##### 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 October 31, 2009
 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
 such files). Yes
o No o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 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 October 31, 2009 (unaudited) and April 30, 2009
    
    
    1Unaudited
Consolidated Statements of Operations for the three and six months
ended October 31, 2009 and 2008
    
    
    2Unaudited Consolidated Statements of Cash Flows for the six months ended October 31, 2009 and 2008
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2
    
    Managements
Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    18Item 3
    
    Quantitative and
Qualitative Disclosures about Market Risk
    
    
    29Item 4
    
    Controls and
Procedures
    
    
    30Part II. Other InformationItem 1
    
    Legal Proceedings
    
    
    31Item 1A
    
    Risk Factors
    
    
    31Item 2
    
    Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    31Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    32Item 5
    
    Other Information
    
    
    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
 October 31,
    
    
    April 30,2009
    
    
    2009(unaudited)(in thousands, except per share data)ASSETSCash and cash equivalents
    
    $
    182,938
    
    
    $
    255,000Marketable securities
    
    
    3,783
    
    
    
    4,263Receivables due from clients, net of allowance for doubtful accounts of
$7,520 and $11,197, respectively
    
    
    101,311
    
    
    
    67,308Income taxes and other receivables
    
    
    8,066
    
    
    
    9,001Deferred income taxes
    
    
    19,942
    
    
    
    14,583Prepaid expenses and other assets
    
    
    29,306
    
    
    
    21,442Total current assets
    
    
    345,346
    
    
    
    371,597Marketable securities, non-current
    
    
    74,518
    
    
    
    70,992Property and equipment, net
    
    
    26,578
    
    
    
    27,970Cash surrender value of company owned life insurance policies, net of loans
    
    
    65,528
    
    
    
    63,108Deferred income taxes
    
    
    46,894
    
    
    
    45,141Goodwill
    
    
    164,936
    
    
    
    133,331Intangible assets, net
    
    
    21,792
    
    
    
    16,928Investments and other assets
    
    
    15,777
    
    
    
    11,812Total assets
    
    $
    761,369
    
    
    $
    740,879LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    8,904
    
    
    $
    10,282Income taxes payable
    
    
    10,677
    
    
    
    2,059Compensation and benefits payable
    
    
    88,065
    
    
    
    116,705Other accrued liabilities
    
    
    50,418
    
    
    
    44,301Total current liabilities
    
    
    158,064
    
    
    
    173,347Deferred compensation and other retirement plans
    
    
    115,833
    
    
    
    99,238Other liabilities
    
    
    13,104
    
    
    
    9,195Total liabilities
    
    
    287,001
    
    
    
    281,780Stockholders equity:Common stock: $0.01 par value, 150,000 shares authorized, 57,404 and 56,185
shares issued and 45,760 and 44,729 shares outstanding, respectively
    
    
    376,964
    
    
    
    368,430Retained earnings
    
    
    73,394
    
    
    
    84,922Accumulated other comprehensive income, net
    
    
    24,544
    
    
    
    6,285Stockholders equity
    
    
    474,902
    
    
    
    459,637Less: notes receivable from stockholders
    
    
    (534
    )
    
    
    (538
    )Total stockholders equity
    
    
    474,368
    
    
    
    459,099Total liabilities and stockholders equity
    
    $
    761,369
    
    
    $
    740,879
   1




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
 Three Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands, except per share data)Fee revenue
    
    $
    140,145
    
    
    $
    189,300
    
    
    $
    256,948
    
    
    $
    395,033Reimbursed out-of-pocket engagement expenses
    
    
    6,411
    
    
    
    10,437
    
    
    
    12,896
    
    
    
    22,176Total revenue
    
    
    146,556
    
    
    
    199,737
    
    
    
    269,844
    
    
    
    417,209Compensation and benefits
    
    
    102,076
    
    
    
    129,748
    
    
    
    192,461
    
    
    
    271,871General and administrative expenses
    
    
    27,164
    
    
    
    32,323
    
    
    
    55,218
    
    
    
    66,353Out-of-pocket engagement expenses
    
    
    9,464
    
    
    
    13,297
    
    
    
    18,253
    
    
    
    28,030Depreciation and amortization
    
    
    2,860
    
    
    
    2,881
    
    
    
    5,689
    
    
    
    5,713Restructuring charges
    
    
    2,774
    
    
    
    
    
    
    
    20,957
    
    
    
