##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended January 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 001-14505
 
 KORN/FERRY INTERNATIONAL
 (Exact Name of Registrant as Specified in its Charter)
 Delaware
    
    95-2623879(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification Number)
 1900 Avenue of the Stars, Suite 2600, Los Angeles, California 90067  (Address of principal executive offices) (Zip code)
 (310) 552-1834  (Registrants telephone number, including area code)
 
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ




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##### 



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
Table of Contents
 Item #
    
    Description
    
    PagePart I. Financial InformationItem 1
    
    Condensed Consolidated Financial Statements
    
    
    1Consolidated Balance Sheets as of January 31, 2010 (unaudited) and April 30, 2009
    
    
    1Unaudited Consolidated Statements of Operations for the three and nine months ended
January 31, 2010 and 2009
    
    
    2Unaudited Consolidated Statements of Cash Flows for the nine months ended
January 31, 2010 and 2009
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4
    
    Controls and Procedures
    
    
    31Part II. Other InformationItem 1
    
    Legal Proceedings
    
    
    32Item 1A
    
    Risk Factors
    
    
    32Item 2
    
    Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    32Item 6
    
    Exhibits
    
    
    32Signatures
    
    
    33Exhibit 31.1Exhibit 31.2Exhibit 32.1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1.
    
    Condensed Consolidated Financial Statements
 KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 January 31,
    
    
    April 30,2010
    
    
    2009(unaudited)(in thousands, except per share data)ASSETSCash and cash equivalents
    
    $
    175,811
    
    
    $
    255,000Marketable securities
    
    
    3,928
    
    
    
    4,263Receivables due from clients, net of allowance for doubtful accounts of
$8,924 and $11,197, respectively
    
    
    108,098
    
    
    
    67,308Income taxes and other receivables
    
    
    6,466
    
    
    
    9,001Deferred income taxes
    
    
    20,249
    
    
    
    14,583Prepaid expenses and other assets
    
    
    26,851
    
    
    
    21,442Total current assets
    
    
    341,403
    
    
    
    371,597Marketable securities, non-current
    
    
    71,475
    
    
    
    70,992Property and equipment, net
    
    
    25,618
    
    
    
    27,970Cash surrender value of company owned life insurance policies, net of loans
    
    
    65,988
    
    
    
    63,108Deferred income taxes
    
    
    50,355
    
    
    
    45,141Goodwill
    
    
    171,001
    
    
    
    133,331Intangible assets, net
    
    
    26,091
    
    
    
    16,928Investments and other assets
    
    
    16,308
    
    
    
    11,812Total assets
    
    $
    768,239
    
    
    $
    740,879LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    10,519
    
    
    $
    10,282Income taxes payable
    
    
    4,698
    
    
    
    2,059Compensation and benefits payable
    
    
    102,055
    
    
    
    116,705Other accrued liabilities
    
    
    44,014
    
    
    
    44,301Total current liabilities
    
    
    161,286
    
    
    
    173,347Deferred compensation and other retirement plans
    
    
    107,238
    
    
    
    99,238Other liabilities
    
    
    18,554
    
    
    
    9,195Total liabilities
    
    
    287,078
    
    
    
    281,780Stockholders equity:Common stock: $0.01 par value, 150,000 shares authorized, 57,528 and 56,185
shares issued and 45,982 and 44,729 shares outstanding, respectively
    
    
    381,232
    
    
    
    368,430Retained earnings
    
    
    81,304
    
    
    
    84,922Accumulated other comprehensive income, net
    
    
    19,156
    
    
    
    6,285Stockholders equity
    
    
    481,692
    
    
    
    459,637Less: notes receivable from stockholders
    
    
    (531
    )
    
    
    (538
    )Total stockholders equity
    
    
    481,161
    
    
    
    459,099Total liabilities and stockholders equity
    
    $
    768,239
    
    
    $
    740,879
   1




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
 Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands, except per share data)Fee revenue
    
    $
    146,742
    
    
    $
    136,210
    
    
    $
    403,690
    
    
    $
    531,243Reimbursed out-of-pocket engagement expenses
    
    
    6,158
    
    
    
    8,283
    
    
    
    19,054
    
    
    
    30,459Total revenue
    
    
    152,900
    
    
    
    144,493
    
    
    
    422,744
    
    
    
    561,702Compensation and benefits
    
    
    102,654
    
    
    
    93,978
    
    
    
    295,115
    
    
    
    365,849General and administrative expenses
    
    
    31,635
    
    
    
    30,963
    
    
    
    86,853
    
    
    
    97,316Out-of-pocket engagement expenses
    
    
    9,837
    
    
    
    11,041
    
    
    
    28,090
    
    
    
    39,071Depreciation and amortization
    
    
    2,755
    
    
    
    2,924
    
    
    
    8,444
    
    
    
    8,637Restructuring (reductions) charges, net
    
    
    (364
    )
    
    
    16,845
    
    
    
    20,593
    
    
    
    16,845Total operating expenses
    
    
    146,517
    
    
    
    155,751
    
    
    
    439,095
    
    
    
    527,718Operating income (loss)
    
