e10vk
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, 2008
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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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405) is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act. Yes o No þ
The number of shares outstanding of our common stock as of
June 25, 2008 was 46,442,981 shares. The aggregate
market value of the registrants voting and non-voting
common stock held by non-affiliates of the registrant on
October 31, 2007, 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 $24,883,000 based upon the closing market price of
$19.16 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 2008 Annual Meeting of Stockholders scheduled to be held on
September 23, 2008 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, 2008
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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, retain and reward their talent. Since 1969, when we
opened our first office in Los Angeles, we have expanded to 73
cities in 38 countries. In 1998, we extended our market
reach into middle management with the introduction of
Futurestep, our outsourced recruiting subsidiary. As of
April 30, 2008, we had approximately 2,584 employees,
including 514 executive recruitment and 170 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; 74% of the
executive recruitment assignments we performed during the last
fiscal year were on behalf of clients for whom we had conducted
assignments in the previous three fiscal years.
We were originally formed as a California corporation in
November 1969 and reincorporated as a Delaware corporation in
fiscal 2000.
We provide the following talent management solutions:
Executive Recruitment: Executive Recruitment,
our largest business, focuses on recruiting board-level, chief
executive and other senior executive positions for clients
predominantly in the consumer, financial services, industrial,
life sciences and technology industries. The relationships that
we develop through this business are valuable in introducing our
complementary service offerings to clients.
Outsourced and
Mid-level Recruitment: Futurestep, our
outsourced recruiting subsidiary, draws from
Korn/Ferrys
nearly 39 years of industry experience to create customized
talent acquisition solutions based on each clients
individual workforce needs. In addition to being a pioneer in
recruitment process outsourcing (RPO), the
Companys multi-tiered portfolio of services includes
mid-level recruitment, project recruitment, consulting and
interim professionals.
Leadership Development Solutions: Our talent
management and leadership services assists clients with the
ongoing assessment and development of their leadership teams.
Services include succession planning, strategic alignment,
management & team development, competency modeling,
executive coaching, onboarding, cultural change, integrated
talent management, and executive compensation consulting through
our wholly-owned subsidiary, Executive Compensation Advisors.
Each service is supported by the consultative expertise of our
team and is powered by Lominger, a Korn/Ferry company and an
internationally recognized provider of research-based,
experience-tested leadership development tools.
We file annual, quarterly and current reports, proxy statements
and other documents with the Securities and Exchange Commission
(the SEC), pursuant to the Securities Exchange Act
of 1934 (the Exchange Act). You may read and copy
any materials that we file with the SEC at the SECs Public
Reference Room at 100 F Street N.E.,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1
800 732 0330. Our reports, proxy statements and other documents
filed electronically with the SEC are available at the website
maintained by the SEC at www.sec.gov.
We also make available, free of charge on our website at
www.kornferry.com, our annual, quarterly, and current reports,
and, if applicable, amendments to those reports, filed or
furnished pursuant to Section 13(a) of the Exchange Act as
soon as reasonably practicable after we electronically file such
reports with, or furnish them to, the SEC.
Our Corporate Governance Guidelines, Code of Business Conduct
and Ethics and the charters of the Audit Committee, Compensation
and Personnel Committee, and Nominating and Corporate Governance
Committee of our Board of Directors are also posted on our
website at www.kornferry.com. Stockholders may request copies of
these documents by writing to our Corporate Secretary at 1900
Avenue of the Stars, Suite 2600, Los Angeles, California
90067.
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Financial information regarding our business segments for the
last three fiscal years is contained in the Notes to our
Consolidated Financial Statements included in this Annual Report
on
Form 10-K.
Industry
Overview
Executive Recruitment: Our executive
recruitment segment concentrates on searches for positions with
annual compensation of $150,000 or more, which may involve
board-level, chief executive and other senior executive
positions. The industry is comprised of retained and contingency
search firms. Retained firms, such as Korn/Ferry, typically
charge a fee for their services equal to approximately one-third
of the annual cash compensation for the position being filled
regardless of whether a position has been filled. Contingency
firms generally work on a non-exclusive basis and are
compensated only upon successfully placing a recommended
candidate.
We also provide leadership development solutions, which include
succession planning, management & team development,
competency modeling, executive coaching, onboarding, merger
integration, cultural change, integrated talent management, and
executive compensation consulting.
Outsourced and Mid-level Recruitment: The
mid-level recruitment market focuses on searches for positions
with annual compensation generally in the $100,000 to $150,000
range. This market has undergone a fundamental transformation
over the past several years towards a technology-based
environment, and has also seen the emergence of outsourced
recruitment services commonly referred to as RPO. Technology and
the Internet have made identifying, targeting and reaching
potential candidates much quicker. This market also benefits
from the efficiencies of maintaining large databases of
qualified candidates, thereby reducing placement times.
Industry
Trends
We believe the long-term business prospects for the talent
management industry are still good due to a confluence of
factors that will continue to fuel job growth and hiring.
Consolidation of Talent Management Solution
Providers In choosing recruitment and human
resource service providers, we believe:
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Companies are actively in search of preferred providers in order
to create efficiencies and consolidate vendor relationships;
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Companies that can offer a full suite of talent management
solutions are becoming increasingly attractive; and
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Clients seek trusted advisors who understand their business and
unique organizational culture in order to manage the multiple
needs of their business on a global scale.
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Aging Population In many major economic
centers, the workforce population is aging at a rapid pace. It
is projected that there will be twice as many people retiring
this decade as there were in the previous one. Moreover, the
supply of available qualified candidates is limited, making it
more difficult for employers to secure qualified executives. We
believe that this trend will have a positive impact on our
business, as employers increasingly seek service providers who
can provide solutions for the impending talent shortage.
Globalization of Business As the world
markets continue to integrate into one global economy, many
companies are adding strength to their internal talent with
experienced executives who can operate effectively in this
global environment. Emerging markets such as China, India and
Eastern Europe have executive talent demands that exceed the
currently available supply of executive talent in these regions.
The rapidly changing competitive landscape challenges
multinational and local companies to identify and recruit
qualified executives with the right combination of skills,
experience and cultural compatibility. We believe clients are
turning to firms that combine proven expertise with specialized
knowledge of both key industries and local markets, enabling
them to address their ongoing global talent needs.
Increased Outsourcing of Recruitment
Functions We believe more companies are focusing
on core competencies and outsourcing non-core, back-office
functions to providers who can provide efficient, high-quality
services. A shortage of qualified middle management-level
candidates has made identifying and recruiting
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exceptional candidates more difficult. Companies increasingly
rely on experienced global executive recruitment firms to
address their middle management recruitment needs. By hiring
global executive recruitment firms, companies aim to:
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Have access to a diverse and highly qualified pool of candidates
on an as-needed basis;
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Reduce or eliminate the costs required to maintain and train an
in-house recruiting department in a rapidly changing industry;
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Benefit from the most updated industry and geographic market
information;
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Access cutting-edge search technology software; and
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Maintain management focus on core strategic business issues.
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Key role of Advanced Technology At Korn/Ferry
we are adding more regimen and scientific research into the
recruitment process with emphasis shifting from
candidate identification to candidate assessment and placement.
Driving this initiative is enhanced technology, as the world of
the Internet, search engines and databases makes 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.
Expanding
our Market Reach and Presence through Technology and Assessment
Solutions
Information technology has become a critical element of the
recruitment business. We have made significant investments in
developing a state-of-the-art technology infrastructure and our
proprietary executive recruitment software,
e-Korn/Ferry.
In fiscal 2008, we continued to invest in enhanced tools and
information sharing for competitive advantage. We released the
technology supporting the Korn/Ferry Advantage
a comprehensive transformation of our senior
executive recruitment process. We launched the new Korn/Ferry
website, which embodies the themes, artwork and branding of the
Art and Science of Talent. And we continued development
of the first phase of our next generation applicant tracking
platform, Searcher Express, designed for speed, ease of
use, power and flexibility.
As Futurestep continued its growth in RPO, project recruitment
and mid-level search, information technology helped fuel all of
these lines of business. Fiscal 2008 saw the launch of a new
website emphasizing Futuresteps ascendancy in RPO. We also
created a suite of RPO reporting options including Business
Activity, Source List, Dashboard, Recruitment Activity, and
Cycle metrics.
Leadership Development Solutions (LDS) also
developed upgrades to its management assessment technology and
its talent management platform, Executive Center. Usage
of Search Assessment, an assessment technology process
for our core executive recruitment business, was 40% of all
search engagements. We continued to refine our technology,
including the integration of Lominger intellectual property into
our executive assessment tools, in order to engage with our
clients on their broader talent management needs.
Outsourced and Mid-level Recruitment: The
mid-level recruitment market focuses on searches for middle
management positions with annual compensation generally in the
$100,000 to $150,000 range. This market has been fundamentally
transformed over the past several years through the emergence of
RPO services. This transformation has been further driven
through database technology and the Internet, which have
introduced greatly improved capabilities in identifying,
targeting and reaching potential candidates.
Other Industry Trends In addition to the
industry trends mentioned above, we believe the following
factors will contribute to the growth of the talent management
industry:
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Increasing demand for managers with broader qualifications;
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Increasing desire by candidates to more actively manage their
careers;
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Increasing demand for senior executives with not just the right
technical skills, but also the right leadership characteristics
to meet the specific requirements of the position and
organizational culture;
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Increasing demand for senior executives who can exceed the high
standards of due diligence and public scrutiny as a result of
new securities legislation;
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Decreasing executive management tenure and more frequent job
changes; and
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Inadequate succession planning.
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Growth
Strategy
Our objective is to expand our position as a premier global
provider of talent management solutions. The principal elements
of our strategy include:
Recruiting
and Retaining Key Consultants
We successfully recruited 83 new executive recruitment
consultants globally during fiscal 2008. These consultants
originated from diverse backgrounds and areas of expertise, and
were recruited based on their track records as top performers in
their given industry. The number of new consultants in the
current year was partially offset by attrition. We believe that
we have continued to upgrade our professional staff in the
current year, and that the recruitment and retention of key
consultants will be an ongoing driver of growth.
Broadening
our Product and Service Offerings
In addition to our heritage as a leading provider of executive
recruitment, we also offer clients outsourced and mid-level
recruitment, strategic management assessment, executive
coaching, performance management, succession planning,and
compensation consulting through Futurestep and LDS. We will
continue to develop and add new products and services that our
clients demand and that are consistent with our brand
positioning.
Global
Account Management
In an effort to better coordinate global recruiting and to gain
operational efficiencies, we expect that multinational clients
increasingly will turn to strategic partners who can manage
their recruitment needs on a centralized basis. This will
require vendors with a global network of offices and
technological support systems to manage multiple hires across
geographical regions. Our Global Strategic Account Program,
formerly known as the Integrated Services Program, continues to
identify account leaders for multinational clients, provide
training and software support to manage such accounts, and
develop guidelines and protocols to support and increase the
rate of cross-border assignments for these clients.
Expanding
our Market Reach and Presence through Technology and Assessment
Solutions
Information technology has become a critical element to the
recruitment business. We have made significant investments in
developing a state-of-the-art technology infrastructure and our
proprietary executive recruitment software,
e-Korn/Ferry.
In fiscal 2008, we continued such investments through the
deployment of enhanced tools and information sharing for
competitive advantage. We rolled out major upgrades of our
proprietary candidate database and global engagement management
system, while laying the groundwork for the next generation
applicant tracking platform, Searcher Express. We embarked on a
similar program to upgrade Futuresteps technology,
launching a new website emphasizing Futuresteps outsourced
recruiting offerings. LDS also upgraded its strategic management
assessment technology and its talent management platform,
Executive Center. Another differentiator is Search
Assessment, a proprietary assessment tool that uses an
online assessment methodology to evaluate candidates against
statistically validated
best-in-class
profiles. We will continue to refine our technology, including
our exclusive candidate assessment tools, in order to strengthen
our relationships with our existing clients, attract new
clients, expand into new markets and position ourselves to gain
a competitive advantage in marketing complementary services.
Leveraging
our Leadership and Brand Name in Executive
Recruitment
We believe that there are significant opportunities to extend
our market share and develop new client relationships by
aggressively marketing our global recruitment expertise. Our
leadership in executive recruitment
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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.
Our
Services and Organization
We address the global recruitment needs of our clients at all
levels of management by offering the following services:
Executive
Recruitment Services
Overview. Our executive recruitment services
are typically used to fill executive-level positions, such as
board directors, chief executive officers, chief financial
officers, chief operating officers, chief information officers
and other senior executive officers. Once we are retained by a
client to conduct a search, we assemble a team comprised of
consultants with appropriate geographic, industry and functional
expertise. Our search consultants serve as management advisors
who work closely with the client in identifying, assessing and
placing qualified candidates. In fiscal 2008, we executed more
than 10,700 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 3.9 million executives
to assist in identifying individuals with the right background,
cultural fit and abilities. These sources are a critical element
in assessing the marketplace.
An original list of candidates is carefully screened through
phone interviews, video conferences and in-person meetings,
using our proprietary behavioral interviewing approach.
Candidates also complete Search Assessment, a behavioral mapping
tool that provides clients with insights into how candidates
will lead, how they will approach and solve complex problems,
what their emotional profile is likely to be and what motivates
them to succeed. The client is then presented final qualified
candidates to interview. We conduct due diligence and background
verification of the candidate throughout the process, at times
with the assistance of an independent third party.
The finalist for the position will usually meet with the client
for a second and possibly a third round of discussions. At this
point, the compensation package will have been discussed in
detail, increasing the likelihood that an offer will be
accepted. Generally, the search consultants will participate in
the negotiations until a final offer is made and accepted.
Throughout the process, ongoing communication with the client is
critical to keep client management apprised of progress.
Industry Specialization Consultants in our
five global markets and two regional specialty practice groups
bring an in-depth understanding of the market conditions and
strategic management issues faced by clients within their
specific industry and geography. We are continually looking to
expand our specialized expertise through internal development
and strategic hiring in targeted growth areas.
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Percentage
of Fiscal 2008 Assignments by Industry Specialization
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Global Markets:
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Industrial
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27
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Consumer
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17
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Financial Services
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20
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Technology
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16
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Life Sciences
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10
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Regional Specialties:
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Healthcare Provider
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5
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Education/Not-for-profit
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5
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Functional Expertise. We have organized
executive recruitment centers of functional expertise, composed
of consultants who have extensive backgrounds in placing
executives in certain functions, such as board directors, chief
executive officers and other senior executive officers. Our
Board Services group, for example, was first established in 1972
to help clients assemble an effective, knowledgeable and
cohesive board of directors to meet the growing demands of
accountability and facilitate more effective board performance.
The shortage of experienced directors, the tightening of
governance policies and the desire of companies to broaden the
expertise of their board are raising the standards by which we
identify and recruit qualified directors. We have significant
experience in this area and have built a proprietary database
with the names and backgrounds of every FORTUNE
1000 director, plus a significant number of middle-market
and high-growth company board members to assist in board
searches. Members of functional groups are located throughout
our regions and across our industry groups.
Percentage
of Fiscal 2008 Assignments by Functional Expertise
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Board Level/CEO/CFO/Senior Executive and General Management
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61
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Marketing and Sales
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14
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Human Resources and Administration
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8
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Manufacturing/Engineering/Research and Development/Technology
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7
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Finance and Control
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8
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Information Systems
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2
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Regions
North America We opened our first office in
Los Angeles in 1969, and currently have 29 offices
throughout the United States and Canada. In fiscal 2008, the
region generated fee revenue of $374.9 million from more
than 4,300 assignments billed, with an average of 256
consultants.
Europe, the Middle East and Africa
(EMEA) We opened our first European
office in London in 1972, and currently have 23 offices in
20 countries throughout the region. In fiscal 2008, the
region generated fee revenue of $183.0 million from more
than 3,450 assignments billed, with an average of 145
consultants.
Asia Pacific We opened our first Asia Pacific
office in Tokyo in 1973, and currently have 17 offices in
10 countries throughout the region. In fiscal 2008, the
region generated fee revenue of $95.9 million from more
than 2,000 assignments billed, with an average of 88 consultants.
Latin America We opened our first Latin
American office in Brazil in 1974. We expanded our practice to
Mexico through the 1977 acquisition of a less than 50% interest
in a Mexico City company, and currently conduct operations in
Mexico through subsidiaries in which we hold a minority
interest. As of April 30, 2008, we operate a network of
seven offices in six countries covering the entire South
American region and two offices in Mexico. The region, excluding
operations in Mexico, generated fee revenue of
$25.6 million in fiscal 2008 from more than
850 assignments billed, with an average of 23 consultants.
Our share of the earnings from our Mexico subsidiaries was
$3.3 million and $3.2 million for the years ended
April 30, 2008 and 2007, respectively, and is included in
equity in earnings of unconsolidated subsidiaries on the
consolidated statements of income.
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Client Base. Our 5,120 clients include many of
the worlds largest and most prestigious public and private
companies, including 49% of the FORTUNE 500 companies in
the current fiscal year. In fiscal 2008, no single client
represented more than 1% of fee revenue. We have established
strong client loyalty. 74% of the executive recruitment
assignments we performed during the last fiscal year were on
behalf of clients for whom we had conducted assignments in the
previous three fiscal years.
Competition. We are a premier global provider
of talent management solutions. Other multinational executive
recruitment firms include Egon Zehnder International,
Heidrick & Struggles International, Inc., Russell
Reynolds Associates and Spencer Stuart. Although these firms are
our largest competitors, we also compete with smaller boutique
firms that specialize in specific regional, industry or
functional searches. We believe our brand name, multi-product
offerings, cutting-edge technology, global network, prestigious
clientele, strong specialty practices and quality of services
are recognized worldwide. We also believe that our long-term
incentive compensation arrangements, as well as other executive
benefits, distinguish us from most of our competitors and are
important in attracting and retaining our key consultants.
Leadership Development Solutions. In fiscal
2004, we consolidated our strategic management assessment and
executive coaching and development services under the name
Leadership Development Solutions, with services in EMEA, North
and South America, Australia and Japan. In fiscal 2007, we
continued our investment in this service area with the
acquisitions of Lominger Limited, Inc. and Lominger Consulting
(the Lominger Entities) and LeaderSource. This
comprehensive blend of leadership services helps corporate
leaders to evaluate the individual and collective performance of
their teams. These solutions further extend the range of talent
management solutions available to our clients, and are tools for
the chief executive, board of directors and other senior
officers in pursuing organizational transformation and alignment
with their companys strategic goals and internal values.
Our management assessment offering was introduced in response to
our clients demand for a tool to address the challenges of
changing company relationships and global restructuring and, for
venture capital and private equity firms, to evaluate the
leadership team in existing or prospective portfolio companies.
This process is performed by consultants with experience in
interviewing and evaluating senior executives, who understand
local cultural differences and the relevant business and
industry challenges. The assessment process is backed by a
statistically validated and proprietary assessment instrument
developed by leading assessment experts and supported by a
proprietary systems platform.
Another crucial component of our LDS is executive coaching and
development. Our coaches in our global network are trained to
develop future leaders through individual and team-based
coaching. Additionally, we offer clients a Web-based, highly
customizable talent management platform, called Executive
Center, which automates and streamlines the process of
setting objectives and tracking and evaluating performance.
Through Executive Centers individual and team-based
analysis and reporting capabilities, talent assessment and
management can be greatly simplified, allowing for skills and
experience gaps as well as succession planning to be more
efficiently addressed.
Mid-level Recruitment
Service Futurestep
Overview. Futurestep offers clients a
portfolio of talent acquisition solutions, including RPO,
mid-level recruitment, project recruitment, consulting and
interim professionals. Each Futurestep service benefits from the
industry and functional expertise of our global consultant
network, ensuring that clients work with professionals who
understand their business and have the relevant knowledge to
qualify candidates effectively.
Futurestep combines traditional recruitment expertise with a
multi-tiered portfolio of talent acquisition solutions.
Futurestep consultants, based in 16 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.
A fully integrated, single-source strategic RPO solution
leverages Futuresteps recruitment capabilities, innovative
technology and international brand to reduce clients
recruitment costs while also improving quality and
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attracting the best talent. Futurestep manages part or all of
the clients recruitment function, at times including
on-site
consultants from Futurestep.
Futuresteps mid-level recruitment service uses multiple
sourcing channels, validated cultural assessments and our global
database of more than one 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.
For projects requiring multiple hiring, Futurestep project-based
recruitment solutions augment and optimize the clients
talent acquisition organization to manage multiple hires within
a specific timeframe. Futurestep consultants utilize proprietary
Enterprise Recruitment Methodology to deliver workflow-driven
talent acquisition strategies to organizations. Prior to
deployment, Futurestep diagnoses the clients internal HR
capabilities to develop a co-sourcing platform
emphasizing shared ownership of the recruitment process. Once
engaged, the project team adheres to a timeline and metrics to
deliver high-volume, concurrent hiring.
Futurestep also provides consulting services addressing all
facets of talent acquisition and management, including Strategy
Services; Implementation Services; Optimization; Technical
Services; and Recruiting Operations Support.
Regions. We opened our first Futurestep office
in Los Angeles in May 1998. In January 2000, we acquired the ESS
business of PA Consulting with operations in Europe and Asia
Pacific. As of April 30, 2008, we had Futurestep operations
in 11 cities in North America, 10 in Europe and
12 in Asia Pacific.
Competition. Futurestep primarily competes for
assignments with contingency staffing firms, temporary staffing
firms and recruitment process outsourcers.
To a lesser extent, Futurestep competes with firms such as
Monster Worldwide in the technology-based middle-management
recruitment industry.
Organization
The Company operates in two global business segments in the
retained recruitment industry, executive recruitment and
Futurestep. Our executive recruitment business is managed on a
geographic basis throughout our four regions: North America;
South America; EMEA; and Asia Pacific. Futurestep is managed on
a worldwide basis with operations in North America, Europe and
Asia Pacific. We face risks associated with political
instability, legal requirements and currency fluctuations in
these international operations. Examples of such risks include
difficulties in staffing and managing global operations, social
and political instability, fluctuation in currency exchange
rates and potential adverse tax consequences.