    Total operating expenses
    
    
    144,338
    
    
    
    178,249
    
    
    
    292,578
    
    
    
    371,967Operating income (loss)
    
    
    2,218
    
    
    
    21,488
    
    
    
    (22,734
    )
    
    
    45,242Interest and other income (loss), net
    
    
    2,439
    
    
    
    (104
    )
    
    
    7,172
    
    
    
    1,500Interest expense
    
    
    1,259
    
    
    
    1,080
    
    
    
    2,701
    
    
    
    2,304Income (loss) before provision (benefit) for income taxes
and equity in earnings of unconsolidated subsidiaries
    
    
    3,398
    
    
    
    20,304
    
    
    
    (18,263
    )
    
    
    44,438Provision (benefit) for income taxes
    
    
    879
    
    
    
    7,583
    
    
    
    (6,486
    )
    
    
    16,876Equity in earnings of unconsolidated subsidiaries, net
    
    
    226
    
    
    
    839
    
    
    
    249
    
    
    
    1,902Net income (loss)
    
    $
    2,745
    
    
    $
    13,560
    
    
    $
    (11,528
    )
    
    $
    29,464Earnings (loss) per common share:Basic
    
    $
    0.06
    
    
    $
    0.31
    
    
    $
    (0.26
    )
    
    $
    0.68Diluted
    
    $
    0.06
    
    
    $
    0.30
    
    
    $
    (0.26
    )
    
    $
    0.66Weighted-average common shares outstanding:Basic
    
    
    44,470
    
    
    
    43,776
    
    
    
    44,123
    
    
    
    43,604Diluted
    
    
    45,291
    
    
    
    44,676
    
    
    
    44,123
    
    
    
    44,590
   2




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 Six Months EndedOctober 31,2009
    
    
    2008(in thousands)Cash flows from operating activities:Net (loss) income
    
    $
    (11,528
    )
    
    $
    29,464Adjustments to reconcile net (loss) income to net cash used in operating activities:Depreciation and amortization
    
    
    5,689
    
    
    
    5,712Stock-based compensation expense
    
    
    9,248
    
    
    
    8,528Loss on disposition of property and equipment
    
    
    437
    
    
    
    85Provision for doubtful accounts
    
    
    1,444
    
    
    
    4,871(Gain) loss on cash surrender value of life insurance policies
    
    
    (5,196
    )
    
    
    4,005Gain on marketable securities classified as trading
    
    
    (6,115
    )
    
    
    Realized loss on available-for sale marketable securities
    
    
    
    
    
    
    1,242Deferred income taxes
    
    
    (7,112
    )
    
    
    5,557Change in other assets and liabilities:Deferred compensation
    
    
    16,595
    
    
    
    (4,229
    )Receivables
    
    
    (28,598
    )
    
    
    (9,054
    )Prepaid expenses
    
    
    (4,764
    )
    
    
    (4,259
    )Investment in unconsolidated subsidiaries
    
    
    (249
    )
    
    
    (3,724
    )Income taxes payable
    
    
    6,530
    
    
    
    (6,401
    )Accounts payable and accrued liabilities
    
    
    (40,782
    )
    
    
    (95,317
    )Other
    
    
    (4,389
    )
    
    
    (551
    )Net cash used in operating activities
    
    
    (68,790
    )
    
    
    (64,071
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (2,723
    )
    
    
    (6,414
    )Purchase of intangible assets
    
    
    (3,481
    )
    
    
    Proceeds from (purchase of) marketable securities, net
    
    
    3,090
    
    
    
    (9,637
    )Cash paid for acquisitions, net of cash acquired
    
    
    (9,984
    )
    
    
    Premiums on life insurance policies
    
    
    (439
    )
    
    
    (439
    )Dividends received from unconsolidated subsidiaries
    
    
    157
    
    
    
    1,799Net cash used in investing activities
    
    
    (13,380
    )
    
    
    (14,691
    )Cash flows from financing activities:Payments on life insurance policy loans
    
    
    
    
    
    
    (367
    )Borrowings under life insurance policies
    
    
    3,219
    
    
    
    429Purchase of common stock
    
    
    (1,362
    )
    
    
    (7,582
    )Proceeds from issuance of common stock upon exercise of employee stock
options and in connection with an employee stock purchase plan
    
    
    3,991
    
    
    
    2,484Tax (expense) benefit from exercise of stock options
    
    
    (3,125
    )
    