    
    6,383
    
    
    
    (11,258
    )
    
    
    (16,351
    )
    
    
    33,984Interest and other income (loss), net
    
    
    2,238
    
    
    
    (14,794
    )
    
    
    9,410
    
    
    
    (13,294
    )Interest expense
    
    
    1,345
    
    
    
    1,267
    
    
    
    4,046
    
    
    
    3,571Income (loss) before (benefit) provision for income taxes
and equity in earnings of unconsolidated subsidiaries
    
    
    7,276
    
    
    
    (27,319
    )
    
    
    (10,987
    )
    
    
    17,119Income tax (benefit) provision
    
    
    (244
    )
    
    
    (4,549
    )
    
    
    (6,730
    )
    
    
    12,327Equity in earnings of unconsolidated subsidiaries, net
    
    
    390
    
    
    
    414
    
    
    
    639
    
    
    
    2,316Net income (loss)
    
    $
    7,910
    
    
    $
    (22,356
    )
    
    $
    (3,618
    )
    
    $
    7,108Earnings (loss) per common share:Basic
    
    $
    0.18
    
    
    $
    (0.52
    )
    
    $
    (0.08
    )
    
    $
    0.16Diluted
    
    $
    0.17
    
    
    $
    (0.52
    )
    
    $
    (0.08
    )
    
    $
    0.16Weighted-average common shares outstanding:Basic
    
    
    44,622
    
    
    
    43,406
    
    
    
    44,290
    
    
    
    43,538Diluted
    
    
    45,811
    
    
    
    43,406
    
    
    
    44,290
    
    
    
    44,352
   2




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 Nine Months EndedJanuary 31,2010
    
    
    2009(in thousands)Cash flows from operating activities:Net (loss) income
    
    $
    (3,618
    )
    
    $
    7,108Adjustments to reconcile net (loss) income to net cash used in operating activities:Depreciation and amortization
    
    
    8,444
    
    
    
    8,637Stock-based compensation expense
    
    
    13,272
    
    
    
    12,396Loss on disposition of property and equipment
    
    
    202
    
    
    
    248Provision for doubtful accounts
    
    
    3,510
    
    
    
    7,223(Gain) loss on cash surrender value of life insurance policies
    
    
    (6,675
    )
    
    
    3,799Gain on marketable securities classified as trading
    
    
    (7,526
    )
    
    
    Realized loss on available-for-sale marketable securities
    
    
    
    
    
    
    1,264Other-than temporary impairment on marketable securities
    
    
    
    
    
    
    15,893Deferred income taxes
    
    
    (10,880
    )
    
    
    10,298Change in other assets and liabilities:Deferred compensation
    
    
    8,000
    
    
    
    (5,052
    )Receivables
    
    
    (34,604
    )
    
    
    18,536Prepaid expenses
    
    
    (2,309
    )
    
    
    (1,772
    )Investment in unconsolidated subsidiaries
    
    
    (639
    )
    
    
    (2,316
    )Income taxes payable
    
    
    551
    
    
    
    (19,954
    )Accounts payable and accrued liabilities
    
    
    (32,691
    )
    
    
    (92,706
    )Other
    
    
    (5,799
    )
    
    
    1,444Net cash used in operating activities
    
    
    (70,762
    )
    
    
    (34,954
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (4,377
    )
    
    
    (10,300
    )Purchase of intangible assets
    
    
    (3,481
    )
    
    
    Proceeds from (purchase of) marketable securities, net
    
    
    7,407
    
    
    
    (3,290
    )Cash paid for acquisitions, net of cash acquired
    
    
    (18,236
    )
    
    
    (12,900
    )Premiums on life insurance policies
    
    
    (1,450
    )
    
    
    (1,479
    )Dividends received from unconsolidated subsidiaries
    
    
    157
    
    
    
    2,952Net cash used in investing activities
    
    
    (19,980
    )
    
    
    (25,017
    )Cash flows from financing activities:Payments on life insurance policy loans
    
    
    
    
    
    
    (367
    )Borrowings under life insurance policies
    
    
    5,252
    
    
    
    1,459Purchase of common stock
    
    
    (1,653
    )
    
    
    (9,539
    )Proceeds from issuance of common stock upon exercise of employee stock
options and in connection with an employee stock purchase plan
    
    
    5,960
    
    
    
    3,480Tax (expense) benefit from exercise of stock options
    
    
    (4,614
    )
    
    
    174Net cash provided by (used in) financing activities
    
    
    4,945
    
    
    
    (4,793
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    6,608
    
    
    
    (23,046
    )Net decrease in cash and cash equivalents
    
    
    (79,189
    )
    
    
    (87,810
    )Cash and cash equivalents at beginning of period
    
    
    255,000
    
    
    
    305,296Cash and cash equivalents at end of period
    
    $
    175,811
    
    
    $
    217,486
   3




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 January 31, 2010
 1. Organization and Summary of Significant Accounting Policies
 Nature of Business
  Basis of Consolidation and Presentation
   Use of Estimates and Uncertainties
  Revenue Recognition
  Cash and Cash Equivalents
   4




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
January 31, 2010
 Marketable Securities
    Goodwill and Intangible Assets
    Stock-Based Compensation
   5




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
January 31, 2010
 Restructuring Charges
  Fair Value of Financial Instruments
 Fair Value Measurements
 
    
    Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that
are accessible at the measurement date for identical, unrestricted assets or liabilities.
 