Professional
Staff and Employees
As of April 30, 2008, we had approximately 1,894 executive
recruitment employees consisting of 514 consultants and
1,380 associates, researchers, administrative and support staff.
In addition, we had 15 consultants in our two unconsolidated
Mexico offices. Futurestep had 636 employees as of
April 30, 2008, consisting of 170 consultants and 466
administrative and support staff. Corporate had 54 professionals
at April 30, 2008. We have not been a party to a collective
bargaining agreement and consider our relations with our
employees to be good. Korn/Ferry is an equal opportunity
employer.
In Executive Recruitment, senior associates, associates and
researchers support the efforts of our consultants with
candidate sourcing and identification, but do not generally lead
assignments. We have training and professional development
programs. Promotion to senior client partner is based on a
variety of factors, including demonstrated superior execution
and business development skills, the ability to identify
solutions to complex issues, personal and professional ethics, a
thorough understanding of the market and the ability to develop
and help build effective teams. In addition, we have a program
for recruiting experienced professionals into our firm.
10
The following table provides information relating to each of our
business segments for fiscal 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
Operating
|
|
|
Offices as of
|
|
|
Consultants as of
|
|
|
|
|
|
|
Income
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
Fee Revenue
|
|
|
(Loss)
|
|
|
2008
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Executive Recruitment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
374,891
|
|
|
$
|
70,628
|
|
|
|
29
|
|
|
|
259
|
|
EMEA
|
|
|
183,042
|
|
|
|
29,820
|
|
|
|
23
|
|
|
|
143
|
|
Asia Pacific
|
|
|
95,915
|
|
|
|
19,299
|
|
|
|
17
|
|
|
|
89
|
|
South America
|
|
|
25,556
|
|
|
|
2,230
|
|
|
|
7
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Executive Recruitment
|
|
|
679,404
|
|
|
|
121,977
|
|
|
|
76
|
|
|
|
514
|
|
Futurestep(1)
|
|
|
111,166
|
|
|
|
8,545
|
|
|
|
13
|
|
|
|
170
|
|
Corporate
|
|
|
|
|
|
|
(38,669
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
790,570
|
|
|
$
|
91,853
|
|
|
|
89
|
|
|
|
684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Futurestep partially occupies 20 of the executive recruitment
offices globally in 16 countries. |
The following table provides information on fee revenues for
each of the last three fiscal years attributable to the United
States and other geographical regions in which the Company
operates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Fee Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
368,039
|
|
|
$
|
324,349
|
|
|
$
|
260,988
|
|
Canada
|
|
|
48,646
|
|
|
|
35,559
|
|
|
|
26,432
|
|
EMEA
|
|
|
223,826
|
|
|
|
179,974
|
|
|
|
147,329
|
|
Asia Pacific
|
|
|
124,503
|
|
|
|
96,114
|
|
|
|
72,473
|
|
South America
|
|
|
25,556
|
|
|
|
17,426
|
|
|
|
15,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
790,570
|
|
|
$
|
653,422
|
|
|
$
|
522,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 our losing market share and
charging lower prices for services, which could reduce our
revenue.
We compete for executive search business with numerous executive
search firms and businesses that provide job placement services.
Traditional executive search competitors include Egon Zehnder
International, Heidrick & Struggles International,
Inc., Russell Reynolds Associates and Spencer Stuart. In each of
our markets, our competitors may possess greater resources,
greater name recognition and longer operating histories than we
do, which may give them an advantage in obtaining future clients
and attracting qualified professionals in these markets. There
are no extensive barriers to entry into the executive search
industry, and new recruiting firms continue to enter the market.
We believe the continuing development and increased availability
of information technology will continue to attract new
competitors. Increased competition may lead to pricing pressures
that could negatively impact our business. For example,
increased competition could require us to charge lower prices,
or lose market share, each of which could reduce our revenue.
11
If we
fail to attract and retain qualified and experienced
consultants, our revenue could decline and our business could be
harmed.
We compete with other executive search firms for qualified
consultants. Attracting and retaining consultants in our
industry is particularly important because, generally, a small
number of consultants have primary responsibility for a client
relationship. Because client responsibility is so concentrated,
the loss of key consultants may lead to the loss of client
relationships. This risk is heightened due to the general
portability of a consultants business. Any decrease in the
quality of our reputation, reduction in our compensation levels
or restructuring of our compensation program, whether as a
result of insufficient revenue, a decline in the market price of
our common stock or for any other reason, could impair our
ability to retain existing consultants or attract additional
qualified consultants with the requisite experience, skills and
established client relationships. Our failure to retain our most
productive consultants or maintain the quality of service to
which our clients are accustomed and the ability of a departing
consultant to move business to his or her new employer could
result in a loss of clients, which could in turn cause our
revenue to decline and our business to be harmed.
Economic
conditions in the geographic regions and the industries from
which we derive a significant portion of our fee revenue could
undermine our future profitability.
Demand for our services is affected by the general level of
economic activity in the geographic regions and industries in
which we operate. When economic activity slows, many companies
hire fewer permanent employees. Any significant economic
downturn, on a global basis, in North America (our largest
region), or in other regions or industries where our operations
are heavily concentrated, could harm our business, results of
operations and financial condition.
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 referral by those clients. Any client
who is dissatisfied with our assignments can adversely affect
our ability to secure new engagements.
If any factor, including poor performance, hurts our reputation,
we may experience difficulties in competing successfully for
both new engagements and qualified consultants. Failing to
maintain our professional reputation and the goodwill associated
with our brand name could seriously harm our business.
We are
subject to potential legal liability from clients, employees and
candidates for employment. Insurance coverage may not be
available to cover all of our potential liability and available
coverage may not be sufficient to cover all claims that we may
incur.
Our ability to obtain liability insurance, its coverage levels,
deductibles and premiums are all dependent on market factors,
our loss history and insurers perception of our overall
risk profile. We are exposed to potential claims with respect to
the executive search process. For example, a client could assert
a claim for matters such as breach of an off-limit agreement or
recommending a candidate who subsequently proves to be
unsuitable for the 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
12
employment law or other matters. We cannot ensure that our
insurance will cover all claims or that insurance coverage will
be available at economically acceptable rates.
We
rely heavily on our information systems and if we lose that
technology, or fail to further develop our technology, our
business could be harmed.
Our success depends in large part upon our ability to store,
retrieve, process and manage 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 political instability, legal
requirements and currency fluctuations in our international
operations.
We operate in 38 countries and, during the year ended
April 30, 2008, generated nearly half our fee revenue from
operations outside of North America. We are exposed to the risk
of changes in social, political, legal and economic conditions
inherent in international operations. Examples of risks inherent
in transacting business worldwide that we are exposed to include:
|
|
|
|
|
changes in and compliance with applicable laws and regulatory
requirements;
|
|
|
|
difficulties in staffing and managing global operations;
|
|
|
|
social and political instability;
|
|
|
|
fluctuations in currency exchange rates;
|
|
|
|
statutory equity requirements;
|
|
|
|
repatriation controls; and
|
|
|
|
potential adverse tax consequences.
|
We have no hedging or similar foreign currency contracts, and
therefore fluctuations in the value of foreign currencies could
impact our global operations. We cannot ensure that one or more
of these factors will not harm our business, financial condition
or results of operations.
We may
be limited in our ability to recruit employees from our clients
and we could lose those opportunities to our competition, which
could harm our business.
Either by agreement with clients, or for client relations or
marketing purposes, we sometimes refrain from, for a specified
period of time, recruiting candidates from a client when
conducting searches on behalf of other clients. These off-limit
agreements can generally remain in effect for up to two years
following completion of an assignment. The duration and scope of
the off-limit agreement, including whether it covers all
operations of the client and its affiliates or only certain
divisions of a client, generally are subject to negotiation or
internal policies and may depend on factors such as the scope,
size and complexity of the clients business, the length of
the client relationship and the frequency with which we have
been engaged to perform executive searches for the client. Our
inability to recruit candidates from these clients may make it
difficult for us to obtain search assignments from, or to
fulfill search assignments for, other companies in that
clients industry. We cannot ensure that off-limit
agreements will not impede our growth or our ability to attract
and serve new clients, or otherwise harm our business.
13
We
have provisions that make an acquisition of us more difficult
and expensive.
Antitakeover provisions in our Certificate of Incorporation, our
Bylaws and under Delaware law make it more difficult and
expensive for us to be acquired in a transaction that is not
approved by our Board of Directors. Some of the provisions in
our Certificate of Incorporation and Bylaws include:
|
|
|
|
|
a classified Board of Directors;
|
|
|
|
limitations on the removal of directors;
|
|
|
|
limitation on stockholder actions;
|
|
|
|
advance notification requirements for director nominations and
actions to be taken at stockholder meetings; and
|
|
|
|
the ability to issue one or more series of preferred stock by
action of our Board of Directors.
|
These provisions could discourage an acquisition attempt or
other transaction in which stockholders could receive a premium
over the current market price for the common stock.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
Not applicable.
Our corporate office is located in Los Angeles, California. We
lease all 89 of our executive recruitment and Futurestep
offices located in North America, EMEA, Asia Pacific and South
America. As of April 30, 2008, we leased an aggregate of
approximately 754,000 square feet of office space. The
leases generally are for terms of one to 12 years and contain
customary terms and conditions. We believe that our facilities
are adequate for our current needs and we do not anticipate any
difficulty replacing such facilities or locating additional
facilities to accommodate any future growth.
|
|
Item 3.
|
Legal
Proceedings
|
From time to time, we are involved in litigation both as a
plaintiff and a defendant, relating to claims arising out of our
operations. As of the date of this report, we are not engaged in
any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on our business,
financial condition or results of operations.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of security holders during
the fourth quarter of fiscal 2008.
Executive
Officers of the Registrant
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Paul C. Reilly
|
|
|
54
|
|
|
Chairman of the Board
|
Gary D. Burnison
|
|
|
47
|
|
|
Chief Executive Officer
|
Stephen J. Giusto
|
|
|
45
|
|
|
Executive Vice President and Chief Financial Officer
|
Gary C. Hourihan
|
|
|
59
|
|
|
Chairman, Leadership Development Solutions
|
Robert H. McNabb
|
|
|
61
|
|
|
Chief Executive Officer, Futurestep, and Executive Vice
President, Korn/Ferry
|
Ana Dutra
|
|
|
44
|
|
|
Executive Vice President and Chief Executive Officer of
Leadership Development Solutions
|
14
Our executive officers serve at the discretion of our Board of
Directors. There is no family relationship between any executive
officer or director. The following information sets forth the
business experience for at least the past five years for each of
our executive officers as of April 30, 2008.
Paul C. Reilly has been Chairman of the Board since June
2001. Mr. Reilly served as our Chief Executive Officer from
June 2001 until June 2007. Prior to joining Korn/Ferry,
Mr. Reilly was Chief Executive Officer of KPMG
International from October 1998 until 2001. Prior to being named
to that position, Mr. Reilly served as Vice Chairman
Financial Services of KPMG L.L.P, the United States member firm
of KPMG International. Mr. Reilly joined KPMG International
as a partner in 1987. Mr. Reilly is a director and chair of
the audit committee of Raymond James Financial, Inc.
Gary D. Burnison has been Chief Executive Officer since
July 2007. He was the Executive Vice President and Chief
Financial Officer from March 2002 until June 30, 2007. He
was appointed Chief Operating Officer from November 2003 until
June 30, 2007. Prior to joining Korn/Ferry,
Mr. Burnison was Principal and Chief Financial Officer of
Guidance Solutions, a privately held consulting firm, from 1999
to 2001. Prior to that, he served as an 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.
Stephen J. Giusto has been Executive Vice President and
Chief Financial Officer since November 2007. Prior to that, he
served as Chief Financial Officer and Executive Vice President
of Corporate Development and a member of the Board of Directors
of Resources Connection, Inc. Prior to co-founding Resources
Global Professionals in 1996 as a subsidiary of
Deloitte & Touche, Mr. Giusto held various
positions in Deloitte & Touches Real Estate
practice. Mr. Giusto was admitted to the
Deloitte & Touche partnership in 1996. Mr. Giusto
graduated with a Bachelor in Science degree in Business
Administration from Cal Poly San Luis Obispo in 1985, and
is a Certified Public Accountant.
Robert H. McNabb has been Executive Vice President of
Korn/Ferry since November 2003 and was appointed Chief Executive
Officer for Futurestep in July 2002. Prior to becoming the Chief
Executive Officer for Futurestep, he was President of the
Futurestep Americas and Asia Pacific regions. Before joining
Futurestep in December 2001, he was the President and Chief
Executive Officer of Corestaff from 1998 to 2001 and President
and Chief Operating Officer at Republic Industries in 1997.
Gary C. Hourihan was appointed Chairman of Leadership
Development Solutions on May 1, 2008. Previously,
Mr. Hourihan served as our Executive Vice President (a
position he held since January 1999) and President of
Leadership Development Solutions from November 2002 to May 2008.
As Chairman of Leadership Development Solutions,
Mr. Hourihan is responsible for business generation, major
account relationships and supporting the Companys
intellectual property development. Prior to joining Korn/Ferry,
he was the co-founder, Chairman and Chief Executive Officer of
SCA Consulting, one of the worlds leading executive
compensation consulting firms, where he was employed from 1984
until joining Korn/Ferry.
Ana Dutra has been Executive Vice President of Korn/Ferry
and Chief Executive Officer of Leadership Development Solutions
since February 2008. She is responsible for driving the global
growth of our Leadership Development Solutions group, including
our Lominger, LeaderSource and Executive Compensation Advisors
companies. Prior to joining Korn/Ferry, Ms. Dutra led the
global organization and change strategy practice at Accenture
from 2005 to 2008. Before this role, she led the organizational
transformation practice at Mercer Management Consulting from
2001 to 2005. Earlier, Ms. Dutra was with Marakon
Associates, CSC Index, Booz Allen Hamilton and IBM Consulting
Group.
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, 2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
27.13
|
|
|
$
|
22.62
|
|
Second Quarter
|
|
$
|
24.62
|
|
|
$
|
16.27
|
|
Third Quarter
|
|
$
|
20.75
|
|
|
$
|
13.10
|
|
Fourth Quarter
|
|
$
|
18.95
|
|
|
$
|
14.42
|
|
Fiscal Year Ended April 30, 2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
21.59
|
|
|
$
|
17.73
|
|
Second Quarter
|
|
$
|
23.18
|
|
|
$
|
17.83
|
|
Third Quarter
|
|
$
|
24.18
|
|
|
$
|
21.51
|
|
Fourth Quarter
|
|
$
|
24.86
|
|
|
$
|
22.42
|
|
On June 25, 2008 the last reported sales price on the New
York Stock Exchange for the common stock was $16.64 per share
and there were approximately 5,600 beneficial holders of the
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, 2003, and the reinvestment of any dividends paid
by any company in the peer group on the date the dividends were
declared.
The peer group is comprised of publicly traded companies, which
are engaged principally or in significant part in professional
staffing and consulting. The returns of each company have been
weighted according to their respective stock market
capitalization at the beginning of each measurement period for
purposes of arriving at a peer group average. The members of the
peer group are Caldwell Partners International Inc. (CWL/A
CN), Heidrick & Struggles International, Inc.
(HSII) and Hudson Highland Group (HHGP).
The stock price performance depicted in this graph is not
necessarily indicative of future price performance. This graph
will not be deemed to be incorporated by reference by any
general statement incorporating this
Form 10-K
into any filing by us under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent we
specifically incorporate this information by reference, and
shall not otherwise be deemed soliciting material or deemed
filed under those Acts.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG
KORN/FERRY INTERNATIONAL, THE S & P 500 INDEX
AND A PEER GROUP
* $100 invested on
4/30/03 in
stock or index-including reinvestment of dividends. Fiscal year
ending April 30.
Copyright
©
2007, Standard & Poors, a division of The
McGraw-Hill Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
Dividends
and Stock Repurchases
We have not paid any cash dividends on our common stock since
April 30, 1996 and do not currently intend to pay any cash
dividends on our common stock in the foreseeable future. The
Board of Directors has authorized the Company to repurchase up
to $175.0 million of the Companys outstanding shares
of common stock pursuant to issuer repurchase programs. We have
repurchased approximately $131.5 million of the
Companys common stock
17
as of April 30, 2008 under these programs. Future dividend
policy as well as decisions to execute our currently outstanding
issuer repurchase programs will depend on our earnings, capital
requirements, financial condition and other factors considered
relevant by our Board of Directors. Our credit facility does not
restrict our ability to pay dividends.
Recent
Sales of Unregistered Securities
On March 7, 2007, the Company issued notice for the
redemption (the Redemption Notice) of its
7.5% Convertible Subordinated Notes (the Convertible
Notes) in an aggregate principal amount of
$40 million and its 7.5% Convertible Series A
Preferred Stock (the Convertible Preferred Stock) in
an aggregate principle price of $10 million. As of
March 7, 2007, $45.6 million of the Convertible Notes
and $11.4 million of the Convertible Preferred Stock were
outstanding. In response to the Redemption Notice, the
beneficial owner of the Convertible Notes and the Convertible
Preferred Stock exercised its option to convert (the
Conversion) the Convertible Notes and the
Convertible Preferred Stock, pursuant to the terms thereof,
which were convertible into shares of the Companys common
stock at $10.19 per share. The Conversion resulted in
(i) 5,586,187 shares of the Companys common
stock being delivered to the holder of the convertible
securities in April 2007 and (ii) the cancellation of the
Convertible Notes and Convertible Preferred Stock in April 2007.
The issuance of the shares of the Companys common stock
into which the Convertible Notes and the Convertible Preferred
Stock were converted was exempt from the registration provisions
of the Securities Act of 1933, as amended, by virtue of the
exemption afforded by Section 3(a)(9) thereof. Such
determination was based upon the fact that the securities
exchanged in connection with the Conversion were made by the
Company with its existing security holder exclusively, the then
beneficial owners of the Convertible Notes and Convertible
Preferred Stock, and no commission or other remuneration was
paid of given directly or indirectly for soliciting such
exchange.
Issuer
Purchases of Equity Securities
During the twelve months ended April 30, 2008, the Company
repurchased common stock under the common stock repurchase
programs approved by the Board of Directors in December 2005,
June 2006, March 2007 and November 2007. Pursuant to these
programs, shares can be repurchased in open market transactions
or privately negotiated transactions at the Companys
discretion.
