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Industrial
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28
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%
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Financial Services
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18
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%
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Consumer
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18
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%
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Technology
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15
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%
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Life Sciences/Healthcare Provider
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16
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%
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Regional Specialties:
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Education/Not-for-Profit
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5
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%
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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, CEOs
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 Company. 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 2011 Assignments by Functional Expertise
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Board Level/CEO/CFO/Senior Executive and General Management
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72
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%
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Marketing and Sales
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10
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%
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Human Resources and Administration
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6
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%
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Manufacturing/Engineering/Research and Development/Technology
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6
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%
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Finance and Control
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4
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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 2011, the region
generated fee revenue of $376.0 million from 4,846
assignments billed, with an average of 229 consultants.
Europe, the Middle East and Africa
(EMEA) We opened our first European
office in London in 1972, and currently have 19 offices in 17
countries throughout the region. In fiscal 2011, the region
generated fee revenue of $155.8 million from 3,678
assignments billed, with an average of 136 consultants.
Asia Pacific We opened our first Asia Pacific
office in Tokyo in 1973, and currently have 18 offices in 10
countries throughout the region. In fiscal 2011, the region
generated fee revenue of $90.3 million from 2,058
assignments billed, with an average of 91 consultants.
South America We opened our first South
America office in Brazil in 1974. As of April 30, 2011, we
operate a network of seven offices in six countries covering the
entire South American region. The region, generated fee revenue
of $32.0 million in fiscal 2011 from 919 assignments
billed, with an average of 18 consultants.
Mexico We expanded our practice to Mexico
through the 1977 acquisition of a less than 50% interest in a
Mexico City company. We currently conduct operations in two
offices in Mexico through a subsidiary in which we hold a
minority interest. Our share of the net earnings from our Mexico
subsidiary was $1.9 million and $0.1 million for the
years ended April 30, 2011 and 2010, respectively, and is
included in equity in earnings of unconsolidated subsidiaries on
the consolidated statements of operations.
Client Base. Our 4,736 clients include many of
the worlds largest and most prestigious public and private
companies, with 47% of the FORTUNE 500 companies being
clients in fiscal 2011. In fiscal 2011, no single client
7
represented more than 2% of fee revenue. We have established
strong client loyalty with 78% of the executive recruitment
assignments performed during fiscal 2011 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 Services. 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 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 five fundamental needs:
1. Board effectiveness;
2. Leadership development and enterprise learning;
3. Organization transformation;
4. Integrated talent management; and
5. CEO & senior management effectiveness.
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
engagement leverages a world-class global recruitment process
and
best-in-class
technology to maximize and measure quality.
Futurestep combines traditional recruitment expertise with a
multi-tiered portfolio of talent acquisition solutions.
Futurestep consultants, based in 15 countries, have access to
our databases of pre-screened, mid-level professionals. Our
global candidate pool complements our international presence and
multi-channel sourcing strategy to aid speed, efficiency and
quality service for clients worldwide.
Futurestep consulting services help companies reduce costs and
boost efficiency for talent management processes, evaluate and
select service and technology vendors, establish objectives and
metrics for success, and implement and optimize talent programs
and systems. Through our services, and through the consulting
expertise of The Newman Group, acquired by Futurestep in fiscal
2008, we help companies align people, processes and technology.
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
8
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,
2011, we had Futurestep operations in seven cities in North
America, eight in Europe and 12 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 and Knowledge Infusion and larger consulting firms
such as Accenture, Aon Hewitt and Towers Watson.
Professional
Staff and Employees
As of April 30, 2011, we had a total of
2,463 full-time employees. Of this, 1,774 were executive
recruitment employees consisting of 471 consultants, 1,131
associates, researchers, administrative and support staff, and
172 LTC professionals. In addition, we had 15 consultants in our
unconsolidated Mexico office. Futurestep had 628 employees
as of April 30, 2011, consisting of 162 consultants and 466
administrative and support staff. Corporate had 61 professionals
at April 30, 2011. 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 Company.
The following table provides information relating to each of our
business segments for fiscal 2011. Financial information
regarding our business segments for fiscal 2010 and 2009 and
additional information for fiscal 2011 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, 2011
|
|
|
April 30, 2011
|
|
|
|
(Dollars in thousands)
|
|
|
Executive Recruitment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
375,971
|
|
|
$
|
80,685
|
|
|
|
23
|
|
|
|
225
|
|
EMEA
|
|
|
155,782
|
|
|
|
11,628
|
|
|
|
19
|
|
|
|
132
|
|
Asia Pacific
|
|
|
90,346
|
|
|
|
11,611
|
|
|
|
18
|
|
|
|
95
|
|
South America
|
|
|
31,959
|
|
|
|
7,475
|
|
|
|
7
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Executive Recruitment
|
|
|
654,058
|
|
|
|
111,399
|
|
|
|
67
|
|
|
|
471
|
|
Futurestep(1)
|
|
|
90,191
|
|
|
|
4,955
|
|
|
|
9
|
|
|
|
162
|
|
Corporate
|
|
|
|
|
|
|
(30,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
744,249
|
|
|
$
|
85,785
|
|
|
|
76
|
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Futurestep partially occupies 19 of the executive recruitment
offices globally in 15 countries. |
9
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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Fee Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
365,919
|
|
|
$
|
270,859
|
|
|
$
|
305,472
|
|
Canada
|
|
|
45,313
|
|
|
|
32,115
|
|
|
|
41,861
|
|
EMEA
|
|
|
183,373
|
|
|
|
157,376
|
|
|
|
172,899
|
|
Asia Pacific
|
|
|
117,685
|
|
|
|
88,004
|
|
|
|
93,668
|
|
South America
|
|
|
31,959
|
|
|
|
24,026
|
|
|
|
24,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
744,249
|
|
|
$
|
572,380
|
|
|
$
|
638,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, including other large global executive
search firms, smaller specialty firms and internet-based firms.
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. Additionally, specialty firms can focus on
regional or functional markets or on particular industries.
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, especially Internet-enabled professional and
social networking website providers. As these providers continue
to evolve, they may develop offerings similar to or more
expansive than ours, thereby increasing competition for our
services or more broadly causing disruption in the executive
recruitment industry. Increased competition, whether as a result
of these professional and social 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
and experienced 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. In 2011, for
example, our top three executive search consultants had primary
responsibility for generating business equal to approximately 3%
of our net revenues, and our top ten executive search
consultants had primary responsibility for generating business
equal to approximately 7% of our net revenues. 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 relative to our peers 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
10
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. We may also
lose clients if the departing executive search consultant has
widespread name recognition or a reputation as a specialist in
executing searches in a specific industry or management
function. Although our employment contracts prohibit former
executive search consultants from soliciting any of our
employees for a period of one year, we may lose additional
executive search consultants if they choose to join the
departing executive search consultant at another executive
search firm. If we fail to limit departing executive search
consultants from moving business or recruiting our executive
search consultants to a competitor, our business, financial
condition and results of operations could be adversely affected.
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, which
negatively affects our financial condition and results of
operations, as evidenced by our results of operations for 2009
and 2010. During the recent economic downturn, our fee revenue
significantly decreased from $790.6 million in fiscal 2008
to $572.4 million in fiscal 2010. While the economic
activity in the regions and industries in which we operate has
shown improvement recently, economic conditions remain
uncertain. If such uncertainty persists or if the national or
global economy or credit market conditions in general were to
deteriorate, such uncertainty or changes could put additional
negative pressure on demand for our services, resulting in lower
cash flows and a negative effect on our business, financial
condition and results of operations.
If we
are unable to retain our executive officers and key personnel,
or integrate new members of our senior management who are
critical to our business, we may not be able to successfully
manage our business in the future.
Our future success depends upon the continued service of our
executive officers and other key management personnel. If we
lose the services of one or more of our executives or key
employees, or if one or more of them decides to join a
competitor or otherwise compete directly or indirectly with us,
or if we are unable to integrate new members of our senior
management who are critical to our business, we may not be able
to successfully manage our business or achieve our business
objectives.
If we
are unable to maintain our professional reputation and brand
name, our business will be harmed.
We depend on our overall reputation and brand name recognition
to secure new engagements and to hire qualified professionals.
Our success also depends on the individual reputations of our
professionals. We obtain a majority of our new engagements from
existing clients or from referrals by those clients. Any client
who is dissatisfied with our assignments can adversely affect
our ability to secure new engagements.
If any factor, including poor performance, hurts our reputation,
we may experience difficulties in competing successfully for
both new engagements and qualified consultants. Failing to
maintain our professional reputation and the goodwill associated
with our brand name could seriously harm our business.
We are
subject to potential legal liability from clients, employees and
candidates for employment. Insurance coverage may not be
available to cover all of our potential liability and available
coverage may not be sufficient to cover all claims that we may
incur.
Our ability to obtain liability insurance, its coverage levels,
deductibles and premiums are all dependent on market factors,
our loss history and insurers perception of our overall
risk profile. We are exposed to potential claims with respect to
the executive 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
11
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. Further, in various countries, we are
subject to data protection laws impacting the processing of
candidate information. We cannot ensure that our insurance will
cover all claims or that insurance coverage will be available at
economically acceptable rates. Significant uninsured liabilities
could have a material adverse effect on our business, financial
condition and results of operations.
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 35 countries and during the year ended
April 30, 2011, generated 45% 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:
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|
|
|
|
changes in and compliance with applicable laws and regulatory
requirements;
|
|
|
|
difficulties in staffing and managing global operations;
|
|
|
|
social and political instability;
|
|
|
|
fluctuations in currency exchange rates;
|
|
|
|
statutory equity requirements;
|
|
|
|
repatriation controls; and
|
|
|
|
potential adverse tax consequences.
|
We have no hedging or similar foreign currency contracts and
therefore fluctuations in the value of foreign currencies could
impact our global operations. We cannot ensure that one or more
of these factors will not harm our business, financial condition
or results of operations.
We may
be limited in our ability to recruit employees from our clients
and we could lose those opportunities to our competition, which
could harm our business.
Either by agreement with clients, or for client relations or
marketing purposes, we sometimes refrain from, for a specified
period of time, recruiting candidates from a client when
conducting searches on behalf of other clients. These off-limit
agreements can generally remain in effect for up to two years
following completion of an assignment. The duration and scope of
the off-limit agreement, including whether it covers all
operations of the client and its affiliates or only certain
divisions of a client, generally are subject to negotiation or
internal policies and may depend on factors such as the scope,
size and complexity of the clients business, the length of
the client relationship and the frequency with which we have
been engaged to perform executive searches for the client. If a
prospective client believes that we are overly restricted by
these off-limit agreements from recruiting employees of our
existing clients, these prospective clients may not engage us to
perform their executive searches. Therefore, our inability to
recruit candidates from these clients may make it difficult for
us to obtain search assignments from,
12
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:
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|
|
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 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
13
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.
Future adverse changes in the Companys revenue could
require us to institute cost cutting measures. To the extent our
efforts are insufficient, we may incur negative cash flows. If
such conditions persist over an extended period of time, it
might require us to obtain financing to meet our capital needs.
If we are unable to secure 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.
We
invest in marketable securities classified as trading and
available for sale and if the market value of these securities
declines materially, they could have an adverse affect on our
earnings.
Marketable securities consist of mutual funds and investments in
corporate bonds, U.S. Treasury and agency securities and
commercial paper. The primary objectives of the mutual funds are
to meet the obligations under certain of our deferred
compensation plans, while the other securities are available for
general corporate purposes. If the financial markets in which
these securities trade were to materially decline in value, the
unrealized losses and potential realized losses could negatively
impact the Companys reported financial results.
|
|
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, 2011, we leased an aggregate of
approximately 783,681 square feet of office space. The
leases generally are for terms of one to 15 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.
14
|
|
Item 4.
|
Removed
and Reserved
|
Executive
Officers of the Registrant
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Gary D. Burnison
|
|
|
50
|
|
|
President and Chief Executive Officer
|
Michael A. DiGregorio
|
|
|
56
|
|
|
Executive Vice President and Chief Financial Officer
|
Ana Dutra
|
|
|
47
|
|
|
Executive Vice President and Chief Executive Officer of
Leadership and Talent Consulting
|
Byrne Mulrooney
|
|
|
50
|
|
|
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.
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
public 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 services,
including our Lominger and LeaderSource 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.
Byrne Mulrooney joined the Company in April 2010 as Chief
Executive Officer of Futurestep. 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. Prior to that, he led Spherions workforce
solutions business in North America, which provides workforce
solutions in professional services and general staffing,
including recruitment process outsourcing and managed services,
from 2003 to 2007. Mr. Mulrooney has held executive
positions for almost 20 years at EDS and IBM in client
services, sales, marketing and operations. 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.
15
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, 2011
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
16.68
|
|
|
$
|
12.99
|
|
Second Quarter
|
|
$
|
17.93
|
|
|
$
|
12.78
|
|
Third Quarter
|
|
$
|
24.00
|
|
|
$
|
16.85
|
|
Fourth Quarter
|
|
$
|
24.77
|
|
|
$
|
19.34
|
|
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
|
|
On June 27, 2011 the last reported sales price on the New
York Stock Exchange for the Companys common stock was
$21.19 per share and there were approximately 6,200 beneficial
holders of the Companys common stock.
16
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, 2006 and the reinvestment of any dividends paid
by any company in the peer group on the date the dividends were
declared.
