##### 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, 2008
 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 of 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
  Large accelerated filer þ
    
    Accelerated filer oNon-accelerated filer o
    
    Smaller reporting company o
 o þ




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##### 



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
Table of Contents
 PagePART I.
    
    FINANCIAL INFORMATION
    
    
    3Item 1.
    
    Condensed Financial Statements
    
    
    3Consolidated Balance Sheets as of January 31, 2008 (unaudited) and April 30, 2007
    
    
    3Unaudited Consolidated Statements of Income for the three and nine months ended January 31, 2008 and 2007
    
    
    4Unaudited Consolidated Statements of Cash Flows for the nine months ended January 31, 2008 and 2007
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    23PART II.
    
    OTHER INFORMATION
    
    
    24Item 1.
    
    Legal Proceedings
    
    
    24Item 1A.
    
    Risk Factors
    
    
    24Item 2.
    
    Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    24Item 3.
    
    Defaults Upon Senior Securities
    
    
    24Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    24Item 5.
    
    Other Information
    
    
    24Item 6.
    
    Exhibits
    
    
    25SIGNATURES
    
    
    
    
    26Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Condensed Financial Statements
 
 KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
 As of
    
    
    As ofJanuary 31,
    
    
    April 30,2008
    
    
    2007(unaudited)ASSETSCash and cash equivalents
    
    $
    223,654
    
    
    $
    232,531Marketable securities
    
    
    74,691
    
    
    
    91,736Receivables due from clients, net of allowance for doubtful accounts of
$14,062 and $9,822, respectively
    
    
    139,965
    
    
    
    107,751Income tax and other receivables
    
    
    5,987
    
    
    
    6,357Deferred income taxes
    
    
    10,074
    
    
    
    9,524Prepaid expenses
    
    
    18,864
    
    
    
    16,861Total current assets
    
    
    473,235
    
    
    
    464,760Property and equipment, net
    
    
    31,138
    
    
    
    25,999Cash surrender value of company owned life insurance policies, net of loans
    
    
    79,458
    
    
    
    76,478Deferred income taxes
    
    
    46,065
    
    
    
    42,013Goodwill
    
    
    139,392
    
    
    
    124,268Intangible assets, net
    
    
    15,638
    
    
    
    18,040Investments and other
    
    
    10,736
    
    
    
    9,933Total assets
    
    $
    795,662
    
    
    $
    761,491LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    12,104
    
    
    $
    10,383Income taxes payable
    
    
    24,468
    
    
    
    22,432Compensation and benefits payable
    
    
    148,387
    
    
    
    158,145Other accrued liabilities
    
    
    35,385
    
    
    
    38,529Total current liabilities
    
    
    220,344
    
    
    
    229,489Deferred compensation and other retirement plans
    
    
    104,144
    
    
    
    91,360Other liabilities
    
    
    5,831
    
    
    
    7,687Total liabilities
    
    
    330,319
    
    
    
    328,536Stockholders equity:Common stock: $0.01 par value, 150,000 shares authorized,
54,226 and 52,323 shares issued and 46,374 and 47,174 shares
outstanding, respectively
    
    
    388,370
    
    
    
    400,126Retained earnings
    
    
    79,268
    
    
    
    32,344Unearned restricted stock compensation
    
    
    (34,675
    )
    
    
    (19,567
    )Accumulated other comprehensive income
    
    
    32,927
    
    
    
    20,605Stockholders equity
    
    
    465,890
    
    
    
    433,508Less: Notes receivable from stockholders
    
    
    (547
    )
    
    
    (553
    )Total stockholders equity
    
    
    465,343
    
    
    
    432,955Total liabilities and stockholders equity
    
    $
    795,662
    
    
    $
    761,491
   3




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
 Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Fee revenue
    
    $
    201,156
    
    
    $
    165,239
    
    
    $
    582,366
    
    
    $
    473,720Reimbursed out-of-pocket engagement expenses
    
    
    10,935
    
    
    
    8,269
    
    
    
    32,826
    
    
    
    25,721Total revenue
    
    
    212,091
    
    
    
    173,508
    
    
    
    615,192
    
    
    
    499,441Compensation and benefits
    
    
    138,594
    
    
    
    112,343
    
    
    
    391,984
    
    
    
    318,852General and administrative expenses
    
    
    35,255
    
    
    