The following table summarizes common stocks repurchased during
the last quarter of fiscal 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar Value of
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Shares that
|
|
|
|
|
|
|
|
|
|
as Part of
|
|
|
May Yet be
|
|
|
|
|
|
|
|
|
|
Publicly-
|
|
|
Purchased
|
|
|
|
|
|
|
Average
|
|
|
Announced
|
|
|
under the
|
|
|
|
Shares
|
|
|
Price Paid
|
|
|
Programs
|
|
|
Programs
|
|
|
|
Purchased
|
|
|
per Share
|
|
|
(1), (2), (3) and (4)
|
|
|
(1), (2), (3) and (4)
|
|
|
February 1, 2008-February 29, 2008
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
43.5 million
|
|
March 1, 2008-March 31, 2008
|
|
|
2,466
|
|
|
$
|
18.01
|
|
|
|
|
|
|
$
|
43.5 million
|
|
April 1,
2008-April 30,
2008
|
|
|
3,576
|
|
|
$
|
18.01
|
|
|
|
|
|
|
$
|
43.5 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On December 7, 2005, the Board of Directors approved the
repurchase of up to $50 million of the Companys
common stock in a common stock repurchase program (the
2005 program). The shares can be repurchased in open
market transactions or privately negotiated transactions at the
Companys discretion. |
|
(2) |
|
On June 8, 2006 the Board of Directors approved the
repurchase of a further $25 million of the Companys
common stock in a common stock repurchase program (the
2006 program). The shares can be repurchased in open
market transactions or privately negotiated transactions at the
Companys discretion. |
18
|
|
|
(3) |
|
On March 6, 2007, the Board of Directors approved the
repurchase of an additional $50 million of the
Companys common stock in a common stock repurchase program
(the 2007 program). The shares can be repurchased in
open market transactions or privately negotiated transactions at
the Companys discretion. |
|
(4) |
|
On November 2, 2007, the Board of Directors approved the
repurchase of an additional $50 million of the
Companys common stock in a common stock repurchase program
(the 2008 program). The shares can be repurchased in
open market transactions or privately negotiated transactions at
the Companys discretion. |
|
|
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 income data set forth below for the
fiscal years ended April 30, 2008, 2007 and 2006 and the
selected balance sheet data as of April 30, 2008 and 2007
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, 2006, 2005
and 2004 and the selected statement of income data set forth
below for the fiscal years ended April 30, 2005 and 2004
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share and other operating data)
|
|
|
Selected Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee revenue
|
|
$
|
790,570
|
|
|
$
|
653,422
|
|
|
$
|
522,882
|
|
|
$
|
452,194
|
|
|
$
|
328,331
|
|
Reimbursed out-of-pocket engagement expenses
|
|
|
45,072
|
|
|
|
35,779
|
|
|
|
28,887
|
|
|
|
24,183
|
|
|
|
22,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
835,642
|
|
|
|
689,201
|
|
|
|
551,769
|
|
|
|
476,377
|
|
|
|
350,703
|
|
Compensation and benefits
|
|
|
540,056
|
|
|
|
447,692
|
|
|
|
341,196
|
|
|
|
292,913
|
|
|
|
221,177
|
|
General and administrative expenses
|
|
|
134,542
|
|
|
|
105,312
|
|
|
|
93,462
|
|
|
|
83,544
|
|
|
|
71,623
|
|
Out-of-pocket engagement expenses
|
|
|
58,750
|
|
|
|
44,662
|
|
|
|
31,927
|
|
|
|
25,702
|
|
|
|
23,557
|
|
Depreciation and amortization
|
|
|
10,441
|
|
|
|
9,280
|
|
|
|
9,002
|
|
|
|
8,437
|
|
|
|
10,030
|
|
Asset impairment and restructuring charges(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
743,789
|
|
|
|
606,946
|
|
|
|
475,587
|
|
|
|
410,596
|
|
|
|
334,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
91,853
|
|
|
|
82,255
|
|
|
|
76,182
|
|
|
|
65,781
|
|
|
|
15,790
|
|
Interest and other income, net
|
|
|
11,949
|
|
|
|
10,416
|
|
|
|
11,086
|
|
|
|
3,360
|
|
|
|
1,779
|
|
Interest expense
|
|
|
4,812
|
|
|
|
10,172
|
|
|
|
10,244
|
|
|
|
10,463
|
|
|
|
9,903
|
|
Provision for income taxes
|
|
|
36,081
|
|
|
|
30,164
|
|
|
|
19,594
|
|
|
|
20,251
|
|
|
|
3,218
|
|
Equity in earnings of unconsolidated subsidiaries, net
|
|
|
3,302
|
|
|
|
3,163
|
|
|
|
2,000
|
|
|
|
193
|
|
|
|
955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
66,211
|
|
|
$
|
55,498
|
|
|
$
|
59,430
|
|
|
$
|
38,620
|
|
|
$
|
5,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.50
|
|
|
$
|
1.40
|
|
|
$
|
1.49
|
|
|
$
|
1.00
|
|
|
$
|
0.14
|
|
Diluted earnings per share
|
|
$
|
1.46
|
|
|
$
|
1.24
|
|
|
$
|
1.32
|
|
|
$
|
0.90
|
|
|
$
|
0.13
|
|
Basic weighted average common shares outstanding
|
|
|
44,012
|
|
|
|
39,774
|
|
|
|
39,890
|
|
|
|
38,516
|
|
|
|
37,466
|
|
Diluted weighted average common shares outstanding
|
|
|
45,528
|
|
|
|
46,938
|
|
|
|
47,270
|
|
|
|
46,229
|
|
|
|
40,311
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee revenue by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive recruitment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
374,891
|
|
|
$
|
329,065
|
|
|
$
|
259,089
|
|
|
$
|
225,850
|
|
|
$
|
170,678
|
|
EMEA
|
|
|
183,042
|
|
|
|
146,155
|
|
|
|
120,059
|
|
|
|
110,455
|
|
|
|
78,236
|
|
Asia Pacific
|
|
|
95,915
|
|
|
|
74,987
|
|
|
|
57,922
|
|
|
|
51,196
|
|
|
|
36,818
|
|
South America
|
|
|
25,556
|
|
|
|
17,426
|
|
|
|
15,660
|
|
|
|
10,828
|
|
|
|
8,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total executive recruitment
|
|
|
679,404
|
|
|
|
567,633
|
|
|
|
452,730
|
|
|
|
398,329
|
|
|
|
294,103
|
|
Futurestep
|
|
|
111,166
|
|
|
|
85,789
|
|
|
|
70,152
|
|
|
|
53,865
|
|
|
|
34,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee revenue
|
|
$
|
790,570
|
|
|
$
|
653,422
|
|
|
$
|
522,882
|
|
|
$
|
452,194
|
|
|
$
|
328,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of offices (at period end)
|
|
|
89
|
|
|
|
82
|
|
|
|
72
|
|
|
|
70
|
|
|
|
69
|
|
Number of consultants (at period end)
|
|
|
684
|
|
|
|
601
|
|
|
|
507
|
|
|
|
474
|
|
|
|
443
|
|
Number of new engagements opened
|
|
|
11,106
|
|
|
|
10,415
|
|
|
|
9,608
|
|
|
|
8,062
|
|
|
|
6,606
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share and other operating data)
|
|
|
Selected Balance Sheet Data as of April 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
318,918
|
|
|
$
|
232,531
|
|
|
$
|
211,768
|
|
|
$
|
178,983
|
|
|
$
|
108,102
|
|
Marketable securities
|
|
|
70,344
|
|
|
|
91,736
|
|
|
|
66,429
|
|
|
|
27,965
|
|
|
|
|
|
Working capital
|
|
|
253,810
|
|
|
|
235,271
|
|
|
|
218,206
|
|
|
|
146,071
|
|
|
|
88,436
|
|
Total assets
|
|
|
880,214
|
|
|
|
761,491
|
|
|
|
635,491
|
|
|
|
534,168
|
|
|
|
398,012
|
|
Total long-term debt(2)
|
|
|
|
|
|
|
|
|
|
|
45,147
|
|
|
|
44,949
|
|
|
|
44,400
|
|
Mandatorily redeemable preferred stock(2)
|
|
|
|
|
|
|
|
|
|
|
10,989
|
|
|
|
10,795
|
|
|
|
10,512
|
|
Total stockholders equity
|
|
|
496,134
|
|
|
|
432,955
|
|
|
|
323,751
|
|
|
|
252,902
|
|
|
|
181,252
|
|
|
|
|
(1) |
|
In response to deteriorating economic conditions encountered in
fiscal 2004, we recognized $8.5 million of restructuring
charges comprised of (a) severance restructuring charges of
$6.7 million and (b) facilities restructuring charges
of $1.8 million. |
|
(2) |
|
In the fourth quarter of fiscal 2007, we issued notice for the
redemption of our 7.5% Convertible Series Subordinated
Notes and 7.5% Convertible Series A Preferred Stock.
In response, the holder of the notes and preferred stock
exercised its option to convert the debt and preferred stock
pursuant to the terms of the original agreements. The conversion
resulted in approximately 5.6 million shares of our common
stock being delivered to the debt and preferred stock holder in
April 2007. As of April 30, 2008, we had no outstanding
amounts related to these convertible securities. Conversion of
debt is discussed in Item 7, Long-Term Debt. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Forward-looking
Statements
This Annual Report on
Form 10-K
may contain certain statements that we believe are, or may be
considered to be, forward-looking statements, within
the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements generally can be identified by
use of statements that include phrases such as
believe, expect, anticipate,
intend, plan, foresee,
may, will, estimates,
potential, continue or other similar
words or phrases. Similarly, statements that describe our
objectives, plans or goals also are forward-looking statements.
All of these forward-looking statements are subject to risks and
uncertainties that could cause our actual results to differ
materially from those contemplated by the relevant
forward-looking statement. The principal risk factors that could
cause actual performance and future actions to differ materially
from the forward-looking statements include, but are not limited
to, those set forth above under the caption, Risk
Factors, including dependence on attracting and retaining
qualified and experienced consultants, portability of client
relationships, local political or economic developments in or
affecting countries where we have operations, ability to manage
growth, restrictions imposed by off-limits agreements,
competition, reliance on information processing systems, and
employment liability risk. Readers are urged to consider these
factors carefully in evaluating the forward-looking statements.
The forward-looking statements included in this Annual Report on
Form 10-K
are made only as of the date of this Annual Report on
Form 10-K
and we undertake no obligation to publicly update these
forward-looking statements to reflect subsequent events or
circumstances.
The following presentation of managements discussion
and analysis of our financial condition and results of
operations should be read together with our consolidated
financial statements and related notes included in this Annual
Report on
Form 10-K.
Executive
Summary
Korn/Ferry is a premier provider of talent management solutions.
We are the largest global provider of executive search,
outsourced recruiting and leadership development solutions with
the broadest global presence in the recruitment industry. Our
services include executive recruitment, middle-management
recruitment (through Futurestep), outsourced recruitment,
leadership development solutions and executive coaching. Over
half of the executive recruitment searches we performed in
fiscal 2008 were for board level, chief executive and other
senior executive and general management positions. Our 5,120
clients in fiscal 2008 included approximately 49% of the FORTUNE
500 companies. We have established strong client loyalty;
74% of the executive recruitment
20
assignments we performed during the last fiscal year were on
behalf of clients for whom we had conducted assignments in the
previous three fiscal years.
In an effort to achieve our long-term vision of being the
leading provider of executive search, outsourced recruiting and
leadership development solutions, our strategic focus for fiscal
2009 will center upon increasing market share and further
enhancing the cross-selling of our multi-product strategy. We
will continue to address areas of increasing client demand,
including RPO and LDS. We will 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 21% in fiscal year 2008 to
$790.6 million with increases in all regions. The
North American region experienced the largest dollar
increase in fee revenue. In fiscal 2008, we earned an operating
profit of $91.9 million with operating income from
executive recruitment of $122.0 million and
$8.5 million from Futurestep, offset by corporate expenses
of $38.6 million. This represents an increase of 12% over
operating income of $82.3 million in fiscal 2007.
We had no long-term debt or outstanding balance under our credit
facility at April 30, 2008. Our working capital increased
$18.5 million during fiscal 2008 to $253.8 million at
April 30, 2008.
Critical
Accounting Policies
The following discussion and analysis of our financial condition
and results of operations are based on our consolidated
financial statements. Preparation of this Annual Report on
Form 10-K
requires us to make estimates and assumptions that affect the
reported amount of assets and liabilities, disclosure of
contingent assets and liabilities at the date of our financial
statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results may differ from
those estimates and assumptions. In preparing our consolidated
financial statements and accounting for the underlying
transactions and balances, we apply our accounting policies as
disclosed in our notes to consolidated financial statements. We
consider the policies discussed below as critical to an
understanding of our consolidated financial statements because
their application places the most significant demands on
managements judgment. Specific risks for these critical
accounting policies are described in the following paragraphs.
Senior management has discussed the development and selection of
the critical accounting estimates with the Audit Committee of
the Board of Directors.
Revenue Recognition. Management is required to
establish policies and procedures to ensure that revenue is
recorded over the performance period for valid engagements and
related costs are matched against such revenue. We provide
recruitment services on a retained basis and generally bill
clients in three monthly installments. Since the fees are
generally not contingent upon placement of a candidate, our
assumptions primarily relate to establishing the period over
which such service is performed. These assumptions determine the
timing of revenue recognition and profitability for the reported
period. If these assumptions do not accurately reflect the
period over which revenue is earned, revenue and profit could
differ. Any services that are provided on a contingent basis are
recognized once the contingency is fulfilled.
Deferred Compensation. Estimating deferred
compensation requires assumptions regarding the timing and
probability of payments of benefits to participants and the
discount rate. Changes in these assumptions would significantly
impact the liability and related cost on our balance sheet and
statement of operations. Management engages an independent
actuary to periodically review these assumptions in order to
ensure that they reflect the population and economics of our
deferred compensation plans in all material respects and to
assist us in estimating our deferred compensation liability and
the related cost. The actuarial assumptions we use may differ
from actual results due to changing market conditions or changes
in the participant population. These differences could have a
significant impact on our deferred compensation liability and
the related cost.
Carrying Values. Valuations are required under
U.S. generally accepted accounting principles to determine
the carrying value of various assets. Our most significant
assets for which management is required to prepare valuations
are goodwill, intangible assets and deferred income taxes.
Management must identify whether events have occurred that may
impact the carrying value of these assets and make assumptions
regarding future events,
21
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Fee revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Reimbursed out-of-pocket engagement expenses
|
|
|
5.7
|
|
|
|
5.5
|
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
105.7
|
|
|
|
105.5
|
|
|
|
105.5
|
|
Compensation and benefits
|
|
|
68.3
|
|
|
|
68.5
|
|
|
|
65.3
|
|
General and administrative expenses
|
|
|
17.0
|
|
|
|
16.1
|
|
|
|
17.9
|
|
Out-of-pocket engagement expenses
|
|
|
7.4
|
|
|
|
6.8
|
|
|
|
6.1
|
|
Depreciation and amortization
|
|
|
1.4
|
|
|
|
1.5
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
11.6
|
|
|
|
12.6
|
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
8.4
|
%
|
|
|
8.5
|
%
|
|
|
11.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize the results of our operations by
business segment (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Dollars
|
|
|
%
|
|
|
Dollars
|
|
|
%
|
|
|
Dollars
|
|
|
%
|
|
|
Fee revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive recruitment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
374,891
|
|
|
|
47.4
|
%
|
|
$
|
329,065
|
|
|
|
50.4
|
%
|
|
$
|
259,089
|
|
|
|
49.6
|
%
|
EMEA
|
|
|
183,042
|
|
|
|
23.2
|
|
|
|
146,155
|
|
|
|
22.4
|
|
|
|
120,059
|
|
|
|
23.0
|
|
Asia Pacific
|
|
|
95,915
|
|
|
|
12.1
|
|
|
|
74,987
|
|
|
|
11.5
|
|
|
|
57,922
|
|
|
|
11.1
|
|
South America
|
|
|
25,556
|
|
|
|
3.2
|
|
|
|
17,426
|
|
|
|
2.6
|
|
|
|
15,660
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total executive recruitment
|
|
|
679,404
|
|
|
|
85.9
|
|
|
|
567,633
|
|
|
|
86.9
|
|
|
|
452,730
|
|
|
|
86.6
|
|
Futurestep
|
|
|
111,166
|
|
|
|
14.1
|
|
|
|
85,789
|
|
|
|
13.1
|
|
|
|
70,152
|
|
|
|
13.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fee revenue
|
|
|
790,570
|
|
|
|
100.0
|
%
|
|
|
653,422
|
|
|
|
100.0
|
%
|
|
|
522,882
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursed out-of-pocket engagement expenses
|
|
|
45,072
|
|
|
|
|
|
|
|
35,779
|
|
|
|
|
|
|
|
28,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
835,642
|
|
|
|
|
|
|
$
|
689,201
|
|
|
|
|
|
|
$
|
551,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Dollars
|
|
|
Margin(1)
|
|
|
Dollars
|
|
|
Margin(1)
|
|
|
Dollars
|
|
|
Margin(1)
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive recruitment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
70,628
|
|
|
|
18.8
|
%
|
|
$
|
69,815
|
|
|
|
21.2
|
%
|
|
$
|
62,124
|
|
|
|
24.0
|
%
|
EMEA
|
|
|
29,820
|
|
|
|
16.3
|
|
|
|
24,166
|
|
|
|
16.5
|
|
|
|
22,361
|
|
|
|
18.6
|
|
Asia Pacific
|
|
|
19,299
|
|
|
|
20.1
|
|
|
|
16,010
|
|
|
|
21.4
|
|
|
|
13,374
|
|
|
|
23.1
|
|
South America
|
|
|
2,230
|
|
|
|
8.7
|
|
|
|
1,894
|
|
|
|
10.9
|
|
|
|
2,839
|
|
|
|
18.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total executive recruitment
|
|
|
121,977
|
|
|
|
18.0
|
|
|
|
111,885
|
|
|
|
19.7
|
|
|
|
100,698
|
|
|
|
22.2
|
|
Futurestep
|
|
|
8,545
|
|
|
|
7.7
|
|
|
|
7,854
|
|
|
|
9.2
|
|
|
|
3,351
|
|
|
|
4.8
|
|
Corporate
|
|
|
(38,669
|
)
|
|
|
|
|
|
|
(37,484
|
)
|
|
|
|
|
|
|
(27,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
91,853
|
|
|
|
11.6
|
%
|
|
$
|
82,255
|
|
|
|
12.6
|
%
|
|
$
|
76,182
|
|
|
|
14.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Margin calculated as a percentage of fee revenue by business
segment. |
Fiscal
2008 Compared to Fiscal 2007
Fee
Revenue.
Fee revenue increased $137.2 million, or 21%, to
$790.6 million in fiscal 2008 compared to
$653.4 million in fiscal 2007. The improvement in fee
revenue is attributable mainly to an 8% increase in the number
of engagements billed within executive recruitment and an
increase of 13% in average fees in all regions. Exchange rates
favorably impacted fee revenues by $35.4 million in fiscal
2008.
Executive Recruitment Executive recruitment
fee revenue increased $111.8 million, or 20%, to
$679.4 million in fiscal 2008 due to an increase in the
number of engagements billed, an increase in average fees and
$10.4 million from the Lominger Entities in fiscal 2007. On
a year-to-date basis, the number of executive recruitment
engagements billed increased 11% in fiscal 2008 as compared to
fiscal 2007.
North America fee revenue increased $45.8 million, or 14%,
to $374.9 million in fiscal 2008 primarily due to a 10%
increase in the number of engagements billed as well as a 4%
increase in average fees as compared to fiscal 2007. The
industrial, education, life sciences and healthcare sectors were
the primary contributors to the increase in fee revenues offset
by a slight decline within the financial services sector.
Increased demand for the LDS products and services also resulted
in a $23.7 million increase in fee revenues.
EMEA reported fee revenue of $183.0 million in fiscal 2008,
an increase of $36.8 million, or 25%, compared to
$146.2 million in fiscal 2007, which was driven by a 15%
increase in the number of engagements billed and an increase in
average fees of 9%. Fee revenue growth was experienced
throughout the region in fiscal 2008 with the strongest
performance from offices located in Germany, United Arab
Emirates, France and Sweden. The industrial, technology and
consumer goods sectors experienced strong growth in fiscal 2008
over fiscal 2007. Exchange rates favorably impacted EMEA fee
revenue by $15.4 million in fiscal 2008.
Asia Pacific fee revenue increased $20.9 million, or 28%,
to $95.9 million in fiscal 2008, compared to fiscal 2007
due to a 9% increase in the number of engagements billed and an
increase in average fees of 18%. The offices of Greater China
(Hong Kong, Shanghai and Beijing), Australia, India and
Singapore contributed 23%, 26%, 22% and 15%, respectively, the
increase in fee revenue. All sectors experienced strong growth
during fiscal 2008, with the industrial and financial services
sectors providing the largest contributions to the increase in
fee revenue compared to fiscal 2007. Exchange rates favorably
impacted fee revenue for Asia Pacific by $5.3 million in
fiscal 2008.
23
South America fee revenue was $25.6 million in fiscal 2008,
an increase of $8.1 million, or 47%, of which
$2.9 million related to the favorable impact of exchange
rates. Overall number of engagements billed within the region
were comparable to fiscal 2007 while average fees increased by
32%. Every country in the region experienced growth during
fiscal 2008, except for Ecuador and Peru which had fee revenues
comparable to fiscal 2007, with Brazil and Columbia contributing
approximately 78% and 12%, respectively, of the increase in fee
revenues.
Futurestep Fee revenue increased
$25.4 million, or 30%, to $111.2 million in fiscal
2008 compared to $85.8 million in fiscal 2007. The
improvement in fee revenue, reflected across all regions, is due
to an increase in average fees resulting from our emphasis on
larger outsourced recruiting solutions. Of the total increase in
fee revenue, North America experienced the largest increase in
fee revenue of $11.0 million, or 36%, to $41.8 million
in fiscal 2008 due to the acquisition of The Newman Group in
June 2007 and growth in Canada. Asia Pacific fee revenue
increased to $28.6 million in fiscal 2008, an increase of
$7.5 million, or 36%, reflecting increased revenue from
RPO. Europe fee revenue increased $6.9 million, or 20%, to
$40.8 million in fiscal 2008, arising from increased
business across the region and a migration to larger
engagements. Exchange rates favorably impacted fee revenue by
$8.0 million in fiscal 2008.
Compensation
and Benefits.
Compensation and benefits expense increased $92.4 million,
or 21%, to $540.1 million in fiscal 2008 from
$447.7 million in fiscal 2007. The increase in compensation
and benefits expense is primarily due to increased global
headcount of 323, or 14%, at April 30, 2008 compared to
prior year, including an 18% increase in the average number of
consultants, coupled with increased productivity and retention
awards. Exchange rates unfavorably impacted compensation and
benefits expense by $22.4 million in fiscal 2008.
Executive recruitment compensation and benefits costs of
$440.7 million increased $75.7 million in fiscal 2008,
or 21%, compared to $365.0 million in fiscal 2007 primarily
due to the number of consultants hired in fiscal 2008. In fiscal
2008, the number of consultants increased by 24, or 5%, compared
to fiscal 2007. Exchange rates impacted executive recruitment
compensation and benefits expense unfavorably by
$17.4 million in fiscal 2008. Executive recruitment
compensation and benefits expense, as a percentage of fee
revenue, increased to 65% in fiscal 2008 compared to 64% in
fiscal 2007.
Futurestep compensation and benefits expense increased
$17.9 million, or 31%, to $76.3 million in fiscal 2008
from $58.4 million in fiscal 2007 due to significant
investments in new employees which increased Futurestep average
consultant headcount by 71% during fiscal 2008. Exchange rates
unfavorably impacted Futurestep compensation and benefits
expense by $5.0 million. Futurestep compensation and
benefits expense, as a percentage of fee revenue, increased to
69% in fiscal 2008 from 68% in fiscal 2007.
Corporate compensation and benefits expense decreased
$1.2 million, or 5%, to $23.1 million in fiscal 2008,
primarily from a $5.2 million charge for executive contract
changes recorded in the fourth quarter of fiscal 2007 that was
not present in fiscal 2008 offset by increases in salary and
stock-based compensation expenses in fiscal 2008.
General
and Administrative Expenses.
General and administrative expenses increased
$29.2 million, or 28%, to $134.5 million in fiscal
2008 compared to $105.3 million in fiscal 2007. Exchange
rates unfavorably impacted general and administrative expenses
by $7.1 million in fiscal 2008.
Executive recruitment general and administrative expenses
increased $20.9 million, or 27%, from $76.7 million in
fiscal 2007 to $97.6 million in fiscal 2008. The increase
was driven by increases of $8.5 million in premise and
office expenses, $5.0 million in business development
expenses, $3.7 million in other types of general expenses
including meetings and travel expense and $3.1 million in
bad debt expense. Increased premise and office expense was
attributable to all regions due to increased rent expense, total
space leased and associated utility costs. Business development
increased primarily due to growth in the business and increased
advertising and promotion costs to elevate our brand. Executive
recruitment general and administrative expenses, as a percentage
of fee revenue, was 14% in both fiscal 2008 and 2007.
24
Futurestep general and administrative expenses increased
$6.4 million, or 40%, to $22.6 million, in fiscal 2008
compared to fiscal 2007, primarily due to a net increase in
premise and office expense of $2.8 million resulting from
increases in rent expense across all regions, the opening of new
offices in Europe and Asia and $0.9 million reversal of a
previously recorded lease reserve in fiscal 2007 that was not
present in fiscal 2008. Other administrative expenses increased
$1.3 million in fiscal 2008 resulting from an increase in
travel and meeting expenses. Bad debt expense increased
$0.6 million in fiscal 2008 as a result of an increase in
revenues and accounts receivable balances. Futurestep general
and administrative expenses, as a percentage of fee revenue,
increased to 20% in fiscal 2008 from 19% in fiscal 2007.