In fiscal 2011, we established a new peer group comprised of a
broad number of publicly traded companies, which are principally
or in significant part involved in either professional staffing
or consulting. The new peer group is comprised of the following
16 companies: CBIZ, Inc. (CBZ), FTI Consulting, Inc. (FCN),
Heidrick & Struggles International, Inc. (HSII), Huron
Consulting Group Inc. (HURN), ICF International, Inc. (ICFI),
Insperity, Inc. (NSP), Kelly Services, Inc. (KELYA), Kforce Inc.
(KFRC), Navigant Consulting, Inc. (NCI), Resources Connection,
Inc. (RECN), Robert Half International Inc. (RHI), SFN Group,
Inc. (SFN), The Corporate Executive Board Company (EXBD), The
Dun & Bradsheet Corporation (DNB), Towers
Watson & Co. (TW) and TrueBlue, Inc. (TBI). We believe
this group of professional services firms, is more reflective of
similar sized companies in terms of our market capitalization,
revenue or profitability, and therefore provides a more
meaningful comparison of stock performance. 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 old peer group, presented for comparative purposes, consists
of Caldwell Partners International Inc. (CWL/A CN),
Heidrick & Struggles International, Inc. (HSII) and
Hudson Highland Group (HHGP). This smaller group consists of
publicly traded companies primarily engaged in executive
recruiting or professional level staffing and recruiting.
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.
17
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG
KORN/FERRY INTERNATIONAL, THE S&P 500 INDEX,
AN OLD PEER GROUP AND A NEW PEER GROUP
* $100 invested on 4/30/06 in stock or index-including
reinvestment of dividends. Fiscal year ending April 30.
Copyright©
2011, Standard & Poors, a division of The
McGraw-Hill Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
Dividends
and Stock Repurchases
We have not paid any cash dividends on our common stock since
April 30, 1996 and do not currently intend to pay any cash
dividends on our common stock in the foreseeable future. The
Board of Directors has authorized the Company to repurchase up
to $175.0 million of the Companys outstanding shares
of common stock pursuant to issuer repurchase programs. Since
the initial authorization on December 7, 2005 through
April 30, 2011, we have repurchased approximately
$150.6 million of the Companys common stock 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 stock repurchased by us
during the fourth quarter of fiscal 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1)
|
|
|
Paid per Share
|
|
|
(2), (3), (4) and(5)
|
|
|
(2), (3), (4) and (5)
|
|
|
February 1, 2011 February 28, 2011
|
|
|
951
|
|
|
$
|
23.98
|
|
|
|
|
|
|
$
|
24.4 million
|
|
March 1, 2011 March 31, 2011
|
|
|
16,189
|
|
|
$
|
22.47
|
|
|
|
|
|
|
$
|
24.4 million
|
|
April 1, 2011 April 30, 2011
|
|
|
1,806
|
|
|
$
|
22.31
|
|
|
|
|
|
|
$
|
24.4 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
18,946
|
|
|
$
|
22.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
(1) |
|
Represents withholding of a portion of restricted shares to
cover taxes upon vesting of restricted shares. |
|
(2) |
|
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. |
|
(3) |
|
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. |
|
(4) |
|
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. |
|
(5) |
|
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. |
19
|
|
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, 2011, 2010 and 2009 and
the selected balance sheet data as of April 30, 2011 and
2010 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, 2009, 2008
and 2007 and the selected statement of operations data set forth
below for the fiscal years ended April 30, 2008 and 2007
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,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data and other operating
data)
|
|
|
Selected Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee revenue
|
|
$
|
744,249
|
|
|
$
|
572,380
|
|
|
$
|
638,223
|
|
|
$
|
790,570
|
|
|
$
|
653,422
|
|
Reimbursed
out-of-pocket
engagement expenses
|
|
|
32,002
|
|
|
|
27,269
|
|
|
|
37,905
|
|
|
|
45,072
|
|
|
|
35,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
776,251
|
|
|
|
599,649
|
|
|
|
676,128
|
|
|
|
835,642
|
|
|
|
689,201
|
|
Compensation and benefits
|
|
|
507,405
|
|
|
|
413,340
|
|
|
|
442,632
|
|
|
|
540,056
|
|
|
|
447,692
|
|
General and administrative expenses
|
|
|
116,494
|
|
|
|
115,280
|
|
|
|
126,882
|
|
|
|
134,542
|
|
|
|
105,312
|
|
Out-of-pocket
engagement expenses
|
|
|
51,766
|
|
|
|
41,585
|
|
|
|
49,388
|
|
|
|
58,750
|
|
|
|
44,662
|
|
Depreciation and amortization
|
|
|
12,671
|
|
|
|
11,493
|
|
|
|
11,583
|
|
|
|
10,441
|
|
|
|
9,280
|
|
Restructuring charges, net(1)
|
|
|
2,130
|
|
|
|
20,673
|
|
|
|
41,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
690,466
|
|
|
|
602,371
|
|
|
|
672,400
|
|
|
|
743,789
|
|
|
|
606,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
85,785
|
|
|
|
(2,722
|
)
|
|
|
3,728
|
|
|
|
91,853
|
|
|
|
82,255
|
|
Other income (loss), net
|
|
|
6,454
|
|
|
|
10,066
|
|
|
|
(14,738
|
)
|
|
|
4,656
|
|
|
|
2,524
|
|
Interest (expense) income, net
|
|
|
(2,535
|
)
|
|
|
(2,622
|
)
|
|
|
(1,063
|
)
|
|
|
2,481
|
|
|
|
(2,280
|
)
|
Provision (benefit) for income taxes
|
|
|
32,692
|
|
|
|
(485
|
)
|
|
|
384
|
|
|
|
36,081
|
|
|
|
30,164
|
|
Equity in earnings of unconsolidated subsidiaries, net
|
|
|
1,862
|
|
|
|
91
|
|
|
|
2,365
|
|
|
|
3,302
|
|
|
|
3,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
58,874
|
|
|
$
|
5,298
|
|
|
$
|
(10,092
|
)
|
|
$
|
66,211
|
|
|
$
|
55,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earning (loss) per share
|
|
$
|
1.30
|
|
|
$
|
0.12
|
|
|
$
|
(0.23
|
)
|
|
$
|
1.50
|
|
|
$
|
1.40
|
|
Diluted earning (loss) per share
|
|
$
|
1.27
|
|
|
$
|
0.12
|
|
|
$
|
(0.23
|
)
|
|
$
|
1.46
|
|
|
$
|
1.24
|
|
Basic weighted average common shares outstanding
|
|
|
45,205
|
|
|
|
44,413
|
|
|
|
43,522
|
|
|
|
44,012
|
|
|
|
39,774
|
|
Diluted weighted average common shares outstanding
|
|
|
46,280
|
|
|
|
45,457
|
|
|
|
43,522
|
|
|
|
45,528
|
|
|
|
46,938
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee revenue by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive recruitment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
375,971
|
|
|
$
|
278,746
|
|
|
$
|
309,514
|
|
|
$
|
374,891
|
|
|
$
|
329,065
|
|
EMEA
|
|
|
155,782
|
|
|
|
137,497
|
|
|
|
143,184
|
|
|
|
183,042
|
|
|
|
146,155
|
|
Asia Pacific
|
|
|
90,346
|
|
|
|
64,132
|
|
|
|
66,332
|
|
|
|
95,915
|
|
|
|
74,987
|
|
South America
|
|
|
31,959
|
|
|
|
24,026
|
|
|
|
24,323
|
|
|
|
25,556
|
|
|
|
17,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total executive recruitment
|
|
|
654,058
|
|
|
|
504,401
|
|
|
|
543,353
|
|
|
|
679,404
|
|
|
|
567,633
|
|
Futurestep
|
|
|
90,191
|
|
|
|
67,979
|
|
|
|
94,870
|
|
|
|
111,166
|
|
|
|
85,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee revenue
|
|
$
|
744,249
|
|
|
$
|
572,380
|
|
|
$
|
638,223
|
|
|
$
|
790,570
|
|
|
$
|
653,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of offices (at period end)
|
|
|
76
|
|
|
|
76
|
|
|
|
78
|
|
|
|
89
|
|
|
|
82
|
|
Number of consultants (at period end)
|
|
|
633
|
|
|
|
627
|
|
|
|
615
|
|
|
|
684
|
|
|
|
601
|
|
Number of new engagements opened
|
|
|
11,854
|
|
|
|
9,794
|
|
|
|
9,630
|
|
|
|
11,106
|
|
|
|
10,415
|
|
Selected Balance Sheet Data as of April 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
246,856
|
|
|
$
|
219,233
|
|
|
$
|
255,000
|
|
|
$
|
305,296
|
|
|
$
|
226,137
|
|
Marketable securities(2)
|
|
|
122,231
|
|
|
|
77,219
|
|
|
|
75,255
|
|
|
|
83,966
|
|
|
|
98,130
|
|
Working capital(3)
|
|
|
207,731
|
|
|
|
182,781
|
|
|
|
198,250
|
|
|
|
196,259
|
|
|
|
193,716
|
|
Total assets
|
|
|
971,680
|
|
|
|
827,098
|
|
|
|
740,879
|
|
|
|
880,214
|
|
|
|
761,491
|
|
Total stockholders equity
|
|
|
578,337
|
|
|
|
491,342
|
|
|
|
459,099
|
|
|
|
496,134
|
|
|
|
432,955
|
|
20
|
|
|
(1) |
|
During fiscal 2011, we increased our previously recorded
restructuring charges by $2.1 million, which primarily
relates to higher facility lease costs than originally
estimated. 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) |
|
As of April 30, 2011, 2010, 2009, 2008 and 2007, the
Companys marketable securities included
$71.4 million, $69.0 million, $60.8 million,
$63.5 million and $41.6 million, respectively, held in
trust for settlement of the Companys obligations under
certain of its deferred compensation plans. |
|
(3) |
|
The amounts reported 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, likely,
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, dependence on attracting and retaining qualified and
experienced consultants, maintaining our brand name and
professional reputation, potential legal liability, portability
of client relationships, global and local political or economic
developments in or affecting countries where we have operations,
currency fluctuations in our international operations, risks
related to growth, restrictions imposed by off-limits
agreements, competition, reliance on information processing
systems, our ability to enhance and develop new technology,
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, our ability to develop new
products and services, alignment of our cost structure to our
growth, risks related to the integration of recently acquired
businesses and the matters disclosed under the heading
Risk Factors in the Companys Exchange Act
reports, including Item 1A included in this Annual Report.
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, deploy,
develop and reward their talent. We are the premier 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.
Approximately 72% of the executive recruitment searches we
performed in fiscal 2011 were for board level, chief executive
and other senior executive and general management positions. Our
4,736 clients in fiscal 2011 included many of the worlds
largest and most prestigious public and private companies,
including approximately 47% of the FORTUNE 500, middle market
and emerging growth companies, as well as government and
nonprofit organizations. We have
21
built strong client loyalty with 78% of the executive
recruitment assignments performed during fiscal 2011 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 talent management solutions, our strategic
focus for fiscal 2012 centers upon enhancing the integration of
our multi-service strategy. We plan to continue to address areas
of increasing client demand, including RPO and LTC. We further
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 increased $171.9 million in fiscal 2011 to
$744.3 million compared to $572.4 million fiscal 2010,
with increases in fee revenue in all regions of Executive
Recruitment and Futurestep. The North America region in
executive recruitment experienced the largest dollar increase in
fee revenue. During fiscal 2011, we recorded consolidated
operating income of $85.8 million, with the Executive
Recruitment and Futurestep segments contributing
$111.4 million and $5.0 million, respectively, offset by
corporate expenses of $30.6 million. This represents an
increase of $88.5 million in fiscal 2011, from an operating
loss of $2.7 million in fiscal 2010.
Our cash, cash equivalents and marketable securities increased
by $72.6 million, or 24%, to $369.1 million at
April 30, 2011 compared to $296.5 million at
April 30, 2010, mainly due to cash provided by operating
activities, partially offset by bonuses earned in fiscal 2010,
which were paid in fiscal 2011. As of April 30, 2011, we
held marketable securities, to settle obligations under our
Executive Capital Accumulation Plan (ECAP), with a
cost value of $64.7 million and a fair value of
$71.4 million. Our working capital increased by
$24.9 million in fiscal 2011 to $207.7 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 neither long-term debt nor any outstanding
borrowings under our credit facility at April 30, 2011.
Under our credit facility, we are required to maintain
$10.0 million on account with the lender, and provides
collateral for the standby letters of credit and potential
future borrowings. As of April 30, 2011, we had
$2.9 million of standby letters of credit issued under our
facility.
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 the notes to our 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. Fees earned in excess of
the initial contract amount are billed upon completion of the
engagement, which reflects the final actual compensation of the
placed executive. 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. Furthermore, a provision for doubtful
accounts on recognized revenue is established with a charge to
general and administrative expenses based on historical loss
experience, assessment of
22
the collectability of specific accounts, as well as expectations
of future collections based upon trends and the type of work for
which services are rendered.
Annual Incentive Compensation. Each quarter,
management records its best estimate of its annual incentive
compensation, which on a quarterly basis requires management to,
among other things, project annual consultant productivity (as
measured by engagement fees billed and collected by that
consultant), our performance, competitive forces and future
economic conditions and their impact on our results. At the end
of each fiscal year, bonuses paid take into account final
individual consultant productivity, our results, the achievement
of strategic objectives and the results of individual
performance appraisals, as determined by management, and the
current economic landscape. Changes in any of the assumptions
underlying the quarterly bonus accrual may significantly impact
the compensation and benefits liability on our balance sheet and
related compensation and benefits cost on our statement of
operations. Differences between the assumptions used each
quarter to estimate annual incentive compensation and actual
cash payments made on an annual basis could materially impact
the carrying amount of the liability and our operating results.