    
    Level 2: Inputs other than quoted prices that are observable for the asset or
liability, either directly or indirectly. These include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or similar assets or
liabilities in markets that are not active.
 
    
    Level 3: Unobservable inputs that reflect the reporting entitys own assumptions.
  Fair Value Measurements and Disclosures
 Recently Adopted Accounting Standards
  Business Combinations Business Combinations
  6




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
January 31, 2010
 Noncontrolling Interests in Consolidated
Financial Statements  An Amendment of ARB No. 51 Consolidation
 Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly Fair Value
Measurements and Disclosures
 Interim Disclosures
about Fair Value of Financial Instruments Financial Instruments.
 Subsequent Events Subsequent Events
 , The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principlesa Replacement of FASB Statement No. 162 Generally Accepted Accounting Principles.
  7




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
January 31, 2010
 2. Basic and Diluted Earnings (Loss) Per Share
   Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands, except per share data)Net earnings (loss) attributable to common stockholders
    
    $
    7,910
    
    
    $
    (22,356
    )
    
    $
    (3,618
    )
    
    $
    7,108Weighted-average common shares outstanding:Basic weighted-average number of common shares outstanding
    
    
    44,622
    
    
    
    43,406
    
    
    
    44,290
    
    
    
    43,538Effect of dilutive securities:Warrants
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    54Restricted stock
    
    
    652
    
    
    
    
    
    
    
    
    
    
    
    132Stock options
    
    
    452
    
    
    
    
    
    
    
    
    
    
    
    593ESPP
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    35Diluted weighted-average number of common shares outstanding
    
    
    45,811
    
    
    
    43,406
    
    
    
    44,290
    
    
    
    44,352Net earnings (loss) per common share:Basic earnings (loss) per share
    
    $
    0.18
    
    
    $
    (0.52
    )
    
    $
    (0.08
    )
    
    $
    0.16Diluted earnings (loss) per share
    
    $
    0.17
    
    
    $
    (0.52
    )
    
    $
    (0.08
    )
    
    $
    0.16
  8




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
January 31, 2010
 3. Comprehensive Income (Loss)
   Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Net income (loss)
    
    $
    7,910
    
    
    $
    (22,356
    )
    
    $
    (3,618
    )
    
    $
    7,108Foreign currency translation adjustments
    
    
    (5,388
    )
    
    
    (2,208
    )
    
    
    12,871
    
    
    
    (44,923
    )Unrealized losses on marketable securities, net of taxes
    
    
    
    
    
    
    (846
    )
    
    
    
    
    
    
    (7,105
    )Reclassification of unrealized losses on marketable
securities, net of taxes to other-than temporary impairment
    
    
    
    
    
    
    8,995
    
    
    
    
    
    
    
    8,995Comprehensive income (loss)
    
    $
    2,522
    
    
    $
    (16,415
    )
    
    $
    9,253
    
    
    $
    (35,925
    )
  January 31,
    
    
    April 30,2010
    
    
    2009(in thousands)Foreign currency translation adjustments
    
    $
    16,394
    
    
    $
    3,523Defined benefit pension adjustments, net of taxes
    
    
    2,762
    
    
    
    2,762Accumulated other comprehensive income
    
    $
    19,156
    
    
    $
    6,285
 4. Employee Stock Plans
 Stock-Based Compensation
  Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Stock options and SARs
    
    $
    132
    
    
    $
    (115
    )
    
    $
    626
    
    
    $
    109Restricted stock
    
    
    3,807
    
    
    
    3,889
    
    
    
    12,360
    
    
    
    11,947ESPP
    
    
    85
    
    
    
    94
    
    
    
    286
    
    
    
    340Total stock-based compensation expense, pre-tax
    
    
    4,024
    
    
    
    3,868
    
    
    
    13,272
    
    
    
    12,396Tax benefit from stock-based compensation expense
    
    
    (1,469
    )
    
    
    (1,412
    )
    
    
    (4,845
    )
    
    
    (4,525
    )Total stock-based compensation expense, net of tax
    
    $
    2,555
    
    
    $
    2,456
    
    
    $
    8,427
    
    
    $
    7,871
   9




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
January 31, 2010
  Nine Months EndedJanuary 31,2010
    
    
    2009Expected volatility
    
    
    48.91
    %
    
    
    44.11
    %Risk-free interest rate
    
    
    2.53
    %
    
    
    3.27
    %Expected option life (in years)
    
    
    5.00
    
    
    
    4.25Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
  Stock Incentive Plans
  Stock Options and SARs
  Nine Months Ended January 31, 2010Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Life (In Years)
    
    
    Value(in thousands, except per share data)Outstanding, April 30, 2009
    
    
    3,113
    
    
    $
    14.83Granted
    
    
    569
    
    
    $
    10.85Exercised
    
    
    (464
    )
    