Corporate general and administrative expenses increased
$1.9 million, or 15%, to $14.3 million in fiscal 2008
primarily due to increased professional fees and premise and
office expenses related to additional office space leased in
fiscal 2007.
Out-of-Pocket Engagement
Expenses. Out-of-pocket engagement expenses
consist of expenses incurred by candidates and our consultants
that are generally billed to clients. Out-of-pocket engagement
expenses of $58.8 million increased $14.1 million, or
32%, in fiscal 2008 compared to fiscal 2007. As a percentage of
fee revenue, out-of-pocket engagement expenses increased less
than 1% in fiscal 2008 compared to 7% in fiscal 2007.
Depreciation and Amortization
Expenses. Depreciation and amortization expense
of $10.4 million in fiscal 2008 increased
$1.1 million, or 12%, from fiscal 2007. Depreciation
expense relates mainly to computer equipment, software,
furniture and leasehold improvements. The increase in such
expenses in fiscal 2008 is attributable to an increase in fixed
asset balances primarily associated with furniture and fixtures
and leasehold improvements related to business expansion and
office buildout and amortization of software costs that add new
functionality in our corporate and executive search segments.
Operating
Income.
Operating income increased $9.6 million, or 12%, to
$91.9 million in fiscal 2008 compared to $82.3 million
in fiscal 2007, resulting from increased revenue of
$146.4 million offset by a $136.8 million increase to
operating expenses, primarily compensation and benefits and
general and administrative expenses.
Executive recruitment operating income increased
$10.1 million, or 9%, to $122.0 million in fiscal 2008
compared to $111.9 million in fiscal 2007. The improvement
in executive recruitment operating income is attributable to
increased revenues offset by additional compensation expense
relating to increased headcount and variable payouts as
discussed previously, as well as increased professional fees,
premise and other general administrative expense. Executive
recruitment operating income, as a percentage of fee revenue,
decreased to 18% from 20%, due to our continued investment in
LDS and increases in productivity based compensation during
fiscal 2008.
Futurestep operating income increased by $0.6 million to
$8.5 million in fiscal 2008 as compared to operating income
of $7.9 million in fiscal 2007. The increase in Futurestep
operating income is primarily due to higher average fees in
engagements billed, offset by a $0.9 million reversal of a
previously recorded lease reserve recorded in fiscal 2007 and
not present in fiscal 2008 and an increase in compensation and
benefits and general and administrative expenses as a percentage
of fee revenue in fiscal 2008. Futurestep operating income, as a
percentage of fee revenue, declined to 8% in fiscal 2008 from 9%
in fiscal 2007.
Interest Income and Other Income,
Net. Interest income and other income, net,
increased by $1.5 million to $11.9 million in fiscal
2008 from $10.4 million in fiscal 2007. Interest and
dividend income increased as a result of higher yields on larger
balances of funds available for investment compared to fiscal
2007.
Interest Expense. Interest expense was
$4.8 million in fiscal 2008, a decrease of
$5.4 million compared to fiscal 2007. Interest expense in
fiscal 2008 primarily related to borrowings under Company Owned
Life Insurance Policies (COLI). The decrease in
interest expense is primarily due to the conversion of the
Companys convertible preferred stock and subordinated
notes to common shares in the fourth quarter of fiscal 2007.
25
Provision for Income Taxes. The provision for
income taxes was $36.1 million in fiscal 2008 compared to
$30.2 million in fiscal 2007. The provision for income
taxes in fiscal 2008 reflects a 36.4% effective tax rate. The
provision for income taxes for fiscal 2007 reflects a 36.6% tax
rate.
Equity in Earnings of Unconsolidated
Subsidiaries. Equity in earnings of
unconsolidated subsidiaries is comprised of our less than 50%
interest in our Mexican subsidiaries. We report our interest in
earnings or loss of our Mexican subsidiaries on the equity basis
as a one line adjustment to net income, net of taxes. Equity in
earnings was $3.3 million in fiscal 2008 compared to
$3.2 million in fiscal 2007, resulting from increased
profitability in the Mexican subsidiaries. Dividends received
from the Companys unconsolidated subsidiaries equaled
$2.9 million in fiscal 2008, and are reflected as a
reduction in the carrying value of our investment.
Fiscal
2007 Compared to Fiscal 2006
Fee
Revenue.
Fee revenue increased $130.5 million, or 25%, to
$653.4 million in fiscal 2007 compared to
$522.9 million in fiscal 2006. The improvement in fee
revenue is attributable mainly to an 8% increase in the number
of engagements billed within executive recruitment and an
increase in average fees from all regions. The Lominger Entities
contributed $11.9 million in revenues during fiscal 2007.
Exchange rates favorably impacted fee revenues by
$14.7 million in the current year.
Executive Recruitment Executive recruitment
fee revenue increased $114.9 million, or 25%, due to an
increase in the number of engagements billed, an increase in
average fee and the Lominger acquisition. On a
year-to-date
basis, the number of executive recruitment engagements billed
have increased by 8% as compared to last year.
North America fee revenue increased $70.0 million, or 27%,
to $329.1 million primarily due to a 7% increase in the
number of engagements billed as well as a 19% increase in
average fees as compared to last year. The financial services,
technology and industrial sectors were the primary contributors
to the increase in fee revenues. An increased demand for the LDS
products also resulted in a $6.3 million increase in fee
revenues.
EMEA reported fee revenue of $146.2 million, an increase of
$26.1 million, or 22%, compared to $120.1 million last
year, which was driven by an 11% increase in the number of
engagements billed and an increase in average fees of 10%. The
performance in new offices in Denmark, Turkey and the Czech
Republic and improved performance in existing offices in
Germany, Belgium, Netherlands and the Middle East were the
primary contributors to the increase in fee revenues. The
financial services, industrial and technology sectors
experienced strong growth over the prior year. Exchange rates
favorably impacted EMEA fee revenue by $10.8 million in the
current year.
Asia Pacific fee revenue increased $17.1 million, or 30%,
to $75.0 million, compared to last year due to a 12%
increase in the number of engagements billed and an increase in
average fees of 16%. The offices of Greater China (Hong Kong,
Shanghai and Beijing) and Australasia (Australia and New
Zealand) contributed 47% and 22%, respectively of the increase
in fee revenue. The financial services, industrial and
technology sectors experienced strong growth over the prior
year. Exchange rates favorably impacted fee revenue for Asia
Pacific by $1.0 million in the current year.
South America reported fee revenue of $17.4 million, an
increase of $1.8 million, or 11%, of which
$0.4 million related to the favorable impact of exchange
rates. Overall engagements billed within the region were
comparable to prior year while average fees increased by 16%.
Every country in the region experienced growth over the prior
year with Brazil contributing approximately one-third of the
increase in fee revenues.
Futurestep Fee revenue increased
$15.6 million, or 22%, to $85.8 million in fiscal 2007
compared to $70.2 million in fiscal 2006. The improvement
in fee revenue, reflected across all regions, is due to an
increase in average fees resulting from our continued strategic
emphasis on larger outsourced recruiting solutions. Of the total
increase in fee revenue, Asia Pacific experienced the largest
increase in fee revenue of $6.6 million, or 45%, to
$21.1 million reflecting increased revenue from areas
including RPO and Interim Solutions. Europe fee revenue
increased $6.6 million, or 24%, to $33.9 million,
arising from increased business in France, the United Kingdom,
26
Spain and Australia and a migration to larger engagements.
Exchange rates favorably impacted fee revenue by
$2.5 million in the current year.
Compensation
and Benefits.
Compensation and benefits expense increased $106.5 million,
or 31%, to $447.7 million in fiscal 2007 from
$341.2 million in fiscal 2006. The increase in compensation
and benefits expense is primarily due to increased global
headcount of 421, or 23%, compared to prior year, including an
16% increase in the average number of consultants, coupled with
increased productivity and retention awards. Increased
compensation and benefits also resulted from a $5.2 million
charge for executive employment contract changes recorded in the
fourth quarter of fiscal 2007 and $4.6 million of
compensation and benefits from the Lominger Entities that
wasnt present last year. Exchange rates unfavorably
impacted compensation and benefits expense by $9.3 million
in the current year.
Executive recruitment compensation and benefits costs of
$365.0 million increased $88.5 million, or 32%,
compared to $276.5 million in the prior year primarily due
to consultants hired over the past year. In the current year,
the number of consultants increased by 50, or 11%, compared to
last year. Exchange rates impacted executive recruitment
compensation and benefits expense unfavorably by
$7.7 million. Executive recruitment compensation and
benefits expense, as a percentage of fee revenue, increased to
64% in fiscal year 2007 compared to 61% in fiscal 2006.
Futurestep compensation and benefits expense increased
$9.8 million, or 20%, to $58.4 million from
$48.6 million in the prior year due to significant
investments in our employees which increased Futurestep average
consultant headcount by 50% over the past year. Exchange rates
unfavorably impacted Futurestep compensation and benefits
expense by $1.6 million. Futurestep compensation and
benefits expense, as a percentage of fee revenue, declined to
68% from 69% in the prior year.
Corporate compensation and benefits expense increased
$8.3 million, or 52%, to $24.3 million, primarily from
a $5.2 million charge for executive contract changes
recorded in the fourth quarter of fiscal 2007 and stock-based
compensation expense that wasnt present in the prior year.
General
and Administrative Expenses.
General and administrative expenses increased
$11.8 million, or 13%, to $105.3 million in fiscal
2007 compared to $93.5 million in 2006. The Lominger
Entities contributed $1.3 million to the increase. Exchange
rates unfavorably impacted general and administrative expenses
by $2.6 million in the current year.
Executive recruitment general and administrative expenses
increased $9.4 million, or 14%, from $67.3 million in
the prior year to $76.7 million in the current year. The
increase was driven by other administrative expenses of
$2.1 million, including travel and meeting expenses, an
increase in premise and office expense of $4.9 million and
a $2.6 million increase in business development expenses.
Increased premise and office expense was attributable to all
regions due to increased rent expense and total space leased.
Executive recruitment general and administrative expenses, as a
percentage of fee revenue, decreased to 14% from 15% in the
prior year.
Futurestep general and administrative expenses increased
$1.7 million, or 12%, to $16.2 million, primarily due
to a net increase in premise and office expense of
$1.3 million resulting from a $2.2 million increase in
rent expense, noted across all regions, and the opening of new
offices in Europe and Asia offset by a $0.9 million
reversal of a previously recorded lease reserve. Bad debt
expense increased $0.3 million resulting from an increase
in the level of business and corresponding increase in accounts
receivable. Futurestep general and administrative expenses, as a
percentage of fee revenue, decreased to 19% from 21% in the
prior year.
Corporate general and administrative expenses increased
$0.8 million, or 7%, to $12.4 million primarily due to
increased professional fees and premise and office expenses
related to additional office space leased in fiscal 2007.
Out-of-Pocket Engagement
Expenses. Out-of-pocket engagement expenses
consist of expenses incurred by candidates and our consultants
that are generally billed to clients. Out-of-pocket engagement
expenses of $44.7 million increased $12.7 million, or
40%, over the prior year. As a percentage of fee revenue,
out-of-pocket engagement expenses increased to 7% in current
year compared to 6% in prior year.
27
Depreciation and Amortization
Expenses. Depreciation and amortization expense
of $9.3 million in fiscal 2007 increased $0.3 million,
or 3%, from prior year. Depreciation expense relates mainly to
computer equipment, software, furniture and leasehold
improvements. Increase in expense for the current year is
attributable to an increase in fixed asset balances primarily
associated with furniture and fixtures and leasehold
improvements related to business expansion and office buildout
and amortization of software costs that add new functionality in
our corporate and executive search segments.
Operating
Income.
Operating income increased $6.1 million, or 8%, to
$82.3 million in the current year compared to
$76.2 million in the prior year, resulting from increased
revenue of $137.4 million offset by a $131.3 million
increase to operating expenses, primarily compensation and
benefits and general and administrative expenses in the current
year. The Lominger Entities contributed $2.6 million for
the year ended April 30, 2007.
Executive recruitment operating income increased
$11.2 million, or 11%, to $111.9 million in fiscal
2007 compared to $100.7 million in fiscal 2006. The
improvement in executive recruitment operating income is
attributable to increased revenues offset by additional
compensation expense relating to increased headcount and
variable payouts as discussed previously, as well as increased
professional fees, premise and other general administrative
expense. Executive recruitment operating income, as a percentage
of fee revenue, decreased to 20% from 22%, due to certain
executive employment contract changes, our continued investment
in Leadership Development Solutions and increases in
productivity based compensation during the current year.
Futurestep operating income increased by $4.5 million to
$7.9 million in fiscal 2007 as compared to operating income
of $3.4 million in fiscal 2006. The increase in Futurestep
operating income is primarily due to higher average fees in
engagements billed, a $0.9 million reversal of a previously
recorded lease reserve and improvements in compensation and
benefits and general and administrative expenses as a percentage
of fee revenue in the current year. Futurestep operating income,
as a percentage of fee revenue, improved to 9% from 5% last year.
Interest Income and Other Income,
Net. Interest income and other income, net
decreased by $0.7 million in fiscal 2007 from
$11.1 million in fiscal 2006. Interest and dividend income
increased as a result of higher yields on larger balances of
funds available for investment compared to prior year; however,
this increase was not large enough to offset the
$4.5 million realization of a loss recovery on a previously
impaired investment in fiscal 2006.
Interest Expense. Interest expense, primarily
related to convertible securities and borrowings under Company
Owned Life Insurance Policies (COLI) policies, was
$10.2 million in fiscal year 2007 and 2006. Interest
expense related to the convertible securities was
$4.9 million in fiscal 2007; as these securities were
converted to shares of the Companys common stock in April
2007 there will not be any interest expense in fiscal 2008
related to the securities. See Note 10 of the Notes
to our Consolidated Financial Statements for more detailed
information on the conversion of these securities.
Provision for Income Taxes. The provision for
income taxes was $30.2 million in fiscal 2007 compared to
$19.6 million in fiscal 2006. The provision for income
taxes in the current year reflects a 36.6% effective tax rate.
The provision for income taxes for the prior year reflects a
25.4% tax rate. Excluding the $4.5 million realization of a
loss recovery on a previously impaired investment and a net
one-time tax benefit of $6.5 million the effective tax rate
for the fiscal year 2006 would have been 36.0%, which is
comparable to the year ended April 30, 2007.
Equity in Earnings of Unconsolidated
Subsidiaries. Equity in earnings of
unconsolidated subsidiaries is comprised of our less than 50%
interest in our Mexican subsidiaries. We report our interest in
earnings or loss of our Mexican subsidiaries on the equity basis
as a one line adjustment to net income, net of taxes. Equity in
earnings was $3.2 million compared to $2.0 million
last year, resulting from increased profitability in both
subsidiaries. Dividends received from the Companys
unconsolidated subsidiaries equaled $2.4 million in the
current year, and is reflected as a reduction in the carrying
value of our investment.
28
Liquidity
and Capital Resources
We believe that cash on hand, borrowings available under our
credit facility and funds from operations will be sufficient to
meet our anticipated working capital, capital expenditures and
general corporate requirements. However, adverse changes in our
revenue could require us to cut costs or obtain financing to
meet our cash needs.
We are not aware of any trends or demands or commitments that
would materially affect liquidity or those that relate to our
resources.
The net increase in our working capital of $18.5 million in
fiscal 2008 compared to fiscal 2007 is primarily attributable to
increases in accounts receivable balances related to overall
growth in the number of engagements billed plus higher average
fees per engagement in all regions and consistent accounts
receivable collection.
Cash and cash equivalents and marketable securities were
approximately $389.3 million and $324.3 million as of
April 30, 2008 and 2007, respectively. Cash and cash
equivalents consisted of cash and highly liquid investments
purchased with original maturities of three months or less.
Marketable securities consist of auction rate municipal
securities, equity securities and fixed income mutual funds. The
primary objectives for these investments are liquidity.
As of April 30, 2008 we had $20.5 million of auction
rate securities. Frequent auctions have historically provided a
liquid market for our auction rate securities. However, in
February 2008, liquidity issues in the global credit markets
caused auctions representing some of the auction rate securities
we hold to fail because the amount of securities offered for
sale exceeded the amount of bids. As a result, the liquidity of
our auction rate securities has diminished, and we expect that
this decreased liquidity for our auction rate securities will
continue as long as the present depressed global credit market
environment persists, or until issuers refinance and replace
these securities with other instruments. Despite the current
auction market, we believe the credit quality of our auction
rate securities remains high due to the credit worthiness of the
issuers. We have continued to collect the interest when due and
at this time we expect to continue to do so going forward.
Additionally, we expect we will receive the entire outstanding
principal through either future successful auctions, sales of
these securities outside the auction process, the issuers
establishment of different form of financing to replace these
securities, or the maturing of the securities. We have
classified auction rate securities as long-term marketable
securities in our Consolidated Balance Sheet as of
April 30, 2008. See Note 5 of our Notes to
Consolidated Financial Statements for additional details about
our investments in auction rate securities and other marketable
securities.
Cash provided by operating activities was $109.5 million in
fiscal 2008, an increase of $7.2 million, from
$102.3 million in fiscal 2007. The increase in cash
provided by operating activities is primarily due to a
$10.7 million increase in net income, which was partially
offset by the following changes: an increase in deferred income
taxes of $6.6 million and an increase in accounts payable
and accrued liabilities of $3.5 million related to
productivity based compensation. The productivity based
compensation increases are a direct result of substantial
increases in revenues across business segments compared to the
prior year. Offsetting these increases is a decrease in income
taxes payable of $10.5 million resulting from utilization
of tax net operating loss carry-forwards and tax credits related
to foreign and alternative minimum taxes, and $5.2 million
of deferred compensation plan accruals associated to
contributions by the Company in various deferred compensations
plans on behalf of employees compared to the prior year.
Cash provided by investing activities was $1.8 million for
fiscal 2008, compared to $59.3 million used in the prior
year. For the year ended April 30, 2008, the increase in
cash provided was primarily attributable to $21.3 million
of marketable securities sold in fiscal 2008 compared to
purchases of $21.7 million in fiscal 2007. Capital
expenditures during the year were $17.0 million, an
increase of $2.9 million over prior year, primarily related
to continuing expansion of our business and increased systems
hardware and software costs. These expenditures primarily
related to leasehold improvements from office expansion and
internally-developed software projects including Executive
Center and Searcher as well as the upgrade of
financial reporting software.
Cash used in financing activities was $41.4 million in
fiscal 2008, a $15.4 million increase from 2007. In the
current fiscal year, we repurchased $64.2 million of common
stock, of which the Company used the remaining
$50.4 million of the $75.0 million of share repurchase
funds authorized in June 2006 and March 2007 in addition to
using $6.5 million of the $50 million authorization in
November 2007 to buy back approximately 2.9 million shares.
29
These repurchases were offset by proceeds received from the
exercise of stock options of $17.4 million and the related
tax benefits of $4.6 million from stock option exercises in
the current fiscal year due in part to an increase in vested
shares.
Off-Balance
Sheet Arrangements
We have no off-balance sheet arrangements and have not entered
into any transactions involving unconsolidated, limited purpose
entities.
Contractual
Obligations
Contractual obligations represent future cash commitments and
liabilities under agreements with third parties, and exclude
contingent liabilities for which we cannot reasonably predict
future payment. The following table represents our contractual
obligations as of April 30, 2008 (in thousands):
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Payments Due in:
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Less Than
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More Than
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Total
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1 Year
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1-3 Years
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3-5 Years
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5 Years
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Operating lease commitments(1)
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$
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140,169
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|
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$
|
30,014
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|
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$
|
47,470
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|
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$
|
28,049
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|
|
$
|
34,636
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|
Accrued restructuring charges(2)
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2,264
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|
|
757
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|
|
1,507
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Total
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$
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142,433
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$
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30,771
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$
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48,977
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$
|
28,049
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$
|
34,636
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(1) |
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See Note 16, Commitments and Contingencies, in the Notes to
Consolidated Financial Statements for additional information. |
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(2) |
|
See Note 6, Restructuring Liability, in the Notes to
Consolidated Financial Statements for additional information.
Note that the above amounts represent rent payments, net of
sublease income, on an undiscounted basis. |
In addition to the contractual obligations above, we have
liabilities related to certain employee benefit plans. These
liabilities are recorded in our Consolidated Balance Sheets. The
obligations related to these employee benefit plans are
described in Note 8, Deferred Compensation and Retirement
Plans.
We also make interest payments on our COLI loans. These loans
are described in Note 12 to the Notes to Consolidated
Financial Statements, Long-Term Debt. As the timing of these
loan repayments are uncertain, we have not included these
obligations in the table above.
Lastly, we have contingent commitments under certain employment
agreements that are payable upon termination of employment.
Long-Term
Debt.
Total outstanding borrowings under our COLI policies were
$60.7 million, $60.0 million and $58.4 million as
of April 30, 2008, 2007 and 2006, respectively. Generally,
we borrow under our COLI policies to pay related premiums. Such
borrowings do not require annual principal repayments, bear
interest primarily at variable rates and are secured by the cash
surrender value of the life insurance policies of
$142.1 million, $136.5 million and $129.0 million
as of April 30, 2008, 2007 and 2006, respectively. At
April 30, 2008, the net cash value of these policies was
$81.4 million of which $66.6 million was held in a
trust.
As of April 30, 2008, we had no outstanding Convertible
Notes or Convertible Preferred Stock. On March 7, 2007, the
Company issued notice for the redemption of its Convertible
Notes in an aggregate principal amount of $40 million and
its Convertible Preferred Stock in an aggregate principal price
of $10 million. As of March 7, 2007,
$45.6 million of the Convertible Notes and
$11.4 million of the Convertible Preferred Stock was
outstanding. The Convertible Notes and Convertible Preferred
Stock were convertible into shares of the Companys common
stock at $10.19 per share. In response to the
Redemption Notice, the holder of the Convertible Notes and
Convertible Preferred Stock exercised the Conversion of the
Convertible Notes and Convertible Preferred Stock pursuant to
the terms thereof. The Conversion resulted in
5,586,187 shares of the Companys common stock being
delivered to the holder of the convertible securities in April
2007.