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 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,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Fee revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Reimbursed
out-of-pocket
engagement expenses
|
|
|
4.3
|
|
|
|
4.8
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
104.3
|
|
|
|
104.8
|
|
|
|
105.9
|
|
Compensation and benefits
|
|
|
68.2
|
|
|
|
72.2
|
|
|
|
69.3
|
|
General and administrative expenses
|
|
|
15.7
|
|
|
|
20.2
|
|
|
|
19.9
|
|
Out-of-pocket
engagement expenses
|
|
|
6.9
|
|
|
|
7.3
|
|
|
|
7.7
|
|
Depreciation and amortization
|
|
|
1.7
|
|
|
|
2.0
|
|
|
|
1.8
|
|
Restructuring charges
|
|
|
0.3
|
|
|
|
3.6
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
11.5
|
|
|
|
(0.5
|
)
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
7.9
|
%
|
|
|
0.9
|
%
|
|
|
(1.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
The following tables summarize the results of our operations by
business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
Dollars
|
|
|
%
|
|
|
Dollars
|
|
|
%
|
|
|
Dollars
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Fee revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive recruitment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
375,971
|
|
|
|
50.5
|
%
|
|
$
|
278,746
|
|
|
|
48.7
|
%
|
|
$
|
309,514
|
|
|
|
48.5
|
%
|
EMEA
|
|
|
155,782
|
|
|
|
21.0
|
|
|
|
137,497
|
|
|
|
24.0
|
|
|
|
143,184
|
|
|
|
22.4
|
|
Asia Pacific
|
|
|
90,346
|
|
|
|
12.1
|
|
|
|
64,132
|
|
|
|
11.2
|
|
|
|
66,332
|
|
|
|
10.4
|
|
South America
|
|
|
31,959
|
|
|
|
4.3
|
|
|
|
24,026
|
|
|
|
4.2
|
|
|
|
24,323
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total executive recruitment
|
|
|
654,058
|
|
|
|
87.9
|
|
|
|
504,401
|
|
|
|
88.1
|
|
|
|
543,353
|
|
|
|
85.1
|
|
Futurestep
|
|
|
90,191
|
|
|
|
12.1
|
|
|
|
67,979
|
|
|
|
11.9
|
|
|
|
94,870
|
|
|
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee revenue
|
|
|
744,249
|
|
|
|
100.0
|
%
|
|
|
572,380
|
|
|
|
100.0
|
%
|
|
|
638,223
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursed
out-of-pocket
engagement expense
|
|
|
32,002
|
|
|
|
|
|
|
|
27,269
|
|
|
|
|
|
|
|
37,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
776,251
|
|
|
|
|
|
|
$
|
599,649
|
|
|
|
|
|
|
$
|
676,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
Dollars
|
|
|
Margin(1)
|
|
|
Dollars
|
|
|
Margin(1)
|
|
|
Dollars
|
|
|
Margin(1)
|
|
|
|
(Dollars in thousands)
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive recruitment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
80,685
|
|
|
|
21.5
|
%
|
|
$
|
42,604
|
|
|
|
15.3
|
%
|
|
$
|
37,516
|
|
|
|
12.1
|
%
|
EMEA
|
|
|
11,628
|
|
|
|
7.5
|
|
|
|
(15,511
|
)
|
|
|
(11.3
|
)
|
|
|
2,061
|
|
|
|
1.4
|
|
Asia Pacific
|
|
|
11,611
|
|
|
|
12.9
|
|
|
|
7,826
|
|
|
|
12.2
|
|
|
|
5,396
|
|
|
|
8.1
|
|
South America
|
|
|
7,475
|
|
|
|
23.4
|
|
|
|
3,286
|
|
|
|
13.7
|
|
|
|
2,441
|
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total executive recruitment
|
|
|
111,399
|
|
|
|
17.0
|
|
|
|
38,205
|
|
|
|
7.6
|
|
|
|
47,414
|
|
|
|
8.7
|
|
Futurestep
|
|
|
4,955
|
|
|
|
5.5
|
|
|
|
1,291
|
|
|
|
1.9
|
|
|
|
(12,003
|
)
|
|
|
(12.7
|
)
|
Corporate
|
|
|
(30,569
|
)
|
|
|
|
|
|
|
(42,218
|
)
|
|
|
|
|
|
|
(31,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
$
|
85,785
|
|
|
|
11.5
|
%
|
|
$
|
(2,722
|
)
|
|
|
(0.5
|
)%
|
|
$
|
3,728
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Margin calculated as a percentage of fee revenue by business
segment. |
Fiscal
2011 Compared to Fiscal 2010
Fee
Revenue
Fee Revenue. Fee revenue increased
$171.9 million, or 30%, to $744.3 million in fiscal
2011 compared to $572.4 million in fiscal 2010. Excluding
fee revenue of $11.0 million and $3.7 million in
fiscal 2011 and 2010, respectively, from the acquisition of
Sensa Solutions (which we acquired on January 1, 2010), fee
revenue would have been $733.3 million in fiscal 2011 and
$568.7 million in fiscal 2010, an increase of
$164.6 million, or 29%. The increase in fee revenue,
excluding fee revenue from the acquisition of Sensa Solutions,
was primarily attributable to a 24% increase in the number of
engagements billed during fiscal 2011 as compared to fiscal 2010
and a 4% increase in the weighted-average fees billed per
engagement during the same period. Exchange rates favorably
impacted fee revenues by $4.1 million in fiscal 2011.
Executive Recruitment. Executive recruitment
reported fee revenue of $654.1 million, an increase of
$149.7 million, or 30%, in fiscal 2011 compared to
$504.4 million in fiscal 2010. The increase in executive
24
recruitment fee revenue was mainly due to a 26% increase in the
number of executive recruitment engagements billed in fiscal
2011 as compared to fiscal 2010, and a 3% increase in the
weighted-average fees billed per engagement during the same
period. Exchange rates favorably impacted fee revenues by
$2.1 million in fiscal 2011.
North America reported fee revenue of $376.0 million, an
increase of $97.2 million, or 35%, in fiscal 2011 compared
to $278.8 million in fiscal 2010. Excluding fee revenue of
$11.0 million and $3.7 million in fiscal 2011 and
2010, respectively, from the acquisition of Sensa Solutions, fee
revenue would have been $365.0 million and
$275.1 million during the same periods, an increase of
$89.9 million, or 33%. North Americas increase in fee
revenue, excluding fee revenue from the Sensa acquisition, which
is included in North Americas results from January 1,
2010, the effective date of the acquisition, was primarily due
to a 33% increase in the number of engagements billed. The
largest increase in fee revenue from fiscal 2010 to 2011 were in
the industrial, financial services and technology sectors.
Exchange rates favorably impacted North America fee revenue by
$2.2 million in fiscal 2011.
EMEA reported fee revenue of $155.8 million, an increase of
$18.3 million, or 13%, in fiscal 2011 compared to
$137.5 million in fiscal 2010. EMEAs increase in fee
revenue was primarily driven by a 15% increase in the number of
engagements billed in fiscal 2011 as compared to fiscal 2010,
offset by a 2% decrease in weighted-average fees billed per
engagement during the same period. The decrease in the
weighted-average fees billed per engagement was mainly due to
unfavorable exchange rates in EMEA during fiscal 2011, which
unfavorably impacted EMEA fee revenue by $4.8 million. We
acquired Whitehead Mann, effective, June 11, 2009, which
has been fully integrated within EMEA. The performance in
existing offices in the United Kingdom, Italy and France were
the primary contributors to the increase in fee revenue in
fiscal 2011 compared to fiscal 2010 with the industrial,
financial services and life sciences/healthcare provider sectors
experiencing the largest increases.
Asia Pacific reported fee revenue of $90.3 million, an
increase of $26.2 million, or 41%, in fiscal 2011 compared
to $64.1 million in fiscal 2010 mainly due to a 26%
increase in the number of engagements billed and a 12% increase
in weighted-average fees billed per engagement. The increase in
performance in Hong Kong, Singapore, China and Australia were
the primary contributors to the increase in fee revenue in
fiscal 2011 compared to fiscal 2010. The largest increases in
fee revenue were experienced in the financial services,
industrial and technology sectors. Exchange rates favorably
impacted fee revenue for Asia Pacific by $4.3 million in
fiscal 2011.
South America reported fee revenue of $32.0 million, an
increase of $8.0 million, or 33%, in fiscal 2011 compared
to $24.0 million in fiscal 2010 mainly due to a 30%
increase in the number of engagements billed and a 2% increase
in the weighted-average fees billed per engagement. The increase
in performance in Brazil was the primary contributor to the
increase in fee revenue in fiscal 2011 compared to fiscal 2010.
The industrial, technology and financial services sectors were
the primary contributors to the increase in fee revenue.
Exchange rates favorably impacted fee revenue for South America
by $0.4 million in fiscal 2011.
Futurestep. Futurestep reported fee revenue of
$90.2 million, an increase of $22.2 million, or 33%,
in fiscal 2011 compared to $68.0 million in fiscal 2010.
The increase in Futuresteps fee revenue was due to a 21%
increase in the number of engagements billed in fiscal 2011 as
compared to fiscal 2010, coupled with a 10% increase in the
weighted-average fees billed per engagement. The increase in
Futuresteps fee revenue consisted of North America fee
revenue increase of $11.1 million, or 46%, to
$35.3 million; Europe fee revenue increase of
$7.7 million, or 39%, to $27.6 million and an increase
in Asia Pacific fee revenue of $3.4 million, or 14%, to
$27.3 million. Improvement in Futurestep fee revenue is
attributed to increases in middle-management recruitment and
RPO. Exchange rates favorably impacted fee revenue for
Futurestep by $2.0 million in fiscal 2011.
Compensation
and Benefits
Compensation and benefits expense increased $94.1 million,
or 23%, to $507.4 million in fiscal 2011 from
$413.3 million in fiscal 2010. The increase in compensation
and benefits expenses is primarily due to an increase in the
weighted-average compensation in fiscal 2011 as compared to
fiscal 2010, including a $53.0 million increase in the
variable component of compensation and an increase in headcount
of 12%. This increase was partially offset by a
$2.0 million decrease of the bonus provision due to a
change in the estimate of bonus payouts. Exchange rates
unfavorably impacted compensation and benefits expenses by
$2.9 million during fiscal 2011.
25
Executive recruitment compensation and benefits expense
increased $86.9 million, or 26%, to $424.9 million in
fiscal 2011 compared to $338.0 million in fiscal 2010,
primarily due to a $50.3 million increase in the variable
component of compensation and to a lesser extent due to a 7%
increase in executive recruitment headcount. Variable
compensation was also lower during fiscal 2010 compared to
fiscal 2011, due to the challenging economic conditions
experienced during fiscal 2010. Executive recruitment
compensation and benefits expenses as a percentage of fee
revenue were 65% in fiscal 2011 compared to 67% in fiscal 2010.
Futurestep compensation and benefits expense increased
$11.6 million, or 22%, to $64.3 million in fiscal 2011
from $52.7 million in fiscal 2010, primarily due to a 29%
increase in headcount, $2.7 million increase in the
variable component of compensation and $2.5 million for
external contractors. Futurestep compensation and benefits
expense as a percentage of fee revenue decreased to 71% in
fiscal 2011 from 78% in fiscal 2010.
Corporate compensation and benefits expense decreased
$4.4 million, or 20%, to $18.2 million in fiscal 2011
compared to $22.6 million in fiscal 2010, primarily due to
a smaller increase in certain deferred compensation liabilities
of $5.0 million during fiscal 2011 as compared to fiscal
2010. We hold marketable securities, classified as trading
securities, in trust for settlement of these deferred
compensation obligations. The change in fair value of these
marketable securities is included in other income, net, which
substantially offsets the decrease in compensation and benefits
expense created by the change in these deferred compensation
liabilities. We have other deferred compensation retirement
plans, which increased compensation and benefits expense by
$2.2 million in fiscal 2011 as compared to fiscal 2010 due
to a smaller increase in the cash surrender value
(CSV) of company owned life insurance
(COLI) during fiscal 2011 as compared to fiscal 2010.
General
and Administrative Expenses
General and administrative expenses increased $1.2 million,
or 1%, to $116.5 million in fiscal 2011 compared to
$115.3 million in fiscal 2010 due to increases of
$4.3 million in bad debt expense; $3.1 million in
travel and meetings expense and $2.1 million in other
expenses including business development and premises and office
expense. Substantially offsetting these increases was a
$4.9 million reduction in the estimated fair value of
acquisition-related contingent consideration and a
$3.4 million decrease in net foreign exchange losses.
Exchange rates unfavorably impacted general and administrative
expenses by $0.3 million in fiscal 2011. General and
administrative expenses as a percentage of fee revenue was 16%
in fiscal 2011 as compared to 20% in fiscal 2010.