    
    162Net cash provided by (used in) financing activities
    
    
    2,723
    
    
    
    (4,874
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    7,385
    
    
    
    (22,432
    )Net decrease in cash and cash equivalents
    
    
    (72,062
    )
    
    
    (106,068
    )Cash and cash equivalents at beginning of period
    
    
    255,000
    
    
    
    305,296Cash and cash equivalents at end of period
    
    $
    182,938
    
    
    $
    199,228
   3




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 October 31, 2009
 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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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
October 31, 2009
 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)
October 31, 2009
 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
 , The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principlesa Replacement of FASB Statement No. 162 Generally
Accepted Accounting Principles.
  6




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
October 31, 2009
 Business Combinations Business Combinations
 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
  7




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
October 31, 2009
 2. Basic and Diluted Earnings (Loss) Per Share
   Three Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands, except per share data)Net earnings (loss) attributable to common stockholders
    
    $
    2,745
    
    
    $
    13,560
    
    
    $
    (11,528
    )
    
    $
    29,464Weighted-average common shares outstanding:Basic weighted-average number of common shares
outstanding
    
    
    44,470
    
    
    
    43,776
    
    
    
    44,123
    
    
    
    43,604Effect of dilutive securities:Warrants
    
    
    48
    
    
    
    72
    
    
    
    
    
    
    
    76Restricted stock
    
    
    385
    
    
    
    98
    
    
    
    
    
    
    
    160Stock options
    
    
    386
    
    
    
    717
    
    
    
    
    
    
    
    732ESPP
    
    
    2
    
    
    
    13
    
    
    
    
    
    
    
    18Diluted weighted-average number of common shares
outstanding
    
    
    45,291
    
    
    
    44,676
    
    
    
    44,123
    
    
    
    44,590Net earnings (loss) per common share:Basic earnings (loss) per share
    
    $
    0.06
    
    
    $
    0.31
    
    
    $
    (0.26
    )
    
    $
    0.68Diluted earnings (loss) per share
    
    $
    0.06
    
    
    $
    0.30
    
    
    $
    (0.26
    )
    
    $
    0.66
  8




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
October 31, 2009
 3. Comprehensive Income (Loss)
   Three Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Net income (loss)
    
    $
    2,745
    
    
    $
    13,560
    
    
    $
    (11,528
    )
    
    $
    29,464Foreign currency translation adjustments
    
    
    5,975
    
    
    
    (41,330
    )
    
    
    18,259
    
    
    
    (42,715
    )Unrealized losses on marketable securities, net of taxes
    
    
    
    
    
    
    (4,829
    )
    
    
    
    
    
    
    (6,259
    )Comprehensive income (loss)
    
    $
    8,720
    
    
    $
    (32,599
    )
    
    $
    6,731
    
    
    $
    (19,510
    )
  October 31,
    
    
    April 30,2009
    
    
    2009(in thousands)Foreign currency translation adjustments
    
    $
    21,782
    
    
    $
    3,523Defined benefit pension adjustments, net of taxes
    
    
    2,762
    
    
    
    2,762Accumulated other comprehensive income
    
    $
    24,544
    
    
    $
    6,285
 4. Employee Stock Plans
 Stock-Based Compensation
  Three Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Stock options and SARs
    
    $
    258
    
    
    $
    (64
    )
    
    $
    494
    
    
    $
    224Restricted stock
    
    
    4,406
    
    
    
    4,268
    
    
    
    8,553
    
    
    
    8,058ESPP
    
    
    88
    
    
    
    113
    
    
    
    201
    
    
    
    246Total stock-based compensation expense, pre-tax
    
    
    4,752
    
    
    
    4,317
    
    
    
    9,248
    
    
    
    8,528Tax benefit from stock-based compensation expense
    
    
    (1,735
    )
    
    
    (1,576
    )
    
    
    (3,376
    )
    
    
    (3,113
    )Total stock-based compensation expense, net of tax
    
    $
    3,017
    
    
    $
    2,741
    
    
    $
    5,872
    
    
    $
    5,415
   9




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
October 31, 2009
  Six Months EndedOctober 31,2009
    
    
    2008Expected 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
  Six Months Ended October 31, 2009Weighted-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
    
    
    556
    
    
    $
    10.70Exercised
    
    
    (341
    )
    
    $
    7.94Forfeited/expired
    
    
    (373
    )
    