30
In March 2008, we amended our Senior Secured Revolving Credit
Facility (the Facility). The Facility has a
$50 million borrowing capacity with no borrowing base
restrictions. The credit facility is secured by substantially
all of our assets including certain accounts receivable balances
and guarantees by and pledges of a portion of the capital stock
of our significant subsidiaries. We are required to meet certain
financial condition covenants on a quarterly basis. As of
April 30, 2008, we had no outstanding borrowings on our
Facility.
Quarterly
Results
The following table sets forth certain unaudited statement of
income data for the quarters in fiscal 2008 and 2007. The
unaudited quarterly information has been prepared on the same
basis as the annual financial statements and, in
managements opinion, includes all adjustments necessary to
present fairly the information for the quarters presented
(dollars in thousands, except per share amounts).
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Quarters Ended
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Fiscal 2008
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Fiscal 2007
|
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|
|
April 30
|
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Jan. 31
|
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|
Oct. 31
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July 31
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April 30
|
|
|
Jan. 31
|
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Oct. 31
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July 31
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Fee revenue
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$
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208,204
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$
|
201,156
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|
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$
|
195,857
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$
|
185,353
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|
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$
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179,702
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$
|
165,239
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|
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$
|
155,718
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|
|
$
|
152,763
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Operating income
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|
20,178
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|
|
|
21,180
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|
|
|
25,382
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|
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|
25,113
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|
|
|
19,351
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|
|
|
21,408
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|
|
|
21,148
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|
|
|
20,348
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Net income
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15,746
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|
|
16,256
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|
|
|
17,109
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|
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|
17,100
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|
|
|
13,539
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|
|
|
14,730
|
|
|
|
13,566
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|
|
|
13,663
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Net income per share
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|
|
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|
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|
|
|
|
|
|
|
|
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|
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|
|
|
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|
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Basic
|
|
|
0.36
|
|
|
|
0.38
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|
|
|
0.38
|
|
|
|
0.38
|
|
|
|
0.33
|
|
|
|
0.37
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|
|
|
0.35
|
|
|
|
0.35
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|
Diluted
|
|
|
0.36
|
|
|
|
0.37
|
|
|
|
0.37
|
|
|
|
0.36
|
|
|
|
0.30
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|
|
|
0.33
|
|
|
|
0.31
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|
|
|
0.31
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Recently
Issued Accounting Standards
In July 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). The Company adopted FIN 48
as of May 1, 2007. FIN 48 clarifies the accounting for
income taxes by prescribing a minimum threshold for benefit
recognition of a tax position for financial reporting purposes.
FIN 48 also establishes tax accounting rules for
measurement, classification, interest and penalties, disclosure
and interim period accounting. As a result of the adoption of
FIN 48, the Company recorded a cumulative effect adjustment
which reduced retained earnings by $3.5 million.
In September 2006, the Emerging Issues Task Force
(EITF) of the FASB ratified EITF Issue
No. 06-4
(EITF 06-4),
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements. The scope of
EITF 06-4
is limited to the recognition of a liability and related
compensation costs for endorsement split-dollar life insurance
policies that provide a benefit to an employee that extends to
postretirement periods. Therefore,
EITF 06-4
would not apply to a split-dollar life insurance arrangement
that provides a specified benefit to an employee that is limited
to the employees active service period with an employer.
EITF 06-4
should be applied to fiscal years beginning after
December 15, 2007, with earlier adoption permitted. We
adopted
EITF 06-4
effective May 1, 2008 and it did not have a material impact
on our financial position or results of operations.
In September 2006, the FASB issued Statement of Financial
Accounting Standards (SFAS)No. 157, Fair
Value Measurements (SFAS No. 157).
The statement defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value
measurements. The statement emphasizes that fair value is a
market-based measurement, not an entity-specific measurement and
establishes a fair value hierarchy. This statement also
clarifies how the assumptions of risk and the effect of
restrictions on sales or use of an asset effect the valuation.
SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years, however, the FASB
staff has approved a one year deferral for the implementation of
SFAS No. 157 for other non-financial assets and
liabilities. We adopted this statement effective May 1,
2008 and it did not have a material impact on our financial
position or results of operations.
In February, 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS No. 159) including
an amendment of SFAS No. 115. This statement provides
companies with
31
an option to report selected financial assets and liabilities at
fair value. This statement is effective for fiscal years
beginning after November 15, 2007 with early adoption
permitted. We adopted this statement effective May 1, 2008
and it did not have a material impact on our financial position
or results of operations.
In December 2007, the FASB issued SFAS No. 141
(Revised 2007), Business Combinations
(SFAS No. 141R). SFAS No. 141R
will significantly change the accounting for business
combinations. Under SFAS No. 141R, an acquiring entity
will be required to recognize all the assets and liabilities
assumed in a transaction at the acquisition date fair value with
limited exceptions. SFAS No. 141R will change the
accounting treatment for certain specific items, including:
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Acquisition costs will generally be expensed as incurred;
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Noncontrolling interests (formerly known as minority
interests see SFAS No. 160
discussion below) will be valued at fair value at the
acquisition date;
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Acquired contingent liabilities will be recorded at fair value
at the acquisition date and subsequently measured at either the
higher of such amount or the amount determined under existing
guidance for non-acquired contingencies;
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In-process research and development will be recorded at fair
value as an indefinite-lived intangible asset at the acquisition
date;
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Restructuring costs associated with a business combination will
generally be expensed subsequent to the acquisition
date; and
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Changes in deferred tax asset valuation allowances and income
tax uncertainties after the acquisition date generally will
affect income tax expense.
|
SFAS No. 141R also includes a substantial number of
new disclosure requirements. SFAS No. 141R applies
prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Earlier
adoption is prohibited. As our fiscal year-end is April 30 we
will continue to record and disclose business combinations
following existing GAAP until May 1, 2009. We expect
SFAS No. 141R will have an impact on accounting for
business combinations once adopted but the effect is dependent
upon acquisitions at that time.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160
establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, this statement
requires the recognition of a noncontrolling interest (minority
interest) as equity in the consolidated financial statements and
separate from the parents equity. The amount of net income
attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement.
SFAS No. 160 clarifies that changes in a parents
ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions if the parent retains
its controlling financial interest. In addition, this statement
requires that a parent recognize a gain or loss in net income
when a subsidiary is deconsolidated. Such gain or loss will be
measured using the fair value of the noncontrolling equity
investment on the deconsolidation date. SFAS No. 160
also includes expanded disclosure requirements regarding the
interests of the parent and its noncontrolling interest.
SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. Like SFAS No. 141R discussed
above, earlier adoption is prohibited. We have not completed our
evaluation of the potential impact, if any, of the adoption of
SFAS No. 160 on our consolidated financial position,
results of operations and cash flows.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
As a result of our global operating activities, we are exposed
to certain market risks, including foreign currency exchange
fluctuations and fluctuations in interest rates. We manage our
exposure to these risks in the normal course of our business as
described below. We have not utilized financial instruments for
trading, hedging or other speculative purposes nor do we trade
in derivative financial instruments.
32
Foreign
Currency Risk.
Substantially all our foreign subsidiaries operations are
measured in their local currencies. Assets and liabilities are
translated into U.S. dollars at the rates of exchange in
effect at the end of each reporting period and revenue and
expenses are translated at average rates of exchange during the
reporting period. Resulting translation adjustments are reported
as a component of comprehensive income on our consolidated
Statement of Stockholders Equity.
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. In the year ended
April 30, 2008, we recognized foreign currency gains, after
income taxes, of $0.6 million primarily related to our EMEA
and Asia Pacific operations.
Our primary exposure to exchange losses is based on outstanding
intercompany loan balances denominated in U.S. dollars. If
the U.S. dollar strengthened 15%, 25% and 35% against the
Pound Sterling, the Euro, the Canadian dollar, the Australian
dollar and the Yen, the Companys exchange loss would have
been $3.5 million, $5.9 million and $8.2 million,
respectively, based on outstanding balances at April 30,
2008. If the U.S. dollar weakened by the same increments
against Pound Sterling, the Euro, the Canadian dollar, the
Australian dollar and the Yen, the Companys exchange gain
would have been $3.5 million, $5.9 million and
$8.2 million, respectively, based on outstanding balances
at April 30, 2008.
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, 2008, we had no outstanding balance on our credit
facility. We have $60.7 million of borrowings against the
cash surrender value of COLI contracts as of April 30, 2008
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 cash surrender value on our COLI contracts.
As of May 31, 2008, we held approximately
$20.5 million of marketable securities investments,
classified as noncurrent assets, with an auction reset feature
(auction rate securities) whose underlying assets
are generally municipal notes or student loans which are
substantially backed by the federal government. In mid-February
2008 liquidity issues in the global credit markets caused
auctions for some of our auction rate securities to fail, and
there is no assurance that currently successful auctions on the
other auction rate securities in our investment portfolio will
continue to succeed. As a result of the current situation in the
auction markets, our ability to liquidate our investment in
auction rate securities and fully recover the carrying value of
our investment in the near term may be limited or impossible. An
auction failure means that the parties wishing to sell
securities cannot. If in the future the issuers are unable to
successfully close future auctions and their credit ratings
deteriorate, we may be required to record an impairment charge
on these investments. We believe we will be able to liquidate
our investment without loss within the next year, however, it
could take until the final maturity of the underlying notes (up
to 30 years) to realize our investments recorded
value. Based on our expected operating cash flows, and our other
sources of cash, we do not anticipate the potential lack of
liquidity on these investments will affect our ability to
execute our current business plan.
|
|
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 Item 7 under the heading Quarterly
Results.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
No changes or disagreements were noted in the current fiscal
year.
33
|
|
Item 9A.
|
Controls
and Procedures
|
(a) Evaluation of Disclosure Controls and Procedures.
Based on their evaluation of our disclosure controls and
procedures conducted as of the end of the period covered by this
Annual Report on Form
10-K, our
Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures (as
defined in
Rules 13a-15(e)
and
15d-15(e)
promulgated under the Exchange Act) are effective.
(b) Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial
reporting during the fourth fiscal quarter or that have
materially affected or are reasonably likely to materially
affect our internal control over financial reporting, including
any corrective actions with regard to significant deficiencies
and material weaknesses. See Managements Report on
Internal Control Over Financial Reporting and Report of
Independent Registered Public Accounting Firm on Internal
Control Over Financial Reporting on pages F-2 and F-3,
respectively.
Annual
Certifications
The Company submitted an Annual CEO Certification to the New
York Stock Exchange with respect to fiscal 2007 pursuant to
Section 303A.12(a) of the New York Stock Exchange Listed
Company Manual.
The Company filed the CEO and CFO Certifications required by
Section 302 of the Sarbanes-Oxley Act as exhibits to its
Annual Report on
Form 10-K
for the year ended April 30, 2008.
|
|
Item 9B.
|
Other
Information
|
Not applicable.
34
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, Nominees for
Director Class 2006, Nominees for
Director Class 2007, Nominees for
Directors Class 2008 and
Section 16(a) Beneficial Ownership Reporting
Compliance and elsewhere in our 2008 Proxy Statement, and
is incorporated herein by reference. See also Executive
Officers of the Registrant in Part I of this Annual
Report on
Form 10-K.
We have adopted a Code of Business Conduct and
Ethics, which is applicable to our directors, chief
executive officer and senior financial officers, including our
principal accounting officer. The Code of Business Conduct and
Ethics is available on our website at www.kornferry.com. We
intend to post amendments to or waivers to this Code of Business
Conduct and Ethics on our website when adopted. Upon written
request, we will provide a copy of the Code of Business Conduct
and Ethics free of charge. Requests should be directed to
Korn/Ferry International, 1900 Avenue of the Stars,
Suite 2600, Los Angeles, California 90067, Attention: Peter
Dunn.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item will be included in our
2008 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 2008 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 2008 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 2008 Proxy Statement, and is incorporated
herein by reference.
35
PART IV.
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
Financial
Statements.
|
|
|
|
|
Page
|
|
1. Index to Financial Statements:
|
|
|
See Consolidated Financial Statements included as part of this
Form 10-K. Pursuant to Rule
7-05 of
Regulation S-X, the schedules have been omitted as the
information to be set forth therein is included in the notes of
the audited consolidated financial statements.
|
|
F-1
|
Exhibits:
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
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, and incorporated herein by reference.
|
|
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, and incorporated herein by
reference.
|
|
3
|
.3
|
|
Amended and Restated Bylaws of the Company, filed as Exhibit 3.3
to the Companys Annual Report on Form 10-K, filed July 29,
2002, and incorporated herein by reference.
|
|
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, and incorporated
herein by reference.
|
|
4
|
.2
|
|
Form of 7.5% Convertible Subordinated Note Due 2010, filed
as Exhibit 4.1 to the Companys Current Report on Form 8-K,
filed June 18, 2002, and incorporated herein by reference.
|
|
4
|
.3
|
|
Form of Stock Purchase Warrant, filed as Exhibit 4.2 to the
Companys Current Report on Form 8-K, filed June 18, 2002,
and incorporated herein by reference.
|
|
4
|
.4
|
|
Subordination Agreement, dated as of June 13, 2002, made by
Korn/Ferry International, a Delaware corporation, Friedman
Fleischer & Lowe Capital Partners, L.P., a Delaware limited
partnership, and FFL Executive Partners, L.P., a Delaware
limited partnership in favor of Bank of America, N.A., filed as
Exhibit 4.3 to the Companys Current Report on Form 8-K,
filed June 18, 2002, and incorporated herein by reference.
|
|
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, and incorporated herein
by reference.
|
|
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, and incorporated herein by reference.
|
|
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, and incorporated herein by reference.
|
|
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, and incorporated herein
by reference.
|
|
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, and incorporated
herein by reference.
|
|
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, and incorporated herein by reference.
|
|
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, and incorporated herein
by reference.
|
36
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
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, and
incorporated herein by reference.
|
|
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, and incorporated herein
by reference.
|
|
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, and
incorporated herein by reference.
|
|
10
|
.11*
|
|
Employment Agreement between the Company and Paul C. Reilly,
dated May 24, 2001, filed as Exhibit 10.14 to the
Companys Annual Report on Form 10-K, filed July 30, 2001,
and incorporated herein by reference.
|
|
10
|
.12*
|
|
Amendment to Employment Agreement between the Company and Paul
C. Reilly, dated December 1, 2001, filed as Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q, filed December 17,
2001, and incorporated herein by reference.
|
|
10
|
.13*
|
|
Second Amendment to Employment Agreement between the Company and
Paul C. Reilly, dated July 1, 2003 filed as Exhibit 10.13 to the
Companys Annual Report on Form 10-K, filed July 22, 2003,
and incorporated herein by reference.
|
|
10
|
.14*
|
|
Letter from the Company to Paul C. Reilly, dated June 6, 2001,
filed as Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q, filed December 17, 2001, and incorporated herein by
reference.
|
|
10
|
.15*
|
|
Employment Agreement between the Company and Windle B. Priem,
dated June 30, 2001, filed as Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q, filed September 14, 2001, and
incorporated herein by reference.
|
|
10
|
.16*
|
|
Employment Agreement between the Company and Gary C. Hourihan
effective March 6, 2000, filed as Exhibit 10.22 to the
Companys Annual Report on Form 10-K, filed July 31, 2000,
and incorporated herein by reference.
|
|
10
|
.17*
|
|
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, and
incorporated herein by reference.
|
|
10
|
.18*
|
|
Korn/Ferry International Second Amended and Restated Performance
Award Plan, filed as Appendix A to the Companys Definitive
Proxy Statement, filed August 12, 2004, and incorporated herein
by reference.
|
|
10
|
.19
|
|
Investor Rights Agreement, dated as of June 13, 2002, by and
among Korn/Ferry International, a Delaware corporation, Friedman
Fleischer & Lowe Capital Partners, L.P., a Delaware limited
partnership, and FFL Executive Partners, L.P., a Delaware
limited partnership, filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K, filed June 18, 2002, and
incorporated herein by reference.
|
|
10
|
.21*
|
|
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, and incorporated herein by reference.
|
|
10
|
.22*
|
|
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, and
incorporated herein by reference.
|
|
10
|
.23*
|
|
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, and incorporated herein by reference.
|
|
10
|
.24*
|
|
Employee Stock Purchase Plan filed as Exhibit 10.29 to the
Companys Annual Report on Form 10-K, filed July 22, 2003,
and incorporated herein by reference.
|
|
10
|
.25*
|
|
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, and incorporated herein by reference.
|
|
10
|
.26
|
|
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, and incorporated herein by reference.
|
37
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.27*
|
|
Third Amendment to the Employment Agreement between the Company
and Paul C. Reilly, dated March 10, 2004 , filed as Exhibit
10.3 to the Companys Quarterly Report on Form 10-Q, filed
March 12, 2004, and incorporated herein by reference.
|
|
10
|
.28*
|
|
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, and incorporated herein by reference.
|
|
10
|
.29
|
|
Amended and Restated Credit Agreement dated as of February 22,
2005 among the Company, the lenders party thereto and Wells
Fargo Bank, N.A., as administrative agent, filed as Exhibit 4.01
to the Companys Current Report on Form 8-K, filed February
23, 2005, and incorporated herein by reference.
|
|
10
|
.30*
|
|
Fourth Amendment to the Employment Agreement between the Company
and Paul C. Reilly, dated March 7, 2005, filed as Exhibit 10.32
to the Companys Annual Report on Form 10-K, filed July 14,
2005, and incorporated herein by reference.
|
|
10
|
.31
|
|
Summary of Non-Employee Director Compensation, filed as Exhibit
10.1 to the Companys Current Report on Form 8-K, filed
January 12, 2006, and incorporated herein by reference.
|
|
10
|
.32*
|
|
Fifth Amendment to the Employment Agreement between the Company
and Paul C. Reilly, dated April 26, 2006, filed as Exhibit 10.32
to the Companys Annual Report on Form 10-K, filed July 14,
2006, and incorporated herein by reference.
|
|
10
|
.33*
|
|
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,
and incorporated herein by reference.
|
|
10
|
.34*
|
|
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, and incorporated herein by reference.
|
|
10
|
.35*
|
|
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, and incorporated herein by
reference.
|
|
10
|
.36*
|
|
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, and incorporated herein by reference.
|
|
10
|
.37*
|
|
Letter Agreement dated December 14, 2006 by and among the
Company and Gary C. Hourihan, Executive Vice President of the
Company and President of Leadership Development Solutions,
modifying the terms of Mr. Hourihans Employment Agreement,
dated March 6, 2000, filed as Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q, filed March 12, 2007, and
incorporated herein by reference.
|
|
10
|
.38*
|
|
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, and incorporated herein by
reference.
|
|
10
|
.39*
|
|
Non Renewal of Employment Agreement between the Company and Paul
C. Reilly, dated April 24, 2007, filed as Exhibit 10.39 to the
Companys Annual Report on Form 10-K, filed June 29, 2007,
and incorporated herein by reference.
|
|
10
|
.40*
|
|
Employment Agreement between the Company and Paul C. Reilly,
dated April 24, 2007, filed as Exhibit 10.40 to the
Companys Annual Report on Form 10-K, filed June 29, 2007,
and incorporated herein by reference.
|
|
10
|
.41*
|
|
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,
and incorporated herein by reference.
|
|
10
|
.42*
|
|
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, and incorporated herein by reference.
|
38
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.43*
|
|
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, and incorporated herein by reference.
|
|
10
|
.44*
|
|
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, and incorporated
herein by reference.
|
|
21
|
.1
|
|
Subsidiaries of Korn/Ferry International.
|
|
23
|
.1
|
|
Consent of Ernst & Young, LLP, Independent Registered
Public Accounting Firm.
|
|
24
|
.1
|
|
Power of Attorney (contained on signature page).
|
|
31
|
.1
|
|
Chief Executive Officer Certification pursuant to Rule 13a-14(a)
under the Exchange Act.
|
|
31
|
.2
|
|
Chief Financial Officer Certification pursuant to Rule 13a-14(a)
under the Exchange Act.
|
|
32
|
.1
|
|
Chief Executive Officer and Chief Financial Officer
Certification pursuant to 18 U.S.C. Section 1350.
|
|
|
|
* |
|
Management contract, compensatory plan or arrangement. |
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Korn/Ferry International
|
|
|
|
By:
|
/s/ Stephen
J. Giusto
|
Stephen J. Giusto
Executive Vice President and Chief Financial
Officer
Date:
June 30, 2008
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/ Paul
C. Reilly
Paul
C. Reilly
|
|
Chairman of the Board
|
|
June 30, 2008
|
|
|
|
|
|
/s/ Gary
D. Burnison
Gary
D. Burnison
|
|
Chief Executive Officer
|
|
June 30, 2008
|
|
|
|
|
|
/s/ James
E. Barlett
James
E. Barlett
|
|
Director
|
|
June 30, 2008
|
|
|
|
|
|
/s/ Frank
V. Cahouet
Frank
V. Cahouet
|
|
Director
|
|
June 30, 2008
|
|
|
|
|
|
/s/ Patti
S. Hart
Patti
S. Hart
|
|
Director
|
|
June 30, 2008
|
|
|
|
|
|
/s/ Debra
Perry
Debra
Perry
|
|
Director
|
|
June 30, 2008
|
40
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Edward
D. Miller
Edward
D. Miller
|
|
Director
|
|
June 30, 2008
|
|
|
|
|
|
/s/ Ihno
Schneevoigt
Ihno
Schneevoigt
|
|
Director
|
|
June 30, 2008
|
|
|
|
|
|
/s/ Gerhard
Schulmeyer
Gerhard
Schulmeyer
|
|
Director
|
|
June 30, 2008
|
|
|
|
|
|
/s/ Ken
Whipple
Ken
Whipple
|
|
Director
|
|
June 30, 2008
|
|
|
|
|
|
/s/ Harry
L. You
Harry
L. You
|
|
Director
|
|
June 30, 2008
|
41
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 Companys principal executive and
principal financial officers, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements 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,
2008 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, 2008.