    26,806
    
    
    
    101,168
    
    
    
    79,431Out-of-pocket engagement expenses
    
    
    14,250
    
    
    
    10,394
    
    
    
    42,664
    
    
    
    31,040Depreciation and amortization
    
    
    2,812
    
    
    
    2,557
    
    
    
    7,701
    
    
    
    7,214Total operating expenses
    
    
    190,911
    
    
    
    152,100
    
    
    
    543,517
    
    
    
    436,537Operating income
    
    
    21,180
    
    
    
    21,408
    
    
    
    71,675
    
    
    
    62,904Interest and other income, net
    
    
    5,025
    
    
    
    3,212
    
    
    
    9,769
    
    
    
    7,375Interest expense
    
    
    1,248
    
    
    
    2,548
    
    
    
    3,695
    
    
    
    7,664Income before provision for income taxes and
equity in earnings of unconsolidated
subsidiaries
    
    
    24,957
    
    
    
    22,072
    
    
    
    77,749
    
    
    
    62,615Provision for income taxes
    
    
    9,353
    
    
    
    8,100
    
    
    
    29,753
    
    
    
    23,184Equity in earnings of unconsolidated subsidiaries, net
    
    
    652
    
    
    
    758
    
    
    
    2,469
    
    
    
    2,528Net income
    
    $
    16,256
    
    
    $
    14,730
    
    
    $
    50,465
    
    
    $
    41,959Basic earnings per common share
    
    $
    0.38
    
    
    $
    0.37
    
    
    $
    1.14
    
    
    $
    1.07Basic weighted average common shares outstanding
    
    
    43,247
    
    
    
    39,650
    
    
    
    44,273
    
    
    
    39,229Diluted earnings per common share
    
    $
    0.37
    
    
    $
    0.33
    
    
    $
    1.10
    
    
    $
    0.95Diluted weighted average common shares outstanding
    
    
    44,303
    
    
    
    47,449
    
    
    
    45,839
    
    
    
    46,860
   4




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Nine Months EndedJanuary 31,2008
    
    
    2007Cash from operating activities:Net income
    
    $
    50,465
    
    
    $
    41,959Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    7,701
    
    
    
    7,214Stock compensation expense
    
    
    1,929
    
    
    
    4,377Amortization of discount on convertible securities
    
    
    
    
    
    
    590Loss on disposition of property and equipment
    
    
    130
    
    
    
    171Provision for doubtful accounts
    
    
    9,332
    
    
    
    6,797Gain on cash surrender value of life insurance policies
    
    
    (1,908
    )
    
    
    (3,690
    )Realized gains on marketable securities
    
    
    (4,013
    )
    
    
    (1,835
    )Deferred income taxes
    
    
    (8,143
    )
    
    
    (6,287
    )Non-cash compensation arrangements
    
    
    10,002
    
    
    
    5,914Change in other assets and liabilities, net of effect of acquisitions:Deferred compensation
    
    
    12,784
    
    
    
    13,410Receivables
    
    
    (41,176
    )
    
    
    (39,358
    )Prepaid expenses
    
    
    (2,003
    )
    
    
    (1,137
    )Investment in unconsolidated subsidiaries
    
    
    (3,123
    )
    
    
    (2,843
    )Income taxes payable
    
    
    1,750
    
    
    
    11,313Accounts payable and accrued liabilities
    
    
    (7,745
    )
    
    
    (3,575
    )Other
    
    
    (2,277
    )
    
    
    (2,328
    )Net cash provided by operating activities
    
    
    23,705
    
    
    
    30,692Cash from investing activities:Purchase of property and equipment
    
    
    (12,849
    )
    
    
    (8,249
    )Sales (Purchase) of marketable securities, net
    
    
    16,023
    
    
    
    (14,529
    )Cash paid for acquisitions, net of cash acquired
    
    
    (4,260
    )
    
    
    (23,786
    )Premiums on life insurance policies
    
    
    (1,525
    )
    
    
    (1,534
    )Dividends received from unconsolidated subsidiaries
    
    
    2,782
    
    
    
    2,178Net cash provided by (used in) investing activities
    
    
    171
    
    
    
    (45,920
    )Cash from financing activities:Payments on life insurance policy loans
    
    
    (1,012
    )
    
    
    Borrowings under life insurance policies
    
    
    1,464
    
    
    