    $
    17.02Outstanding, October 31, 2009
    
    
    2,955
    
    
    $
    14.57
    
    
    
    3.99
    
    
    $
    9,945Exercisable, October 31, 2009
    
    
    2,431
    
    
    $
    15.42
    
    
    
    3.40
    
    
    $
    7,136
   10




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
October 31, 2009
  Three Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands, except
per share data)Weighted-average fair value of stock options granted
    
    $
    6.48
    
    
    $
    6.67
    
    
    $
    4.81
    
    
    $
    6.69Total fair value of stock options and SARs vested
    
    $
    508
    
    
    $
    216
    
    
    $
    596
    
    
    $
    1,908Total intrinsic value of stock options exercised
    
    $
    382
    
    
    $
    511
    
    
    $
    1,100
    
    
    $
    610Total intrinsic value of SARs paid
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Restricted Stock
   Six Months EndedOctober 31,Weighted-Average GrantDate FairShares
    
    
    Value(in thousands, except per share data)Non-vested, April 30, 2009
    
    
    2,387
    
    
    $
    15.50Granted
    
    
    961
    
    
    $
    10.18Vested
    
    
    (678
    )
    
    $
    20.34Forfeited/expired
    
    
    (74
    )
    
    $
    14.40Non-vested, October 31, 2009
    
    
    2,596
    
    
    $
    12.92
  Common Stock
   11




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
October 31, 2009
 Employee Stock Purchase Plan
  5. Marketable Securities
  October 31,2009Trading(in thousands)Auction rate securities
    
    $
    10,774Auction rate securities put option
    
    
    1,176Equity securities (1)
    
    
    29,874Fixed income mutual fund (1)
    
    
    15,388Non-current money market (1)
    
    
    21,089Total
    
    
    78,301Less: current portion of marketable securities
    
    
    (3,783
    )Non-current marketable securities
    
    $
    74,518
 
 (1)
    
    These investments are held in trust for settlement of the Companys obligations under certain
of its deferred compensation plans with $3.8 million classified as current assets.  April 30, 2009Available-for-Trading
    
    
    Sale(1)
    
    
    Total(in thousands)Auction rate securities
    
    $
    11,329
    
    
    $
    
    
    
    $
    11,329Auction rate securities put option
    
    
    1,096
    
    
    
    
    
    
    
    1,096Equity securities (2)
    
    
    23,816
    
    
    
    
    
    
    
    23,816Fixed income mutual fund (2)
    
    
    14,320
    
    
    
    
    
    
    
    14,320Non-current money market (2)
    
    
    22,692
    
    
    
    
    
    
    
    22,692Time 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)
    
    Due to the short maturities for these instruments, fair value approximates amortized cost.(2)
    
    These investments are held in trust for settlement of the Companys obligations under certain
of its deferred compensation plans with $2.3 million classified as current assets.  12




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
October 31, 2009
    October 31, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(in thousands)Cash equivalents
    
    $
    127,649
    
    
    $
    127,649
    
    
    $
    
    
    
    $
    Auction rate securities
    
    
    10,774
    
    
    
    
    
    
    
    
    
    
    
    10,774Auction rate securities put option
    
    
    1,176
    
    
    
    
    
    
    
    
    
    
    
    1,176Equity securities
    
    
    29,874
    
    
    
    29,874
    
    
    
    
    
    
    
    Fixed income mutual fund
    
    
    15,388
    
    
    
    15,388
    
    
    
    
    
    
    
    Noncurrent money market mutual funds
    
    
    21,089
    
    
    
    21,089
    
    
    
    
    
    
    
    Total
    
    $
    205,950
    
    
    $
    194,000
    
    
    $
    
    
    
    $
    11,950
 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
    
    
    
    
    
    
    
    
    
    
    
    1,096Equity securities
    
    
    23,816
    
    
    
    23,816
    
    
    
    
    
    
    
    Fixed income mutual fund
    
    
    14,320
    
    
    
    14,320
    
    
    
    
    
    
    
    Noncurrent money market mutual funds
    
    
    22,692
    
    
    
    22,692
    
    
    
    
    
    
    
    Time deposits
    
    
    2,002
    
    
    
    2,002
    
    
    
    
    
    
    
    Total
    
    $
    240,845
    
    
    $
    228,420
    
    
    $
    
    
    