    $
    8.17Forfeited/expired
    
    
    (419
    )
    
    $
    17.39Outstanding, January 31, 2010
    
    
    2,799
    
    
    $
    14.74
    
    
    
    3.75
    
    
    $
    7,532Exercisable, January 31, 2010
    
    
    2,269
    
    
    $
    15.68
    
    
    
    3.12
    
    
    $
    5,333
   10




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
January 31, 2010
  Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands, except per share data)Weighted-average fair value of stock options granted
    
    $
    7.97
    
    
    $
    5.01
    
    
    $
    4.88
    
    
    $
    5.77Total fair value of stock options and SARs vested
    
    $
    11
    
    
    $
    23
    
    
    $
    607
    
    
    $
    1,931Total intrinsic value of stock options exercised
    
    $
    924
    
    
    $
    20
    
    
    $
    2,024
    
    
    $
    630Total intrinsic value of SARs paid
    
    $
    75
    
    
    $
    
    
    
    $
    75
    
    
    $
    
 Restricted Stock
   Nine Months EndedJanuary 31,Weighted-Average GrantDate FairShares
    
    
    Value(in thousands, except per share data)Non-vested, April 30, 2009
    
    
    2,387
    
    
    $
    15.50Granted
    
    
    982
    
    
    $
    10.33Vested
    
    
    (734
    )
    
    $
    20.47Forfeited/expired
    
    
    (154
    )
    
    $
    17.55Non-vested, January 31, 2010
    
    
    2,481
    
    
    $
    12.92
  Common Stock
   11




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
January 31, 2010
 Employee Stock Purchase Plan
  5. Marketable Securities
  Trading(in thousands)Auction rate securities
    
    $
    9,723Auction rate securities put option
    
    
    1,177Mutual funds (1)
    
    
    64,503Total
    
    
    75,403Less: current portion of marketable securities
    
    
    (3,928
    )Non-current marketable securities
    
    $
    71,475
  Available-for-Trading
    
    
    Sale(2)
    
    
    Total(in thousands)Auction rate securities
    
    $
    11,329
    
    
    $
    
    
    
    $
    11,329Auction rate securities put option
    
    
    1,096
    
    
    
    
    
    
    
    1,096Mutual funds (1)
    
    
    60,828
    
    
    
    
    
    
    
    60,828Time deposits
    
    
    
    
    
    
    2,002
    
    
    
    2,002Total
    
    
    73,253
    
    
    
    2,002
    
    
    
    75,255Less: current portion of marketable securities
    
    
    (2,261
    )
    
    
    (2,002
    )
    
    
    (4,263
    )Non-current marketable securities
    
    $
    70,992
    
    
    $
    
    
    
    $
    70,992
 
 (1)
    
    These investments are held in trust for settlement of the Companys obligations under certain
of its deferred compensation plans with $3.9 million and $2.3 million classified as current assets
as of January 31, 2010 and April 30, 2009, respectively.(2)
    
    Due to the short maturities for these instruments, fair value approximates amortized cost.    12




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
January 31, 2010
  January 31, 2010Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(in thousands)Cash equivalents
    
    $
    104,094
    
    
    $
    104,094
    
    
    $
    
    
    
    $
    Auction rate securities
    
    
    9,723
    
    
    
    
    
    
    
    
    
    
    
    9,723Auction rate securities put option
    
    
    1,177
    
    
    
    
    
    
    
    
    
    
    
    1,177Mutual funds
    
    
    64,503
    
    
    
    64,503
    
    
    
    
    
    
    
    Total
    
    $
    179,497
    
    
    $
    168,597
    
    
    $
    
    
    
    $
    10,900
 April 30, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(in thousands)Cash equivalents
    
    $
    165,590
    
    
    $
    165,590
    
    
    $
    
    
    
    $
    Auction rate securities
    
    
    11,329
    
    
    
    
    
    
    
    
    
    
    
    11,329Auction rate securities put option
    
    
    1,096
    
    
    
    
    
    
    
    
    
    
    
    1,096Mutual funds
    
    
    60,828
    
    
    
    60,828
    
    
    
    
    
    
    
    Time deposits
    
    
    2,002
    
    
    
    2,002
    
    
    
    
    
    
    
    Total
    
    $
    240,845
    
    
    $
    228,420
    
    
    $
    
    
    
    $
    12,425
  Auction Rate SecuritiesThree Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Balance, beginning of period
    
    $
    11,950
    
    
    $
    17,577
    
    
    $
    12,425
    
    
    $
    20,475Auction rate securities put option
    
    
    
    
    
    
    (758
    )
    
    
    81
    
    
    
    880Reversal of unrealized loss associated with
transfer of security to trading
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    780Unrealized gain (loss) included in operations
    
    
    
    
    
    
    758
    
    
    
    (81
    )
    
    
    (880
    )Unrealized loss included in accumulated other
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (586
    )Sale of securities
    
    
    (1,050
    )
    
    
    (5,775
    )
    
    
    (1,525
    )
    