Executive recruitment general and administrative expenses
increased by $5.2 million, or 6%, to $88.6 million in
fiscal 2011 from $83.4 million in fiscal 2010. The increase
in general and administrative expenses was driven by increases
of $3.9 million in bad debt expense, $2.4 million in
travel and meetings expense and $1.4 million in business
development expenses, which were offset by a $1.8 million
decrease in net foreign exchange losses and $1.5 million in
professional expenses. The increase in bad debt expense was in
line with the increase in our revenues. Travel and meetings
expense and business development expenses increased primarily
due to the increase in our overall business activities.
Executive recruitment general and administrative expenses as a
percentage of fee revenue was 14% in fiscal 2011 compared to 17%
in fiscal 2010.
Futurestep general and administrative expenses increased
$3.0 million, or 21%, to $17.4 million in fiscal 2011
compared to $14.4 million in fiscal 2010, primarily due to
increases of $1.2 in other expenses including bad debt expense,
professional expenses and business development expense;
$0.9 million in travel and meetings expense and
$0.6 million in premises and office expense. These expenses
increased primarily due to the increase in the level of our
overall business activities and revenue. Futurestep general and
administrative expenses as a percentage of fee revenue was 19%
in fiscal 2011 compared to 21% in fiscal 2010.
Corporate general and administrative expenses decreased
$7.0 million, or 40%, to $10.5 million in fiscal 2011
compared to $17.5 million in fiscal 2010, primarily due to
a $4.9 million decrease in the estimated fair value of
acquisition-related contingent consideration and
$1.6 million increase in net foreign exchange gains.
Out-of-Pocket
Engagement Expenses
Out-of-pocket
engagement expenses consist of expenses incurred by candidates
and our consultants that are normally billed to clients.
Out-of-pocket
engagement expenses increased $10.2 million, or 25%, to
$51.8 million in
26
fiscal 2011, compared to $41.6 million in fiscal 2010, in
line with the increase in fee revenue.
Out-of-pocket
engagement expenses as a percentage of fee revenue was 7% in
both fiscal 2011 and 2010.
Depreciation
and Amortization Expenses
Depreciation and amortization expenses were $12.7 million
and $11.5 million in fiscal 2011 and 2010, respectively.
This expense relates mainly to computer equipment, software,
furniture and fixtures and leasehold improvements.
Restructuring
(Reductions) Charges, Net
Restructuring charges decreased by $18.6 million, or 90%,
to $2.1 million in fiscal 2011 compared to
$20.7 million in fiscal 2010. In fiscal 2011, our
restructuring charges, net of recoveries, primarily relate to
higher facility lease costs than originally estimated.
In fiscal 2010, 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 of $25.8 million to reduce
the combined workforce and to consolidate premises. These
restructuring charges were offset by $5.1 million of
reductions from previous restructuring charges
($2.8 million in premise and facilities costs and
$2.3 million in severance costs).
Operating
Income (Loss)
Operating income increased by $88.5 million to
$85.8 million in fiscal 2011 compared to an operating loss
of $2.7 million in fiscal 2010. This increase in operating
income resulted from a $171.9 million increase in fee
revenue and an $18.6 million decrease in net restructuring
expenses, which were partially offset by a $94.1 million
increase in compensation and benefits expense.
Executive recruitment operating income increased by
$73.2 million, to $111.4 million in fiscal 2011
compared to $38.2 million in fiscal 2010. The increase in
executive recruitment operating income is attributable to a
$149.7 million increase in fee revenue and a decrease in
net restructuring expenses of $21.2 million. These items
positively impacting operating income were offset by an
$86.9 million increase in compensation and benefits
expense, resulting primarily from an increase in the variable
component of compensation and increased headcount. In addition,
general and administrative costs increased $5.2 million
primarily due to bad debt expense, which increase is in line
with our revenue increase. Executive recruitment operating
income during fiscal 2011 as a percentage of fee revenue was 17%
compared to 8% in fiscal 2010.
Futurestep operating income increased by $3.7 million to
$5.0 million in fiscal 2011 as compared to
$1.3 million in fiscal 2010. The change in Futurestep
operating income is primarily due to a $22.2 million
increase in fee revenue, offset by increases of
$11.6 million in compensation and benefits and
$3.0 million in general and administrative expenses,
related to an increase in our overall business activities, and a
$2.6 million restructuring charge due to higher facility
lease costs than originally estimated. Futurestep operating
income as a percentage of fee revenue was 5% in fiscal 2011 as
compared to 2% in fiscal 2010.
Other
Income, Net
Other income, net decreased by $3.7 million, to
$6.4 million in fiscal 2011 compared to $10.1 million
in fiscal 2010. The decrease is primarily due to lower net gains
on marketable securities classified as trading in fiscal 2011 as
compared to fiscal 2010. The decrease in other income, net
includes a $3.5 million decrease in gains in the market
value of mutual funds held in trust for settlement of our
obligations under certain deferred compensation plans (see
Note 5 Marketable Securities, in the Notes to
our Consolidated Financial Statements). Partially offsetting
this decline in market value gains was a decrease in the related
deferred compensation retirement plan liabilities of
$1.9 million, which is included in compensation and benefit
expense.
27
Interest
Expense, Net
Interest expense, net primarily relates to borrowings under our
COLI policies, which is partially offset by interest earned on
cash and cash equivalent balances. Interest expense, net was
$2.5 million in fiscal 2011 as compared to
$2.6 million in fiscal 2010.
Income
Taxes Provision (Benefit)
The provision for income taxes was $32.7 million in fiscal
2011 compared to a benefit for income taxes of $0.5 million
in fiscal 2010. The provision for income taxes in fiscal 2011
reflects a 36% effective tax rate, compared to a 10% tax benefit
for fiscal 2010. The effective tax rate in fiscal 2011 is higher
when compared to the effective tax rate in fiscal 2010, as we
recorded higher income before provision for income taxes during
fiscal 2011 compared to fiscal 2010. The effective tax rate for
fiscal 2011 is lower when compared to a normalized effective tax
rate as we recorded a $2.1 million reversal of a liability
related to a state tax provision taken in 2004 due to the state
statue expiring. In addition, in fiscal 2010, we recorded a
$10.3 million reversal of a liability related to a federal
tax position taken in fiscal 2004, offset by an additional
provision of $7.5 million for the tax impact of future
repatriations of cash dividends and additional valuation
allowances on the Companys current inventory of foreign
tax credit carryforwards.
Equity
in Earnings of Unconsolidated Subsidiaries, Net
Equity in earnings of unconsolidated subsidiary, net 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 (loss), net of taxes. Equity in earnings was
$1.9 million in fiscal 2011 compared to $0.1 million
in fiscal 2010.
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. Excluding
fee revenue of approximately $40 million in fiscal 2010
from the acquisition of Whitehead Mann and Sensa Solutions, fee
revenue would have been $532.4 million in fiscal 2010, a
decrease of $105.8 million, or 17% as compared to fiscal
2009. The decrease in fee revenue, excluding fee revenue from
these fiscal 2010 acquisitions, was primarily attributable to an
8% decrease in the weighted-average fees billed per engagement
during fiscal 2010 as compared to fiscal 2009 and an 8% 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 the second half of fiscal 2009 and the
first half of fiscal 2010, which continue 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
28
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 of approximately
$36 million, which is included in EMEAs results from
June 11, 2009, the effective date of the acquisition.
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, primarily driven by a 8% decrease in the average
consultant headcount during the same period, 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 reduction in the bonus provision due to a decrease in revenue
and profitability and a decrease in the weighted-average
compensation in fiscal 2010 as compared to fiscal 2009, driven
by 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
29
$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
compensation and benefits expense by $9.9 million in fiscal
2010 as compared to fiscal 2009, due to an increase in CSV of
COLI and a reduction in salaries.
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 bad debt expense 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 bad debt
expense was due to a higher than normal provision in fiscal 2009
due to the challenging macroeconomic conditions experienced that
fiscal year followed by an improvement of economic conditions in
fiscal 2010. As a result, our collection efforts and the aging
of accounts receivable improved thereby reducing 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 expense. 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.
30
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.
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 to 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
31
income tax rate in fiscal 2009, primarily due to a
$10.3 million reversal of a liability related to a tax
position taken in fiscal 2004, offset by an additional provision
of $7.5 million for the tax impact of future repatriations
of cash dividends and additional valuation allowances on the
Companys current inventory of foreign tax credit
carryforwards recorded 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 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.
Liquidity
and Capital Resources
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
has shown improvement in 2011 but further recovery may be
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.
Although global economic conditions and demand for our services
continued to show signs of improvement during fiscal 2011, the
demand for executive searches remains slightly below its peak
level of 2008. In response to the uncertain economic environment
and labor markets, and in an effort to retain positive cash
flows, we took steps to align our cost structure with
anticipated revenue levels in fiscal 2009 and fiscal 2010.
Future adverse changes in our revenue, could require us to
institute cost cutting measures. To the extent our efforts are
insufficient, we may incur negative cash flows, and if such
conditions were to persist over an extended period of time, it
might require us to obtain 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.
Cash and cash equivalents and marketable securities were
$369.1 million and $296.5 million as of April 30,
2011 and 2010, respectively. Cash and cash equivalents consisted
of cash and highly liquid investments purchased with original
maturities of three months or less. Marketable securities
consist of mutual funds and investments in corporate bonds,
U.S. Treasury and agency securities and commercial paper.
The primary objectives of the mutual funds are to meet the
obligations under certain of our deferred compensation plans,
while the other securities are available for general corporate
purposes.
As of April 30, 2011 and 2010, our marketable securities of
$122.2 million and $77.2 million, respectively,
included $71.4 million (net of gross unrealized gains and
losses of $6.8 million and $0.1 million, respectively)
and $69.0 million (net of gross unrealized gains and losses
of $3.5 million and $1.5 million, respectively),
respectively, held in trust for settlement of our obligations
under certain deferred compensation plans, of which
$66.3 million and $64.9 million, respectively, are
classified as non-current. Our obligations for which these
assets were held in trust totaled $72.1 million and
$69.0 million as of April 30, 2011 and 2010,
respectively. As of April 30, 2011, we had marketable
securities classified as
available-for-sale
with a balance of $50.9 million. These securities represent
excess cash invested, under our investment policy, with a
professional money manager and are available for general
corporate purposes.
The net increase in our working capital of $24.9 million as
of April 30, 2011 compared to April 30, 2010 is
primarily attributable to an increase in cash and cash
equivalents and accounts receivable, partially offset by an
increase in compensation and benefits payable. Cash provided by
operating activities was $95.6 million in fiscal 2011, an
increase of $126.4 million, from cash used in operating
activities of $30.8 million in fiscal 2010. The increase in
cash provided by operating activities is primarily due to an
increase in net income of $53.6 million, increases in
accounts payable and accrued liabilities of $40.9 million,
which is net of bonuses earned in 2009 and paid in fiscal 2011
of $18.4 million, a decrease in deferred income taxes in
fiscal 2011 versus an increase in fiscal 2010 resulting in a net
positive change of $26.8 million and an increase in
receivables of $5.4 million. The increase in net income,
accounts payable and accrued liabilities and receivables are due
to an increase in fee revenue and engagements billed during
fiscal 2011, as compared to fiscal 2010.
32
In fiscal 2011, the Company accrued bonus expense of
$126.3 million which the Company expects to pay in cash
during fiscal 2012. In fiscal 2010, the Company accrued bonus
expense of $73.3 million, which includes amounts that were
fully earned by recipients during that fiscal year, but for
which the payment of $5.4 million was delayed due to
economic conditions. These delayed payments were recorded to
bonus liability and accrued because the underlying bonuses had
been fully earned in such periods. The delayed payment of
$5.4 million in fiscal 2010 bonuses will result in an
increase to cash used in operations when made. Compensation and
benefits payable on the Companys consolidated balance
sheet as of April 30, 2011 includes this $5.4 million
of bonuses. These bonuses will be paid in December 2011,
regardless of whether the recipients continue to be employed by
the Company on the relevant payment date and notwithstanding any
earlier communications to the recipients to the contrary. In
addition, $8.1 million in bonuses earned in fiscal 2009,
the payment of which was deferred due to economic conditions,
were paid during fiscal 2011, resulting in a corresponding
decrease to cash provided by operating activities during fiscal
2011.
Cash used in investing activities was $81.1 million in
fiscal 2011, an increase of $57.7 million, from cash used
in investing activities of $23.4 million in fiscal 2010.
This increase in cash used in investing activities is
attributable to a $46.6 million increase in net purchases
of marketable securities, a $20.6 million increase in the
purchase of property and equipment and an increase in restricted
cash of $10.0 million. These increases were partially
offset by a reduction of $18.7 million in cash used for
acquisitions.
Cash provided by financing activities was $5.9 million in
fiscal 2011, a decrease of $2.2 million from cash provided
by financing activities of $8.1 million in fiscal 2010.