    1,347Purchase of common stock
    
    
    (62,617
    )
    
    
    (25,937
    )Proceeds from issuance of common stock upon exercise of employee stock
options and in connection with an employee stock purchase plan
    
    
    17,177
    
    
    
    19,616Tax benefit from exercise of stock options
    
    
    3,473
    
    
    
    6,258Receipts on stockholders notes
    
    
    6
    
    
    
    5Net cash (used in) provided by financing activities
    
    
    (41,509
    )
    
    
    1,289Effect of exchange rates on cash and cash equivalents
    
    
    8,756
    
    
    
    1,516Net decrease in cash and cash equivalents during the period
    
    
    (8,877
    )
    
    
    (12,423
    )Cash and cash equivalents at beginning of the period
    
    
    232,531
    
    
    
    211,768Cash and cash equivalents at end of the period
    
    $
    223,654
    
    
    $
    199,345
   5




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
(in thousands, except per share amounts)
 1. Summary of Significant Accounting Policies
 Basis of Presentation
  Critical Accounting Policies and Use of Estimates
  Cash and Cash Equivalents
  Available-for-Sale Securities
  Stock-Based Compensation
   6




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS(Continued)
(in thousands, except per share amounts)
  Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Stock options and SARs
    
    $
    238
    
    
    $
    1,230
    
    
    $
    1,265
    
    
    $
    4,007Restricted stock
    
    
    3,518
    
    
    
    2,350
    
    
    
    10,357
    
    
    
    6,021Employee Stock Purchase Plan
    
    
    125
    
    
    
    114
    
    
    
    399
    
    
    
    346Total
stock-based
compensation
expense, pre-tax
    
    
    3,881
    
    
    
    3,694
    
    
    
    12,021
    
    
    
    10,374Tax benefit from
stock-based compensation
expense
    
    
    (1,417
    )
    
    
    (1,395
    )
    
    
    (4,388
    )
    
    
    (4,022
    )Total stock-based
compensation expense, net
of tax
    
    $
    2,464
    
    
    $
    2,299
    
    
    $
    7,633
    
    
    $
    6,352
  Nine Months EndedJanuary 31,2008
    
    
    2007Expected volatility
    
    
    44.42
    %
    
    
    48.05
    %Risk-free interest rate
    
    
    4.60
    %
    
    
    4.95
    %Expected option life (in years)
    
    
    4.00
    
    
    
    4.00Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
  Stock Option Plans
   7




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS(Continued)
(in thousands, except per share amounts)
  Weighted-averageWeighted-
    
    
    remaining
    
    
    AggregateOptions
    
    
    average
    
    
    contractual
    
    
    intrinsic(in thousands)
    
    
    exercise price
    
    
    life (Yrs)
    
    
    valueOutstanding at April 30, 2007
    
    
    4,738
    
    
    $
    14.52Granted
    
    
    6
    
    
    
    21.11Exercised
    
    
    (1,066
    )
    
    
    13.40Forfeited/expired
    
    
    (68
    )
    
    
    19.02Outstanding at January 31, 2008
    
    
    3,610
    
    
    $
    14.78
    
    
    
    5.0
    
    
    $
    11,821Exercisable at January 31, 2008
    
    
    3,277
    
    
    $
    14.37
    
    
    
    4.7
    
    
    $
    11,821
   Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Weighted average fair value of stock options granted
    
    $
    7.24
    
    
    $
    9.83
    
    
    $
    8.77
    
    
    $
    9.04Total fair value of stock options and SARs vested
    
    
    32
    
    
    
    109
    
    
    
    3,966
    
    
    
    9,579Total intrinsic value of stock options exercised
    
    
    528
    
    
    
    5,694
    
    
    
    12,304
    
    
    
    16,893Total intrinsic value of SARs paid
    
    
    
    
    
    
    70
    
    
    
    
    
    
    
    232
 Restricted Stock
   Weighted-averageShares
    
    
    grant dateNonvested shares
    
    (in thousands)
    
    
    fair valueNonvested at April 30, 2007
    
    
    1,356
    
    
    $
    19.26Granted
    
    
    1,113
    
    
    
    24.79Vested
    
    
    (476
    )
    
    
    19.71Forfeited
    
    
    (25
    )
    