Ernst & Young, LLP, the independent registered public
accounting firm that audited the Companys financial
statements for the year ended April 30, 2008 included in
this annual report, has issued an audit report on the
effectiveness of the Companys internal control over
financial reporting as of April 30, 2008, a copy of which
is included in this Annual Report on
Form 10-K.
June 26, 2008
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, 2008, 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, 2008, 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, 2008 and 2007, and the related
consolidated statements of income, stockholders equity,
and cash flows for each of the three years in the period ended
April 30, 2008 and our report dated June 26, 2008
expressed an unqualified opinion thereon.
Los Angeles, California
June 26, 2008
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, 2008 and 2007, and the
related consolidated statements of income, stockholders
equity, and cash flows for each of the three years in the period
ended April 30, 2008. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Korn/Ferry International and subsidiaries
at April 30, 2008 and 2007, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended April 30, 2008, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, the Company adopted the provisions of FASB
Interpretation No. 48 on May 1, 2007. Also as
discussed in Note 1, the Company changed its method of
accounting for defined benefit pension and other post retirement
plans in accordance with Statement of Financial Accounting
Standards No. 158 on April 30, 2007, and effective
May 1, 2006, the Company changed its method of accounting
for Share-Based Payments in accordance with Statement of
Financial Accounting Standards No. 123 (revised 2004).
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, 2008, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated June 26, 2008, expressed an unqualified opinion
thereon.
Los Angeles, California
June 26, 2008
F-4
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
318,918
|
|
|
$
|
232,531
|
|
Marketable securities
|
|
|
49,869
|
|
|
|
91,736
|
|
Receivables due from clients, net of allowance for doubtful
accounts of $11,504 and $9,822, respectively
|
|
|
119,952
|
|
|
|
107,751
|
|
Income tax and other receivables
|
|
|
7,071
|
|
|
|
6,357
|
|
Deferred income taxes
|
|
|
10,401
|
|
|
|
9,524
|
|
Prepaid expenses
|
|
|
20,057
|
|
|
|
16,861
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
526,268
|
|
|
|
464,760
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, noncurrent
|
|
|
20,475
|
|
|
|
|
|
Property and equipment, net
|
|
|
32,462
|
|
|
|
25,999
|
|
Cash surrender value of company owned life insurance policies,
net of loans
|
|
|
81,377
|
|
|
|
76,478
|
|
Deferred income taxes
|
|
|
47,128
|
|
|
|
42,013
|
|
Goodwill
|
|
|
142,699
|
|
|
|
124,268
|
|
Intangible assets, net
|
|
|
15,519
|
|
|
|
18,040
|
|
Investments and other
|
|
|
14,286
|
|
|
|
9,933
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
880,214
|
|
|
$
|
761,491
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Accounts payable
|
|
$
|
15,309
|
|
|
$
|
10,383
|
|
Income taxes payable
|
|
|
20,948
|
|
|
|
22,432
|
|
Compensation and benefits payable
|
|
|
199,081
|
|
|
|
158,145
|
|
Other accrued liabilities
|
|
|
37,120
|
|
|
|
38,529
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
272,458
|
|
|
|
229,489
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation and other retirement plans
|
|
|
105,719
|
|
|
|
91,360
|
|
Other liabilities
|
|
|
5,903
|
|
|
|
7,687
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
384,080
|
|
|
|
328,536
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 150,000 shares
authorized, 54,786 and 52,323 shares issued and 44,593 and
46,040 shares outstanding, respectively
|
|
|
358,568
|
|
|
|
380,559
|
|
Retained earnings
|
|
|
95,014
|
|
|
|
32,344
|
|
Accumulated other comprehensive income
|
|
|
43,097
|
|
|
|
20,605
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
496,679
|
|
|
|
433,508
|
|
Less: Notes receivable from stockholders
|
|
|
(545
|
)
|
|
|
(553
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
496,134
|
|
|
|
432,955
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
880,214
|
|
|
$
|
761,491
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Fee revenue
|
|
$
|
790,570
|
|
|
$
|
653,422
|
|
|
$
|
522,882
|
|
Reimbursed out-of-pocket engagement expenses
|
|
|
45,072
|
|
|
|
35,779
|
|
|
|
28,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
835,642
|
|
|
|
689,201
|
|
|
|
551,769
|
|
Compensation and benefits
|
|
|
540,056
|
|
|
|
447,692
|
|
|
|
341,196
|
|
General and administrative expenses
|
|
|
134,542
|
|
|
|
105,312
|
|
|
|
93,462
|
|
Out-of-pocket engagement expenses
|
|
|
58,750
|
|
|
|
44,662
|
|
|
|
31,927
|
|
Depreciation and amortization
|
|
|
10,441
|
|
|
|
9,280
|
|
|
|
9,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
743,789
|
|
|
|
606,946
|
|
|
|
475,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
91,853
|
|
|
|
82,255
|
|
|
|
76,182
|
|
Interest and other income, net
|
|
|
11,949
|
|
|
|
10,416
|
|
|
|
11,086
|
|
Interest expense
|
|
|
4,812
|
|
|
|
10,172
|
|
|
|
10,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of unconsolidated subsidiaries
|
|
|
98,990
|
|
|
|
82,499
|
|
|
|
77,024
|
|
Provision for income taxes
|
|
|
36,081
|
|
|
|
30,164
|
|
|
|
19,594
|
|
Equity in earnings of unconsolidated subsidiaries, net
|
|
|
3,302
|
|
|
|
3,163
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
66,211
|
|
|
$
|
55,498
|
|
|
$
|
59,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
1.50
|
|
|
$
|
1.40
|
|
|
$
|
1.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
|
44,012
|
|
|
|
39,774
|
|
|
|
39,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
1.46
|
|
|
$
|
1.24
|
|
|
$
|
1.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
45,528
|
|
|
|
46,938
|
|
|
|
47,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
Restricted
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
of
|
|
|
Common
|
|
|
Retained
|
|
|
Stock
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Income
|
|
|
Equity
|
|
|
Income
|
|
|
|
(In thousands)
|
|
|
Balance as of May 1, 2005
|
|
|
39,888
|
|
|
|
330,745
|
|
|
|
(82,584
|
)
|
|
|
(4,355
|
)
|
|
|
9,679
|
|
|
|
253,485
|
|
|
|
|
|
Purchase of stock
|
|
|
(1,045
|
)
|
|
|
(20,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,687
|
)
|
|
|
|
|
Issuance of stock
|
|
|
1,941
|
|
|
|
20,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,049
|
|
|
|
|
|
Issuance of restricted stock
|
|
|
417
|
|
|
|
7,471
|
|
|
|
|
|
|
|
(7,511
|
)
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
Amortization of unearned restricted stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,135
|
|
|
|
|
|
|
|
4,135
|
|
|
|
|
|
Variable stock-based compensation
|
|
|
|
|
|
|
837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
837
|
|
|
|
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
5,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,870
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
59,430
|
|
|
|
|
|
|
|
|
|
|
|
59,430
|
|
|
$
|
59,430
|
|
Reclassification adjustment for gains included in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(573
|
)
|
|
|
(573
|
)
|
|
|
(573
|
)
|
Unrealized gain on marketable securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
872
|
|
|
|
872
|
|
|
|
872
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
932
|
|
|
|
932
|
|
|
|
932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 30, 2006
|
|
|
41,201
|
|
|
|
344,285
|
|
|
|
(23,154
|
)
|
|
|
(7,731
|
)
|
|
|
10,910
|
|
|
|
324,310
|
|
|
|
|
|
Adjustment from adoption of SFAS No. 123(R)
|
|
|
|
|
|
|
(7,731
|
)
|
|
|
|
|
|
|
7,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of stock
|
|
|
(2,722
|
)
|
|
|
(57,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,622
|
)
|
|
|
|
|
Issuance of stock
|
|
|
1,975
|
|
|
|
22,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,986
|
|
|
|
|
|
Conversion of 7.5% Convertible Series A Preferred Stock
|
|
|
1,117
|
|
|
|
11,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,257
|
|
|
|
|
|
Conversion of 7.5% Convertible Subordinated Notes
|
|
|
4,469
|
|
|
|
45,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,043
|
|
|
|
|
|
Variable stock-based compensation
|
|
|
|
|
|
|
(339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(339
|
)
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
15,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,669
|
|
|
|
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
7,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,011
|
|
|
|
|
|
Adjustment from adoption of SFAS No. 158, net of
income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(335
|
)
|
|
|
(335
|
)
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
55,498
|
|
|
|
|
|
|
|
|
|
|
|
55,498
|
|
|
$
|
55,498
|
|
Unrealized gain on marketable securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
844
|
|
|
|
844
|
|
|
|
844
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,186
|
|
|
|
9,186
|
|
|
|
9,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
65,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 30, 2007
|
|
|
46,040
|
|
|
|
380,559
|
|
|
|
32,344
|
|
|
|
|
|
|
|
20,605
|
|
|
|
433,508
|
|
|
|
|
|
Purchase of stock
|
|
|
(3,099
|
)
|
|
|
(60,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,950
|
)
|
|
|
|
|
Issuance of stock
|
|
|
1,652
|
|
|
|
18,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,736
|
|
|
|
|
|
Variable stock-based compensation
|
|
|
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76
|
)
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
15,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,429
|
|
|
|
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
5,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,096
|
|
|
|
|
|
Cumulative effect of the adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
(3,541
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,541
|
)
|
|
|
|
|
Purchase of minority shares
|
|
|
|
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(226
|
)
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
66,211
|
|
|
|
|
|
|
|
|
|
|
|
66,211
|
|
|
$
|
66,211
|
|
Unrealized loss on marketable securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,516
|
)
|
|
|
(3,516
|
)
|
|
|
(3,516
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,894
|
|
|
|
24,894
|
|
|
|
24,894
|
|
Defined benefits plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,114
|
|
|
|
1,114
|
|
|
|
1,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of April 30, 2008
|
|
|
44,593
|
|
|
$
|
358,568
|
|
|
$
|
95,014
|
|
|
$
|
|
|
|
$
|
43,097
|
|
|
$
|
496,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
66,211
|
|
|
$
|
55,498
|
|
|
$
|
59,430
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
10,441
|
|
|
|
9,280
|
|
|
|
9,002
|
|
Stock-based compensation expense
|
|
|
15,949
|
|
|
|
15,556
|
|
|
|
|
|
Interest paid in kind and amortization of discount on
convertible securities
|
|
|
|
|
|
|
915
|
|
|
|
975
|
|
Gain on disposition of property and equipment
|
|
|
561
|
|
|
|
|
|
|
|
59
|
|
Provision for doubtful accounts
|
|
|
10,299
|
|
|
|
6,583
|
|
|
|
6,475
|
|
Gains on cash surrender value of life insurance policies
|
|
|
(3,780
|
)
|
|
|
(5,647
|
)
|
|
|
(5,460
|
)
|
Realized gains on marketable securities
|
|
|
(5,555
|
)
|
|
|
(2,138
|
)
|
|
|
(1,234
|
)
|
Recovery on investment loss
|
|
|
|
|
|
|
|
|
|
|
(4,685
|
)
|
Deferred income tax benefit
|
|
|
(5,992
|
)
|
|
|
(12,571
|
)
|
|
|
(2,183
|
)
|
Non cash compensation arrangements
|
|
|
1,042
|
|
|
|
977
|
|
|
|
6,246
|
|
Change in other assets and liabilities, net of effect of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
14,359
|
|
|
|
19,570
|
|
|
|
12,656
|
|
Receivables
|
|
|
(23,214
|
)
|
|
|
(25,966
|
)
|
|
|
(19,459
|
)
|
Prepaid expenses
|
|
|
(3,143
|
)
|
|
|
(2,332
|
)
|
|
|
(309
|
)
|
Investment in unconsolidated subsidiaries
|
|
|
(4,180
|
)
|
|
|
(3,668
|
)
|
|
|
(3,160
|
)
|
Income taxes payable
|
|
|
(5,282
|
)
|
|
|
5,178
|
|
|
|
1,566
|
|
Accounts payable and accrued liabilities
|
|
|
47,802
|
|
|
|
44,328
|
|
|
|
15,470
|
|
Other
|
|
|
(6,007
|
)
|
|
|
(3,232
|
)
|
|
|
(803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
109,511
|
|
|
|
102,331
|
|
|
|
74,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(16,976
|
)
|
|
|
(14,108
|
)
|
|
|
(11,310
|
)
|
Proceeds from (purchase of) marketable securities
|
|
|
21,266
|
|
|
|
(21,670
|
)
|
|
|
(35,823
|
)
|
Cash paid for acquisitions, net of cash required
|
|
|
(3,622
|
)
|
|
|
(24,129
|
)
|
|
|
(1,049
|
)
|
Premiums on life insurance policies
|
|
|
(1,835
|
)
|
|
|
(1,844
|
)
|
|
|
(1,853
|
)
|
Dividends received from unconsolidated subsidiaries
|
|
|
2,923
|
|
|
|
2,429
|
|
|
|
2,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
1,756
|
|
|
|
(59,322
|
)
|
|
|
(47,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on life insurance policy loans
|
|
|
(1,012
|
)
|
|
|
|
|
|
|
|
|
Borrowings under life insurance policies
|
|
|
1,728
|
|
|
|
1,611
|
|
|
|
1,768
|
|
Purchase of common stock
|
|
|
(64,162
|
)
|
|
|
(57,622
|
)
|
|
|
(20,687
|
)
|
Proceeds from issuance of common stock upon exercise of employee
stock options and in connection with employee stock purchase plan
|
|
|
17,436
|
|
|
|
22,975
|
|
|
|
20,049
|
|
Tax benefit from exercise of stock options
|
|
|
4,612
|
|
|
|
7,011
|
|
|
|
5,870
|
|
Receipts on stockholders notes
|
|
|
8
|
|
|
|
6
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(41,390
|
)
|
|
|
(26,019
|
)
|
|
|
7,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
16,510
|
|
|
|
3,773
|
|
|
|
(1,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
86,387
|
|
|
|
20,763
|
|
|
|
32,785
|
|
Cash and cash equivalents at beginning of the year
|
|
|
232,531
|
|
|
|
211,768
|
|
|
|
178,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the year
|
|
$
|
318,918
|
|
|
$
|
232,531
|
|
|
$
|
211,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of consolidated cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
4,379
|
|
|
$
|
10,019
|
|
|
$
|
4,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
47,760
|
|
|
$
|
27,951
|
|
|
$
|
14,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt to equity
|
|
$
|
|
|
|
$
|
56,300
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
|
|
1.
|
Organization
and Summary of Significant Accounting Policies
|
Nature
of Business
Korn/Ferry International, a Delaware corporation (the
Company), and its subsidiaries are engaged in the
business of providing executive search, outsourced recruiting
and leadership development solutions on a retained basis.
Basis
of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
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.
Investments in companies in which the Company does not have a
controlling interest, or an ownership and voting interest so
large as to exert significant influence, are accounted for at
market value if the investment is publicly traded or at cost if
the investment is not publicly traded. Dividends and other
distributions of earnings from both market-value and cost-method
investments are included in other income when declared.
Dividends received from our two unconsolidated subsidiaries in
Mexico were approximately $2,900, $2,400 and $2,700 for fiscal
2008, 2007 and 2006, respectively.
Basis
of Presentation
The accounting and reporting policies of the Company conform
with U.S. generally accepted accounting principles
(U.S. GAAP) and prevailing practice within the
industry.
Use of
Estimates and Uncertainties
The preparation of the consolidated financial statements in
conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. As a result, actual results could differ from these
estimates. The most significant areas that require management
judgment are revenue recognition (discussed in Revenue
Recognition below), deferred compensation (see Note 8),
marketable securities (see Note 5) and evaluation of
the carrying value of goodwill and intangible assets (discussed
in Goodwill and Intangible Assets below) and deferred
income taxes (see Note 9).
Revenue
Recognition
Substantially all professional fee revenue is derived from fees
for professional services related to executive recruitment,
middle-management recruitment and related services performed on
a retained basis. Fee revenue from recruitment activities is
generally one-third of the estimated first year compensation
plus a percentage of the fee to cover indirect expenses. Fee
revenue is recognized as earned. The Company generally bills
clients in three monthly installments commencing the month of
client acceptance. Fees earned in excess of the initial contract
amount are billed upon completion of the engagement. Any
services that are provided on a contingent basis are recognized
once the contingency is fulfilled.
Allowance
for Doubtful Accounts
A provision is established for doubtful accounts through a
charge to general and administrative expense based on historical
experience. After all collection efforts have been exhausted,
the Company reduces the allowance for
F-9
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
doubtful accounts for balances identified as uncollectible.
Total write-offs of accounts receivable were $8,080, $5,653 and
$4,818 for fiscal 2008, 2007 and 2006, respectively.
Cash
and Cash Equivalents
The Company considers cash equivalents to be only those
investments which are highly liquid, readily convertible and
mature within three months from the date of purchase.
Available-for-Sale
Securities
The Company considers its marketable securities as
available-for-sale as defined in Statement of Financial
Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity
Securities (SFAS No. 115). These
investments are recorded at fair value and are classified as
marketable securities in the accompanying consolidated balance
sheets as of April 30, 2008 and 2007. The changes in fair
values, net of applicable taxes, are recorded as unrealized
gains (losses) as a component of accumulated other comprehensive
income in stockholders equity until the investment is sold
or an unrealized loss is no longer considered temporary, at
which time the realized or recognized gain or (loss) is included
in operations. Realized capital gains and losses on investments
are determined on a specific-identification basis.
Goodwill
and Intangible Assets
Goodwill arising from acquisitions (see Notes 14 and
15) is recorded as the excess of the purchase price over
the fair value of assets acquired. Purchased intangible assets
are recorded at the estimated fair value of customer lists,
intellectual property and trademarks acquired. Purchased
intangible assets are amortized using the straight-line method
over the estimated useful lives of 10 to 24 years (see
Note 15).
In accordance with SFAS No. 142, Goodwill and
Other Intangible Assets (SFAS No. 142), the
Companys annual goodwill impairment test was performed as
of January 31, 2008. The goodwill impairment test compares
the fair value of a reporting unit with its carrying amount,
including goodwill. If the carrying amount of a reporting unit
exceeds its fair value, goodwill of the reporting unit would be
considered impaired. To measure the amount of the impairment
loss, the implied fair value of a reporting units goodwill
is compared to the carrying amount of that goodwill. The implied
fair value of goodwill shall be determined in the same manner as
the amount of goodwill recognized in a business combination. If
the carrying amount of a reporting units goodwill exceeds
the implied fair value of that goodwill, an impairment loss
shall be recognized in an amount equal to that excess. For each
of these tests, the fair value of each of the Companys
reporting units was determined using a combination of valuation
techniques, including a discounted cash flow methodology. These
impairment tests indicated that the fair value of each reporting
unit exceeded its carrying amount. As a result, no impairment
charge was recognized. There was also no indication of
impairment in the fourth quarter of fiscal 2008.
As of April 30 2008, there were no indicators of impairment with
respect to the Companys intangible assets.
Stock-Based
Compensation
The Company has employee compensation plans under which various
types of stock-based instruments are granted. These instruments,
as more fully described below, principally include stock
options, stock appreciation rights (SARs),
restricted stock, and an Employee Stock Purchase Plan
(ESPP).
Prior to May 1, 2006, the Company accounted for employee
stock-based compensation under the recognition and measurement
principles of Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued
to Employees, (APB No. 25), and related
Interpretations, as permitted by SFAS No. 123,
Accounting for Stock-Based Compensation
(SFAS No. 123). Under the recognition
principles of APB No. 25, compensation expense related to
restricted stock and SARs was recognized in the Companys
consolidated financial statements. However, APB No. 25
generally did not require the recognition of compensation
expense for stock options because
F-10
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the exercise price of these instruments was generally equal to
the market value of the underlying common stock on the date of
grant, and the related number of shares granted were fixed at
that point in time. Compensation expense for the ESPP was not
recognized since the ESPP was considered non-compensatory under
APB No. 25.
Effective May 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123(R),
Share-Based Payments
(SFAS No. 123(R)). In addition to
recognizing compensation expense related to restricted stock and
SARs, SFAS No. 123(R) also requires the Company to
recognize compensation expense related to the estimated fair
value of stock options and for purchases under the ESPP. The
Company adopted SFAS No. 123(R) using the
modified-prospective-transition method. Under that transition
method, compensation expense recognized subsequent to adoption
includes: (a) compensation cost for all share-based
payments granted prior to, but not yet vested as of May 1,
2006, based on the values estimated in accordance with the
original provisions of SFAS No. 123, and
(b) compensation cost for all share-based payments granted
or modified subsequent to May 1, 2006, based on the
grant-date fair values estimated in accordance with the
provisions of SFAS No. 123(R). Consistent with the
modified-prospective-transition method, the Companys
results of operations for prior periods have not been adjusted
to reflect the adoption of SFAS No. 123(R).
As a result of recognizing compensation expense for stock
options and the ESPP pursuant to the provisions of
SFAS No. 123(R), the Companys income before
income taxes and net income in fiscal 2008 were $2,615 and
$1,661 lower, respectively, than if the Company had continued to
account for the stock-based compensation under APB No. 25.
Basic and diluted earnings per share (EPS) for
fiscal 2008 were both $0.04 lower than if the Company had
continued to account for the stock-based compensation under APB
No. 25. For fiscal 2007, the Companys income before
income taxes and net income in fiscal 2007, were $5,894 and
$3,743 lower, respectively, than if the Company had continued to
account for the stock-based compensation under APB No. 25.
Basic and diluted EPS for fiscal 2007 were $0.09 and $0.08
lower, respectively, than if the Company had continued to
account for the stock-based compensation under APB No. 25.