Cash used to repurchase shares of common stock increased by
$10.7 million in fiscal 2011 compared to fiscal 2010. This
cash used was partially offset by $3.6 million in proceeds
from issuances of common stock related to employee stock options
and our stock purchase plan, $3.0 million proceeds from
exercise of warrants and a $1.9 million increase in tax
benefit from exercise of stock options in fiscal 2011 as
compared to fiscal 2010. As of April 30, 2011,
$24.4 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, 2011:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
219,998
|
|
|
$
|
35,902
|
|
|
$
|
60,000
|
|
|
$
|
44,686
|
|
|
$
|
79,410
|
|
Accrued restructuring charges(1)
|
|
6
|
|
|
4,747
|
|
|
|
2,313
|
|
|
|
1,530
|
|
|
|
433
|
|
|
|
471
|
|
Interest payments on COLI loans(2)
|
|
11
|
|
|
57,414
|
|
|
|
4,405
|
|
|
|
8,809
|
|
|
|
8,804
|
|
|
|
35,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
282,159
|
|
|
$
|
42,620
|
|
|
$
|
70,339
|
|
|
$
|
53,923
|
|
|
$
|
115,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents rent payments, net of sublease income on an
undiscounted basis. |
|
(2) |
|
Assumes COLI loans remain outstanding until receipt of death
benefits on COLI policies and applies current interest rates on
COLI loans, ranging from 5.45% to 8.00%. |
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.
33
Lastly, we have contingent commitments under certain employment
agreements that are payable upon termination of employment,
described in Note 15 Commitments and
Contingencies, in the Notes to our Consolidated Financial
Statements.
Cash
Surrender Value of Company Owned Life Insurance Policies, Net of
Loans
As of April 30, 2011 and 2010, we held contracts with gross
CSV of $143.9 million and $136.0 million,
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 COLI contracts. Total outstanding
borrowings against the CSV of COLI contracts were
$72.9 million and $66.9 million as of April 30,
2011 and 2010, respectively. At April 30, 2011, the net
cash value of these policies was $71.0 million of which
$57.6 million was held in trust.
Long-Term
Debt
During March 2011, we replaced our existing credit facility,
which expired on March 14, 2011, with a new Senior Secured
Revolving Facility (the Facility) which provides an
aggregate availability up to $50 million with a
$10 million
sub-limit
for letters of credit, subject to satisfaction of borrowing base
requirements based on eligible domestic and foreign accounts
receivable. The new facility matures on March 14, 2014 and
prior to each anniversary date, we can request one year
extensions, subject to lender consent. Borrowings under the
Facility bear interest, at our election, at the London Interbank
Offered Rate (LIBOR) plus applicable margin or the
base rate plus applicable margin. The base rate is the highest
of (i) the published prime rate, (ii) the federal
funds rate plus 0.50%, or (iii) one month LIBOR plus 2.0%.
The applicable margin is based on a percentage per annum
determined in accordance with a specified pricing grid based on
(a) the total funded debt ratio of the Company and
(b) with respect to LIBOR loans, whether such LIBOR loans
are cash collateralized. For cash collateralized LIBOR loans,
the applicable margin will range from 0.65% to 3.15% per annum.
For LIBOR loans that are not cash collateralized and for base
rate loans, the applicable margin will range from 1.50% to 4.50%
per annum (if using LIBOR) and from 1.50% to 4.75% per annum (if
using base rate). We pay quarterly commitment fees of 0.25% to
0.50% on the Facilitys unused commitments based on our
leverage ratio. The Facility is secured by substantially all of
the assets of our domestic subsidiaries and 65% of the equity
interest in all the first tier foreign subsidiaries. The
financial covenants include a maximum consolidated leverage
ratio, a minimum consolidated fixed charge coverage ratio and a
minimum $30 million in unrestricted cash
and/or
marketable securities after taking into account the accrual for
employee compensation and benefits.
As of April 30, 2011, we had no borrowings under the
Facility; however, we are required to maintain
$10.0 million on account with the lender, and provides
collateral for the standby letters of credit and potential
future borrowings. At April 30, 2011, there were
$2.9 million standby letters of credit issued under this
Facility.
As of April 30, 2010, we had no borrowings under the
previous credit facility; however, there were $8.2 million
of standby letters of credit issued under the previous credit
facility, for which we pledged cash of $9.0 million.
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 January 2010, the Financial Accounting Standards Board
(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
34
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.
|
|
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 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 2011, we
recognized foreign currency gains, on an after tax basis, of
$0.1 million as compared to fiscal 2010 and 2009, in which we
recognized foreign currency losses, on an after tax basis, of
$2.0 million and $0.4 million, respectively.
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
$1.1 million, $1.9 million and $2.6 million,
respectively, based on outstanding balances at April 30,
2011. 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, correspondingly, our exchange
gain would have been $1.1 million, $1.9 million and
$2.6 million, respectively, based on outstanding balances
at April 30, 2011.
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, 2011 and 2010, we had no outstanding borrowings
under our Facility. We had $72.9 million and
$66.9 million of borrowings against the CSV of COLI
contracts as of April 30, 2011 and 2010, 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.
|
|
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
35
concluded that our disclosure controls and procedures (as
defined in Rules
13a-15(e)
and
15d-15(e)
under the Exchange Act of 1934 (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.
|
|
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 2011 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 financial officer and 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
2011 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 2011 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 2011 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 2011 Proxy Statement, and is incorporated
herein by reference.
36
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
and Schedule II Valuation and Qualifying
Accounts. Pursuant to
Rule 7-05
of
Regulation S-X,
the other 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.
|
37
|
|
|
|
|
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*+
|
|
Employment Agreement between the Company and Michael A.
DiGregorio dated April 30, 2009.
|
|
10
|
.31*+
|
|
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
|
.32*+
|
|
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
|
.33*+
|
|
Form of Stock Option Agreement to Employees and Non-Employee
Directors Under the Korn/Ferry International 2008 Stock
Incentive Plan, filed as Exhibit 10.3 to the Companys
Current Report on Form 8-K, filed June 12, 2009.
|
|
10
|
.34*+
|
|
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
|
.35*+
|
|
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.
|
38
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.36*+
|
|
Letter Agreement between the Company and Gary D. Burnison dated
June 25, 2009.
|
|
10
|
.37*+
|
|
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.
|
|
101
|
.INS
|
|
XBRL Instance Document.
|
|
101
|
.SCH
|
|
XBRL Taxonomy Extension Schema Document.
|
|
101
|
.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101
|
.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
101
|
.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
|
|
* |
|
Management contract, compensatory plan or arrangement. |
|
+ |
|
Incorporated herein by reference. |
39
SIGNATURES
Pursuant to the requirements 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, 2011
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, 2011
|
|
|
|
|
|
/s/ Gary
D. Burnison
Gary
D. Burnison
|
|
President & Chief Executive Officer (Principal Executive
Officer) and Director
|
|
June 29, 2011
|
|
|
|
|
|
/s/ Michael
A. DiGregorio
Michael
A. DiGregorio
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
June 29, 2011
|
|
|
|
|
|
/s/ Mark
Neal
Mark
Neal
|
|
Senior Vice President, Finance (Principal Accounting
Officer)
|
|
June 29, 2011
|
|
|
|
|
|
/s/ Denise
Kingsmill
Denise
Kingsmill
|
|
Director
|
|
June 29, 2011
|
|
|
|
|
|
/s/ Edward
D. Miller
Edward
D. Miller
|
|
Director
|
|
June 29, 2011
|
40
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Debra
Perry
Debra
Perry
|
|
Director
|
|
June 29, 2011
|
|
|
|
|
|
/s/ Gerhard
Schulmeyer
Gerhard
Schulmeyer
|
|
Director
|
|
June 29, 2011
|
|
|
|
|
|
/s/ George
T. Shaheen
George
T. Shaheen
|
|
Director
|
|
June 29, 2011
|
|
|
|
|
|
/s/ Harry
L. You
Harry
L. You
|
|
Director
|
|
June 29, 2011
|
41
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30,
2011
|
|
|
|
|
|
|
Page
|
|
Managements Report on Internal Control over Financial
Reporting
|
|
|
F-2
|
|
Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting
|
|
|
F-3
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-4
|
|
Consolidated Balance Sheets as of April 30, 2011 and 2010
|
|
|
F-5
|
|
Consolidated Statements of Operations for the years ended
April 30, 2011, 2010 and 2009
|
|
|
F-6
|
|
Consolidated Statements of Stockholders Equity for the
years ended April 30, 2011, 2010 and 2009
|
|
|
F-7
|
|
Consolidated Statements of Cash Flows for the years ended
April 30, 2011, 2010 and 2009
|
|
|
F-8
|
|
Notes to Consolidated Financial Statements
|
|
|
F-9
|
|
Financial Statements Schedule II Valuation and
Qualifying Accounts
|
|
|
F-37
|
|
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,
2011 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, 2011.
Ernst & Young, LLP, the independent registered public
accounting firm that audited the Companys financial
statements for the year ended April 30, 2011 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, 2011, a copy of which is included in this Annual
Report on
Form 10-K.
June 29, 2011
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, 2011 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, 2011, 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, 2011 and 2010, and the related
consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period
ended April 30, 2011 and our report dated June 29,
2011, expressed an unqualified opinion thereon.
Los Angeles, California
June 29, 2011
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, 2011 and 2010, and the
related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended April 30, 2011. Our audits also
included the financial statement schedule listed in the index at
item 15(a). These financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule 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, 2011 and 2010, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended April 30, 2011, in conformity
with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 1 to the consolidated financial
statements, the Company changed its method of accounting for
business acquisitions effective May 1, 2009.
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, 2011, 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, 2011, expressed an unqualified
opinion thereon.
Los Angeles, California
June 29, 2011
F-4
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands, except per share data)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
246,856
|
|
|
$
|
219,233
|
|
Marketable securities
|
|
|
20,868
|
|
|
|
4,114
|
|
Receivables due from clients, net of allowance for doubtful
accounts of $9,977 and $5,983, respectively
|
|
|
128,859
|
|
|
|
107,215
|
|
Income taxes and other receivables
|
|
|
5,138
|
|
|
|
6,292
|
|
Deferred income taxes
|
|
|
10,214
|
|
|
|
20,844
|
|
Prepaid expenses and other assets
|
|
|
29,662
|
|
|
|
23,166
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
441,597
|
|
|
|
380,864
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, non-current
|
|
|
101,363
|
|
|
|
73,105
|
|
Property and equipment, net
|
|
|
43,142
|
|
|
|
24,963
|
|
Cash surrender value of company owned life insurance policies,
net of loans
|
|
|
70,987
|
|
|
|
69,069
|
|
Deferred income taxes
|
|
|
64,418
|
|
|
|
59,742
|
|
Goodwill
|
|
|
183,952
|
|
|
|
172,273
|
|
Intangible assets, net
|
|
|
22,289
|
|
|
|
25,425
|
|
Investments and other assets
|
|
|
43,932
|
|
|
|
21,657
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
971,680
|
|
|
$
|
827,098
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Accounts payable
|
|
$
|
12,504
|
|
|
$
|
11,148
|
|
Income taxes payable
|
|
|
4,674
|
|
|
|
6,323
|
|
Compensation and benefits payable
|
|
|
173,097
|
|
|
|
131,550
|
|
Other accrued liabilities
|
|
|
43,591
|
|
|
|
49,062
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
233,866
|
|
|
|
198,083
|
|
Deferred compensation and other retirement plans
|
|
|
139,558
|
|
|
|
123,794
|
|
Other liabilities
|
|
|
19,919
|
|
|
|
13,879
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
393,343
|
|
|
|
335,756
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock: $0.01 par value, 150,000 shares
authorized, 59,101 and 57,614 shares issued and 47,003 and
45,979 shares outstanding, respectively
|
|
|
404,703
|
|
|
|
388,717
|
|
Retained earnings
|
|
|
148,494
|
|
|
|
90,220
|
|
Accumulated other comprehensive income, net
|
|
|
25,660
|
|
|
|
12,934
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
578,857
|
|
|
|
491,871
|
|
Less: notes receivable from stockholders
|
|
|
(520
|
)
|
|
|
(529
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
578,337
|
|
|
|
491,342
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
971,680
|
|
|
$
|
827,098
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
Fee revenue
|
|
$
|
744,249
|
|
|
$
|
572,380
|
|
|
$
|
638,223
|
|
Reimbursed
out-of-pocket
engagement expenses
|
|
|
32,002
|
|
|
|
27,269
|
|
|
|
37,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
776,251
|
|
|
|
599,649
|
|
|
|
676,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
507,405
|
|
|
|
413,340
|
|
|
|
442,632
|
|
General and administrative expenses
|
|
|
116,494
|
|
|
|
115,280
|
|
|
|
126,882
|
|
Out-of-pocket
engagement expenses
|
|
|
51,766
|
|
|
|
41,585
|
|
|
|
49,388
|
|
Depreciation and amortization
|
|
|
12,671
|
|
|
|
11,493
|
|
|
|
11,583
|
|
Restructuring charges, net
|
|
|
2,130
|
|
|
|
20,673
|
|
|
|
41,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
690,466
|
|
|
|
602,371
|
|
|
|
672,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
85,785
|
|
|
|
(2,722
|
)
|
|
|
3,728
|
|
Other income (loss), net
|
|
|
6,454
|
|
|
|
10,066
|
|
|
|
(14,738
|
)
|
Interest expense, net
|
|
|
(2,535
|
)
|
|
|
(2,622
|
)
|
|
|
(1,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes and
equity in earnings of unconsolidated subsidiaries
|
|
|
89,704
|
|
|
|
4,722
|
|
|
|
(12,073
|
)
|
Income tax provision (benefit)
|
|
|
32,692
|
|
|
|
(485
|
)
|
|
|
384
|
|
Equity in earnings of unconsolidated subsidiaries, net
|
|
|
1,862
|
|
|
|
91
|
|
|
|
2,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
58,874
|
|
|
$
|
5,298
|
|
|
$
|
(10,092
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.30
|
|
|
$
|
0.12
|
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.27
|
|
|
$
|
0.12
|
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
45,205
|
|
|
|
44,413
|
|
|
|
43,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
46,280
|
|
|
|
45,457
|
|
|
|
43,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
Income, Net
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at May 1, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 pension 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 pension 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