    
    23.48Nonvested at January 31, 2008
    
    
    1,968
    
    
    $
    22.27
  8




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS(Continued)
(in thousands, except per share amounts)
  Employee Stock Purchase Plan
  Common Stock
  Reclassifications
  New Accounting Standards
 
    9




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS(Continued)
(in thousands, except per share amounts)
 2. Basic and Diluted Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (Numerator):Net income for basic EPS
    
    $
    16,256
    
    
    $
    14,730
    
    
    $
    50,465
    
    
    $
    41,959Interest expense on convertible securities, net
of related tax effects
    
    
    36
    
    
    
    785
    
    
    
    109
    
    
    
    2,354Net income for diluted EPS
    
    $
    16,292
    
    
    $
    15,515
    
    
    $
    50,574
    
    
    $
    44,313Shares (Denominator):Weighted average shares for basic EPS
    
    
    43,247
    
    
    
    39,650
    
    
    
    44,273
    
    
    
    39,229Effect of:Convertible subordinated notes
    
    
    
    
    
    
    4,470
    
    
    
    
    
    
    
    4,470Convertible preferred stock
    
    
    
    
    
    
    1,117
    
    
    
    
    
    
    
    1,117Warrants
    
    
    84
    
    
    
    131
    
    
    
    117
    
    
    
    119Restricted stock
    
    
    179
    
    
    
    308
    
    
    
    302
    
    
    
    209Stock options
    
    
    790
    
    
    
    1,770
    
    
    
    1,135
    
    
    
    1,715Employee stock purchase plan
    
    
    3
    
    
    
    3
    
    
    
    12
    
    
    
    1Adjusted weighted average shares for
diluted EPS
    
    
    44,303
    
    
    
    47,449
    
    
    
    45,839
    
    
    
    46,860Basic EPS
    
    $
    0.38
    
    
    $
    0.37
    
    
    $
    1.14
    
    
    $
    1.07Diluted EPS
    
    $
    0.37
    
    
    $
    0.33
    
    
    $
    1.10
    
    
    $
    0.95
  3. Comprehensive Income
   Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    16,256
    
    
    $
    14,730
    
    
    $
    50,465
    
    
    $
    41,959Foreign currency translation adjustment
    
    
    (112
    )
    
    
    1,858
    
    
    
    15,451
    
    
    
    2,429Unrealized loss on marketable
securities, net of taxes
    
    
    (4,488
    )
    
    
    39
    
    
    
    (3,129
    )
    
    
    248Comprehensive income
    
    $
    11,656
    
    
    $
    16,627
    
    
    $
    62,787
    
    
    $
    44,636
  10




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS(Continued)
(in thousands, except per share amounts)
  4. Marketable Securities
    5. Deferred Compensation, Retirement Plans and Executive Capital Accumulation Plan
  Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,Components of net periodic benefit costs:
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    267
    
    
    $
    303
    
    
    $
    800
    
    
    $
    908Interest cost
    
    
    835
    
    
    
    752
    
    
    
    2,505
    
    
    
    2,255Amortization of actuarial gain
    
    
    (18
    )
    
    
    13
    
    
    
    (54
    )
    
    
    39Amortization of net transition obligation
    
    
    53
    
    
    
    53
    
    
    
    159
    
    
    
    159Net periodic benefit cost
    
    $
    1,137
    
    
    $
    1,121
    
    
    $
    3,410
    
    
    $
    3,361
  6. Business Segments
   11




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KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS(Continued)
(in thousands, except per share amounts)
  Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Fee revenue:Executive recruitment:North America
    
    $
    94,812
    
    
    $
    82,177
    
    
    $
    276,988
    
    
    $
    237,667EMEA
    
    
    46,292
    
    
    
    37,872
    
    
    
    133,072
    
    
    
    104,878Asia Pacific
    
    
    25,322
    
    
    
    18,608
    
    
    
    72,639
    
    
    
    55,169South America
    
    
    6,617
    
    
    
    4,311
    
    
    
    19,184
    
    
    
    12,777Total executive recruitment
    
    
    173,043
    
    
    
    142,968
    
    
    
    501,883
    
    
    
    410,491Futurestep
    
    
    28,113
    
    
    
    22,271
    
    
    
    80,483
    
    
    
    63,229Total fee revenue
    
    $
    201,156
    
    
    $
    165,239
    
    
    $
    582,366
    
    
    $
    473,720
 Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Total revenue:Executive Recruitment:North America
    