    $
    12,425
  Auction Rate SecuritiesThree Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Balance, beginning of period
    
    $
    12,225
    
    
    $
    17,783
    
    
    $
    12,425
    
    
    $
    20,475Auction rate securities put option
    
    
    42
    
    
    
    1,638
    
    
    
    164
    
    
    
    1,638Reversal of unrealized loss associated with transfer of security to trading
    
    
    
    
    
    
    780
    
    
    
    
    
    
    
    780Unrealized loss included in operations
    
    
    (42
    )
    
    
    (1,638
    )
    
    
    (164
    )
    
    
    (1,638
    )Unrealized loss included in accumulated other
comprehensive income
    
    
    
    
    
    
    (327
    )
    
    
    
    
    
    
    (586
    )Sale of securities
    
    
    (275
    )
    
    
    (700
    )
    
    
    (475
    )
    
    
    (3,250
    )Reversal of unrealized loss associated with sales of
securities at par
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    158Balance, ending of period
    
    $
    11,950
    
    
    $
    17,577
    
    
    $
    11,950
    
    
    $
    17,577
  13




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
October 31, 2009
 6. Restructuring Charges
   Severance
    
    
    Facilities
    
    
    Total(in thousands)Liability as of July 31, 2009
    
    $
    11,530
    
    
    $
    21,145
    
    
    $
    32,675Additions charged to expense
    
    
    7,592
    
    
    
    
    
    
    
    7,592Reductions
    
    
    (1,911
    )
    
    
    (2,907
    )
    
    
    (4,818
    )Non-cash items
    
    
    
    
    
    
    (2,272
    )
    
    
    (2,272
    )Reductions for cash payments
    
    
    (6,504
    )
    
    
    (1,880
    )
    
    
    (8,384
    )Exchange rate fluctuations
    
    
    169
    
    
    
    166
    
    
    
    335Liability as of October 31, 2009
    
    $
    10,876
    
    
    $
    14,252
    
    
    $
    25,128
  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
    )
    
    
    (2,907
    )
    
    
    (4,818
    )Non-cash items
    
    
    (370
    )
    
    
    (2,341
    )
    
    
    (2,711
    )Reductions for cash payments
    
    
    (13,917
    )
    
    
    (3,914
    )
    
    
    (17,831
    )Exchange rate fluctuations
    
    
    580
    
    
    
    772
    
    
    
    1,352Liability as of October 31, 2009
    
    $
    10,876
    
    
    $
    14,252
    
    
    $
    25,128
   October 31, 2009Severance
    
    
    Facilities
    
    
    Total(in thousands)Executive RecruitmentNorth America
    
    $
    703
    
    
    $
    1,586
    
    
    $
    2,289EMEA
    
    
    9,719
    
    
    
    9,469
    
    
    
    19,188Asia Pacific
    
    
    
    
    
    
    827
    
    
    
    827South America
    
    
    231
    
    
    
    
    
    
    
    231Total Executive Recruitment
    
    
    10,653
    
    
    
    11,882
    
    
    
    22,535Futurestep
    
    
    223
    
    
    
    2,370
    
    
    
    2,593Liability as of October 31, 2009
    
    $
    10,876
    
    
    $
    14,252
    
    
    $
    25,128
  14




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
October 31, 2009
 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
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Service cost
    
    $
    85
    
    
    $
    174
    
    
    $
    170
    
    
    $
    348Interest cost
    
    
    945
    
    
    
    910
    
    
    
    1,890
    
    
    
    1,820Amortization of actuarial gain
    
    
    (20
    )
    
    
    (21
    )
    
    
    (40
    )
    
    
    (42
    )Amortization of net transition obligation
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    106Net periodic benefit costs
    
    $
    1,010
    
    
    $
    1,116
    
    
    $
    2,020
    
    
    $
    2,232
   15




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
October 31, 2009
 8. Business Segments
   Three Months Ended October 31, 2009Executive RecruitmentNorth
    
    
    
    
    
    
    
    
    
    
    SouthAmerica
    
    
    EMEA
    
    
    Asia Pacific
    
    
    America
    
    
    Subtotal
    
    
    Futurestep
    
    
    Corporate(1)
    
    
    Consolidated(in thousands)Fee revenue
    
    $
    68,230
    
    
    $
    35,376
    
    
    $
    13,563
    
    
    $
    6,122
    
    
    $
    123,291
    
    
    $
    16,854
    
    
    $
    
    
    