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
58,874
|
|
|
|
|
|
|
|
58,874
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,739
|
|
|
|
16,739
|
|
Defined benefit pension plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,048
|
)
|
|
|
(4,048
|
)
|
Unrealized gains on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants
|
|
|
274
|
|
|
|
2,983
|
|
|
|
|
|
|
|
|
|
|
|
2,983
|
|
Purchase of stock
|
|
|
(934
|
)
|
|
|
(13,844
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,844
|
)
|
Issuance of stock
|
|
|
1,684
|
|
|
|
10,084
|
|
|
|
|
|
|
|
|
|
|
|
10,084
|
|
Stock-based compensation
|
|
|
|
|
|
|
15,476
|
|
|
|
|
|
|
|
|
|
|
|
15,476
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
1,287
|
|
|
|
|
|
|
|
|
|
|
|
1,287
|
|
Payment of dividends by majority owned consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
(600
|
)
|
|
|
|
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2011
|
|
|
47,003
|
|
|
$
|
404,703
|
|
|
$
|
148,494
|
|
|
$
|
25,660
|
|
|
$
|
578,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
58,874
|
|
|
$
|
5,298
|
|
|
$
|
(10,092
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
12,671
|
|
|
|
11,493
|
|
|
|
11,583
|
|
Stock-based compensation expense
|
|
|
15,547
|
|
|
|
17,729
|
|
|
|
16,301
|
|
Impairment of intangible assets
|
|
|
880
|
|
|
|
|
|
|
|
|
|
Loss on disposition of property and equipment
|
|
|
80
|
|
|
|
323
|
|
|
|
3,740
|
|
Provision for doubtful accounts
|
|
|
7,650
|
|
|
|
3,340
|
|
|
|
9,127
|
|
(Gain) loss on cash surrender value of life insurance policies
|
|
|
(6,246
|
)
|
|
|
(9,558
|
)
|
|
|
3,578
|
|
Gain on marketable securities classified as trading
|
|
|
(7,599
|
)
|
|
|
(11,137
|
)
|
|
|
|
|
Change in fair value of acquisition-related contingent
consideration
|
|
|
(4,919
|
)
|
|
|
|
|
|
|
|
|
Realized loss on
available-for-sale
marketable securities
|
|
|
|
|
|
|
|
|
|
|
5,040
|
|
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
|
|
|
5,954
|
|
|
|
(20,862
|
)
|
|
|
(4,354
|
)
|
Change in other assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
11,716
|
|
|
|
15,828
|
|
|
|
(3,085
|
)
|
Receivables
|
|
|
(28,140
|
)
|
|
|
(33,516
|
)
|
|
|
44,639
|
|
Prepaid expenses
|
|
|
(6,496
|
)
|
|
|
(4,198
|
)
|
|
|
(1,340
|
)
|
Investment in unconsolidated subsidiaries
|
|
|
(1,862
|
)
|
|
|
(91
|
)
|
|
|
(2,365
|
)
|
Income taxes payable
|
|
|
(1,686
|
)
|
|
|
2,844
|
|
|
|
(18,909
|
)
|
Accounts payable and accrued liabilities
|
|
|
40,109
|
|
|
|
(783
|
)
|
|
|
(82,236
|
)
|
Other
|
|
|
(899
|
)
|
|
|
(7,556
|
)
|
|
|
21,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
95,634
|
|
|
|
(30,846
|
)
|
|
|
3,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(27,889
|
)
|
|
|
(7,282
|
)
|
|
|
(11,947
|
)
|
Purchase of intangible assets
|
|
|
|
|
|
|
(3,481
|
)
|
|
|
|
|
Purchase of marketable securities
|
|
|
(65,964
|
)
|
|
|
(4,163
|
)
|
|
|
(23,449
|
)
|
Proceeds from sales/maturities of marketable securities
|
|
|
28,618
|
|
|
|
13,374
|
|
|
|
19,345
|
|
Change in restricted cash
|
|
|
(10,007
|
)
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired and contingent
consideration
|
|
|
|
|
|
|
(18,734
|
)
|
|
|
(12,900
|
)
|
Payment of contingent consideration from acquisitions
|
|
|
(5,795
|
)
|
|
|
(2,405
|
)
|
|
|
|
|
Premiums on life insurance policies
|
|
|
(1,702
|
)
|
|
|
(1,711
|
)
|
|
|
(1,781
|
)
|
Dividends received from unconsolidated subsidiaries
|
|
|
1,608
|
|
|
|
958
|
|
|
|
2,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(81,131
|
)
|
|
|
(23,444
|
)
|
|
|
(27,780
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on life insurance policy loans
|
|
|
|
|
|
|
(183
|
)
|
|
|
(770
|
)
|
Borrowings under life insurance policies
|
|
|
6,039
|
|
|
|
5,500
|
|
|
|
1,721
|
|
Purchase of common stock
|
|
|
(13,844
|
)
|
|
|
(3,136
|
)
|
|
|
(9,588
|
)
|
Proceeds from exercise of warrants
|
|
|
2,983
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock upon exercise of employee
stock options and in connection with an employee stock purchase
plan
|
|
|
10,084
|
|
|
|
6,526
|
|
|
|
3,609
|
|
Tax benefit (expense) from exercise of stock options
|
|
|
1,287
|
|
|
|
(611
|
)
|
|
|
(654
|
)
|
Payment of dividends by majority owned consolidated subsidiaries
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
5,949
|
|
|
|
8,096
|
|
|
|
(5,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
7,171
|
|
|
|
10,427
|
|
|
|
(20,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
27,623
|
|
|
|
(35,767
|
)
|
|
|
(50,296
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
219,233
|
|
|
|
255,000
|
|
|
|
305,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
246,856
|
|
|
$
|
219,233
|
|
|
$
|
255,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used to pay interest
|
|
$
|
4,834
|
|
|
$
|
3,992
|
|
|
$
|
5,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used to pay income taxes
|
|
$
|
25,329
|
|
|
$
|
8,111
|
|
|
$
|
24,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
April 30, 2011
|
|
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 35
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. The consolidated financial statements
include all adjustments, consisting of normal recurring accruals
and any other adjustments that management considers necessary
for a fair presentation of the results for these periods.
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
received from our unconsolidated subsidiary in Mexico were
approximately $1.6 million, $1.0 million and
$3.0 million during fiscal 2011, 2010 and 2009,
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.
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 estimates are reported in current operations. The
most significant areas that require management judgment are
revenue recognition, deferred compensation, annual performance
related compensation, evaluation of the carrying value of
receivables, marketable securities, goodwill and other
intangible assets, fair value of contingent consideration and
the recoverability of 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 compensation plus a percentage of the fee to cover
indirect expenses. 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, which reflects the final
actual compensation of the placed executive. Any services that
are provided on a contingent basis are recognized once the
contingency is fulfilled. Fee revenue from leadership and talent
consulting services is recognized as earned.
F-9
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
Allowance
for Doubtful Accounts
A provision is established for doubtful accounts through a
charge to general and administrative expenses based on
historical loss experience, assessment of the collectability of
specific accounts, as well as expectations of future collections
based upon trends and the type of work for which services are
rendered. After all collection efforts have been exhausted, the
Company reduces the allowance for doubtful accounts for balances
identified as uncollectible.
Cash
and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents.
Restricted
Cash
The Company had $10.0 million of restricted cash at
April 30, 2011, related to its existing credit facility
(see Note 11), which is included in investments and other
assets in the accompanying 2011 balance sheet.
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. Realized capital gains (losses) on investments are
determined by specific identification. 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 in
the statement of operations in 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 (loss) 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 corporate bonds, U.S. Treasury and
agency securities and commercial paper. The changes in fair
values, net of applicable taxes, are recorded as unrealized
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 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 2011 and 2010, no
other-than-temporary
impairment was recognized, compared to a write-down of
$15.9 million during fiscal 2009 (see Note 5).
F-10
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Business
Acquisitions
Business acquisitions are accounted for under the purchase
method by assigning the purchase price to tangible and
intangible assets acquired and liabilities assumed. The results
are included in the Companys consolidated financial
statements from the date of each respective acquisition. Assets
acquired and liabilities assumed are recorded at their fair
values and the excess of the purchase price over the amounts
assigned is recorded as goodwill. Adjustments to fair value
assessments are recorded to goodwill over the purchase price
allocation period (generally not longer than twelve months).
Purchased intangible assets with finite lives are amortized over
their estimated useful lives. Effective May 1, 2009, the
Company adopted Accounting Standards Codification 805, Business
Acquisitions, which 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
for acquisitions completed after the adoption date. The Company
applied this new guidance to its acquisition of Whitehead Mann
and SENSA Solution, Inc., which were acquired in fiscal 2010.
During fiscal 2011, the Company recorded a $4.9 million
reduction in the estimated fair value of contingent
consideration relating to a prior acquisition, as a component of
general and administrative expenses.
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.
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. Results of the annual impairment test
performed as of January 31, 2011, 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 2011.
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. During fiscal 2011,
the Company wrote-off a trademark no longer in use with a net
book value of $0.9 million. As of April 30, 2011 and
2010, there were no indicators of impairment with respect to the
Companys intangible assets.
F-11
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 estimates annual performance related
bonuses on a quarterly basis based on projected individual
performance, analysis of Company performance and additional
considerations such as competitive information and material
economic developments. At the end of each fiscal year, the
Company then determines annual bonuses based upon final Company
and individual performance and other factors, such as attainment
of strategic objectives and individual performance appraisals.
Management reevaluates the estimates up to the payment date, and
any changes in the estimate are reported in current operations.
The performance related bonus expense was $126.3 million,
$73.3 million and $89.3 million for the years ended
April 30, 2011, 2010 and 2009, respectively. The change in
the previous years estimate recorded in fiscal 2011, 2010 and
2009 was a decrease of $2.0 million, $3.6 million and
$4.0 million, respectively. These annual performance
related bonuses are generally paid within twelve months
following the fiscal year end though the Company deferred
certain bonuses earned in fiscal 2009 and fiscal 2010. The
bonuses deferred in fiscal 2009 were paid in December 2010 and
the bonuses deferred in fiscal 2010 will be paid in December
2011. Other expenses included in compensation and benefits
expense are due to 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.
Cash
Surrender Value of Life Insurance
The change in the CSV of COLI contracts, net of insurance
premiums paid and gains realized, is reported in compensation
and benefits expense. As of April 30, 2011 and 2010, the
Company held contracts with gross CSV of $143.9 million and
$136.0 million, offset by outstanding policy loans of
$72.9 million and $66.9 million, respectively. If
these insurance companies were to become insolvent, the Company
would be considered a general creditor for $31.0 million
and $32.3 million of net CSV as of April 30, 2011 and
2010, respectively; therefore, these assets are subject to risk.
Management, together with its outside advisors, routinely
monitors the claims paying abilities 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.
F-12
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock-Based
Compensation
The Company has employee compensation plans under which various
types of stock-based instruments are granted. These instruments,
principally include stock options, stock appreciation rights
(SARs), restricted stock and an Employee Stock
Purchase Plan (ESPP). The Company 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
gains, on an after tax basis, included in net income (loss),
were $0.1 million during fiscal 2011. Foreign currency
losses, on an after tax basis, included in net income (loss),
were $2.0 million and $0.4 million during fiscal 2010
and 2009, 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 basis of assets and liabilities as
measured by tax laws and their basis 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.
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.
|
F-13
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of April 30, 2011 and 2010, the Company held certain
assets that are required to be measured at fair value on a
recurring basis. These included cash equivalents and marketable
securities. 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 classified as trading, are obtained from quoted
market prices and the fair values of marketable securities
classified as
available-for-sale,
are obtained from a third party, which are based on quoted
prices or market prices for similar assets. As of April 30,
2010, the Company also held auction rate securities
(ARS) and a related put option. The fair value for
these instruments are determined by the use of pricing models
(see Note 5). The ARS were redeemed at full value during
fiscal 2011.
Concentration
of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, cash
equivalents, investments, receivables due from clients and net
cash surrender value due from insurance companies, which is
discussed above. Cash equivalents include investments in
commercial paper of companies with high credit ratings,
investments in money market securities and securities backed by
the U.S. government. Investments are diversified throughout
many industries and geographic regions. The Company is
consolidating cash balances with a small number of high quality
global financial institutions to increase operational
efficiencies and to improve risk management. 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, 2011 and 2010, 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.
Recently
Adopted Accounting Standards
In January 2010, the Financial Accounting Standards Board
(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. The Company
F-14
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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) attributable to common stockholders 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 2011 and 2010,
SARs and options to purchase 0.39 million shares and
1.48 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,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
Net earnings (loss) attributable to common stockholders
|
|
$
|
58,874
|
|
|
$
|
5,298
|
|
|
$
|
(10,092
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average number of common shares outstanding
|
|
|
45,205
|
|
|
|
44,413
|
|
|
|
43,522
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
|
646
|
|
|
|
587
|
|
|
|
|
|
Stock options
|
|
|
425
|
|
|
|
401
|
|
|
|
|
|
ESPP
|
|
|
4
|
|
|
|
3
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average number of common shares outstanding
|
|
|
46,280
|
|
|
|
45,457
|
|
|
|
43,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
1.30
|
|
|
$
|
0.12
|
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
1.27
|
|
|
$
|
0.12
|
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income 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.