    
    (9,025
    )Reversal of unrealized loss associated with sales of
securities at par
    
    
    
    
    
    
    623
    
    
    
    
    
    
    
    781Balance, ending of period
    
    $
    10,900
    
    
    $
    12,425
    
    
    $
    10,900
    
    
    $
    12,425
  13




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
January 31, 2010
 6. Restructuring Charges
   Severance
    
    
    Facilities
    
    
    Total(in thousands)Liability as of October 31, 2009
    
    $
    10,876
    
    
    $
    14,252
    
    
    $
    25,128Additions charged to expense
    
    
    
    
    
    
    
    
    
    
    Reductions
    
    
    
    
    
    
    (364
    )
    
    
    (364
    )Non-cash items
    
    
    
    
    
    
    
    
    
    
    Reductions for cash payments
    
    
    (6,098
    )
    
    
    (2,448
    )
    
    
    (8,546
    )Exchange rate fluctuations
    
    
    164
    
    
    
    (233
    )
    
    
    (69
    )Liability as of January 31, 2010
    
    $
    4,942
    
    
    $
    11,207
    
    
    $
    16,149
  Severance
    
    
    Facilities
    
    
    Total(in thousands)Liability as of April 30, 2009
    
    $
    10,554
    
    
    $
    12,807
    
    
    $
    23,361Additions charged to expense
    
    
    15,940
    
    
    
    9,835
    
    
    
    25,775Reductions
    
    
    (1,911
    )
    
    
    (3,271
    )
    
    
    (5,182
    )Non-cash items
    
    
    (370
    )
    
    
    (2,341
    )
    
    
    (2,711
    )Reductions for cash payments
    
    
    (20,015
    )
    
    
    (6,362
    )
    
    
    (26,377
    )Exchange rate fluctuations
    
    
    744
    
    
    
    539
    
    
    
    1,283Liability as of January 31, 2010
    
    $
    4,942
    
    
    $
    11,207
    
    
    $
    16,149
  Severance
    
    
    Facilities
    
    
    Total(in thousands)Liability as of April 30, 2008 and October 31, 2008
    
    $
    
    
    
    $
    
    
    
    $
    Additions charged to expense
    
    
    13,006
    
    
    
    2,572
    
    
    
    15,578Reductions
    
    
    
    
    
    
    
    
    
    
    Non-cash items
    
    
    462
    
    
    
    805
    
    
    
    1,267Reductions for cash payments
    
    
    (5,492
    )
    
    
    (67
    )
    
    
    (5,559
    )Exchange rate fluctuations
    
    
    (295
    )
    
    
    (29
    )
    
    
    (324
    )Liability as of January 31, 2009
    
    $
    7,681
    
    
    $
    3,281
    
    
    $
    10,962
   14




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
January 31, 2010
  January 31, 2010Severance
    
    
    Facilities
    
    
    Total(in thousands)Executive RecruitmentNorth America
    
    $
    370
    
    
    $
    1,353
    
    
    $
    1,723EMEA
    
    
    4,217
    
    
    
    7,166
    
    
    
    11,383Asia Pacific
    
    
    
    
    
    
    723
    
    
    
    723South America
    
    
    155
    
    
    
    
    
    
    
    155Total Executive Recruitment
    
    
    4,742
    
    
    
    9,242
    
    
    
    13,984Futurestep
    
    
    200
    
    
    
    1,965
    
    
    
    2,165Liability as of January 31, 2010
    
    $
    4,942
    
    
    $
    11,207
    
    
    $
    16,149
 April 30, 2009Severance
    
    
    Facilities
    
    
    Total(in thousands)Executive RecruitmentNorth America
    
    $
    3,052
    
    
    $
    3,187
    
    
    $
    6,239EMEA
    
    
    4,714
    
    
    
    2,514
    
    
    
    7,228Asia Pacific
    
    
    48
    
    
    
    1,243
    
    
    
    1,291South America
    
    
    787
    
    
    
    334
    
    
    
    1,121Total Executive Recruitment
    
    
    8,601
    
    
    
    7,278
    
    
    
    15,879Futurestep
    
    
    1,953
    
    
    
    5,529
    
    
    
    7,482Liability as of April 30, 2009
    
    $
    10,554
    
    
    $
    12,807
    
    
    $
    23,361
 7. Deferred Compensation and Retirement Plans
   Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Service cost
    
    $
    85
    
    
    $
    174
    
    
    $
    255
    
    
    $
    522Interest cost
    
    
    945
    
    
    
    910
    
    
    
    2,835
    
    
    
    2,730Amortization of actuarial gain
    
    
    (20
    )
    
    
    (21
    )
    
    
    (60
    )
    
    
    (63
    )Amortization of net transition obligation
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    159Net periodic benefit costs
    
    $
    1,010
    
    
    $
    1,116
    
    
    $
    3,030
    
    
    $
    3,348
   15




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
January 31, 2010
 8. Business Segments
   Three Months Ended January 31, 2010Executive RecruitmentNorth
    
    
    
    
    
    
    
    
    