    $
    140,145Total revenue
    
    $
    71,909
    
    
    $
    36,213
    
    
    $
    13,911
    
    
    $
    6,263
    
    
    $
    128,296
    
    
    $
    18,260
    
    
    $
    
    
    
    $
    146,556Operating income (loss)
    
    $
    12,529
    
    
    $
    (4,204
    )
    
    $
    (26
    )
    
    $
    1,375
    
    
    $
    9,674
    
    
    $
    2,617
    
    
    $
    (10,073
    )
    
    $
    2,218
 Three Months Ended October 31, 2008Executive RecruitmentNorth
    
    
    
    
    
    
    
    
    
    
    SouthAmerica
    
    
    EMEA
    
    
    Asia Pacific
    
    
    America
    
    
    Subtotal
    
    
    Futurestep
    
    
    Corporate(1)
    
    
    Consolidated(in thousands)Fee revenue
    
    $
    91,697
    
    
    $
    40,486
    
    
    $
    21,187
    
    
    $
    6,828
    
    
    $
    160,198
    
    
    $
    29,102
    
    
    $
    
    
    
    $
    189,300Total revenue
    
    $
    97,224
    
    
    $
    42,010
    
    
    $
    21,603
    
    
    $
    6,954
    
    
    $
    167,791
    
    
    $
    31,946
    
    
    $
    
    
    
    $
    199,737Operating income (loss)
    
    $
    16,197
    
    
    $
    5,910
    
    
    $
    3,267
    
    
    $
    1,214
    
    
    $
    26,588
    
    
    $
    1,221
    
    
    $
    (6,321
    )
    
    $
    21,488
 Six Months Ended October 31, 2009Executive RecruitmentNorth
    
    
    
    
    
    
    
    
    
    
    SouthAmerica
    
    
    EMEA
    
    
    Asia Pacific
    
    
    America
    
    
    Subtotal
    
    
    Futurestep
    
    
    Corporate(1)
    
    
    Consolidated(in thousands)Fee revenue
    
    $
    123,522
    
    
    $
    64,597
    
    
    $
    25,934
    
    
    $
    10,567
    
    
    $
    224,620
    
    
    $
    32,328
    
    
    $
    
    
    
    $
    256,948Total revenue
    
    $
    130,962
    
    
    $
    66,620
    
    
    $
    26,544
    
    
    $
    10,804
    
    
    $
    234,930
    
    
    $
    34,914
    
    
    $
    
    
    
    $
    269,844Operating income (loss)
    
    $
    16,736
    
    
    $
    (21,824
    )
    
    $
    949
    
    
    $
    689
    
    
    $
    (3,450
    )
    
    $
    1,802
    
    
    $
    (21,086
    )
    
    $
    (22,734
    )
 Six Months Ended October 31, 2008Executive RecruitmentNorth
    
    
    
    
    
    
    
    
    
    
    SouthAmerica
    
    
    EMEA
    
    
    Asia Pacific
    
    
    America
    
    
    Subtotal
    
    
    Futurestep
    
    
    Corporate(1)
    
    
    Consolidated(in thousands)Fee revenue
    
    $
    185,671
    
    
    $
    92,076
    
    
    $
    42,590
    
    
    $
    14,413
    
    
    $
    334,750
    
    
    $
    60,283
    
    
    $
    
    
    
    $
    395,033Total revenue
    
    $
    197,068
    
    
    $
    95,490
    
    
    $
    43,458
    
    
    $
    14,647
    
    
    $
    350,663
    
    
    $
    66,546
    
    
    $
    
    
    
    $
    417,209Operating income (loss)
    
    $
    34,834
    
    
    $
    14,396
    
    
    $
    6,743
    
    
    $
    2,294
    
    
    $
    58,267
    
    
    $
    4,076
    
    
    $
    (17,101
    )
    
    $
    45,242
 
 (1)
    
    Increase in operating loss primarily due to $3.1 million and $2.7 million in expenses related
to a change in amounts due under deferred compensation plans determined by an increase (or
decrease) in market values, during the three and six months ended October 31, 2009
respectively.  16




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
October 31, 2009
 9. Acquisition
   17




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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 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
     18




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##### Table of Contents



Critical Accounting Policies
  Results of Operations
  Three Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Fee revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Reimbursed out-of-pocket engagement expenses
    
    
    4.6
    
    
    