F-15
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of accumulated other comprehensive income were as
follows:
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Foreign currency translation adjustments
|
|
$
|
35,639
|
|
|
$
|
18,900
|
|
Defined benefit pension adjustments, net of taxes
|
|
|
(10,014
|
)
|
|
|
(5,966
|
)
|
Unrealized gains on marketable securities, net of taxes
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
25,660
|
|
|
$
|
12,934
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Restricted stock
|
|
$
|
14,090
|
|
|
$
|
16,470
|
|
|
$
|
15,633
|
|
Stock options and SARs
|
|
|
1,028
|
|
|
|
853
|
|
|
|
210
|
|
ESPP
|
|
|
429
|
|
|
|
406
|
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense, pre-tax
|
|
|
15,547
|
|
|
|
17,729
|
|
|
|
16,301
|
|
Tax benefit from stock-based compensation expense
|
|
|
(5,675
|
)
|
|
|
(6,471
|
)
|
|
|
(5,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense, net of tax
|
|
$
|
9,872
|
|
|
$
|
11,258
|
|
|
$
|
10,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company uses the Black-Scholes option valuation model to
estimate the grant date fair value of employee stock options.
The expected volatility reflects 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,
|
|
|
2011
|
|
2010
|
|
2009
|
|
Expected volatility
|
|
|
47.67
|
%
|
|
|
48.91
|
%
|
|
|
44.11
|
%
|
Risk-free interest rate
|
|
|
1.83
|
%
|
|
|
2.53
|
%
|
|
|
3.27
|
%
|
Expected option life (in years)
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
4.25
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The Black-Scholes option pricing model was developed for use in
estimating the fair value of traded options. The assumptions
used in option valuation models are highly subjective,
particularly the expected stock price volatility of the
underlying stock.
F-16
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Incentive Plans
The Korn/Ferry International 2008 Stock Incentive Plan, as
amended (the 2008 Plan) made available an additional
2,360,000 shares of the Companys common stock for
stock-based compensation awards. The 2008 Plan, provides for the
grant of awards to eligible participants, designated as either
nonqualified or incentive stock options, SARs, restricted stock
and restricted stock units, any of which may be
performance-based, and incentive bonuses, which may be paid in
cash or a combination thereof. 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
Option and SARs
Stock options and SAR transactions under the Companys
stock incentive plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
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
|
|
|
2,723
|
|
|
$
|
14.72
|
|
|
|
3,113
|
|
|
$
|
14.83
|
|
|
|
3,564
|
|
|
$
|
14.79
|
|
Granted
|
|
|
211
|
|
|
$
|
13.97
|
|
|
|
621
|
|
|
$
|
11.26
|
|
|
|
6
|
|
|
$
|
14.54
|
|
Exercised
|
|
|
(625
|
)
|
|
$
|
12.81
|
|
|
|
(531
|
)
|
|
$
|
8.21
|
|
|
|
(127
|
)
|
|
$
|
8.91
|
|
Forfeited/expired
|
|
|
(476
|
)
|
|
$
|
20.55
|
|
|
|
(480
|
)
|
|
$
|
18.14
|
|
|
|
(330
|
)
|
|
$
|
16.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
1,833
|
|
|
$
|
13.78
|
|
|
|
2,723
|
|
|
$
|
14.72
|
|
|
|
3,113
|
|
|
$
|
14.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year
|
|
|
1,219
|
|
|
$
|
14.64
|
|
|
|
2,142
|
|
|
$
|
15.68
|
|
|
|
3,042
|
|
|
$
|
14.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2011, the aggregate intrinsic value of
options outstanding and options exercisable were
$12.7 million and $7.4 million, respectively.
Included in the table above are 17,303 SARs outstanding and
exercisable as of April 30, 2011 with a weighted-average
exercise price of $9.46. As of April 30, 2011, there was
$2.5 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 1.4 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, 2011
|
|
|
|
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 - $ 9.55
|
|
|
365
|
|
|
|
1.8
|
|
|
$
|
7.87
|
|
|
|
365
|
|
|
|
1.8
|
|
|
$
|
7.87
|
|
$ 9.56 - $13.82
|
|
|
455
|
|
|
|
5.0
|
|
|
$
|
10.32
|
|
|
|
108
|
|
|
|
4.4
|
|
|
$
|
10.61
|
|
$13.83 - $17.97
|
|
|
607
|
|
|
|
4.6
|
|
|
$
|
16.06
|
|
|
|
352
|
|
|
|
3.5
|
|
|
$
|
17.35
|
|
$17.98 - $24.08
|
|
|
406
|
|
|
|
3.6
|
|
|
$
|
19.55
|
|
|
|
394
|
|
|
|
3.5
|
|
|
$
|
19.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,833
|
|
|
|
3.9
|
|
|
$
|
13.78
|
|
|
|
1,219
|
|
|
|
3.1
|
|
|
$
|
14.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information pertaining to stock options and SARs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
(In thousands, except per share data)
|
|
Weighted-average fair value per share of stock options granted
|
|
$
|
6.07
|
|
|
$
|
5.07
|
|
|
$
|
5.77
|
|
Total fair value of stock options and SARs vested
|
|
$
|
747
|
|
|
$
|
612
|
|
|
$
|
1,986
|
|
Total intrinsic value of stock options exercised
|
|
$
|
5,164
|
|
|
$
|
2,631
|
|
|
$
|
640
|
|
Total intrinsic value of SARs paid
|
|
$
|
178
|
|
|
$
|
75
|
|
|
$
|
|
|
Restricted
Stock
The Company grants time-based restricted stock to executive
officers and other senior employees generally vesting over a
three to four year period. Time-based restricted stock is
granted at a price equal to fair value, which is determined
based on the closing price of the Companys common stock on
the grant date. The Company also grants performance-based
restricted stock to executive officers and other senior
employees, which vest after three years if the Company meets a
specific target relative to other companies in its selected peer
group. The fair value of these performance-based restricted
stock awards was determined by a third-party valuation using
extensive market data. 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,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
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
|
|
|
2,480
|
|
|
$
|
9.93
|
|
|
|
2,387
|
|
|
$
|
15.50
|
|
|
|
1,952
|
|
|
$
|
22.01
|
|
Granted
|
|
|
562
|
|
|
$
|
15.12
|
|
|
|
1,017
|
|
|
$
|
10.57
|
|
|
|
1,288
|
|
|
$
|
17.57
|
|
Vested
|
|
|
(920
|
)
|
|
$
|
15.32
|
|
|
|
(754
|
)
|
|
$
|
20.43
|
|
|
|
(602
|
)
|
|
$
|
21.25
|
|
Forfeited/expired
|
|
|
(115
|
)
|
|
$
|
14.83
|
|
|
|
(170
|
)
|
|
$
|
17.91
|
|
|
|
(251
|
)
|
|
$
|
19.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested, end of year
|
|
|
2,007
|
|
|
$
|
8.64
|
|
|
|
2,480
|
|
|
$
|
9.93
|
|
|
|
2,387
|
|
|
$
|
15.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of April 30, 2011, there was $17.3 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 2.9 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 2011 and
2010, 211,315 shares and 151,864 shares of restricted
stock totaling $3.2 million and $1.8 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, or $25,000 annually, 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 2011, 2010 and 2009,
employees purchased 153,913 shares at $14.13 per share,
209,840 shares at $10.66 per share and 209,510 shares
at $11.78 per share, respectively. At April 30, 2011, the
ESPP had approximately 0.2 million shares available for
future issuance.
As of April 30, 2011 marketable securities consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-
|
|
|
|
|
|
|
Trading
|
|
|
Sale(2)
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Mutual funds(1)
|
|
$
|
71,363
|
|
|
$
|
|
|
|
$
|
71,363
|
|
Corporate bonds
|
|
|
|
|
|
|
40,444
|
|
|
|
40,444
|
|
U.S. Treasury and agency securities
|
|
|
|
|
|
|
9,424
|
|
|
|
9,424
|
|
Commercial paper
|
|
|
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
71,363
|
|
|
|
50,868
|
|
|
|
122,231
|
|
Less: current portion of marketable securities
|
|
|
(5,081
|
)
|
|
|
(15,787
|
)
|
|
|
(20,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current marketable securities
|
|
$
|
66,282
|
|
|
$
|
35,081
|
|
|
$
|
101,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2010 marketable securities consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-
|
|
|
|
|
|
|
Trading
|
|
|
Sale
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Mutual funds(1)
|
|
$
|
69,019
|
|
|
$
|
|
|
|
$
|
69,019
|
|
Auction rate securities
|
|
|
7,455
|
|
|
|
|
|
|
|
7,455
|
|
Auction rate securities put option
|
|
|
745
|
|
|
|
|
|
|
|
745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
77,219
|
|
|
|
|
|
|
|
77,219
|
|
Less: current portion of marketable securities
|
|
|
(4,114
|
)
|
|
|
|
|
|
|
(4,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current marketable securities
|
|
$
|
73,105
|
|
|
$
|
|
|
|
$
|
73,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These investments are held in trust for settlement of the
Companys obligations under certain of its deferred
compensation plans with $5.1 million and $4.1 million
classified as current assets as of April 30, 2011 and 2010,
respectively (see Note 7). |
F-19
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(2) |
|
These securities represent excess cash invested, under our
investment policy, with a professional money manager. |
As of April 30, 2011, amortized cost and fair values of
marketable securities classified as
available-for-sale
investments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Corporate bonds
|
|
$
|
40,369
|
|
|
$
|
107
|
|
|
$
|
(32
|
)
|
|
$
|
40,444
|
|
U.S. Treasury and agency securities
|
|
|
9,427
|
|
|
|
10
|
|
|
|
(13
|
)
|
|
|
9,424
|
|
Commercial paper
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,796
|
|
|
$
|
117
|
|
|
$
|
(45
|
)
|
|
$
|
50,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in marketable securities are made based on the
Companys investment policy, which restricts the types of
investments that can be made. As of April 30, 2011 and
2010, the Companys investments associated with cash
equivalents, including restricted cash consist of money market
funds for which market prices are readily available. As of
April 30, 2011 and 2010, the Companys investments in
marketable securities, consisting of mutual funds, were
classified as trading, for which market prices are readily
available. As of April 30, 2011, marketable securities
classified as
available-for-sale
consist of corporate bonds, U.S. Treasury and agency
securities and commercial paper, with maturities ranging from
one month to three years, for which market prices for similar
assets are readily available. Also classified as trading were
ARS, reflected at fair value, as of April 30, 2010, which
were redeemed at full value during fiscal 2011.
As of April 30, 2011 and 2010, the Companys
marketable securities included $71.4 million (net of gross
unrealized gains and losses of $6.8 million and
$0.1 million, respectively) and $69.0 million (net of
gross unrealized gains and losses of $3.5 million and
$1.5 million, respectively), respectively, held in trust
for settlement of the Companys obligations under certain
of its deferred compensation plans, of which $66.3 million
and $64.9 million, respectively, are classified as
non-current. The Companys obligations for which these
assets were held in trust totaled $72.1 million and
$69.0 million as of April 30, 2011 and 2010,
respectively.
The following table represents the Companys fair value
hierarchy for financial assets measured at fair value on a
recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
|
Cash equivalents, including restricted cash
|
|
$
|
120,840
|
|
|
$
|
120,840
|
|
|
$
|
|
|
|
$
|
|
|
Mutual funds
|
|
|
71,363
|
|
|
|
71,363
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
40,444
|
|
|
|
|
|
|
|
40,444
|
|
|
|
|
|
U.S. Treasury and agency securities
|
|
|
9,424
|
|
|
|
|
|
|
|
9,424
|
|
|
|
|
|
Commercial paper
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
243,071
|
|
|
$
|
192,203
|
|
|
$
|
50,868
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2010
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
|
Cash equivalents
|
|
$
|
148,238
|
|
|
$
|
148,238
|
|
|
$
|
|
|
|
$
|
|
|
Mutual funds
|
|
|
69,019
|
|
|
|
69,019
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
7,455
|
|
|
|
|
|
|
|
|
|
|
|
7,455
|
|
Auction rate securities put option
|
|
|
745
|
|
|
|
|
|
|
|
|
|
|
|
745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
225,457
|
|
|
$
|
217,257
|
|
|
$
|
|
|
|
$
|
8,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
8,200
|
|
|
$
|
12,425
|
|
Auction rate securities put option
|
|
|
(745
|
)
|
|
|
(351
|
)
|
Realized gain included in operations
|
|
|
745
|
|
|
|
|
|
Unrealized gain included in operations
|
|
|
|
|
|
|
351
|
|
Sale of securities
|
|
|
(8,200
|
)
|
|
|
(4,225
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
|
|
|
$
|
8,200
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Restructuring
Charges, Net
|
During fiscal 2010, the Company implemented a restructuring plan
to eliminate redundancies as a result of the acquisition of
Whitehead Mann Limited and Whitehead Mann SAS, together referred
to as Whitehead Mann (WHM) and reorganized its
go-to-market
and operating structure in the Europe, Middle East 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.