    $
    99,707
    
    
    $
    86,657
    
    
    $
    292,100
    
    
    $
    252,375EMEA
    
    
    47,731
    
    
    
    39,015
    
    
    
    137,203
    
    
    
    108,908Asia Pacific
    
    
    25,731
    
    
    
    19,115
    
    
    
    74,221
    
    
    
    56,263South America
    
    
    6,740
    
    
    
    4,375
    
    
    
    19,532
    
    
    
    13,168Total executive recruitment
    
    
    179,909
    
    
    
    149,162
    
    
    
    523,056
    
    
    
    430,714Futurestep
    
    
    32,182
    
    
    
    24,346
    
    
    
    92,136
    
    
    
    68,727Total revenue
    
    $
    212,091
    
    
    $
    173,508
    
    
    $
    615,192
    
    
    $
    499,441
 Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Operating income (loss):Executive recruitment:North America
    
    $
    16,167
    
    
    $
    17,428
    
    
    $
    57,346
    
    
    $
    51,286EMEA
    
    
    7,116
    
    
    
    5,996
    
    
    
    20,871
    
    
    
    17,391Asia Pacific
    
    
    5,444
    
    
    
    3,622
    
    
    
    14,595
    
    
    
    10,609South America
    
    
    291
    
    
    
    231
    
    
    
    1,836
    
    
    
    1,329Total executive recruitment
    
    
    29,018
    
    
    
    27,277
    
    
    
    94,648
    
    
    
    80,615Futurestep
    
    
    2,026
    
    
    
    2,252
    
    
    
    5,642
    
    
    
    5,141Corporate
    
    
    (9,864
    )
    
    
    (8,121
    )
    
    
    (28,615
    )
    
    
    (22,852
    )Total operating income
    
    $
    21,180
    
    
    $
    21,408
    
    
    $
    71,675
    
    
    $
    62,904
 7. Acquisitions
   12




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##### Table of Contents



KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS(Continued)
(in thousands, except per share amounts)
   8. Subsequent Events
     13




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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 are also 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, local
political or economic developments in or affecting countries where we have operations, currency
fluctuations in our international operations, ability to manage growth, restrictions imposed by
off-limits agreements, competition, risks related to the growth and results of Futurestep, reliance
on information processing systems, and employment liability risk as well as the matters disclosed
under the heading Risk Factors in Item 1A of the Companys annual report on Form 10-K for fiscal
2007. Readers are urged to consider these factors carefully in evaluating the forward-looking
statements. The forward-looking statements included in this Form 10-Q are made only as of the date
of this report 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 condensed consolidated financial
statements included in this Form 10-Q .
 Executive Summary
      14




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##### Table of Contents



Critical Accounting Policies
  Results of Operations
  Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Fee revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Reimbursed out-of-pocket engagement expenses
    
    
    5.4
    
    
    
    5.0
    
    
    
    5.6
    
    
    
    5.4Total revenue
    
    
    105.4
    
    
    
    105.0
    
    
    
    105.6
    
    
    
    105.4Compensation and benefits
    
    
    68.9
    
    
    
    68.0
    
    
    
    67.3
    
    
    
    67.3General and administrative expenses
    
    
    17.5
    
    
    
    16.2
    
    
    
    17.4
    
    
    
    16.8Out-of-pocket engagement expenses
    
    
    7.1
    
    
    
    6.3
    
    
    
    7.3
    
    
    
    6.6Depreciation and amortization
    
    
    1.4
    
    
    
    1.5
    
    
    
    1.3
    
    
    
    1.5Operating income
    
    
    10.5
    
    
    
    13.0
    
    
    
    12.3
    
    
    
    13.3Net income
    
    
    8.1
    %
    
    
    8.9
    %
    
    
    8.7
    %
    
    
    8.9
    %
  Three Months Ended January 31,
    
    
    Nine Months Ended January 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Dollars
    
    
    %
    
    
    Dollars
    
    
    %
    
    
    Dollars
    
    
    %
    
    
    Dollars
    
    
    %Fee revenueExecutive
recruitment:North America
    
    $
    94,812
    
    
    
    47.1
    %
    
    $
    82,177
    
    
    
    49.7
    %
    
    $
    276,988
    
    
    
    47.6
    %
    
    $
    237,667
    
    
    