    5.5
    
    
    
    5.0
    
    
    
    5.6Total revenue
    
    
    104.6
    
    
    
    105.5
    
    
    
    105.0
    
    
    
    105.6Compensation and benefits
    
    
    72.8
    
    
    
    68.5
    
    
    
    74.9
    
    
    
    68.8General and administrative expenses
    
    
    19.4
    
    
    
    17.1
    
    
    
    21.5
    
    
    
    16.8Out-of-pocket engagement expenses
    
    
    6.8
    
    
    
    7.0
    
    
    
    7.1
    
    
    
    7.1Depreciation and amortization
    
    
    2.0
    
    
    
    1.5
    
    
    
    2.2
    
    
    
    1.4Restructuring charges
    
    
    2.0
    
    
    
    
    
    
    
    8.1
    
    
    
    Operating income (loss)
    
    
    1.6
    
    
    
    11.4
    
    
    
    (8.8
    )
    
    
    11.5Net income (loss)
    
    
    2.0
    %
    
    
    7.2
    %
    
    
    (4.5
    )%
    
    
    7.5
    %
  19




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##### Table of Contents



Three Months Ended October 31,
    
    
    Six Months Ended October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Dollars
    
    
    %
    
    
    Dollars
    
    
    %
    
    
    Dollars
    
    
    %
    
    
    Dollars
    
    
    %(dollars in thousands)Fee revenue:Executive recruitment:North America
    
    $
    68,230
    
    
    
    48.7
    %
    
    $
    91,697
    
    
    
    48.4
    %
    
    $
    123,522
    
    
    
    48.1
    %
    
    $
    185,671
    
    
    
    47.0
    %EMEA
    
    
    35,376
    
    
    
    25.2
    
    
    
    40,486
    
    
    
    21.4
    
    
    
    64,597
    
    
    
    25.1
    
    
    
    92,076
    
    
    
    23.3Asia Pacific
    
    
    13,563
    
    
    
    9.7
    
    
    
    21,187
    
    
    
    11.2
    
    
    
    25,934
    
    
    
    10.1
    
    
    
    42,590
    
    
    
    10.8South America
    
    
    6,122
    
    
    
    4.4
    
    
    
    6,828
    
    
    
    3.6
    
    
    
    10,567
    
    
    
    4.1
    
    
    
    14,413
    
    
    
    3.6Total executive
recruitment
    
    
    123,291
    
    
    
    88.0
    
    
    
    160,198
    
    
    
    84.6
    
    
    
    224,620
    
    
    
    87.4
    
    
    
    334,750
    
    
    
    84.7Futurestep
    
    
    16,854
    
    
    
    12.0
    
    
    
    29,102
    
    
    
    15.4
    
    
    
    32,328
    
    
    
    12.6
    
    
    
    60,283
    
    
    
    15.3Total fee revenue
    
    
    140,145
    
    
    
    100.0
    %
    
    
    189,300
    
    
    
    100.0
    %
    
    
    256,948
    
    
    
    100.0
    %
    
    
    395,033
    
    
    
    100.0
    %Reimbursed out-of-pocket
engagement expense
    
    
    6,411
    
    
    
    
    
    
    
    10,437
    
    
    
    
    
    
    
    12,896
    
    
    
    
    
    
    
    22,176Total revenue
    
    $
    146,556
    
    
    
    
    
    
    $
    199,737
    
    
    
    
    
    
    $
    269,844
    
    
    
    
    
    
    $
    417,209Three Months Ended October 31,
    
    
    Six Months Ended October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Dollars
    
    

Margin (1)
    
    
    Dollars
    
    

Margin (1)
    
    
    Dollars
    
    

Margin (1)
    
    
    Dollars
    
    

Margin (1)(dollars in thousands)Operating income (loss):Executive recruitment:North America
    
    $
    12,529
    
    
    
    18.4
    %
    
    $
    16,197
    
    
    
    17.7
    %
    
    $
    16,736
    
    
    
    13.5
    %
    
    $
    34,834
    
    
    
    18.8
    %EMEA
    
    
    (4,204
    )
    
    
    (11.9
    )
    
    
    5,910
    
    
    
    14.6
    
    
    
    (21,824
    )
    
    
    (33.8
    )
    
    
    14,396
    
    
    
    15.6Asia Pacific
    
    
    (26
    )
    
    
    (0.2
    )
    