During fiscal 2011, the Company increased previously recorded
restructuring charges resulting in net restructuring costs of
$2.1 million. The increase in restructuring expenses
primarily relates to higher facility costs than originally
recorded. The Companys basic and diluted earnings per
share for fiscal 2011 would have increased by $0.03 per share
had increases of previously recorded restructuring charges of
$2.1 million (or $1.3 million, net of taxes) not been
recorded.
F-21
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Changes in the restructuring liability are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Facilities
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Liability as of April 30, 2009
|
|
$
|
10,554
|
|
|
$
|
12,807
|
|
|
$
|
23,361
|
|
Additions charged to expense
|
|
|
15,940
|
|
|
|
9,835
|
|
|
|
25,775
|
|
Other reductions, net
|
|
|
(2,331
|
)
|
|
|
(2,771
|
)
|
|
|
(5,102
|
)
|
Reductions for cash payments
|
|
|
(21,849
|
)
|
|
|
(8,691
|
)
|
|
|
(30,540
|
)
|
Non-cash items
|
|
|
(370
|
)
|
|
|
(452
|
)
|
|
|
(822
|
)
|
Exchange rate fluctuations
|
|
|
770
|
|
|
|
367
|
|
|
|
1,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability as of April 30, 2010
|
|
|
2,714
|
|
|
|
11,095
|
|
|
|
13,809
|
|
Other (reductions) increases, net
|
|
|
(299
|
)
|
|
|
2,429
|
|
|
|
2,130
|
|
Reductions for cash payments
|
|
|
(1,518
|
)
|
|
|
(9,979
|
)
|
|
|
(11,497
|
)
|
Exchange rate fluctuations
|
|
|
81
|
|
|
|
398
|
|
|
|
479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability as of April 30, 2011
|
|
$
|
978
|
|
|
$
|
3,943
|
|
|
$
|
4,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2011 and 2010, the restructuring liability
is included in current portion of other accrued liabilities on
the consolidated balance sheet, except for $2.1 million and
$5.2 million, respectively, of facilities costs which
primarily relate to commitments under operating leases, net of
sublease income, which are included in other long-term
liabilities and will be paid over the next seven years.
The restructuring liability by segment is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011
|
|
|
|
Severance
|
|
|
Facilities
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Executive Recruitment
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
|
|
|
$
|
91
|
|
|
$
|
91
|
|
Europe, Middle East and Africa (EMEA)
|
|
|
857
|
|
|
|
2,312
|
|
|
|
3,169
|
|
Asia Pacific
|
|
|
|
|
|
|
328
|
|
|
|
328
|
|
South America
|
|
|
114
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Executive Recruitment
|
|
|
971
|
|
|
|
2,731
|
|
|
|
3,702
|
|
Futurestep
|
|
|
7
|
|
|
|
1,212
|
|
|
|
1,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability as of April 30, 2011
|
|
$
|
978
|
|
|
$
|
3,943
|
|
|
$
|
4,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
7.
|
Deferred
Compensation and Retirement Plans
|
The Company has several deferred compensation and retirement
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 obligations for these plans were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Deferred compensation plans
|
|
$
|
66,637
|
|
|
$
|
60,890
|
|
Pension plan
|
|
|
3,815
|
|
|
|
3,483
|
|
Retirement plans
|
|
|
3,153
|
|
|
|
2,611
|
|
Executive Capital Accumulation Plan
|
|
|
65,953
|
|
|
|
56,810
|
|
|
|
|
|
|
|
|
|
|
Total long-term benefit obligations
|
|
$
|
139,558
|
|
|
$
|
123,794
|
|
|
|
|
|
|
|
|
|
|
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.
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 2011, the Company recorded an increase in deferred
compensation and pension plan liabilities of $6.7 million,
a decrease in accumulated other comprehensive income of
$4.1 million and a net decrease of $2.6 million in
deferred income taxes.
F-23
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 income taxes.
Deferred
Compensation Plan
The following tables reconcile the benefit obligation for the
deferred compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
64,890
|
|
|
$
|
52,149
|
|
|
$
|
54,749
|
|
Service cost
|
|
|
137
|
|
|
|
339
|
|
|
|
696
|
|
Interest cost
|
|
|
3,495
|
|
|
|
3,557
|
|
|
|
3,432
|
|
Plan participants contributions with interest
|
|
|
65
|
|
|
|
194
|
|
|
|
367
|
|
Actuarial loss (gain)
|
|
|
6,764
|
|
|
|
12,848
|
|
|
|
(3,263
|
)
|
Benefits paid
|
|
|
(5,032
|
)
|
|
|
(4,197
|
)
|
|
|
(3,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
|
70,319
|
|
|
|
64,890
|
|
|
|
52,149
|
|
Less: current portion of benefit obligation
|
|
|
(3,682
|
)
|
|
|
(4,000
|
)
|
|
|
(3,782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current benefit obligation
|
|
$
|
66,637
|
|
|
$
|
60,890
|
|
|
$
|
48,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net periodic benefits costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
137
|
|
|
$
|
339
|
|
|
$
|
696
|
|
Interest cost
|
|
|
3,495
|
|
|
|
3,557
|
|
|
|
3,432
|
|
Amortization of actuarial loss
|
|
|
422
|
|
|
|
|
|
|
|
|
|
Amortization of net transition obligation
|
|
|
|
|
|
|
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
4,054
|
|
|
$
|
3,896
|
|
|
$
|
4,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average assumptions used in calculating the benefit
obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
2011
|
|
2010
|
|
2009
|
|
Discount rate, beginning of year
|
|
|
5.61
|
%
|
|
|
7.10
|
%
|
|
|
6.50
|
%
|
Discount rate, end of year
|
|
|
4.94
|
%
|
|
|
5.61
|
%
|
|
|
7.10
|
%
|
Rate of compensation increase
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
F-24
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pension
Plan
The following tables reconcile the benefit obligation for the
pension plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
3,630
|
|
|
$
|
3,125
|
|
|
$
|
3,119
|
|
Interest cost
|
|
|
197
|
|
|
|
214
|
|
|
|
196
|
|
Actuarial loss (gain)
|
|
|
307
|
|
|
|
503
|
|
|
|
(4
|
)
|
Benefits paid
|
|
|
(182
|
)
|
|
|
(212
|
)
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
|
3,952
|
|
|
|
3,630
|
|
|
|
3,125
|
|
Less: current portion of benefit obligation
|
|
|
(137
|
)
|
|
|
(147
|
)
|
|
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current benefit obligation
|
|
$
|
3,815
|
|
|
$
|
3,483
|
|
|
$
|
2,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net periodic benefits costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Interest cost
|
|
$
|
197
|
|
|
$
|
214
|
|
|
$
|
196
|
|
Amortization of actuarial gain
|
|
|
(2
|
)
|
|
|
(78
|
)
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
195
|
|
|
$
|
136
|
|
|
$
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average assumptions used in calculating the benefit
obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
2011
|
|
2010
|
|
2009
|
|
Discount rate, beginning of year
|
|
|
5.61
|
%
|
|
|
7.10
|
%
|
|
|
6.50
|
%
|
Discount rate, end of year
|
|
|
4.94
|
%
|
|
|
5.61
|
%
|
|
|
7.10
|
%
|
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)
|
|
2012
|
|
$
|
5,182
|
|
|
$
|
252
|
|
2013
|
|
|
5,431
|
|
|
|
273
|
|
2014
|
|
|
5,881
|
|
|
|
294
|
|
2015
|
|
|
5,763
|
|
|
|
304
|
|
2016
|
|
|
5,762
|
|
|
|
299
|
|
2017-2021
|
|
|
26,919
|
|
|
|
1,333
|
|
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,
F-25
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2011 and 2010 is $3.2 million for 155 participants and
$2.6 million for 120 participants, respectively. The
Companys contribution to these plans was $0.9 million
and $0.4 million in fiscal 2011 and 2010, 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. In
addition, the Company, under its incentive plans, makes
discretionary contributions into the ECAP and such contributions
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 2011,
2010 and 2009, of $0.4 million, $1.9 million and
$15.1 million, respectively. The Company expects to make an
ECAP contribution of approximately $15 million in fiscal
year 2012. In addition, the Company may make additional ECAP
contributions in fiscal 2012 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 2011 and 2010, deferred compensation
liability increased; therefore the Company recognized
compensation expenses of $6.7 million and
$8.9 million, respectively. During fiscal 2009, deferred
compensation liability decreased; therefore, the Company
recognized a reduction in compensation expenses of
$10.5 million.
Changes in the ECAP liability were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
57,871
|
|
|
$
|
45,102
|
|
Employee contributions
|
|
|
2,403
|
|
|
|
2,493
|
|
Amortization of employer contributions
|
|
|
6,525
|
|
|
|
8,456
|
|
Gain on investment
|
|
|
6,667
|
|
|
|
8,875
|
|
Employee distributions
|
|
|
(6,567
|
)
|
|
|
(7,627
|
)
|
Exchange rate translations
|
|
|
315
|
|
|
|
572
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
67,214
|
|
|
|
57,871
|
|
Less: current portion
|
|
|
(1,261
|
)
|
|
|
(1,061
|
)
|
|
|
|
|
|
|
|
|
|
Non-current portion, end of year
|
|
$
|
65,953
|
|
|
$
|
56,810
|
|
|
|
|
|
|
|
|
|
|
Defined
Contribution Plan
The Company has a defined contribution plan (401(k)
plan) for eligible employees. Participants may contribute
up to 50% of their base compensation, as defined in the plan
agreement. In addition, the Company has the option to make
matching contributions. The Company expects to make a
$1.2 million matching contribution for the year ended
April 30, 2011. The Company did not make a matching
contribution during the years ended April 30, 2010 or 2009.
F-26
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 $143.9 million and
$136.0 million is offset by outstanding policy loans of
$72.9 million and $66.9 million in the accompanying
consolidated balance sheets as of April 30, 2011 and 2010,
respectively. Total death benefits payable, net of loans under
COLI contracts, were $195.7 million and $197.4 million
at April 30, 2011 and 2010, respectively. Management
intends to use the future death benefits from these insurance
contracts to fund the deferred compensation and pension
arrangements; however, there may not be a direct correlation
between the timing of the future cash receipts and disbursements
under these arrangements. In addition, certain policies are held
in trusts to provide additional benefit security for the
deferred compensation and pension plans, excluding the WEB. As
of April 30, 2011, COLI contracts with a net CSV of
$57.6 million and death benefits payable, net of loans, of
$113.6 million were held in trust for these purposes.
The provision (benefit) 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 provision (benefit) for domestic and foreign income taxes
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Current income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
7,606
|
|
|
$
|
862
|
|
|
$
|
3,378
|
|
State
|
|
|
5,714
|
|
|
|
2,281
|
|
|
|
601
|
|
Foreign
|
|
|
11,826
|
|
|
|
6,738
|
|
|
|
4,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current provision for income taxes
|
|
|
25,146
|
|
|
|
9,881
|
|
|
|
8,838
|
|
Deferred income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,442
|
)
|
|
|
(2,729
|
)
|
|
|
(4,459
|
)
|
State
|
|
|
830
|
|
|
|
(1,303
|
)
|
|
|
(1,002
|
)
|
Foreign
|
|
|
9,158
|
|
|
|
(6,334
|
)
|
|
|
(2,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred provision (benefit) for income taxes
|
|
|
7,546
|
|
|
|
(10,366
|
)
|
|
|
(8,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes
|
|
$
|
32,692
|
|
|
$
|
(485
|
)
|
|
$
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Domestic
|
|
$
|
56,741
|
|
|
$
|
10,669
|
|
|
$
|
(7,806
|
)
|
Foreign
|
|
|
32,963
|
|
|
|
(5,947
|
)
|
|
|
(4,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes and
equity in earnings of unconsolidated subsidiaries
|
|
$
|
89,704
|
|
|
$
|
4,722
|
|
|
$
|
(12,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
U.S. federal statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Foreign source income, net of credits generated
|
|
|
1.9
|
|
|
|
52.9
|
|
|
|
48.8
|
|
Income subject to net differing foreign tax rates
|
|
|
(3.8
|
)
|
|
|
52.6
|
|
|
|
(27.8
|
)
|
COLI increase, net
|
|
|
(2.8
|
)
|
|
|
(69.8
|
)
|
|
|
(1.3
|
)
|
Repatriation of foreign earnings
|
|
|
0.1
|
|
|
|
38.5
|
|
|
|
|
|
State income taxes, net of federal benefit
|
|
|
4.6
|
|
|
|
13.8
|
|
|
|
2.2
|
|
Adjustments for contingencies and valuation allowance
|
|
|
4.8
|
|
|
|
52.7
|
|
|
|
(54.7
|
)
|
Tax exempt interest income
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
2.0
|
|
Expense disallowances
|
|
|
0.5
|
|
|
|
7.5
|
|
|
|
(3.4
|
)
|
Uncertain tax position reserve reversal
|
|
|
(2.3
|
)
|
|
|
(208.8
|
)
|
|
|
|
|
Other
|
|
|
(1.6
|
)
|
|
|
16.0
|
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
36.4
|
%
|
|
|
(10.3
|
)%
|
|
|
(3.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
$
|
64,333
|
|
|
$
|
64,984
|
|
Loss and credit carryforwards
|
|
|
33,834
|
|
|
|
35,439
|
|
Allowance for doubtful accounts
|
|
|
1,797
|
|
|
|
1,020
|
|
Property and equipment
|
|
|
371
|
|
|
|