    50.2
    %EMEA
    
    
    46,292
    
    
    
    23.0
    
    
    
    37,872
    
    
    
    22.9
    
    
    
    133,072
    
    
    
    22.9
    
    
    
    104,878
    
    
    
    22.1Asia Pacific
    
    
    25,322
    
    
    
    12.6
    
    
    
    18,608
    
    
    
    11.3
    
    
    
    72,639
    
    
    
    12.5
    
    
    
    55,169
    
    
    
    11.6South America
    
    
    6,617
    
    
    
    3.3
    
    
    
    4,311
    
    
    
    2.6
    
    
    
    19,184
    
    
    
    3.2
    
    
    
    12,777
    
    
    
    2.7Total executive
recruitment
    
    
    173,043
    
    
    
    86.0
    
    
    
    142,968
    
    
    
    86.5
    
    
    
    501,883
    
    
    
    86.2
    
    
    
    410,491
    
    
    
    86.6Futurestep
    
    
    28,113
    
    
    
    14.0
    
    
    
    22,271
    
    
    
    13.5
    
    
    
    80,483
    
    
    
    13.8
    
    
    
    63,229
    
    
    
    13.4Total fee revenue
    
    
    201,156
    
    
    
    100.0
    %
    
    
    165,239
    
    
    
    100.0
    %
    
    
    582,366
    
    
    
    100.0
    %
    
    
    473,720
    
    
    
    100.0
    %Reimbursed
out-of-pocket engagement
expenses
    
    
    10,935
    
    
    
    
    
    
    
    8,269
    
    
    
    
    
    
    
    32,826
    
    
    
    
    
    
    
    25,721Total revenue
    
    $
    212,091
    
    
    
    
    
    
    $
    173,508
    
    
    
    
    
    
    $
    615,192
    
    
    
    
    
    
    $
    499,441
  15




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##### Table of Contents



Three Months Ended January 31,
    
    
    Nine Months Ended January 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Dollars
    
    
    %
    
    
    Dollars
    
    
    %
    
    
    Dollars
    
    
    %
    
    
    Dollars
    
    
    %Operating income (loss)Executive recruitment:North America
    
    $
    16,167
    
    
    
    17.1
    %
    
    $
    17,428
    
    
    
    21.2
    %
    
    $
    57,346
    
    
    
    20.7
    %
    
    $
    51,286
    
    
    
    21.6
    %EMEA
    
    
    7,116
    
    
    
    15.4
    
    
    
    5,996
    
    
    
    15.8
    
    
    
    20,871
    
    
    
    15.7
    
    
    
    17,391
    
    
    
    16.6Asia Pacific
    
    
    5,444
    
    
    
    21.5
    
    
    
    3,622
    
    
    
    19.5
    
    
    
    14,595
    
    
    
    20.1
    
    
    
    10,609
    
    
    
    19.2South America
    
    
    291
    
    
    
    4.4
    
    
    
    231
    
    
    
    5.4
    
    
    
    1,836
    
    
    
    9.6
    
    
    
    1,329
    
    
    
    10.4Total
executive
recruitment
    
    
    29,018
    
    
    
    16.8
    
    
    
    27,277
    
    
    
    19.1
    
    
    
    94,648
    
    
    
    18.9
    
    
    
    80,615
    
    
    
    19.6Futurestep
    
    
    2,026
    
    
    
    7.2
    
    
    
    2,252
    
    
    
    10.1
    
    
    
    5,642
    
    
    
    7.0
    
    
    
    5,141
    
    
    
    8.1Corporate
    
    
    (9,864
    )
    
    
    
    
    
    
    (8,121
    )
    
    
    
    
    
    
    (28,615
    )
    
    
    
    
    
    
    (22,852
    )Total operating
income
    
    $
    21,180
    
    
    
    10.5
    %
    
    $
    21,408
    
    
    
    13.0
    %
    
    $
    71,675
    
    
    
    12.3
    %
    
    $
    62,904
    
    
    
    13.3
    %
 Three Months Ended January 31, 2008 Compared to Three Months Ended January 31, 2007
 Fee Revenue.
 Executive Recruitment.
      16




---



##### Table of Contents



Futurestep.
 Compensation and Benefits.
    General and Administrative Expenses.
  17