    
    3,267
    
    
    
    15.4
    
    
    
    949
    
    
    
    3.7
    
    
    
    6,743
    
    
    
    15.8South America
    
    
    1,375
    
    
    
    22.5
    
    
    
    1,214
    
    
    
    17.8
    
    
    
    689
    
    
    
    6.5
    
    
    
    2,294
    
    
    
    15.9Total executive
recruitment
    
    
    9,674
    
    
    
    7.8
    
    
    
    26,588
    
    
    
    16.6
    
    
    
    (3,450
    )
    
    
    (1.5
    )
    
    
    58,267
    
    
    
    17.4Futurestep
    
    
    2,617
    
    
    
    15.5
    
    
    
    1,221
    
    
    
    4.2
    
    
    
    1,802
    
    
    
    5.6
    
    
    
    4,076
    
    
    
    6.8Corporate(2)
    
    
    (10,073
    )
    
    
    
    
    
    
    (6,321
    )
    
    
    
    
    
    
    (21,086
    )
    
    
    
    
    
    
    (17,101
    )Operating income (loss)
    
    $
    2,218
    
    
    
    1.6
    %
    
    $
    21,488
    
    
    
    11.4
    %
    
    $
    (22,734
    )
    
    
    (8.8
    )%
    
    $
    45,242
    
    
    
    11.5
    %
 
 (1)
    
    Margin calculated as a percentage of fee revenue by business segment.(2)
    
    Increase in operating loss primarily due to $3.1 million and $2.7 million in expenses related
to a change in amounts due under deferred compensation plans determined by an increase (or
decrease) in market values, during the three and six months ended October 31, 2009,
respectively. Three Months Ended October 31, 2009 Compared to Three Months Ended October 31, 2008
 Fee Revenue
 Fee Revenue.
  20




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##### Table of Contents



Executive Recruitment.
     Futurestep.
 Compensation and Benefits
   21




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##### Table of Contents



Marketable Securities
 General and Administrative Expenses
      22




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##### Table of Contents



Out-of-Pocket Engagement Expenses
  Depreciation and Amortization Expenses
  Restructuring Charges
  Operating Income (Loss)
    Interest Income and Other Income, Net
   23




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##### Table of Contents



Interest Expense
  Provision (Benefit) for Income Taxes
  Equity in Earnings of Unconsolidated Subsidiary
  Six Months Ended October 31, 2009 Compared to Six Months Ended October 31, 2008
 Fee Revenue
 Fee Revenue.
 Executive Recruitment.
    24




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##### Table of Contents



Futurestep.
 Compensation and Benefits
 Restructuring Charges
    25




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##### Table of Contents



Marketable Securities
 General and Administrative Expenses
     Out-of-Pocket Engagement Expenses
  Depreciation and Amortization Expenses
   26




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##### Table of Contents



Restructuring Charges
  Operating (Loss) Income
    Interest Income and Other Income, Net
  Interest Expense
  (Benefit) Provision for Income Taxes
   27




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##### Table of Contents



Equity in Earnings of Unconsolidated Subsidiary
  Liquidity and Capital Resources
        28




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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.
    29




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##### Table of Contents



Interest Rate Risk.
   
 Item 4.
    
    Controls and Procedures
      30




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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)August 1, 2009August 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    36.4 millionSeptember 1, 2009September 30, 2009
    
    
    8,670
    
    
    $
    15.16
    
    
    
    
    
    
    $
    36.4 millionOctober 1, 2009October 31, 2009
    
    
    67
    
    
    $
    14.01
    
    
    
    
    
    
    $
    36.4 millionTotal
    
    
    8,737
    
    
    $
    15.15
 
 (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.  31




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##### Table of Contents



Item 4.
    
    Submission of Matters to a Vote of Security Holders
   Votes For
    
    
    Votes WithheldKenneth Whipple
    
    
    41,954,827
    
    
    
    767,124Baroness Denise Kingsmill
    
    
    41,949,859
    
    
    
    772,092George Shaheen
    
    
    41,970,736
    
    
    
    751,215
  For
    
    
    22,674,432Against
    
    
    16,163,058Abstain
    
    
    115,983Broker Non-Vote
    
    
    3,768,478
  For
    
    
    42,296,268Against
    
    
    412,502Abstain
    
    
    13,181
 
 Item 5.
    
    Other Information
 Restructuring Charges
  
 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