    
    SouthAmerica
    
    
    EMEA
    
    
    Asia Pacific
    
    
    America
    
    
    Subtotal
    
    
    Futurestep
    
    
    Corporate
    
    
    Consolidated(in thousands)Fee revenue
    
    $
    70,187
    
    
    $
    36,643
    
    
    $
    16,503
    
    
    $
    5,829
    
    
    $
    129,162
    
    
    $
    17,580
    
    
    $
    
    
    
    $
    146,742Total revenue
    
    $
    73,924
    
    
    $
    37,615
    
    
    $
    16,839
    
    
    $
    5,959
    
    
    $
    134,337
    
    
    $
    18,563
    
    
    $
    
    
    
    $
    152,900Operating income (loss)
    
    $
    13,353
    
    
    $
    2,935
    
    
    $
    1,203
    
    
    $
    1,010
    
    
    $
    18,501
    
    
    $
    555
    
    
    $
    (12,673
    )
    
    $
    6,383
 Three Months Ended January 31, 2009Executive RecruitmentNorth
    
    
    
    
    
    
    
    
    
    
    SouthAmerica
    
    
    EMEA
    
    
    Asia Pacific
    
    
    America
    
    
    Subtotal
    
    
    Futurestep
    
    
    Corporate
    
    
    Consolidated(in thousands)Fee revenue
    
    $
    66,978
    
    
    $
    30,423
    
    
    $
    13,591
    
    
    $
    5,650
    
    
    $
    116,642
    
    
    $
    19,568
    
    
    $
    
    
    
    $
    136,210Total revenue
    
    $
    72,118
    
    
    $
    31,552
    
    
    $
    13,942
    
    
    $
    5,731
    
    
    $
    123,343
    
    
    $
    21,150
    
    
    $
    
    
    
    $
    144,493Operating income (loss)
    
    $
    10,767
    
    
    $
    (6,291
    )
    
    $
    367
    
    
    $
    373
    
    
    $
    5,216
    
    
    $
    (8,309
    )
    
    $
    (8,165
    )
    
    $
    (11,258
    )
 Nine Months Ended January 31, 2010Executive RecruitmentNorth
    
    
    
    
    
    
    
    
    
    
    SouthAmerica
    
    
    EMEA
    
    
    Asia Pacific
    
    
    America
    
    
    Subtotal
    
    
    Futurestep
    
    
    Corporate
    
    
    Consolidated(in thousands)Fee revenue
    
    $
    193,709
    
    
    $
    101,240
    
    
    $
    42,437
    
    
    $
    16,396
    
    
    $
    353,782
    
    
    $
    49,908
    
    
    $
    
    
    
    $
    403,690Total revenue
    
    $
    204,886
    
    
    $
    104,235
    
    
    $
    43,383
    
    
    $
    16,763
    
    
    $
    369,267
    
    
    $
    53,477
    
    
    $
    
    
    
    $
    422,744Operating income (loss)
    
    $
    30,089
    
    
    $
    (18,889
    )
    
    $
    2,152
    
    
    $
    1,699
    
    
    $
    15,051
    
    
    $
    2,357
    
    
    $
    (33,759
    )
    
    $
    (16,351
    )
 Nine Months Ended January 31, 2009Executive RecruitmentNorth
    
    
    
    
    
    
    
    
    
    
    SouthAmerica
    
    
    EMEA
    
    
    Asia Pacific
    
    
    America
    
    
    Subtotal
    
    
    Futurestep
    
    
    Corporate
    
    
    Consolidated(in thousands)Fee revenue
    
    $
    252,649
    
    
    $
    122,499
    
    
    $
    56,181
    
    
    $
    20,063
    
    
    $
    451,392
    
    
    $
    79,851
    
    
    $
    
    
    
    $
    531,243Total revenue
    
    $
    269,186
    
    
    $
    127,042
    
    
    $
    57,400
    
    
    $
    20,378
    
    
    $
    474,006
    
    
    $
    87,696
    
    
    $
    
    
    
    $
    561,702Operating income (loss)
    
    $
    45,601
    
    
    $
    8,105
    
    
    $
    7,110
    
    
    $
    2,667
    
    
    $
    63,483
    
    
    $
    (4,233
    )
    
    $
    (25,266
    )
    
    $
    33,984
  16




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
January 31, 2010
 9. Acquisitions
   10. Income Taxes
   Nine Months EndedJanuary 31,2010
    
    
    2009(in thousands)Unrecognized tax benefits, beginning of period
    
    $
    13,392
    
    
    $
    10,770Estimated interest for the year
    
    
    445
    
    
    
    466Recognized tax benefits
    
    
    (10,329
    )
    
    
    Unrecognized tax benefits, end of period
    
    $
    3,508
    
    
    $
    11,236
  17




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
January 31, 2010
 11. Long-Term Debt
   18