---



##### Table of Contents



Out-of-Pocket Engagement Expenses.
 Depreciation and Amortization Expenses.
 Operating Income.
   Interest Income and Other Income, Net.
 Interest Expense.
  18




---



##### Table of Contents



Provision for Income Taxes.
 Equity in Earnings of Unconsolidated Subsidiaries.
 Nine Months Ended January 31, 2008 Compared to Nine Months Ended January 31, 2007
 Fee Revenue.
 Executive Recruitment.
     Futurestep.  19
    Table of Contents  Compensation and Benefits.
    General and Administrative Expenses.
     20
    Table of Contents  Out-of-Pocket Engagement Expenses.
 Depreciation and Amortization Expenses.
 Operating Income.
   Interest Income and Other Income, Net.
 Interest Expense.
 Provision for Income Taxes.
 Equity in Earnings of Unconsolidated Subsidiaries.
 Liquidity and Capital Resources
   21
    Table of Contents  Off-Balance Sheet Arrangements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  Foreign Currency Risk
    Interest Rate Risk
   22
    Table of Contents  Item 4.
    
    Controls and Procedures
      23
    Table of Contents  PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
  ApproximateShares
    
    
    Dollar Value ofPurchased
    
    
    Shares thatAverage
    
    
    as Part of a
    
    
    May Yet BePrice
    
    
    Publicly-
    
    
    PurchasedPaid
    
    
    Announced
    
    
    Under theShares
    
    
    Per
    
    
    Program
    
    
    ProgramPurchased
    
    
    Share
    
    
    (1)
    
    
    (1)November 1, 2007 - November 30, 2007
    
    
    295,000
    
    
    $
    16.92
    
    
    
    295,000
    
    
    $45.2millionDecember 1, 2007 - December 31, 2007
    
    
    1,135
    
    
    $
    
    
    
    
    
    
    
    $45.2millionJanuary 1, 2008 - January 31, 2008
    
    
    104,400
    
    
    $
    14.29
    
    
    
    104,400
    
    
    $43.7millionBalance as of January 31, 2008
    
    
    400,535
    
    
    
    
    
    
    
    399,400
 (1)
    
    On November 2, 2007, the Board of Directors approved the repurchase of up to $50 million
of the Companys common stock in a common stock repurchase program. The shares can be
repurchased in open market transactions or privately negotiated transactions at the Companys
discretion. 
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information
   24
    Table of Contents  Item 6.
    
    Exhibits
 ExhibitNumber
    
    Description of Exhibit3.1
    
    
    Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Companys Quarterly Report on
Form 10-Q, dated December 15, 1999, and incorporated herein by reference.3.2
    
    
    Certificate of Designations of 7.5% Convertible Preferred Stock, filed as Exhibit 3.1 to the Companys
Current Report on Form 8-K, dated June 18, 2002, and incorporated herein by reference.3.3
    
    
    Amended and Restated Bylaws of the Company, filed as Exhibit 3.3 to the Companys Annual Report on
Form 10-K, dated July 29, 2002, and incorporated herein by reference.10.1
    
    
    Offer of Employment Letter between the Company and Ana Dutra dated as of January 16, 2008.31.1
    
    
    Certification by Chief Executive Office pursuant to Rule 13a-14(a) under the Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350.
  25
    Table of Contents  SIGNATURE
  KORN/FERRY INTERNATIONALDate: March 11, 2008
    By:
    /s/ STEPHEN J. GIUSTOStephen J. GiustoExecutive Vice President and
Chief Financial Officer  26
    Table of Contents  EXHIBIT INDEX
 ExhibitNumber
    
    Description of Exhibit3.1
    
    
    Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Companys Quarterly Report on
Form 10-Q, dated December 15, 1999, and incorporated herein by reference.3.2
    
    
    Certificate of Designations of 7.5% Convertible Preferred Stock, filed as Exhibit 3.1 to the Companys
Current Report on Form 8-K, dated June 18, 2002, and incorporated herein by reference.3.3
    
    
    Amended and Restated Bylaws of the Company, filed as Exhibit 3.3 to the Companys Annual Report on
Form 10-K, dated July 29, 2002, and incorporated herein by reference.10.1
    
    
    Offer of Employment Letter between the Company and Ana Dutra dated as of January 16, 2008.31.1
    
    
    Certification by Chief Executive Office pursuant to Rule 13a-14(a) under the Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350.
  27