Annual report pursuant to Section 13 and 15(d)

Employee Stock Plans

 v2.3.0.11
Employee Stock Plans
12 Months Ended
Apr. 30, 2011
Employee Stock Plans [Abstract]  
Employee Stock Plans
 
4.   Employee Stock Plans
 
Stock-Based Compensation
 
The following table summarizes the components of stock-based compensation expense recognized in the Company’s 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 Company’s 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 Company’s 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.
 
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 Company’s 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 Company’s 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 employee’s 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 Company’s 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.
 
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 Company’s 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 Company’s 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  
                                                 
 
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 Company’s 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 Company’s 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.