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-looking Statements
 This Quarterly Report on Form 10-Q 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, dependence on attracting and retaining
qualified and experienced consultants, portability of client relationships, global, local political
or economic developments in or affecting countries where we have operations, currency fluctuations
in our international operations, ability to manage growth, competition, reliance on information
processing systems, risks related to the growth and results of Futurestep, restrictions imposed by
off-limits agreements, employment liability risk, an impairment in the carrying value of goodwill
and other intangible assets, deferred tax assets that we may not be able to use and alignment of
our cost structure to our revenue level, and also includes risks related to the successful
integration of recently acquired businesses as well as the matters disclosed under the heading
Risk Factors in the Companys Exchange Act reports, including in Item 1A of the Companys Annual
Report of Form 10-K for the fiscal year ended April 30, 2009 (Form 10-K). Readers are urged to
consider these factors carefully in evaluating the forward-looking statements. The forward-looking
statements included in this Quarterly Report on Form 10-Q are made only as of the date of this
Quarterly Report on Form 10-Q and we undertake no obligation to publicly update these
forward-looking statements to reflect subsequent events or circumstances.
 The following presentation of managements 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 Quarterly Report on Form 10-Q .
 Executive Summary
     19




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##### Table of Contents



Critical Accounting Policies
  Results of Operations
  Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Fee revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Reimbursed out-of-pocket engagement expenses
    
    
    4.2
    
    
    
    6.1
    
    
    
    4.7
    
    
    
    5.7Total revenue
    
    
    104.2
    
    
    
    106.1
    
    
    
    104.7
    
    
    
    105.7Compensation and benefits
    
    
    70.0
    
    
    
    69.0
    
    
    
    73.1
    
    
    
    68.9General and administrative expenses
    
    
    21.6
    
    
    
    22.7
    
    
    
    21.5
    
    
    
    18.3Out-of-pocket engagement expenses
    
    
    6.7
    
    
    
    8.1
    
    
    
    7.0
    
    
    
    7.4Depreciation and amortization
    
    
    1.9
    
    
    
    2.2
    
    
    
    2.1
    
    
    
    1.5Restructuring charges
    
    
    (0.3
    )
    
    
    12.4
    
    
    
    5.1
    
    
    
    3.2Operating income (loss)
    
    
    4.3
    
    
    
    (8.3
    )
    
    
    (4.1
    )
    
    
    6.4Net income (loss)
    
    
    5.4
    %
    
    
    (16.4
    )%
    
    
    (0.9
    )%
    
    
    1.3
    %
  20




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##### Table of Contents



Three Months Ended January 31,
    
    
    Nine Months Ended January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Dollars
    
    
    %
    
    
    Dollars
    
    
    %
    
    
    Dollars
    
    
    %
    
    
    Dollars
    
    
    %(dollars in thousands)Fee revenue:Executive recruitment:North America
    
    $
    70,187
    
    
    
    47.8
    %
    
    $
    66,978
    
    
    
    49.2
    %
    
    $
    193,709
    
    
    
    48.0
    %
    
    $
    252,649
    
    
    
    47.6
    %EMEA
    
    
    36,643
    
    
    
    25.0
    
    
    
    30,423
    
    
    
    22.3
    
    
    
    101,240
    
    
    
    25.1
    
    
    
    122,499
    
    
    
    23.1Asia Pacific
    
    
    16,503
    
    
    
    11.2
    
    
    
    13,591
    
    
    
    10.0
    
    
    
    42,437
    
    
    
    10.5
    
    
    
    56,181
    
    
    
    10.6South America
    
    
    5,829
    
    
    
    4.0
    
    
    
    5,650
    
    
    
    4.1
    
    
    
    16,396
    
    
    
    4.0
    
    
    
    20,063
    
    
    
    3.7Total executive
recruitment
    
    
    129,162
    
    
    
    88.0
    
    
    
    116,642
    
    
    
    85.6
    
    
    
    353,782
    
    
    
    87.6
    
    
    
    451,392
    
    
    
    85.0Futurestep
    
    
    17,580
    
    
    
    12.0
    
    
    
    19,568
    
    
    
    14.4
    
    
    
    49,908
    
    
    
    12.4
    
    
    
    79,851
    
    
    
    15.0Total fee revenue
    
    
    146,742
    
    
    
    100.0
    %
    
    
    136,210
    
    
    
    100.0
    %
    
    
    403,690
    
    
    
    100.0
    %
    
    
    531,243
    
    
    
    100.0
    %Reimbursed out-of-pocket
engagement expense
    
    
    6,158
    
    
    
    
    
    
    
    8,283
    
    
    
    
    
    
    
    19,054
    
    
    
    
    
    
    
    30,459Total revenue
    
    $
    152,900
    
    
    
    
    
    
    $
    144,493
    
    
    
    
    
    
    $
    422,744
    
    
    
    
    
    
    $
    561,702
 Three Months Ended January 31,
    
    
    Nine Months Ended January 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Dollars
    
    
    Margin(1)
    
    
    Dollars
    
    
    Margin(1)
    
    
    Dollars
    
    
    Margin(1)
    
    
    Dollars
    
    
    Margin(1)(dollars in thousands)Operating income (loss):Executive recruitment:North America
    
    $
    13,353
    
    
    
    19.0
    %
    
    $
    10,767
    
    
    
    16.1
    %
    
    $
    30,089
    
    
    