The following table reflects the components of stock-based
compensation expense recognized in the Companys
consolidated statements of income for fiscal 2008, 2007, and
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Stock options and SARs
|
|
$
|
1,806
|
|
|
$
|
4,974
|
|
|
$
|
1,525
|
|
Restricted stock
|
|
|
13,590
|
|
|
|
10,086
|
|
|
|
4,135
|
|
Employee Stock Purchase Plan
|
|
|
553
|
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense, pre-tax
|
|
|
15,949
|
|
|
|
15,556
|
|
|
|
5,660
|
|
Tax benefit from stock-based compensation expense
|
|
|
(5,821
|
)
|
|
|
(5,875
|
)
|
|
|
(2,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense, net of tax
|
|
$
|
10,128
|
|
|
$
|
9,681
|
|
|
$
|
3,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above table does not reflect any stock option or ESPP
compensation for fiscal 2006 under APB No. 25 as the
Company generally did not record stock option or ESPP expense,
as previously discussed.
F-11
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table illustrates the effect on net income and EPS
for the year ended April 30, 2006 if the Company had
applied the fair value recognition provisions of
SFAS No. 123(R) to stock-based compensation:
|
|
|
|
|
Net income, as reported
|
|
$
|
59,430
|
|
Stock-based employee compensation charges, net of related tax
effects:
|
|
|
|
|
Employee stock compensation expense included in net income, as
reported, net
|
|
|
3,643
|
|
Employee stock compensation expense determined under the
fair-value based method, net
|
|
|
(9,483
|
)
|
|
|
|
|
|
Net income, as adjusted
|
|
$
|
53,590
|
|
|
|
|
|
|
Interest expense on convertible securities, net of related tax
effects
|
|
|
3,113
|
|
|
|
|
|
|
Net income for diluted EPS, as adjusted
|
|
$
|
56,703
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
As reported
|
|
$
|
1.49
|
|
Pro forma
|
|
$
|
1.38
|
|
Dilutive EPS
|
|
|
|
|
As reported
|
|
$
|
1.32
|
|
Pro forma
|
|
$
|
1.20
|
|
The Company uses the Black-Scholes option valuation model to
estimate the grant date fair value of employee stock options.
The expected volatility reflects the consideration of the
historical volatility in the Companys publicly traded
instruments during the period the option is granted. The Company
believes historical volatility in these instruments is more
indicative of expected future volatility than the implied
volatility in the price of the Companys common stock. The
expected life of the options 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 options. Upon adoption of
SFAS No. 123(R), the Company began using historical
data to estimate forfeiture rates applied to the gross amount of
expense determined using the option valuation model. Prior to
adoption of SFAS No. 123(R), the Company recognized
forfeitures as they occurred. There was no material impact upon
adoption of SFAS No. 123(R) between these methods of
accounting for forfeitures. The following assumptions were used
by the Company for options granted in the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Expected stock volatility
|
|
|
44.42
|
%
|
|
|
48.05
|
%
|
|
|
50.0
|
%
|
Risk-free interest rate
|
|
|
4.60
|
%
|
|
|
4.95
|
%
|
|
|
3.83
|
%
|
Expected option life (in years)
|
|
|
4.00
|
|
|
|
4.00
|
|
|
|
4.50
|
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
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. For purposes of pro forma disclosures, the
estimated fair values of the options are amortized over the
options vesting periods.
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 the rates
of exchange in effect at the end of each fiscal year and revenue
and expenses are translated at average rates of exchange during
the fiscal year. Resulting translation adjustments are reported
as a component of comprehensive income. Gains and losses from
foreign currency
F-12
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. Foreign currency losses, on an after tax
basis, included in net income, were $558, $148 and $374 in
fiscal 2008, 2007 and 2006, respectively.
Fair
Value of Financial Instruments
The carrying amount of cash, cash equivalents and accounts
receivable approximates fair value due to the short maturity of
these instruments. The fair values of marketable securities,
other than auction rate securities (ARS), are
obtained from quoted market prices. ARS typically were stated at
par value due to the frequent resets through the auction
process. While the Company continues to earn interest on auction
rate securities at the maximum contractual rate, these
investments are not currently trading and therefore do not
currently have a readily determinable market value. Accordingly,
par value no longer approximates the estimated fair value of
auction rate securities. A discounted cash flow model was used
to determine the estimated fair value of the Companys
investment in auction rate securities as of April 30, 2008.
Concentration
of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of receivables
due from clients. 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, 2008, the Company had
no significant credit concentrations.
Cash
Surrender Value of Life Insurance
The change in the cash surrender value (CSV) of
company owned life insurance (COLI) contracts, net
of insurance premiums paid and gains realized, is reported in
compensation and benefits expense (see Note 8).
Reclassifications
Certain prior year reported amounts have been reclassified to
conform to the current year presentation.
Recently
Issued Accounting Standards
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R)
(SFAS No. 158). SFAS No. 158
retains the previous measurement and disclosure requirements of
prior accounting guidance, but now requires the recognition of
the funded status of pension and other postretirement benefit
plans on the balance sheet (recognition provisions).
Furthermore, for fiscal years ending after December 15,
2008, SFAS No. 158 requires
fiscal-year-end
measurements of plan assets and benefit obligations, eliminating
the use of earlier measurement dates currently permissible. The
recognition provisions of SFAS No. 158 were effective
for the Company on April 30, 2007. Previously unrecognized
actuarial gains or losses, prior service cost, and any remaining
unamortized transition obligation will be recognized on the
balance sheet with an offset to accumulated other comprehensive
income, net of any resulting deferred tax balances. The Company
adopted SFAS No. 158 on April 30, 2007. The
adoption did not have a material impact on the consolidated
financial statements (see Note 8).
In July 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). The Company adopted FIN 48 as of
May 1, 2007. FIN 48 clarifies the accounting for
income taxes by prescribing a minimum threshold for benefit
recognition of a tax position for financial reporting purposes.
FIN 48 also establishes tax accounting rules for
measurement, classification, interest and penalties, disclosure
and interim period accounting. As a result of the adoption of
FIN 48, the Company recorded a cumulative effect adjustment
which reduced retained earnings by $3,541 on May 1, 2007.
F-13
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In September 2006, the Emerging Issues Task Force
(EITF) of the FASB ratified EITF Issue
No. 06-4
(EITF 06-4),
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements. The scope of
EITF 06-4
is limited to the recognition of a liability and related
compensation costs for endorsement split-dollar life insurance
policies that provide a benefit to an employee that extends to
postretirement periods. Therefore,
EITF 06-4
would not apply to a split-dollar life insurance arrangement
that provides a specified benefit to an employee that is limited
to the employees active service period with an employer.
EITF 06-4
should be applied to fiscal years beginning after
December 15, 2007, with earlier adoption permitted. We
adopted
EITF 06-4
effective May 1, 2008 and it did not have a material impact
on our financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157). The statement defines fair
value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. The statement
emphasizes that fair value is a market-based measurement, not an
entity-specific measurement and establishes a fair value
hierarchy. This statement also clarifies how the assumptions of
risk and the effect of restrictions on sales or use of an asset
effect the valuation. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years, however, the FASB staff has approved a one year deferral
for the implementation of SFAS No. 157 for other
non-financial assets and liabilities. The Company adopted this
statement effective May 1, 2008 and it did not have a
material impact on its financial position or results of
operations.
In February, 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS No. 159) including
an amendment of SFAS No. 115. This statement provides
companies with an option to report selected financial assets and
liabilities at fair value. This statement is effective for
fiscal years beginning after November 15, 2007 with early
adoption permitted. The Company adopted this statement effective
May 1, 2008 and it did not have a material impact on its
financial position or results of operations.
In December 2007, the FASB issued SFAS No. 141
(Revised 2007), Business Combinations
(SFAS No. 141R). SFAS No. 141R
will significantly change the accounting for business
combinations. Under SFAS No. 141R, an acquiring entity
will be required to recognize all the assets and liabilities
assumed in a transaction at the acquisition date fair value with
limited exceptions. SFAS No. 141R will change the
accounting treatment for certain specific items, including:
|
|
|
|
|
Acquisition costs will generally be expensed as incurred;
|
|
|
|
Noncontrolling interests (formerly known as minority
interests see SFAS No. 160
discussion below) will be valued at fair value at the
acquisition date;
|
|
|
|
Acquired contingent liabilities will be recorded at fair value
at the acquisition date and subsequently measured at either the
higher of such amount or the amount determined under existing
guidance for non-acquired contingencies;
|
|
|
|
In-process research and development will be recorded at fair
value as an indefinite-lived intangible asset at the acquisition
date;
|
|
|
|
Restructuring costs associated with a business combination will
generally be expensed subsequent to the acquisition
date; and
|
|
|
|
Changes in deferred tax asset valuation allowances and income
tax uncertainties after the acquisition date generally will
affect income tax expense.
|
SFAS No. 141R also includes a substantial number of
new disclosure requirements. SFAS No. 141R applies
prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Earlier
adoption is prohibited. As the Companys fiscal year-end is
April 30 it will continue to record and disclose business
combinations following existing U.S. GAAP
F-14
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
until May 1, 2009. The Company expects
SFAS No. 141R will have an impact on accounting for
business combinations once adopted but the effect is dependent
upon acquisitions at that time.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160
establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, this statement
requires the recognition of a noncontrolling interest (minority
interest) as equity in the consolidated financial statements and
separate from the parents equity. The amount of net income
attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement.
SFAS No. 160 clarifies that changes in a parents
ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions if the parent retains
its controlling financial interest. In addition, this statement
requires that a parent recognize a gain or loss in net income
when a subsidiary is deconsolidated. Such gain or loss will be
measured using the fair value of the noncontrolling equity
investment on the deconsolidation date. SFAS No. 160
also includes expanded disclosure requirements regarding the
interests of the parent and its noncontrolling interest.
SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. Like SFAS No. 141R discussed
above, earlier adoption is prohibited. The Company has not
completed its evaluation of the potential impact, if any, of the
adoption of SFAS No. 160 on its consolidated financial
position, results of operations and cash flows.
|
|
2.
|
Basic and
Diluted Earnings Per Share
|
Basic earnings per common share (basic EPS) was
computed by dividing net income by the weighted average number
of common shares outstanding. Diluted earnings per common share
(diluted EPS) 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 adjusted net income, after assumed
conversion of subordinated notes and preferred stock, by the
weighted average number of common shares outstanding plus
dilutive common equivalent shares. The following is a
reconciliation of the numerator and denominator (shares in
thousands) used in the computation of basic EPS and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net income (Numerator):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
66,211
|
|
|
$
|
55,498
|
|
|
$
|
59,430
|
|
Interest expense on convertible securities, net of related tax
effects
|
|
|
145
|
|
|
|
2,863
|
|
|
|
3,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for diluted EPS
|
|
$
|
66,356
|
|
|
$
|
58,361
|
|
|
$
|
62,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (Denominator):
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for basic EPS
|
|
|
44,012
|
|
|
|
39,774
|
|
|
|
39,890
|
|
Effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible subordinated notes
|
|
|
|
|
|
|
4,083
|
|
|
|
4,470
|
|
Convertible preferred stock
|
|
|
|
|
|
|
1,016
|
|
|
|
1,117
|
|
Warrants
|
|
|
109
|
|
|
|
123
|
|
|
|
95
|
|
Restricted stock
|
|
|
319
|
|
|
|
274
|
|
|
|
273
|
|
Stock options
|
|
|
1,078
|
|
|
|
1,665
|
|
|
|
1,412
|
|
Employee stock purchase plan
|
|
|
10
|
|
|
|
3
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average shares for diluted EPS
|
|
|
45,528
|
|
|
|
46,938
|
|
|
|
47,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.50
|
|
|
$
|
1.40
|
|
|
$
|
1.49
|
|
Diluted earnings per share
|
|
$
|
1.46
|
|
|
$
|
1.24
|
|
|
$
|
1.32
|
|
F-15
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Assumed exercises or conversions have been excluded in computing
the diluted earnings per share when their inclusion would be
anti-dilutive.
Comprehensive income is comprised of net income and all changes
to stockholders equity, except those changes resulting
from investments by owners (changes in paid in capital) and
distributions to owners (dividends).
Total comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net income
|
|
$
|
66,211
|
|
|
$
|
55,498
|
|
|
$
|
59,430
|
|
Reclassification adjustment for gains included in net income
|
|
|
(1,626
|
)
|
|
|
(782
|
)
|
|
|
(573
|
)
|
Defined benefit plans
|
|
|
1,114
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on marketable securities, net of taxes
|
|
|
(1,890
|
)
|
|
|
1,626
|
|
|
|
872
|
|
Foreign currency translation adjustments
|
|
|
24,894
|
|
|
|
9,186
|
|
|
|
932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
88,703
|
|
|
$
|
65,528
|
|
|
$
|
60,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated other comprehensive income at April 30,
2008 is comprised of foreign currency translation adjustments,
unrealized losses and the effect of SFAS No. 158 of
$44,208, ($1,890) and $779, respectively. The accumulated other
comprehensive income at April 30, 2007 included foreign
currency translation adjustments and unrealized gains of $19,314
and $1,626, respectively. Comprehensive income includes income
tax adjustments of ($2,031) and $594 as of April 30, 2008
and 2007, respectively.
Stock
Option Plans
The maximum number of shares of common stock reserved for stock
option issuance is 16,000, subject to adjustment for certain
changes in the Companys capital structure and other
extraordinary events.
The Companys employee stock option plans provide for
option grants designated as either nonqualified, incentive stock
options or SARs. Options granted to officers, non-employee
directors and other key employees generally vest over a three to
five year period and generally expire 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 receives stock option grants upon
commencement of employment.
F-16
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The status of stock options and SARs issued under the
Companys performance award plans are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(In Years)
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at May 1, 2005
|
|
|
7,829
|
|
|
$
|
12.14
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
837
|
|
|
$
|
17.99
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,783
|
)
|
|
$
|
9.81
|
|
|
|
|
|
|
|
|
|
Canceled/forfeited
|
|
|
(141
|
)
|
|
$
|
15.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2006
|
|
|
6,742
|
|
|
$
|
13.42
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
113
|
|
|
$
|
21.09
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,945
|
)
|
|
$
|
10.88
|
|
|
|
|
|
|
|
|
|
Canceled/forfeited
|
|
|
(172
|
)
|
|
$
|
16.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2007
|
|
|
4,738
|
|
|
$
|
14.52
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
6
|
|
|
$
|
21.11
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,095
|
)
|
|
$
|
13.29
|
|
|
|
|
|
|
|
|
|
Canceled/forfeited
|
|
|
(85
|
)
|
|
$
|
19.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2008
|
|
|
3,564
|
|
|
$
|
14.79
|
|
|
|
4.7
|
|
|
$
|
16,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at April 30, 2008
|
|
|
3,257
|
|
|
$
|
14.41
|
|
|
|
4.5
|
|
|
$
|
16.765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the table above are 61 SARs outstanding as of
April 30, 2008 with a weighted average exercise price of
$12.42. As of April 30, 2008, there was $952 of total
unrecognized compensation cost related to nonvested awards of
stock options and SARs. That cost is expected to be recognized
over a weighted-average period of one year. For stock option
awards subject to graded vesting that were issued after
May 1, 2006, the Company recognizes the total compensation
cost on a straight-line basis over the service period for the
entire award.
Summary information about the Companys stock options and
SARs outstanding at April 30, 2008 is presented in the
following table (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Outstanding
|
|
|
Weighted
|
|
|
|
|
|
Exercisable
|
|
|
Weighted
|
|
|
|
|
|
|
as of
|
|
|
Average
|
|
|
Weighted
|
|
|
as of
|
|
|
Average
|
|
|
Weighted
|
|
|
|
April 30,
|
|
|
Remaining
|
|
|
Average
|
|
|
April 30,
|
|
|
Remaining
|
|
|
Average
|
|
Range of Exercise Price
|
|
2008
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
2008
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
$ 6.16 - $ 7.38
|
|
|
534
|
|
|
|
3.8
|
|
|
$
|
7.35
|
|
|
|
534
|
|
|
|
3.8
|
|
|
$
|
7.35
|
|
$ 7.39 - $11.00
|
|
|
797
|
|
|
|
5.1
|
|
|
$
|
8.23
|
|
|
|
797
|
|
|
|
5.1
|
|
|
$
|
8.23
|
|
$11.01 - $14.50
|
|
|
208
|
|
|
|
2.1
|
|
|
$
|
13.30
|
|
|
|
208
|
|
|
|
2.1
|
|
|
$
|
13.30
|
|
$14.51 - $37.80
|
|
|
2,025
|
|
|
|
5.1
|
|
|
$
|
19.48
|
|
|
|
1,718
|
|
|
|
4.7
|
|
|
$
|
19.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,564
|
|
|
|
4.7
|
|
|
$
|
14.79
|
|
|
|
3,257
|
|
|
|
4.5
|
|
|
$
|
14.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Additional information pertaining to stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Weighted average fair value of stock options granted
|
|
$
|
8.54
|
|
|
$
|
9.12
|
|
|
$
|
8.70
|
|
Total fair value of stock options and SARs vested
|
|
|
4,103
|
|
|
|
10,245
|
|
|
|
10,324
|
|
Total intrinsic value of stock options exercised
|
|
|
12,552
|
|
|
|
20,422
|
|
|
|
16,256
|
|
Total intrinsic value of SARs paid
|
|
|
|
|
|
|
319
|
|
|
|
240
|
|
Restricted
Stock Plan
The Company grants restricted stock to executive officers and
other senior employees generally vesting over a three to four
year period. Restricted stock is granted at a price equal to the
fair market value of the common stock on the date of grant.
Employees may receive restricted stock annually in conjunction
with the Companys performance review as well as during the
year upon commencement of employment. The fair values of
restricted stock are determined based on the closing price of
the Companys common stock on the grant dates.
The status of the Companys unvested restricted common
stock is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average Fair
|
|
|
|
Shares
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
Outstanding at May 1, 2006
|
|
|
687
|
|
|
$
|
16.63
|
|
Issuances
|
|
|
1,187
|
|
|
$
|
19.64
|
|
Vested
|
|
|
(444
|
)
|
|
$
|
16.35
|
|
Forfeited
|
|
|
(74
|
)
|
|
$
|
18.38
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2007
|
|
|
1,356
|
|
|
$
|
19.26
|
|
Issuances
|
|
|
1,216
|
|
|
$
|
24.16
|
|
Vested
|
|
|
(506
|
)
|
|
$
|
19.88
|
|
Forfeited
|
|
|
(114
|
)
|
|
$
|
22.49
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2008
|
|
|
1,952
|
|
|
$
|
22.01
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2008, there was $31,276 of total
unrecognized compensation cost related to nonvested awards of
shares of restricted stock. That cost is expected to be
recognized over a period of 2.7 years. For restricted stock
awards subject to graded vesting that were issued after
May 1, 2006, the Company recognizes the total compensation
cost on a straight-line basis over the service period for the
entire award.
Employee
Stock Purchase Plan
In October 2003, the Company implemented an ESPP that, in
accordance with Section 423 of the Internal Revenue Code of
1986, allows eligible employees to authorize payroll deductions
of up to 15% of their salary to purchase shares of the
Companys common stock at 85% of the fair market price of
the common stock on the last day of the enrollment period. The
maximum number of shares of common stock reserved for ESPP
issuance is 1,500, subject to adjustment for certain changes in
the Companys capital structure and other extraordinary
events. In fiscal years 2008, 2007, and 2006, employees
purchased 151 shares at $19.06 per share, 142 shares
at $17.81 per share, and 183 shares at $15.06 per
share, respectively. At April 30, 2008, the ESPP had
approximately 800 shares available for future issuance.
F-18
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair values of available-for-sale investments by type as of
April 30, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
2008
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Type of security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities(1)
|
|
$
|
21,450
|
|
|
$
|
|
|
|
$
|
(975
|
)
|
|
$
|
20,475
|
|
Equity securities
|
|
|
39,469
|
|
|
|
529
|
|
|
|
(2,459
|
)
|
|
|
37,539
|
|
Fixed income mutual fund
|
|
|
11,993
|
|
|
|
337
|
|
|
|
|
|
|
|
12,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
72,912
|
|
|
$
|
866
|
|
|
$
|
(3,434
|
)
|
|
$
|
70,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
2007
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Type of security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
$
|
56,575
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
56,575
|
|
Equity securities
|
|
|
27,824
|
|
|
|
4,190
|
|
|
|
(1,077
|
)
|
|
|
30,937
|
|
Fixed income mutual fund
|
|
|
4,358
|
|
|
|
120
|
|
|
|
(254
|
)
|
|
|
4,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
88,757
|
|
|
$
|
4,310
|
|
|
$
|
(1,331
|
)
|
|
$
|
91,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Classified as noncurrent in the Consolidated Balance Sheet as of
April 30, 2008. |
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, 2008 and April 30, 2007, the
Companys marketable securities included $41,600 and
$35,200, respectively, held in trust for settlement of the
Companys obligations under its Executive Capital
Accumulation Plan (ECAP). See additional discussion
in Note 8, Deferred Compensation and Retirement Plans.
As of April 30, 2008, approximately $20,475 of the
Companys marketable securities consisted of auction rate
securities, which are variable rate debt instruments, having
long-term maturities, but whose interest rates are reset through
an auction process, most commonly at intervals ranging from 7 to
35 days. Substantially all of the Companys auction
rate securities are high quality municipal notes or pools of
students loans of which substantially all have AAA ratings or
otherwise are backed by AAA rated insurance agencies or federal
government agencies as of April 30, 2008. Securities with a
par value of $4.6 million are backed by insurance companies
whose ratings were recently down graded; however, the ratings
remain investment grade. In February 2008, liquidity issues in
the global credit markets caused auctions representing some of
the auction rate securities the Company holds to fail because
the amount of securities offered for sale exceeded the amount of
bids. As a result, the liquidity of our auction rate securities
has diminished, and the Company expects that this decreased
liquidity for its auction rate securities will continue as long
as the present depressed global credit market environment
persists, or until issuers refinance and replace these
securities with other instruments. Furthermore, if this
situation were to persist, despite its ability to hold such
investments until maturity, the Company may be required to
record an impairment charge at a future date.