    15.5
    %
    
    $
    45,601
    
    
    
    18.0
    %EMEA
    
    
    2,935
    
    
    
    8.0
    
    
    
    (6,291
    )
    
    
    (20.7
    )
    
    
    (18,889
    )
    
    
    (18.7
    )
    
    
    8,105
    
    
    
    6.6Asia Pacific
    
    
    1,203
    
    
    
    7.3
    
    
    
    367
    
    
    
    2.7
    
    
    
    2,152
    
    
    
    5.1
    
    
    
    7,110
    
    
    
    12.7South America
    
    
    1,010
    
    
    
    17.3
    
    
    
    373
    
    
    
    6.6
    
    
    
    1,699
    
    
    
    10.4
    
    
    
    2,667
    
    
    
    13.3Total executive
recruitment
    
    
    18,501
    
    
    
    14.3
    
    
    
    5,216
    
    
    
    4.5
    
    
    
    (15,051
    )
    
    
    4.3
    
    
    
    63,483
    
    
    
    14.1Futurestep
    
    
    555
    
    
    
    3.2
    
    
    
    (8,309
    )
    
    
    (42.5
    )
    
    
    2,357
    
    
    
    4.7
    
    
    
    (4,233
    )
    
    
    (5.3
    )Corporate
    
    
    (12,673
    )
    
    
    
    
    
    
    (8,165
    )
    
    
    
    
    
    
    (33,759
    )
    
    
    
    
    
    
    (25,266
    )Operating income (loss)
    
    $
    6,383
    
    
    
    4.3
    %
    
    $
    (11,258
    )
    
    
    (8.3
    )%
    
    $
    (16,351
    )
    
    
    (4.1
    )%
    
    $
    33,984
    
    
    
    6.4
    %
 
 (1)
    
    Margin calculated as a percentage of fee revenue by business segment. Three Months Ended January 31, 2010 Compared to Three Months Ended January 31, 2009
 Fee Revenue
 Fee Revenue.
 Executive Recruitment.
  21




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##### Table of Contents



Futurestep.
 Compensation and Benefits
   22




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##### Table of Contents



Marketable Securities
 General and Administrative Expenses
     Out-of-Pocket Engagement Expenses
   23




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##### Table of Contents



Depreciation and Amortization Expenses
  Restructuring Charges
  Operating Income (Loss)
    Interest Income and Other Income (Loss), Net
  Interest Expense
   24




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##### Table of Contents



Income Tax Benefit
  Equity in Earnings of Unconsolidated Subsidiary
  Nine Months Ended January 31, 2010 Compared to Nine Months Ended January 31, 2009
 Fee Revenue
 Fee Revenue.
 Executive Recruitment.
    25




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##### Table of Contents



Futurestep.
 Compensation and Benefits
 Restructuring Charges
   Marketable Securities
  26




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##### Table of Contents



General and Administrative Expenses
     Out-of-Pocket Engagement Expenses
  Depreciation and Amortization Expenses
  Restructuring Charges
   27




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##### Table of Contents



Operating (Loss) Income
    Interest Income and Other Income (Loss), Net
  Interest Expense
  Income Tax (Benefit) Provision
   28




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##### Table of Contents



Equity in Earnings of Unconsolidated Subsidiary
  Liquidity and Capital Resources
        29




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##### Table of Contents



Long-Term Debt
    Off-Balance Sheet Arrangements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  Foreign Currency Risk.
   30




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##### Table of Contents



Interest Rate Risk.
   
 Item 4.
    
    Controls and Procedures
      31




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##### Table of Contents



PART II.
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sale of Equity Securities, Use of Proceeds and Issuers Purchases of Equity
Securities
 Issuer Purchases of Equity Securities
  Approximate DollarShares Purchased
    
    
    Value of SharesAverage
    
    
    as Part of Publicly-
    
    
    That May Yet beShares
    
    
    Price Paid
    
    
    Announced
    
    
    Purchased under thePurchased (1)
    
    
    Per Share
    
    
    Programs (2)
    
    
    Programs (2)November 1, 2009November 30, 2009
    
    
    2,026
    
    
    $
    15.88
    
    
    
    
    
    
    $36.4 millionDecember 1, 2009December 31, 2009
    
    
    15,434
    
    
    $
    16.75
    
    
    
    
    
    
    $36.4 millionJanuary 1, 2010January 31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $36.4 millionTotal
    
    
    17,460
    
    
    $
    16.65
 
 (1)
    
    Represents withholding of a portion of restricted shares to cover taxes on vested restricted
shares.(2)
    
    On November 2, 2007, the Board of Directors approved the repurchase of $50 million of our
common stock in a common stock repurchase program. The shares can be repurchased in open
market transactions or privately negotiated transactions at our discretion. 
 Item 6.
    
    Exhibits
 ExhibitNumber
    
    Description31.1
    
    
    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.
  32




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##### Table of Contents



SIGNATURES
  Korn/Ferry InternationalBy:
    /s/ Michael A. DiGregorioMichael A. DiGregorioExecutive Vice President and Chief Financial Officer   33




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1
    
    
    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.
  34