The Company will continue to monitor and evaluate these
investments as there is no assurance as to when the market for
these securities will return to its previous liquid nature.
Accordingly, these securities have been reclassified from
current to noncurrent in the accompanying balance sheet as of
April 30, 2008 as the Company believes that the anticipated
liquidation of these investments may take longer than twelve
months.
F-19
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys gross unrealized losses of $3,434 related to
its ARS and equity securities as of April 30, 2008 have
been in a loss position for less than twelve months. Based on
review of its securities included in the tables above, the
Company determined that the unrealized losses were primarily a
result of the liquidity issues in the global credit markets.
Therefore, as of April 30, 2008, none of the Companys
ARS or equity securities investments whose fair value was less
than amortized cost were considered to be other-than-temporarily
impaired given the severity and duration of the impairment, the
credit quality of the issuers, and the Companys intent and
ability to hold the securities until fair value recovers above
cost, or to maturity.
As of October 31, 2007, the Company concluded that it was
appropriate to classify certain of its investments previously
classified as cash and cash equivalents as marketable
securities. To conform to the current period presentation, the
Company has reclassified $56,575 from cash and cash equivalents
to marketable securities as of April 30, 2007.
|
|
6.
|
Restructuring
Liability
|
A roll-forward of the restructuring liability at April 30,
2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Facilities
|
|
|
Total
|
|
|
Liability as of April 30, 2006
|
|
$
|
60
|
|
|
$
|
5,405
|
|
|
$
|
5,465
|
|
Charged to expense
|
|
|
|
|
|
|
(1,223
|
)
|
|
|
(1,223
|
)
|
Payments
|
|
|
|
|
|
|
(1,219
|
)
|
|
|
(1,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability as of April 30, 2007
|
|
|
60
|
|
|
|
2,963
|
|
|
|
3,023
|
|
Payments
|
|
|
(60
|
)
|
|
|
(699
|
)
|
|
|
(759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability as of April 30, 2008
|
|
$
|
|
|
|
$
|
2,264
|
|
|
$
|
2,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accrued liability for facilities costs primarily relates to
commitments under operating leases, net of sublease income, of
which $1,507 is included in other long-term liabilities, which
will be paid over the next four years.
In the fourth quarter of fiscal 2007 the Company adjusted its
facilities reserves by $1,223 primarily resulting from its
Futurestep operations assuming occupancy of a portion of a
facility in April 2007 that was previously reserved for as part
of the previously approved restructuring initiatives.
|
|
7.
|
Employee
Tax Deferred Savings Plan
|
The Company has an Employee Tax Deferred Savings Plan that
covers eligible employees in the United States. The
discretionary accrued contribution to this plan was $1,544,
$1,213 and $544 for fiscal 2008, 2007 and 2006, respectively.
F-20
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Deferred
Compensation and Retirement Plans
|
The Company maintains several employee benefit plans. The total
long-term benefit liability for the deferred compensation,
retirement, pension plans and ECAP were as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred compensation plans
|
|
$
|
51,465
|
|
|
$
|
51,804
|
|
Pension plans
|
|
|
2,986
|
|
|
|
3,160
|
|
Retirement plans
|
|
|
3,701
|
|
|
|
2,664
|
|
ECAP
|
|
|
47,567
|
|
|
|
33,732
|
|
|
|
|
|
|
|
|
|
|
Total long-term benefit obligation
|
|
$
|
105,719
|
|
|
$
|
91,360
|
|
|
|
|
|
|
|
|
|
|
Deferred
Compensation Plans
The Enhanced Wealth Accumulation Plan (EWAP) was
established in fiscal 1994. Certain vice presidents elected to
participate in a deferral unit that required the
participant to contribute a portion of their compensation for an
eight year period, or in some cases, make an after tax
contribution, in return for defined benefit payments from the
Company over a fifteen year period generally at retirement age
of 65 or later. Participants were able to acquire additional
deferral units every five years. The EWAP replaced
the Wealth Accumulation Plan (WAP) in fiscal 1994
and vice presidents who did not choose to roll over their WAP
units into the EWAP continue to be covered under the earlier
version in which participants generally vest and commence
receipt of benefit payments at retirement age of 65. In June
2003, the Company amended the EWAP and WAP plans, so as not to
allow new participants or the purchase of additional deferral
units by existing participants.
The Company also maintains a Senior Executive Incentive Plan
(SEIP) for participants approved by the Board.
Generally, to be eligible, the vice president must be
participating in the EWAP. Participation in the SEIP required
the participant to contribute a portion of their compensation
during a four-year period, or in some cases make an after tax
contribution, in return for a defined benefit paid by the
Company generally over a fifteen year period after ten years of
participation in the plan or such later date as elected by the
participant. In June 2003, the Company amended the SEIP plan, so
as not to allow new participants or the purchase of additional
deferral units by existing participants.
The Company also established several deferred compensation plans
for vice-presidents that provide defined benefit payments to
participants based on the deferral of compensation subject to
vesting and retirement or termination provisions.
Certain current and former employees also have individual
deferred compensation arrangements with the Company which
provide for payment of defined amounts over certain periods
commencing at specified dates or events.
Pension
Plan
The Company has a defined benefit pension plan, referred to as
the Worldwide Executive Benefit Plans (WEB),
covering certain executives in the United States and foreign
countries. The WEB is designed to integrate with government
sponsored and local benefits and provide a monthly benefit to
vice presidents upon retirement from the Company. Each year a
plan participant accrued and was fully vested in one-twentieth
of the targeted benefits expressed as a percentage set by the
Company for that year. Upon retirement, a participant receives a
monthly benefit payment equal to the sum of the percentages
accrued over such participants term of employment, up to a
maximum of 20 years, multiplied by the participants
highest average monthly salary during the 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.
F-21
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accounting
for Deferred Compensation and Pension Plans
For financial accounting purposes, the Company estimates the
present value of the future benefits payable under these plans
as of the estimated payment commencement date. The Company also
estimates the remaining number of years a participant will be
employed by the Company. Then, each year during the period of
estimated employment, the Company accrues a liability and
recognizes expense for a portion of the future benefit using the
benefit/years of service attribution method for
SEIP, WAP and EWAP and the projected unit credit
method for the WEB.
In calculating the accrual for future benefit payments,
management has made assumptions regarding employee turnover,
participant vesting, violation of non-competition provisions and
the discount rate. Management periodically reevaluates all
assumptions. If assumptions change in future reporting periods,
the changes may impact the measurement and recognition of
benefit liabilities and related compensation expense.
The Company adopted SFAS No. 158 on April 30, 2007
which resulted in an increase in deferred compensation and
pension plan liabilities of $713, a decrease in accumulated
other comprehensive income of $335 and a net increase of $378 in
deferred taxes.
As of April 30, 2008, the Company has recorded a decrease
in deferred compensation and pension plan liabilities of $1,139,
an increase in accumulated other comprehensive income of $844
and a net decrease of $295 in deferred taxes.
International
Retirement Plans
The Company also maintains various retirement plans statutorily
required in seven foreign jurisdictions. The aggregate of the
long-term benefit obligation accrued at April 30, 2008 and
2007 is $3,701 for 101 participants and $2,664 for 92
participants, respectively. The Companys contribution to
these plans was $840 and $651 in fiscal 2008 and 2007,
respectively.
Executive
Capital Accumulation Plan
In January 2004, the Company implemented the ECAP. The ECAP is
intended to provide certain employees an opportunity to defer
salary
and/or bonus
on a pre-tax basis. Company contributions into this plan are
discretionary and are granted to key employees annually based on
the employees performance. In addition, certain key
management may receive Company ECAP contributions upon
commencement of employment. Participants generally vest in
Company contributions over a three to four year period.
Participants have the ability to allocate their deferrals among
a number of investment options and may receive their benefits at
termination, retirement or in service either in a
lump sum or in quarterly installments over five, ten or fifteen
years. The Company operates two similar plans in the
Companys Asia Pacific and Canadian regions.
Employer ECAP contributions were $18,448, $7,694, and $8,409 in
fiscal 2008, 2007, and 2006, respectively. The Company expects
to make an ECAP contribution of approximately $14,000 in fiscal
year 2009. In addition, the Company may make additional ECAP
contributions in fiscal 2009 if key employees are hired.
F-22
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The roll-forward of the ECAP liability is as follows:
|
|
|
|
|
|
|
Total
|
|
|
Liability as of April 30, 2007
|
|
$
|
33,732
|
|
Employee contributions
|
|
|
6,985
|
|
Amortization of employer contributions
|
|
|
8,935
|
|
Gain on investment
|
|
|
115
|
|
Employee Distributions
|
|
|
(1,112
|
)
|
Liability as of April 30, 2008
|
|
|
48,655
|
|
Less: current portion of liability
|
|
|
(1,088
|
)
|
|
|
|
|
|
Long-term liability as of April 30, 2008
|
|
$
|
47,567
|
|
|
|
|
|
|
The following tables reconcile the benefit obligation for the
deferred compensation plans and the pension plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Deferred Compensation Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
54,873
|
|
|
$
|
50,031
|
|
|
$
|
56,721
|
|
Service cost
|
|
|
1,067
|
|
|
|
1,210
|
|
|
|
1,677
|
|
Interest cost
|
|
|
3,140
|
|
|
|
3,030
|
|
|
|
3,178
|
|
Plan participants contributions with interest
|
|
|
561
|
|
|
|
798
|
|
|
|
1,021
|
|
Actuarial (gain) loss
|
|
|
(1,560
|
)
|
|
|
3,199
|
|
|
|
(9,011
|
)
|
Benefits paid
|
|
|
(3,332
|
)
|
|
|
(3,395
|
)
|
|
|
(3,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
54,749
|
|
|
|
54,873
|
|
|
|
50,031
|
|
Less: current portion of benefit obligation
|
|
|
(3,284
|
)
|
|
|
(3,069
|
)
|
|
|
(2,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term benefit obligation at end of year
|
|
$
|
51,465
|
|
|
$
|
51,804
|
|
|
$
|
47,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Components of net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,067
|
|
|
$
|
1,210
|
|
|
$
|
1,677
|
|
Interest cost
|
|
|
3,140
|
|
|
|
3,030
|
|
|
|
3,178
|
|
Amortization of actuarial loss
|
|
|
|
|
|
|
|
|
|
|
360
|
|
Amortization of transition obligation
|
|
|
212
|
|
|
|
212
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
4,419
|
|
|
$
|
4,452
|
|
|
$
|
5,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Weighted average assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate (beginning of year)
|
|
|
5.90
|
%
|
|
|
6.25
|
%
|
|
|
5.75
|
%
|
Discount rate (end of year)
|
|
|
6.50
|
%
|
|
|
5.90
|
%
|
|
|
6.25
|
%
|
Rate of compensation increase
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
F-23
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Pension plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
3,300
|
|
|
$
|
3,098
|
|
|
$
|
3,463
|
|
Service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
188
|
|
|
|
188
|
|
|
|
194
|
|
Actuarial (gain) loss
|
|
|
(152
|
)
|
|
|
136
|
|
|
|
(132
|
)
|
Benefits paid
|
|
|
(217
|
)
|
|
|
(122
|
)
|
|
|
(427
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
3,119
|
|
|
|
3,300
|
|
|
|
3,098
|
|
Less: current portion of benefit obligation
|
|
|
(133
|
)
|
|
|
(140
|
)
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term benefit obligation at end of year
|
|
$
|
2,986
|
|
|
$
|
3,160
|
|
|
$
|
2,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Components of net periodic benefit costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Interest cost
|
|
|
188
|
|
|
|
188
|
|
|
|
194
|
|
Amortization of actuarial gain
|
|
|
(71
|
)
|
|
|
(95
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
117
|
|
|
$
|
93
|
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Weighted average assumptions used to determine Benefit
obligations at April 30
|
Discount rate (beginning of year)
|
|
|
5.90
|
%
|
|
|
6.25
|
%
|
|
|
5.75
|
%
|
Discount rate (end of year)
|
|
|
6.50
|
%
|
|
|
5.90
|
%
|
|
|
6.25
|
%
|
Rate of compensation increase
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Estimated
Future Benefit Payments
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid April 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
Pension
|
|
|
Compensation
|
|
|
|
Benefits
|
|
|
Plans
|
|
|
2009
|
|
$
|
196
|
|
|
$
|
3,807
|
|
2010
|
|
|
206
|
|
|
|
4,229
|
|
2011
|
|
|
235
|
|
|
|
5,115
|
|
2012
|
|
|
241
|
|
|
|
4,393
|
|
2013
|
|
|
250
|
|
|
|
4,522
|
|
Years
2014-2018
|
|
|
1,230
|
|
|
|
23,787
|
|
Company
Owned Life Insurance (COLI)
The Company purchased COLI contracts insuring employees eligible
to participate in the deferred compensation and pension plans.
The gross CSV of these contracts of $142,077 and $136,462
is offset by outstanding policy loans of $60,700 and $59,984 in
the accompanying consolidated balance sheets as of
April 30, 2008 and 2007, respectively. Total death benefits
payable, net of loans under COLI contracts, were $226,980 and
$221,943 at
F-24
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
April 30, 2008 and 2007, 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. As of April 30, 2008, COLI
contracts with a net cash surrender value of $66,644 and death
benefits payable, net of loans, of $138,926 were held in trust
for these purposes.
The provision for income taxes is based on reported income
before income taxes. Deferred income tax assets and liabilities
reflect the impact of temporary differences between the amounts
of assets and liabilities recognized for financial reporting
purposes and the amounts recognized for tax purposes, as
measured by applying the currently enacted tax laws.
The provision for domestic and foreign income taxes consists of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
14,788
|
|
|
$
|
18,353
|
|
|
$
|
7,346
|
|
State
|
|
|
5,658
|
|
|
|
6,543
|
|
|
|
1,636
|
|
Foreign
|
|
|
21,627
|
|
|
|
14,869
|
|
|
|
12,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
42,073
|
|
|
|
39,765
|
|
|
|
21,777
|
|
Deferred income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,699
|
)
|
|
|
(5,525
|
)
|
|
|
(86
|
)
|
State
|
|
|
(1,805
|
)
|
|
|
(1,543
|
)
|
|
|
(1,285
|
)
|
Foreign
|
|
|
(2,488
|
)
|
|
|
(2,533
|
)
|
|
|
(812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(5,992
|
)
|
|
|
(9,601
|
)
|
|
|
(2,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
36,081
|
|
|
$
|
30,164
|
|
|
$
|
19,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The domestic and foreign components of income from continuing
operations before domestic and foreign income and other taxes
and equity in earnings of unconsolidated subsidiaries were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Domestic
|
|
$
|
38,865
|
|
|
$
|
38,008
|
|
|
$
|
38,749
|
|
Foreign
|
|
|
60,125
|
|
|
|
44,491
|
|
|
|
38,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of unconsolidated subsidiaries
|
|
$
|
98,990
|
|
|
$
|
82,499
|
|
|
$
|
77,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The difference between the effective tax rate in the
consolidated financial statements and the statutory federal
income tax rate is attributed to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
U.S. federal statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Foreign source income, net of credits used
|
|
|
2.1
|
|
|
|
3.1
|
|
|
|
2.3
|
|
Income subject to net lower foreign tax rates
|
|
|
(1.9
|
)
|
|
|
(3.9
|
)
|
|
|
(1.8
|
)
|
COLI increase, net
|
|
|
(1.7
|
)
|
|
|
(2.6
|
)
|
|
|
(2.6
|
)
|
Repatriation of foreign earnings
|
|
|
0.3
|
|
|
|
1.9
|
|
|
|
2.8
|
|
Loss recovery
|
|
|
|
|
|
|
|
|
|
|
(2.1
|
)
|
Effect of IRS audit
|
|
|
|
|
|
|
|
|
|
|
(11.2
|
)
|
State income taxes, net of federal benefit
|
|
|
3.9
|
|
|
|
5.9
|
|
|
|
3.0
|
|
Non-deductible interest expense
|
|
|
|
|
|
|
0.4
|
|
|
|
0.5
|
|
Adjustments for contingencies and valuation allowance
|
|
|
(1.5
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
Other
|
|
|
0.2
|
|
|
|
(0.7
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
36.4
|
%
|
|
|
36.6
|
%
|
|
|
25.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate of 25.4% in fiscal 2006 was impacted by
two items not present in the other fiscal years presented. In
the fourth quarter of fiscal 2006, the Company finalized an
audit with the IRS, pertaining to the fiscal years 1997 to 2003.
As a result of the audit, the Company booked a tax benefit of
$8,636. This benefit was offset by an accrual that the Company
made in accordance with Accounting Principles Board Opinion
No. 23 Accounting for Income Taxes in Special Areas
(APB 23). The Company decided to repatriate a
certain portion of its previously undistributed foreign
earnings. This resulted in tax expense of $2,150. The other item
that impacted the effective tax rate was a loss recovery of
$4,536 that occurred in the Companys third quarter of
fiscal 2006. The Company realized a recovery on an investment
that had previously been impaired. For tax purposes, the Company
had a 100% valuation allowance on this item as it has been
determined to be unlikely that the Company would be able to use
the resulting capital loss. The income of $4,536 generated by
the loss recovery resulted in no related tax expense, which
lowered the effective tax rate for fiscal 2006.
In fiscal 2007 and fiscal 2008, the Company also made an accrual
in accordance with APB 23 to reflect the Companys decision
to repatriate an additional portion of its previously
undistributed foreign earnings. This resulted in tax expense of
$1,600 in each fiscal year.
F-26
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The significant components of deferred tax assets and
liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of April 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred income tax assets attributable to:
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
$
|
46,762
|
|
|
$
|
39,316
|
|
Allowance for doubtful accounts
|
|
|
1,450
|
|
|
|
1,450
|
|
Accrued liabilities and other
|
|
|
5,569
|
|
|
|
4,360
|
|
Property and equipment
|
|
|
1,961
|
|
|
|
2,589
|
|
Loss and credit carryforwards
|
|
|
2,422
|
|
|
|
4,327
|
|
Other
|
|
|
12,627
|
|
|
|
12,164
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets before valuation allowances
|
|
|
70,791
|
|
|
|
64,206
|
|
Deferred tax liabilities attributable to:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
|
|
(63
|
)
|
Accrued liabilities and other
|
|
|
(692
|
)
|
|
|
(663
|
)
|
Other
|
|
|
(10,548
|
)
|
|
|
(8,609
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities before valuation allowances
|
|
|
(11,240
|
)
|
|
|
(9,335
|
)
|
Valuation allowances
|
|
|
(2,022
|
)
|
|
|
(3,334
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
$
|
57,529
|
|
|
$
|
51,537
|
|
|
|
|
|
|
|
|
|
|
Certain deferred tax amounts and valuation allowances were
adjusted in fiscal 2008 based on differences between fiscal
2007s provision and related tax return filings. Changes to
the valuation allowance balances are recorded through the
provision for income taxes in the respective year.
The deferred tax amounts have been classified in the
consolidated balance sheets as of April 30:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Current deferred tax assets
|
|
$
|
11,197
|
|
|
$
|
10,438
|
|
Current deferred tax liabilities
|
|
|
(796
|
)
|
|
|
(914
|
)
|
|
|
|
|
|
|
|
|
|
Current deferred tax asset, net
|
|
|
10,401
|
|
|
|
9,524
|
|
Non-current deferred tax asset
|
|
|
59,594
|
|
|
|
53,768
|
|
Non-current deferred tax liabilities
|
|
|
(10,444
|
)
|
|
|
(8,421
|
)
|
Valuation allowance
|
|
|
(2,022
|
)
|
|
|
(3,334
|
)
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax asset, net
|
|
|
47,128
|
|
|
|
42,013
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
57,529
|
|
|
$
|
51,537
|
|
|
|
|
|
|
|
|
|
|
SFAS No. 109, Accounting for Income Taxes,
requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all
of the deferred tax asset will not be realized. Management
believes uncertainty exists regarding the realizability of
certain foreign tax credit carry-forwards and has therefore
established a valuation allowance for this portion of the
deferred tax asset. Realization of the deferred income tax asset
is dependent on the Company generating sufficient taxable income
in future years as the deferred income tax charges become
currently deductible for tax reporting purposes. Although
realization is not assured, management believes that it is more
likely than not that the net deferred income tax asset will be
realized.
At April 30, 2008, the Company had state net operating loss
carryforwards of approximately $4,235 to offset future tax
liabilities. The losses attributable to the various states may
be carried forward 5 to 20 years.
F-27
KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has not provided for U.S. deferred income taxes
on approximately $97,573 of undistributed earnings and
associated withholding taxes of the foreign subsidiaries as the
Company has taken the position under APB 23, that its foreign
earnings will be permanently reinvested offshore. If a
distribution of these earnings were to be made, the Company
might be subject to both foreign withholding taxes and
U.S. income taxes, net of any allowable foreign tax credits
or deductions. However, an estimate of these taxes is not
practicable.
The Companys income tax returns are routinely audited by
the IRS and various state and foreign tax authorities.
Significant disputes may arise with these tax authorities
involving issues of the timing and amount of deductions and
allocations of income among various tax jurisdictions because of
differing interpretations of tax laws and regulations. The
Company periodically evaluates its exposures associated with tax
filing positions. While management believes its positions comply
with applicable laws, the Company records liabilities based upon
estimates of the ultimate outcomes of these matters.
As a result of the adoption of FIN 48, the Company recorded
a cumulative effect adjustment for unrecognized uncertain tax
positions which reduced retained earnings by $3,541 as of
May 1, 2007. As of the adoption date, the Company had gross
unrecognized tax benefits of $10,700 which are included in the
Income Taxes Payable liability. This amount, if
recognized, would have a favorable impact on the Companys
effective tax rate. A reconciliation of the beginning and ending
amount of unrecognized tax benefits, including interest and
penalties, is as follows for the year ended April 30, 2008:
|
|
|
|
|
Unrecognized tax benefits at April 30, 2007
|
|
$
|
10,700
|
  |